Aug 162017
 
 August 16, 2017  Posted by at 8:57 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Fred Stein Hydrant, New York 1947

 

The Greatest Crisis In World History Is About To Be Unleashed (von Greyerz)
After 100 Months of Buying The Dips – Peak Crazy (Stockman)
China Has Got To Fix Its Debt Problem, IMF Says (CNBC)
China Money Supply Growth Slips Again as Leverage Crunch Goes On (BBG)
UK Risks ‘Losing Its Place As Property-Owning Democracy’
The New American Dream: Rent Your Home From A Hedge Fund (Black)
Trump Signs Order to Speed Up Public-Works Permits (BBG)
German Challenge To ECB QE Asset Buys Sent To European Court (R.)
Washington’s Long War on Syria (Ren.)
Fish Confusing Plastic Debris In Ocean For Food (G.)

 

 

Debt leads to war.

The Greatest Crisis In World History Is About To Be Unleashed (von Greyerz)

Totally irresponsible policies by governments and central banks have created the most dangerous crisis that the world has ever experienced. Risk doesn’t arise quickly as the result of a single action or event. No, risk of the magnitude that the world is experiencing today is the result of many years or decades of economic mismanagement. Cycles are normal in nature and in the world economy. And cycles that are the result of the laws of nature normally play out in an orderly fashion without extreme tops or bottoms. “Just take the seasons. They go from summer to autumn, winter and spring, with soft transitions that seldom involve drama or catastrophe. Economic cycles would be the same if they were allowed to happen naturally without the interference of governments.

But power corrupts and throughout history leaders have always hung on to power by interfering with the normal business cycle. This involves anything from reducing the precious metals content of money from 100% to nothing, printing money, leveraging credit, manipulating interest rates, taking total taxes from at least 50% + today from nothing 100 years ago etc, etc. Governments will always fail when they believe that they are gods. But not only governments believe they perform godly tasks but also hubristic investment bankers like the ex-CEO of Goldman Sachs who proclaimed that the bank was doing God’s work. It must be remembered that Goldman, like most other banks, would have gone under if they and JP Morgan hadn’t instructed the Fed to save them by printing and guaranteeing $25 trillion. Or maybe that was God’s hand too?

We now have unmanageable risks at many levels – politically, geopolitically, economically and financially. This is a RISK ON situation that is extremely dangerous and will have very grave consequences. There are numerous risks that can all cause the collapse of the world economy and they all have equal relevance. However, the political situation in the USA is very dangerous for the world. This the biggest economy in the world, albeit bankrupt with debt growing exponentially and real deficits every year since 1960. Before the dollar has collapsed, the US will still be seen as a powerful nation, although a massive economic decline will soon weaken the country burdened by debt at all levels, government, state, and private.

Read more …

“There is absolutely no reason for the stock markets to be at current levels, let alone melting-up day after day.”

After 100 Months of Buying The Dips – Peak Crazy (Stockman)

Just call it Peak Crazy and move on. There is absolutely no reason for the stock markets to be at current levels, let alone melting-up day after day. The fact that this is happening is a measure of how impaired capital markets have become as a result of massive central bank intrusion. The robo-machines and day traders keep buying the dips because that has “worked” for the last 100 months. There is nothing more to it than residual momentum. Under a regime of honest money and price discovery, the stock market discounts the future. There is no plausible future from here that’s worth 24 times S&P 500 value or 96 times the Russell 2000. Surely the year-ahead earnings boom that Wall Street’s artists have penciled in is not in the slightest bit plausible. With 84% of the S&P 500 reporting Q2 results, LTM earnings are still 1.3% below where they were in September 2014.

Nothing has happened to corporate earnings in the last three years except deflation in the energy, materials and industrial sectors. After hitting $106 per share in September 2014, the global deflation cycle brought them to a low point of $86.44 per share in March 2016 in response to low $30s oil prices. The latter has since recovered to the $50 dollar zone – bringing S&P 500 earnings back to $104.61 during the current quarter. The question remains: How does an aging business cycle and immense global headwinds justify the expectation of a red hot earnings breakout during the next 18 months? Yet that’s what’s happening on Wall Street. We’ve hit nearly $133 per share of GAAP earnings (and $145 of the ex-items variety) for the LTM period ending in December 2018, meaning a prospective surge of 27%.

[..] In this machine driven market, any of these indices could resume their mad momentum based climb. But negative divergences are breaking out everywhere, and that’s usually a sign that the end is near. Margins on debt has again reached an all-time high of $550 billion. The chart below leaves little doubt as to what comes next. After the 2000 peak, margin debt collapsed by 50% as stocks were violently liquidated to meet margin calls. All this while in 2008 the shrinkage of margin debt was even larger – nearly 60%. This time, however, a similar shrinkage would cause a $325 billion decline in margin balances. That’s a lot of stocks on a fire sale.

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“..outstanding bank loans and total social financing, both of which rose roughly 13% in July versus the same period last year..”

China Has Got To Fix Its Debt Problem, IMF Says (CNBC)

China’s economy is looking good enough that the IMF is raising its outlook, but the organization is doing so with a strong warning over growing debt in the world’s second-largest economy. The IMF issued its annual review of China on Tuesday, and has revised its growth forecast to 6.7% for 2017, which was up from 6.2%. The organization also said it expects China to average 6.4% growth between now and 2021, versus its previous estimate of 6%. Still, the organization warned that things were far from peachy. “The growth outlook has been revised up reflecting strong momentum, a commitment to growth targets, and a recovering global economy,” the IMF said. “But this comes at the cost of further large and continuous increases in private and public debt, and thus increasing downside risks in the medium term.”

What Beijing needs to do is to seize its current strong growth momentum “to accelerate needed reforms and focus more on the quality and sustainability of growth,” said the report. At the top of that list is working to tackle the debt issue: Going forward, the IMF sees China’s non-financial sector debt to hit nearly 300% of GDP by 2022, up from around 240% last year. Debt-fueled growth, the IMF warned, is a short-term solution that isn’t sustainable in the long run unless China tackles deeper structural issues. Experts have been sounding the alarm bell over this issue for years, urging China to rein in its old model of opening credit lines to fuel investment and spending and to find a better balance between supporting growth and controlling risks to the economy.

Chinese banks extended 825.5 billion yuan (about $123.44 billion) in new loans in July, down from 1.54 trillion yuan in June. Outstanding total social financing — a broad measure of credit and liquidity — came in at 1.22 trillion yuan last month versus 1.78 trillion yuan in June. Part of the drop is seasonal, and it’s “masking an uptick in underlying credit growth,” wrote China economist Julian Evans-Pritchard at Capital Economics. A better way to look at credit creation is to gauge growth in outstanding bank loans and total social financing, both of which rose roughly 13% in July versus the same period last year.

Read more …

As long as things look good for the Party Congress, who cares?

China Money Supply Growth Slips Again as Leverage Crunch Goes On (BBG)

Growth in China’s broad money supply slipped to a fresh record low, signaling authorities aren’t letting up in their drive to curb excess borrowing and safeguard the financial system. Aggregate financing stood at 1.22 trillion yuan ($182.7 billion) in July, the People’s Bank of China said on Tuesday, compared with an estimated 1 trillion yuan in a Bloomberg survey. New yuan loans stood at 825.5 billion yuan, versus an projected 800 billion yuan. Broad M2 money supply increased 9.2%, while economists forecast a 9.5% increase . Authorities pushing to cut excess leverage have squeezed the massive shadow bank sector, which shrank for the first time in nine months. Yet with aggregate financing remaining robust and bond issuance rebounding, the central bank is still providing ample support for businesses to avoid derailing growth ahead of a key Communist Party congress this fall.

Slower M2 growth will become a “new normal,” the PBOC said Friday in its quarterly monetary policy report. “The relevance of M2 growth to the economy and its predictability has reduced, and its changes should not be over-interpreted.” “The deleveraging campaign is still focused on the financial sector, which leads to the slowdown in M2 growth,” said Yao Shaohua at ABCI Securities in Hong Kong. “Bank support for the real economy remains solid.” “The easing in credit conditions in July was probably part of the concerted stability play ahead of the Party Congress, thus more likely to be temporary,” said Yao Wei, chief China economist at Societe Generale in Paris. “We’re still looking for more deleveraging measures and tougher regulations afterwards.”

“The divergence between M2 growth and aggregate financing reflects that the PBOC is trying to balance cutting leverage while ensuring enough funds to support the real economy,” said Wen Bin at China Minsheng Banking in Beijing. “Single-digit M2 growth is likely to stretch until year-end. And with ample support from the central bank’s credit supply, the drag effect of financial deleveraging on the economic expansion will be limited.” “Banks are still creating credit, and this credit is important to support economic growth,” said Iris Pang, an analyst at ING in Hong Kong. “If liquidity is too tight, or credit growth shrinks, the whole deleveraging reform will run into the risk that there will be too many defaults and the whole banking system will be shaken up.”

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“..first-time buyer registrations drop by almost 20% on the year..”

UK Risks ‘Losing Its Place As Property-Owning Democracy’

The UK risks losing its place as a property-owning democracy if house prices continue to rise, according to the boss of the UK’s largest independent estate agent. Paul Smith, chief executive of haart, said that “unaffordability is reaching crisis point” and urged the Government to stop “excessive profiteering” at the expense of aspiring home owners. The call comes as official figures showed that the price of the average house in the UK increased by £10,000 last year to £223,000. Property values increased by 0.8% between May and June according to joint figures from the Office for National Statistics, Land Registry and other bodies. In the year to June average prices were up 4.9%, down marginally from 5% growth in the year to May.

The report released on Tuesday said the annual growth rate had slowed since mid-2016 but has remained steady at about 5% this year so far. “House prices continued to rally with unflinching determination once again in June despite the ongoing economic uncertainty,” Mr Smith said. “However this means that the average UK buyer now has to fork out an extra £10,000 more to own a home than the same time last year. “Along with consumer price hikes and falling wage growth, unaffordability is reaching a crisis point. This is creating real impact on the ground as we see first-time buyer registrations drop by almost 20% on the year across our branches.”

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“..if you’re lucky enough to not be living in your parents’ basement, you’ll be relegated to renting your house from Blackstone.”

The New American Dream: Rent Your Home From A Hedge Fund (Black)

About a month ago I joined the Board of Directors of a publicly-traded company that invests in US real estate. The position brings a lot of insight into what’s happening in the US housing market. And from what I’m seeing, the transformation that’s taking place today is extraordinary. Buying and renting out single-family homes has long been the mainstay investment of small, independent, individual investors. The big banks and hedge funds pretty much monopolize everything else. They own the stock market. They own the bond market. They own all the commercial real estate. They even own the farmland. Single-family homes were one of the last bastions of investment freedom for the little guy. (Real estate is how I got my own start in business and investing so many years ago; I was a 21-year-old Army lieutenant fresh out of the academy when I bought my first rental property.)

But all that’s changing now. Last week a huge merger was announced between Invitation Homes (owned by private equity giant Blackstone Group) and Starwood Waypoint Homes (owned by real estate giant Starwood Capital). If the deal goes through, the combined entity would be the largest owner of single-family homes in the United States with a portfolio worth over $20 billion. And this is only the latest merger in an ongoing trend. Three years ago, for example, American Homes 4 Rent bought Beazer Pre-Owned Rental Homes, creating another enormous player. A few months later, Starwood Waypoint bought Colony American Homes. And of course, Blackstone was one of the first institutional investors to start buying distressed homes, forking over around $10 billion on houses since the Great Financial Crisis.

[..] medium-sized funds are buying up all the little guys. And mega-funds like Blackstone are buying up all the medium-sized funds. This means there’s essentially an ‘arms race’ building among the world’s biggest funds to control the market, squeezing small, individual investors out of the housing market. [..] the average guy isn’t making any more money, or able to save anything… all while home prices soar to record levels as major funds gobble up the supply. This means that the new reality in America, especially for young people, is that if you’re lucky enough to not be living in your parents’ basement, you’ll be relegated to renting your house from Blackstone.

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Prolonging the emergency with America’s own bridges to nowhere.

Trump Signs Order to Speed Up Public-Works Permits (BBG)

President Donald Trump signed an executive order Tuesday that’s designed to streamline the approval process for building roads, bridges and other infrastructure by establishing “one federal decision’’ for major projects and setting an average two-year goal for permitting. “This over-regulated permitting process is a massive self-inflicted wound on our country,” Trump said in a press conference at Trump Tower in New York. “It’s disgraceful.” Among other things, the president’s order will rescind a previous decree signed by former President Barack Obama that required federal agencies to account for flood risk and climate change when paying for roads, bridges or other structures.

It also allows the Office of Management and Budget to establish goals for environmental reviews and permitting of infrastructure projects and then track their progress – with automatic elevation to senior agency officials when deadlines are missed or extended, according to the order. The order calls for tracking the time and costs of conducting environmental reviews and making permitting decisions, and it allows the budget office to consider penalties for agencies that fail to meet established milestones. Critics say there’s danger in streamlining the reviews. “This is yet another outrageous example of Trump’s insistence on putting corporate interests ahead of people’s health and safety,” said Alex Taurel, deputy legislative director with the League of Conservation Voters, a political advocacy group.

Read more …

Way too late.

German Challenge To ECB QE Asset Buys Sent To European Court (R.)

The European Central Bank may be violating laws on monetary financing in its €2.3 trillion ($2.7 trillion) asset purchase programme, Germany’s constitutional court said on Tuesday, and it asked Europe’s top court to make a ruling. In the biggest challenge yet to the ECB’s unprecedented effort to revive growth, the court said bond buys under the scheme may go beyond the bank’s mandate and inhibit euro zone members’ activities. “Significant reasons indicate that the ECB decisions governing the asset purchase programme violate the prohibition of monetary financing and exceed the monetary policy mandate of the European Central Bank, thus encroaching upon the competences of the Member States,” the court said. It said it would ask the European Court of Justice to review the programme.

The ECB acted swiftly to defend the scheme. “The extended asset purchase programme is in our opinion fully within our mandate,” it said in a statement. “That is ultimately for the European Court of Justice to assess.” It said the €60 billion per month asset buys would continue as normal. The European court has already backed the ECB’s more contentious emergency bond purchase scheme known as Outright Monetary Transactions or OMT with only relatively minor limitations, suggesting that the challenge – lodged by several academics and politicians – may face an uphill battle. The decision to pass the issue over to the ECJ means any final ruling will come either after the bond purchases end or near the end of the scheme, which has already been running for over two years and is expected to be wound down next year.

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“The same State Department Official had written of Gadaffi in Libya that combining its oil wealth with public ownership of the economy “enabled Libyans to live beyond the wildest dreams of their fathers, and grandfathers.”

Washington’s Long War on Syria (Ren.)

From Syria, to Iraq, Iran to Libya, our understandings of the long-wars in the Middle-East as moral, humanitarian interventions designed to democratise and civilise are the result of a carefully crafted propaganda campaign waged by the US and its allies. Each of these uprisings were launched by US proxies, designed to destabilize the regions, justifying regime change that suit the economic interests of its investors, banks and corporations, captured comprehensively in a new book by Canadian author and analyst, Stephen Gowans, Washington’s Long War on Syria. You might be surprised to know that both the Libyan, Syrian and Iraqi government, led by Muammar Gaddafi, Hafez Al Assad, (succeeded by Bashaar Al Assaad) and Sadaam Hussein respectively, were socialist governments. Or Ba’ath Arab Socialist governments, to be precise.

Ba’ath Arab Socialism can be summed up in their constitutions supporting the values of: ‘freedom of the Arab world, freedom from foreign powers and freedom of socialism’. Its doctrine was supported in Libya, as it was in Iraq and Syria. Of course, particularly in Hussein’s case, we cannot claim that these governments were without their problems. Ethnic cleansing is not to be overlooked, but condemned on the strongest grounds. But of course these were not the reasons the US and its allies decided to get into it. In the case of Iraq, it had combined its oil wealth with public ownership of the economy, leading to what is known as ‘The Golden Age’, where, according to a State Department Official: “Schools, universities, hospitals, factories, museums and theatres proliferated employment so universal, a labour shortage developed.”

When the Ba’ath Arab Socialists were driven from power in Iraq, the US installed military dictator, Paul El Briener who set about a ‘de-Ba’athification’ of the government, expelling every member of the Ba’ath Arab Socialist party and imposed a constitution forbidding any secular Arab leader from ever holding office in Iraq again. The same State Department Official had written of Gadaffi in Libya that combining its oil wealth with public ownership of the economy “enabled Libyans to live beyond the wildest dreams of their fathers, and grandfathers.” Gadaffi would soon be removed by Islamists, backed by NATO forces after Western oil companies agitated for his removal because he was “driving a hard bargain”. Canadian paramilitary forces even quipped that they were “al-Qaeda’s air-force”.

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And then we eat it. Carbon will kill us yet.

Fish Confusing Plastic Debris In Ocean For Food (G.)

Fish may be actively seeking out plastic debris in the oceans as the tiny pieces appear to smell similar to their natural prey, new research suggests. The fish confuse plastic for an edible substance because microplastics in the oceans pick up a covering of biological material, such as algae, that mimics the smell of food, according to the study published on Wednesday in the journal Proceedings of the Royal Society B. Scientists presented schools of wild-caught anchovies with plastic debris taken from the oceans, and with clean pieces of plastic that had never been in the ocean. The anchovies responded to the odours of the ocean debris in the same way as they do to the odours of the food they seek. The scientists said this was the first behavioural evidence that the chemical signature of plastic debris was attractive to a marine organism, and reinforces other work suggesting the odour could be significant.

The finding demonstrates an additional danger of plastic in the oceans, as it suggests that fish are not just ingesting the tiny pieces by accident, but actively seeking them out. Matthew Savoca, of the National Oceanic and Atmospheric Administration and lead author of the study, told the Guardian: “When plastic floats at sea its surface gets colonised by algae within days or weeks, a process known as biofouling. Previous research has shown that this algae produces and emits DMS, an algal based compound that certain marine animals use to find food. [The research shows] plastic may be more deceptive to fish than previously thought. If plastic both looks and smells like food, it is more difficult for animals like fish to distinguish it as not food.”

Read more …

Aug 092017
 
 August 9, 2017  Posted by at 7:56 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Fred Stein Police car, New York 1942

 

The Only Thing Keeping Italy’s Debt Alive is the ECB (DQ)
Federal Bank Regulator Drops a Bombshell as Corporate Media Snoozes (Martens)
Officials Spend Big In The Run Up To China’s Communist Party Congress (BBG)
China Is Taking on the ‘Original Sin’ of Its Mountain of Debt (BBG)
Jeff Gundlach Predicts He Will Make 400% On Bet Against Stock Market (CNBC)
Our Broken Economy, in One Simple Chart (NYT)
The Economic Crash, Ten Years On (Pettifor)
Opioid Deaths In US Break New Record: 100 People A Day (RT)
New Hampshire Sues Purdue Pharma Over Opioid Marketing Practices (R.)
Americans Are Dying Younger, Saving Corporations Billions (BBG)
Unlearning The Myth Of American Innocence (G.)
EU Nations Start Process Of Returning Refugees, Migrants To Greece (AP)

 

 

As Trump sinks into opioids and nuke threats (talking to Kim in his own language, and no, Trump does not like the Korea thing), and Google sinks into its self-dug moral morass, let’s not forget this one thing: we would not have what poses as an economy if not for central banks buying anything not bolted down. And they cannot keep doing that. And what then?

“At current government debt net issuance rates and announced QE levels, the ECB will have been responsible for financing 100% of Italy’s deficits from 2014 to 2019”

The Only Thing Keeping Italy’s Debt Alive is the ECB (DQ)

New statistical data from the investment bank Jefferies LLC has revealed a startling new trend that could have major implications for Europe’s economic future: Italian banks have begun dumping unprecedented volumes of Italian sovereign debt. Holdings of government debt by Italian financial institutions slumped by a record €20 billion in June – almost 10% of the total – after €9.4 billion of sales in May. As the FT reports, the selling by Italian banks is the most emphatic example yet of a broader trend: banks sold €46 billion of government paper in June across Europe, taking the total reduction since the start of this year to €257 billion. The banks’ mass sell-off is probably being driven by two main factors: first, as an attempt to preempt a pending Basel III reform package that could eliminate the equity capital privilege for EU government bonds and second, to position themselves for an anticipated autumn announcement from the ECB that it will begin tightening monetary policy.

“Maybe we are seeing an indication of Italian banks catching up with what their counterparts in Spain have known for a long time – that sovereign debt is not the place to be in a world of rising interest rates, said Jefferies’ senior European economist, Marchel Alexandrovich. But then: who’s buying it? The answer, in the case of Italy, is the ECB and its Italian branch office, the Bank of Italy, where Italian bank deposits rose by €22 billion in June and €50 billion since the start of 2017. The ECB “overbought” Italian government debt in July with purchases of €9.6 billion — its highest monthly quota since quantitative easing began. As Italian banks offload their holdings, the ECB, with Italian native and former Bank of Italy governor Mario Draghi at the helm, is picking up the slack.

In doing so, the central bank surpassed its own capital key rules by which member state debt is bought in proportion to the size of each country’s economy. By contrast, the ECB’s German Bund purchases slipped below its capital key rules for the fourth month in a row, which further depressed the spread between Italian and German 10-year debt to 152 basis points, its lowest level of the year. This spread is artificial, derived from the ECB’s binge buying of European sovereign bonds, particularly those belonging to countries on the periphery. A report published in May by Astellon Capital revealed that since 2008, 88% of Italy’s government debt net issuance was acquired by the ECB and Italian Banks. At current government debt net issuance rates and announced QE levels, the ECB will have been responsible for financing 100% of Italy’s deficits from 2014 to 2019. That was before taking into account the current sell-down of Italian bonds by Italian banks.

Read more …

As central banks buy 100% of a country’s new debt, US banks pay out more than 100% of earnings, and “share buybacks represent 72% of the total payouts for the 10 largest bank holding companies”. What better way to characterize a non-functioning economy?

Federal Bank Regulator Drops a Bombshell as Corporate Media Snoozes (Martens)

Last Monday, Thomas Hoenig, the Vice Chairman of the Federal Deposit Insurance Corporation (FDIC), sent a stunning letter to the Chair and Ranking Member of the U.S. Senate Banking Committee. The letter contained information that should have become front page news at every business wire service and the leading business newspapers. But with the exception of Reuters, major corporate media like the Wall Street Journal, Bloomberg News, the Business section of the New York Times and Washington Post ignored the bombshell story, according to our search at Google News. What the fearless Hoenig told the Senate Banking Committee was effectively this: the biggest Wall Street banks have been lying to the American people that overly stringent capital rules by their regulators are constraining their ability to lend to consumers and businesses.

What’s really behind their inability to make more loans is the documented fact that the 10 largest banks in the country “will distribute, in aggregate, 99% of their net income on an annualized basis,” by paying out dividends to shareholders and buying back excessive amounts of their own stock. Hoenig writes that the banks are starving the U.S. economy through these practices and if “the 10 largest U.S. Bank Holding Companies were to retain a greater share of their earnings earmarked for dividends and share buybacks in 2017 they would be able to increase loans by more than $1 trillion, which is greater than 5% of annual U.S. GDP.” Backing up his assertions, Hoenig provided a chart showing payouts on a bank-by-bank basis. Highlighted in yellow on Hoenig’s chart is the fact that four of the big Wall Street banks are set to pay out more than 100% of earnings: Citigroup 127%; Bank of New York Mellon 108%; JPMorgan Chase 107% and Morgan Stanley 103%.

What’s motivating this payout binge at the banks? Hoenig doesn’t offer an opinion in his letter but he does state that share buybacks represent 72% of the total payouts for the 10 largest bank holding companies. What share buybacks do for top management at these banks is to make the share price of their bank’s stock look far better than it otherwise would while making themselves rich on their stock options. If just the share buybacks (forgetting about the dividend payouts) were retained by the banks instead of being paid out, the banks could “increase small business loans by three quarters of a trillion dollars or mortgage loans by almost one and a half trillion dollars.” Hoenig also urged in his letter that there be a “substantive public debate” on what the biggest banks are doing with their capital rather than allowing this “critical” issue to be “discussed in sound bites.” Most corporate media responded to this appeal by ignoring Hoenig’s letter altogether.

Read more …

They all want to show nice numbers at the Congress. Shadow banks lend them the money to do it. In exchange for power.

Officials Spend Big In The Run Up To China’s Communist Party Congress (BBG)

In the run up to China’s blockbuster Communist Party congress later this year, officials have spent big to ensure the economy is humming along nicely when the conclave begins. It’s after that that things get interesting. With the central government’s deficit limit capped at 3%, officials usually turn on the taps around November and December, once they know they’ll have raised enough to fund a late-year splurge. Not this time. A push to smooth out spending means the fiscal pump is unlikely to go into high gear at year end, which is when economists see growth moderating toward the government’s baseline of 6.5%. While policy makers have quasi-fiscal options up their sleeve – like accelerating infrastructure project approvals or ratcheting up lending via policy banks – efforts to curb profligate local governments and limit debt may restrain those channels too.

“It’s China’s political-business cycle: this year is very important for the political transition, so they front-loaded fiscal spending to ensure a stable economic backdrop,” Larry Hu, head of China economics at Macquarie in Hong Kong. “China’s economy has a fiscal system and a shadow fiscal system. If growth really slows to threaten the target, then we’re going to see spending.” The question is, how much. China ran a fiscal deficit of 918 billion yuan ($137 billion) in the first half, or more than 2% of economic output during the period, Bloomberg calculations show. That’s a record both by value and share. The spending fueled better-than-expected economic growth of 6.9% in the first six months, and infrastructure investment surging at over 20%.

China International Capital Corp. analysts led by Liu Liu say the budgeted deficit will be 1.46 trillion yuan in the second half, versus 2.46 trillion yuan in the same period last year. The world’s second-largest economy still depends on government spending at all levels, as construction of things like roads and railways can be a key buffer when private investors start pulling back or, as now, political sensitivities make robust growth especially important. But those priorities are now clashing with the need to clamp down on indebtedness at lower levels of government, and the desire to avoid a year-end spending glut. In the past, officials have been able to use off-balance sheet spending, such as policy bank loans and funds raised through local government financing vehicles, to keep their deep pockets open.

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It’s starting to feel increasingly like a big fat Ponzi.

China Is Taking on the ‘Original Sin’ of Its Mountain of Debt (BBG)

China’s much-vaunted campaign to tackle its leverage problem has captured headlines this year. But to understand why they’re taking on the challenge – and the threat it could pose to the world’s second-largest economy – you need to dig into the mountain. Characterized in state media as the “original sin” of China’s financial system, leverage has swelled over the past decade – partly because policy makers were trying to cushion a slowdown in growth from the old normal of 10% plus. What’s fueled the leverage has been a rapid expansion in household and corporate wealth looking for higher returns in a system where bank interest rates have been held down. The unprecedented stimulus unleashed since 2008 effectively brought to life the “monster” China’s leadership is now trying to tackle, says Andrew Collier at Orient Capital Research in Hong Kong and author of “Shadow Banking and the Rise of Capitalism in China.”

Implicit backing from the central government meant borrowers had free license to take on debt. “You basically have anybody selling anything they want as they think they can’t lose,” Collier said. Deleveraging – championed by President Xi Jinping and the Communist Party Politburo in April – hasn’t truly begun, as “they’re trying to forestall the pain as long as possible,” he said. The equivalent of trillions of dollars are now held in all manner of assets in China, from high-yielding wealth management products to so-called entrusted investments. Taking the heftiest piece of the leverage mountain first, wealth management products had a precipitous rise over the past several years.

A way for borrowers who have trouble getting traditional bank loans to win funding, WMPs have grown in popularity as they typically offer savers much higher yields than banks offer on deposits. WMPs are also a hit because they give lenders a way to keep loans off of their balance sheets, and to skirt regulatory requirements when channeling funds to borrowers, according to Raymond Yeung at Australia & New Zealand Banking in Hong Kong. The regulatory crackdown this year — mostly in the form of more stringent guidelines on use of financial products — has seen the amount of WMPs outstanding taper off from a peak in April, while yields on them have surged as providers competed for funds. In July, the bank watchdog is said to have told some lenders to cut the rates they offered on the products.

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“It’s not really a bear call on the S&P 500. It’s more of a bull call on volatility..”

Jeff Gundlach Predicts He Will Make 400% On Bet Against Stock Market (CNBC)

DoubleLine CEO Jeffery Gundlach expects his bet for a decline in the S&P 500 will return 400%. “I’ll be disappointed if we don’t make 400% on the puts, and we don’t even need a big market decline for that to happen,” Gundlach said Tuesday on CNBC’s “Halftime Report.” He said that in his firm’s analysis, volatility is so low that it can make a big return by buying put options — bets for a decline — on the S&P 500 for December. “It’s not really a bear call on the S&P 500. It’s more of a bull call on volatility,” he said. In its slow grind higher, the S&P 500 has only closed more than 1% higher or lower on four trading days this year.

As a result of the muted market performance, the CBOE Volatility Index (.VIX), widely considered the best gauge of fear in the market, has persistently held near historical lows around 10 or below this year and hit an all-time low of 8.84 on July 26. The VIX was near 10.1 midday Tuesday as the S&P 500 edged up to a record high. “I think going long the VIX is really sort of free money at a 9.80 VIX level today,” Gundlach said. “I believe the market will drop 3% at a minimum sometime between now and December. And when it does I don’t think the VIX will be at 10.” Gundlach reiterated his expectations for a snap higher in the VIX once volatility picks up, since hedge funds have piled heavily into bets that volatility will remain low.

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OK, got it. Now what?

Our Broken Economy, in One Simple Chart (NYT)

Many Americans can’t remember anything other than an economy with skyrocketing inequality, in which living standards for most Americans are stagnating and the rich are pulling away. It feels inevitable. But it’s not. A well-known team of inequality researchers — Thomas Piketty, Emmanuel Saez and Gabriel Zucman — has been getting some attention recently for a chart it produced. It shows the change in income between 1980 and 2014 for every point on the distribution, and it neatly summarizes the recent soaring of inequality.= The line on the chart (which we have recreated as the red line above) resembles a classic hockey-stick graph. It’s mostly flat and close to zero, before spiking upward at the end. That spike shows that the very affluent, and only the very affluent, have received significant raises in recent decades.

This line captures the rise in inequality better than any other chart or simple summary that I’ve seen. So I went to the economists with a request: Could they produce versions of their chart for years before 1980, to capture the income trends following World War II. You are looking at the result here. The message is straightforward. Only a few decades ago, the middle class and the poor weren’t just receiving healthy raises. Their take-home pay was rising even more rapidly, in%age terms, than the pay of the rich. The post-inflation, after-tax raises that were typical for the middle class during the pre-1980 period — about 2% a year — translate into rapid gains in living standards. At that rate, a household’s income almost doubles every 34 years. (The economists used 34-year windows to stay consistent with their original chart, which covered 1980 through 2014.)

In recent decades, by contrast, only very affluent families — those in roughly the top 1/40th of the income distribution — have received such large raises. Yes, the upper-middle class has done better than the middle class or the poor, but the huge gaps are between the super-rich and everyone else. The basic problem is that most families used to receive something approaching their fair share of economic growth, and they don’t anymore.

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Nice try, Ann. But people have no political power left. Just look at the mess that all parties are in, in both the UK and US. So are you going to break the power of finance?

The Economic Crash, Ten Years On (Pettifor)

Challenging and dismantling gargantuan financial markets that operate beyond democratic regulatory oversight will not be easy, but it is long overdue. Some believe that the management of financial markets by governments will never be restored. I do not agree. Because of global imbalances, economic and financial tensions could lead to the onset of wars. These could dismantle global financial markets just as the two world wars did. There is a more peaceful way of restoring finance to the role of servant to, and not master of, economies and regions. For that to happen the public must realise that citizens can exercise economic power over global financial markets. The global ‘House of Finance’ is almost entirely dependent, and indeed largely parasitic, on the public sector. In other words, private finance is largely dependent for its capital gains on taxpayers like you and me.

Commercial banks do not need savings or tax revenues to lend. All they need is to provide finance to viable projects that will generate employment and income in the future – which will repay the loans. The most viable projects today are those needed to protect Britain from climate change. Any government with political spine would have insisted that the banks lend, at low affordable rates, to transformative projects in the real, productive economy where jobs are created, income generated, and society protected. And if shareholders and executives object to such conditions, then politicians should withdraw access to the Bank of England’s QE and low interest rates, and to government guarantees for deposits.

Quantitative easing – the creation of liquidity currently directed only at the financial sector – is only possible because central banks, if not directly publicly owned, are dependent for their legitimacy and money-creation powers, on taxpayers. The Federal Reserve is ultimately backed by US taxpayers. The Bank of England is a nationalised bank, whose authority is derived from Britain’s 31 million-plus taxpayers.

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” ..in 2015, the amount of opioids prescribed in the US was enough for every American to be medicated around the clock for three weeks.”

Opioid Deaths In US Break New Record: 100 People A Day (RT)

The first nine months of 2016 saw a sharp increase in opioid drug overdoses in the US compared to the prior year, according to new data by the National Center for Health Statistics (NCHS). The government is struggling to respond to the crisis. Deaths due to drug overdose peaked in the third quarter of last year – 19.7 cases for every 100,000 people, compared to 16.7 in the same period the year before, according to newly released numbers from the NCHS, which is part of the US Centers for Disease Control and Prevention (CDC). The Centers attributed 33,000 deaths in 2015 to opioid drugs, including legal prescription painkillers as well as illicit drugs like heroin and street fentanyl. “Opioid prescribing continues to fuel the epidemic. Today, nearly half of all US opioid overdose deaths involve a prescription opioid,” according to the CDC.

A new study published in the American Journal of Preventive Medicine says actual opioid mortality rate changes are on average 22% higher than federal statistics indicate, due to information missing from CDC records. “Opioid mortality rate changes were considerably understated in Pennsylvania, Indiana, New Jersey and Arizona,” said the study’s author, Dr. Christopher Ruhm, a health economist at the University of Virginia. Top US officials have consistently raised the alarm about the addiction crisis in the US, but a solution is yet to be found. [..] Last week, the Trump-appointed commission on combating the drug addiction crisis in America called on the president to declare “a national emergency.”

After the meeting with Trump on Tuesday, Price said the administration will act without such a declaration. “Here is the grim reality,” the commission wrote in their letter to Trump. “Americans consume more opioids than any other country in the world. In fact, in 2015, the amount of opioids prescribed in the US was enough for every American to be medicated around the clock for three weeks.”

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And this is how the opioid disaster started, and still rolls on. Easy fix (pun intended), but who’s going to do it?

New Hampshire Sues Purdue Pharma Over Opioid Marketing Practices (R.)

New Hampshire sued OxyContin maker Purdue Pharma LP on Tuesday, joining several state and local governments in accusing the drugmaker of engaging in deceptive marketing practices that have helped fuel a national opioid addiction epidemic. The lawsuit filed in Merrimack County Superior Court claimed that Purdue Pharma significantly downplayed the risk of addiction posed by OxyContin and engaged in marketing practices that “opened the floodgates” to opioid use and abuse. The lawsuit came after the state’s top court in June overturned a ruling that barred the enforcement of subpoenas against Purdue and four other drugmakers because of the use of a private law firm by the office of the attorney general.

The complaint said the Stamford, Connecticut-based company had spent hundreds of millions of dollars since the 1990s on misleading marketing that overstated the benefits of opioids for treating chronic, rather than short-term, pain. Purdue and three executives in 2007 pleaded guilty to federal charges related to the misbranding of OxyContin, and agreed to pay a total of $634.5 million to resolve a U.S. Justice Department probe. That year, the privately held company reached a $19.5 million settlement with 26 states and the District of Columbia. It agreed in 2015 to pay $24 million to resolve a lawsuit by Kentucky. The lawsuit by New Hampshire, which was not among those settled, said Purdue has continued to benefit from its earlier misconduct and has since 2011 expanded the market for opioids in the state.

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No wonder with the opioid cases.

Americans Are Dying Younger, Saving Corporations Billions (BBG)

Steady improvements in American life expectancy have stalled, and more Americans are dying at younger ages. But for companies straining under the burden of their pension obligations, the distressing trend could have a grim upside: If people don’t end up living as long as they were projected to just a few years ago, their employers ultimately won’t have to pay them as much in pension and other lifelong retirement benefits. In 2015, the American death rate—the age-adjusted share of Americans dying—rose slightly for the first time since 1999. And over the last two years, at least 12 large companies, from Verizon to General Motors, have said recent slips in mortality improvement have led them to reduce their estimates for how much they could owe retirees by upward of a combined $9.7 billion, according to a Bloomberg analysis of company filings.

“Revised assumptions indicating a shortened longevity,” for instance, led Lockheed Martin to adjust its estimated retirement obligations downward by a total of about $1.6 billion for 2015 and 2016, it said in its most recent annual report. Mortality trends are only a small piece of the calculation companies make when estimating what they’ll owe retirees, and indeed, other factors actually led Lockheed’s pension obligations to rise last year. Variables such as asset returns, salary levels, and health care costs can cause big swings in what companies expect to pay retirees. The fact that people are dying slightly younger won’t cure corporate America’s pension woes—but the fact that companies are taking it into account shows just how serious the shift in America’s mortality trends is.

It’s not just corporate pensions, either; the shift also affects Social Security, the government’s program for retirees. The most recent data available “show continued mortality reductions that are generally smaller than those projected,” according to a July report from the program’s chief actuary. Longevity gains fell short of what was projected in last year’s report, leading to a slight improvement in the program’s financial outlook. [..] Absent a war or an epidemic, it’s unusual and alarming for life expectancies in developed countries to stop improving, let alone to worsen. “Mortality is sort of the tip of the iceberg,” says Laudan Aron, a demographer and senior fellow at the Urban Institute. “It really is a reflection of a lot of underlying conditions of life.” The falling trajectory of American life expectancies, especially when compared to those in some other wealthy countries, should be “as urgent a national issue as any other that’s on our national agenda,” she says.

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Not sure where this article aims to go, but Americans entering another dimension is a nice starting point.

Unlearning The Myth Of American Innocence (G.)

I grew up in Wall, a town located by the Jersey Shore, two hours’ drive from New York. Much of it was a landscape of concrete and parking lots, plastic signs and Dunkin’ Donuts. There was no centre, no Main Street, as there was in most of the pleasant beach towns nearby, no tiny old movie theatre or architecture suggesting some sort of history or memory. Most of my friends’ parents were teachers, nurses, cops or electricians, except for the rare father who worked in “the City”, and a handful of Italian families who did less legal things. My parents were descendants of working-class Danish, Italian and Irish immigrants who had little memory of their European origins, and my extended family ran an inexpensive public golf course, where I worked as a hot-dog girl in the summers. The politics I heard about as a kid had to do with taxes and immigrants, and not much else. Bill Clinton was not popular in my house. (In 2016, most of Wall voted Trump.)

We were all patriotic, but I can’t even conceive of what else we could have been, because our entire experience was domestic, interior, American. We went to church on Sundays, until church time was usurped by soccer games. I don’t remember a strong sense of civic engagement. Instead I had the feeling that people could take things from you if you didn’t stay vigilant. Our goals remained local: homecoming queen, state champs, a scholarship to Trenton State, barbecues in the backyard. The lone Asian kid in our class studied hard and went to Berkeley; the Indian went to Yale. Black people never came to Wall. The world was white, Christian; the world was us. We did not study world maps, because international geography, as a subject, had been phased out of many state curriculums long before. There was no sense of the US being one country on a planet of many countries. Even the Soviet Union seemed something more like the Death Star – flying overhead, ready to laser us to smithereens – than a country with people in it.

I have TV memories of world events. Even in my mind, they appear on a screen: Oliver North testifying in the Iran-Contra hearings; the scarred, evil-seeming face of Panama’s dictator Manuel Noriega; the movie-like footage, all flashes of light, of the bombing of Baghdad during the first Gulf war. Mostly what I remember of that war in Iraq was singing God Bless the USA on the school bus – I was 13 – wearing little yellow ribbons and becoming teary-eyed as I remembered the video of the song I had seen on MTV. “And I’m proud to be an American; Where at least I know I’m free”. That “at least” is funny. We were free – at the very least we were that. Everyone else was a chump, because they didn’t even have that obvious thing. Whatever it meant, it was the thing that we had, and no one else did. It was our God-given gift, our superpower.

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Because Greece has the absolutely worst accomodations for them.

EU Nations Start Process Of Returning Refugees, Migrants To Greece (AP)

European Union countries have begun the process of sending migrants who arrived in Europe via Greece over the last five months back to have their asylum applications assessed there. EU rules oblige migrants to apply for asylum in the country they first enter. But the rules were suspended as hundreds of thousands of people, many of them Syrian refugees, entered Greece in 2015. The European Commission recommended in December that EU countries gradually resume transfers to Greece of unauthorized migrants arriving from March 15 onwards. “Some member states have made requests but transfers have not begun. Greece has to give assurances that they have adequate reception conditions,” European Commission spokeswoman Tove Ernst said Tuesday.

“Reception conditions in Greece have significantly improved since last year, which is why the Commission recommended a gradual resumption of transfers,” she said. The recommendation is not binding on EU countries. Greece’s asylum service says requests have been made to return more than 400 migrants. Seven requests have been accepted so far. In Athens, Greece’s migration minister said the returns would involve “tiny numbers.” “We will accept a few dozen people in coming months,” Yiannis Mouzalas told private Skai TV Tuesday. “This will be done provided we have the proper conditions to receive them.” Mouzalas said it was a “symbolic move” dictated by Greece’s EU obligations.

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Aug 082017
 
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Vincent van Gogh Tree Roots 1890 (painted July 28, the day before he died)

 

That Whoosh You Heard? It’s The Great Chinese Property Pullback (BBG)
Has China’s Rise Topped Out? (BBG)
Credit Card Debt; Student, Auto Loans All Set New Record Highs (ZH)
Asking Prices Slashed At High End of the House Price Bubble (WS)
Is Trump Winning? (Robert Gore)
Jeff Sessions Endorses Theft (Ron Paul)
Just Wait a Little While (Jim Kunstler)
Fossil Fuel Subsidies Are A Staggering $5 Trillion Per Year (G.)
Bernie Sanders Tells Big Pharma: Stop Making Americans Pay Twice
Call For ‘Military Schengen’ To Get NATO Troops Moving (Pol.)
Erdogan Says Turkey To Tackle – US-Supported – Kurds In Syria (R.)
Greece Accepts Resettlement of Refugees from Germany (GR)

 

 

China needs foreign reserves. It needs to stop bleeding them.

That Whoosh You Heard? It’s The Great Chinese Property Pullback (BBG)

That whoosh you just heard? It’s Chinese money pulling back from property in London to Sydney to New York. Capital centres globally should brace for tumbling real-estate prices as Beijing manages to do what Brexit and higher interest rates haven’t. Reflecting tighter regulations, China overseas direct property investment could drop 84% to $US1.7 billion ($2.15 billion) this year and about another 15% to $US1.4 billion in 2018, according to Morgan Stanley. Mainland money began piling into offshore commercial property in 2013. Land prices were expensive at home, and investors wanted to find a hedge against a weakening yuan. Another draw was the prospect of higher returns in cities such as Sydney where yield spreads – the difference between rental yields and what government bonds pay – are higher.

A slumping British pound post June 2016’s Brexit vote helped, too. While some marquee transactions are still being inked – think the purchase earlier this year of London’s “Cheesegrater” tower by Chongqing-based, Hong Kong-listed CC Land Holdings – their numbers are dwindling. A strengthening yuan, along with China’s One Belt One Road initiative that needs funding, will see many property deals dry up. Over the past few months, Beijing has made it tougher to get money out, clamped down on more fanciful transactions such as the buying of football clubs and luxury hotels, and is now going after some of the country’s most prolific acquirers. Dalian Wanda Group, Anbang Insurance Group, HNA Group and Fosun International have all included real estate in their global buying binges.

Against that backdrop, and with increasing foreign-government scrutiny thrown into the mix, it’s hard to see how Chinese offshore real estate acquisitions can continue at such a pace. Domestic developers are already finding it harder to tap international debt markets, and have been resorting to short-term securities instead. This matters because Chinese capital accounted for one-quarter of commercial property transactions in central London last year, up from 1% a decade ago. China is now the second-largest foreign investor in the US after Canada, and is responsible for between 12 and 25% of all office transactions by value in Australia over the past two to three years.

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Again, China needs foreign reserves: “Nowhere is the disconnect between China’s global ambitions and actual policy greater than with the government’s interference in overseas direct investment.”

Has China’s Rise Topped Out? (BBG)

Most people around the world still seem to believe China’s ascent is relentless and inevitable. A recent survey by the Pew Research Center showed that while more of those polled still see the U.S. as the world’s leading economy, China is quickly narrowing the gap. Chinese President Xi Jinping has been feeding that positive image by presenting his country as a champion of globalization, trade and economic progress. Statistics tell a different story. The common perception is that China is swamping the world with exports of everything from mobile phones to steel to sneakers. In fact, the entire Chinese export machine is sputtering. Between 2006 and 2011, China’s total merchandise exports nearly doubled, powering the country through the Great Recession. Since then, they’ve increased less than 11%, according to World Trade Organization data.

The same trend holds for China’s currency. In late 2014, the renminbi broke into the top five most-used currencies for global payments, reaching an almost 2.2% share. China seemed well on the way to achieving its long-stated goal of turning the yuan into a true rival to the dollar. But that progress has reversed. In June, the renminbi chalked up only a 2% share, according to Swift, slipping behind the Canadian dollar. The situation isn’t very different in China’s capital markets. While the government has cracked open its stock and bond markets to foreign investors, they still prefer buying Chinese shares listed in Hong Kong or New York to those in Shanghai or Shenzhen. For instance, domestically traded A-shares in a China equities fund managed by Zurich-based GAM account for less than 10% of its holdings.

In part, China is simply running into the difficult transition every country faces when losing its low-cost advantage. Facing stiff competition from countries like India and Vietnam, where wages are lower, China is losing ground in apparel and textile exports to the United States. Meanwhile, the Chinese economy isn’t replacing these traditional exports with new, high-value ones quickly enough. For example, in 2016, China exported 708,000 passenger and commercial vehicles, a sharp deterioration from the more than 910,000 shipped abroad in 2014. Rather than boosting China’s global expansion, government policy is holding it back. The renminbi remains a sideshow in currency markets because the state can’t stop fussing with its value. In May, the central bank actually reversed its stated policy to liberalize the renminbi’s trading and imposed more control.

[..] Nowhere is the disconnect between China’s global ambitions and actual policy greater than with the government’s interference in overseas direct investment. For a while, officials were encouraging big companies to shop abroad, resulting in a surge of deal-making by firms like Anbang. That led to a debt-crazed buying binge. Having created the problem, the government then stepped in to “fix” it, by suddenly changing course and clamping down on foreign deals. According to the American Enterprise Institute, China’s offshore investment still grew by 9% in the first half of 2017, but only because of one giant deal – state-owned China National Chemical Corp.’s acquisition of Syngenta AG. Take that one out, and overseas investment would have fallen by about a third.

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Masters and debt slaves.

Credit Card Debt; Student, Auto Loans All Set New Record Highs (ZH)

Who would have expected that today’s otherwise boring monthly consumer credit report would be the day’s most exciting event. Well, moments ago the monthly update from the Federal Reserve confirmed that as of the end of June, total revolving (i.e. credit card) credit rose to $1,021.7 billion, an increase of $4.1 billion on the month, and a new all time high, taking out the previous record high set during the summer of 2008.

Coupled with the monthly $8.3 billion increase in non-revolving credit, which also rose to an all time high of $2,834.1 billion…

… means that total consumer credit in June increased by $12.4 billion, slightly less than the $13.9 billion expected and modestly less than the $18.4 billion increase in May, to $3,855.8 billion, also a record high.

Taking a closer look at the quarterly update in non-revolving debt, we find that for another consecutive quarter, both student and auto loans hit record highs, of $1.450 trillion and $1.131 trillion respectively, although there does appears to be a modest slowdown in credit issuance for these two largest categories.

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“Aspirational pricing”: pumping the market.

Asking Prices Slashed At High End of the House Price Bubble (WS)

No, Cantor Fitzgerald CEO Howard Lutnick didn’t “save” $81 million when he bought the most expensive listing in New York City, the 12,000-square-foot, 16-room triplex penthouse on the 41st, 42nd, and 43rd floors of The Pierre, a co-op tower on Fifth Avenue dating from 1930s. By the way, the owner also pays monthly maintenance charges for the apartment of $51,840). Asking price was $125 million when it was first listed in March 2013. In December that year, the price was slashed to $95 million. In 2015, it was cut to $63 million. That’s half of the original asking price. But it still didn’t sell. So it was taken off the market. After it underwent a modern redesign, it was re-listed in April 2016 for $57 million. It still didn’t sell. But on August 2, Page Six reported that Lutnick bought it for $44 million. At 65% below asking.

“Cantor Fitzgerald CEO buys iconic triplex at $81M discount,” said the Page Six headline. “Best Real Estate Headline Ever,” said Jonathan Miller, real-estate appraiser and author of the Elliman Report series, in his Housing Notes. Miller has a word for this phenomenon of enormous blue-sky asking prices that trigger subsequent massive and serial price reductions until finally someone bites: “Aspirational pricing.” “The very idea that a home seller would discount their home by $81 million to make the sale is an insane thought. This speaks to the concept I call “aspirational pricing.” The asking price was set to a price so ridiculous that it would literally sit on the market for years and the market would unlikely catch up in a lifetime. More importantly, it serves as misdirection for other high-end properties coming to the market by influencing them to also wildly over price as well.”

The 6,800-square-foot fully furnished penthouse occupying the top floor of the beachfront condo tower at 321 Ocean in South Beach, Miami Beach, was listed for sale in December 2015 for $53 million. The sellers had bought it when the building was completed six months earlier, for $20 million. “Financier Aims for Ambitious $53 Million Miami Penthouse Flip,” The Wall Street Journal said at the time. The hopeful flippers are Boris Jordan and Elizabeth Jordan: Founder of the private-equity and advisory firm the Sputnik Group, Mr. Jordan previously served as chief executive of the state-controlled Russian media conglomerate Gazprom-Media, and as head of the Russian television network NTV. But the hot air has come out of the condo market in Miami Beach. In the second quarter, after years of soaring, the median sale price for non-distressed condos dropped 7.5%, and the average price plunged 15.2%, according to the Elliman Report.

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A different look.

Is Trump Winning? (Robert Gore)

We’ve asserted that President Trump is far smarter and the powers that be far stupider and weaker than current consensus estimates. Trump’s primary motivation is power. The nonstop vilification campaign against him has little to do with policy differences and instead reflects establishment fears that Trump will investigate, expose, and punish its criminality. The upshot of these hypotheses: Trump is winning and has consolidated his power. [..] Even the Washington Post has admitted the Russia probe is “crumbling.” Trump and Sessions know Special Prosecutor Robert Mueller won’t find much because there’s nothing there, although there may be a sacrificial offering or two to propitiate the investigatory gods.

Trump read Sessions the riot act via Twitter and a Wall Street Journal interview about not investigating Hillary Clinton, intelligence community leaks to the press, and Ukrainian efforts to sabotage his presidential campaign. He’s been roundly condemned for publicly criticizing Sessions, but here’s a speculative leap: perhaps publicly criticizing Sessions was not really what Trump was doing. Perhaps Trump was giving his attorney general political cover to pursue investigations against high-profile Democrats who cannot help Trump, sub rosa or otherwise. Investigations of Hillary Clinton, former Attorney General Loretta Lynch, Susan Rice, Samantha Power, Fusion GPS, and Debbie Wasserman Schultz would demoralize the Democrats, preoccupy and harass key players, expose criminality, and electrify Trump’s base.

Providing Sessions further cover, twenty Republican representatives have sent a letter to the Attorney General and Deputy Attorney General Rod Rosenstein demanding the appointment of a second Special Counsel to look into potentially illegal acts by Clinton, Lynch, and former FBI director James Comey. After recusing himself from the Russiagate investigation, which he knows is pointless, and being “scolded” by Trump, Sessions is now a sympathetic, squeaky-clean figure; even Democrats have expressed support. He has far more latitude to pursue the investigations his boss wants him to pursue. Most of the ensuing criticism will be directed at Trump, which will bother Trump not at all (although there will undoubtedly be answering Twitter blasts).

Trump has quietly (when Trump does anything quietly, take note) made two sea changes in US policy in Syria. At the G20 summit, he negotiated a cease fire with Vladimir Putin for southwest Syria. Last week he ended a CIA program that armed Syrian jihadists fighting Bashar al-Assad’s regime. Both changes are anathema to the US Deep State, the mainstream media, and US allies Saudi Arabia, the Gulf States, Israel, and Turkey, yet other than “rote denunciation,” they have been surprisingly docile. The latter change could presage abandonment of a pillar of US foreign and military policy since President Carter supplied arms and other aid to the mujahideen in Afghanistan during their successful fight against the Soviet Union. The US may be out of the business of arming Islamic insurgents against regimes it seeks to change.

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Another look, different from the last one.

Jeff Sessions Endorses Theft (Ron Paul)

Attorney General Jeff Sessions recently ordered the Justice Department to increase the use of civil asset forfeiture, thus once again endorsing an unconstitutional, authoritarian, and increasingly unpopular policy. Civil asset forfeiture, which should be called civil asset theft, is the practice of seizing property believed to be involved in a crime. The government keeps the property even if it never convicts, or even charges, the owner of the property. Police can even use civil asset theft to steal from people whose property was used in criminal activity without the owners’ knowledge. Some have even lost their homes because a renter or houseguest was dealing drugs on the premises behind the owners’ backs. Civil asset theft is a multi-billion dollar a year moneymaker for all levels of government.

Police and prosecutors receive more than their “fair share” of the loot. According to a 2016 study by the Institute for Justice, 43 states allow police and prosecutors to keep at least half of the loot they got from civil asset theft. Obviously, this gives police an incentive to aggressively use civil asset theft, even against those who are not even tangentially involved in a crime. For example, police in Tenaha, Texas literally engaged in highway robbery — seizing cash and other items from innocent motorists — while police in Detroit once seized every car in an art institute’s parking lot. The official justification for that seizure was that the cars belonged to attendees at an event for which the institute had failed to get a liquor license. The Tenaha police are not the only ones targeting those carrying large sums of cash.

Anyone traveling with “too much” cash runs the risk of having it stolen by a police officer, since carrying large amounts of cash is treated as evidence of involvement in criminal activity. Civil asset theft also provides an easy way for the IRS to squeeze more money from the American taxpayer. As the growing federal debt increases the pressure to increase tax collections without raising tax rates, the IRS will likely ramp up its use of civil asset forfeiture. Growing opposition to the legalized theft called civil asset forfeiture has led 24 states to pass laws limiting its use. Sadly, but not surprisingly, Attorney General Jeff Sessions is out of step with this growing consensus. After all, Sessions is a cheerleader for the drug war, and civil asset theft came into common usage as a tool in the drug war. President Trump could do the American people a favor by naming a new attorney general who opposes police state policies like the drug war and police state tactics like civil asset theft.

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“We’ll use every kind of duct tape and baling wire we can find to keep the current systems operating, and we have..”

Just Wait a Little While (Jim Kunstler)

The authorities in this nation, including government, business, and academia, routinely lie about our national financial operations for a couple of reasons. One is that they know the situation is hopeless but the consequences are so awful to contemplate that resorting to accounting fraud and pretense is preferable to facing reality. Secondarily, they do it to protect their jobs and reputations — which they will lose anyway as collapse proceeds and their record of feckless dishonesty reveals itself naturally.

The underlying issue is the scale of human activity in our time. It has exceeded its limits and we have to tune back a lot of what we do. Anything organized at the giant scale is headed for failure, so it comes down to a choice between outright collapse or severe re-scaling, which you might think of as managed contraction. That goes for government programs, military adventures, corporate enterprise, education, transportation, health care, agriculture, urban design, basically everything.

There is an unfortunate human inclination to not reform, revise, or re-scale familiar activities. We’ll use every kind of duct tape and baling wire we can find to keep the current systems operating, and we have, but we’re close to the point where that sort of cob-job maintenance won’t work anymore, especially where money is concerned. Why this is so has been attributed to intrinsic human brain programming that supposedly evolved optimally for short-term planning. But obviously many people and institutions dedicate themselves to long-term thinking. So there must be a big emotional over-ride represented by the fear of letting go of what used to work that tends to disable long-term thinking.

It’s hard to accept that our set-up is about to stop working — especially something as marvelous as techno-industrial society. But that’s exactly what’s happening. If you want a chance at keeping on keeping on, you’ll have to get with reality’s program. Start by choosing a place to live that has some prospect of remaining civilized. This probably doesn’t include our big cities. But there are plenty of small cities and small towns out in America that are scaled for the resource realities of the future, waiting to be reinhabited and reactivated. A lot of these lie along the country’s inland waterways — the Ohio, Mississippi, Missouri river system, the Great Lakes, the Hudson and St. Lawrence corridors — and they also exist in regions of the country were food can be grown.

You’ll have to shift your energies into a trade or vocation that makes you useful to other people. This probably precludes jobs like developing phone apps, day-trading, and teaching gender studies. Think: carpentry, blacksmithing, basic medicine, mule-breeding, simplified small retail, and especially farming, along with the value-added activities entailed in farm production. The entire digital economy is going to fade away like a drug-induced hallucination, so beware the current narcissistic blandishments of computer technology. Keep in mind that being in this world actually entitles you to nothing. One way or another, you’ll have to earn everything worth having, including self-respect and your next meal. Now, just wait a little while.

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Political power.

Fossil Fuel Subsidies Are A Staggering $5 Trillion Per Year (G.)

Fossil fuels have two major problems that paint a dim picture for their future energy dominance. These problems are inter-related but still should be discussed separately. First, they cause climate change. We know that, we’ve known it for decades, and we know that continued use of fossil fuels will cause enormous worldwide economic and social consequences. Second, fossil fuels are expensive. Much of their costs are hidden, however, as subsidies. If people knew how large their subsidies were, there would be a backlash against them from so-called financial conservatives. A study was just published in the journal World Development that quantifies the amount of subsidies directed toward fossil fuels globally, and the results are shocking. The authors work at the IMF and are well-skilled to quantify the subsidies discussed in the paper.

Let’s give the final numbers and then back up to dig into the details. The subsidies were $4.9 tn in 2013 and they rose to $5.3 tn just two years later. According to the authors, these subsidies are important because first, they promote fossil fuel use which damages the environment. Second, these are fiscally costly. Third, the subsidies discourage investments in energy efficiency and renewable energy that compete with the subsidized fossil fuels. Finally, subsidies are very inefficient means to support low-income households. With these truths made plain, why haven’t subsidies been eliminated? The answer to that is a bit complicated. Part of the answer to this question is that people do not fully appreciate the costs of fossil fuels to the rest of us. Often we think of them as all gain with no pain.

So what is a subsidy anyway? Well, that too isn’t black and white. Typically, people on the street think of a subsidy as a direct financial cost that result in consumers paying a price that is below the opportunity cost of the product (fossil fuel in this case). However, as pointed out by the authors, a more correct view of the costs would encompass: “..not only supply costs but also (most importantly) environmental costs like global warming and deaths from air pollution and taxes applied to consumer goods in general.” The authors argue, persuasively, that this broader view of subsidies is the correct view because they “reflect the gap between consumer prices and economically efficient prices.”

Without getting too deep into the weeds, the authors discuss both consumer subsidies (when the price paid by a consumer is below a benchmark price) and producer subsidies (when producers receive direct or indirect support which increases their profitability). The authors then quantify what benefits would be achieved if the fossil fuel subsidies were reformed. Interested readers are directed to the paper for further details, but the results are what surprised me. Pre-tax (the narrow view of subsidies) subsidies amount to 0.7% of global GDP in 2011 and 2013. But the more appropriate definition of subsidies is much larger (8 times larger than the pre-tax subsidies). We are talking enormous values of 5.8% of global GDP in 2011, rising to 6.5% in 2013.

Read more …

Just how simple it really is. If you can’t stop this, forget about it.

Bernie Sanders Tells Big Pharma: Stop Making Americans Pay Twice

While both political parties have denounced the rising cost of prescription drugs, neither Democrats nor Republicans have done much to address the problem. But this summer, a new tool to restrict the rising prices of drugs developed with taxpayer dollars has been introduced by the two U.S. senators who don’t belong to either party. The mechanism works like this: Drug manufacturers who take federal money to develop drugs must keep their U.S. prices in line with the prices they charge in other economically advanced nations — typically much lower than drug prices in the U.S. The system would prevent pharmaceutical companies from effectively double-charging U.S. consumers by using their tax money for research and then charging them some of the steepest prices in the world at the pharmacy.

Pharmaceutical companies, who pour millions of dollars into both the Democratic and Republican parties, are against the idea, which is perhaps why the fix is being pushed by Bernie Sanders of Vermont and Angus King of Maine, the only independents in congress. The U.S. has the highest level of per capita pharmaceutical spending of any nation on Earth, according to the OECD. And while Americans spend more than any other country to buy their drugs, they also spend more than any other country to develop those same drugs. In June, King successfully added an amendment to the 2018 military spending bill (still working its way through congress) that would allow the Department of Defense to take away exclusive patents from drug companies that benefitted from DoD funding if their drug price in the U.S. rises above the median price in seven foreign countries with similar economies.

Then last week, Sanders introduced legislation that would tie the prices of drugs made with government funding to costs in other countries. Unlike King’s amendment, Sanders’ bill would expand the concept beyond the DoD. The bill requires companies taking federal funds to develop drugs to enter into “reasonable pricing” agreements with the Secretary of Health and Human Services. “Under this insane system, Americans pay twice. First we pay to create these lifesaving drugs, then we pay high prices to buy those drugs,” wrote Sanders in a New York Times op-ed. “Our government must stop being pushovers for the pharmaceutical industry and its 1,400 lobbyists.”

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Soon to come: US soldiers parading in your streets. Will German and Estonian batallions appear in Kansas and Texas as well?

Call For ‘Military Schengen’ To Get NATO Troops Moving (Pol.)

European leaders have made a priority of greater military cooperation, yet the ability of NATO forces to operate in Europe is still hindered by border restrictions and mismatched infrastructure, according to uniformed commanders and EU defense ministers. While NATO has made substantial progress in surmounting legal hurdles to cross-border operations, lingering bureaucratic requirements — such as passport checks at some border crossings and infrastructure problems, like roads and bridges that can’t accommodate large military vehicles — could slow or even cripple any allied response to an emerging threat, officials warned. To lift the roadblocks, and speed coordinated military action, the Dutch defense minister, Jeanine Hennis-Plasschaert, called on EU officials to create a so-called military Schengen zone.

The idea, loosely modeled on the open-border travel zone that has covered most of Europe since 1996, has also been a long-time goal of the senior United States Army commander in Europe, Lieutenant General Ben Hodges. “We must be able to move quickly to any place where there is a threat,” Hennis-Plasschaert said in a statement announcing her proposal at a meeting of NATO defense ministers in June. NATO leaders insist they have addressed the most problematic obstacles to cross-border operations, but nonetheless welcomed the Dutch proposal as a way to raise political pressure and create a sense of urgency around further improving the “interoperability” of allied countries. Officials say the obstacles are only apparent during peacetime exercises and planning, and that during a real military emergency, NATO’s supreme allied commander for Europe — based in Mons, Belgium — would simply warn allies and deploy as needed.

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“Turkey, which has the second largest army in NATO after the United States..”

Erdogan Says Turkey To Tackle – US-Supported – Kurds In Syria (R.)

Days after a reshuffle of Turkey’s top military commanders, President Tayyip Erdogan has revived warnings of military action against Kurdish fighters in Syria that could set back the U.S.-led battle against Islamic State. Kurdish militia are spearheading an assault against the hardline militants in their Syrian stronghold Raqqa, from where Islamic State has planned attacks around the world for the past three years. But U.S. backing for the Kurdish YPG fighters in Syria has infuriated Turkey, which views their growing battlefield strength as a security threat due to a decades-old insurgency by the Kurdish PKK within in its borders. There have been regular exchanges of rocket and artillery fire in recent weeks between Turkish forces and YPG fighters who control part of Syria’s northwestern border.

Turkey, which has the second largest army in NATO after the United States, reinforced that section of the border at the weekend with artillery and tanks and Erdogan said Turkey was ready to take action. “We will not leave the separatist organization in peace in both Iraq and Syria,” Erdogan said in a speech on Saturday in the eastern town of Malatya, referring to the YPG in Syria and PKK bases in Iraq. “We know that if we do not drain the swamp, we cannot get rid of flies.” The YPG denies Turkish allegations of links with Kurdish militants inside Turkey, saying it is only interested in self-rule in Syria and warning that any Turkish assault will draw its fighters away from the battle against Islamic State which they are waging in an alliance with local Arab forces.

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Bend over. We have something for you.

Greece Accepts Resettlement of Refugees from Germany (GR)

For the first time since 2011, Germany will again begin the resettlement of refugees to Greece under the EU Dublin Regulation. Migration Policy Minister Yiannis Mouzalas confirmed on German television that Greece will accept refugees who are currently in Germany and whose first entry into the EU was from Greece. The regulation applies to all refugees entering the EU since March 2017. The Dublin Regulation determines the EU Member State responsible to examine an application for asylum seekers seeking international protection. Usually, the responsible Member State will be the state through which the asylum seeker first entered the EU.

In an interview with the German TV to be aired on Monday evening, Mouzalas says: “A few days ago, we approved a small number of refugee returns related to the Dublin Regulation, by Germany and some other EU member states. Greek asylum authorities have undertaken the implementation of the procedure. “There was pressure from EU countries to start accepting resettlements. I understand that governments want to convince their citizens that they are doing something [about the refugee crisis]. That’s why I want to help them.” Deutsche Welle reports that according to the German Ministry of Interior, up to July 31, a total of 392 applications for resettlement were filed with the Greek authorities. The German ministry adds that “the specific dates for their return to Greece depends on the Greek authorities.”

Read more …

Aug 042017
 
 August 4, 2017  Posted by at 1:26 pm Finance Tagged with: , , , , , ,  7 Responses »
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William Blake Europe Supported by Africa and America 1796

 

Earlier this week I was struck by the similarities and differences between two graphs I saw float by. And the thought occurred that they are as scary as they are interesting. The graphs show eerily similar trends. And complement each other. The first graph, which Tyler Durden posted, shows productivity, defined as more or less the same as GDP per capita. It goes all the way back to 1790 and contends that 2017 productivity is about back to the level it was at in 1790. In the article, Tyler suggests a link with the amount of time people spend on Instagram et al, but perhaps there is something more going on.

That is, America and Western Europe exported almost their entire manufacturing capacity to China etc. And how can you be productive if you don’t manufacture anything? Yeah, I know, ‘knowledge economy’ and ‘service economy’ and all that, but does anyone still really believe those terms? Sure, that may have worked for a while as others were still actually making stuff (and nobody really understood the idea anyway), but it’s a sliding scale. As productivity plunged, so did GDP per capita. We can all wrap our heads around that.

America’s Productivity Plunge Explained

For the first time since the financial crisis, US multifactor productivity growth turned negative last year, mystifying economists who have struggled to find something to blame for the fact that worker productivity is declining despite a technology boom that should make them more efficient – at least in theory. To be sure, economists have struggled to find explanations for the exasperating trend, with some arguing that the US hasn’t figured out how to properly measure productivity growth correctly now that service-sector jobs proliferate while manufacturing shrinks. But what if there’s a more straightforward explanation? What if the decline in US productivity measured since the 1970s isn’t happening in spite of technology, but because of it?

To wit, Facebook has just released user-engagement data for its popular Instagram photo-sharing app. Unsurprisingly, the data show that the average user below the age of 25 now spends more than 32 minutes a day on the app, while the average user aged 25 and older. The last time Facebook released this data, in October 2014, its users averaged 21 minutes a day on the app. According to Bloomberg, “time spent is an important metric for advertisers, which like to hear that users are browsing an app beyond quick checks for updates, making them more likely to run into some marketing.” Maybe they should matter more to economists, too.

 

When asking the question “What if the decline in US productivity measured since the 1970s isn’t happening in spite of technology, but because of it?”, a next question should be: what is the technology used for? And if the answer to that is not “for making things”, then what do you think could its effect on productivity could possibly be?

Tyler took that graph from an article posted August 22, 2015, also on Zero Hedge, by Eugen Bohm-Bawerk, who at the time had some interesting things to say about it:

Productivity In America Now On Par With Agrarian Slave Economy

[..] it is time to take a closer look at productivity measured in terms of GDP per capita. While this is not an entirely correct way to measure productivity, it does adhere to new classical growth model theories which posit that in a developed economy, reached steady state, the only way to increase GDP per capita is through increased total factor productivity. In plain English, growth in GDP per capita equals productivity growth. The reason we use this concept instead of more advanced productivity measures is to get a long enough time series to properly understand the underlying fundamental forces driving society forward.

In our main chart we have tried to see through all the underlying noise in the annual data by looking at a 10-year rolling average and a polynomial trend line. In the period prior to the War of 1812 US productivity growth was lacklustre as the economy was mainly driven by agriculture and slaves (slaves have no incentive to work hard or innovate, only to work just hard enough to avoid being beaten). From 1790 to 1840 annual growth averaged only 0.7%. As the first industrial revolution started to take hold in the north-east, productivity growth rose rapidly, and even more during the second industrial revolution which propelled the US economy to become the world largest and eventually the global hegemon [..]

Adjusting for the WWII anomaly (which tells us that GDP is not a good measure of a country’s prosperity) US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold. The productivity decline witnessed ever since is unprecedented. Despite the short lived boom of the 1990s US productivity growth only average 1.2% from 1975 up to today. If we isolate the last 15 years US productivity growth is on par with what an agrarian slave economy was able to achieve 200 years ago.

[..] With hindsight we know that finance did more harm than good so we can conservatively deduct finance from the GDP calculations and by doing so we essentially end up with no growth per capita at all over a timespan of more than 15 years! US real GDP per capita less contribution from finance increased by an annual average of 0.3% from 2000 to 2015. From 2008 the annual average has been negative 0.5%!

In other words, we have seen a progressive (pun intended) weakening of the US economy from the 1970s and the reason is simple enough when we know that monetary policy broken down to its most basic is a transaction of nothing (fiat money) for something (real production of goods and services). Modern monetary policy thereby violates the most sacred principle in a market based economy; namely that production creates its own demand. Only through previous production, either your own or borrowed, can one express true purchasing power on the market place.

The central bank does not need to worry about such trivial things. They can manufacture the medium of exchange at zero cost and express purchasing power on the same level as the producer. However, consumption of real goods and services paid for with zero cost money must by definition be pure capital consumption. Do this on a grand scale, over a long period of time, even a capital rich economy as the US will eventually be depleted. Capital per worker falls relative to competitors abroad, cost goes up and competitiveness falls (think rust-belt). Productive structures cannot be properly funded and the economy must regress to align funding with its level of specialization.

Eugen gets close to what I said earlier about productivity. That is, you have to make stuff, to manufacture things, in order to have, let alone grow, productivity (aka GDP per capita). An economy based -too heavily- on services and finance is not going to do it for you. Because “the most sacred principle in a market based economy” is that “production creates its own demand.”

Now, combine that graph with the next one, from Lance Roberts, which unmistakably depicts the same trendline, though on a different -shorter- time scale. Lance’s graph shows more or less the same as Tyler’s, if you allow me that freedom, namely: GDP per capita growth equals productivity equals GDP growth, but it adds a crucial component (unless you ask someone like Paul Krugman): debt.

Together, the graphs show how we have ‘solved’ the issue of falling growth and productivity: with debt. It doesn’t get simpler than that. We exported our productive capacity to China, and now we can only afford to buy their products -which are mostly inferior in quality to what our ancestors once made- by getting into -more- debt. Big simplification, granted, but we’re doing broad strokes here.

 

 

All this is simple enough for a 6-year old to grasp. It’s actually likely easier for them than for most trained economists. Problem is, the 6-year olds are probably busy on Instagram. Tyler’s right on that one. But then, at least they’re not stuck in outdated modelling.

Ergo: we have a precipitous decline in productivity, which also translates into a decline in GDP. Even if we come up with all sorts of accounting tricks to hide this fact. And what do we do, or rather, what have we done? Enter central banks, stage right. That second graph inevitably raises the question: Without all the debt, where would the growth rate stand today? And I know what you want to say, because just like you, I am afraid to ask.

We’ve used all those trillions in new debt to, as far as productivity is concerned, run to not even stand still: productivity (GDP per capita) continues to decline despite all the debt. Why is that? Well, Bohm-Bawerk answers that question earlier: “.. consumption of real goods and services paid for with zero cost money must by definition be pure capital consumption.” In other words, as I said before, if you don’t use it to actually make things, you’re basically just burning it. Plus, in the process, as we see ever clearer in the effects of QE, you can grossly distort an economy, by blowing bubbles, propping up zombies etc.

Things would look different if we used the “zero cost money” for production instead of consumption. But that’s not what the central bank money is used for at all. The net effect of all that debt, be it QE or new mortgage debt, is less than zero. Quite a bit less, actually. How do we solve that problem? The answer is deadly simple, though not easy to put into practice: start making stuff again! Or put it this way: debt must be used to raise production, not consumption.

 

 

Jun 282017
 
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James Dean in a photobooth 1949

 

All Companies Hit By Ransomware Attack Used Bootleg Or Unpatched Software (WS)
Yellen: Banks Very Much Stronger; No Financial Crisis In Our Lifetime (CNBC)
There Is No Excuse For Janet Yellen’s Complacency (Steve Keen)
Yellen: “I Don’t Believe We Will See Another Crisis In Our Lifetime” (ZH)
Trio of Fed Speakers Warn on Valuations With Eyes on Tightening (BBG)
Car Loans, Credit Card Debt Push UK Back Towards Another Credit Crisis (Tel.)
UK Banks Ordered To Hold More Capital As Consumer Debt Surges (G.)
ECB VP: Slack In European Economy Looks Worse Than We Thought (CNBC)
Chinese Satellite Data Hint At Ominous Manufacturing Slowdown (ZH)
UK Government Refuses To Pay For Fireproof Cladding (Ind.)
Democrats The Only Thing Standing In The Way Of Single-Payer In California (CP)
Democrats The Only Thing Standing In The Way Of Single-Payer In California (CP)
The Human Tragedy Of Drug Abuse And Car Crashes (BBG)
Search Results Show Why Europe Is Mad at Google (BBG)
‘Google, Facebook Are Super Monopolies On The Scale Of Standard Oil’ (CNBC)
Greeks Work 203 Days Out Of The Year To Pay Taxes (K.)
Greek Garbage Collectors Reject Compromise As Trash Piles Up (AP)
At Least 24 Migrants Die Off Libya in 48 Hours, More Than 8,000 Rescued (R.)

 

 

Wolf Richter explains what happened yesterday. They’re all either thieves or extremely stupid/negligent.

Merck, Rosneft, Ukraine government, Ukraine International Airport, Maersk, WPP (world’s largest advertising agency), Mondelez etc. They’ve all been found to either use bootleg software or not having patched their systems with a readily available Microsoft patch.

All Companies Hit By Ransomware Attack Used Bootleg Or Unpatched Software (WS)

The Petya ransomware attack infected over 2,000 computer systems across the world as of midday today, according to Kaspersky Lab, cited by Reuters. Russia and Ukraine were most affected. Other victims were in Britain, France, Germany, Italy, Poland, and the US. When China starts up its computers, it will suffer the consequences for not staying in bed. The malware includes code known as “Eternal Blue,” which was also used in the WannaCry attack in May. Experts believe the code was purloined from NSA. The ransomware encrypts hard drives of infected machines and then demands $300 in bitcoin in order for the user to regain access. Petya takes advantage of the same vulnerability in Windows as WannaCry. But Microsoft released a patch to fix this vulnerability on March 14.

Patched computers were not affected by WannaCry, and are not affected today. The Windows Malicious Software Removal Tool detects and removes the malware automatically during the updating process. But that update isn’t available for bootleg copies of Windows – hence China’s disproportionate problems with the attack in May. And computers that are running legitimate versions of Windows but hadn’t been updated for whatever reason are vulnerable. Amazingly, when WannaCry hit, plenty of companies were mauled because some dude hadn’t updated their machines. Corporate and government networks were hit. You’d think after the hue and cry in May, all legit corporate systems would be updated, and bootleg copies of Windows would be replaced either by a legit copy of Windows or another operating system. But no. Rinse and repeat.

[..] These are big sophisticated companies, many of them with global operations, and therefore with global IT networks, not mom-and-pop operations. And yet the Windows machines in their networks hadn’t been updated and had remained vulnerable, or were using bootleg copies of Windows that couldn’t be updated, even after all the hoopla in May about this vulnerability. Just sitting here and shaking my head.

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Grandma goes nuts.

Yellen: Banks Very Much Stronger; No Financial Crisis In Our Lifetime (CNBC)

Fed Chair Janet Yellen said Tuesday that banks are “very much stronger” and another financial crisis is unlikely anytime soon. Speaking during an exchange in London with British Academy President Lord Nicholas Stern, the central bank chief said the Fed has learned lessons from the financial crisis and has brought stability to the banking system. Banks last week passed the first round of the Fed’s stress tests to see how they would perform under adverse conditions like a 10% unemployment rate and turbulence in commercial real estate and corporate debt. “I think the public can see the capital positions of the major banks are very much stronger this year,” Yellen said. “All of the firms passed the quantitative parts of the stress tests.”

She also made a bold prediction: that another financial crisis the likes of the one that exploded in 2008 was not likely “in our lifetime.” The crisis, which erupted in September 2008 with the implosion of Lehman Brothers but had been stewing for years, would have been “worse than the Great Depression” without the Fed’s intervention, Yellen said. Yellen added that the Fed learned lessons from the financial crisis and is being more vigilant to find risks to the system. “I think the system is much safer and much sounder,” she said. “We are doing a lot more to try to look for financial stability risks that may not be immediately apparent but to look in corners of the financial system that are not subject to regulation, outside those areas in order to try to detect threats to financial stability that may be emerging.”

Read more …

Steve explains that Yellen knows Minsky, but prefers to ignore him.

There Is No Excuse For Janet Yellen’s Complacency (Steve Keen)

Janet Yellen has been reported by Reuters as saying in London yesterday that “she does not believe that there will be a run on the banking system at least as long as she lives”: “Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” Yellen said at an event in London. The only word I can use to describe this belief is “delusional”. The only way in which her belief could be justified would be in financial crises were truly random events, caused by something outside the economy—or just by a very bad throw of the economic dice. This is indeed the perspective of mainstream “Neoclassical” economic theory, in which Yellen was trained, and because of which she was deemed eligible—and indeed eminently suitable—to Chair the Federal Reserve.

This is the theory that led the OECD to proclaim, two months before the crisis began in August 2007, that “the current economic situation is in many ways better than what we have experienced in years”, and that they expected that “sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.”. It is the theory that led her colleague David Stockton, then the Director of the Division of Research and Statistics at the Fed, to dismiss the possibility of a recession after the crisis had begun, in December 2007—the very month that the recession is now regarded as having commenced: “Overall, our forecast could admittedly be read as still painting a pretty benign picture: despite all the financial turmoil, the economy avoids recession and, even with steeply higher prices for food and energy and a lower exchange value of the dollar, we achieve some modest edging-off of inflation.” (FOMC, Dec 2007)

So what we are getting from her is not merely her own personal complacency, but the complacency of an approach to economics which has always been grounded in the beliefs that (a) capitalism is inherently stable, (b) that the financial sector can be ignored—yes that’s right, ignored—when doing macroeconomics, and (c) that the Great Depression was an anomaly that can also be ignored, because it can only have been caused either by an exogenous shock or bad government policy, both of which cannot be predicted in advance.

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It’s a really crazy thing to say. Does she expect to be fired soon?

Yellen: “I Don’t Believe We Will See Another Crisis In Our Lifetime” (ZH)

If there was any confusion why the Fed intends to keep hiking rates, even in the face of negative economic data and disappearing inflation, it was put to rest over the past 2 days when not one, not two , not three, but four Fed speakers, including the three most important ones, made it clear that the Fed’s only intention at this point is to burst the asset bubble. First there was SF Fed president John Williams who said that “there seems to be a priced-to-perfection attitude out there” and that the stock market rally “still seems to be running very much on fumes.” Speaking to Australian TV, Williams added that “we are seeing some reach for yield, and some, maybe, excess risk-taking in the financial system with very low rates. As we move interest rates back to more-normal, I think that that will, people will pull back on that,

Then it was Fed vice chairman Stan Fischer’s turn, who while somewhat more diplomatic, delivered the same message: “the increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites…. Measures of earnings strength, such as the return on assets, continue to approach pre-crisis levels at most banks, although with interest rates being so low, the return on assets might be expected to have declined relative to their pre-crisis levels–and that fact is also a cause for concern.” Fischer then also said that the corporate sector is “notably leveraged”, that it would be foolish to think that all risks have been eliminated, and called for “close monitoring” of rising risk appetites.

All this followed the statement by Bill Dudley, who many perceive as the Fed’s shadow chairman, who yesterday warned that rates will keep rising as long as financial conditions remain loose: “when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened. On the other hand, when financial conditions ease—as has been the case recently—this can provide additional impetus for the decision to continue to remove monetary policy accommodation.” And finally, it was Yellen herself, who speaking in London acknowledged that some asset prices had become “somewhat rich” although like Fischer, she hedged that prices are fine… if only assumes record low rates in perpetuity:

“Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates,” she said. It was not all doom and gloom. Responding to a question on financial system stability, Yellen said post-crisis regulations (and $2.5 trillion in excess reserves which just happen to be fungible and give the banks the impression that they are safe) had made financial institutions much “safer and sounder.” “Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”

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There were smokescreeens a-plenty too.

Trio of Fed Speakers Warn on Valuations With Eyes on Tightening (BBG)

When a trio of Federal Reserve officials delivered remarks on Tuesday, the state of U.S. financial markets came in for a little bit of criticism. When all was said and done, U.S. equities sank the most in six weeks, yields on 10-year Treasuries rose and the dollar weakened to the lowest level versus the euro in 10 months. Fed Chair Janet Yellen said that asset valuations, by some measures “look high, but there’s no certainty about that.” Earlier, San Francisco Fed President John Williams said the stock market “seems to be running very much on fumes” and that he was “somewhat concerned about the complacency in the market.” Fed Vice-Chair Stanley Fischer suggested that there had been a “notable uptick” in risk appetite that propelled valuation ratios to very elevated levels.

The Fed officials’ comments came amid a torrent of events that buffeted financial markets Tuesday, from an IMF cut to its U.S. growth forecast, Google suffering the biggest ever EU antitrust fine, a fresh blow to the Republican agenda in Washington and a global cyberattack. Still, selling in U.S shares accelerated around 1:30 p.m. as Yellen delivered her assessment of the market since the central bank raised interest rates June 14. “Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates,” Yellen said during a speech in London.

Investors are on guard for signs of a change in its economic outlook that could delay rate increases or when it will begin shrinking its $4.5 trillion balance sheet. Yellen said the Fed’s plans for the balance sheet were “well understood” by financial markets. Officials have said they intend to begin allowing the portfolio to roll off this year. In the end, Yellen made it pretty apparent that that her plans for continued monetary policy tightening haven’t shifted. “We’ve made very clear that we think it will be appropriate to the attainment of our goals to raise interest rates very gradually,” Yellen said.

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All the credit was the only thing that kept the country going.

Car Loans, Credit Card Debt Push UK Back Towards Another Credit Crisis (Tel.)

Banks are “forgetting the lessons” of the financial crisis, increasing the risk of reckless lending which could land them — and the wider economy — in trouble later, Mark Carney has warned. Credit card lending is booming and the Bank of England fears that banks are becoming complacent, assuming the relatively good economic times will continue indefinitely. As a result lenders are cutting down the amount of capital they put aside to keep them safe if those loans turn bad — something that could leave them in financial trouble if there is a recession and customers cannot pay back their debts. “I think it is forgetting some of the lessons of the past, or not fully learning the lessons of the past,” said Mr Carney, the Bank of England’s Governor. He said that the economy overall is performing well and total lending is not getting out of hand, but consumer credit is growing by more than 10pc per year, with credit cards and car loans growing particularly fast.

“Most financial stability indicators are neither particularly elevated nor subdued. Nevertheless, there are pockets of risk that warrant extra vigilance,” he said at the publication of the latest Financial Stability Report. “Consumer credit has increased rapidly. Lending conditions in the mortgage market are becoming easier. And lenders may be placing undue weight on the recent performance of loans in benign conditions.” As well as holding more capital against credit card debt and consumer loans, banks have also been warned that next month the Financial Conduct Authority and the Prudential Regulation Authority will also publish new affordability rules to make sure customers are likely to be able to repay their debts.

The situation is deemed relatively urgent — one part of an annual assessment of the losses which banks could make in a hypothetical recession has been brought forwards this year. Instead of publishing the results in November, the consumer credit part of the so-called stress tests will be revealed in September. That decision reflects the short-term nature of consumer loans. Short-term loans can also pose a threat to financial stability because households take them less seriously than mortgages. Consumer debts only amount to one-seventh of the total of mortgage debt, but they account for 10-times the amount of bad loans which banks write off.

That also has implications for the wider economy — a household in financial trouble will cut spending deeply to make sure it can still pay the mortgage, but is less worried about credit cards. Mortgage lending standards are also under the spotlight. The Financial Policy Committee told banks in 2014 that they should assess whether borrowers could still afford their mortgages if the Bank of England’s base rate went up by three%age points. Most banks calculated this by adding 3%age points to their standard variable rates, but some lenders said that in this scenario they might not pass the full cost onto customers. Officials reject this interpretation and have ordered banks to add the full 3 points to their rates when judging the affordability.

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First you lower rates, then you take measures against the fully predictable consequences.

UK Banks Ordered To Hold More Capital As Consumer Debt Surges (G.)

The Bank of England is to force banks to strengthen their financial position in the face of a rapid growth in borrowing on credit cards, car finance and personal loans. The intervention by Threadneedle Street means banks will need to set aside as much as £11.4bn of extra capital in the next 18 months and is intended to protect the financial system from the 10% rise in consumer lending over the year. The Bank is also bringing forward the part of the annual stress tests on banks that scrutinises their exposure to consumer credit by two months to September. The Bank’s Prudential Regulation Authority and the City regulator, the Financial Conduct Authority, will also publish next month how they expect lenders to treat borrowers in the consumer credit market.

The Bank’s half-yearly assessment of risk to financial markets also set out measures to rein in the riskiest mortgage lending, highlighted the risks associated with the UK’s exit from the EU and said commercial property prices were “at the top end of sustainable valuations”. While the Bank found risks to financial stability were neither “particularly elevated nor subdued” it warned that there “pockets of risk that warrant vigilance”. “Consumer credit has increased rapidly. Lending conditions in the mortgage market are becoming easier. And lenders may be placing undue weight on the recent performance of loans in benign conditions,” said Mark Carney, governor of the Bank of England.

Carney said the decision to call on banks to hold more capital – which is largely a rejig of their current resources rather than raising new funds – was taken after domestic risks returned to “standard” levels. A year ago, after the Brexit vote, the Bank had relaxed regulatory requirements on banks – using new tools it was given after the financial crisis – and is now reversing that decision.

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“..if we adopt, as in the U.S., a broader concept of unemployment (which in the U.S. they call U6) then unemployment in the euro area is at 18% whereas it is at 9% in the case of the U.S..”

ECB VP: Slack In European Economy Looks Worse Than We Thought (CNBC)

The difference between current and potential levels of output in the euro area economy could be greater than the ECB originally thought, its vice president, Vitor Constancio, warned on Tuesday. “What we see, what we observe is that domestic factors of inflation starting with wage and cost developments and then also price decisions are not responding the way we would expect in view of our more common estimates of this slack. So we have to ask ourselves – are these measures of the slack of the economy correct?,” explained Constancio, speaking to CNBC from the ECB Forum on central banking in Sintra. The board had therefore begun to ask themselves whether other variables should instead be considered to establish a more accurate view of the current economic situation.

“The unemployment rate now is 9.3% according to the normal international standard of measuring employment …. But if we adopt, as in the U.S., a broader concept of unemployment (which in the U.S. they call U6) then unemployment in the euro area is at 18% whereas it is at 9% in the case of the U.S. which would imply that the slack is then bigger than we could judge some time ago,” he noted. “That being the case it justifies fully what the president (Mario Draghi) said at the end of his speech (on Tuesday) that we need persistence. If we want to bring inflation to our target of below but close to 2% then we have to persist in the type of monetary policy that we been adopting,” he added.

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Earlier, we saw Yellen vs Minsky. Here’s China’s Minsky moment.

Chinese Satellite Data Hint At Ominous Manufacturing Slowdown (ZH)

A reading published by San Francisco-based SpaceKnow Inc. which uses commercial satellite imagery to monitor activity across thousands of industrial sites signaled deterioration in the country’s manufacturing sector for the first time since August. The gauge, known as the China Satellite Manufacturing Index, fell to 49.6, below the 50 break-even level. The index incorporates satellite data from thousands of industrial sites across China. Satellite imagery has often proved eerily presceint in the recent past: In the US, satellite data analyzing activity in retailers’ parking lots pointed to significant activity weakness at core US retail locations, even as sentiment indicators were suggesting an uptick in sales following the election. Meanwhile, small- and medium-sized enterprises showed the lowest level of confidence in 16 months, and conditions in the steel business remained lackluster, according to Bloomberg.

Some other indicators have been slightly more sanguine: sales-manager sentiment stayed positive, and outlook of financial experts recovered. Still, data suggest that output in China’s economy slowed during the second quarter after a strong start to the year, with investment slowing, some credit becoming tighter and signs that curbs on the country’s property market are starting to have an impact. Should growth continue to slow, China’s leaders would find themselves in an awkward position, with the country’s twice-a-decade leadership transition expected to occur this fall when the 19th Party Congress convenes to appoint its new senior leadership. It’s widely believed that China’s President Xi Jinping will begin serving his second five-year term.

[..] [That] could be the spark that ignites China’s “Minsky moment” – the financial cataclysm that Kyle Bass and other perma-china-bears have been waiting for when China’s overleveraged market crumbles to dust – might finally be in the offing. Indeed, though China’s markets have been relatively calm recently, the PBOC’s attempts to tighten liquidity have sparked some instability in recent months. Back in March, the central bank had to engage in mini bailouts when a jump in interbank rates caused some small regional lenders to default on their interbank loans after money market rates shot higher. Meanwhile, China’s weakening credit impulse should give any China bulls pause.

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Completely nuts. Feels like they’re looking to get tossed out.

UK Government Refuses To Pay For Fireproof Cladding (Ind.)

Councils face bills running to hundreds of millions of pounds to make tower blocks safe after the Government said it would not guarantee extra money to pay for vital work to prevent a repeat of the Grenfell disaster. Ninety-five high-rise buildings in 32 local authority areas have failed safety tests, the Department for Communities and Local Government (DCLG) said yesterday, with hundreds more blocks still to be tested. The findings prompted Theresa May to announce a “major national investigation” into the use of cladding on high-rise blocks, with every sample so far tested in the wake of the Grenfell found to be unsafe. But despite emergency fire safety checks being carried out nationwide under central government direction, councils will not be reimbursed for refurbishment work carried out.

A DCLG spokesperson said there was “no guarantee” of central government funding and that it would be “up to local authorities and housing associations to pay” for the work needed to ensure residents’ safety. The spokesperson said financial support would be considered on a “case by case” basis for those that could not afford to carry out the necessary work, but did not clarify what the criteria for that consideration would be. The announcement was met with severe criticism from some of the councils affected, with local authorities already having their budgets severely squeezed after years of austerity measures. Julie Dore, leader of Sheffield City Council, which is among the authorities to have discovered unsafe cladding, said “starved” councils would be forced to make cuts to other areas, including schooling, if central government did not help with costs.

“Local authorities have been starved of money over the past seven years. Our spending power has decreased,” she said. “There is no way we can afford to reclad our tower blocks. If we have to find that money, it will come from other projects, from investing in the fabric of our schools, capital investment in our infrastructure, the money has to come out of that. And it can’t really be done. “I say absolutely, categorically that the Government should pay. If they can find £1bn to send to Northern Ireland, that gets more spending per capita than anywhere else, to buy 10 votes, then these people, living in high-rise towers, deserve better.”

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There is no serious press left in the US to get to the bottom of this.

Democrats The Only Thing Standing In The Way Of Single-Payer In California (CP)

Nothing better illustrates the political bankruptcy of the Democratic Party—for all progressive intents and purposes—than California State Assembly Speaker Anthony Rendon’s announcement on Friday afternoon that he was going to put a “hold” on the single-payer health care bill (SB 562) for the state, effectively killing its passage for at least the year. The Democratic Party finds itself in a bind in California. They hold the governorship and a supermajority in both houses of the legislature, so they can pass any bill they want. SB 562 had passed the Senate 23-14. There was enormous enthusiasm among California progressive activists, who [..] were working tirelessly, and hopeful of success. After all, Bernie’s people were taking over the California party from the bottom since the election.

I recall a night of drinking last year with an old friend who has been spearheading that effort, as he rebuffed my skepticism, and insisted that this time there would be a really progressive takeover of the California party, and single-payer would prove it. After all, once enough progressive pressure was been put on the legislators, the bill would be going to super-progressive Democratic Governor, Jerry Brown, who had made advocacy of single-payer a centerpiece of his run for President in 1992, saying: “We treat health care not as a commodity to be played with for profit but rather the right of every American citizen when they’re born.” Bernie foretold. Unfortunately, today that Governor is, according to Paul Song, co-chair of the CHC, “doing everything he can to make sure this never gets on his desk.”

And it won’t. Unfortunately, all the Democrats like Rendon, who “claims to be a personal supporter of single-payer,” will make sure that their most progressive governor is not put in the embarrassing position of having to reject what he’s been ostensibly arguing for for twenty-five years, of demonstrating so blatantly what a fraud his, and his party’s, progressive pretensions are. Thus unfolds the typical Democratic strategy: Make all kinds of progressive noises and cast all kinds of progressive votes, while carefully managing the process so that the legislation the putatively progressives putatively support never gets enacted. Usually, they blame Republican obstructionism, and there certainly is enough of that, and where there is, it provides a convenient way for Democrat legislator to “support” legislation they know will be blocked and wouldn’t really enact themselves if they could.

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Phones are as addictive as opioids.

The Human Tragedy Of Drug Abuse And Car Crashes (BBG)

More than 130,000 Americans are killed annually by preventable causes, and the number has been climbing at a faster rate recently because of opioid abuse and car crashes involving drivers distracted by mobile devices. The death count jumped more than 7% in 2015 to about 146,600, according to a report by the National Safety Council Tuesday. The council said lawmakers often overlook simple solutions that could avoid deaths on the roads or in people’s homes, while public attention is focused on events that are relatively rare in the U.S., like terrorist attacks or plane crashes. Vehicle mishaps and poisonings, driven by opioid abuse, killed more than 80,000 people combined in 2015. Preventable accidents cost society about $850 billion a year, according to the group.

“Culturally, we’re numb to these things,” NSC President Deborah Hersman said in a phone interview. “Why are these deaths any less tragic or important? We should be talking about these things every day because they affect our families.” The toll from opioids is worsening, partly because so many patients become dependent on painkillers, often turning to street drugs like heroin. Almost one in four people on Medicaid, the U.S. health program for the poor, received powerful and addictive opioid pain medicines in 2015, Express Scripts Holding Co. said this month. The council said lawmakers should tighten oversight of the distribution of prescription medications and improve access to drugs that can reverse overdoses and treat addiction.

[..] “We need to make distracted driving socially unacceptable,” Tom Goeltz, whose daughter Megan was killed in a car crash last year, said at a news conference held by the NSC Tuesday. “This tragedy could have easily been prevented.” Goeltz, a Minnesotan who works to help industrial companies avoid accidents, said his daughter was pregnant when her car was struck by a distracted driver. “As a safety consultant with over 30 years of experience, I was powerless to save my daughter,” he said. “We all know people that have been killed on our roads. We all know somebody. How is this acceptable to us? We need to do more. You don’t want to be a part of this club.”

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“..Google has 90 days to come up with its own solution [..]. If it doesn’t do that, the EU will fine it up to 5% of the entire company’s daily global revenue.”

Search Results Show Why Europe Is Mad at Google (BBG)

Europe hit Alphabet’ Google with a $2.7 billion fine on Tuesday, saying it broke antitrust laws by favoring one of its search services over rival websites. The case centers around Google Shopping ads, which place color pictures, prices and links to products that consumers have typed into its search engine. The EU’s Competition Chief Margrethe Vestager said Google’s search algorithms should treat its own Shopping service the same way as other price-comparison sites. What exactly does this look like in practice? Here’s a walk-through of what the EU is so upset about. This is for desktop computer searches. On phones, there’s less digital real estate, leaving even less space for competitors. Before we start, it’s important to note that Google argues customers aren’t that interested in clicking through to other price comparison sites and want to go directly to retailers’ sites from Google. It denies any wrongdoing and is considering an appeal.

Google Shopping Today: The screenshot below shows results for a search in Germany for “gas grill.” Five Google Shopping ads take up the most valuable part of the page at the top. No other comparison shopping websites show up in the first couple of links. Scrolling down, you see the first result for a competing price comparison service – Idealo – come in at number six. There’s another at number 11, Moebel24. But that link is listed as an ad, meaning Moebel24 had to pay for that placement, even though it’s near the bottom of the page. The EU says this is bad because consumers click far more often on results appearing higher up in Google’s search results. Even on a desktop computer, the top ten results on page 1 generally get about 95% of all clicks on generic search results (with the top result receiving about 35% of all clicks), the European Commission said on Tuesday.

2014 Proposal: The EU’s Google investigation has been going for years. Vestager’s predecessor tentatively struck a deal with Google in 2014 for a hybrid model that set aside space in those top Shopping search boxes for other price comparison websites. But the agreement fell apart when competitors realized they had to pay for that placement. [..] What could Google do to satisfy Europe’s demands this time? Vestager said Google has 90 days to come up with its own solution, as long as it gives equal treatment to competing price comparison sites. If it doesn’t do that, the EU will fine it up to 5% of the entire company’s daily global revenue. [..] Google would have to sacrifice space currently occupied by its own Shopping ads to make the latter idea work, cutting into a highly profitably and growing revenue stream.

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US anti-trust laws are strong enough to counter this. But you need politicians to apply them.

‘Google, Facebook Are Super Monopolies On The Scale Of Standard Oil’ (CNBC)

Google shareholders won’t be phased by the EU’s $2.7 billion fine against the company for competition abuses related to its shopping business, Elevation Partners co-founder Roger McNamee told CNBC on Tuesday. “As a shareholder of Google you’re looking at this and saying: ‘We won again,'” McNamee said. The venture capitalist spoke hours after EU regulators fined Google a record €2.4 billion ($2.7 billion), ruling that the search-engine giant violated antitrust rules for its online shopping practices. Google said it will consider appealing the decision to the highest court in Europe. “Google, Facebook, Amazon are increasingly just super-monopolies, especially Google and Facebook. The share of the markets they operate in is literally on the same scale that Standard Oil had … more than 100 years ago – with the big differences that their reach is now global, not just within a single country,” he said on “Squawk Alley.”

The fine is not large enough to change Google’s behavior, he added. “The only thing that will change it is regulations that actually say you can or can’t do something.” McNamee said Google’s business model isn’t structured in a way that allows for competition. “The way that Google’s product works makes its anti-competitive behavior much more obvious — but do not underestimate how powerful Facebook’s monopoly has been to boosting Instagram and WhatsApp,” he said. The competition issue with the big tech companies extends beyond the EU into the U.S., he said. “They do stifle innovation. They stifle entrepreneurship. … You can see this even in Silicon Valley it’s very hard for any of the unicorn generation of companies to actually reach successful critical mass because, you know, one of their competitors gets acquired by Google and Facebook and then the category is over,” said McNamee. “I think it’s a big policy question the world is going to have to deal with over the next few years,” he said.

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The problem is not even the duration, France and Belgium are worse. The problem is what Greeks are left with after taxes are paid, which is much less than the others.

Greeks Work 203 Days Out Of The Year To Pay Taxes (K.)

Greeks will work an average of 203 days this year to pay taxes to the state and social insurance contributions, according to research conducted by the Dragoumis Center for Liberal Studies (KEFIM) to raise awareness about tax freedom day – the first day of the year in which a country has theoretically earned enough income to pay its taxes. In the case of Greece, this day will be on July 23, which means that Greeks will have worked 15 days more than last year, when tax freedom day arrived on July 7. The only two European Union countries in which tax freedom day will arrive after that in Greece are France and Belgium. Cyprus celebrated its tax freedom day on March 29, while Malta and Ireland did the same on April 18 and 30 respectively. Bulgaria was next on May 18 before Finland on June 22.

KEFIM, which conducted research into the topic for a third straight year, said citizens are working an increasing number of days each year to meet their tax obligations and, compared to 2006, Greeks now work two months more to this end. Referring to the results of the research, financial analyst and member of KEFIM’s scientific council Miranda Xafa said the “government managed to achieve a primary surplus by tax hikes and not through spending cuts.” Xafa also said that for every 100 euros a self-employed professional makes, 82 go toward tax and and other contributions. New Democracy vice president Adonis Georgiadis said that Greece had “lost another month because of overtaxation.” “Our aim when we become the government is to reverse the trend,” he said.

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Today is day 12 of the garbage strike. Weekend weather forecast up to 44ºC (111ºF). Some judge needs to declare a public health emergency, if Tsipras is too scared to do it.

Greek Garbage Collectors Reject Compromise As Trash Piles Up (AP)

Greece’s municipal garbage collectors on Tuesday rejected a government compromise offer and decided to continue an 11-day protest that has left mounds of festering refuse piled up across Athens amid high temperatures during the key summer tourism season. Municipal workers union head Nikos Trikas said the protest will go on as planned until Thursday at least, after an inconclusive meeting with Prime Minister Alexis Tsipras. The union is pressing the left-led government to honor a pledge to provide permanent jobs for long-term contract workers, and rejected Tsipras’ proposals as a “slight” but unsatisfactory improvement on past offers. Greek authorities have warned that the uncollected trash poses a public health risk ahead of a heat wave forecast for later this week.

Tourism Minister Elena Kountoura urged the union to reconsider, arguing that the protest “endangers public health, and is bad for tourism as well as the country’s international image.” The Athens Trade Association has also called on the two sides to reach a compromise, warning that piles of garbage would discourage tourists from traveling to the Greek capital. Tourism is a vital source of revenue for Greeces battered economy. Although not technically on strike most of the time, municipal workers have been blockading garages where municipal trash collection trucks operate from, as well as landfill sites across the country. Trikas said that unions will review their position Thursday, when they have called a 24-hour strike. He also pledged to increase emergency crews that the union has on duty to ensure that the garbage mounds do not mushroom out of all control.

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Where are Merkel and Macron? Why are their voters not demanding they tackle the issue?

At Least 24 Migrants Die Off Libya in 48 Hours, More Than 8,000 Rescued (R.)

Red Crescent volunteers recovered the bodies of 24 migrants on Tuesday that were washed up in an eastern suburb of the Libyan capital, Tripoli, as large-scale rescues were made in the Mediterranean. Residents in Tajoura district said the bodies had begun washing up at the end of last week. Several had been partially devoured by stray dogs, according to a local coast guard official. The toll was expected to increase as the flimsy boats used to carry migrants as far as international waters normally carry more than 100 people. Three migrants died in the Mediterranean on Monday night, a German aid group said, during Italian-led rescue operations in which thousands more were pulled to safety.

About 5,000 migrants were picked up off the Libyan coast by emergency services, Italy’s navy, aid groups and private boats on Monday, and rescues were continuing on Tuesday, according to an Italian coastguard spokesman. “Despite all efforts, three people died from a sinking rubber boat” and rescue boats in the area are struggling to cope, German humanitarian group Jugend Rettet said on Facebook. Jugend Rettet (Rescuing Youth) is one of about nine aid groups patrolling seas into which people traffickers have sent more than half a million refugees and migrants on highly dangerous voyages towards Europe over the past four years. “We reached the capacity limit of our ship, while our crew is seeing more boats on the horizon. Currently, all vessels are overloaded,” Jugend Rettet added.

About 72,000 migrants arrived in Italy on the perilous route from Libya between Jan. 1 and June 21, roughly 20% more than in 2016, and more than 2,000 died on the way, according to the International Organization for Migration.

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Jun 232017
 
 June 23, 2017  Posted by at 9:55 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Fred Lyon Embarcadero lunch San Francisco 1948

 

Americans Are Dying With An Average Of $61,500 In Debt (ZH)
34 Biggest Banks in US Clear First Hurdle In Fed’s Annual Stress Tests (R.)
Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries (WS)
Citizens Will Soon Turn Their Rage Towards Central Bankers (Albert Edwards)
UK Homelessness Surges 34% Under Tories Since 2010 (Ind.)
UK High Court Judges Tory Policy Causes ‘Real Misery For No Purpose’ (Ind.) /span>
Buy-to-Let Uk Property Sales Fall By Almost 50% In A Year (G.)
Canada’s Private Sector Debt Growing Faster Than Any Advanced Economy (PA)
Warren Buffett Becomes Lender Of Last Resort For Canada’s Home Capital (BBG)
EU Political Class Rides Roughshod over Citizens’ Concerns & Frustrations (DQ)
Dear Oliver: About Those Putin Interviews (RM)
Arab States Send Qatar 13 Demands To End Crisis (R.)
In Yemen’s Secret Prisons, UAE Tortures and US Interrogates

 

 

Double or nothing?!

Americans Are Dying With An Average Of $61,500 In Debt (ZH)

According to a recent study, the average total household debt in America is just over $132,500, broken down as per the chart below… and thanks to the Fed’s recent and ongoing rate increases, the repayment of said debt will become increasingly more difficult. So difficult, in fact, that most Americans will be saddled with a sizable chunk of it at the time of their death. Actually, most already are. According to December 2016 data from credit bureau Experian provided to credit.com, 73% of American consumers had outstanding debt when they were reported as dead. Those consumers carried an average total balance of $61,554, including mortgage debt. Without home loans, the average balance was $12,875. As credit.com reports, the data is based on Experian’s FileOne database, which includes 220 million consumers.

To determine the average debt people have when they die, Experian looked at consumers who, as of October 2016, were not deceased, but then showed as deceased as of December 2016. Among the 73% of consumers who had debt when they died, about 68% had credit card balances. The next most common kind of debt was mortgage debt (37%), followed by auto loans (25%), personal loans (12%) and student loans (6%). The breakdown of unpaid balances was as follows: credit cards, $4,531; auto loans, $17,111; personal loans, $14,793; and student loans, $25,391. And, as a reminder, debt doesn’t just disappear when someone dies.

What happens to that debt when you die, aside from it continuing to accrue interest until someone remembers to inform the creditors? “Debt belongs to the deceased person or that person’s estate,” said Darra L. Rayndon, an estate planning attorney with Clark Hill in Scottsdale, Arizona. If someone has enough assets to cover their debts, the creditors get paid, and beneficiaries receive whatever remains. But if there aren’t enough assets to satisfy debts, creditors lose out (they may get some, but not all, of what they’re owed). Family members do not then become responsible for the debt, as some people worry they might. That’s the general idea, but things are not always that straightforward. The type of debt you have, where you live and the value of your estate significantly affects the complexity of the situation. For example, federal student loan debt is eligible for cancellation upon a borrower’s death, but private student loan companies tend not to offer the same benefit. They can go after the borrower’s estate for payment.

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Let’s do a stress test that assumes the Fed is no longer around, see what happens.

34 Biggest Banks in US Clear First Hurdle In Fed’s Annual Stress Tests (R.)

The 34 largest U.S. banks have all cleared the first stage of an annual stress test, showing they would be able to maintain enough capital in an extreme recession to meet regulatory requirements, the Federal Reserve said on Thursday. Although the banks, including household names like JPMorgan Chase and Bank of America, would suffer $383 billion in loan losses in the Fed’s most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year’s level. “This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” said Fed Governor Jerome Powell, who leads banking regulation for the central bank. “This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.”

The Fed introduced the stress tests in the wake of the financial crisis to ensure the health of the banking industry, whose ability to lend is considered crucial to the health of the economy. Since the first test was conducted in 2009, big banks have seen losses abate, loan portfolios improve and profits grow. The banks that now undergo the exam have also strengthened their balance sheets by adding more than $750 billion in top-notch capital, the Fed said. Banks and their investors have been hoping the improvements would prompt the Fed to allow them to use more capital for stock buybacks and dividends, especially as the Trump administration is seeking to relax financial regulations. Wall Street analysts and trade groups quickly cheered the results on Thursday, saying regulators should feel comfortable easing tough rules put in place since the financial crisis. “We see today’s…stress test results as a positive for Trump administration efforts to deregulate the banks,” said Jaret Seiberg, a policy analyst with Cowen & Co.

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The biggest debts are still in mortgages. Falling home prices will hurt most.

Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries (WS)

The comforting news in the results from the Federal Reserve’s annual stress test is that the largest 34 bank holding companies would all survive a recession. Based on this glorious accomplishment, the clamoring has already started for regulators to allow these banks to pay bigger dividends and to blow more money on share buybacks, and for these regulators to slash regulation on these banks and make their life easier and riskier in general. We don’t want these banks to survive a recession in too good a condition apparently. And it would likely be better for Wall Street anyway if banks could lever up with risks so that a few of them would get bailed out during the next recession. Let’s remember, for the Fed’s no-holds-barred bailout-year 2009, Wall Street executives and employees were doused with record bonuses.

The Fed’s bailouts were good for them. And it has been good for them ever since. The less comforting news in the stress test is that credit card debt – generally the most expensive and risky debt for consumers – has now moved to the top of the Fed’s worry list in the “severely adverse scenario” of the stress test. The projected losses for the 34 largest banks – not counting the losses at the 4,997 smaller banks – are expected to hit $100 billion, up nearly 9% from the stress test a year ago. The projected losses rose for several reasons, including that credit card balances have grown by 5.6% from a year ago to over $1 trillion. The delinquency rate has risen to 2.4%. The Fed is also blaming looser lending standards. Sharing the top spot on the Fed’s worry list in the “severely adverse scenario” are Commercial & Industrial loans, whose balances are over twice as large, at $2.1 trillion, but whose projected losses are also pegged at $100 billion. In total, the “severely adverse scenario” sees $493 billion in losses for these 34 banks:

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“..investors, drunk with the liquor of loose money..”

Citizens Will Soon Turn Their Rage Towards Central Bankers (Albert Edwards)

Albert Edwards pwrites “Theft redux: the citizens will soon turn their rage towards Central Bankers.” The core of his argument is familiar: “While politics in the West reels from a decade of economic crisis and stagnation, asset prices continue to surge on the back of continued rapid growth in G3 QE. In an age of “radical uncertainty” how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty – unelected and virtually unaccountable central bankers? I expect central bank independence will be (and should be) the next casualty of the current political turmoil.” That’s just the beginning from Edwards, who appears to be getting increasingly angrier and more frustrated with a market that makes increasingly less sense: his fiery sermon continue with the following preview of the “inevitable catastrophe that lies ahead.”

“Evidence of the impact of monetary madness on assets prices is all around if we care to look. I read that a parking spot in Hong Kong was just sold for record HK$5.18 million ($664,200). What about the 3.5x oversubscribed 100 year Argentine government bond? Sure, everything has a market clearing price, even one of the most regular defaulters in history. But what concerned me most about the story was it was demand from investors (“reverse enquires”) that prompted the issue. Is it just me or can I hear echoes of the mechanics of the CDO crisis? But no one cares when the party is still raging and investors, drunk with the liquor of loose money, are blind to the inevitable catastrophe that lies ahead. There is a lot of anger out on the streets, as demonstrated most visibly in recent elections.

Even in France where investors feel comforted that a “moderate” has gained (absolute?) power, it is salutary to remember that the two establishment parties have just been decimated by a man who had never before stood for public office! This is perhaps even more radical than Trump’s anti-establishment victory under the Republican umbrella. The global political situation is incredibly fluid and unpredictable. While a furious electorate has turned its pent up anger on the establishment political parties, the target for their rage is misguided. I am not completely alone in thinking it is the unelected and virtually unaccountable central bankers who are primarily responsible for the poverty of working people and who will be ultimately held to account in the next crisis.

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In other news: ” Government-funded new social housing has fallen 97% since 2010″.

UK Homelessness Surges 34% Under Tories Since 2010 (Ind.)

The number of families being declared homeless has rocketed by more a third since the Conservatives took power in 2010, analysis of new official statistics by The Independent has revealed. Between April 2016 and March 2017, 59,100 families were declared homeless by local authorities in England – a rise of 34% on the same period in 2010-11. The statistics paint a bleak picture of the UK housing crisis and the impact a lack of decent, affordable homes is having on thousands of families. There has been a 60% increase in the number of families being housed in insecure temporary accommodation. In particular, bed and breakfast-type hotels are increasingly being used to house families for long periods of time as local councils struggle to find them proper homes to live in.

There are now 77,240 families in England currently living in temporary accommodation – up from 48,240 just six years ago. Of these, almost fourth-fifths (78%) are families with children, meaning there are currently 120,500 children living in insecure, temporary homes. Of those being housed temporarily, 6,590 households are living in B&Bs, including 3,010 families with children. Almost half have been living in this type of accommodation, which often sees families crammed into one room and forced to share limited bathroom and cooking facilities with strangers, for more than six weeks. This is illegal under the Homelessness (Suitability of Accommodation) Order 2003, which banned local authorities from housing families with children in B&Bs for more than a six-week period.

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The Tories are done. Someone should tell them.

UK High Court Judges Tory Policy Causes ‘Real Misery For No Purpose’ (Ind.)

Today, the High Court ruled that the benefits cap, one of the Tories’ flagship welfare policies, is unlawful, because it amounts to illegal discrimination against single parents with small children. It’s likely that the Government will be forced to alter or completely scrap their benefits cap, a policy that limits the total amount a household can receive in benefits to £23,000 in London and £20,000 elsewhere in the UK. High Court judge Justice Collins described the benefit cap as causing “real damage” to single parent families and said “real misery is being caused to no good purpose”. This is the fundamental truth at the heart of Tory welfare policy – misery without progress or reason.

Welfare reform as part of the coalition government’s austerity measures has driven thousands more people into poverty and in many tragic cases, some deaths occurred after individuals were declared fit to work. Austerity was not inevitable. It was an ideologically-motivated programme designed to force the poorest and most vulnerable in our society to shoulder the burden of a financial crisis that they had less than nothing to do with creating. Four claimants brought this case to court. Two of them had been made homeless as a result of domestic violence, and were trying to work as many hours as possible while taking care of children under the age of two. Imagine fleeing an abusive partner, seeking support from a domestic violence service that’s had its funding brutally slashed by the Tory government, trying to work and look after a small child, then having your benefits cut, again by the Tory government.

The claimants are not alone. The benefits cap has inflicted a massive amount of suffering, with 200,000 children from the very lowest income families affected, as their parents’ income has fallen drastically. In real terms, this means that these children’s lives have become even more difficult, and they weren’t easy to begin with. This means a colder house, less food to eat, more shame at school due to unwashed clothes, uniforms that are too small, worn-through shoes. It means stressed, unhappy and increasingly desperate parents, and in family, children can’t fail to pick up on this mood of misery. [..] In this wealthy, highly developed country, poverty is the single biggest threat to the wellbeing of children and families. Poverty affects a quarter of all children in Britain, a massive, disgraceful, inexcusable proportion. one in five parents are struggling to feed their children, and 50% of all parents living in food poverty have gone without meals in order to give their children more to eat.

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There goes the bubble. Look out below.

Buy-to-Let Uk Property Sales Fall By Almost 50% In A Year (G.)

The number of properties bought by landlords has almost halved in a year after a tax and regulatory clampdown, prompting a leading banking body to downgrade its forecasts for buy-to-let lending in 2017 and 2018. The Council of Mortgage Lenders said buy to let had had a weak start to 2017, with lending falling faster than expected as landlords withdrew from the market in response to major tax changes and tighter lending rules. The data follows a series of recent surveys and indices suggesting the housing market is running out of steam. However, the crackdown on buy to let may have helped young people trying to get a foot on the property ladder. CML said house purchase activity was being driven predominantly by first-time buyers, with their numbers up 8% in the 12 months to April.

Buy-to-let homebuying activity was “nearly half what it was a year ago” and had averaged around 6,000 purchases a month over the last 12 months, said the body, which represents banks and building societies. The number of landlord purchases involving a mortgage was 5,300 in April this year. This compared with 10,300 in February 2016 and 11,800 in July 2015. As a result, the CML has cut its forecast for buy-to-let lending from £38bn being lent in both 2017 and 2018 to £35bn in 2017 and £33bn in 2018. The organisation warned against hitting landlords with any further changes to taxation and lending rules, saying the figures “re-emphasise the case for avoiding further changes to the tax and regulatory framework until the effect of these already in train have been properly assessed”.

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Download report here: Addicted to Debt – Tracking Canada’s rapid accumulation of private sector debt .

Canada’s Private Sector Debt Growing Faster Than Any Advanced Economy (PA)

For the first time ever, Canada’s private sector is racking up debt faster than any other of the world’s 22 advanced economies, putting the country at risk of serious economic consequences, according to new research by the Canadian Centre for Policy Alternatives. A new report authored by CCPA Senior Economist David Macdonald reveals that Canada added $1 trillion in private sector debt over the past five years ($2016), with the corporate sector responsible for the majority of it. Economies can become dependent on debt in order to fuel economic and asset price growth. With both rapid private debt accumulation and a high private debt-to-GDP ratio, even a small change in debt growth rates, brought on by changes in interest rates for instance, could have a devastating impact on the larger economy.

“Private sector debt growth is one of the best predictors of economic crisis, and Canada is now the only advanced economy squarely in the debt ‘danger zone’ of having high private sector debt that continues to rise rapidly,” Macdonald says. The report identifies several areas of concern:
• Canada has never before led the advanced economies in private debt growth;
• The last time Canada was close to leading the world in private debt growth was the early 1990s, just as housing prices plummeted and then stagnated for a decade;
• The country’s private debt-to-GDP ratio has risen by a fifth since 2011, from 182% to 218%. The US ratio currently stands at 152%;
• The $315 billion increase in household debt since 2011 ($2016) is almost entirely attributable to the rise in mortgage debt related to rapid home prices increases;
• Corporate debt is less well studied, and rose $671 billion since 2011 ($2016), accounting for two thirds of private debt accumulation over that time;
• Corporate debt was largely spent on mergers and acquisitions as well as real estate purchases, neither of which make the country more productive.

“Canada’s economy has become addicted to binging on ever more private sector debt, and weaning us off it should be our primary public policy concern,” adds Macdonald, who recommends further study of corporate debt and consideration of a housing speculators’ tax to further reign in mortgage debt increases.

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Well, it can’t be because Buffett see a bright future in Canada’s housing market. So draw your own conclusion.

Warren Buffett Becomes Lender Of Last Resort For Canada’s Home Capital (BBG)

Warren Buffett has become the lender of last resort for Home Capital. The billionaire investor agreed to buy shares at a deep discount and provide a fresh credit line for the Canadian mortgage company, tapping a formula he used to prop up lenders from Goldman Sachs to Bank of America. Buffett’s Berkshire Hathaway Inc. will buy a 38% stake for about C$400 million ($300 million) and provide a C$2 billion credit line with an interest rate of 9% to backstop the embattled Toronto-based lender, Home Capital said late Wednesday in a statement. The interest on the one-year loan would net Berkshire at least C$180 million if it’s fully tapped.

“While the terms of the new credit line with Berkshire Hathaway remain harsh, we believe the purpose of this loan is to motivate Home Capital’s management to bolster their own funding sources,” said Hugo Chan at Kingsferry Capital in Shanghai, which owns shares in Home Capital. “This again shows Mr. Buffett’s masterful capital allocation skills,” said Chan, citing his investment motto: “be greedy when others are fearful.” The financial backing from Buffett sent the stock higher Thursday, though it comes at a cost, in keeping with his past bailouts of financial firms. Buffett has buoyed some of the biggest U.S. corporations in times of trouble, including a combined $8 billion injection to prop up Goldman Sachs and General Electric when credit markets froze during the 2008 financial crisis.

In the Home Capital deal, Buffett’s firm agreed to pay an average price of C$10 a share, a 33% discount to Wednesday’s closing price of C$14.94. Berkshire would become the largest shareholder in Home Capital, which has a market value of about C$1 billion. Home Capital surged 27% to C$19 in Toronto on Thursday. That gives Buffett a 90% return on paper for the equity investment, assuming the deal goes through.

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They always have, it’s an MO.

EU Political Class Rides Roughshod over Citizens’ Concerns & Frustrations (DQ)

Merkel has expressed a willingness to go along with two central French demands — the appointment of a Eurozone finance minister and the creation of a common budget — as long as certain conditions are met. “We can of course think about a Eurozone budget as long as it’s clear that this is really strengthening structures and achieving sensible results,” she said. [..] Back on the table is a proposal to upgrade the grossly unaccountable Luxembourg-based European Stability Mechanism (ESM) into a full-fledged European Monetary Fund. As we’ve noted before, creating a European Monetary Fund (EMF) would be an important statement of intent. If Europe’s core countries are truly set on taking the EU project to a whole new level, such as by pursuing the creation of an EU army, an EU border force (with full powers), fiscal union, and ultimately political union, some form of burden sharing will ultimately be necessary.

The establishment of a fully operational EMF could be an important move in that direction. The EMF would essentially act as a fiscal backdrop to the banking system, something the Eurozone has desperately needed ever since its creation. As Bruegel proposes, it would serve as a fiscal counterpart of the ECB to guarantee the financial stability of the euro area in the event of a sovereign or banking crisis, or a threat thereof — of which there are plenty these days, in particular emanating from Italy’s broken banking system. Naturally, the creation of an EMF would deal a further blow to the fading remnants of national sovereignty in Europe. But that’s a price that many (but certainly not all) of Europe’s elite is more than happy to pay; some would say that destroying national sovereignty was the ultimate goal of the EU all along.

In a survey of more than 10,000 EU citizens and 1,800 EU elites carried out by Chatham House, of the elites, 37% believe the EU should get more powers, 28% want to keep the status quo and 31% would prefer to return more powers to individual member countries. This enthusiasm for a more centralized, more powerful EU is not shared with equal enthusiasm by European citizens: 48% want powers returned to the individual member countries. Citizens, overall, do not feel they have benefited from European integration in the same way Europe’s elite does. Whereas 71% of elites report feeling they have gained something from the EU, the figure among the public is only 34%. Even more worrisome for national leaders, a clear majority of the public — 54% — feel that their country was a better place to live 20 years ago, before the euro existed.

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I’ve seen a few parts. Liked them quite a bit.

Dear Oliver: About Those Putin Interviews (RM)

Dear Mr. Stone: I have just finished watching all four episodes of The Putin Interviews. May I give you my critique? Overall, I felt that the series is Very Good but felt just short of Great. I will explain below what I feel could have made it Great. First, I want to tell you what I really loved about it. 1. You have an easy style. I felt as if Mr. Putin was at ease with you, and you with him. You have a warm command of the English language and can transmit your ideas into language in a very personable way — an art that is missing among so many American media people these days. I felt that you drew out a candid side of Putin, well, that is, as far as a man of his intellectual prowess and disciplined self-control will allow. 2. Best moment of the show: Sitting next to Vlad and watching Dr. Strangelove! Oh my goodness, most people would not even dream of adding such a thing to their bucket list.

3. I loved the walking tour of the President’s offices and the general background of the Kremlin architecture and decor. I pay attention to the daily, tweeted photos from the Kremlin’s official account. I have seen those desks and tables a million times in the photos. But now I have them all within a mental frame, thanks to your film. Question: I was burning to know why Vlad had a pair of scissors and multi-colored construction paper in the middle of his desk, did you happen to ask him, off-camera?

Where It Fell Short Mr. Stone, I hated that so much time was wasted talking about the contrived “Russia hacked the election” meme. Hillary might not know why she lost the election, but the rest of the nation does. When my father would get on a roll with his bad jokes, Mom would tell us kids: “Don’t encourage him.” Well, you too need to stop encouraging the MSM to keep breathing life into a dead meme.

You also wasted time re-hashing Crimea. “Read My Lips,” Vlad said, “the Crimeans ASKED, BEGGED, AND VOTED to rejoin Russia.” Good grief, when McCain’s and Nuland’s beloved neo-Nazi Svoboda party took illegal control of Ukraine, their first move was to try and make it illegal to speak Russian. Geez, half the people in Ukraine ARE Russian! Mr. Putin has exercised considerable restraint towards Ukraine.

Mr. Stone, I have been following the development of BRICS, the “Silk Road Project,” and the EEU (European Economic Union) for a half-decade now. I can’t have a conversation with my neighbors and friends about all of that here in America because not one of them has heard anything about it! You had a great opportunity to ask Mr. Putin to school us on the Sino-Russian version of a multi-polar world without war, but you totally blew it. I don’t think you ever asked Vlad about China, did you?

 

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Saudi Arabia accuses Qatar of supporting terrorism. Rich.

Arab States Send Qatar 13 Demands To End Crisis (R.)

Four Arab states boycotting Qatar over alleged support for terrorism have sent Doha a list of 13 demands including closing Al Jazeera television and reducing ties to their regional adversary Iran, an official of one of the four countries said. The demands aimed at ending the worst Gulf Arab crisis in years appear designed to quash a two decade-old foreign policy in which Qatar has punched well above its weight, striding the stage as a peace broker, often in conflicts in Muslim lands. Doha’s independent-minded approach, including a dovish line on Iran and support for Islamist groups, in particular the Muslim Brotherhood, has incensed some of its neighbors who see political Islamism as a threat to their dynastic rule.

The list, compiled by Saudi Arabia, the United Arab Emirates (UAE), Egypt and Bahrain, which cut economic, diplomatic and travel ties to Doha on June 5, also demands the closing of a Turkish military base in Qatar, the official told Reuters. Qatar must also announce it is severing ties with terrorist, ideological and sectarian organizations including the Muslim Brotherhood, Islamic State, al Qaeda, Hezbollah, and Jabhat Fateh al Sham, formerly al Qaeda’s branch in Syria, he said, and surrender all designated terrorists on its territory, The four Arab countries accuse Qatar of funding terrorism, fomenting regional instability and cozying up to revolutionary theocracy Iran. Qatar has denied the accusations.

[..] on Monday, Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani said Qatar would not negotiate with the four states unless they lifted their measures against Doha. The countries give Doha 10 days to comply, failing which the list becomes “void”, the official said without elaborating, suggesting the offer to end the dispute in return for the 13 steps would no longer be on the table.

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Bunch of sicko’s.

Edward Snowden on Twitter: “Biggest @AP scoop in a long time: US government behind UAE torture in Yemen, with some reportedly grilled alive.

In Yemen’s Secret Prisons, UAE Tortures and US Interrogates

Hundreds of men swept up in the hunt for al-Qaida militants have disappeared into a secret network of prisons in southern Yemen where abuse is routine and torture extreme — including the “grill,” in which the victim is tied to a spit like a roast and spun in a circle of fire, an Associated Press investigation has found. Senior American defense officials acknowledged Wednesday that U.S. forces have been involved in interrogations of detainees in Yemen but denied any participation in or knowledge of human rights abuses. Interrogating detainees who have been abused could violate international law, which prohibits complicity in torture. The AP documented at least 18 clandestine lockups across southern Yemen run by the United Arab Emirates or by Yemeni forces created and trained by the Gulf nation, drawing on accounts from former detainees, families of prisoners, civil rights lawyers and Yemeni military officials.

All are either hidden or off limits to Yemen’s government, which has been getting Emirati help in its civil war with rebels over the last two years. The secret prisons are inside military bases, ports, an airport, private villas and even a nightclub. Some detainees have been flown to an Emirati base across the Red Sea in Eritrea, according to Yemen Interior Minister Hussein Arab and others. Several U.S. defense officials, speaking on condition of anonymity to discuss the topic, told AP that American forces do participate in interrogations of detainees at locations in Yemen, provide questions for others to ask, and receive transcripts of interrogations from Emirati allies. They said U.S. senior military leaders were aware of allegations of torture at the prisons in Yemen, looked into them, but were satisfied that there had not been any abuse when U.S. forces were present.

“We always adhere to the highest standards of personal and professional conduct,” said chief Defense Department spokeswoman Dana White when presented with AP’s findings. “We would not turn a blind eye, because we are obligated to report any violations of human rights.” In a statement to the AP, the UAE’s government denied the allegations. “There are no secret detention centers and no torture of prisoners is done during interrogations.” Inside war-torn Yemen, however, lawyers and families say nearly 2,000 men have disappeared into the clandestine prisons, a number so high that it has triggered near-weekly protests among families seeking information about missing sons, brothers and fathers.

None of the dozens of people interviewed by AP contended that American interrogators were involved in the actual abuses. Nevertheless, obtaining intelligence that may have been extracted by torture inflicted by another party would violate the International Convention Against Torture and could qualify as war crimes, said Ryan Goodman, a law professor at New York University who served as special counsel to the Defense Department until last year

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Jun 172017
 
 June 17, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Fred Lyon Broadway and Kearny Street, North Beach, San Francisco 1952

 

All Hell Is Going To Break Loose In The Bond Market (SBA)
The Fog of Markets (720G)
10 Years After Global Financial Crisis, World Still Suffers Debt Overhang (SMH)
Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar (WS)
Special Prosecutor Mueller Is a Political Hack (Washington)
Fear of Contagion Feeds the Italian Banking Crisis (DQ)
China’s Smaller Banks Endure Record Borrowing Costs amid Squeeze (BBG)
Most Of Central London Hospital To Be Sold Off, Plans Reveal (G.)
Five Talks on Power, Populism, Politics & Europe (Varoufakis)
Spain Says Eurogroup May Block Greek Loan If Officials Not Granted Immunity (R.)
Swedish Commuters Can Use Hand Implant Chip Instead Of Train Tickets (Ind.)

 

 

“..the Federal Reserve has not allowed the market to do its one and only job, and that is to determine fair value.”

All Hell Is Going To Break Loose In The Bond Market (SBA)

This past Wednesday we heard from the Federal Reserve with regard to monetary policy, and as I predicted they did raise the federal funds rate 25 basis points however, instead of yields rising, they are dropping. More than a year and a half ago I had said publicly that the Federal Reserve’s attempt at trying to normalize bond yields would backfire-and this is exactly what is happening. It is clear to me that the Federal Reserve has absolutely lost control of what is occurring in the bond market. Remember, this is uncharted territory, we have never been here before in the history of the financial world-so the Federal Reserve actually has no idea of how the market will react in the current environment with regard to their attempt at normalizing interest rates. The yield curve as seen in the picture above continues to flatten out, and this trend will continue until the curve inverts.

The last time the yield curve inverted, the 2008 economic meltdown occurred, and the time before that we suffered the.com bubble meltdown. The fact is we are existing in a multiple bubble economy at this time, worse, and unlike anything which has ever been seen before. The reason why these bubbles exist is simple: the Federal Reserve has not allowed the market to do its one and only job, and that is to determine fair value. The Federal Reserve’s interest rate suppression cycle has not only allowed, but has been the driving force behind mass malinvestments across the entire spectrum of asset classes and as such, bubbles have been created. The Federal Reserve has created distortions across the spectrum of asset classes which is frankly beyond belief, worse than has ever been witnessed in the history of finance. What this means is when the yield curve inverts this time, we will experience a meltdown magnitudes greater then the 2008 crash.

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“..till injuries were wrought to the structure of human society which a century will not efface, and which may conceivably prove fatal to the present civilization.”

The Fog of Markets (720G)

“The year 1915 was fated to be disastrous to the cause of the Allies and to the whole world. By the mistakes of this year the opportunity was lost of confining the conflagration within limits which though enormous were not uncontrolled. Thereafter the fire roared on till it burnt itself out. Thereafter events passed very largely outside the scope of conscious choice. Governments and individuals conformed to the rhythm of the tragedy, and swayed and staggered forward in helpless violence, slaughtering and squandering on ever-increasing scales, till injuries were wrought to the structure of human society which a century will not efface, and which may conceivably prove fatal to the present civilization.” – Winston S. Churchill – The World Crisis: 1915

After reading that quote several times, it remains shocking that the politicians and individuals of that era unconsciously “conformed to the rhythm of the tragedy.” The paragraph above from Winston Churchill, describes the mass mindset of World War I when it was still in its infancy. War-time narratives, nationalism, destruction and the tremendous loss of life led most people to quickly accept and acclimate to an event that was beyond atrocious. Amazingly, less than a year before the period Churchill discusses, the same people likely would have thought that acceptance of such a calamity would be beyond comprehension. Wars and markets are obviously on two different planes, and we want to make it clear the purpose of this article is not to compare the evils of war to financial markets. That said, we must recognize that quick acceptance of abnormal circumstances, as Churchill describes, is a trait that we all possess.

The seemingly unabated march upwards in stock prices occurring over the last eight years has had a mind-numbing effect on investors. The relentless grind higher is backed by weak fundamentals providing little to no justification for elevated prices. Indeed, if there was no justification for such valuations during the economically superior timeframe of the late 1990’s, how does coherent logic rationalize current circumstances? For example, feeble economic growth, stagnating corporate earnings, unstable levels of debt, income and wage inequality and a host of other economic ills typically do not command a steep premium and so little regard for risk. This time, however, is different, and investors have turned a blind eye to such inconvenient facts and instead bank on a rosy future. Thus far, they have been rewarded. But as is so often the case with superficial gratification, the rewards are very likely to prove fleeting and what’s left behind will be deep regret.

Despite our education and experience which teach the many aspects of the discipline of prudent investing, investors are still prone to become victims of the philosophy and psychology of the world around them. These lapses, where popular opinion-based investment decisions crowd out the sound logic and rationale for prudence and discipline, eventually carry a destructively high price. Investors, actually the entire population, have become mesmerized by the system as altered and put forth by the central bankers. We have somehow become accustomed to believe that debt-enabling low interest rates make even more debt acceptable. Ever higher valuations of assets are justifiable on the false premise of a manufactured and artificial economic construct.

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Long from Australia, with lots of sources. Bit confusing even.

10 Years After Global Financial Crisis, World Still Suffers Debt Overhang (SMH)

Let’s start with the question of debt. Lord Adair Turner, who chaired the UK Financial Services Authority between 2008 and 2013 and helped redesign global banking, says the world since has not addressed this root cause of the crisis and that means it’s at risk of another one. Lord Turner, now chairman of New York-based Institute for New Economic Thinking, says the world is suffering from “irrational exuberance” and “debt overhang”. The latter term refers to countries trapped in a vicious cycle of debt, and when nations ultimately default on that debt – he predicts that the next crisis will come courtesy of China and that’s just a number of years away – it ends in their economic destruction.

The Institute of International Finance (IIF) says global levels of debt held by households, governments, and non-financial corporates jumped by over $US70 trillion in the past decade to a record high of $US215 trillion, equating to 325 per cent of global GDP. “There’s been no deleveraging,” Lord Turner says. “Once you’ve got too much debt in the economy … it’s incredibly difficult to get rid of it. “If you say, ‘I’m going to write it off’, your banks go bankrupt … if you try get rid of it by people paying down that debt … the attempt to pay it back is what drives the economy into recession.” To avoid that, interest rates then fall, and that simply encourages more borrowing, he says.

[..] Steve Keen, Professor of Economics at Kingston University in London, a long-time doomsayer on Australia’s mortgage binge, says simply: “It’s dangerous”. He says the Reserve Bank and Australian politicians ignore the dangers of private household debt today just as former US Federal Reserve chairman Ben Bernanke did before the GFC. Keen says the risk of recession is even higher now that APRA has slightly tightened lending standards. “It’s inevitable,” he says, sticking to his bold prediction that it will happen before year’s end.

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Grow your own food.

Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar (WS)

Amazon, which is getting blamed profusely for the meltdown of brick-and-mortar stores and malls across the US, and which has been dabbling with its own initiatives into brick-and-mortar operations – including bookstores, after nearly wiping bookstores off the face of the US – said it would buy brick-and-mortar Whole Foods Market for $13.7 billion. Amazon will get Whole Foods’s $15.7 billion in annual sales and more importantly, its brand, semi-loyal customers, and about 450 brick-and-mortar stores across 42 states. Whole Food shares jumped 27%. But in early trading, the shares of the largest brick-and-mortar grocery sellers in the US are getting crushed: Wal-Mart Stores -6.5%; Kroger, largest supermarket chain in the US, -14%; Costco -7%; Target -10%.

Amazon already sells groceries online via AmazonFresh, and a few months ago announced it would create a grocery store pickup service, another foray into brick-and-mortar. Selling groceries online has been tough in the US, though everyone has been trying, from innumerable startups to Safeway and Google Express (in cooperation with Costco et al.). Consumers are used to buying at the store by running through the aisles with their carts and choosing what they see or what’s on their list, or both, and they want to touch and check their produce before buying it, and they don’t want the dented apples or squished grapes or wilted lettuce. And they need it now on the way home from work so they can fix dinner.

With this acquisition, Amazon’s efforts to muscle its way into the grocery business and even more into the every-day lives of Americans have thus taken a quantum leap forward. But what industry is Amazon muscling into? Over the past six years, sales at grocery stores are up a total of 14%, not adjusted for inflation, according to the retail trade report by the Commerce Department. Over the same period, the Consumer Price Index for food rose 14%, according to the Bureau of Labor Statistics. Hence, on an inflation-adjusted basis, “real” sales have been flat for six years.

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Did anyone doubt this? Safe to predict the investigation will be dragged out forever.

Special Prosecutor Mueller Is a Political Hack (Washington)

Torture FBI special agent Colleen Rowley points out: Mueller was even okay with the CIA conducting torture programs after his own agents warned against participation. Agents were simply instructed not to document such torture, and any “war crimes files” were made to disappear. Not only did “collect it all” surveillance and torture programs continue, but Mueller’s (and then Comey’s) FBI later worked to prosecute NSA and CIA whistleblowers who revealed these illegalities.

Iraq War Rowley notes: When you had the lead-up to the Iraq War … Mueller and, of course, the CIA and all the other directors, saluted smartly and went along with what Bush wanted, which was to gin up the intelligence to make a pretext for the Iraq War. For instance, in the case of the FBI, they actually had a receipt, and other documentary proof, that one of the hijackers, Mohamed Atta, had not been in Prague, as Dick Cheney was alleging. And yet those directors more or less kept quiet. That included … CIA, FBI, Mueller, and it included also the deputy attorney general at the time, James Comey.

Post 9/11 Round-Up FBI special agent Rowley also notes: Beyond ignoring politicized intelligence, Mueller bent to other political pressures. In the aftermath of the 9/11 attacks, Mueller directed the “post 9/11 round-up” of about 1,000 immigrants who mostly happened to be in the wrong place (the New York City area) at the wrong time. FBI Headquarters encouraged more and more detentions for what seemed to be essentially P.R. purposes. Field offices were required to report daily the number of detentions in order to supply grist for FBI press releases about FBI “progress” in fighting terrorism. Consequently, some of the detainees were brutalized and jailed for up to a year despite the fact that none turned out to be terrorists.

9/11 Cover Up Rowley points out: The FBI and all the other officials claimed that there were no clues, that they had no warning [about 9/11] etc., and that was not the case. There had been all kinds of memos and intelligence coming in. I actually had a chance to meet Director Mueller personally the night before I testified to the Senate Judiciary Committee … [he was] trying to get us on his side, on the FBI side, so that we wouldn’t say anything terribly embarrassing. …

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EU’s post-Cyprus resolutions are being dumped whenever that’s easier.

Fear of Contagion Feeds the Italian Banking Crisis (DQ)

Spain’s Banco Popular had the dubious honor of being the first financial institution to be resolved under the EU’s Bank Recovery and Resolution Directive, passed in January 2016. As a result, shareholders and subordinate bondholders were “bailed in” before the bank was sold to Santander for the princely sum of one euro. At first the operation was proclaimed a roaring success. As European banking crises go, this was an orderly one, reported The Economist. Taxpayers were not left on the hook, as long as you ignore the €5 billion of deferred tax credits Santander obtained from the operation. Depositors and senior bondholders were spared any of the fallout. But it may not last for long, for the chances of a similar approach being adopted to Italy’s banking crisis appear to be razor slim.

The ECB has already awarded Italy’s Monte dei Paschi di Siena (MPS) a last-minute reprieve, on the grounds that while it did not pass certain parts of the ECB’s last stress test, the bank is perfectly solvent, albeit with serious liquidity problems. By contrast, Popular was also liquidity challenged but, unlike MPS, it passed all parts of the ECB’s 2016 stress test, which shows you how ineffectual these tests are — and how subjective the resolution process of a European bank can be. In a speech to the Italian Banking Association on Thursday, the Vice President of the ECB, Vítor Constâncio, suggested that under certain circumstances, it might be wiser to save a bank than to resolve it. What’s more, taxpayers should be called upon not only to save banks like MPS but also to make whole all holders of the bank’s subordinate debt, under the pretext that they were misled into purchasing them (as indeed some retail customers, but certainly not all, were).

A taxpayer-funded bailout of bondholders is also on the cards for the two mid-sized Veneto-based banks, Banca Popolare di Vicenza and Veneto Banca, which have already received billions of euros in taxpayer assistance. Italy’s Minister of Economy Pier Carlo Padoan continues to insist the two banks will not be wound down. This is the same man who insisted last year that a) there would be no need of any future bail outs; and b) Italy did not even have a banking problem on its hands. Padoan has no choice but to deny all rumors of a bail-in; otherwise there would be a massive rush for the exits. In the weeks and even days leading up to Popular’s collapse, Spain’s Economy Minister Luis de Guindos repeatedly reassured investors that the bank was perfectly safe and solvent.

All the while government agencies, including Spain’s social security fund, and regional government authorities were emptying the deposits they held with the bank as fast as they could. The total is unknown but it certain ran into billions of euros. To avoid a similar fate, Banca Popolare di Vicenza and Veneto Banca were instructed by the European Commission last week to find an additional €1.25 billion in private capital. That money still hasn’t arrived, and now Italy’s government is trying to persuade the European Commission and the ECB to water down the requirement to €600-800 million, while also urging Italian banks to chip in to the bank rescue fund. If they don’t and the two Veneto-based banks end up being wound down, they will have to cough up as much as €11 billion to refund the banks’ depositors.

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Deleveraging my donkey.

China’s Smaller Banks Endure Record Borrowing Costs amid Squeeze (BBG)

China’s smaller banks, caught between a seasonal cash squeeze and an official deleveraging drive, are stomaching record high borrowing costs to raise funds. Issuance of negotiable certificates of deposit jumped to 758 billion yuan ($111.5 billion) this week, the most since the securities were introduced in 2013 as a lifeline for smaller banks. The yield on one-month AAA rated NCDs has surged nearly one percentage point this month to an all-time high of 5.05%, while that on AA+ contracts reached 5.30%, according to data compiled by Bloomberg. The increase in NCD costs comes at a tough time for Chinese lenders, which face an unprecedented 4.5 trillion yuan of maturities this quarter. The pressure has been aggravated by the deleveraging drive, with the one-month Shanghai Interbank Offered Rate climbing for 22 days in a row to a two-year high.

The certificates are used mainly by smaller lenders – banks outside of China’s top 10 by market value accounted for 76% of total sales this year. “The smaller banks have no choice but to take the blow,” said Shan Kun, Shanghai-based head of China markets strategy at BNP Paribas. “They need to sell NCDs to get financing as they cut leverage gradually and as they have to cope with tighter liquidity this month. The rates will likely continue to climb, or at least stay elevated in the near term.” When cash supply tightens, small- and medium-sized lenders are usually among the hardest-hit because they lack the retail deposit arsenal of larger banks, said Yulia Wan, a Shanghai-based banking analyst at Moody’s Investors Service. They also may not have enough bonds to use as collateral to borrow money in the repo market. The banks need the money to finance longer-term and less liquid assets, such as debt and investment in loans and receivables, she added.

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Grand plans going back to Osborne and Cameron.

Most Of Central London Hospital To Be Sold Off, Plans Reveal (G.)

Almost all of a central London hospital is to be sold and its services diverted to already stretched facilities around the capital under plans for NHS modernisation seen by the Guardian. Charing Cross hospital, a flagship NHS facility in the heart of London, is to be cut to just 13% of its current size under proposals contained in sustainability and transformation plans published last year in 44 areas across England. Many of the officially published plans lacked precise detail about how local services would change, but internal supporting documents seen by the Guardian reveal the scale of the closures at the London site. The proposals claim much of the care currently offered at Charing Cross can be transferred to “community settings” such as local GP services, but health campaigners and clinicians say the transformation could endanger patients.

The documents include a map detailing how 13% of the current hospital site will remain, with the rest of its prime real estate in central London sold off. The plan is to introduce the changes after 2021. NHS chiefs have stated as recently as March that “there have never been any plans to close Charing Cross hospital”, and in March 2015 the then prime minister, David Cameron, said it was “scaremongering” to suggest that the Charing Cross A&E departmentwas earmarked for closure. The health secretary, Jeremy Hunt, echoed the claims. However, in the internal NHS documents the apparent downgrading of Charing Cross is outlined in great detail. The plan is to axe 10 major services at Charing Cross – 24/7 A&E, emergency surgery, intensive care and a range of complex emergency and non-emergency medical and surgical treatments. The remaining services would be a series of outpatient and GP clinics, X-ray and CT scans, a pharmacy and an urgent care centre for “minor injuries and illnesses”. Around 300 acute beds will be lost.

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Yanis.

Five Talks on Power, Populism, Politics & Europe (Varoufakis)

1 Yanis Varoufakis on power, populism and the future of the EU
2 Can Europe Make It? – Yanis Varoufakis speaks to openDemocracy
3 Yanis Varoufakis blows the lid on Europe’s hidden agenda
4 Yanis Varoufakis and his plan to take on Europe – again
5 Greece, Austerity, Brexit and Europe’s other darlings at GFMF2016

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In the EU, there’s immunity for officials committing crimes.

Spain Says Eurogroup May Block Greek Loan If Officials Not Granted Immunity (R.)

The Eurogroup of finance ministers may block an 8.5-billion-euro (7.44 billion pounds) loan to Greece if it does not grant immunity to privatisation agency officials from Spain, Italy and Slovakia, Spanish Economy Minister Luis de Guindos said on Friday. In 2015, a Greek prosecutor charged three officials at the country’s privatisation agency with embezzlement for withholding interest payments and breach of duty in relation to a sale and lease-back deal of 28 state-owned buildings. The case is still pending. “If there’s not a definitive solution for the situation of these three experts, the Eurogroup will block the payment,” de Guindos said in Luxemburg.

Greece would do “whatever necessary” to immediately settle the legal case, a Greek government official said. European Economic and Monetary Affairs Commissioner Pierre Moscovici said he was confident the problem would be resolved and that he would continue to discuss the issue with Spain during his visit to Madrid next week. “The problem has to be solved. We should not over dramatise it. The disbursement will happen and at the same time will find a solution to this problem,” Moscovici said on his arrival at a meeting of EU finance ministers in Luxemburg on Friday.

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Next up: a chip that makes your kids smarter. Try and resist that.

Swedish Commuters Can Use Hand Implant Chip Instead Of Train Tickets (Ind.)

Gone are the days when an e-ticket was seen as cutting edge – one Swedish rail company is offering passengers the option of using a biometric chip implanted into their hand in lieu of a paper train ticket. SJ is the first travel company in the world to let people use this innovative method that seems straight out of a sci-fi film. The tiny chip has the same technology as Oyster cards and contactless bank cards – NFC (Near Field Communication) – to enable conductors to scan passengers’ hands. Before you pack your bags for Sweden, the scheme is only applicable to those who already have the biometric implant – SJ is not offering to chip people. Around 2,000 Swedes have had the surgical implant to date, most of them employed in the tech industry.

State-owned operator SJ has said it expects about 200 people to take up the microchip method, but users must be signed up as a loyalty programme member to access the service. Customers buy tickets in the normal way by logging onto the website or mobile app, and their membership number, which is the reference code for the ticket, is linked to their chip. There are still kinks to be ironed out with the scheme, which began in earnest last week. Some passengers’ LinkedIn profiles were appearing instead of their train tickets when conductors scanned their biometric chip, while a number of train crew haven’t got the new SJ app which facilitates the scanning of biometric chips yet. “It’s just a matter of days before everyone has it,” says a spokesperson for SJ.

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Jun 072017
 
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Olivier Drot Morning in Downtown Athens June 7 2017

 

Spring Rally in Stocks, Bonds, Gold and Bitcoin Unnerves Investors (WSJ)
Trump’s America Is Facing a $13 Trillion Consumer Debt Hangover (BBG)
Bars Open Early Tomorrow So People Can Drink While Watching Comey Testify (BI)
Other Times Unemployment Has Been This Low, It Didn’t End Well (WSJ)
UK’s May Says She’d Rip Up Human Rights Law to Beat Terrorists (BBG)
Corbyn: UK Foreign Policy Increases Terrorism Risk. Most Britons Agree (Ind.)
Australia’s Economy Marks Record 26 Years Without Recession (AFP)
Australians Curb Spending As Household Debt Balloons (R.)
Is There A Magic Money Tree? Yes Children, But That’s The Wrong Question (G.)
Santander Buys Struggling Spanish Banco Popular For €1 (BBG)
Don’t Count on China as Next Climate Crusader (WSJ)
Gimme Shelter (Jim Kunstler)
98% Of Greeks Downbeat About Their Current Economic Situation (K.)

 

 

The inevitable result of no price discovery for years on end. Do note that no price discovery also means there are no investors.

Spring Rally in Stocks, Bonds, Gold and Bitcoin Unnerves Investors (WSJ)

Stocks, bonds, gold and bitcoin—assets that rarely move in unison—have all been surging this spring, an everything rally that leaves investors confounded about how to play the plodding U.S. expansion and vulnerable to sharp reversals in fortune. Major U.S. stock indexes have soared to records this month, reflecting some investors’ confidence in the continued U.S. economic recovery along with expectations that large technology firms will accrue further market-share gains. At the same time prices of bonds, which often decline when stocks are rising, have risen lately, as U.S. inflation readings cooled off alongside a slowdown in some key industries. Gold has gained following terror attacks in the U.K., and turmoil in U.S. politics centering on the administration’s legislative prospects and a key congressional hearing this week featuring former FBI director James Comey.

The simultaneous gains have begun to concern some investors. Many point to a wave of money that is driving up asset prices, tied in part to lower bond yields and a lower dollar—a confluence of events they say feels good while it lasts but can’t go on forever. “We do think there are distortions” in the markets, said Iman Brivanlou, who oversees high-income equities at asset manager TCW. The Dow Industrials this month have posted two record closes, their first since March, and the 30-stock index remains just 0.33% below its all-time high despite a decline Tuesday of 47.81 points to 21136.23. The Nasdaq Composite Index has hit more than three dozen new highs this year, reflecting the surge of red-hot tech stocks such as Alphabet and Amazon.com , both of which this month have surpassed $1,000 a share. Bitcoin has tripled this year, hitting a record high Tuesday.

At the same time, U.S. bond yields on Tuesday sank to their 2017 low at 2.147% and the price of gold, long viewed as a barometer of market concern about potential risks ahead, settled at $1,294.40, its highest in seven months. A Goldman Sachs Group index of financial conditions that takes into account credit spreads, equity prices and other market gauges, this month suggested the easiest conditions since early 2015, before the Federal Reserve began lifting rates. Another measure of stress in U.S. money markets fell to near its lowest in seven years, while measures of expected stock-market swings have been at the lowest in a decade.

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A global issue.

Trump’s America Is Facing a $13 Trillion Consumer Debt Hangover (BBG)

After bingeing on credit for a half decade, U.S. consumers may finally be feeling the hangover. Americans faced with lackluster income growth have been financing more of their spending with debt instead. There are early signs that loan burdens are growing unsustainably large for borrowers with lower incomes. Household borrowings have surged to a record $12.73 trillion, and the%age of debt that is overdue has risen for two consecutive quarters. And with economic optimism having lifted borrowing rates since the election and the Federal Reserve expected to hike further, it’s getting more expensive for borrowers to refinance. Some companies are growing worried about their customers. Public Storage said in April that more of its self-storage customers now seem to be under stress.

Credit card lenders including Synchrony Financial and Capital One Financial are setting aside more money to cover bad loans. Consumer product makers including Nestle posted slower sales growth last quarter, particularly in the U.S. Companies may have reason to be concerned. Consumer spending notched its weakest gain in the first quarter since the end of 2009, a problem in an economy where consumers account for 70% of spending, though analysts expect the dip to be transitory. And debt delinquencies are rising even as the job market shows signs of strength. “There are pockets of consumers that are going to be sorely tested,” said Christopher Low, chief economist at FTN Financial. “We’ve conditioned American consumers to use debt to close the gap between their wages and their spending. When the Fed hikes, riskier borrowers are going to get pinched first.”

Since the 2008 financial crisis, the Fed has kept rates low to encourage companies and consumers to borrow more and spur economic growth. Much of the gains in household debt since 2012 have come from student loans, auto debt and credit cards. Over that time, wage growth has averaged around 2.2% a year, and the pace has been slowing for much of this year. Even if economists forecast that income growth will accelerate, those pickups have remained elusive. Donald Trump won the U.S. presidential election in part by convincing voters that he understood their economic pain. Keeping up with household debt payments is still broadly manageable for consumers. As of the end of last year, the ratio of principal and interest payments to disposable income for Americans was just shy of 10%, less than the average going back to 1980 of 11.33%.

And it’s too soon to say whether growing signs of pain among borrowers are just a return to more normal levels of delinquencies or evidence of a more serious credit downturn. Loan delinquencies are creeping higher after plunging from 2010 until the middle of 2016, but are still below historical averages.

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This can only disappoint. The echo chamber is overcrowded.

Bars Open Early Tomorrow So People Can Drink While Watching Comey Testify (BI)

If you want to have a drink while watching former FBI director James Comey testify before the Senate Intelligence Committee on Thursday, you’re in luck. Bars in Washington, DC, San Francisco, and Houston, Texas, are opening early on Thursday to screen Comey’s testimony, which is scheduled to begin at 10 a.m. EST. “Come on… you know you want to watch the drama unfold this Thursday,” Shaw’s Tavern, which will be serving $5 Stoli vodka and “FBI” sandwiches, wrote on Facebook. “Grab your friends, grab a drink and let’s COVFEFE!”

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Oh boy, you can’t win, can you?

Other Times Unemployment Has Been This Low, It Didn’t End Well (WSJ)

There have been only three fleeting periods in the past half-century when the U.S. unemployment rate was as low as it is today. This would be cause for celebration but for one disturbing fact: in hindsight, each period was associated with boiling excesses that led to serious economic trouble. Low unemployment of the late 1960s preceded an inflation spiral in the 1970s. The late 1990s bred the Dot-com bubble and bust. The mid-2000s saw the buildup and collapse of U.S. housing. While there is reason to believe today’s economy isn’t boiling over as in the past, those episodes call for caution. “It’s not a matter of superstition, it’s a matter of being mindful of the history of what such a low unemployment rate usually is followed by,” said Michael Feroli, chief U.S. economist of J.P. Morgan Chase.

While initially a welcome development, low unemployment in the 1960s laid the groundwork for a buildup of wage and price pressures, spurred on by low interest rates and aggressive government spending programs. The unemployment rate dropped to 4.3% in September 1965 and then below 4%. Today’s unemployment rate, also at 4.3%, could drop below 4% in the next year if it maintains its present trajectory. Unemployment returned again to 4.3% in January 1999. This time the inflation rate remained below 2% and it seemed that, unlike the late 1960s, the economy wasn’t overheating. But asset prices—the stock market in particular—soared after what had already been a long climb. The DJIA shot above 10000 for the first time in March 1998. Highflying tech companies commanded billion-dollar valuations with no profits to report. In hindsight, an internet bubble grew out of control.

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Hoping to get the nazi vote?

UK’s May Says She’d Rip Up Human Rights Law to Beat Terrorists (BBG)

Prime Minister Theresa May said she’d be willing to tear up human rights legislation in the battle against terrorists, as security continued to dominate the final days of the U.K. election campaign. Speaking to supporters at a campaign event in Slough, west of London, the premier said she wanted to make it easier for the authorities to deport foreign terror suspects and to limit the freedoms of individuals who pose a threat but who can’t be prosecuted in court. “If our human rights laws stop us from doing it, we will change the laws so we can do it,” May said. “If I am elected as prime minister on Thursday, that work begins on Friday.” May is facing criticism over her record overseeing U.K. homeland security in the wake of two terrorist attacks in two weeks ahead of Thursday’s national vote.

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Those arms sales will be under heavy pressure no matter who wins.

Corbyn: UK Foreign Policy Increases Terrorism Risk. Most Britons Agree (Ind.)

An overwhelming majority of people agree with Jeremy Corbyn that British involvement in foreign wars has put the public at greater risk of terrorism, according to a new poll. The exclusive ORB survey for The Independent found 75% of people believe interventions in Iraq, Afghanistan and Libya have made atrocities on UK soil more likely. The poll – conducted before Saturday night’s devastating attack – comes after Mr Corbyn was lambasted for suggesting foreign policy decisions were linked to terrorism in the UK and that the “war on terror” had failed. The deadly strike at London Bridge and Borough Market, the third attack in Britain in as many months, has seen security dominate the final days of the election campaign, with cabinet ministers squabbling over whether it could have been stopped.

Theresa May’s record as Home Secretary has been questioned and she has faced a call to resign over the matter from Mr Corbyn, not to mention a former aide to ex-Prime Minister David Cameron. In the wake of the Manchester attack, which killed 22 people last month, the Labour leader highlighted the potential role foreign military interventions play in increasing the likelihood of atrocities in the UK. Despite experts like Baroness Eliza Manningham-Bullerformer, a former MI5 chief, and Baroness Pauline Neville-Jones, ex-chair of the Joint Intelligence Committee, expressing similar views, he was accused by Conservatives of making excuses for terrorism.

But the ORB survey for The Independent found three-quarters of people – taking in all age groups, political persuasions and social classes – agreed Britain’s military involvement in Iraq, Afghanistan and Libya had increased the risk of terrorist acts. Within that, some 68% of Tory voters agreed foreign wars have enhanced the risks of terrorism at home. So did 80% of Labour supporters and 79% of people that voted for the Liberal Democrats in 2015.

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This is hilarious in combination with the next article.

Australia’s Economy Marks Record 26 Years Without Recession (AFP)

Australia marked a world-record 26 years without a recession Wednesday, as the economy grew 0.3% in the first-quarter, official data showed. The Australian Bureau of Statistics put the annual rate of growth at 1.7%, down from 2.4% in the previous three months. The soft quarterly reading was widely expected by analysts amid the impact of category four Cyclone Debbie on eastern Australia in late March, weaker trade figures and tepid wages growth. “The results today demonstrate the continued resilience of the Australian economy,” Treasurer Scott Morrison told reporters. The Australian dollar rallied by a quarter of a US cent to 75.27 cents just after the data was released, as some analysts had predicted a negative first-quarter reading.

Australia last recorded two negative quarters of economic growth in March and June 1991, before enjoying 103 quarters without a recession to equal the record set by the Netherlands. Economists said the resources-rich nation’s long stretch of expansion was supported by economic reforms in the 1980s and 1990s, such as the floating of the local currency, a flexible labour market, financial sector and capital markets deregulation and lower tariffs. Australia has also benefited from China’s economic growth and hunger for natural resources, which led to an unprecedented mining investment boom and record commodity prices. But economists have warned that economic growth in the next few years may not be as rosy. “In the context of the past few years, it is still a fairly weak outcome,” JP Morgan economist Tom Kennedy told AFP of the latest figures.

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A record run without a recession entirly paid for with leveraged private debt: “They are all on a budget. Everyone’s got all their money in houses, that’s how it is.”

Australians Curb Spending As Household Debt Balloons (R.)

Australia’s economy may have achieved a remarkable winning streak, avoiding a recession for 25 years, but there are now clear signs that the consumers who have driven much of the growth are running out of puff. With cash interest rates at a record low and house prices near record highs, the nation’s household debt-to-income ratio has climbed to an all-time peak of 189%, according to the Reserve Bank of Australia (RBA). That means there are an increasing number of people who have little cash for discretionary spending – on everything from cars to electrical appliances and new clothes – as their pay packets get consumed by large mortgages and high rental payments in the country’s red-hot property market.

And it’s not as if a sudden plunge in home prices would help – it might well expose and exacerbate the problem, at least in the short run, squeezing many who have bought into the frothy market with high mortgage repayments and little equity in their homes. “We are seeing a considerable spike in stress even in more affluent households. Large mortgages, big commitments but no income growth,” said Digital Finance Analytics (DFA) Principal Martin North. “Stressed households are less likely to spend at the shops, which acts as a drag anchor on future growth.” North estimates a record 52,000 households risk default in the next 12 months and that 23.4% of Australian families are under mortgage stress, meaning their income does not cover ongoing costs. That compares with about 19% a year ago.

“People are up to their ears in mortgages,” said Brad Smith, a car sales consultant at MotorPoint Sydney which has seen a stark slowdown in sales in the past six months. “They are all on a budget. Everyone’s got all their money in houses, that’s how it is.” Australians are also facing a cash crunch because price inflation in essential items such as food, electricity and insurance is accelerating at a 3.4% annual rate at a time when Australian wages are rising at their slowest pace on record, just 1.9% in the year to March. Meanwhile, growth in retail sales, personal loans and luxury car sales are all at multi-year lows, suggesting the household sector – nearly 60% of Australia’s A$1.7 trillion ($1.3 trillion) economy – is under severe strain.

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Steve Keen’s efforts are having an effect.

Is There A Magic Money Tree? Yes Children, But That’s The Wrong Question (G.)

Does anyone who has witnessed the pomp and circumstance of the Queen’s Jubilee, the funnelling of public money into Syrian airstrikes, or the systematic cutting of taxes for the rich really think we’re not paying nurses properly because we simply don’t have the money? Absolutely not: we don’t pay nurses properly because the government makes a choice not to. This fact calls to mind the words of the Texan minister Robert Fulghum: “It will be a great day when our schools have all the money they need, and our air force has to have a bake-sale to buy a bomber”. But the magic money tree is not a just daft expression in terms of how governments spend public money, it’s also misleading in terms of how the economy works as a whole.

Since 2008, we’ve been encouraged to see the economy like a household budget: if households spend too much money, they need to cut down on living costs so they don’t get into too much debt. To that end, the magic money tree says that if we spend too much money, we can’t just simply grow more. But actually, a country’s whole economy can grow more money if it needs to. Since 2009 the Bank of England has created £453bn of new electronic money to buy debt from the private sector using a mechanism called quantitative easing. Yes, you read that right: the Bank of England has created £453,000,000,000 of new money in the last eight years. Turns out the magic money tree is pretty big. Growing money is possible because an economy is nothing like a household budget. In a household, money comes in via people’s wages and goes out via living costs.

But in an economy, we all pay each other’s wages. Money doesn’t just travel in one direction in the economy, it circulates around. It’s the difference between one car driving in one end of a tunnel and out of the other, and lots of cars zigzagging around Spaghetti Junction. The issue isn’t whether we can grow money or not (we can – that’s just a fact), it’s where the money goes once it’s been grown. And the problem is that it doesn’t go to nurses, teachers or the public services they work for. It goes to institutions such as banks. The nurse in the BBC debate was highlighting a problem that exists across the whole economy: real wages haven’t increased for more than a decade, and this has meant more people have been relying on credit cards, with personal debt now higher than it was before the 2008 crash.

In other words, the fact that the nurse hasn’t had a pay rise is not just bad for her, it’s bad for all of us – because if that nurse is not earning enough, she won’t be spending money. And if she does spend money, she’ll do it by getting into unsustainable debt – which is itself outrageous considering the important, skilled work nurses do.

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Raise €7 billion to buy a bank for €1.

Santander Buys Struggling Spanish Banco Popular For €1 (BBG)

Banco Popular Espanol has been taken over by Santander after European regulators deemed that the bank was likely to fail. Popular will continue to operate under “normal business conditions” after all the bank’s shares and capital instruments were transferred to Santander, said the EU’s Single Resolution Board. The purchase price was €1, according to a statement. Santander plans to raise about €7bn (£6.1bn) of capital as part of the transaction. Popular had been looking for a buyer or a possible share sale after its balance sheet was battered by soured real estate loans that eroded its capital.

Its shares have dropped 53pc since the beginning of last week. In a statement, the ECB, which oversees the largest banks in the eurozone, said: “The significant deterioration of the liquidity situation of the bank in recent days led to a determination that the entity would have, in the near future, been unable to pay its debts or other liabilities as they fell due. “Consequently, the ECB determined that the bank was failing or likely to fail and duly informed the Single Resolution Board (SRB), which adopted a resolution scheme entailing the sale of Banco Popular Espanol to Banco Santander.”

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That Paris accord is a hoax.

Don’t Count on China as Next Climate Crusader (WSJ)

For years, a wide spectrum of groups in the U.S. lectured, cajoled and entreated China to go green. Multinationals and nonprofits teamed up with Chinese environmental groups to promote eco-friendly causes; Coca-Cola restored forests in the upper Yangtze. U.S. labs offered scientific support. Academics collaborated on research. The former Treasury secretary, Hank Paulson, championed China’s disappearing wetlands, a haven for migratory birds. The well-funded effort amplified voices within China demanding the government take action. It was, says Orville Schell, a longtime China watcher and environmentalist, “the most effective missionary work in the past couple hundred years.” So it’s an irony of historic proportions how the roles have reversed: China, the world’s worst polluter by far, is now a convert on climate change while the White House under Donald Trump has turned apostate.

In pulling out of the 2015 Paris climate-change agreement, Mr. Trump has repudiated a signal accomplishment of the Obama presidency: persuading Beijing to become a partner in the effort to prevent the planet from heating up to the point of no return. Without China’s support, the Paris deal might have fallen apart. Mr. Paulson issued a statement saying he was dismayed and disappointed. “We have left a void for others to fill,” he said. When it comes to the environment, China is still torn by conflicting priorities. It has installed more solar and wind capacity than any other nation—and plans to invest another $360 billion in renewable energy between now and 2020. The economy is rebalancing away from heavy industry and manufacturing toward much cleaner services and consumption.

Coal consumption has declined for three straight years. On current trends, many scientists expect that China will reach peak carbon emissions well before its target date of 2030 under the Paris accord. Yet Beijing remains committed to rapid growth. And coal is still king. Just ask the residents of Beijing. Whenever economic policy makers set out to boost growth, spending flows to new real-estate and infrastructure projects, the steel mills around the capital fire up their coal furnaces—and commuters reach for their face masks. This winter was particularly hard on the lungs. A spending splurge meant that Beijing’s average pollution levels last year were double the national standard set by the State Council.

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“How could they fail to come up with a video of the Donald and Vladimir swatting each other playfully with birch switches in a Moscow banya?”

Gimme Shelter (Jim Kunstler)

“Have you all lost your mind?” Vladimir Putin replied to one of Megyn Kelly’s thrusts about alleged Russian perfidy toward the US in the gala interview that debuted her new Sunday Night star-chamber on NBC. Old Vlad put his finger on something there. His view of the late goings-on in America is like that of the proverbial detached Martian observer of strange Earthly doings, rattling his antennae and clicking his mouth-parts in mirth. To which retort, by the way, one would have to answer, ”Yes, absolutely.” The toils of slow economic collapse, accompanied by the ceaseless effort by various arms of the Deep State to spin “the narrative” around the voting public’s collective head, has driven the polity insane. And this, of course, is on view in the bedlam that US politics has become, Trump and all.

I’m waiting for The New York Times to run the three-column headline that says Russia Racist, Misogynist, and Islamophobic to finally bring together the programmed paranoia of NeoCon / DemProg alliance with the esprit de corp of the new collegiate Red Guard. Mr. Putin does not have to lift a finger to detonate the groaning garbage barge of US domestic affairs. It’s already ignited and is faring toward a very peculiar species of civil war. You can be sure that the NeoCon/DemProg axis is determined to get rid of Trump at all costs. Impeachment requires some sort of high crime or misdeamenor. So far, going on a year, they haven’t come up with any evidence that the Golden Golem of Greatness acted as a Russian agent in some fashion, and that itself has got to be a little suspicious, considering the thousands of clerks in the spinning mills of those legendary seventeen Intel outfits the government runs.

How could they fail to come up with a video of the Donald and Vladimir swatting each other playfully with birch switches in a Moscow banya? Five TV sitcom writers could surely come up with an angle — as long as it was a plausible entertainment. In the meantime, Trump prevails, the mad bull elephant of the Republican herd, majestically swinging his trunk against everything breakable in the political china shop while trumpeting “Covfefe! Covfefe!” Last week it was the Paris Climate Accords. The op-ed writers in the usual places bounced off the walls of their virtual rubber room in response. Paul Krugman had to be dragged down to hydrotherapy at the NYT after he set his hair on fire. And Rachel Maddow practically popped a carotid artery in her muscular neck from all that shrieking.

I’m a bit more sanguine about the US withdrawal. To me, the Paris Accords were just another feel-good PR stunt enabling politicians to pretend that they could control forces that are already way out-of-hand, an international vanity project of ass-covering. The coming economic collapse will depress global industrial activity whether anybody likes it or not, and despite anyone’s pretense of good intentions — and then we will have a range of much more practical problems of everyday life to contend with.

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It’s getting time to rise up.

98% Of Greeks Downbeat About Their Current Economic Situation (K.)

Greeks are among the most pessimistic people in the world, according to the findings of a survey by the Pew Research Center which found that many Europeans as well as Japanese and Americans feel better about their national economies now than before the global financial crisis nearly a decade ago. Questioned about their national economy, only 2% of Greeks were upbeat, the lowest rate among the 32 countries polled. The Dutch, Germans, Swedes and Indians see their national economies in the most positive light, with more than 80% expressing optimism. The Pew survey also detected widespread concern about the future. A median of just 41% said they believed that a child in their country today would grow up to be better off financially than their parents. The most pessimistic about prospects for the next generation are the French (9%), the Japanese (19%) and the Greeks (21%).

Read more …

May 192017
 
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Jean-Michel Basquiat Untitled 1982

 

Swedish Prosecutors Drop Julian Assange Rape Investigation (AP/R.)
Australia Economy Among ‘Walking Dead Of Household Debt’ – Steve Keen (NCA)
US Household Debt Hit Record in First Quarter (WSJ)
Why Government Surpluses Is A Terrible Idea – Steve Keen (Renegade)
How Can The Greeks Save More Money? A Monetary Parable. (Steve Keen)
Greek Parliament Approves More Austerity Measures Amid Protests (DW)
Trump Aims to Balance Budget With Deep Cuts, Bullish Growth Projections (WSJ)
Get Ready for Quantitative Tightening (Rickards)
ECB Tapering to Cause “Disorderly Restructuring” of Italian Debt, Return to Lira (DQ)
Russia-US Relations Have Become ‘Extremely Paranoid’ – Sberbank CEO (CNBC)
Western Democracy – As Represented By The US – Is Crumbling (Global Times)
Secret Plans To ‘Protect’ France In The Event Of Le Pen Victory Emerge (G.)
What Jeremy Corbyn Whispered In My Ear (Ind.)
Study Of Healthcare Quality In 195 Countries Names The Best And Worst (AFP)
50 Years Since Indigenous Australians First ‘Counted’, Little Has Changed (G.)

 

 

Time for legal action against Sweden and the prosecutors.

Swedish Prosecutors Drop Julian Assange Rape Investigation (AP/R.)

Swedish prosecutors said on Friday they would drop a preliminary investigation into an allegation of rape against WikiLeaks founder Julian Assange, bringing to an end a seven-year legal standoff. “Chief Prosecutor Marianne Ny has today decided to discontinue the preliminary investigation regarding suspected rape concerning Julian Assange,” the prosecutors office said in a statement. Assange, 45, has lived in the Ecuadorian Embassy in London since 2012, after taking refuge there to avoid extradition to Sweden over the allegation of rape, which he denies. He has refused to travel to Stockholm, saying he fears further extradition to the US over WikiLeaks’ release of 500,000 secret military files on the wars in Afghanistan and Iraq. In 2015 lawyers for Julian Assange have claimed victory after a Swedish prosecutor bowed to pressure from the courts and agreed to break the deadlock in the WikiLeaks founder’s case by interviewing him in London.

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“Stop making housing into an asset.” “Make housing a place for people to actually live.”

Australia Economy Among ‘Walking Dead Of Household Debt’ – Steve Keen (NCA)

Australia has become the “walking dead of debt” due for a financial reckoning that could shock the housing market “bubble” within months. That’s according to “anti-economist” Professor Steve Keen who defines Australia as a “zombie to be” given soaring personal debt that has created a government-induced property bubble ripe to burst. “Australia has simply delayed its day of reckoning,” he told news.com.au in reference to the global financial crisis that shocked many countries around the world from 2008 but left the lucky country relatively unscathed after a series of government interventions. The Kingston University Professor claims first homeowners grants rolled out by successive governments have artificially kept prices high creating a form of “instant prosperity” that politicians are loath to stop.

“The housing bubble makes the politicians look good because A, people are feeling wealthier, and B … people are borrowing money to spend,” he said. “Then the government runs a balanced budget and looks like it really knows what it’s doing” “It hasn’t got a f***ing clue frankly, because what’s actually happening is the reason it’s making that money is credit is expanding,” he said. “It’s the old classic story, you’re criticising a party because someone’s laced the punchbowl. You try to take the punchbowl away from the party you’re a very unpopular person but you need to because what’s actually happening is people are getting intoxicated with credit”. His latest book, Can We Avoid Another Financial Crisis? argues Australia, along with Belgium, China, Canada and South Korea, is a “zombie” economy sleepwalking into a crunch that could come between 2017 and 2020.

“Both [Australia and Canada] will suffer a serious economic slowdown in the next few years since the only way they can sustain their current growth rates is for debt to continue growing faster than GDP,” he writes. [..] For Prof Keen, the solution for governments to an overheated housing market is obvious: “Stop making housing into an asset.” “Make housing a place for people to actually live. So you go back to saying ‘what’s desirable is affordable houses’ and affordable means it doesn’t cost a first homebuyer more than three or four years’ income to get a property,” he said. As for those struggling to get on the ladder in the meantime? “The only thing you can do in the middle is say I’m just not going to join in, and if it happens on a collective level …. it’s game over for the bubble because the bubble only works if more people keep taking out more leverage.”

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Wait till house prices start falling.

US Household Debt Hit Record in First Quarter (WSJ)

The total debt held by American households reached a record in early 2017, exceeding its 2008 peak after years of retrenchment against a backdrop of financial crisis, recession and modest economic growth. Much has changed over the past 8.5 years. The economy is larger, lending standards are tighter and less debt is delinquent. Mortgages remain the largest form of household borrowing but have become a smaller share of total debt as consumers take on more automotive and student loans. “The debt and its borrowers look quite different today,” New York Fed economist Donghoon Lee said. He added: “This record debt level is neither a reason to celebrate nor a cause for alarm.” The total-debt milestone, announced Wednesday by the Federal Reserve Bank of New York, was a long time coming.

Americans reduced their debts during and after the 2007-09 recession to an unusual extent: a 12% decline from the peak in the third quarter of 2008 to the trough in the second quarter of 2013. New York Fed researchers, looking at data back to the end of World War II, described the drop as “an aberration from what had been a 63-year upward trend reflecting the depth, duration and aftermath of the Great Recession.” In the first quarter, total debt was up about 14% from that low point as steady job gains, falling unemployment and continued economic growth boosted households’ income and willingness to borrow. The New York Fed report said total household debt rose by $149 billion in the first three months of 2017 compared with the prior quarter to a total of $12.725 trillion.

The pace of new lending slowed from the strong fourth quarter. Mortgage balances rose from the final three months of 2016, while home-equity lines of credit were down. Automotive loans rose, as did student loans, but credit-card debt fell along with other types of debt. The data weren’t adjusted for inflation, and household debt remains below past levels in relation to the size of the overall U.S. economy. In the first quarter, total debt was about 67% of nominal gross domestic product versus roughly 85% of GDP in the third quarter of 2008. Balance sheets look different now, with less housing-related debt and more student and auto loans. As of the first quarter, about 68% of total household debt was in the form of mortgages; in the third quarter of 2008, mortgages were roughly 73% of total debt. Student loans rose from about 5% to around 11% of total indebtedness, and auto loans went from roughly 6% to about 9%.

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Can we finally try to understand this, all of us?

Why Government Surpluses Is A Terrible Idea – Steve Keen (Renegade)

In this Renegade Short, Professor Steve Keen explains why the government isn’t supposed to balance its accounts like a household.

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TomDickHaria.

How Can The Greeks Save More Money? A Monetary Parable. (Steve Keen)

The EU’s “Stability and Growth Pact” has as one of its primary rules that “The Member States undertake to abide by the medium-term budgetary objective of positions close to balance or in surplus…” I explore what this objective implies in the context of a model of the economy of “TomDickHaria”: what happens to its collective GDP where one member tries to achieve the surplus goal set out in the “Stability and Growth Pact?

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The Troika makes sure Greece will keep drowning.

Greek Parliament Approves More Austerity Measures Amid Protests (DW)

All 153 lawmakers in Prime Minister Alexis Tsipras’ governing coalition backed the legislation that includes new pension cuts and lower tax breaks, which are expected to save Greece €4.9 billion ($5.4 billion) until 2021. All opposition lawmakers present in the 300-seat chamber rejected the package required by international lenders before the release of more aid. Athens needs the bailout funds to repay €7.5 billion of debt maturing in July this year. Relief measures will only kick in if Greece meets fiscal targets stipulated by its creditors. “Our country is being turned into an austerity colony,” leading opposition conservative Kyriakos Mitsotakis said during debate on the bill, describing added cuts as a “nightmare” for low-earners.

Tsipras countered that its passage would enable Greece from summer next year to stand on its own feet, without the intervention of creditors such as the IMF. He accused the opposition of constantly warning of a catastrophe that “hasn’t come.” Government spokesman Dimitris Tzanakopoulos told Skai TV that Greek creditors the IMF and Germany were “in the final stretch of very tough negotiations” over a compromise that should allow Greece to return to bond markets in 2018. Thursday’s austerity package lowers the income tax exception from €8,600 down to about €5,700 but increases benefits for low-income tenants, parents with children and subsidies for child care. Public stakes are to be reduced through sales of holdings in Greece’s PPC electricity utility, railways, Athens’ international airport and the Thessaloniki port.

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Same as it ever was. Fantasy numbers have ruled the day for many years.

Trump Aims to Balance Budget With Deep Cuts, Bullish Growth Projections (WSJ)

President Donald Trump next week will propose the U.S. can balance the federal budget over 10 years with substantial cuts to safety-net programs such as food stamps and other anti-poverty efforts, combined with a tax and regulatory overhaul that speeds up the nation’s economic growth rate, a senior White House budget official said. The president’s budget, due for release Tuesday, will spare the two largest drivers of future spending—Medicare and Social Security—leaving trillions in cuts from other programs. That includes discretionary spending cuts to education, housing, environment programs and foreign aid already laid out by the administration, in addition to new proposed reductions to nondiscretionary spending like food stamps, Medicaid and federal employee-benefit programs.

The budget release, which will be unveiled while Mr. Trump is visiting Europe and the Middle East, shows how his economic policy team is trying to forge ahead on his agenda even as distracting political controversies, such as the recent firing of FBI director James Comey, swirl around Washington. On Thursday, Treasury Secretary Steven Mnuchin testified on Capitol Hill, his first such appearance since his February confirmation, where he expressed confidence Congress could advance a revamp of the tax code this year. House Republicans held their first hearing on the proposed tax overhaul, following a series of meetings between lawmakers and top administration officials Wednesday.

The White House’s budget proposal next week builds upon an earlier outline in March that called for a nearly 10% boost in defense funding next year, offset by around $54 billion in cuts for nondefense programs. [..] Among the more controversial elements of the budget will be the administration’s growth forecasts. The White House projects the nation’s economic growth rate will rise to 3% by 2021, compared with the 1.9% forecast under current policy by the Congressional Budget Office. It’s unusual to see the White House’s growth forecasts differ from the CBO and other blue-chip projections by such a large margin over such a long stretch of the 10-year budget window.

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Another crazy experiment by the Fed bookworms.

Get Ready for Quantitative Tightening (Rickards)

Despite yesterday’s market sell-off, the Fed is still on track to raise interest rates in June. Wednesday’s action is no more than a speed bump for the Fed. It will not stop the Fed from moving forward with another 0.25% rate increase. The Fed is embarking on a new path, a path that started several years with QE (quantitative easing). QE is the name for the method the Fed uses to ease monetary conditions when interest rates are already zero. Conventional monetary policy calls for interest rate cuts to stimulate growth and inflate asset prices when the economy is in a recession. What does a central bank do when interest rates are already at zero and you can’t cut them anymore? One solution is negative interest rates, although the evidence from Japan and Europe indicates that negative rates do not have the same effect as rate cuts from positive levels. The second solution is to print money! The Fed does this by buying bonds from the big banks.

The banks deliver the bonds to the Fed, and the Fed pays for them with money from thin air. The popular name for this is quantitative easing, or QE, although the Fed’s technical name is long-term asset purchases. The Fed did QE in three rounds from 2008 to 2013. They gradually tapered new purchases down to zero by 2014. Since then, the Fed has been stuck with $4.5 trillion of bonds that it bought with the printed money. When the bonds mature, the Fed buys new ones to maintain the size of its balance sheet. But now the Fed wants to “normalize” its balance sheet and get back down to about $2 trillion. They could just sell the bonds, but that would destroy the bond market. Instead, the Fed will let the old bonds mature, and not buy new ones. That way the money just disappears and the balance sheet shrinks. The new name for this is “quantitative tightening,” or QT. You’ll be hearing a lot about QT in the months ahead.

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Tapering, QT, it’s all just more ‘uncharted territory’.

ECB Tapering to Cause “Disorderly Restructuring” of Italian Debt, Return to Lira (DQ)

Here’s the staggering scale of the Italian government’s dependence on the ECB’s bond purchases, according to a new report by Astellon Capital: Since 2008, 88% of government debt net issuance has been acquired by the ECB and Italian Banks. At current government debt net issuance rates and announced QE levels, the ECB will have been responsible for financing 100% of Italy’s deficits from 2014 to 2019. But now there’s a snag. Last month, the size of the balance sheet of the ECB surpassed that of any other central bank: At €4.17 trillion, the ECB’s assets have soared to 38.8% of Eurozone GDP. The ECB has already reduced the rate of purchases to €60 billion a month. And it plans to further withdraw from the super-expansionary monetary policy. To do this, according to Der Spiegel, it wants to spread more optimistic messages about the economic situation and gradually reduce borrowing.

[..] By the halfway point of 2018 the ECB would have completed tapering and it would then use the second half of the year to move away from negative interest rates. So far, most current ECB members have shown scant enthusiasm for withdrawing the punch bowl. The reason most frequently cited for not tapering more just yet is their lingering concern about the long-term sustainability of the Eurozone’s recent economic turnaround. The ECB’s binge-buying of sovereign and corporate bonds has spawned a mass culture of financial dependence across Europe, while merely serving to paper over the cracks that began forming — or at least became visible — in some Eurozone economies during the sovereign debt crisis. In many places the cracks are even bigger than they were back then. This is the elephant in the ECB’s room, and by now it’s too big to ignore.

In one country alone, the cracks are so large that they could end up fracturing the entire single currency project. That country is Italy. Astellon Capital’s report on Italy’s dependence on ECB bond purchases poses the question: If the ECB tapers its purchase of Italian bonds further, who would pick up the slack? The Italian banks, which are themselves deep in crisis mode and whose balance sheets are already filled to the gills with Italian bonds? Hardly. When QE ends, the banks are more likely to become net sellers, rather than net buyers, of Italian debt. The only way for the game to continue is if over the next six years non-banks increase their purchase activity up to seven times that of the past nine years. In other words, the very same investors who have used QE as the perfect opportunity to offload the immense risk of holding Italian liabilities onto the Bank of Italy’s, and then onto the Eurosystem’s, would need to step back into the market in a massive way, just at a time that the country in question is on the verge of a full-blown banking crisis.

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No kidding.

Russia-US Relations Have Become ‘Extremely Paranoid’ – Sberbank CEO (CNBC)

Diplomatic relations between America and Russia have deteriorated to such an extent that contacts between the two countries have become extremely paranoid of one another, the chief executive of Russia’s largest bank has told CNBC. “From what we see here in Russia and from the programs we see from the U.S., the unfolding situation is fairly complex. And there are certain signs of a certain… paranoid attitude to Russia and to every single contact with Russia real or imagined,” Herman Gref, Sberbank CEO, said via a translator. [..] When asked whether Gref harbored any concerns about the consequences of having met with Trump in the past, he replied, “I think the situation has become extremely paranoid for one to suspect that these sort of contacts could lead to political consequences.”

Speaking in January at the World Economic Forum in Davos, Sberbank’s CEO had predicted the Trump administration could re-establish close ties with the Kremlin and expressed his hope the newly-elected U.S. president could mark a “new beginning” for the two countries. On Friday, Gref suggested it was still too early to judge the success of Trump’s presidency however conceded that, for the time-being at least, relations between American and Russia were unlikely to change for the better. Moscow is currently enduring the sharp end of tough international sanctions from Washington[..] . “Well, I have to say that this has had an effect on us in the last two years… The inability to access international markets is painful for us,” Gref said. “You know, sanctions were put in place for political reasons and most likely their removal will also be motivated by politics…

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China’s official government paper.

Western Democracy – As Represented By The US – Is Crumbling (Global Times)

The American elite still refuse to accept Trump after his 100 days in the Oval Office. He is at odds with the mainstream media; insiders have constantly leaked information to the media. Now some commentators have compared the exposure of the Comey memo to the Watergate scandal. As Congress is under Republican control, few believe there will be a move to impeach the president, but these latest revelations will certainly further erode Trump’s presidential authority. At the beginning of the corruption scandal, few believed that South Korean president Park Geun-hye would be impeached either. Could this be a reference for Trump’s case? But evidence of Park’s illegal activities was solid, while it will be more complicated to make determinations over whether Trump obstructed justice and leaked classified intelligence.

To impeach Trump will need more evidence from further investigation. To completely discredit Trump among voters, the present scandal is not enough as it does not add to the negative image of Trump. Many just think Trump often speaks off the cuff, which ends up in silly blunders. If there is a major substantive scandal over and above him speaking out of turn then that will be another thing. But this is not the case at the moment. Every country has its own troubles. The US model represents Western democracy, but it is crumbling, and the resulting social division has become more and more serious. The US Deputy Attorney General Rod J. Rosenstein appointed a special counsel to oversee the investigation into link between Russia and the 2016 US presidential election and related matters on Wednesday.

More juicy details will continue to appear and the rifts may become wider. Trump will become one of the most frequently accused Americans. The US won’t be engulfed by chaos if its president is caught in a lawsuit. Someone has pointed out that no matter how chaotic the White House and Capitol Hill are, the overall operation of the US will not be a major problem as long as the enterprises and social organizations in the country are stable. This is seen as an advantage of the American system. Although American society is relatively stable, the political tumult can’t be taken as an advantage of the US system. The fact is that US politics is in trouble, and the benefits brought by its system are being squandered.

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Democracy as a threat to the state.

Secret Plans To ‘Protect’ France In The Event Of Le Pen Victory Emerge (G.)

It was never written down and never given a name, but France had a detailed plan to “protect the Republic” if far right leader Marine Le Pen was elected president, French media have reported. “It was like a multi-stage rocket,” an unnamed senior official told l’Obs magazine. “The philosophy, and the absolute imperative, was to keep the peace, while also respecting our constitutional rules.” [..] L’Obs cited three anonymous sources with knowledge of the emergency plan that would have been put into effect had Le Pen reached the Elysée palace, saying it was devised by a small group of ministers, chiefs of staff and top civil servants. The magazine said the plan was aimed mainly at preventing serious civil unrest and “freezing” the political situation by convening parliament in emergency session and maintaining the outgoing prime minister in office.

Police and intelligence services were particularly concerned by the threat of “extreme violence” from mainly far left protesters in the event of a Le Pen victory as the country would have found itself “on the brink of chaos”. Even before the first round of voting on 23 April, a confidential note drawn up by the intelligence services announced that “without exception, every local public safety directorate has expressed its concern”, Le Parisien reported. Regional police chiefs were asked on 21 April to detail their crowd control and deployment plans, l’Obs said. Under France’s ongoing state of emergency, more than 50,000 police and gendarmes and 7,000 soldiers were already on duty. On 5 May, two days before the second round that Macron won by 66% to Le Pen’s 34%, the national public safety directorate warned in another note that protesters were ready to use “fireworks, mortars and incendiary bombs”.

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“If you do what you believe in, you’re strong. It’s when you don’t do what you believe in that you’re weak. And we are strong.”

What Jeremy Corbyn Whispered In My Ear (Ind.)

When I shook his hand, I told him that I work for a charity and freelance as a journalist, writing on politics and social justice issues. I expressed my disappointment that Labour (and particularly Corbyn himself) doesn’t get a fair hearing from many news outlets. He spoke in my ear: “If you do what you believe in, you’re strong. It’s when you don’t do what you believe in that you’re weak. And we are strong.” The unveiling of Labour’s manifesto today was a display of strength. Labour is promising a Britain that works for everyone, where whole swathes of society aren’t left behind. The transformative manifesto will take the financial burden from the shoulders of those who can least afford to carry it, and place it upon the top 5% of earners and arrogantly tax-dodging corporations.

The Britain we currently live in is untenable for young people, university students, teachers, NHS workers, policemen, the disabled, people with long-term illnesses, people who can’t find work, first-time buyers, and those living in rented accommodation. Britain is working for a wealthy few, and Labour’s manifesto highlights the fact, often forgotten, that this is not inevitable. At Bradford University, a huge cheer went up when Corbyn promised to scrap tuition fees and end hospital parking charges. The scandal of zero hours contracts would be a thing of the past under Labour, as will NHS cuts and rises in VAT and income tax for 95% of earners. The manifesto is a document filled with long-overdue, common sense policies.

It addresses the important questions that accompany the Brexit process, including concerns about the protection of jobs and hard-won workers’ rights. It puts children and young people first, promising to invest in them through a National Education Service rather than rely on the failed academies experiment or a ridiculous and divisive reintroduction of grammar schools. In-work poverty is unacceptable. My partner and I both work two jobs and we struggle to make ends meet. We don’t indulge in avocado toast but finding enough for a deposit on a mortgage is sadly out of reach. The pledge to build one million new homes and introduce a £10 living wage by 2020 is crucial for young couples and for anyone working in poorly paid or part-time jobs, notably in care work and service industry roles. If Labour’s manifesto and the promise of more public ownership will transport us to the 1970s, where do we currently live? 1870, perhaps?

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Single payer rules. Supreme.

Study Of Healthcare Quality In 195 Countries Names The Best And Worst (AFP)

Neither Canada nor Japan cracked the top 10, and the United States finished a dismal 35th, according to a much anticipated ranking of healthcare quality in 195 countries, released Friday. Among nations with more than a million souls, top honours for 2015 went to Switzerland, followed by Sweden and Norway, though the healthcare gold standard remains tiny Andorra, a postage stamp of a country nestled between Spain (No. 8) and France (No. 15). Iceland (No. 2), Australia (No. 6), Finland (No. 7), the Netherlands (No. 9) and financial and banking centre Luxembourg rounded out the first 10 finishers, according to a comprehensive study published in the medical journal The Lancet.

Of the 20 countries heading up the list, all but Australia and Japan (No. 11) are in western Europe, where virtually every nation boasts some form of universal health coverage. The United States – where a Republican Congress wants to peel back reforms that gave millions of people access to health insurance for the first time – ranked below Britain, which placed 30th. The Healthcare Access and Quality Index, based on death rates for 32 diseases that can be avoided or effectively treated with proper medical care, also tracked progress in each nation compared to the benchmark year of 1990.

Virtually all countries improved over that period, but many – especially in Africa and Oceania – fell further behind others in providing basic care for their citizens. With the exceptions of Afghanistan, Haiti and Yemen, the 30 countries at the bottom of the ranking were all in sub-Saharan Africa, with the Central African Republic suffering the worst standards of all. “Despite improvements in healthcare quality and access over 25 years, inequality between the best and worst performing countries has grown,” said Christopher Murray, director of the Institute for Health Metrics and Evaluation at the University of Washington, and leader of a consortium of hundreds of contributing experts.

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“Dogs and cats and pigs and sheep were counted in Australia before Aboriginal people”

50 Years Since Indigenous Australians First ‘Counted’, Little Has Changed (G.)

Sol Bellear, a former rugby league player for South Sydney Rabbitohs and Aboriginal rights activist, sits in the soft autumn sunshine at a cafe intersecting Redfern Park and the oval that remains the spiritual home of his beloved club. He sips a Red Bull “heart starter” and English breakfast tea. And he shakes his head while contemplating the anniversaries of what ought to have been transformative moments for Aboriginal and Torres Strait Islander people – starting with the 1967 “citizenship” referendum that first made their existence in Australia “official”. “Things should be so much better for Aboriginal people. I think the country saw 1967 as the end of the fight,” Bellear says.

“Before 1967, we weren’t counted in the census or anything as people. Dogs and cats and pigs and sheep were counted in Australia before Aboriginal people.” Indigenous people had never previously been officially included among the Australian citizenry, nor counted in the Commonwealth census – so the federal government could not legislate for them. But on 27 May 1967, more than 90% of the Australian electorate voted at the “citizenship” referendum to effectively bring Indigenous people into the Commonwealth. “After the referendum, though, it was like the work was done for the rest of the country and governments – when it was actually just the bloody beginning,” Bellear says. “Every little thing we’ve won since, we’ve had to fight for.”

2017 is also the 25th anniversary of two more critical moments in the story: the Mabo decision – a High Court ruling that led to native title land rights, and former prime minister Paul Keating’s landmark “Redfern speech” (“We committed the murders – we took the children from their mothers”). It was Bellear who introduced Keating at Redfern Park. This was the first time an Australian prime minister had frankly, without qualification, acknowledged the violence, sickness, dispossession and ongoing oppression that colonialism had imposed on Indigenous people. Yet a quarter of a century on, Bellear says his country remains deaf to all the non-government reports into Indigenous lives – and to the savage critiques of Commonwealth policies that purported to make them better.

[..] Aboriginal and Torres Strait Islanders constitute some 3% of the country’s overall population – yet in 1991, they comprised 14% of Australia’s prisoners. A quarter of a century later, that figure was up to 27% – while more than 150 Indigenous people had died in custody in the intervening 25 years. In some parts of Australia, many more young Indigenous men complete prison terms than high school. The Indigenous rate of imprisonment is 15 times the age-standardised non-Indigenous rate. As Thalia Anthony pointed out in her 2015 book Indigenous People, Crime and Punishment, rates of Indigenous incarceration in Australia today match those of black imprisonment in apartheid South Africa.

Read more …

May 182017
 
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Pablo Picasso Bull plates I-XI 1945

 

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

 

 

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

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

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

The global financial system is rapidly approaching a Minsky Moment:

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

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

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

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

 

Ponzi Finance

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

 


Fred Stein Evening, Paris 1934

 

The Velocity of Money and Deflation

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

 

Markets and Psychology

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

 

Real Estate

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

 


Berenice Abbott Murray Hill Hotel, New York 1937

 

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

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

 

China’s Epic Bubble

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

 

Commodities, Trade and Geopolitics

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

 


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

 

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

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

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

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

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

 

Energy, EROEI, Finance and ‘Above Ground Factors’

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

 

Unconventional Oil and Gas

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

 

Electricity and Renewables

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

 


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

 

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

 

Fukushima and Nuclear Safety

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

 

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

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

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

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

 

Scale and Society

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

 

Trust and the Psychology of Contraction

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

 

Affluence, Poverty and Debt and Insurance

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

 


Fred Stein Streetcorner, Paris 1930s

 

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

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

 

Solution Space, Preparation and Food Security

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