Oct 242017
 
 October 24, 2017  Posted by at 9:10 am Finance Tagged with: , , , , , , , ,  


Bill Brandt After the celebration 1934

 

Everything We Think We Know About Chinese Finances is Wrong (Balding)
China’s Greatest Vulnerabilities (ZH)
Ray Dalio Explains Why 3 in 5 Americans Are Struggling (Fortune)
To Understand the Next 10 Years, Study Spain (Krieger)
HSBC Trader’s Conviction Will Rattle $5 Trillion FX Market (BBG)
The Family That Built an Empire of Pain (New Yorker)
America’s Forever Wars (NYT)
China Speeds Ahead Of US As Quantum Race Escalates (McC.)
EU On Brink Of Historic Decision On Pervasive Glyphosate Weedkiller (G.)
Hidden Danger of Ecological Collapse (CP)

 

 

As Xi Jinping is being written into the Chinese constitution(!), Christopher Balding comes with a long and excellent expose of China’s real debt situation. Makes one wonder what Xi will actually be remembered for.

Everything We Think We Know About Chinese Finances is Wrong (Balding)

China has long faced doubts about the veracity of its economic data and concerns about its rapidly rising level of indebtedness. While defaults and individual incidents raised questions about debt discrepancies, there was no systematic evidence that the financial system faced systemic misstatement. The People’s Bank of China changed that with a few sentences. By some estimate, the widely watched debt to GDP metric in China has already surpassed 300%. While this is level is worrying given financial stress associated with countries that reached similar levels, this is only half the story. There have long been suspicions that Chinese debt numbers are not entirely accurate but data that would demonstrate a systemic difference from data has never emerged.

However, every time a company collapsed, there would inevitably come out a mountain of undeclared debt. While this raised suspicions, there was never systematic evidence. The Financial Stability Board (FSB), formed after the 2008 Global Financial Crisis, aggregates data for major countries that includes a broader measure of assets by banks, insurance companies, and other major asset holders. According to their data, at the end of 2015, China financial system assets had already reached 401% of GDP.

[..] China itself, gave us evidence that its financial data is wildly off. The annual PBOC Financial Stability Report with little fanfare more than doubled its estimates of financial system assets. In a little noticed paragraph the PBOC noted that “the outstanding balance of the off-balance sheet of banking institutions….registered 253.52 trillion yuan.” [..] Nor does the PBOC provide many clues as to what these off balance assets are holding. They do note that roughly two-thirds of the 253 trillion is held as “financial asset services” which may mean everything from structured products sold to clients who believe the bank will stand behind the product, special purpose vehicles holding non-traditional assets, or certain types of financial flows. If we revise our earlier estimate of financial system assets to GDP based upon the new PBOC numbers, China’s position changes dramatically.

[..] If we take the FSB data, add in the new PBOC data, and estimate forward to 2016 Chinese financial system assets are equal to 833% of nominal GDP ahead of Japan at 657% and behind only international banking center United Kingdom at 1008%. This level of asset accumulation imposes real costs. Where as Japan and Europe have close to zero or negative interest rates, China has significantly higher. If we make the simple cheap assumption that these assets earn the short term interbank deposit rate of return of 3.5%, this would imply a financial servicing cost to the economy of 29% of nominal GDP. Conversely, Japan with financial assets of 657% of GDP but using the higher long term loan rates of 1% instead, would need only 6.6% of GDP to service its asset costs.

What makes this disclosure concerning is how extreme the numbers are. Even the FSB placed China among developed country financialization and well outside the range of other emerging markets. The new numbers place China on the extremity of all major economies behind only a major international banking center even in front of Japan who has run strongly expansionary monetary policy for years to try and push inflation. Many analysts have raised concerns about asset bubbles and debt growth in China but even the most bearish would have had trouble believing this level of financialization.

Read more …

Victor Shih from the Mercator Institute for China Studies has a few subtle points on China as well.

China’s Greatest Vulnerabilities (ZH)

[..] while some categories of shadow finance, including bill finance and non-loan trust credit, have actually declined in recent months (duly noted here), most other categories rose by double digits in percentage terms in the year and half between the end of 2015 and May 2017. Of note, credit held by funds, rose by 116%. So with credit soaring, Shih – like Goldman clients – asks “how much longer can this go on?” and answers that “the amount of interest that debtors in China must pay creditors provides clues on the costs of such a high debt level. If interest servicing exceeds incremental increase in nominal GDP, the debtor would need to pursue one of two courses of action to avoid a crisis. This ultimately goes to the question whether China has hit its “Minsky Moment” or is still in the Ponzi Finance stage, a discussion popularized by Morgan Stanley first in 2014.

Here are Shih’s observations: First, creditors can extend even more credit to the debtors so that interest payments are serviced with new credit. This mechanism renders China more of a Ponzi unit, which requires new credit to service interest payments. Alternatively, a rising share of income for households, firms, or government will go toward servicing interest. While the first dynamic would cause the acceleration of debt accumulation, the second dynamic is tantamount to a massive tax which will slow growth for an extended period. The problem with both approaches is that China as a whole is a Ponzi unit. And, as Shih calculates and as shown in the chart below, total interest payments from June of 2016 to June of 2017 exceeded incremental increase in nominal GDP by roughly 8 trillion RMB.

And since we have not see large-scale defaults in China, the new additional interest burden must have been financed in some way. Most likely, the Merics analysis notes, roughly this amount or more was capitalized as new loans, contributing to the rapid rise in total debt. As the chart above shows, this was not always the case. Prior to 2011, incremental nominal GDP roughly matched or even exceeded interest payments. The advent of high-yielding shadow banking led to the explosive growth in interest payments, and thus the need to capitalize interest payments, starting in 2012. This is a dynamic which will drive debt growth in China for years to come, or until the debt bubble ends.

So what ends the bubble? According to the Merics analysis, there are 4 possible channels for a financial crisis in China. First, it should be noted that despite the enormous debt load, a domestically triggered crisis is not likely in the next five years. Trouble is more likely to come from some combination of capital flight and sudden withdrawal of external credit.

Read more …

Are people finally waking up to what makes societies viable, and what destroys them?

Ray Dalio Explains Why 3 in 5 Americans Are Struggling (Fortune)

The founder of the world’s largest hedge fund has serious concerns about the U.S. economy. In a LinkedIn note published Monday, Ray Dalio, who founded Bridgewater Associates, said that average statistics about what’s going on in the economy mask deep divisions that could lead to “dangerous miscalculations.” To explain this divide, Dalio splits up the economy into two separate sections: the top 40% and the bottom 60%. He then runs through a number of different statistics showing that the economy for the bottom 60% of the population – or three in five Americans – is much less stable than that for those in the top bracket. For example, Dalio notes that, since 1980, real incomes have been flat or down for the average household in the bottom 60%.

Those in the top 40% also now have an average of 10 times as much wealth as households in the bottom 60% — an increase from six times as much in 1980. Other points include that only about one-third of people in the bottom 60% save any of their income and a similar number have retirement savings accounts. These three in five Americans have also seen an increasing rate of premature death and spend an average of four times less on education than those in the top 40%, Dalio wrote. Those without a college education see lower income rates and higher divorce rates. Dalio wrote that all of these concerns will likely intensify in the next five to 10 years, and that he believes policy makers need to take them into consideration. Dalio added that if he were running the Federal Reserve, he would “keep an eye on the economy of the bottom 60%.”

Read more …

Can’t stop decentralization.

To Understand the Next 10 Years, Study Spain (Krieger)

Some of you may be confused as to why a U.S. citizen living in Colorado has become so completely obsessed with what’s going on in Spain. Bear with me, there’s a method to my madness. I believe what’s currently happening in Spain represents a crucial microcosm for what we’ll see sweep across the entire planet over the next ten years. Some of you will want to have a discussion about who’s right and who’s wrong in this particular affair, but that’s besides the point. It doesn’t matter which side you favor, what matters is that Madrid/Catalonia is an example of the forces of centralization duking it out with forces of decentralization. Madrid represents the nation-state as we know it, with its leaders claiming Spain is forever indivisible according to the constitution.

Madrid has essentially proclaimed there’s no possible avenue to independence from a centralized Spain even if various regions decide in large number they wish to be independent. This sort of attitude will be seen as unacceptable and primitive by increasingly large numbers of humans in the years ahead. Catalonia should be seen as a canary in the coal mine. The forces of decentralization are rising, but entrenched centralized institutions and the bureaucrats running them will become increasingly terrified, panicked and oppressive. As I’ve discussed, this isn’t coming out of nowhere. Humanity’s current established centralized institutions and nation-states have become clownishly corrupt, merely existing to protect and enrich the powerful/connected as opposed to benefiting the population at large.

As such, legitimacy has been shattered and people have begun to demand a new way. Whether we see this with the rising popularity of Bitcoin, or the UK decision to leave the EU, evidence is everywhere and we’ve already passed the point of no return. This is precisely why EU leaders are rallying around Madrid. They’re scared to death and fear they might be next. They’re probably right.

Read more …

Maybe this is good, though one must wonder why the case wasn’t brought before a UK court.

HSBC Trader’s Conviction Will Rattle $5 Trillion FX Market (BBG)

Global currency traders and compliance officers who monitor them were put on high alert after a New York jury convicted a former HSBC executive of fraud for front-running a large client order. The verdict is a victory for U.S. prosecutors in their first attempt to hold individuals accountable since a global currency-rigging probe that led to banks paying more than $10 billion in penalties. Mark Johnson faces a maximum sentence of 20 years in prison, although he’s likely to get much less. Traders will almost certainly come under pressure to avoid conduct that could be seen as harming their clients and profiting unfairly at their expense, said Mayra Rodriguez Valladares, a former foreign-exchange analyst for the Federal Reserve Bank of New York.

“Front-running is a crime,” she said. “This should be a lesson to senior executives that they should invest in more training of ethics for traders and more in systems to detect irregularities.” The verdict is likely to echo worldwide. Although Johnson, HSBC’s global head of foreign exchange in 2011, was in New York at the time of the transaction, the trade was executed primarily in London, where Johnson’s co-defendant, Stuart Scott, was overseeing it. Scott, the bank’s former head of currency trading in Europe, remains in the U.K. as he fights extradition to the U.S. “This conviction will embolden the U.S. in other cases,” said Peter Henning, a law professor at Wayne State University in Detroit. “The U.S. authorities have shown they’re able to police global markets.”

“At its very essence,” he added, “this was a theft case.” Johnson, the first banker to go on trial following the investigation over foreign-exchange trading, was convicted of defrauding Cairn Energy Plc in what prosecutors said was a clear case of front-running the company’s $3.5 billion order. London-based HSBC wasn’t accused of wrongdoing, but the bank has been under investigation over currency trading and is in talks with the Justice Department and U.S. regulators to resolve the matters, according to a July 31 regulatory filing.

Read more …

An absolutely crazy story. 145 Americans die every day from opioid overdoses.

The Family That Built an Empire of Pain (New Yorker)

According to Forbes, the Sacklers are now one of America’s richest families, with a collective net worth of thirteen billion dollars—more than the Rockefellers or the Mellons. The bulk of the Sacklers’ fortune has been accumulated only in recent decades, yet the source of their wealth is to most people as obscure as that of the robber barons. While the Sacklers are interviewed regularly on the subject of their generosity, they almost never speak publicly about the family business, Purdue Pharma—a privately held company, based in Stamford, Connecticut, that developed the prescription painkiller OxyContin. Upon its release, in 1995, OxyContin was hailed as a medical breakthrough, a long-lasting narcotic that could help patients suffering from moderate to severe pain. The drug became a blockbuster, and has reportedly generated some thirty-five billion dollars in revenue for Purdue.

But OxyContin is a controversial drug. Its sole active ingredient is oxycodone, a chemical cousin of heroin which is up to twice as powerful as morphine. In the past, doctors had been reluctant to prescribe strong opioids—as synthetic drugs derived from opium are known—except for acute cancer pain and end-of-life palliative care, because of a long-standing, and well-founded, fear about the addictive properties of these drugs. “Few drugs are as dangerous as the opioids,” David Kessler, the former commissioner of the Food and Drug Administration, told me. Purdue launched OxyContin with a marketing campaign that attempted to counter this attitude and change the prescribing habits of doctors. The company funded research and paid doctors to make the case that concerns about opioid addiction were overblown, and that OxyContin could safely treat an ever-wider range of maladies.

Sales representatives marketed OxyContin as a product “to start with and to stay with.” Millions of patients found the drug to be a vital salve for excruciating pain. But many others grew so hooked on it that, between doses, they experienced debilitating withdrawal. Since 1999, two hundred thousand Americans have died from overdoses related to OxyContin and other prescription opioids. Many addicts, finding prescription painkillers too expensive or too difficult to obtain, have turned to heroin. According to the American Society of Addiction Medicine, four out of five people who try heroin today started with prescription painkillers. The most recent figures from the Centers for Disease Control and Prevention suggest that a hundred and forty-five Americans now die every day from opioid overdoses.

Read more …

They’re everywhere.

America’s Forever Wars (NYT)

The United States has been at war continuously since the attacks of 9/11 and now has just over 240,000 active-duty and reserve troops in at least 172 countries and territories. While the number of men and women deployed overseas has shrunk considerably over the past 60 years, the military’s reach has not. American forces are actively engaged not only in the conflicts in Afghanistan, Iraq, Syria and Yemen that have dominated the news, but also in Niger and Somalia, both recently the scene of deadly attacks, as well as Jordan, Thailand and elsewhere.

An additional 37,813 troops serve on presumably secret assignment in places listed simply as “unknown.” The Pentagon provided no further explanation. There are traditional deployments in Japan (39,980 troops) and South Korea (23,591) to defend against North Korea and China, if needed, along with 36,034 troops in Germany, 8,286 in Britain and 1,364 in Turkey — all NATO allies. There are 6,524 troops in Bahrain and 3,055 in Qatar, where the United States has naval bases.

Read more …

A quantum computer would turn the world upside down.

China Speeds Ahead Of US As Quantum Race Escalates (McC.)

U.S. and other Western scientists voice awe, and even alarm, at China’s quickening advances and spending on quantum communications and computing, revolutionary technologies that could give a huge military and commercial advantage to the nation that conquers them. The concerns echo – although to a lesser degree – the shock in the West six decades ago when the Soviets launched the Sputnik satellite, sparking a space race. In quick succession, China in recent months has utilized a quantum satellite to transmit ultra-secure data, inaugurated a 1,243-mile quantum link between Shanghai and Beijing, and announced a $10 billion quantum computing center. “To me, what is alarming is the level of coordination of what they’ve done,” said Christopher Monroe, a physicist and pioneer in quantum communication at the University of Maryland.

Perhaps more than the accomplishments of the Chinese scientists, it is the resources that China is pouring into the research into how atoms, photons and other basic molecular matter can harness, process and transmit information. “It doesn’t necessarily mean that their scientists are better,” said Martin Laforest, a physicist and senior manager at the Institute for Quantum Computing at the University of Waterloo in Ontario, Canada. “It’s just that when they say, ‘We need a billion dollars to do this,’ bam, the money comes.” The engineering hurdles that China has cleared for quantum communication means that the United States will lag in that area for years.

But building a functioning quantum computer sets forth different kinds of challenges than mastering quantum communication, and may involve creating materials and processes that do not yet exist. Once thought to be decades off, scientists now presume a quantum computer may be built in a decade or less. The stakes are so high that advances by the U.S. government remain secret. “We don’t know exactly where the United States is. I fervently hope that a lot of this work is taking place in a classified setting,” said R. Paul Stimers, a lawyer at K&L Gates, a Washington law firm, who specializes in emerging technologies. “It is a race.”

Read more …

“..its residues were recently found in 45% of Europe’s topsoil – and in the urine of three quarters of Germans tested, at five times the legal limit for drinking water.”

Seems a simple case. But it is not.

EU On Brink Of Historic Decision On Pervasive Glyphosate Weedkiller (G.)

A pivotal EU vote this week could revoke the licence for the most widely used herbicide in human history, with fateful consequences for global agriculture and its regulation. Glyphosate is a weedkiller so pervasive that its residues were recently found in 45% of Europe’s topsoil – and in the urine of three quarters of Germans tested, at five times the legal limit for drinking water. Since 1974, almost enough of the enzyme-blocking herbicide has been sprayed to cover every cultivable acre of the planet. Its residues have been found in biscuits, crackers, crisps, breakfast cereals and in 60% of breads sold in the UK. But environmentalists claim that glyphosate is so non-selective that it can even kill large trees and is destructive to wild and semi-natural habitats, and to biodiversity.

The CEO of the Sustainable Food Trust, Patrick Holden, has said that a ban “could be the beginning of the end of herbicide use in agriculture as we know it, leading to a new chapter of innovation and diversity”. But industry officials warn of farmers in open revolt, environmental degradation and crops rotting in the fields if glyphosate is banned. Alarm at glyphosate’s ubiquity has grown since a 2015 study by the World Health Organisation’s IARC cancer agency found that it was “probably carcinogenic to humans”. More than a million people have petitioned Brussels for a moratorium. On Tuesday, MEPs will vote on a ban of the chemical by 2020 in a signal to the EU’s deadlocked expert committee, which is due to vote on a new lease the next day.

Anca Paduraru, an EC spokeswoman, said that a decision was needed before 15 December or “for sure the European commission will be taken to court by Monsanto and other industry and agricultural trade representatives for failing to act. We have received letters from Monsanto and others saying this.” France is resisting a new 10-year licence. Spain is in favour. Germany is in coalition talks and likely to abstain. The UK would normally push for a new lease of the licence but is less engaged due to Brexit. There may not be a qualified majority for any outcome.

Read more …

And the EU dithers on glyphosate. Tragic species.

Hidden Danger of Ecological Collapse (CP)

Is human society, en mass, committing suicide? The answer could be yes, humankind is committing harakari in the wide-open spaces for all to see, but nobody has noticed. Until now, as insect losses forewarn of impending ecosystem collapse. Loss of insects is certain to have deleterious effects on ecosystem functionality, as insects play a central role in a variety of processes, including pollination, herbivory and detrivory, nutrient cycling, and providing a food source for higher trophic levels such as birds, amphibians, and mammals. Harkening back to the Sixties, a strikingly similar issue was identified in Rachel Carson’s famous book Silent Spring (1962), the most important environmental book of the 20th century that exposed human poisoning of the biosphere through wholesale deployment of myriad chemicals aimed at pest control.

Carson’s fictional idyllic American town enriched with beautiful plant and animal life suddenly experienced a “strange blight,” leaving a swathe of inexplicable illnesses, birds found dead, farm animals unable to reproduce, and fruitless apple trees, a strange lifelessness. She wrote: “A grim specter has crept upon us to silence the voices of spring.” Today, scientists do not know the specific causes but speculate it could be simply that there is no food for insects; alternatively, the issue could be, specifically as well as more likely, exposure to chemical pesticides or maybe a combination, meaning too little food/too much pesticide. Not only that, flower-rich grasslands, the natural habitat for insects, have declined by 97% since early-mid 20th century whilst industrial pesticides literally cover the world.

Rachel Carson would be floored. That’s a sure-fire guaranteed formula for a tragic ending. Nature doesn’t have a snowball’s chance in hell.

Read more …

Jul 222016
 
 July 22, 2016  Posted by at 5:02 pm Finance Tagged with: , , , , , , ,  


Dorothea Lange ‘OK Family bound for Kingfisher and Lubbock. We’ll be in California yet’ 1938

Basic income is a topic I’ve been thinking about for a while, and while I won’t get anywhere near a comprehensive overview -there are too many uncertainties and untested ideas-, I’m going to try to paint a first chapter in a work of progress. Or, a thought experiment, for me and others.

Of course I’ve read a lot of and about other people’s ideas on the topic, and I’m sure there are many more out there that I haven’t seen yet, but I’m afraid to say that about all of those I did read tend to fall into the same ‘trap’. That is, they project their ideas, which are widely varying, onto -or close to- the economy (economies) and society (societies) as they are today.

Their basic income examples and ideas and theories (as well as criticisms of them) are all built around a perception of the economy as it is, or better still as it once was. And that is probably a bad idea. Because the economy of the future will not be like it is today, or was yesterday, and neither will societies.

And that is not because of the role automation and/or robots will play, a topic that features prominently in many basic income writings; those things are but a minor distraction. What will change our world much more profoundly will be the inevitable demise of the economic system as we know it.

And it’s against that backdrop that the issue of basic income must be viewed. If only because it then becomes something entirely different.

 

 

I started thinking a while back that it would not be robots or inequality that would be the foundation of and driving force behind basic income, but the ruin of our pension systems. Of course one has to be careful with general statements on this, because there are so many different systems and approaches when it comes to pensions and other old-age ‘provisions’ and/or ‘benefits’.

What all have in common today, though, is that they’re woefully underfunded and sliding down further fast due to ultralow interest rates and other ‘policies’, as well as to ageing societies. It seems almost incredulous that until a few years ago most pensions funds were required by law to invest only in AAA-rated assets.

While they may not all suffer from the same afflictions, all these systems, from Social Security to private pension funds, do suffer from the same symptoms. Painting the picture with a broad stroke, it’s safe to say they’re all in essence Ponzi schemes.

While many of the ‘Social Security variety’ depend on the trust in a government to pay out something for which nothing -or very little- has been set aside, those of the variety in which money IS actually paid in are inflicted by the twin impairments of too little return on what is paid in to maintain the fund, and too few newcomers to pay for what ‘oldtimers’ never paid but do want to take out.

A third ‘impairment’ will occur when younger workers figure out they’re paying into something they will never see any benefits of, and refuse to fork over any longer.

Low interest rates and ageing populations are wreaking havoc on -especially- European and Japanese pensions even as we speak, and a brief look at future trendlines makes abundantly clear where things are going.

Pondering all that, it seems obvious that at some point a government with at least a bit of vision would come to the conclusion that a basic income to replace all the faltering old-age provisions schemes -and many others- might make a lot of sense. If only because, once you think about it, ‘free’ money only for older people does not make sense, neither politically nor economically.

 

 

But let’s take a step back; that last bit still doesn’t take sufficiently into account that our economies are about to undergo radical changes because they are collapsing. What I find interesting is that this collapse actually seems to play into the hands of a basic income. For several reasons, as a matter of fact.

I am convinced that a basic income in an economy that’s part of a centralized, even globalized, system, makes no sense. You can’t really have a basic income in a society that imports most of what it uses, but that still is the model of most of our societies. We import much of what’s essential, and export non-essential things.

That is a problem that will more or less solve itself, though we better pay attention and be prepared, or else. We may not know exactly when or how the economic collapse will occur, but that’s not the most important thing. What is, is that centralization can only happen in a growing economy. As soon as growth halts -or even reverses-, economies will of necessity decentralize. Unless perhaps they’re under a dictatorship, but even then.

Setting up a basic income system in a society that, for example, imports its clothes and furniture -and sometimes even food- from China, is a doomed proposition. The number one requirement for a successful basic income is that the money issued stays inside the society it’s being issued in. If not, it would merely speed up bankruptcy.

The money must be spent locally, on local products, as much as possible, because then it will be worth much more to the local economy. This will also go far towards fighting deflation, because the velocity of money will increase. To ensure that as much as possible is spent inside a community/society, the manufacturing base will need to be (re-)built.

Which must happen anyway as the global economy sinks, and the sooner, the better. The worldwide transport lines we know today will not exist for much longer, and it will take time to adapt one’s economy to that.

On the bright side, this decentralization, or relocalization, or ‘protectionism’ if you will, will (re-)create a lot of jobs. Not ones that will pay as much as what we see now, but that’s not necessarily such a bad thing. And besides, it’s not as if we have some kind of free choice. Reality will dictate the terms. We must produce our own essentials once again: food, clothing, housing, furniture etc.

Still on the bright side, the new jobs will make basic income much less costly for a society. Because you can top off what people make on top on whatever the basic income is, and you can do so at a level that everyone can agree to.

 

 

That’s my first take of basic income in a crisis, a crisis I see as set in stone. Which changes the whole issue of a basic income. Plenty people will see this as socialism or something in that vein, I see it as perhaps the only way to make sure you have a functioning society on the way down. With none of the alternatives looking particularly appealing.

When discussing the details of such a program, what would probably be good, if only for the sake of justice, is to combine it with Steve Keen’s notion of a Modern Debt Jubilee, in which debt gets cancelled but those with most debt are obliged to pay -part of it- down, while those who are debt-free get ‘rewarded’ for that status.

What I have always found difficult to envision is how a jubilee would work in modern days. The ones ‘of old’ would typically involve a local ruler and/or landlord to whom subjects owed debts of some sort, which the ruler could declare null and void while still being the ruler- and the richest man around.

Today debts are global, with much of them having been securitized and sold on to large -financial- institutions who may even be anonymous and have shareholders in dozens of different countries. How do you get them to agree to large-scale debt cancellation or reform? I’m not saying it can’t be done, but it’s not the same thing.

The hardest part of what I laid out above may well be to get people who feel they are owed benefits, pensions or otherwise, to accept that these will be incorporated into a new basic income system. Not many understand to what extent pensions systems are Ponzi’s, and even those who do to an extent may still refuse to give up their slice of the pie.

It should be fairly easy, though, to explain what their slice will look like once the systems collapse, or even simply once nobody pays in anymore. And because younger people have no reason to pay for something they know they will never see the benefits of, and moreover all this can be phased in/out over a certain period of time, it may well unfold faster and easier than one might think at first sight.

 

 

Lastly, some numbers. Greg Ip wrote for the Wall Street Journal last week: Revival of Universal Basic Income Proposal Ignores Needs of Labor Force. Obviously, in my example, i.e. in an economy that’s going down the drain, the term ‘needs of the labor force’ takes on a whole different role and meaning. In his piece, Ip says:

To send every American adult $10,000 a year would cost $2.4 trillion, or 13% of GDP.

And I think that is a misleading way of phrasing things. Because the money doesn’t disappear, so it doesn’t ‘cost’ that; and that’s not only true in my theoretical example. Most of the ‘basic income money’ would circulate inside the economy, and much comes back to the issuing state through various taxes. Crux is don’t let it leave the economy it’s issued in.

Mind you, I don’t see a basic income trial happen in the US, because it’s far too big a country. The EU is too large too. You’d need smaller units. And as I said, a shrinking economy would of necessity make units smaller. In Europe, these units already exist. In countries the size of Finland, Switzerland, Scotland, Wales, perhaps Greece, a basic income trial may well be viable.

That is, provided they shrug off the strangleholds that bind them to centralized systems. But that they will wind up doing regardless. What’s more important is that such a trial is meticulously planned, and not with some pie in the sky idea of where the world economy is headed.

Greg Ip suggests that a $10,000 basic income for all US adults is not realistic, because it would ‘cost’ 13% of GDP. But this graph from the World Economic Forum World Economic Forum on social expenditures as calculated by the OECD, puts things in a different light:

 

In 2014, US social expenditures were at about 20% of GDP, which is 50% more than Ip’s example. And that is the main point behind the basic income question, even if you don’t subscribe to the collapsing economy ‘thesis’: what would happen if you replace all -or almost all- social benefit schemes in a particular society with a basic income? How much money would you save, or how much extra would it cost?

Ip seems to contend that a basic income would be prohibitively expensive. But, even if the OECD numbers fail to include certain items, there’s a lot of leeway between the 13% of GDP a US basic income would cost, and the 20% of GDP America now pays in benefits. About $1.2 trillion in leeway. So the cost picture at the very least is not all that obvious.

By the way, it’s kind of funny that I’ve seen nobody address the perhaps most ironic thing: even if the state would save a lot of money moving to the much simpler basic income from a myriad of other programs, that would make a whole lot of civil servants unemployed all at once. Can’t help wondering why no-one brings that up.

But the US is not the best example, for various reasons. It’s countries that have the right size to hold a trial in, or at least what we can perceive as the right size. Finland, Belgium, Denmark all spend close to 30% of GDP on social expenditures. Portugal, Greece, Slovenia, Luxembourg are at 25%. If a basic income can be had for 13% of GDP, these countries stand to save a fortune…

Unfortunately, you can’t be in the EU and start a basic income trial. And that’s a shame. Because it’s going to be very hard to get this right, and it’ll take some serious time and effort. So much so that not starting today is a risk in itself.

But as long as people keep having faith in the economists, politicians, bankers and reporters who drill the ‘recovery is right around the corner’ meme into them 24/7, and any alternative to that meme just scares the heebees out of them, I’m afraid there’ll be no basic income trial. Yes, there are a few ideas, but they’re all based on the wrong -growth- assumptions, so they’re sure to fail.

Caveat: No, I haven’t gone through all different social benefits plans of all countries I’ve mentioned, so I don’t know what part of GDP each spends at present, or how much they could save or lose. Someone will have to write ‘the book’ on this.

For my thought experiment here I found it sufficient to go with the basic principles, and throw in a few numbers. And the most elementary difference between me and other voices is not there anyway: that is in my putting the basic income issue against the backdrop of economic collapse, and nobody else really doing that whom I’ve read.

Yes, the title is Marquez, of course, THE time of cholera

 

 

Jul 202016
 
 July 20, 2016  Posted by at 9:09 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing Newsie, Washington DC 1920

To the Mattresses: Cash Levels Highest In Nearly 15 Years (CNBC)
The Financial System Is Breaking Down At An Unimaginable Pace (Black)
This ‘Market’ Discounts Nothing Except Monetary Cocaine (Stockman)
These Sicilian Mortgages Show How Hard It Is to Rescue Italian Banks (BBG)
Deal With Canada On The Brink as German Party Sues EU Over CETA (Exp.)
The Long, Sad, Corrupted Devolution Of The GOP (Intercept)
The World Is Taking Revenge Against Elites. When Will America’s Wake Up? (G.)
The Secret History of Glass-Steagall (WSJ)
We Need More Borders And More States (Mises Inst.)
June 2016 Was 14th Consecutive Month Of Record-Breaking Heat (G.)
This Year’s Record Arctic Melt Is a Problem For Everybody (Stone)

 

 

Breaking point.

To the Mattresses: Cash Levels Highest In Nearly 15 Years (CNBC)

Despite the post-Brexit market rally, fund managers have gotten even more wary of taking risks. The S&P 500 has jumped about 8.5% since the lows hit in the days after Britain’s move to leave the EU, but that hasn’t assuaged professional investors. Cash levels are now at 5.8% of portfolios, up a notch from June and at the highest levels since November 2001, according to the latest BofA Merrill Lynch Fund Manager Survey. In addition to putting money under the mattress, investors also are looking for protection, with equity hedging at its highest level in the survey’s history. Indeed, fear is running high as investors believe that global financial conditions are tightening, despite nearly $12 trillion of negative-yielding debt around the world and the U.S. central bank on hold perhaps until 2017.

In fact, fear is running so high that BofAML experts think that it’s helping fuel the recent market rally. “Record numbers of investors saying fiscal policy is too restrictive and the first underweighting of equities in four years suggest that fiscal easing could be a tactical catalyst for risk assets going forward,” Michael Hartnett, chief investment strategist, said in a statement. Positioning changed, with a rotation from euro zone, banks and insurance companies shifting to the U.S., industrials, energy, technology and materials stocks. Fund managers believe that so-called helicopter money will become a reality, with 39% now anticipating the move compared to 27% in June.

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“..the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.”

The Financial System Is Breaking Down At An Unimaginable Pace (Black)

Now it’s $13 trillion. That’s the total amount of government bonds in the world that have negative yields, according to calculations published last week by Bank of America Merrill Lynch. Given that there were almost zero negative-yielding bonds just two years ago, the rise to $13 trillion is incredible. In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion. A year later in February 2016 it had nearly doubled to $7 trillion. Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago. Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.

Just like subprime mortgage bonds from ten years ago, these bonds are also toxic securities, since many of are issued by bankrupt governments (like Japan). Instead of paying subprime home buyers to borrow money, investors are now paying subprime governments. And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm. We’ll probably see $15 trillion, then $20 trillion, worth of negative-yielding subprime government debt within the next few months. So this trend will continue to grow for now, until, just like in 2008, the bubble bursts in cataclysmic fashion. It took several years for the first subprime bubble to pop. This one may take even longer. But even still, we can already see the consequences today.

A few months ago I told you about the remarkable $3.4 trillion funding gap in the US pension system. Remember, we’re not talking about Social Security– that has its own $40+ trillion shortfall. I’m talking about private companies’ retirement pensions, or public service worker pensions at the city and state level. (By the way, this is NOT strictly a US phenomenon. Europe suffers its own $2 trillion pension shortfall.) There’s zero mathematical probability that these pensions will be able to meet their obligations. They’re already underfunded. And the problem is getting worse, thanks in part to this plague of low and negative interest rates.

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“Regardless of whether the November winner is Hillary or the Donald, there is one thing certain. There will be no functioning government come 2017.”

This ‘Market’ Discounts Nothing Except Monetary Cocaine (Stockman)

[..]..whether the central banks buy public debt from the inventories of the 23 prime dealers and other market speculators or directly from the US treasury makes no technical difference whatsoever. The end state of “something for nothing” finance is the same in both cases. In fact, “helicopter money” is just a desperate scam emanating from the world’s tiny fraternity of central bankers who have walked the financial system to the brink, and are now trying to con the casino into believing they have one more magic rabbit to pull out of the hat. They don’t. That’s because it takes two branches of the state to tango in the game of helicopter money.

The unelected monetary central planners can run the digital printing presses at whim, and continuously “surprise” and gratify the casino gamblers with another unexpected batch of the monetary drugs. That has been exactly the pattern of multiple rounds of QE and the unending invention of excuses to prolong ZIRP into its 90th month. The resulting rises in the stock averages, of course, were the result of fresh liquidity injections and the associated monetary high, not the discounting of new information about economics and profits. By contrast, helicopter money requires the peoples’ elected representatives to play.

That is, the Congress and White House must generate large incremental expansions of the fiscal deficit—so that the central bankers can buy it directly from the US treasury’s shelf, and then credit the government’s Fed accounts with credits conjured from thin air. To be sure, the cynics would say – no problem! When have politicians ever turned down an opportunity to borrow and spend themselves silly, and to than be applauded, not chastised, for the effort? But that assumes we still have a functioning government and that today’s politicians have been 100% cured of their atavistic fears of the public debt. Alas, what is going to cause helicopter money to be a giant dud – at least in the US – is that neither of these conditions are extant.

Regardless of whether the November winner is Hillary or the Donald, there is one thing certain. There will be no functioning government come 2017.

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Rewriting the law to save your banks?

These Sicilian Mortgages Show How Hard It Is to Rescue Italian Banks (BBG)

Down the cobbled streets of Palermo, past baroque churches and gothic palaces, a lesson is lurking for Italy’s government as it hatches a plan to save the country’s banks. Sicily’s biggest city is the focal point of a 2007 securitization of non-performing loans, or NPLs, that shows just how long it can take to resolve soured loans in the country. The deal, known as Island Refinancing, should also act as a warning for investors of the dangers of buying similar securities as Italian banks gear up to sell more of them. The Island bonds are backed by two portfolios of NPLs originated by a Sicilian bank that’s now a subsidiary of UniCredit SpA. Just under half of the loans originated in the 1990s and they include residential mortgages as well as loans financing hotels and industrial buildings.

Unlike other asset-backed securities where interest and principal are paid through cash flows from mortgage or auto credit borrowers, investors in NPL securitizations depend on getting money back from soured loans – typically through the courts. And that’s where the problem lies. A court may auction the loan collateral and use the proceeds to pay the bonds, but that is a slow process. Italy is almost as well known these days for its sluggish and cumbersome insolvency procedures as it is for the Leaning Tower of Pisa or the AC Milan soccer club. Italian bankruptcy proceedings last an average of 7.8 years, compared to an average of just over two years for the rest of Europe.

Efforts are currently being made to speed up the process, with Prime Minister Matteo Renzi saying recent reforms to insolvency laws will shorten recovery times on NPL collateral to as little as six months. Still, the thus-far glacial pace of cash collections from NPLs has resulted in multiple credit ratings downgrades for the Island Refinancing deal, which will expire in 2025.

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The time for trade deals is over.

Deal With Canada On The Brink as German Party Sues EU Over CETA (Exp.)

Centre-left Die Linke has launched legal action to block the controversial Comprehensive Economic and Trade Agreement (CETA) pact, saying it is unconstitutional under German law. The party’s attempt to torpedo the hated deal is just the latest in a series of devastating trade blows for the EU, which is unravelling following the Brexit vote. And it reveals once more the cavernous differences opening up between different member states which have effectively rendered the European project unworkable. Earlier this month Canada’s despairing Trade Minister Chrystia Freeland asked: “If the EU cannot do a deal with Canada, I think it is legitimate to say who the heck can it do a deal with?”

But now there is a very real prospect that CETA will be torpedoed before it has even left port in a development which will throw the future of a much bigger deal with America into serious doubt. Negotiations over the Transatlantic Trade and Investment Partnership (TTIP) have ground to a halt, with impatient American officials warning Brussels to stop dragging their heels. The US chief negotiator said the proposed deal was nowhere near as enticing to Washington now that Britain has left the bloc, comparing a Europe without the UK to an America without California. Britain will not be affected by either calamity after voting to leave the EU, and is now free to begin informal talks on sealing its own trade deals with Canada, the US and the rest of the world.

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Lincoln, too, was a Republican.

The Long, Sad, Corrupted Devolution Of The GOP (Intercept)

In August 1956, the Republican Party gathered in San Francisco to re-nominate President Dwight D. Eisenhower as its candidate in the upcoming presidential election. The party that year adopted a platform that emphasized that the GOP was “proud of and shall continue our far-reaching and sound advances in matters of basic human needs.” This included boasting that Eisenhower had overseen a hike in the federal minimum wage that raised incomes for 2 million Americans while expanding Social Security to 10 million more people and increasing benefits for 6.5 million others.

Today’s Republican Party has made weakening labor unions a priority, but the 1956 platform noted that under Eisenhower, “workers have gained and unions have grown in strength and responsibility, and have increased their membership by 2 millions.” It also touted an increase in federal funding for hospital construction and expanded federal aid for health care for the poor and public housing. The platform also pointed out that Eisenhower had asked for “the largest increase in research funds ever sought in one year” to tackle ailments like cancer and heart disease. Rather than opposing self-governance for Washington, D.C., 1956’s Republicans encouraged it, saying they “favor self-government national suffrage and representation in the Congress of the United States” for those living there.

The platform also asked Congress to submit a constitutional amendment establishing “equal rights for men and women.” The platform boasted proudly of the African-Americans who had been appointed to positions in Eisenhower’s administration, and of ending racial discrimination in federal employment. At no point did the document call for any restrictions on immigration; rather, by contrast, it asked Congress to consider an extension of the 1953 Refugee Act, which brought tens of thousands of war-weary European refugees to American shores. Dwight D. Eisenhower was the face of the Republican Party in the 1950s. He had served as the supreme commander of the Allied forces as they retook Europe from fascist militaries in the decade before.

Experiencing two global wars shaped Eisenhower’s worldview, turning him into an advocate of peace. Eisenhower cut the military budget by 27% following the Korean War, and used his bully pulpit to highlight the trade-offs of military spending. “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed,” he said in a 1953 speech. In his farewell address on January 17, 1961, he highlighted the rise of what he called a “military-industrial complex” — a war industry that he cautioned could exert “undue influence” on the government.

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When indeed?

The World Is Taking Revenge Against Elites. When Will America’s Wake Up? (G.)

A snapshot of America in the middle of June 2016. It is several days before the first great shock of the summer, the Brexit vote, and here in America, all is serene. The threat posed by Senator Bernie Sanders has been suppressed. The Republicans have chosen a preposterous windbag to lead them; the consensus is that he will be a pushover. For all the doubts and dissent of the last year, the leadership faction of the country’s professional class seem to have once again come out on top, and they are ready to accept the gratitude of the nation. And so President Barack Obama did an interview with Business Week in which he was congratulated for his stewardship of the economy and asked “what industries” he might choose to join upon his retirement from the White House.

The president replied as follows: “… what I will say is that – just to bring things full circle about innovation – the conversations I have with Silicon Valley and with venture capital pull together my interests in science and organization in a way I find really satisfying.” In relating this anecdote, I am not aiming to infuriate because the man we elected in 2008 to get tough with high finance and shut the revolving door was now talking about taking his own walk through that door and getting a job in finance. No. My object here is to describe the confident, complacent mood of the country’s ruling class in the middle of last month. So let us continue. On the morning after British voters chose to leave the EU, Obama was in California addressing an audience at Stanford University, a school often celebrated these days as the pre-eminent educational institution of Silicon Valley.

The occasion of the president’s remarks was the annual Global Entrepreneurship Summit, and the substance of his speech was the purest globaloney, flavored with a whiff of vintage dotcom ebullience. Obama marveled at the smart young creative people who start tech businesses. He deplored bigotry as an impediment that sometimes keeps these smart creative people from succeeding. He demanded that more power be given to the smart young creatives who are transforming the world. Keywords included “innovation”, “interconnection”, and of course “Zuckerberg”, the Facebook CEO, who has appeared with Obama on so many occasions and whose company is often used as shorthand by Democrats to signify everything that is wonderful about our era.

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“The law was seen as protecting the specialized securities firms from having to compete with large national banks..”

The Secret History of Glass-Steagall (WSJ)

The Republican party platform calls for a revival of the Glass-Steagall Act, a depression-era banking law repealed in 1999. Glass-Steagall was the brainchild of Sen. Carter Glass (D-VA), best known as the principal architect of the Federal Reserve system. It erected a firewall between deposit-taking/loan-making banks and securities activities such as underwriting and trading. Its original goal was to prevent three things: purchasing of risky securities with government-insured deposits, extending bad loans to shaky companies owned by a bank, and pushing underwritten securities onto naïve bank customers. The provision became law when the Banking Act of 1933 was passed within days of President Franklin Roosevelt taking office in March 1933 in an effort to restore public confidence in the banking system.

The same act created the Federal Deposit Insurance Corp., which insures bank deposits, as well as the Federal Open Market Committee, the monetary policy making board of the Federal Reserve. The act also banned banks from paying interest on checking accounts and granted the Fed authority to put ceilings on interest rates offered for other deposits. Far from resisting Glass-Steagall, Wall Street securities firms embraced and became its most vocal supporters. The law was seen as protecting the specialized securities firms from having to compete with large national banks funded by cheap retail and commercial deposits.

The law was strengthened by a 1956 law that put bank holding companies under the purview of the Federal Reserve and made it clear they could not control both a commercial bank and an investment bank. As the years passed, however, the wall separating securities firms and banks developed cracks—primarily because of pressure from banks wanting to expand into securities dealing. Banks won regulatory approval for their affiliates to underwrite government securities, mortgage-backed securities and commercial paper. They were allowed to provide brokerage services to customers and market insurance. Banks began providing advice and assistance on mergers, acquisitions and financial planning. All this occurred without the law being changed.

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The perks of decentralization.

We Need More Borders And More States (Mises Inst.)

In the context of trade and immigration, borders are often discussed as a means of excluding foreign workers and foreign goods. In one way of thinking, borders provide an opportunity for states to exclude private actors such as workers, merchants, and entrepreneurs. On the other hand, borders can also serve a far more endearing function, and this is found in the fact that borders represent the limits of a state’s power. That is, while borders may exclude goods and people, a state’s borders also often exclude other states. For example, East Germany’s border with West Germany represented the limits of the East German police state, beyond which the power of the Stasi to kidnap, torture, and imprison peaceful people was far more limited than it was within its native jurisdiction.

The West German border acted to contain the East German state. Similarly, the borders of Saudi Arabia delineate a limit to the Saudi regime’s ability to behead people for sorcery or for making critical remarks about the blood-soaked dictators known as the House of Saud. Even within a single nation-state, borders can illustrate the benefits of decentralization, as in the case of the Colorado-Nebraska border. On one side of the border (i.e., Nebraska) state police will arrest you and imprison you for possessing marijuana. They may kill you if you resist. On the other side of the border, the state’s constitution prohibits police from prosecuting marijuana users. The Colorado border contains Nebraska’s war on drugs.

Certainly, there are ways for regimes to extend their power even beyond their borders. This can be done by cozying up with the regimes of neighboring countries (or intimidating them), or through the organs of international quasi-state organizations. Or, as in the case of the US and EU, imposing broader policies upon a number of supposedly sovereign states. Nevertheless, thanks to the competitive nature of states, many states will often find it difficult to project their power into neighboring states, and thus borders represent a very-real impediment to a state’s power. This can then open the door to greater freedom, and even save lives as certain states impoverish or make war on their own citizens.

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When this streak is over everyone will think we’re safe.

June 2016 Was 14th Consecutive Month Of Record-Breaking Heat (G.)

As the string of record-breaking global temperatures continues unabated, June 2016 marks the 14th consecutive month of record-breaking heat. According to two US agencies – Nasa and Noaa – June 2016 was 0.9C hotter than the average for the 20th century, and the hottest June in the record which goes back to 1880. It broke the previous record, set in 2015, by 0.02C. The 14-month streak of record-breaking temperatures was the longest in the 137-year record. And it has been 40 years since the world saw a June that was below the 20th century average.

The string of record-breaking monthly temperatures began in April 2015, and was pushed along by a powerful El Niño, where a splurge of warm water spreads across the Pacific Ocean. But the effects of El Niño have receded, and the effects of global warming are clear, said Nasa’s Gavin Schmidt. “While the El Niño event in the tropical Pacific this winter gave a boost to global temperatures from October onwards, it is the underlying trend which is producing these record numbers,” he said.

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“..a Texas-sized chunk of sea ice has disappeared from our planet’s north pole between the early 1980s and today.”

This Year’s Record Arctic Melt Is a Problem For Everybody (Stone)

If your life has felt like a hot mess this year, you’re not alone. Same goes for the Arctic, which month after month has seen its ice cover contract to new lows. By late September, Arctic sea ice may reach its lowest extent since satellite record-keeping began. And that’s got scientists in a tizzy, because if there’s one thing geologic history has taught us, it’s that sudden drops in Arctic ice cover are often the tip of the proverbial iceberg for a whole slew of planetary feedbacks. It’s difficult to keep up with all the climate-related records our world has been smashing, so here’s a quick recap of what’s been happening up north.

At the close of 2015 (currently the hottest year in recorded history, but not for long), the Arctic was already sweating iceberg-shaped bullets, thanks to freakishly warm weather brought on by a combination of a monster El Niño and the underlying global warming trend. Then 2016 burst on the scene, with temperatures at the North Pole rising some fifty degrees Fahrenheit above normal. The Arctic stayed exceptionally hot through January and February. By the time March rolled around, the atmosphere was loaded with heat, and Arctic sea ice was already starting to look thin. NASA confirmed that it was indeed the smallest wintertime Arctic sea ice extent on the record books, peaking at some 5.6 million square miles (14.5 million square km).

Then, the Arctic started to melt. And it kept going, and going, and going, smashing record after record, month after month. As of this writing, we’ve just come off the fifth record-low sea ice month this year. Every month except March has marked an all-time monthly low, with June sea ice maxing out a full 100,000 square miles (260,000 square kilometers) below the previous record low, set in 2010. June sea ice was also 525,000 square miles (1.36 million square km) below the 1981-2010 average. Put another way, a Texas-sized chunk of sea ice has disappeared from our planet’s north pole between the early 1980s and today.

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Jul 192016
 
 July 19, 2016  Posted by at 8:56 am Finance Tagged with: , , , , , , , ,  


Russell Lee Tracy, California. Gasoline filling station 1942

Republican Platform Calls For Return Of Glass-Steagall (MW)
Calpers Targets 7.5% Investment Return, Earns Just 0.6% In Latest FY (BBG)
Oil Prices Fall On Oversupply Concerns Despite Output Cuts (R.)
Alberta Is In The Midst Of Its Worst Recession On Record (BBG)
China’s Local Debt Problem Goes Global (BBG)
Middle-Income Families In UK Resemble The Poor Of Years Past (G.)
Brexit Could Cut London House Prices By 30-50%: SocGen (G.)
New Zealand to Rein in Housing Boom (BBG)
‘NZ First-Home Buyers Should Benefit From Central Bank Proposal’ (Stuff)
Greek Pensioners Protest Cuts At Top Constitutional Court (Kath.)
There Will Be No Second American Revolution (Whitehead)
Britain’s Part In Torture And Rendition Is Still Kept Hidden (Conv.)
Hans-Hermann Hoppe: “Put Your Hope In Radical Decentralization” (Mises Inst.)

 

 

“Opponents of the return of Glass-Steagall were swift to react. “Glass-Steagall is dumb politics and dumb economics…”

Republican Platform Calls For Return Of Glass-Steagall (MW)

Republicans and Democrats are both bending over backwards to show that they are not beholden to Wall Street. The Republican Party platform, released late Monday, calls for the return of Glass-Steagall restrictions on banks. Paul Manafort, campaign manager for presumptive GOP nominee Donald Trump, told reporters earlier Monday the language would be included. “We believe that the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is one of the reasons why you see all the Wall Street money going to [Hillary Clinton],” Manafort said.

Glass-Steagall was a Depression-era measure restricting commercial banks from the investment-banking business. The measure was repealed in 1999. Some critics contend that loosening of the banking rules played a role in the subsequent financial crisis. Manafort’s comments suggest Republicans hope to use the issue against Clinton, the presumptive Democratic nominee. The measure was a major point of contention between Bernie Sanders and Clinton in the Democratic primary. The Democratic platform also includes language calling for a modern version of Glass-Steagall. Party platforms have no teeth. But having Glass-Steagall in both platforms suggests Congress will likely consider the issue next year.

Opponents of the return of Glass-Steagall were swift to react. “Glass-Steagall is dumb politics and dumb economics … returning to Glass-Steagall would be destructive and unworkable,” said Tony Fratto, managing partner in Washington at Hamilton Place Strategies, a lobbying firm that represents large banks. Brian Gardner, an analyst at Keefe, Bruyette & Woods, said the market may be underestimating the likelihood of a forced breakup of big banks. “There is an unappreciated risk that Glass-Steagall might be reimposed in 2017 or 2018, especially if Congress seriously looks at changes to the Dodd-Frank Act. We think this is the case regardless of who wins the presidential election,” he said in a note to clients.

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And Calpers is not some outlier.

Calpers Targets 7.5% Investment Return, Earns Just 0.6% In Latest FY (BBG)

The California Public Employees’ Retirement System, the largest U.S. public pension fund, earned a return of 0.6% on its investments last fiscal year, trailing its long-term target as holdings in stocks and forestland lost money. The pension’s public equity portfolio lost 3.4% in the year through June 30 and forestland assets declined 9.6%, Chief Investment Officer Ted Eliopoulos said Monday. Fixed-income holdings rose 9.3% and infrastructure investments gained 9%. “The longer-term returns of the fund – the three-, five-, 10-, 15- and 20-year total returns of the fund – are now below the assumed rate of 7.5% for the fund,” Eliopoulos said. “That’s a significant policy issue for us.”

The system must average at least 7.5% a year to match its assumed rate of return or turn to taxpayers to make up the difference. Calpers’s annualized returns were 6.9% for the last three years, 5.1% for the last 10 years and 7% over 20 years, according to a presentation to the board. It is among U.S. pensions under pressure to boost investment returns as funding shortfalls increase amid an aging population and low interest rates. In fiscal 2015, Calpers earned 2.4%. The pension lost a quarter of its value in 2009. Two years later, it earned a record 20.7% only to see the gain drop to 1% one year later. Since the recession, the fund has sought to better gauge its risks from market volatility.

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One day even Reuters will have to admit that demand is way down…

Oil Prices Fall On Oversupply Concerns Despite Output Cuts (R.)

Oil prices eased on Tuesday as concerns over a crude and refined fuel glut outweighed an expected cut in U.S. shale production and a probable further draw in U.S. crude inventories. Crude prices fell more than 1% in the previous session after worries about potential supply disruptions stemming from an attempted coup in Turkey proved unfounded. “Prices are a bit softer in the Asian trading period – traders and investors are torn which way prices are going to break. It’s a knife edge between optimism and pessimism,” said Ben Le Brun, market analyst at Sydney’s OptionsExpress. The market is waiting for U.S. crude stocks data on Tuesday and Wednesday to help give direction to prices, he said.

Brent crude slipped 11 cents to $46.85 a barrel as of 0657 GMT after finishing the previous session down 65 cents, or 1.4%. U.S. crude, known as West Texas Intermediate (WTI), fell 11 cents to $45.13 a barrel after settling 71 cents, or about 1.6%, lower in the previous session. Fuel inventories in the United States, Europe and Asia are brimming despite this being the peak summer driving season, leading traders to store diesel on tankers at sea amid wilting demand growth. With landed oil product storage nearly full as well, there is little support for any sustained recovery in crude prices even as output tapers. U.S. shale oil production is expected to fall in August for a tenth straight month, by 99,000 barrels per day (bpd) to 4.55 million bpd, according to a U.S. drilling productivity report on Monday.

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And here’s the result of the demand collapse:

Alberta Is In The Midst Of Its Worst Recession On Record (BBG)

Alberta, the home of Canada’s oil sands, is going through its worst downturn in activity on record as a prolonged period of low oil prices and the wildfires earlier this year buffet the provincial economy. According to Toronto-Dominion Bank’s economics team, the cumulative annual%age contraction in real output projected for 2015 to 2016 exceeds even the financial crisis, as well as the last supply-side driven crash in oil prices in the mid-1980s, in magnitude. While the recent episode seems poised to be the worst single recession on record, the two recessions in the 1980s mean that stretch is still likely to be regarded as the most challeng≠ing period in the post-war period in Alberta, says a TD team led by Deputy Chief Economist Derek Burelton.

However, TD s team notes that labor market indicators point to a more mild downturn. Periods of boom followed by bust are no strangers to an econ≠omy that is tied to the vagaries of the global oil market, write the economists. The current recession is expected to yield a cumulative annual decline in real GDP of around 6.5%, which is more than twice that of the average of past downturns. While economic activity appeared to be picking up earlier this year, the wildfires that wreaked havoc in the region and disrupted oil operations threw a wrench in the province s nascent comeback story. The economists note that the softness in the Canadian dollar and low interest rates helped Alberta s economy escape an even worse fate.

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Buying into the last stages of a bubble.

China’s Local Debt Problem Goes Global (BBG)

A very local problem in China is being exported at an alarming rate.Debt from special-purpose vehicles linked to municipal and provincial governments — leverage that central authorities are trying (unsuccessfully) to extinguish — is becoming more common in overseas markets. What’s worse, lately it’s been the weakest cities and provinces panhandling to international investors.Since June, as many as six local government financing vehicles have sold dollar bonds, bringing the total issued by such entities to at least $4 billion this year, just shy of the record $4.1 billion logged in all of 2015. Three offerings were scored below investment grade by Fitch, whereas prior to 2016, only one junk security of its kind had surfaced internationally.

Investors should ask why these localities are going abroad when all their revenue is onshore. Could it be that they’re having a harder time raising funds domestically?That wasn’t always the case.After a 1994 law banned regional authorities from issuing bonds directly, LGFVs were set up in their thousands in China to fund infrastructure projects like roads and bridges. Beijing lost track of how big the liabilities were and deployed about 50,000 auditors across the country in 2014. That crackdown culminated in authorities’ decision last year to open the municipal debt spigots and use funds raised that way to repay local governments’ off-balance-sheet debt. As a result, provincial and municipal governments issued an unprecedented 3.8 trillion yuan ($567 billion) directly last year, and may sell as much as 5 trillion yuan this year.

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In case people still don’t get where Brexit came from.

Middle-Income Families In UK Resemble The Poor Of Years Past (G.)

Plunging levels of homeownership and an increased reliance on state benefits to top up salaries have meant that Britain’s middle-income families increasingly look like the poor households of the past, according to one of the UK’s leading thinktanks. A report from the Institute for Fiscal Studies showed that the old link between worklessness and child poverty had been broken, with record levels of employment leading to a drop in the number of poor children living in homes where no adult works. However, the study found that by 2014-15, two-thirds of children classified as living below the poverty line had at least one parent who was working. If Theresa May wanted to take forward David Cameron’s “life chances” strategy, the IFS said, the prime minister needed to focus on lifting the incomes of working households.

“In key respects, middle-income families with children now more closely resemble poor families than in the past,” the IFS said. “Half are now renters rather than owner-occupiers and, while poorer families have become less reliant on benefits as employment has risen, middle-income households with children now get 30% of their income from benefits and tax credits, up from 22% 20 years ago.” The report divided the population into five groups according to income and found that for the middle 20% of children, half were living in an owner-occupied house, down from 69% two decades ago. It also found that mothers’ earnings were increasingly important for households with children. More than 25% of the incomes of middle-income households came from mothers in 2014-15, up from less than 20% in 1996, while this figure doubled from 7% to 15% for the poorest group over the 20-year period.

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“We see a classic housing bubble in London and Brexit as the trigger for the correction..”

Brexit Could Cut London House Prices By 30-50%: SocGen (G.)

London property prices could fall by more than 30% in the wake of Britain’s vote to leave the EU and may halve in the most expensive parts of the city, according to analysts at the French bank Société Générale. Brexit may be the trigger to end London’s seven-year house-price boom as companies move employees out of the UK, forcing sales of high-end properties, the company’s real estate analyst Marc Mozzi said in a note to clients. Commercial property has been at the centre of post-Brexit fears as investors have tried to get their money out of property funds, but residential real estate could be hit harder, Société Générale said. “While in recent stress tests the major UK banks were assessed with declines of about 30% in commercial real estate prices, we fear that London residential could experience an even more severe downturn,” it said.

Prices are already falling on properties previously valued at £1m or more, and may have further to go, particularly in the priciest parts of town. London’s highly paid investment bankers and hedge fund managers congregate in boroughs such as Hammersmith and Fulham as well as Kensington and Westminster. Société Générale added: “We see a classic housing bubble in London and Brexit as the trigger for the correction … Given the current ratio of prices to incomes in London, a price correction of even 40-50% in the most expensive London boroughs does not seem impossible.” London property prices have more than doubled since they began to recover from the financial crisis in 2009. Last month, the average London house price was £472,000 – 12 times average London earnings compared with a long-term average of six times, Société Générale said.

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Too late. Way.

New Zealand to Rein in Housing Boom (BBG)

New Zealand’s central bank is moving to quell the country’s housing boom by restricting the amount of money property investors can borrow, paving the way for another cut in interest rates. The Reserve Bank will require investors across New Zealand to have a deposit of at least 40%, it said in a statement Tuesday in Wellington. The new rule, which tightens an existing requirement that investors in Auckland have at least a 30% deposit, will be introduced Sept. 1, the RBNZ said. New Zealand’s dollar fell as markets bet Governor Graeme Wheeler will now be free to respond to persistently weak inflation by cutting the official cash rate to a record-low 2% on Aug. 11.

He has been reticent to lower borrowing costs for fear of stoking housing demand. The proposed new lending rules remove the distinction between Auckland and the rest of the country, Wheeler said in the statement. Since November, the RBNZ has required most investors buying Auckland properties to have a 30% deposit, but that has prompted many to look at opportunities in other centers. In the North Island city of Hamilton, house prices rocketed 29% in the year through June. [..] “A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country,” Wheeler said. “A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy.”

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New Zealand politics as a whole built this bubble. And now comes the time to blame each other for it. It will take a long time for the country to live this down.

‘NZ First-Home Buyers Should Benefit From Central Bank Proposal’ (Stuff)

The Reserve Bank made the “right decision” to impose new lending rules on property investors, says Prime Minister John Key. Proposed restrictions announced on Tuesday would require banks to lend only a small fraction of their loans to investors with less than a 40% deposit. Key said “in theory” the restrictions would help first-home buyers get into the market by making it more difficult and “less economic” for investors to buy a property. “What the Reserve Bank’s trying to do here is not be forced to increase interest rates, while at the same time trying to take a little bit of steam out of the housing market,” he said. “It’s got a fine line to walk here and I think it’s walking it about right.”

The Labour Party accused National of being “stuck in denial mode” over the housing crisis, but Key said it was up to everyone – central government, the Reserve Bank and councils – to stem the rate of increase in house prices. Key said the new rules would not lead to a drop in house values. “I don’t think anyone’s really arguing that house prices should dramatically fall, other than probably (economist) Arthur Grimes and Don Brash, and that’s not a view supported by the Government.” Labour and the Greens both supported the bank’s proposal. Labour’s finance spokesperson Grant Robertson said it was “the right thing to do” as nearly half of property purchases in Auckland were made by speculators and there were signs of house price increases spreading to other regions.

However, Robertson said the bank was openly calling on the Government to “step up and fix the crisis”. “Labour’s plan to fix the housing crisis includes banning offshore speculators from buying residential properties, an extension of the bright line test to five years and consulting on ending the practice of negative gearing,” he said. “It is clear that the only way to bring stability to the housing market and give first home buyers a fair go is to change the government.” [..] NZ First leader Winston Peters did not think the lending rules would have much of an effect on the housing market. “Given the way house financing is constructed from offshore, foreign investors will carry on as usual whilst New Zealand investors will simply have to stump up a greater deposit. “Accordingly, for a short time longer the house price bubble will just get greater before the inevitable crash.”

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Futile. The EU has willed it. But devastating too.

Greek Pensioners Protest Cuts At Top Constitutional Court (Kath.)

The new law on social security brings fresh cuts to new pensions that could reach up to €722 per month, generating more concern among citizens who are close to retirement. The law introduced by Labor Minister Giorgos Katrougalos provides for adjustments to pensions that have not yet been issued of between €11.38 and €722.09, prompting a group known as the Single Network of Pensions to oppose it at the Council of State, the country’s top constitutional court. The pensioners argue that the law introduces cuts that violate the constitution.

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Redefining ‘police state’.

There Will Be No Second American Revolution (Whitehead)

America is a ticking time bomb. All that remains to be seen is who – or what – will set fire to the fuse. We are poised at what seems to be the pinnacle of a manufactured breakdown, with police shooting unarmed citizens, snipers shooting police, global and domestic violence rising, and a political showdown between two presidential candidates equally matched in unpopularity. The preparations for the Republican and Democratic national conventions taking place in Cleveland and Philadelphia—augmented by a $50 million federal security grant for each city—provide a foretaste of how the government plans to deal with any individual or group that steps out of line: they will be censored, silenced, spied on, caged, intimidated, interrogated, investigated, recorded, tracked, labeled, held at gunpoint, detained, restrained, arrested, tried and found guilty.

For instance, anticipating civil unrest and mass demonstrations in connection with the Republican Party convention, Cleveland officials set up makeshift prisons, extra courtrooms to handle protesters, and shut down a local university in order to house 1,700 riot police and their weapons. The city’s courts are preparing to process up to 1,000 people a day. Additionally, the FBI has also been conducting “interviews” with activists in advance of the conventions to discourage them from engaging in protests. Make no mistake, the government is ready for a civil uprising. Indeed, the government has been preparing for this moment for years. A 2008 Army War College report revealed that “widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security.”

The 44-page report goes on to warn that potential causes for such civil unrest could include another terrorist attack, “unforeseen economic collapse, loss of functioning political and legal order, purposeful domestic resistance or insurgency, pervasive public health emergencies, and catastrophic natural and human disasters.” Subsequent reports by the Department of Homeland Security to identify, monitor and label right-wing and left-wing activists and military veterans as extremists (a.k.a. terrorists) have manifested into full-fledged pre-crime surveillance programs. Almost a decade later, after locking down the nation and spending billions to fight terrorism, the DHS has concluded that the greater threat is not ISIS but domestic right-wing extremism.

Meanwhile, the government has been amassing an arsenal of military weapons for use domestically and equipping and training their “troops” for war. Even government agencies with largely administrative functions such as the Food and Drug Administration, Department of Veterans Affairs, and the Smithsonian have been acquiring body armor, riot helmets and shields, cannon launchers and police firearms and ammunition.

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Are there perhaps more important discussions to be had than who’s to blame for Brexit?

Britain’s Part In Torture And Rendition Is Still Kept Hidden (Conv.)

Even as the Chilcot Report lays bare the sad story of the UK’s decision to join in the 2003 invasion of Iraq, a veil is still drawn over another dark aspect of Britain’s partnership with George W Bush’s administration. For years now, the British state has barely acknowledged its alleged deep involvement in the abuse of terror suspects, and there has been very little in the way of justice for the victims of torture and “rendition” – the practice of abducting suspects without due legal process and transferring them to other countries or territories for interrogation. Nonetheless, my colleague Ruth Blakeley and I have found that this involvement was direct, deep and longstanding. Moreover, most official channels have been closed to keep the extent of the UK’s co-operation from coming to light.

An aborted judge-led inquiry into British involvement in prisoner mistreatment uncovered more than 200 separate allegations of abuse, at least 40 of which were significant enough to warrant detailed investigation. Some of these cases have led to civil action against the British government in the UK courts, others have led to police investigations and criminal inquiry. In response, however, the government has maintained its innocence in every individual case while simultaneously working to block the release of relevant information. There have been attempts to withhold publication of key documents in open court, such as those which demonstrate that British intelligence knew about the torture of prisoners by the CIA before participating directly in their interrogation.

Where British courts have refused to accept government attempts to hold hearings in camera, the government has offered substantial payouts without any admission of liability. Indeed, the 2013 Justice and Security Act, which introduced so-called “closed material procedures” into the main civil courts, gave the state the legal ability to keep details of British involvement in torture out of the public record.

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One of my ‘pet’ themes. Not sure Hoppe understands this is an economic phenomenon, in that centralization depends one-on-one on a growing economy. He seems to think it’s political.

Hans-Hermann Hoppe: “Put Your Hope In Radical Decentralization” (Mises Inst.)

Can one say, then, that the politicians running the EU are even worse than the politicians running national affairs? No, and yes. On the one hand, all democratic politicians, with almost no exception, are morally uninhibited demagogues. One of my German books is titled The Competition of Crooks, which captures what democracy and democratic party politics are really all about. There is in this regard little if any difference between the political elites of Berlin, Paris, Rome, etc., and those running the show in Brussels. In fact, the EU elites are typically political has-beens, with the same mentality as their domestic counterparts, on the lookout for the super-lavish salaries, benefits, and pensions doled out by the EU. On the other hand, the EU elites are worse than their political cronies at home, of course, in that their decisions and rulings always affect a far larger number of people.

What do you predict, then, will be the future of the EU? The EU and the ECB are a moral and economic monstrosity, in violation of natural law and the laws of economics. You cannot continuously punish productivity and success and reward idleness and failure without bringing about the disaster. The EU will slide from one economic crisis to the next and ultimately break apart. The Brexit, that we have just experienced, is only the first step in this inevitable process of devolution and political decentralization.

Is there anything that an ordinary citizen can do in this situation? For one, instead of swallowing the high-sounding blabber of politicians about “freedom,” “prosperity,” “social justice,” etc., people must learn to recognize the EU for what it really is: a gang of power-lusty crooks empowering and enriching themselves at other, productive people’s expense. And secondly, people must develop a clear vision of the alternative to the present morass: not a European Super-State or even a federation of nation States, but the vision of a Europe made up of thousands of Liechtensteins and Swiss cantons, united through free trade, and in competition with one another in the attempt of offering the most attractive conditions for productive people to stay or move.

Can you give a comparative assessment of the USA and the situation in Europe? The difference between the situation in the US and Western Europe is much smaller than is generally surmised on either side of the Atlantic. For one, the developments in Europe since the end of World War II have been closely watched, steered and manipulated, whether through threats or bribes, by the political elites in Washington DC. In fact, Europe has essentially become a dependency, a satellite or vassal of the US. This is indicated on the one hand by the fact that US troops are stationed all across Europe, by now all the way right up to the Russian border. And on the other hand, this is indicated by the steady pilgrimage, performed more regularly and dutifully than any Muslim’s pilgrimage to Mecca, of the European political elites and their intellectual bodyguards to Washington DC, in order to receive their masters’ blessings.

Especially the German political elite, whose guilt complex has meanwhile assumed the status of some sort of mental illness, stands out in this regard by its cowardice, submissiveness, and servility. As for US domestic affairs, both Europeans and Americans have it typically wrong. Europeans still frequently view the US as the “land of the free,” of rugged individualism, and of unhampered capitalism. Whereas Americans, insofar as they know or claim to know anything about the world outside the US at all, frequently view Europe as a place of unhinged socialism and collectivism, entirely alien to their own “American way.” In fact, there exists no principal difference between the so-called “democratic capitalism” of the US and Europe’s “democratic socialism.”

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