Apr 132018
 
 April 13, 2018  Posted by at 8:38 am Finance Tagged with: , , , , , , , , , , ,  


Ezra Stoller Parking garage, New Haven, Connecticut 1963

 

Zombies In Our Midst (Felder)
After 10 Fat Years For Stock Investors A Lean Decade Is Looming (MW)
China Records Rare Trade Deficit In March As Exports Fall 2.7% (R.)
London House Prices Falling At Fastest Rate In Nine Years (G.)
Google Saves Manhattan Office Market. Chinese Buyers Vanish (WS)
The Deep State Closes In On The Donald: Mueller’s War, Part 2 (Stockman)
Bitcoin Surges 15%, Pushing Crypto Market Cap Above $300 Billion (MW)
The US Fading into Irrelevance – A Good Thing for the World (Pieraccini)
Interest Rate Hikes Are On The Way, But When And How Fast? (AFR)
Why Trade Wars Will Unleash Central Banks (Nomi Prins)
Global Warming Is a Central Bank Issue (BBG)
Decline In Bees Puts Supply Of Raw Materials For Global Business At Risk (Ind.)
No Plan To Protect Queensland’s Green-Haired Turtle From Extinction (G.)
Gulf Stream Slowdown ‘About A Century Ahead Of Schedule’ (TP)

 

 

Ponzi’s and zombies. Not Jesse Felder’s original title, but this one by DiMartino Booth is better.

Zombies In Our Midst (Felder)

To begin to understand the current situation in Minsky terms we must first understand the hypothesis: “The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system. In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance.”

Next we need to understand what these financing units are: “Hedge financing units are those which can fulfill all oftheir contractual payment obligations by their cash flows… Speculative finance units are units that can meet their payment commitments on “income account” on their liabilities, even as they cannot repay the principle out of income cash flows… For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations.”

And this is what reminded me of Minsky when I read the recent article in Grant’s with the accompanying chart below. It shows the percent of companies in the S&P 500 that would fall into Minsky’s “Ponzi unit” category. Specifically, Bianco Research defines these “zombies” as companies whose interest expense is greater than their 3-year average EBIT (earnings before interest and taxes). Currently, we face the greatest percentage of “Ponzi units” in at least 20 years.

This should be worrisome to investors and even more so to those managing monetary policy because it suggests that financial instability within the economy may be greater than any other time over the past couple of decades. Minsky again: “It can be shown that if hedge financing dominates, then the economy may well be an equilibrium seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system.” Those last three words are critical. “A deviation amplifying system,” simply means an economy built on a virtuous cycle that risks evolving into a vicious one.

So long as interest rates remain low and investor risk appetites remain strong zombies will thrive and the economy will, as well, relatively speaking of course. However, should interest rates rise and risk appetites reverse course the risk of a self-reinforcing downturn grows. Minsky explains: “In particular… if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values.”

Read more …

It won’t be like any of those previous decades.

After 10 Fat Years For Stock Investors A Lean Decade Is Looming (MW)

It’s a phrase that comes standard on Wall Street, but which may be taking on ominous undertones in the current market: Past performance is no guarantee of future returns. It should come as no surprise that U.S. equity-market investors have been handsomely rewarded thus far this decade, a period of time that roughly corresponds with the recovery from the financial crisis (the bottom came in March 2009, roughly 10 months before the start of the 2010s). The S&P 500 is up nearly 140% since the start of the decade, and more than 180% on a total-return basis. The Dow Jones Industrial Average is up more than 130% over the same period. Those are obviously strong gains, but even the biggest bulls on Wall Street may not appreciate just how strong this period has been relative to other decades.

“The 2010s have so far been one of the highest-returning and lowest-risk decades for U.S. stocks in the last 100 years,” wrote Howard Wang, co-founder of Convoy Investments. According to Convoy’s data, stocks averaged a total annualized return of 13.2% thus far this decade, comfortably above the long-term average of 9.6%. While this was below four other decades — the best decade was the 1950s, when the average was 18.8%, followed by the 18.6% gain in the 1990s — equities fared better in terms of their excess return above interest rates. By the excess-return measure, the 2010s have seen an average annual return of 12.7%, significantly above the 5.8% long-term average (going back to the 1920s).

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“Separately, China’s dollar-denominated trade surplus with the United States rose 19.4% in the first quarter…”

China Records Rare Trade Deficit In March As Exports Fall 2.7% (R.)

China’s March exports unexpected fell 2.7% from a year earlier, the first drop since February last year, while imports grew 14.4%, more than expected, customs data showed on Friday. That left the country with a rare trade deficit of $4.98 billion for the month, also the first since last February. Analysts polled by Reuters had expected March shipments from the world’s largest exporter to have risen 10.0%, slowing sharply from a 44.5% spike in the previous month which was believed to be heavily distorted by seasonal factors. Import growth had been expected to pick up to 10.0%, after slowing sharply to 6.3% in February.

Analysts expected China would record a trade surplus of $27.21 billion for last month, from February’s surplus of $33.75 billion. For the first quarter, exports rose 14.1%, and imports rose 18.9% on-year. China’s trade performance has got off to a strong start this year, following through on a solid rebound in 2017, thanks to sustained demand at home and abroad. But the export outlook is being clouded by an escalating trade dispute with the United States, which could disrupt China’s shipments and its supply chains, while a cooling property market may curb China’s demand for imported raw materials such as iron ore. Separately, China’s dollar-denominated trade surplus with the United States rose 19.4% in the first quarter.

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Ain’t seen nothing yet.

London House Prices Falling At Fastest Rate In Nine Years (G.)

House prices in London are falling at the fastest rate in nine years, according to Halifax, Britain’s biggest mortgage lender. Prices in the capital were down 3.2% between January and March compared with the previous quarter, the sharpest decline since the depths of the financial crisis, according to regional data collated by IHS Markit and published by Halifax, part of Lloyds Banking Group. London also recorded the sharpest fall in annual house prices since the start of 2011. Property values fell 3.8% in the first quarter from a year ago, following a 0.7% annual drop in the fourth quarter. London prices have been falling on a quarterly and annual basis since the third quarter of 2017.

There was a small annual increase of 0.3% in prices in the south-east of England at the start of the year, and a rise of 1.9% in the south-west. Prices grew strongly elsewhere in the country. The east Midlands and East Anglia recorded the fastest rates of annual price inflation, at 7.3% and 7.2% respectively, followed by Scotland at 6.7% and Yorkshire and the Humber at 6.1%. The standardised price of a home in London was £430,749 in the first quarter, the lowest since the end of 2015. Figures are standardised in order to track the price of a “typical house” by giving values to certain attributes of the properties and using them to calculate the price.

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The only game in town.

Google Saves Manhattan Office Market. Chinese Buyers Vanish (WS)

Chinese entities – such as the conglomerates – were once the dominant buyer in US trophy office markets, such as Manhattan. It ended with a big bang in the second quarter of 2017 when Chinese entities accounted for half of the commercial real estate volume in Manhattan, including its sixth largest transaction ever, the $2.2 billion purchase of 245 Park Avenue by the conglomerate HNA Group. It paid $1,282 per square foot, as it was called, “among the highest price per pound for this type of asset.” It was the last big Chinese property purchase in Manhattan.

But Google blew that deal out of the water, with its $2.4 billion acquisition of the iconic eight-story Chelsea Market at 75 Ninth Ave in Q1 this year. This was the second largest deal ever to close in Manhattan. And Google paid a breath-taking $2,181 per square foot. We will never again laugh about the inflated prices Chinese buyers were paying. [..] And here is what that Google deal did to the Manhattan office market: It more than doubled the total volume of sales! Without the Google deal, total transaction volume would have been $2.12 billion. With the Google deal, it jumped to $4.52 billion! [..] the dizzying price of $2,181 per square foot that Google forked over pushed the average price per square foot to a record $1,266, up 70% from Q1 last year:

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David is a great ranter.

The Deep State Closes In On The Donald: Mueller’s War, Part 2 (Stockman)

What is going on in the eastern Mediterranean and over the skies and on the ground in Syria is absolutely nuts; it’s also scary dangerous and utterly unnecessary, too. After all, the imminent Russian/American military clash is over the skeleton of an artificial backwater nation confected in 1916 by two swells in the British and French foreign offices. At length, what was never a nation anyway has finally been reduced to rubble, misery and sectarian fragments. So there is nothing to contest now, and, in fact, there never was. The sovereign government of Syria long ago invited the Russians in and Washington out. Period. Why, then, are commercial aircraft being warned to stay out of Syrian airspace, while the Russian fleet at Tartus scrambles into defensive redeployments?

Likewise, why is the Syrian air force being forced to hide its planes and helicopters in its own country, while Washington steams an armada of warships toward the Mediterranean that is larger and more lethal than the entire Navy of almost every other country in the world? The answer is simple and terrible: Washington has become the War Capital of the planet and now teems with a whole generation of war-obsessed bureaucrats, think-tankers, consultants, lobbyists, militarists, imperialists, neocon belligerents and the legions of military/industrial/spy complex racketeers who feed off a hideously bloated national security budget.

Of course, you also have thousands of politicians—both those now in office and those who hang-around afterwards and get prosperous by hanging-out a shingle to ply the business of operating Washington’s global empire. Among them are the brainwashed, the stupid, the larcenous, the sanctimonious, the venal, the flag-wavers, the sunshine patriots and the ideologues of American exceptionalism, responsibility-to-protect (R2P), democracy propagation and plain old imperial hegemony.

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Casino. Not for the faint of heart.

Bitcoin Surges 15%, Pushing Crypto Market Cap Above $300 Billion (MW)

After a period of low volatility, cryptocurrencies have broken out of their recent ranges, surging to multiweek highs on Thursday. The No. 1 digital currency, bitcoin rose to a two-week peak, trading above $8,000 to an intraday high of $8,055.20, adding as much as 16%. A single coin last changed hands at $7,705.21, up 11%. The intraday move is the largest since Feb. 6 when bitcoin traded down to $5,947.40 before closing at $7,700.39, a 29.4% move. The move comes after bitcoin spent the best part of two weeks in the $6,500 to $7,500 range. The tight sideways action created a so-called wedge formation, which can often presage significant swings in either direction once breached, according to market technicians “We have seen consolidation in a very small range,” said Naeem Aslam, chief market analyst with ThinkMarkets. “When the consolidation is in such a tight range the probability is that a move to the upside can be two to three times the size of the consolidation range.”

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Multipolar is the future.

The US Fading into Irrelevance – A Good Thing for the World (Pieraccini)

As demonstrated by the recent meeting between the defense ministers of Russia and China, the multipolar strategy is now wide-ranging, relegating Washington, Tel Aviv and Riyadh to further digging themselves into the hole they have already dug themselves into (see recent events in Syria with Israel launching 8 missiles and Trump beating the drums of war). As General Wei Fenghe stated, “We came to Moscow to let the Americans know about the close military ties between the armed forces of China and Russia.” When these two military and economic powers unite their efforts, involving regional powers and mediating over various conflicts, it becomes clear that the challenge to Washington’s hegemony is progressively leading away from an international reality consisting of one superpower to one consisting of three to four powers that maintain an international balance via diplomatic, economic and military means.

The phase in which we currently live is turbulent and is essentially caused by a single factor that has two very strong thrusts. The acceleration of the dwindling of the unipolar phase is directly connected with the strategic and tactical errors of the American deep state and its main sponsors, like Israel and Saudi Arabia. At the same time, the opposing push comes from the multipolar environment, which tends to consolidate its sphere of influence via diplomatic and military means. The goal for Moscow and Beijing is to present to the American and European elites a viable alternative that is shared among several actors. For the time being, the Euro-Atlantic establishment continues to consider itself capable of changing the course of events and preventing the drift towards multipolarity.

Whether the Western oligarchy is a victim to its own propaganda or whether it simply wishes to avoid facing reality and is using every means available to postpone an epochal change, is difficult to determine; and this makes the future uncertain, and is therefore highly dangerous.

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“The economy may only be operating on a single cylinder, but each time it’s an impressive one.”

Interest Rate Hikes Are On The Way, But When And How Fast? (AFR)

The Australian economy may not be booming, but it looks to have performed “the miracle pivot”. This is what Ardea Investment Management portfolio manager Tamar Hamlyn calls the economy’s remarkably smooth transition away from a once-in-a-generation mining investment boom without falling into recession. A massive uplift in residential construction activity has carried us through. The “next dance” is infrastructure investment, Hamlyn says. Now we await what feels like another miracle: an RBA rate hike. The economy may only be operating on a single cylinder, but each time it’s an impressive one. We don’t have a solid pick-up in consumption and “we are never going to have that really solid GDP growth until we get that,” Hamlyn says.

But what we are is far from the recessionary fears that were the original rationale for rates at such low levels. It makes sense, then, to think that in the absence of a nasty shock, it seems perfectly reasonable to bet, as RBA governor Philip Lowe flagged again this week, that the next move in rates will be up and not down. But when will that first hike be? And how far will they eventually go? And how quickly will they get there? Accepting that borrowing costs are more likely to get more rather than less expensive is one thing. But anybody trying to assess the potential risks and rewards of taking on a large and long-dated loan obligation, whether it be a mortgage or a business loan, needs to think beyond the next hike. Let’s start with when the RBA will act. Unfortunately, the experts and the market are telling a different story.

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Central banks are still supposed to save us. Sure.

Why Trade Wars Will Unleash Central Banks (Nomi Prins)

You can bet that deep within the halls of the Fed they are developing a game plan to keep the markets from crashing if trade wars escalate. This is another reason to believe that trade wars will be met with cheap money policy. You can look at this as a financial see-saw of sorts. Trade wars, or even media soundbites about them, will spark negative markets reactions. That is why the Fed and other central banks will combat this with cheap words and even cheaper money policies. If the U.S. does jump into a hot trade war it could find itself needing to make up for the costs. The logical place to turn is to the beacon of more money creation from the Fed or to issue more debt.

The Fed would be directly involved in order to keep the cost of debt from rising, again — which is why my analysis forecasts a return to Fed policies that keep rates low. Similarly, other major economies would also unleash their central bank money when needed. This type of tit-for-tat response is already playing out. Beijing has used its new wealth to attract friends, deter enemies, modernize its military, and aggressively assert its central bank into nearly any sector it believes requires assistance. This type of brinksmanship shows that it is only a matter of time before a trade war with China morphs into massive military build-up and competition.

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Oh yeah, sure, central bankers will save the planet.

Global Warming Is a Central Bank Issue (BBG)

Central bankers have been dubbed “masters of the universe” for the tools and powers they have acquired since the financial crisis. Some of them now want to play a more active role in the fight against climate change. Monetary authorities are right to be mindful of the way in which climate risk affects their mandate to ensure price stability and guard financial stability. But that is different from seeking to promote the shift to a “greener” economy, which is the role of government. Last week, central bank governors from the U.K., France and the Netherlands met in Amsterdam to discuss how to adapt regulation to the risks posed by climate change.

Together with five other institutions (from China, Germany, Mexico, Singapore and Sweden), these central banks have formed the “Network for Greening the Financial System” (NGFS). This group has two objectives: sharing and identifying best practices in the supervision of climate-related risks, and enhancing the role of the financial sector in mobilizing “green” financing. The first is entirely reasonable and consistent with the central banks’ traditional role. As Francois Villeroy de Galhau, governor of the Bank of France, said in a speech at the conference, “Climate stability is one of the determinants of financial stability.” It is only right that financial supervisors take an interest in what is going on.

The clearest example concerns the regulation of insurers: Climate change has made extreme weather events such as hurricanes more frequent. Regulators must ensure that the industry updates its models and sets aside enough capital to deal with these growing climate-related risks. To do so, central bankers may need to extend the supervisory horizon beyond their usual time span. Climate change may only pose a threat for the balance sheet some years down the road, but these risks should be assessed now. Villeroy de Galhau argued in his speech that the financial sector should move towards “a compulsory transparency requirement,” so that companies are forced to provide a snapshot of their climate-related risks. It’s an idea supervisors around the world should embrace.

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As long as we keep putting species extinction in terms of trade and profit, we are doomed.

Decline In Bees Puts Supply Of Raw Materials For Global Business At Risk (Ind.)

Businesses face a shortage of raw materials and a drop in the quality of crop as the number of bees decline worldwide, a new report warns. Approximately three quarters of crops around the world depend on pollination, all of which could soon be threatened as more than a third of wild bee and butterfly species face extinction, according to a joint study by the UN, the University of East Anglia and Cambridge University. Major businesses, including Asda, the Body Shop, Mars and Pepsico, say they are unable to take action largely because of uncertainty around which crops and regions are vulnerable to the decline in pollinators such as bees.

“The role pollinators play – be it tiny midges for cocoa or squirrels for coconut – is not well understood and can be taken for granted,” says Jos van Oostrum, director of sustainable solutions at chocolate and confectionary maker Mars. Cocoa, a vital ingredient in the production of chocolate, is at particular risk from a declining number of bees and other species that help spread pollen. The risks of a shortfall in raw materials not only prove a challenge for food production, but also the sourcing of ingredients for beauty products. “The importance of pollination for natural raw materials is increasingly a priority for us,” said the Body Shop’s sustainable sourcing manager Francesca Brkic.

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Everytime I make a new friend I find out they’re about to die. It’s making me terribly sad.

No Plan To Protect Queensland’s Green-Haired Turtle From Extinction (G.)

The Australian government does not have a plan to save an endangered Australian turtle species that received global attention on Thursday for its green mohawk and its ability to breathe through its genitals. The Mary river turtle, found only in that one river in Queensland, attracted worldwide headlines as one of the standout species on a new list of the most vulnerable reptile species compiled by the Zoological Society of London (ZSL). But despite this listing it does not have a national recovery plan to protect it from extinction and it is unclear whether any federal government funds have been specifically allocated for its protection. The turtle is 29th on ZSL’s Evolutionary Distinct and Globally Endangered (Edge) list for reptiles, which highlights the conservation needs of some of the world’s unique reptiles.

The turtle is not the only reptile species found in Australia to appear on the list, with eight species making the top 100, and seven of those appearing in the top 40. Among them are the critically endangered western swamp tortoise, which is number seven on the Edge list, the pig-nosed turtle, number 19 on the list, and the Gulbaru Gecko, a critically endangered Queensland species that was only discovered in 2001 and appears at 40 on the list. Conservationists say the list highlights the lack of conservation attention many Australian reptiles receive compared to more charismatic and iconic mammal and bird species. The federal government’s threatened species strategy specifically targets 20 mammals, 20 birds and 30 plants, but no reptiles.

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The climate on both sides of the Atlantic would change too much to imagine.

Gulf Stream Slowdown ‘About A Century Ahead Of Schedule’ (TP)

New research provides strong evidence that one of the long-predicted worst-case impacts of climate change — a severe slow-down of the Gulf Stream system — has already started. The system, also known as the Atlantic Meridional Overturning Circulation (AMOC), brings warmer water northward while pumping cooler water southward. “I think we’re close to a tipping point,” climatologist Michael Mann told ThinkProgress in an email. The AMOC slow down “is without precedent” in more than a millennium he said, adding, “It’s happening about a century ahead of schedule relative to what the models predict.”

The impacts of such a slowdown include much faster sea level rise — and much warmer sea surface temperatures — for much of the U.S. East Coast. Both of those effects are already being observed and together they make devastating storm surges of the kind we saw with Superstorm Sandy far more likely. The findings come in two new studies published this week. One study published in the journal Nature, titled “Observed fingerprint of a weakening Atlantic Ocean overturning circulation,” was led by the Potsdam Institute for Climate Impact Research. It finds that the AMOC has weakened “around 15 per cent” since the mid-twentieth century, bringing it to “a new record low.”

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Apr 102018
 
 April 10, 2018  Posted by at 8:51 am Finance Tagged with: , , , , , , , , , , , , ,  


Acme Storm over Manhattan 1950

 

Trump Blasts “Disgraceful” FBI Raid Of Lawyer’s Office (ZH)
Xi Vows To Further Open China Economy As US Trade Spat Simmers (AFP)
Global Debt Jumped to Record $237 Trillion Last Year
US Deficit to Surpass $1 Trillion Two Years Ahead of Estimates – CBO (BBG)
Global Trade Is Broken, And Trump Is Sparking The Crisis Needed (Morici)
Russian Firms And Rouble Hit Heavily By Trump Sanctions (G.)
Bitcoin, the Biggest Bubble in History, Is Popping – BofA (BBG)
Bots, Good Or Bad, Dominate Twitter Conversation (AFP)
Black Lives Matter Facebook Page With 700,000 Followers Exposed As Fake (G.)
10 New Zealanders Download App On Facebook, Expose 63,714 Friends (G.)
Your Facebook Data Is Only Worth $5.20 On The Dark Web (MW)
Jerome Is The New Janet: Same Old Keynesian Jabberwocky (Stockman)
Yulia Skripal Discharged From Hospital (G.)
No Trace Of Chemical Weapons In Douma, Photos Are Fake – Russia (RT)
“Weapons Of Mass Destruction,” And All (Kunstler)
In 2020, German Society Will Start Collapsing (GEFIRA)
Fishing Boat Caught With Illegal 18-Mile-Long Nets (Ind.)

 

 

“..the fact that the FBI likely seized privileged material between the president and his lawyer is certainly troubling.”

Or is it just a promotion campaign for Comey’s book tour?

Trump Blasts “Disgraceful” FBI Raid Of Lawyer’s Office (ZH)

Update II: As many probably suspected, Trump attorney Michael Cohen is under investigation for possible fraud and campaign finance violations, the Washington Post reported. The FBI has seized documents – including emails, tax documents and other records – related to Cohen’s $130,000 payment to adult film star Stormy Daniels. Meanwhile, President Trump has stepped up to defend his longtime personal attorney, calling the raid “a whole new level of unfairness” and going as far to say it was an “attack on our country, on what we stand for before heading into a meeting with top military leaders.” He also described the special counsel’s team as “the most conflicted group of people I’ve ever met” and said the raid was “a disgraceful situation.”

Trump added that the raid happened after Deputy AG Rod Rosenstein – who is supervising the Mueller probe – approved a referral that Mueller brought to the US Attorney for the Southern District of New York. Jeff Sessions also came under fire as the president bashed him once again for recusing himself from the Mueller probe. Trump also exclaimed that “no one is looking at the other side” referring to Clinton’s 30,000 missing emails. “I have this witch hunt constantly going on,” he said. Of course, Trump has every reason to defend Cohen. As Trump’s longtime lawyer, Cohen knows where the bodies are buried. And the fact that the FBI likely seized privileged material between the president and his lawyer is certainly troubling.

Update: Michael Cohen’s lawyer says the FBI seized privileged communications between Cohen and his clients – a group that notably includes President Trump. And thus, we have what could quite possibly be an ulterior motive for the search. While initial reports suggested the raid on Cohen’s home wasn’t related to the Mueller probe, CBS is reporting that it’s unclear whether the raid was in relation to Stormy Daniels, the Mueller probe or something else. The Wall Street Journal reported that Cohen’s office in Rockefeller Center was searched along with his home and hotel room. The search was executed by the Manhattan US Attorney’s Office which is carrying out an independent investigation in coordination with Mueller. Cohen has of course already turned over his emails to the special counsel.

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For now it’s just words. But his tone could have been different.

Xi Vows To Further Open China Economy As US Trade Spat Simmers (AFP)

Chinese President Xi Jinping pledged on Tuesday to lower car tariffs this year and take other steps to further open the world’s number two economy, indirectly addressing major complaints by the United States in a simmering trade row. Promising a “new phase of opening up”, Xi told an economic forum on the southern island of Hainan that Beijing “does not seek a trade surplus” and hopes to increase imports. He said China will take measures to liberalise automobile investment, significantly reduce tariffs on cars this year and protect intellectual property – all areas that have been high on the list of demands by Washington. “Economic globalisation is an irreversible trend of the time,” Xi told the Boao Forum for Asia.

“The door of China’s opening up will not close, it will only open wider and wider.” Xi pushed measures in areas that have been high on the list of US President Donald Trump’s ire at China. “When a car is sent to the United States from China, there is a Tariff to be paid of 2.5%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%,” Trump tweeted on Monday. “Does that sound like free or fair trade. No, it sounds like STUPID TRADE – going on for years!” Without directly responding to Trump, Xi promised China would lower import tariffs for vehicles and other products, but he gave no details or an exact date for taking the measures.

[..] Xi also pledged specific measures to address IP protection. “This year, we will reorganise the State Intellectual Property Office to strengthen law enforcement,” he told the forum, an Asian version of the World Economic Forum, which draws global leaders to its annual meeting in the Swiss ski resort of Davos. “We encourage Chinese and foreign companies to carry out normal technical exchanges and cooperation to protect the legitimate intellectual property rights of foreign-funded enterprises in China,” he said.

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This will be important: “Ireland and Italy are the only major countries where household debt as a percentage of GDP is below 50%.

Global Debt Jumped to Record $237 Trillion Last Year

Global debt rose to a record $237 trillion in the fourth quarter of 2017, more than $70 trillion higher from a decade earlier, according to an analysis by the Institute of International Finance. Among mature markets, household debt as a percentage of GDP hit all-time highs in Belgium, Canada, France, Luxembourg, Norway, Sweden and Switzerland. That’s a worrying signal, with interest rates beginning to rise globally. Ireland and Italy are the only major countries where household debt as a percentage of GDP is below 50%. Still, the ratio of global debt-to-GDP fell for the fifth consecutive quarter as the world’s economic growth accelerated. The ratio is now around 317.8% of GDP, or 4 percentage points below the high in the third quarter of 2016, according to the IIF. Among emerging markets, household debt to GDP is approaching parity in South Korea at 94.6%.

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And the Fed wants to raise rates?!

US Deficit to Surpass $1 Trillion Two Years Ahead of Estimates – CBO (BBG)

The U.S. budget deficit will surpass $1 trillion by 2020, two years sooner than previously estimated, as tax cuts and spending increases signed by President Donald Trump do little to boost long-term economic growth, according to the Congressional Budget Office. Spending will exceed revenue by $804 billion in the fiscal year through September, jumping from a projected $563 billion shortfall forecast in June, the non-partisan arm of Congress said in a report Monday. In fiscal 2019, the deficit will reach $981 billion, compared with an earlier projection of $689 billion. The nation’s budget gap was only set to surpass the trillion-dollar level in fiscal 2022 under CBO’s report last June.

Deficits are growing as the Trump administration enacted a tax overhaul this year that will lower federal revenue and Congress approved a roughly $300 billion spending increase. The fresh CBO estimates could heighten investor worries as they weigh the potential impact that tariff threats between the U.S. and China may have on the world economy. The report includes new projections for the effects of the tax legislation – saying it will increase the deficit by almost $1.9 trillion over the next 11 years, when accounting for its macroeconomic effects and increased debt-service costs. In December, Congress’s Joint Committee on Taxation had said the tax package would reduce federal revenue by almost $1.1 trillion over a 10-year period.

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The WTO and democracy.

Global Trade Is Broken, And Trump Is Sparking The Crisis Needed (Morici)

[..] It may be time to recognize that China is not a market economy — and is not likely to become one anytime soon. Over time, the WTO membership encompassed increasingly diverse nations. For example, Saudi Arabia joined in 2005, is not a democracy and hardly has a market economy. It’s a monarchy and dependent on oil, its government seeks to rig petroleum markets through OPEC. Nondemocratic, nonmarket economies were admitted on the premise that participation in the system would encourage reforms but as Saudi Arabia demonstrates — similar to Mexico in the 1980s — political and economic progress mostly happens when autocratic regimes are threatened by financial crisis.

For the oil kingdom, it took the U.S. shale boom and prospects of oil permanently depressed at about $65 a barrel to inspire House of Saud to select a progressive crown prince. China joined the WTO in 2002 but has hardly liberalized. Beijing is perfecting Orwellian mechanisms to monitor its citizens’ activities and squash political dissent. President Xi Jinping is enhancing the role of state-owned enterprises, extending state influence over private firms and foreign subsidiaries, and compelling the latter to form joint ventures with Chinese firms and embrace Beijing’s propaganda strategies.

China’s state capitalism clearly creates unfair advantages, imposes trade deficits and job losses on other nations, and has been the target of many unfair trade complaints in the WTO, but Beijing has invested in top flight U.S. lawyers — for example, Steptoe & Johnson. And the activities of its complex mix of state-owned and state-supported private enterprise have proven difficult to discipline under WTO rules, which were written to constrain governments operating in a market context.

From 2011 to 2017, the United States was frustrated in many dispute settlement processes covering nearly 50 industries. In 2016, the administration aides cited a long list of complaints in an effort to block the reappointment of a South Korean judge to the appellate body. Since then, Mr. Trump has been criticized — as he seems to be for every principled action — for continuing this policy by blocking the appointment of other judges to compel reform. It may be time to recognize that China is not a market economy — and is not likely to become one anytime soon. And it is not likely possible to rewrite the WTO rules just to suit its peculiar system.

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Talk is better.

Russian Firms And Rouble Hit Heavily By Trump Sanctions (G.)

The Trump administration’s new sanctions on Russian oligarchs and top government officials began to bite on Monday as the rouble suffered its biggest daily fall in more than three years, the main Russian stock index slumped and investors dumped shares in businesses controlled by Oleg Deripaska. Russia’s currency briefly dipped more than 4% before recovering slightly to trade at 60.42 to the dollar on Monday evening, down 3.8%, its biggest daily percentage fall since January 2015. The value of Deripaska’s aluminium producer Rusal halved in Hong Kong and more than 40% was wiped off the value of his London-listed EN+ as investors took fright at the potential impact.

Shares in Rusal and EN+ had already fallen sharply on Friday in response to the sanctions, which were announced towards the end of trading in London. The Russian stock market also fell heavily. The main RTS index dropped 11%, affecting companies not caught by the sanctions. The price of aluminium jumped as traders worried Rusal would be excluded from supplying the market. The firm, which produces almost 6% of the world’s aluminium, said the sanctions could cause technical defaults on bank loans and some credit obligations. Both Rusal and EN+, Deripaska’s holding company, said the sanctions could be “materially adverse to the business and prospects” of the companies.

Rusal and seven other companies linked to Deripaska were the main targets when the US imposed sanctions designed to punish Vladimir Putin’s inner circle for “malign activity”, including support for Bashar al-Assad’s government in Syria and interfering with the US election in 2016. Rusal sells more than 10% of its aluminium to the US.

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Not my words. But nice graph.

Bitcoin, the Biggest Bubble in History, Is Popping – BofA (BBG)

The greatest bubble in history is popping, according to Bank of America. The cryptocurrency is tracking the downfalls of the other massive asset-price bubbles in history less than one year out from its record, analysts lead by Chief Investment Strategist Michael Hartnett wrote in a note Sunday. The cryptocurrency has fallen more than 65% since peaking in December at $19,511. Bitcoin rose 2.2% to $6,750 on Monday.

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“..accounting for two-thirds of tweets linking to popular websites..”

Bots, Good Or Bad, Dominate Twitter Conversation (AFP)

Automated accounts or “bots” play a big role in disseminating information on Twitter, accounting for two-thirds of tweets linking to popular websites, a study showed Monday. The Pew Research Center report found bots were a major source for diffusing information on news, sports, entertainment and other topics. The researchers found that of all tweeted links to popular websites, 66% were shared by accounts that appeared to be automated rather than human users. While bots have gained attention due to concerns over Russian-sponsored manipulation of social media during the 2016 political campaign and for other hot-button topics, the researchers said they made no effort to distinguish between “good” or “bad” bots.

“The study does not find evidence that automated accounts currently have a liberal or conservative ‘political bias’ in their overall link-sharing behavior,” the researchers wrote. Twitter’s policy on automated accounts, last updated in November, allows bots to operate but with limitations. The policy allows for bots to “automatically broadcast helpful information” or “run creative campaigns that auto-reply to users.” But Twitter’s rules forbid automatic posts about trending topics or using automation “to attempt to influence or manipulate trending topics.” It also bans the use of multiple accounts to generate more activity.

“These findings illustrate the extent to which bots play a prominent and pervasive role in the social media environment,” says Pew researcher Aaron Smith. “Automated accounts are far from a niche phenomenon: They share a significant portion of tweeted links to even the most prominent and mainstream publications and online outlets. Since these accounts can impact the information people see on social media, it is important to have a sense their overall prevalence on social media.”

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“.. upwards of $100,000 in donations, at least some of which was directed to bank accounts registered in Australia.”

One thing: Facebook could have known this.

Black Lives Matter Facebook Page With 700,000 Followers Exposed As Fake (G.)

A high-ranking Australian union official has been suspended amid reports he ran a fake Black Lives Matter Facebook page that solicited donations from the movement’s supporters. CNN reports that Ian MacKay – an official with the National Union of Workers – helped set up and run a Facebook page called Black Lives Matter as well as other domain names linked to black rights. The page, which was removed by Facebook after CNN’s queries, had almost 700,000 followers – more than double the official Black Lives Matter page. MacKay – who is white – did not respond to calls or emails but denied running the page when contacted by CNN. A statement given to the Guardian by the NUW’s national secretary, Tim Kennedy, said the union had launched an investigation into the claims made in the CNN report.

He said the union had suspended “the relevant officials pending the outcome of an investigation”. “The NUW is not involved in and has not authorised any activities with reference to claims made in CNN’s story,” he said. The Guardian understands MacKay and one other NUW official has been suspended. In 2015 Mackay was appointed vice president of the NUW’s general branch and the union’s public office records state that he still holds the position. The investigation quoted sources who said the page may have garnered upwards of $100,000 in donations, at least some of which was directed to bank accounts registered in Australia.

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This happened 4 years ago! And only now Facebook is “..in the process of alerting New Zealanders..”?!

10 New Zealanders Download App On Facebook, Expose 63,714 Friends (G.)

Ten New Zealanders who downloaded an app on Facebook could have exposed up to 63,714 of their compatriots to the data mining tactics of Cambridge Analytica. Facebook has told the country’s privacy commissioner that it is in the process of alerting New Zealanders who were affected by the breach, which occurred when ten users downloaded a personality quiz app. “For New Zealand, we estimate a total of 63,724 people may have been impacted – 10 are estimated to have downloaded the quiz app with 63,714 friends possibly impacted,” said Antonia Sanda, head of communications for Facebook in Australia and New Zealand.

New Zealand’s privacy commissioner, John Edwards, said he was urgently seeking further information from Facebook on how New Zealanders data was used by Cambridge Analytica, and is working closely with his counterparts in the US, UK Australia and Canada to establish the severity and ramifications of the privacy beach. “I think we have some real information deficits that I hope my colleagues in the UK and the US will uncover … I am not sure New Zealanders were ‘targeted’ but I think there is a level of complacency [in New Zealand]. And when you say we’re so far away, we’re only one click away really,” Edwards said.

Edwards deleted his own Facebook account shortly after the revelations regarding Cambridge Analytica broke, and said New Zealanders should seriously consider doing the same and then resetting their profile. “I am actually quite concerned about the drip-feed of information [from Facebook]. These events occurred four years ago. There was knowledge about Cambridge Analytica targeting tactics a good two years ago, yet we are really only seeing Facebook confront this issue now,” Edwards said.

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This, too, is Facebook. Supply and demand.

Your Facebook Data Is Only Worth $5.20 On The Dark Web (MW)

Were you impacted by Cambridge Analytica’s misuse of Facebook data? An estimated 87 million Facebook users will find out Monday whether the group improperly used their data, the social-media company said. All 2.2 billion Facebook users will get see a message on Facebook called “Protecting Your Information,” that lays out which third-party apps have access to your individual Facebook profile. Whether or not you were impacted by the Cambridge Analytica incident, there’s a depressing aspect of many recent privacy violations: The most important parts of your identity can be sold online for just a few dollars.

Consumers have to spend hours of their time — and, sometimes, their own money — when they find out their driver’s license, Facebook “likes” or Social Security number have been exposed to hackers. But those who sell them are making only petty cash. That’s according to a new report from the content marketing agency Fractl, which analyzed all the fraud-related listings on three large “dark web” marketplaces — Dream, Point and Wall Street Market — over several days last month. The “dark web” is part of the internet that people can only access by using special software. To create this report, Fractl accessed the dark web through the browser Tor.

People buy other risky or illegal substances on the dark web, including drugs, pirated content like movies or music and materials that help with scams, including credit-card “skimmers.” Facebook logins can be sold for $5.20 each because they allow criminals to have access to personal data that could potentially let them hack into more of an individual’s accounts. The credentials to a PayPal account with a relatively high balance can be sold on the dark web for $247 on average, the report found. One’s entire online identity, including personal identification numbers and hacked financial accounts, can be sold for only about $1,200 on the dark web, Fractl found. That’s because so much personal information may already available to hackers, after repeated data breaches across a range of industries.

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“..fiscally incontinent government..” Great line.

Jerome Is The New Janet: Same Old Keynesian Jabberwocky (Stockman)

The election of 2016 was supposed to be the most disruptive break with the status quo in modern history, if ever. On the single most important decision of his tenure, however, the Donald has lined-up check-by-jowl with Barry and Dubya, too. That is to say, Trump’s new Fed chairman, Jerome Powell, amounts to Janet Yellen in trousers and tie. In fact, you can make it a three-part composite by adding Bernanke with a full head of hair and Greenspan sans the mumble. The overarching point here is that the great problems plaguing American society – scarcity of good jobs, punk GDP growth, faltering productivity, raging wealth mal-distribution, massive indebtedness, egregious speculative bubbles, fiscally incontinent government – are overwhelmingly caused by our rogue central bank.

They are the fetid fruits of massive and sustained financial repression and falsification of the most import prices in all of capitalism – the prices of money, debt, equities and other financial assets. Moreover, the worst of it is that the Fed is overwhelmingly the province of an unelected politburo that rules by the lights of its own Keynesian groupthink and by the hypnotic power of its Big Lie. So powerful is the latter that American democracy has meekly seconded vast, open-ended power to dominate the financial markets, and therefore the warp and woof of the nation’s $19 trillion economy, to a tiny priesthood possessing neither of the usual instruments of rule.

That is to say, never before in history has a people so completely and abjectly surrendered to an occupying power – even though its ostensibly democratic government already possessed all the votes and all the guns. So it is no exaggeration to say, therefore, that the Fed is an alien state unto itself. That was powerfully symbolized most recently by the appointment of John Williams, a lifetime apparatchik at the San Francisco Fed, to the job of head satrap at the central bank’s Liberty Street outpost in the heart of Wall Street. In the scheme of things, the President of the New York Fed is #2 in the whole central banking apparatus, and as such is immensely more powerful than any Senate Committee Chairman or House Speaker. But Williams’ appointment was not reviewed or passed upon by a single elected official accountable to any voter anywhere in the US of A.

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Hard to tell what the next steps are.

Yulia Skripal Discharged From Hospital (G.)

Yulia Skripal, the daughter of the former Russian spy Sergei Skripal, has been discharged from hospital, according to reports. Just over one month after she and her father were found in Salisbury in Wiltshire after being poisoned with a nerve agent, the BBC reported that Skripal had left Salisbury district hospital. Skripal, 33, flew to the UK on 3 March, the day before she and her father are believed to have been poisoned by a novichok nerve agent. She released a statement on Friday to say her strength was “growing daily”. The BBC reported on Tuesday morning that Skripal had been taken to a secure location, though a hospital spokesman declined to comment on the reports. Christine Blanshard, the hospital’s deputy chief executive, and Lorna Wilkinson, the director of nursing, are to make a statement later on Tuesday morning.

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It’s the White Helmets again.

No Trace Of Chemical Weapons In Douma, Photos Are Fake – Russia (RT)

The Russian military has found no trace of chemical weapons use after searching parts of Syria’s Douma allegedly targeted by an “attack.” Photos of victims posted by the White Helmets are fake, Russia’s Defense Ministry said. Experts in radiological, chemical and biological warfare, as well as medics, on Monday inspected the parts of the Eastern Ghouta city of Douma, where an alleged chemical attack supposedly took place on Saturday, the Russian Reconciliation Center for Syria said in a statement. The specialists “found no traces of the use of chemical agents” after searching the sites, the statement said. The center’s medical specialists also visited a local hospital but found no patients that showed signs of chemical weapons poisoning.

“All these facts show… that no chemical weapons were used in the town of Douma, as it was claimed by the White Helmets,” the statement said, referring to the controversial “civil defense” group that was among the first to report about the alleged attack. “All the accusations brought by the White Helmets, as well as their photos… allegedly showing the victims of the chemical attack, are nothing more than a yet another piece of fake news and an attempt to disrupt the ceasefire,” the Reconciliation Center said. On Saturday, some rebel-linked groups, including the White Helmets, accused the Syrian government of carrying out a chemical attack that, allegedly, affected dozens of civilians in the Eastern Ghouta town of Douma.

The reports have already provoked a wave of outrage in the West, as the US and the EU rushed to put the blame for the incident on Damascus and Moscow. US President Donald Trum hastily denounced the perceived attack as a “mindless” atrocity and a “humanitarian disaster for no reason whatsoever,” warning of a “big price” to be paid. Syria and Russia have dismissed the accusations and called the reports fake news, aimed at helping the extremists and at justifying potential strikes against Syrian forces. In the very early hours of Monday, Israeli fighter jets targeted Syria’s T-4 airbase in Homs province, the Russian Defense Ministry said. Israel has not commented on the strike. Earlier, a number of Israeli officials had called on the US to strike Syria as a response to the reported chemical attack.

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Like is the case with Russia, the Organization for the Prohibition of Chemical Weapons has declared Syria’s chemical weapons arsenal destroyed.

“Weapons Of Mass Destruction,” And All (Kunstler)

[..] a joint mission of the United Nations Human Rights Commission (UNHRC) and the Organization for the Prohibition of Chemical Weapons (OPCW) was called in to supervise the destruction of the Syrian government’s chemical weapons, and certified it as accomplished in late 2014. Yet, poison gas incidents continued – most notoriously in 2017 when President Donald Trump responded to one with a sortie of cruise missiles against a vacant Syrian government airfield. And now another incident in the Damascus suburb of Douma has provoked Mr. Trump to tweetstormed threats of retaliatory violence, just days after he proposed a swift withdrawal from that vexing corner of the world.

Surely by now the American public has developed some immunity to claims of nefarious doings in foreign lands (“weapons of mass destruction,” and all). The operative sentence in that New York Times report is “…Syrian forces hit a suburb of Damascus with bombs that rescue workers said unleashed toxic gas.” Yeah, well, how clear is it that the toxic gas was contained in the bombs, or rather that the bombs dropped by the Syrian military blew up a chemical weapon depot controlled by anti-government Jihadis? Does that hodgepodge of maniacs show any respect for the UN, or the Geneva Convention, or any other agency of international law?

As in many previous such incidents, we don’t know who was responsible — though there is plenty of reason to believe that parties within the US establishment are against Mr. Trump’s idea of getting the hell out of that place, and might cook up a convenient reason to prevent it. Lastly, how is it in Bashar al-Assad’s interests to provoke a fresh international uproar against him and his regime? I’d say it is not the least in his interest, since he is on the verge of putting an end to the awful conflict. He may not be a model of rectitude by Western standards, but he’s not a mental defective. And he has very able Russian support advising him in what has been so far a long and difficult effort to prevent his state from failing — or being failed for him.

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Germany, Japan, China.

In 2020, German Society Will Start Collapsing (GEFIRA)

The next crisis is just a couple of years away, and Germany will be its largest victim. Economies grow, driven by capital and labour. The ECB monetary policy is currently providing the German economy with enough funds, but the country is experiencing a catastrophic lack of youth, and its ageing labour force is not being replaced as a result of which workforce is already in short supply. Since the German population is declining at a staggering pace, before the end of the century there will only be 22 million indigenous Germans left. Currently the working population has already begun to shrink. This drop is still moderate compared to what will come after 2020.

The disappearing of the nation that has just begun will have catastrophic consequences. The German government recorded a large budget surplus last year, a sign that the authorities are not willing or able to invest in their own country. Germany lacks health care professionals, road construction workers and teachers, but allocating more tax money to this sector makes no sense because there are simply no people available. For that reason road construction sites have come to a standstill and road maintenance is postponed. In order to find consumers and labourers, the German industry is investing in new factories abroad.

In the past, the German economy was able to attract employees from Southern, Eastern and Central Europe, but at present the demographic situation in states such as Spain, Portugal, Italy and Poland – which have long provided Germany with workforce – has worsened, so for all practical purposes these sources of labour have all but dried out. Poland for instance has lost a large number of young people to the West European labour market and the loss has not been made good because of extremely low fertility.The financial sector depends on a growing economy, but – apart from periods of temporary increase – there is no significant growth, and banks have to unwind their positions by selling their assets and returning cash to their clients. When the ageing population tries to sell its investments – stocks, obligations or companies – after 2020 they will find a declining working age population that is willing and able to buy these assets. It is already difficult for German business owners to find successors.

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Tragic species, mankind.

Fishing Boat Caught With Illegal 18-Mile-Long Nets (Ind.)

A fishing ship carrying 600 illegal nets stretching up to 18 miles has been seized after it escaped Chinese authorities, while using the flags of eight different countries to evade capture. The vessel, STS-50, had targeted a cod species called Antarctic toothfish that plays an important role in the Southern Ocean ecosystem, according to Indonesia‘s fisheries ministry. Its hundreds of gillnets had walls of fine mesh and could expand to a distance of 18 miles. Gillnetting has been banned in Antarctic waters since 2006 and is described by Australia as posing a “huge risk to almost all marine life, including marine mammals due to [its] indiscriminate nature”.

The use of the nets also harm seabirds including endangered albatrosses, the country’s environment department said on its website in 2011. Indonesia was acting on a request from Interpol when it seized the officially stateless craft. It had eluded authorities by flying eight different flags at different times, including those of Sierra Leone, Togo, Cambodia, South Korea, Japan, Micronesia and Namibia, the ministry said in a statement. Interpol contacted Indonesia last week with a request to investigate the vessel, fisheries minister Susi Pudjiastuti said in the statement. “Navy ship Simeuleu conducted a ‘stop, investigate and detain’ operation on Friday and successfully seized the vessel,” she said.

The STS-50 had previously been detained by China, but escaped and was caught in the port of Maputo in Mozambique before fleeing again, Ms Pudjiastuti said. Prior to its capture off the Indonesian island of Weh in the northwestern province of Aceh, the vessel had also operated under several other names including Sea Breeze, Andrey Dolgov, STD No. 2 and Aida, the statement said. Shipping data in Thomson Reuters Eikon shows the 54m-long, 452-tonne vessel was built in 1985.

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Apr 072018
 
 April 7, 2018  Posted by at 12:32 pm Finance Tagged with: , , , , , , , , , , , ,  


Dorothea Lange Farmers’ supply co-op. Nyssa, Malheur County, Oregon 1939

 

 

It’s Dr. D again. Told you he’s on a roll. He remains convinced America can re-invent itself. If only because it must.

 

 

Dr. D: Herbert Stein’s Law states “What Can’t Go On Forever, Doesn’t.” This is a neat summary of the present trade and currency imbalance. China makes real goods and the U.S. consumes them by typing digits on a keyboard. This is the very definition of what cannot go on forever.

 

• How long do you expect a nation can make nothing and consume everything?

• How long do you expect a nation without manufacturing, without a workforce, and now without a viable military to remain pre-eminent?

• How long does wealth and influence remain in a nation that makes nothing, does nothing, and knows nothing?

 

Reminds me of that other Law: “A fool and his money should be parted as soon as possible”, for to be wealthy, and helpless, and dumb, is not a combination that lasts for very long.

Since China cannot send the U.S. free goods forever, ergo, they won’t. That means slowly or quickly, now or later, they will cut us off. Right now it appears that can never happen, but I assure you it will very soon. And what will the U.S. do then? Actually, that’s very simple: the U.S. will have to close a $600B trade deficit instantly. Roughly, that means the U.S. will no longer import $600B worth of goods and be $600B/year poorer, or $2,000/year per person. Nor is this unusual. History is rife with examples of nations that once were prosperous and were suddenly cut off: Spain and Greece come immediately to mind. So how does this happen?

The Core nation, the trading hub has failed dozens of times in history, from Venice to Holland, Spain to England, and although most of history was on a gold standard, nevertheless the same thing happened: repudiation and devaluation of the currency. That’s why a U.K. Pound is no longer a troy pound of pure silver ($192) and why the U.S. Dollar is no longer 1/20th ounce of gold ($267). So let’s run down how this might unfold.

Like other empires, the U.S. rose to prominence with hard work and industry. Like other empires, this personal and physical industry was the foundation of an effective military. This military eventually stood alone, leaving the U.S. to set the rules of trade, the rules of diplomacy, and the rules of conduct. Like other nations, the U.S. bent those rules in its own favor, both early and late. Like other nations, the natural way to take advantage was to run an overvalued currency, which draws in capital from all trading partners worldwide, creating a 100-year spiral of wealth and influence that seems truly endless.

However math, the cruelest of Mother Nature’s laws, is not fooled. If you bend the rules to create market distortions, those distortions are indeed created. If there were fair trade, a gold standard, a nation that increases their wealth would find its currency rise. A rising currency would dampen manufacturing and efficiency, the gold would flow back out, and the unfair advantage would be corrected. But only in a free market. Any market on Earth has an Army, and that Army’s job day and night is to make sure that unfair advantage does NOT end. Ask Smedley Butler.

 

Mother Nature is never deterred. However long it takes, she waits. Lacking fair trade, an abnormally strong currency does the only other thing it can: destroy the Core nation’s industry, totally and completely. More certain than a nuclear explosion, economics will not miss a single spot until the wrong is righted and the truth is out. At first the low-gain commodity industries go: mining, shipping, smelting; then their sooty kinsmen: heavy rail, ships, ports, transportation.

After that go the lighter industries: manufacturing, stamping, autos, and so on up to mainframes, silicon chips and phones, and with them, their children, manufacturing processes and R&D. However, as London and NY showed, you can forestall currency correction even now by moving market distortions into services and financial engineering. At this point, however, the Core nation has nothing left but Banks, Universities, and the Government/Military, and no underlying economy to support them.

However, what Charles Hugh Smith calls the fiefdoms of monopoly cartels and apparatchiks of the 1% now lead an empty parade, horse-whipping the uncompliant 99% into supporting an economy that exists only in their minds. And then “What can’t go on, doesn’t.” The empire collapses from within, to the total surprise of historians of the 1%, and the total lack of interest of the 99%, for whom it had already collapsed decades before.

And of the other side? Thanks to the overly-high currency of the Core nation, the perimeter nation has an artificially LOW currency. They didn’t do that, because they are by definition small and weak and aren’t using an army to set the rules. The artificially low currency leads to low costs, low labor, high enterprise, and in the mirror image of the Core nation, the constant INCREASE in manufacturing. The increase in wealth, and the addition of commodity goods, then heavy industry, then manufacturing, then R&D. Whose fault is that? Who used a worldwide army to enforce the very rules that gutted their homeland? Not the Vandals; not China. It was Rome; it was D.C.

What is this whole imbalance based on? In our case, the artificially strong dollar, backed by a worldwide U.S. military. So how must it end? With a weak dollar, falling real markets, and a U.S. military returning home.

You say this can’t happen? Yet it must happen. To say otherwise means China will give us free goods for 10,000 years, and the U.S. will get always weaker that whole time. So how does the transition go?

The U.S. financial bulwark cracks, being highest and most based on psychology, not reality, very likely in conjunction to a military failure or withdrawal, as in empire finance, the military and currency are equivalent. Slowly, then rapidly, the tide flows out, the U.S. dollar gets weaker, the Chinese Yuan gets stronger, and the whole process reversed as it should have done years ago.

 


(mind the log scale)

 

Mother Nature isn’t fooled, and those 70 years of repression and manipulation are made up in a few years.

Down on the ground, what happens is not that China shuts off free imports to the U.S. directly, with a political embargo, what happens is the U.S. is seen as a has-been and the U.S. dollar falls in purchasing power on the world market, raising the price of foreign goods in a “free” and “open” marketplace. Lacking manufacturing and the military power to stop it, the U.S. can’t hold off Mother Nature and the laws of physics any more.

Knowing this to be inevitable, how would a nation prepare? For one thing, you would need to kick-start your industry, post-haste. Anything that can be made internally will find its prices stabilize and not rise. Yet before the currency rates are corrected this face overwhelming headwinds. Second, as income will be lost and the borders will be shut off, you need to switch the focus of taxation from income to tariffs, from finance to real goods.

Third, you need to open your pipelines, ports, and infrastructure, and expand the required steel, oil by any means necessary, even armed standoffs. Fourth, you’ll need to shove the culture away from government support and subsidies that will soon disappear, and into self-reliance and productivity. Firth, you’ll need to downsize the government and especially the military, which will and must return home. Any of those platforms sound familiar?

 

Despite what you read, it’s not all bad. Just as “The arrogant people will be brought down, and high and mighty people will be humbled”, “Every valley shall be raised up, and every mountain and hill shall be made low; and the crooked shall be made straight, and the rough places smooth.”

 

This is a master reversal of all manipulations, of all imbalances that have reached extremes. As the U.S. – China trade deficit must balance, we know that Chinese goods must rise. But that also means the cost of production for U.S. goods must fall. This cost-advantage puts Americans back to work just as it did the Chinese, while the rise of the Yuan will make China rich, but less productive.

What’s more, as matters reverse, the U.S. will raise prices on their exports: food and oil, two things China must have and cannot get elsewhere. Agriculture is at an all-time, 1,000 year low and must rise. Stocks and housing are at an all-time high and must fall. In a reversal, the high prices fall, the low prices rise, that’s obvious. That’s what “reversal” means, that’s what “extreme” means.

As for manufacturing, the world is changing fast. Even China is opening “dark” factories that employ no people, only robots. That will be true here as well, which undercuts any labor savings they once had. There’s a few problems, however: robotic mega-factories only work with very large scale of identical goods that can source reliable, high-quality inputs. If oil is too high, and/or shipping or marketing fractures, those factories scale down, retool more, and therefore require more people than presently.

How is China going to have huge robotic mega-factories if half their export market can no longer afford them? If the U.S. and China split the market, aren’t all those factories half the size of present? Since the U.S. will now have low-cost people and raw materials, what advantage does China bring to offset shipping and tariffs? The “market” isn’t uniform. There was worldwide mass-integration of manufacturing between India and England and the world in 1910 too, yet it’s didn’t persist; it changed.

 

One way it can change is to leapfrog China. We hear about how the U.S. is a has-been as we are supporting legacy copper telephones while the 3rd world goes directly to fiber and cell, and this is true. However, China has mainlined on low-price, low-profit, mass-manufacturing. Why would anyone compete with them there? It’s irrational. Build a baseline and let them have all the low-profit, environment-destroying work they want, the U.S. can’t and won’t beat them there.

We can beat them by leapfrogging into technology that’s out there, but no one is revealing yet, things they haven’t done, but Americans are good at doing: innovating, high-tech, medical. Much as I hate high-tech and its panacea as an answer, yet I believe there are goods, ideas out there that can transform the way things work.

Look at the rapid development and uptake of LEDs for example. The patent office is filled with them, and an outsized number are American. We have superconducting maglev, field physics, material science of no-weight foam, color-shifting paint, hyperconducting graphite, and transparent concrete to name a few. All there, all unused. Let’s make an example case in a very large, very quiet investment.

Medical and Biotech are to some extent used up, with overpriced, mass-market pharmaceuticals being rejected by price and form even by the wider population. But that’s so last-century. The new biotech is going to take a blood or DNA sample and synthesize a drug specifically for your blood and DNA. They are going to create another organ, a blood transfusion no one but you can use.

In one way, this may be more expensive, and that’s good for profits, but in another way, they will work for you, much better and guaranteed, and therefore fix your health faster, spare you useless drugs, bad side effects, and actually work, and therefore be cheaper. What does it take to make them? A complete revolution in drug manufacturing. Multi-billion dollars’ worth of equipment, extremely unique development and patents, a 20 year head start.

 

Could you sell such a thing to the Chinese? You bet. Could they get off retail manufacturing and scoop us on it? Not a chance. So you see how such a thing could happen, even with a U.S. dollar falling and a hard readjustment ahead. And that’s just one.

If boutique and robotic goods are the new industries, what do we do with 200 million unemployed? We won’t have 200 million. That’s a consequence of the distorted extreme of our finance, our centralization, our currency. For one thing, we have only 100 million now and a lower dollar will definitely restore the competitive advantage of highly-productive U.S. workers. At the same time, if work requires fewer workers, we will find a solution. Why?

Because you can’t have 200 million unemployed. Not even 100 million. The resulting inequity and income disparity can and has caused a revolution. Faced with that, any nation will adjust because they must or perish. As difficult as Americans can be, they are a practical people above all. This has happened to dozens of nations in the past: Spain, France, Germany, England, China, Japan, and they all still exist. Things rotated out in the big wheel of time. New things were made and the old ones faded away, and we will too.

We’re going back to being just one of many nations, and a fair and productive one too. There are ways and we will find them. How can I be so sure? Because “What Can’t Go On Forever, Doesn’t,” and it won’t this time either.

 

 

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


Elliott Erwitt Crowd at Armistice Day Parade, Pittsburgh 1950

 

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

 

 

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

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

The Economy Minus Houston (Slate)

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

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

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

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

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

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

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

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

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

The US Cities with the Biggest Housing Bubbles (WS)

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

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

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There is no easy way out for New Zealand.

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

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

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

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

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I think the estimates are still low.

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

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

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

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

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

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

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

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

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

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

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

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

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

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Well, we can’t have that, can we?

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

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

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

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Cameron and Osborne and May have gutted the entire country.

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

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

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

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As dividends keep being paid out.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Jul 152017
 
 July 15, 2017  Posted by at 9:27 am Finance Tagged with: , , , , , , , , , ,  


Hieronymus Bosch The Conjurer 1502

 

Big Banks Continue Winning Streak, With Street at Least (BBG)
‘It’s Almost An Embarrassment Being An American’ – Jamie Dimon (G.)
US House Backs Massive Increase In Defense Spending (R.)
US Deficits To Jump $248 Billion Over Next Two Years Due To Tax Shortfall (R.)
We Do These Things Because They’re Easy (CHS)
The New Silk Road Will Go Through Syria (Escobar)
One Of Worst Droughts In Decades Devastates South Europe Crops (R.)
People Not Amused by EU Efforts to “De-Cash” their Lives (DQ)
Just 13% of Greeks Trust Their Government (K.)
World’s Large Carnivores Being Pushed Off The Map (BBC)

 

 

What happens when markets don’t function. Manipulation is the name of the game.

Big Banks Continue Winning Streak, With Street at Least (BBG)

U.S. bank earnings have kicked off without any tumult. Investors should be grateful for that increasing sense of dependability, though they appear to be looking for more. JPMorgan Chase, Wells Fargo, Citigroup and PNC Financial Services each delivered second-quarter results on Friday that topped Wall Street’s expectations. On a measure of earnings per share, each bank has improved its respective streaks of beating or meeting analysts’ estimates:Reliability Factor The U.S. banks that reported earnings on Friday lengthened their streak of surpassing or matching expectations which, to be fair, are managed by bank executives:

The business of fixed-income trading, which has been a bright spot over the past year, has received outsize attention as it has fallen from grace after a long stretch of low volatility and tepid volumes, as expected. Instead, its quarterly gyrations should be accepted by shareholders just as they withstand changes in the weather, according to JPMorgan’s chairman and CEO Jamie Dimon. He has a point – the diversity of JPMorgan combined with the size of its overall corporate and investment bank, which houses the fixed-income trading business, gives the bank a level of flexibility. That defense might not stick if JPMorgan’s other businesses weren’t performing, but they are. The bank posted quarterly net income of $7 billion in the three months ended June 30.

That was its biggest haul ever, driven in part by a significant jump in net interest income, a direct result of the Federal Reserve’s rate increases. Its efforts to bulk up asset and wealth management, where revenues have roughly doubled since 2006, have borne fruit. Net income for the business climbed 20% compared with results in the same period last year to a record $624 million. And for now, despite broad concerns about auto and credit card loans, there’s no need to worry about widespread cracks. The bank’s so-called net charge-off rate, which measures delinquencies, remains minimal. [..] Bank stocks have rallied in part because the expected growth in their respective earnings per share, or EPS, in 2018 far exceeds that of the benchmark index:

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Because you get to make record profits while others only get deeper into debt? Is that what Dimon is talking about?

‘It’s Almost An Embarrassment Being An American’ – Jamie Dimon (G.)

JP Morgan just had the most profitable 12 months ever for a US bank – but it wasn’t enough for Jamie Dimon, the bank’s boss. “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with in this country,” Dimon told journalists after the bank released its latest quarterly results on Friday. The world’s largest bank reported a profit of $7.03bn for the second quarter, 13% higher than last year. It has made $26.5bn over the past 12 months, a record profit for a US bank. But Dimon, who last year turned down Donald Trump’s offer to become treasury secretary, seemed more concerned about low rates of growth in the US and the health of the American body politic.

He blamed bad policy for “holding back and hurting the average American” and financial journalists for concentrating on the bank’s trading results when they should be focusing on policy. “Who cares about fixed-income trading in the last two weeks of June? I mean, seriously,” Dimon said after a reporter asked about the health of the bonds markets. “That is the weather,” he said of changes in the markets. “It goes up and down, this and that, and that’s 80% of what you guys focus on.” Dimon said financial journalists would be better off concentrating on the “bad policies” that are hurting average Americans. “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with,” he said. “At one point, we would have to get our act together, do what we’re supposed to do to the average American.”

[..] “We need infrastructure reform,” he said. “We need corporate tax reform. We need better skills and education. If we don’t focus on these things, we are hurting average Americans every day. “The USA has to start to focus on policy which is good for all Americans, and that is regulation, tax, education, we have to get those things done. You guys [journalists] should be writing a lot more about that stuff. That is holding it back and hurting the average American citizen if we don’t do it.

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Or is Dimon embarrassed over this?

US House Backs Massive Increase In Defense Spending (R.)

The U.S. House of Representatives passed its version of a massive annual defense bill on Friday, leaving out controversial amendments on transgender troops and climate policy but backing President Donald Trump’s desire for a bigger, stronger military. The vote was 344-81 to pass the National Defense Authorization Act (NDAA), which sets military policy and authorizes up to $696 billion in spending for the Department of Defense. Underscoring bipartisan support for higher defense spending in Congress, 117 Democrats joined 227 Republicans in backing the measure. Only eight Republicans and 73 Democrats voted no. But the measure faces more hurdles before it can become law, notably because it would increase military spending beyond last year’s $619 billion bill, defying “sequestration” caps on government spending set in the 2011 Budget Control Act.

Trump wants to pay for a military spending increase by slashing nondefense spending. His fellow Republicans control majorities in both the House and Senate, but they will need support from Senate Democrats, who want to increase military spending, for Trump’s plans to go into effect. The House NDAA also increases spending on missile defense by 25%, adds thousands more active-duty troops to the Army, provides five new ships for the Navy and provides a 2.4% salary increase for U.S. troops, their largest pay raise in eight years. And it creates a new Space Corps military service, pushed by lawmakers worried about China and Russia’s activities in space, but opposed by Defense Secretary Jim Mattis.

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Oh well, money’s cheap after all.

US Deficits To Jump $248 Billion Over Next Two Years Due To Tax Shortfall (R.)

The budget deficit for President Donald Trump’s first two years in office will be nearly $250 billion higher than initially estimated due to a shortfall in tax collections and a mistake in projecting military healthcare costs, budget chief Mick Mulvaney reported on Friday. In a mid-year update to Congress, Mulvaney, director of the Office of Management and Budget, revised the estimates supplied in late May when the Trump administration submitted its first spending plan. Since then, Mulvaney said, the deficit projected for the current fiscal year has increased by $99 billion, or 16.4%, to $702 billion. For 2018, the deficit will be $149 billion more than first expected, increasing by 33% to $589 billion.

The figures come as the administration is facing widespread doubts among economists and analysts that it can erase government deficits largely by boosting economic growth and changing laws like the Affordable Care Act. ACA reform is facing a difficult path in Congress, and the Congressional Budget Office on Thursday said the administration’s growth and deficit reduction plans were optimistic. The letter from Mulvaney said the bulk of the problem this year and next stems from lower-than-expected tax collections. Individual and corporate income taxes and other collections for this year are expected to be $116 billion less than the administration anticipated in May. Tax receipts in 2018 are expected to be $140 billion less than initially estimated.

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A reference to JFK. Our next discovery will be that debt is a harsh mistress.

We Do These Things Because They’re Easy (CHS)

We are now totally, completely dependent on expanding debt for the maintenance of our society and economy. Every sector of the economy–households, businesses and government–all borrow vast sums just to maintain the status quo for another year. Compare buying a new car with easy, low-interest credit and saving up to buy the car with cash. How easy is it to borrow $23,000 for a new $24,000 car? You go to the dealership, announce all you have to put down is a trade-in vehicle worth $1,000. The salesperson puts a mirror under your nose to make sure you’re alive, makes sure you haven’t just declared bankruptcy to stiff previous lenders, and if you pass those two tests, you qualify for a 1% rate auto loan. You sign some papers and drive off in your new car. Easy-peasy!

Scrimping and saving to pay for the new car with cash is hard. You have to save $1,000 each and every month for two years to save up the $24,000, and the only way to do that is make some extra income by working longer hours, and sacrificing numerous pleasures–being a shopaholic, going out to eat frequently, $5 coffee drinks, jetting somewhere for a long weekend, etc. The sacrifice and discipline required are hard. What’s the pay-off in avoiding debt? Not much–after all, the new auto loan payment is modest. If we take a 5-year or 7-year loan, it’s even less. By borrowing $23,000, we get to keep all our fun treats and spending pleasures, and we get the new car, too. At the corporate level, it’s the same story: borrow a billion dollars and use it to buy back shares.

Increasing the value of the corporation’s shares by increasing profit margins and actual value is hard; boosting the share price with borrowed money is easy. It’s also the same story with politicians and the government: cutting anything is politically painful, so let’s just float a bond, i.e. borrow money to pay for what was once paid out of tax revenues: maintaining parks, repaving streets, funding pensions, etc. This dependence on expanding debt for maintaining the status quo is a global trend. Debt is exploding in China in every sector, and the same is true in other nations, developed and developing alike. Borrowing more money from the future is easy, painless and requires no trade-offs, sacrifices or accountability–until the debt-addicted economy collapses under its own weight of debt service and insolvency.

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“..all those elaborate plans depend on no more war. And there’s the rub.”

The New Silk Road Will Go Through Syria (Escobar)

Amid the proverbial doom and gloom pervading all things Syria, the slings and arrows of outrageous fortune sometimes yield, well, good fortune. Take what happened this past Sunday in Beijing. The China-Arab Exchange Association and the Syrian Embassy organized a Syria Day Expo crammed with hundreds of Chinese specialists in infrastructure investment. It was a sort of mini-gathering of the Asia Infrastructure Investment Bank (AIIB), billed as “The First Project Matchmaking Fair for Syria Reconstruction”. And there will be serious follow-ups: a Syria Reconstruction Expo; the 59th Damascus International Fair next month, where around 30 Arab and foreign nations will be represented; and the China-Arab States Expo in Yinchuan, Ningxia Hui province, in September.

Qin Yong, deputy chairman of the China-Arab Exchange Association, announced that Beijing plans to invest $2 billion in an industrial park in Syria for 150 Chinese companies. Nothing would make more sense. Before the tragic Syrian proxy war, Syrian merchants were already incredibly active in the small-goods Silk Road between Yiwu and the Levant. The Chinese don’t forget that Syria controlled overland access to both Europe and Africa in ancient Silk Road times when, after the desert crossing via Palmyra, goods reached the Mediterranean on their way to Rome. After the demise of Palmyra, a secondary road followed the Euphrates upstream and then through Aleppo and Antioch. Beijing always plans years ahead. And the government in Damascus is implicated at the highest levels.

So, it’s not an accident that Syrian Ambassador to China Imad Moustapha had to come up with the clincher: China, Russia and Iran will have priority over anyone else for all infrastructure investment and reconstruction projects when the war is over. The New Silk Roads, or One Belt, One Road Initiative (Obor), will inevitably feature a Syrian hub – complete with the requisite legal support for Chinese companies involved in investment, construction and banking via a special commission created by the Syrian embassy, the China-Arab Exchange Association and the Beijing-based Shijing law firm. Few remember that before the war China had already invested tens of billions of US dollars in Syria’s oil and gas industry. Naturally the priority for Damascus, once the war is over, will be massive reconstruction of widely destroyed infrastructure.

China could be part of that via the AIIB. Then comes investment in agriculture, industry and connectivity – transportation corridors in the Levant and connecting Syria to Iraq and Iran (other two Obor hubs). What matters most of all is that Beijing has already taken the crucial step of being directly involved in the final settlement of the Syrian war – geopolitically and geo-economically. Beijing has had a special representative for Syria since last year – and has already been providing humanitarian aid. Needless to add, all those elaborate plans depend on no more war. And there’s the rub.

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Southern Europe: getting poorer and hotter.

One Of Worst Droughts In Decades Devastates South Europe Crops (R.)

Italian durum wheat and dairy farmer Attilio Tocchi saw warning signs during the winter of the dramatic drought to come at his holding a mile away from the Tuscan coast. “When it still hadn’t rained at the beginning of spring we realized it was already irreparable,” he said, adding that he had installed fans to try and cool his cows that were suffering in the heat. Drought in southern Europe threatens to reduce cereal production in Italy and parts of Spain to its lowest level in at least 20 years, and hit other regional crops including olives and almonds. Castile and Leon, the largest cereal growing region in Spain, has been particularly badly affected, with crop losses estimated at around 60 to 70%.

“This year was not bad, it was catastrophic. I can’t remember a year like this since 1992 when I was a little child,” said Joaquin Antonio Pino, a cereal farmer in Sinlabajos, Avila. Pino said many of his fields had not even been harvested, because crop revenues would not cover the wages of laborers who gathered them. While the EU is collectively a major wheat exporter, Spain and Italy both rely on imports from countries including France, Britain and Ukraine. Spanish soft wheat imports are expected to rise by more than 40% to 5.6 million tonnes in the 2017-2018 marketing year, according to Agroinfomarket. The drought has helped support EU wheat futures, which have risen around 6% since the beginning of June, although the prospect of a larger harvest in France this year should ensure adequate overall supplies in the trading bloc.

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Germans love cash.

People Not Amused by EU Efforts to “De-Cash” their Lives (DQ)

In January 2017 the European Commission announced it was exploring the option of imposing upper limits on cash payments, with a view to implementing cross-regional measures as soon as 2018. To give the proposal a veneer of respectability and accountability the Commission launched a public consultation on the issue. Now, the answers are in, but they are not what the Commission was expecting. A staggering 95% of the respondents said they were opposed to a cash ceiling at EU level. Even more emphatic was the answer to the following question: “How would the introduction of restrictions on payments in cash at EU level benefit you, or your business or your organisation (multiple replies are possible)?” In the curious absence of an explicit “not at all” option, 99.18% chose to respond with “no answer.”

In other words, less than 1% of the more than 30,000 people consulted could think of a single benefit of the EU unleashing cross-regional cash limits. Granted, 37% of respondents were from Germany and 19% from Austria (56% in total), two countries that have a die-hard love for physical lucre. Even among millennials in Germany, two-thirds say they prefer paying in cash to electronic means, a much higher level than in almost any other advanced economy with the exception of Japan. Another 35% of the survey respondents were from France, a country that is not quite so enamored with cash and whose government has already imposed a maximum cash limit of €1,000. By its very nature the survey almost certainly attracted a disproportionate number of arch-defenders of physical cash.

As such, the responses it elicited are unlikely to be a perfect representation of how all Europeans would feel about the EU’s plans to introduce maximum cash limits. Nonetheless, the sheer strength of opposition should (but probably won’t) give the apparatchiks in Brussels pause for thought. The biggest cited concern for respondents was the threat the cash restrictions would pose to privacy and personal anonymity. A total of 87% of respondents viewed paying with cash as an essential personal freedom. The European Commission would beg to differ. In the small print accompanying the draft legislation it launched in January, it pointed out that privacy and anonymity do not constitute “fundamental” human rights.

Be that as it may, many Europeans still clearly have a soft spot for physical money. If the EU authorities push too hard, too fast in their war on cash, they could provoke a popular backlash. In Germany, trust in Europe’s financial institutions is already at a historic low, with only one in three Germans saying they have confidence in the ECB. The longer QE lasts, the more the number shrinks.

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When they were elected in January 2015, Syriza’s approval rating was some 75%. But when you turn your back on your promises, and then unleash more austerity….

Just 13% of Greeks Trust Their Government (K.)

Just 13% of Greeks trusted the government in 2016, according to the Organization for Economic Cooperation and Development’s (OECD) biennial Government at a Glance report, placing Greece among the four member states with the sharpest decline in confidence in their administrations. According to the report, which was published by the Paris-based organization on Thursday and shows 2016 data, Greece joins Chile, Finland and Slovenia in recording a significant loss of trust between citizens and the government, slipping to 13% in 2016 from 19% in 2014. Confidence has also declined over the past decade across the OECD’s member states, though at a rate of 3%, coming to 42% in 2016 from 45% in 2007.

In terms of specific sectors, Greeks have lost faith across the board, with the Greek health system having the trust of just 31% of citizens from 35% in the 2015 study for 2014, public education of 44% from 45% and the judicial system of 42% from 44%. A new area added in this year’s survey is the police, where confidence was high last year at 69%. Across the OECD, average confidence in the health system came to 70%, education to 67% and justice to 55%.

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You’d almost wish they would fight back.

World’s Large Carnivores Being Pushed Off The Map (BBC)

Six of the world’s large carnivores have lost more than 90% of their historic range, according to a study. The Ethiopian wolf, red wolf, tiger, lion, African wild dog and cheetah have all been squeezed out as land is lost to human settlements and farming. Reintroduction of carnivores into areas where they once roamed is vital in conservation, say scientists. This relies on human willingness to share the landscape with the likes of the wolf. The research, published in Royal Society Open Science, was carried out by Christopher Wolf and William Ripple of Oregon State University. They mapped the current range of 25 large carnivores using International Union for Conservation of Nature (IUCN) Red List data. This was compared with historic maps from 500 years ago.

The work shows that large carnivore range contractions are a global issue, said Christopher Wolf. “Of the 25 large carnivores that we studied, 60% (15 species) have lost more than half of their historic ranges,” he explained. “This means that scientifically sound reintroductions of large carnivores into areas where they have been lost is vital both to conserve the large carnivores and to promote their important ecological effects. “This is very dependent on increasing human tolerance of large carnivores – a key predictor of reintroduction success.” The researchers say re-wilding programmes will be most successful in regions with low human population density, little livestock, and limited agriculture. Additionally, regions with large networks of protected areas and favourable human attitudes toward carnivores are better suited for such schemes.

“Increasing human tolerance of large carnivores may be the best way to save these species from extinction,” said co-researcher William Ripple. “Also, more large protected areas are urgently needed for large carnivore conservation.” When policy is favourable, carnivores may naturally return to parts of their historic ranges. This has begun to happen in parts of Europe with brown bears, lynx, and grey wolves. The Eurasian lynx and grey wolf are among the carnivores that have the smallest range contractions. The dingo and several types of hyena are also doing relatively well, compared with the lion and tiger.

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Jul 132017
 
 July 13, 2017  Posted by at 8:56 am Finance Tagged with: , , , , , , , , ,  


Vincent van Gogh Vineyards with a View of Auvers 1890

 

‘Investors Underestimate How Low The Bar Is For The Fed’ (CNBC)
Unwinding QE will be “More Disruptive than People Think” (WS)
I Wouldn’t Rule Out Another Financial Crisis – IMF’s Lagarde (CNBC)
The US Stock Market Is 66% Higher Than It Should Be (Kee jr)
Valuation Measures & Forward Returns (Lance Roberts)
Nonprime Mortgages Prove Leery Investors Are Finally Hungry Again (CNBC)
VISA takes its War on Cash to US Retailers (WS)
Greece To Exit EU’s Excessive Deficit Procedure (K.)
Brain Drain Gathers Pace as One in Three Greeks Looks for a Job Abroad
Germany Profits From Greek Debt Crisis (HB)
Defiant Varoufakis Ready to Face ‘Even Martial Court’ Over Plan B (GR)

 

 

What Yellen says is not so interesting. What lies beyond those carefully crafted speeches is.

BTW, no Trump today, but maybe we can start a separate gossip page.

“The Fed says it’s going to hike again this year, markets says 50-50. The Fed says three, four times next year, the market says it’s not going to happen at all..”

‘Investors Underestimate How Low The Bar Is For The Fed’ (CNBC)

Patrick Armstrong, the CIO at Plurimi Investment Managers, believes that very high valuations, an expected tightening in monetary policy and too much optimism over tax cuts and new fiscal spending should leave investors cautious on the United States. “Valuation doesn’t matter in the short term but at current CAPE (cyclically adjusted price to earnings, which gives a more clear indication of a stock price in comparison to average earnings over the last 10 years) of 29 times, U.S. equities have historically delivered negative real returns over periods of two to five years,” he said in an investment outlook published earlier this month. The U.S. Federal Reserve has begun normalizing its policy in the wake of improved economic growth and low unemployment levels.

According to Armstrong, the easy monetary policy of the past had boosted equities but this might change with the Fed’s plans to hike rates and reduce its balance sheet. “I think there was a clear warning in the last (meeting) minutes talking about risk premium, price earnings and investors haven’t acknowledged it, but when the Fed starts worrying about equity markets, as an equity investor they’ve given you that warning,” he told CNBC on Tuesday. The third reason to be “short” – where a trader takes a bet that prices will fall – on U.S. equities is the government’s plans on fiscal policy. President Donald Trump promised tax cuts and big infrastructure spending, which made U.S. equities rally since he took office last November. However, such policies are yet to reach the consultation stage and doubts have emerged over the president’s ability to deliver.

[..] Speaking to CNBC Tuesday, Armstrong suggested that investors aren’t listening to the U.S. Federal Reserve. “What investors are completely underestimating is how low the bar is for the United States Federal Reserve. They have told us what they intend to do, the markets don’t believe any of it,” Armstrong said. “The Fed says it’s going to hike again this year, markets says 50-50. The Fed says three, four times next year, the market says it’s not going to happen at all,” he added.

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Central banks are trying to get out before the blast. But in doing so they bring it forward. Were given far too much power.

Unwinding QE will be “More Disruptive than People Think” (WS)

“We’ve never had QE like this before, and we’ve never had unwinding like this before,” said JPMorgan CEO Jamie Dimon at the Europlace finance conference in Paris. “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.” He was referring to the Fed’s plan to unwind QE, shedding Treasury securities and mortgage-backed securities on its balance sheet. The Fed will likely announce the kick-off this year, possibly at its September meeting. According to its plan, there will be a phase-in period. It will unload $10 billion the first month and raise that to $50 billion over the next 12 months. Then it will continue at that pace to achieve its “balance sheet normalization.” Just like the Fed “created” this money during QE to buy these assets, it will “destroy” this money at a rate of $50 billion a month, or $600 billion a year.

It’s the reverse of QE, with reverse effects. Other central banks are in a similar boat. The Fed, the Bank of Japan, and the ECB together have loaded up their balance sheets with $14 trillion in assets. Unwinding this is going to have some impact – likely reversing some of the asset price inflation in stocks, bonds, real estate, and other markets that these gigantic bouts of asset buying have caused. The Bank of Japan has been quietly tapering its asset purchases for a while to where it buys only enough to keep the 10-year yield barely above zero. And the ECB has tapered its monthly purchases by €20 billion earlier this year and is preparing the markets for more tapering. Once central banks stop buying assets, the phase starts when central banks try to unload some of those assets. The Fed is at the threshold of this phase.

Dimon was less concerned about the Fed’s rate hikes. People are too focused on rate hikes, he said, according to a Bloomberg recording of the conference. If the economy is strong, economic growth itself overcomes the issues posed by higher rates, he said. The economy has been through rate hikes many times before. They’re a known quantity. But “when selling securities in the market place starts,” that’s when it gets serious. “When that happens of size or substance, it could be a little more disruptive than people think,” he said. Whatever it will do, no one knows what it will do – because “it never happened before.”

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Don’t woryy, they serve the same lords.

I Wouldn’t Rule Out Another Financial Crisis – IMF’s Lagarde (CNBC)

The IMF’s Managing Director, Christine Lagarde, has said that she would not rule out another financial crisis in her lifetime, indicating that comments made recently by Federal Reserve Chair Janet Yellen may have been premature. “There may, one day, be another crisis,” Lagarde told CNBC Tuesday on the sidelines of a joint conference with the IMF and the Croatian National Bank in Dubrovnik. Lagarde’s comments responded to a statement made by Yellen a fortnight earlier in which she said she does not expect to see another financial crisis in her lifetime. “I plan on having a long life and I hope she (Yellen) does, too, so I wouldn’t absolutely bet on that because there are cycles that we have seen over the past decade and I wouldn’t exclude that,” Lagarde said.

She, however, noted the unpredictability of financial crises and said that finance ministers and policymakers should act with caution to prepare for such eventualities. “Where it will come from, what form it takes, how international and broad-based it will be is to be seen, and typically the crisis never comes from where we expect it,” she added. “Our duty, and certainly the message that we give to the finance ministers, to the policymakers, is ‘be prepared’. Make sure that your financial sector is under good supervision, that it’s well regulated, that the institutions are rock-solid, and anticipate at home with enough buffers so that you can resist the potential crisis.”

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And we will see undershoot on the way down. The Fed killing off price discovery will be a scourge on society.

The US Stock Market Is 66% Higher Than It Should Be (Kee jr)

I have, in previous articles here on MarketWatch, pointed out the fundamental risks in the U.S. stock market. I have identified the liquidity risks created by the ECB and the Federal Reserve in the tightening of monetary policy, in the reduction of the Fed’s balance sheet, and the likelihood that these risks will prick the asset bubble that the market is in today. Most people I speak and email with agree. The risks are high, as the price-to-earnings multiple of the S&P 500 (about 25, depending on the indicator) is far greater than its historical norm (14.5). The truth, however, is that no one knows for sure. But, still, people are apathetic. In fact, my experience over the past 20 years and through each of the past two major asset bubbles (the internet bubble in 2000 and the credit crisis in 2008-2009), is that the unanimous identification of an asset bubble did not take place until after the asset bubble had burst.

By that time, all of the major indices — the Dow Jones Industrial Average S&P 500, Nasdaq 100 and Russell 2000 — had already fallen. The result largely handcuffed investors to investments that were severely underwater. As luck would have it, though, after the credit crisis, the Fed’s policy-making body printed $2 trillion and, with that money, bought assets to prop up the economy and save investors from destruction. Largely, this perceived savior is probably why investors are so lethargic when it comes to the asset bubble that we are probably in right now. This bubble even seems to include real estate and bonds in addition to stocks, and it has been driven by fabricated central bank liquidity.

Admittedly, I cannot be sure what will happen. I do not know if this bubble will burst, and I do not know if central banks will come running to the rescue again, as they did after the credit crisis. Unfortunately, I do know a great deal of people who believe that the central banks of the world will simply print more money if the going gets tough again, but that is a seriously risky bet. With major indices coming off all-time highs and technical trading patterns (dojis) surfacing in long-term chart patterns last week, potential reversal signals are coming on a technical basis. As much as it is appealing to opt for relaxation and vacationing during the summer months, some time must be spent evaluating the conditions the market is facing right now.

In previous articles, I have offered alternatives to the traditional buy-and-hold methodology, and I think everyone should consider heading that way because strategies like “lock and walk” can work no matter what happens. The risks in the market today are extremely high for buy-and-hold investors because the liquidity picture is changing for the worse, and that is fundamental in nature. But longer-term technical observations point toward serious risks as well. My longer-term macroeconomic analysis, The Investment Rate, is offering warnings that this market is 66% higher than it should be. Given the changes in liquidity and technical observations happening now, those risk warnings should be heard with an acute ear.

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A whole bunch of Lance graphs again. Hard to choose. But pretty as the graphs are, they do not paint a pretty picture. They say BUBBLE.

Valuation Measures & Forward Returns (Lance Roberts)

[..] if the market can reverse the current course of weakness and rally above recent highs, it will confirm the bull market is alive and well, and we will continue to look for a push to our next target of 2500. With portfolios currently fully allocated, we are simply monitoring risk and looking for opportunities to invest “new capital” into markets with a measured risk/reward ratio. However, this is a very short-term outlook which is why “price is the only thing that matters.” “Price measures the current “psychology” of the “herd” and is the clearest representation of the behavioral dynamics of the living organism we call “the market.” But in the long-term, fundamentals are the only thing that matters. I have shown you the following chart many times before. Which is simply a comparison of 20-year forward total real returns from every previous P/E ratio.

I know, I know. “P/E’s don’t matter anymore because of Central Bank interventions, accounting gimmicks, share buybacks, etc.” Okay, let’s play. In the following series of charts, I am using forward 10-year returns just for consistency as some of the data sets utilized don’t yet have enough history to show 20-years of forward returns. The purpose here is simple. Based on a variety of measures, is the valuation/return ratio still valid, OR, is this time really different? Let’s see. Tobin’s Q-ratio measures the market value of a company’s assets divided by its replacement costs. The higher the ratio, the higher the cost resulting in lower returns going forward. Just as a comparison, I have added Shiller’s CAPE-10. Not surprisingly the two measures not only have an extremely high correlation, but the return outcome remains the same.

One of the arguments has been that higher valuations are okay because interest rates are so low. Okay, let’s take the smoothed P/E ratio (CAPE-10 above) and compare it to the 10-year average of interest rates going back to 1900. The analysis that low rates justify higher valuations clearly does not withstand the test of history.

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Substitute nonprime for subprime and you open a whole new can of suckers again. “No, these are fine and upstanding citizens. They just don’t have access to normal bank loans.” Gee, why is that?

Nonprime Mortgages Prove Leery Investors Are Finally Hungry Again (CNBC)

The appetite for riskier mortgages is rising, and a small cadre of investment firms is ready to feed it. Angel Oak Capital Advisors just announced its second rated securitization of nonprime residential mortgages this year, a deal worth just more than $210 million and its largest ever. Its first deal was slightly less, but demand from borrowers and investors alike is growing, and the securitizations are growing with it. Angel Oak is one of very few firms offering these private-label mortgage-backed securities — the ones that were so very popular during the last housing boom and which were later blamed for the financial crisis. Today’s nonprime loans, however, are nothing like the ones of the past. The government cracked down on faulty loan products, those with low teaser rates, negative amortization and no documentation.

Still, for the past decade investors wouldn’t touch anything that wasn’t government-backed. Only now are they seeing value and dipping their toes in again. The number of nonprime mortgage-backed securities “skyrocketed” in the second quarter of this year, according to Inside Mortgage Finance — a total of $1.08 billion of MBS backed by nonprime home loans. That was the strongest quarter for the sector since the financial crisis. It is still, however, nothing compared with the volume that caused the housing crash. “At one point during the housing boom, we had a third of all mortgage originations that were nonprime [subprime or Alt-A, the latter having low or no documentation]. We’re not going to be even 5% of the market if we have a record year this year. It still has a long, long way to go,” said Guy Cecala, CEO of Inside Mortgage Finance.

That is because while investors are hungry for yield, they are still very skeptical. The ratings agencies are as well. That makes it difficult for companies like Angel Oak, and its competitors — Lone Star and Deephaven Mortgage — to issue large quantities of nonprime MBS. Nonprime securitizations today are far less risky, consisting of loans that were underwritten far more stringently. Angel Oaks’ securitization does consist of both fixed- and floating-rate loans. “In addition to borrowers that had prior credit events, our loans are also for borrowers who are self-employed,” said Lauren Hedvat, capital markets director at Angel Oak. “They are of high credit quality, but they are not able to access mortgage products by the more traditional bank routes.”

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Start paying cash everywhere.

VISA takes its War on Cash to US Retailers (WS)

“We’re focused on putting cash out of business,” Visa’s new CEO Al Kelly said on June 22 at Visa Investor Day. Pushing consumers into digital and electronic payments is the company’s “number-one growth lever.” Visa has been dogged by the stubborn survival of cash and checks, despite widespread government and corporate efforts to kill them off. Globally, check and cash transactions totaled $17 trillion in 2016, Visa President Ryan McInerney said. Confusingly, that’s up 2% from a year earlier. So today, Visa rolled out a new initiative on its war on cash. It’s designed “for small business restaurants, cafés, or food truck owners,” and the like. In this trial, it will award up to $10,000 each to 50 eligible businesses (online businesses are excluded) when they commit to refusing cash payments.

Going “100% cashless,” as Visa calls it, means that consumers can only pay with debit or credit cards or with their smartphones. That’ll be the day. You go to your favorite taco truck, and when it comes time to pay, you pull out a wad of legal tender, only to be treated to an embarrassed nod toward a sign that says, “No Cash.” I’d walk. But Visa hopes that other folks will pull out their Visa-branded card or a smartphone with a payment app that uses the Visa system. This would help Visa extract its fees from the transaction. “We have an incredible opportunity to educate merchants and consumers alike on the effectiveness of going cashless,” Jack Forestell, Visa’s head of global merchant solutions, said in the press release, which touted a “study” that Visa recently “conducted” that “found that if businesses in 100 cities transitioned from cash to digital, their cities stand to experience net benefits of $312 billion per year.”

However dubious these “net benefits” may be, one thing is not dubious: Visa gets a cut from every transaction made via Visa-branded cards or digital payment systems that use Visa. The merchant pays the cut and then tries to pass it on to customers via higher prices. The total card fees normally range between 1% and 3%. Among the entities that get to divvy this moolah up are the bank that issued the visa card and the credit card network – such as Visa, MasterCard, and the like. Visa gets just a small piece of the pie, but if it is on every transaction, it adds up. And payments by cash and check seriously get in the way of a lot of money. In 2016, Visa extracted $15 billion from processing transactions globally without even carrying any credit risk (the banks have to deal with that).

Read more …

Purely symbolic. Everyone loves to present a meme of recovery, but it’s not there. Ironically, the move from deficit to -forced- surplus guarantees it. Greece should run a deficit now to boost its economy.

Greece To Exit EU’s Excessive Deficit Procedure (K.)

After eight years, Greece emerged on Wednesday from the European Commission’s process for countries with excessive deficit. The Commission proposed Greece’s exit from the process as its general government debt has dropped below the threshold of 3% of GDP. This is a largely symbolic move, but it does have some significance given that the government is planning to return to the bond markets for the first time since 2014. Economic Affairs Commissioner Pierre Moscovici gave a wink to the markets on Wednesday, saying that the disbursement of the tranche of 7.7 billion euros on Monday and the decision on the deficit is “good news that the markets ought to read,” even though he explained that what the investors do is not up to him.

Commission Vice President Valdis Dombrovskis called on Greece to capitalize on its achievements and continue to strengthen confidence in its economy, which is crucial as the country prepares its return to the credit markets. The Commission’s proposal for Greece’s emergence from the deficit procedure has to be ratified by the EU’s finance ministers, but has little practical use. Ultimately, Greece’s fiscal targets are dictated by the bailout agreement and not by the rules that apply to other eurozone members. As one European official told Kathimerini, “nothing changes essentially, the fiscal targets Greece must hit remain high and [yesterday’s] decision is only of a symbolic dimension.”

Read more …

Greece can only get worse, for many years into the future.

Brain Drain Gathers Pace as One in Three Greeks Looks for a Job Abroad

A new study highlights the problem in the Greek labor market as more than 30% of Greek unemployed say that they are actively seeking a job abroad. According to the annual survey by the firm Adecco titled “Employability in Greece,” the brain drain phenomenon has been increasing over the last three years. In 2015 only about 11% of unemployed respondents said that they were actively looking for a job abroad. This figure increased to 28% in 2016 and reached 33% this year. The responses show that the unemployed have different reasons to seek work abroad. Whereas in 2005, the main reason was the prospect of a better wage, in 2016 and 2017 the main reason given were better career opportunities.

The study conducted for the third year running, in collaboration with polling company LMG, was based on a sample of 903 people from the age of 18 to 67. According to other findings, 37% of respondents say that they have been out of the labor market for at least 12 months. Despite the slight improvement in official unemployment rates, the Adecco survey finds that there is an increasing number of people who state that they have been at least once without a job – 58% this year compared to 54% in 2016. According to the data, more than 1 out of 4 (28%) are out of the labor market, a higher rate compared with the previous two years.

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Money that could have helped Greece escape the claws of Schäuble et al. The pattern is not coincidental.

Germany Profits From Greek Debt Crisis (HB)

The German government has long been accused by critics of profiting from Greece’s debt crisis. Now there are some new numbers to back it up: Loans and bonds purchased in support of Greece over nearly a decade have resulted in profits of €1.34 billion for Germany’s finance ministry, which confirmed the number in response to a parliamentary query from the Green Party, according to a report by German daily Süddeutsche Zeitung. The profits come from a range of programs, running into the hundreds of billions, that Germany and other euro-zone countries have backed to keep Greece’s government and economy afloat since its massive debt crisis emerged in 2009. It includes, for example, a €393-million profit generated from a 2010 loan by the development bank KfW, which is owned by the German government.

The report also shows that Germany’s central bank, the Bundesbank, has received profits from the Securities Market Program (SMP), a now-defunct government bond-buying plan initiated by the ECB and run from 2010 to 2012. The ECB collected more than €1.1 billion in 2016 in interest payments on the nearly €20 billion-worth of Greek bonds it bought through the SMP, according to the report. This year, the figure will be €901 million, which will again be redistributed to the euro zone’s 19 member states. Since 2015, Germany has collected a total of €952 million in SMP profits. The new revelations drew strong criticism from the Greens Party, in opposition. “The profits from collecting interest must be paid out to Greece. [Finance Minister] Wolfgang Schäuble cannot use the Greek profits to clean up Germany’s federal budget,” Manuel Sarrazin, EU expert for the Green Party in the parliament, told the Süddeutsche newspaper.

Mr. Schäuble, a member of Chancellor Angela Merkel’s conservative Christian Democrats, has been cannily keeping Germany’s federal budget balanced over the past four years, taking on no new debt. Berlin’s surplus amounted to €6.2 billion in 2016 alone. Critics complain that Greece’s crisis has helped it achieve that goal. “It might be legal for Germany to profit from the crisis in Greece, but from a moral and solidarity perspective, it is not right,” Sven-Christian Kindler, budget policy spokesperson for the Green Party, also told the paper. Mr. Schäuble has said he is open to reducing Greece’s interest burden but has resisted calls to end them completely. His finance ministry has argued that, with inflation, deferring interest payments would eventually end up costing Greece’s creditors.

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There are many parties not too keen on such an investigation, and Varoufakis is not one of them.

Defiant Varoufakis Ready to Face ‘Even Martial Court’ Over Plan B (GR)

Undeterred over the controversy surrounding the new disclosures over the system of a parallel currency that was apparently considered by the government of Alexis Tsipras in 2015, Yanis Varoufakis said that he is ready to face any court to respond to the charges. Speaking in a radio show, Varoufakis, the finance minister at the time and the instigator of the parallel payments system or Plan B, said that Tsipras had a copy of the proposals from as early as 2012 when he was still in opposition. “I have handed the plan to Tsipras in 2012,” so it could become the government’s plan B if negotiations with Greece’s creditors collapsed.

Mr. Varoufakis said he was willing to accept any kind of judicial investigation into Plan B and his role in drafting it. “Let’s have a special court of inquiry, or even a martial court, or any other court, so all the facts can be revealed,” he said responding to calls from the opposition for a judicial inquiry. He also attacked the SYRIZA-led government for refusing to proceed with an investigation. The Varoufakis Plan B for the Greek economy in the event that the country clashed with creditors and went bankrupt was to partially pay civil servants with coupons. Parts of the plan were revealed last week by his financial advisor Glenn Kim.

Read more …

Apr 232017
 
 April 23, 2017  Posted by at 2:31 pm Finance Tagged with: , , , , , , , , , ,  


René Magritte Le Cri du Coeur 1960

 

Austerity is over, proclaimed the IMF this week. And no doubt attributed that to the ‘successful’ period of ‘five years of belt tightening’ a.k.a. ‘gradual fiscal consolidation’ it has, along with its econo-religious ilk, imposed on many of the world’s people. Only, it’s not true of course. Austerity is not over. You can ask many of those same people about that. It’s certainly not true in Greece.

IMF Says Austerity Is Over

Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor.

In Greece, the government did not increase spending in 2016. Nor is the country’s era of spending cuts at an end. So did the IMF ‘forget’ about Greece? Or does it not count it as part of the rich world? Greece is a member of the EU, and the EU is absolutely part of the rich world, so that can’t be it. Something Freudian, wishful thinking perhaps?

However this may be, it’s obvious the IMF are not done with Greece yet. And neither are the rest of the Troika. They are still demanding measures that are dead certain to plunge the Greeks much further into their abyss in the future. As my friend Steve Keen put it to me recently: “Dreadful. It will become Europe’s Somalia.”

An excellent example of this is the Greek primary budget surplus. The Troika has been demanding that it reach 3.5% of GDP for the next number of years (the number changes all the time, 3, 5, 10?). Which is the worst thing it could do, at least for the Greek people and the Greek economy. Not for those who seek to buy Greek assets on the cheap.

 

But sure enough, the Hellenic Statistical Authority (ELSTAT) jubilantly announced on Friday that the 2016 primary surplus was 4.19% (8 times more than the 0.5% expected). This is bad news for Greeks, though they don’t know it. It is also a condition for receiving the next phase of the current bailout. Here’s what that comes down to: in order to save itself from default/bankruptcy, the country is required to destroy its economy.

And that’s not all: the surplus is a requirement to get a next bailout tranche, and debt relief, but as a reward for achieving that surplus, Greece can now expect to get less … debt relief. Because obviously they’re doing great, right?! They managed to squeeze another €7.3 billion out of their poor. So they should always be able to do that in every subsequent year.

The government in Athens sees the surplus as a ‘weapon’ that can be used in the never-ending bailout negotiations, but the Troika will simply move the goalposts again; that’s its MO.

A country in a shape as bad as Greece’s needs stimulus, not a budget surplus; a deficit would be much more helpful. You could perhaps demand that the country goes for a 0% deficit, though even that is far from ideal. But never a surplus. Every penny of the surplus should have been spent to make sure the economy doesn’t get even worse.

Greek news outlet Kathimerini gets it sort of right, though its headline should have read “Greek Primary Surplus Chokes Economy“.

Greek Primary Surplus Chokes Market

The state’s fiscal performance last year has exceeded even the most ambitious targets, as the primary budget surplus as defined by the Greek bailout program, came to 4.19% of GDP, government spokesman Dimitris Tzanakopoulos announced on Friday. It came to €7.369 billion against a target for €879 million, or just 0.5% of GDP. A little earlier, the president of the Hellenic Statistical Authority (ELSTAT), Thanos Thanopoulos, announced the primary surplus according to Eurostat rules, saying that it came to 3.9% of GDP or €6.937 billion.

The two calculations differ in methodology, but it is the surplus attained according to the bailout rules that matters for assessing the course of the program. This was also the first time since 1995 that Greece achieved a general government surplus – equal to 0.7% of GDP – which includes the cost of paying interest to the country’s creditors. There is a downside to the news, however, as the figures point to overtaxation imposed last year combined with excessive containment of expenditure.

The amount of €6-6.5 billion collected in excess of the budgeted surplus has put a chokehold on the economy, contributing to a great extent to the stagnation recorded on the GDP level in 2016. On the one hand, the impressive result could be a valuable weapon for the government in its negotiations with creditors to argue that it is on the right track to fiscal streamlining and can achieve or even exceed the agreed targets. On the other hand, however, the overperformance of the budget may weaken the argument in favor of lightening the country’s debt load.

Eurogroup head Dijsselbloem sees no shame in admitting this last point :

Dijsselbloem Sees ‘Tough’ Greek Debt Relief Talks With IMF

“That will be a tough discussion with the IMF,” said Dijsselbloem, who is also the Dutch Finance Minister in a caretaker cabinet, “There are some political constraints where we can go and where we can’t go.” The level of Greece’s primary budget surplus is key in determining the kind of debt relief it will need. The more such surplus it has, the less debt relief will be needed.

That’s just plain insane, malicious even. Greek PM Tsipras should never have accepted any such thing, neither the surplus demands nor the fact that they affect debt relief, since both assure a further demise of the economy.

Because: where does the surplus come from? Easy: from Troika-mandated pension cuts and rising tax levels. That means the Greek government is taking money OUT of the economy. And not a little bit, but a full 4% of GDP, over €7 billion. An economy from which so much has already vanished.

The €7.369 billion primary surplus, in a country of somewhere between 10 and 11 million people, means some €700 per capita has been taken out of the economy in 2016. Money that could have been used to spend inside that economy, saving jobs, and keeping people fed and sheltered. For a family of 3.5 people that means €200 per month less to spend on necessities (the only thing most Greeks can spend any money on).

I’ve listed some of the things a number of times before that have happened to Greece since the EU and IMF declared de facto financial war on the country. Here are a few (there are many more where these came from):

25-30% of working age Greeks are unemployed (and that’s just official numbers), well over 1 million people; over 50% of young people are unemployed. Only one in ten unemployed Greeks receive an unemployment benefit (€360 per month), and only for one year. 9 out of 10 get nothing.

Which means 52% of Greek households are forced to live off the pension of an elderly family member. 60% of Greek pensioners receive pensions below €700. 45% of pensioners live below the poverty line with pensions below €665. Pensions have been cut some 12 times already. More cuts are in the pipeline.

40% of -small- businesses have said they expect to close in 2017. Even if it’s just half that, imagine the number of additional jobs that will disappear.

 

But the Troika demands don’t stop there; they are manifold. On top of the pension cuts and the primary surplus requirement, there are the tax hikes. So the vast majority of Greeks have ever less money to spend, the government takes money out of the economy to achieve a surplus, and on top of that everything gets more expensive because of rising taxes. Did I ever mention businesses must pay their taxes up front for a full year?

The Troika is not “rebalancing Greece’s public finances in a growth-friendly manner”, as Dijsselbloem put it, it is strangling the economy. And then strangling it some more.

There may have been all sorts of things wrong in Greece, including financially. But that is true to some degree for every country. And there’s no doubt there was, and still is, a lot of corruption. But that would seem to mean the EU must help fight that corruption, not suffocate the poor.

 


Yes, that’s about a 30% decline in GDP since 2007

 

The ECB effectively closed down the Greek banking system in 2015, in a move that’s likely illegal. It asked for a legal opinion on the move but refuses to publish that opinion. As if Europeans have no right to know what the legal status is of what their central bank does.

The ECB also keeps on refusing to include Greece in its QE program. It buys bonds and securities from Germany, which doesn’t need the stimulus, and not those of Greece, which does have that need. Maybe someone should ask for a legal opinion on that too.

The surplus requirements will be the nail in the coffin that do Greece in. Our economies depend for their GDP numbers on consumer spending, to the tune of 60-70%. Since Greek ‘consumers’ can only spend on basic necessities, that number may be even higher there. And that is the number the country is required to cut even more. Where do you think GDP is headed in that scenario? And unemployment, and the economy at large?

The question must be: don’t the Troika people understand what they’re doing? It’s real basic economics. Or do they have an alternative agenda, one that is diametrically opposed to the “rebalancing Greece’s public finances in a growth-friendly manner” line? It has to be one of the two; those are all the flavors we have.

You can perhaps have an idea that a country can spend money on wrong, wasteful things. But that risk is close to zilch in Greece, where many if not most people already can’t afford the necessities. Necessities and waste are mutually exclusive. A lot more money is wasted in Dijsselbloem’s Holland than in Greece.

In a situation like the one Greece is in, deflation is a certainty, and it’s a deadly kind of deflation. What makes it worse is that this remains hidden because barely a soul knows what deflation is.

Greece’s deflation hides behind rising taxes. Which is why taxes should never be counted towards inflation; it would mean all a government has to do to raise inflation is to raise taxes; a truly dumb idea. Which is nevertheless used everywhere on a daily basis.

In reality, inflation/deflation is money/credit supply multiplied by the velocity of money. And in Greece both are falling rapidly. The primary surplus requirements make it that much worse. It really is the worst thing one could invent for the country.

For the Greek economy, for its businesses, for its people, to survive and at some point perhaps even claw back some of the 30% of GDP it lost since 2007, what is needed is a way to make sure money can flow. Not in wasteful ways, but in ways that allow for people to buy food and clothing and pay for rent and power.

If you want to do that, taking 4% of GDP out of an economy, and 3.5% annually for years to come, is the very worst thing. That can only make things worse. And if the Greek economy deteriorates further, how can the country ever repay the debts it supposedly has? Isn’t that a lesson learned from the 1919 Versailles treaty?

The economists at the IMF and the EU/ECB, and the politicians they serve, either don’t understand basic economics, or they have their eyes on some other prize.

 

Mar 082017
 
 March 8, 2017  Posted by at 9:10 am Finance Tagged with: , , , , , , , , , , , ,  


Dorothea Lange A Family Of Mexican Migrants, On The Road In California 1936

 

Wikileaks ‘Vault 7’, Largest Ever Publication Of Confidential CIA Docs (ZH)
Snowden: What The Wikileaks Revelations Show Is “Reckless Beyond Words” (ZH)
WikiLeaks Releases Trove of Alleged CIA Hacking Documents (NYT)
Wikileaks: CIA Capable Of Cyber “False Flag” Attack To Blame Russia (TAM)
CIA Contractor on #VAULT7 Leak: ‘There is Heavy Shit Coming Down’ (RF)
US Trade Deficit Jumps To Five-Year High On Imports (R.)
China Posts Rare Trade Deficit As February Imports Surge in Yuan Terms (R.)
Why Are Europe’s Small Central Banks Stocking Up Foreign Money? (WSJ)
Dispel The Economic Myths That Hold Women Back (Ann Pettifor)
Austerity Is A Feminist Issue (G.)
The Women’s Protest That Sparked The Russian Revolution (G.)
Vacant Homes Are A Global Epidemic (BD)
There’s No Housing Bubble in Australia, Heads of Big Banks Say (BBG)
Australian Lenders Are Handing Out Mortgages Like Confetti (LF)
Greece’s Still-Falling GDP Dispels Creditors’ “Recovery” Myth (Prime)
Tax Weary Greek Employers Pay In Kind As Creditor Demands Rise (BBG)
America’s Forgotten History of Illegal Deportations (Atlantic)

 

 

It’s obvious there is only one story today, which ironically(?!) blows the whole Trump-Russia accusation narrative to bits, even though of course Russia gets the blame for this too in all sorts of corners. But the files are reported to have been ‘out there’ for a while, in the hands of hackers and possible foreign agencies. The CIA spent a huge wad of taxpayer money on this, and then lost it all. It’s early days to say what this will mean for the agency’s abilities, and the nation’s safety, as well as that of American citizens, but it’s not good. Question is: who’s going to investigate how this could have happened? (Snowden and Kim Dotcom could)… And who’s going to repair the damage done? Anyone could be spying on your phone and your TV by now, not just the CIA -as if that wouldn’t be bad enough.

And this is just the first part. Wikileaks has announced more from where this came from.

Wikileaks ‘Vault 7’, Largest Ever Publication Of Confidential CIA Docs (ZH)

A total of 8,761 documents have been published as part of ‘Year Zero’, the first in a series of leaks the whistleblower organization has dubbed ‘Vault 7.’ WikiLeaks said that ‘Year Zero’ revealed details of the CIA’s “global covert hacking program,” including “weaponized exploits” used against company products including “Apple’s iPhone, Google’s Android and Microsoft’s Windows and even Samsung TVs, which are turned into covert microphones.”

WikiLeaks tweeted the leak, which it claims came from a network inside the CIA’s Center for Cyber Intelligence in Langley, Virginia.

Among the more notable disclosures which, if confirmed, “would rock the technology world“, the CIA had managed to bypass encryption on popular phone and messaging services such as Signal, WhatsApp and Telegram. According to the statement from WikiLeaks, government hackers can penetrate Android phones and collect “audio and message traffic before encryption is applied.”

Another profound revelation is that the CIA can engage in “false flag” cyberattacks which portray Russia as the assailant. Discussing the CIA’s Remote Devices Branch’s UMBRAGE group, Wikileaks’ source notes that it “collects and maintains a substantial library of attack techniques ‘stolen’ from malware produced in other states including the Russian Federation.

“With UMBRAGE and related projects the CIA cannot only increase its total number of attack types but also misdirect attribution by leaving behind the “fingerprints” of the groups that the attack techniques were stolen from. UMBRAGE components cover keyloggers, password collection, webcam capture, data destruction, persistence, privilege escalation, stealth, anti-virus (PSP) avoidance and survey techniques.”

As Kim Dotcom summarizes this finding, “CIA uses techniques to make cyber attacks look like they originated from enemy state. It turns DNC/Russia hack allegation by CIA into a JOKE

But perhaps what is most notable is the purported emergence of another Snowden-type whistleblower: the source of the information told WikiLeaks in a statement that they wish to initiate a public debate about the “security, creation, use, proliferation and democratic control of cyberweapons.”  Policy questions that should be debated in public include “whether the CIA’s hacking capabilities exceed its mandated powers and the problem of public oversight of the agency,” WikiLeaks claims the source said.

The FAQ section of the release, shown below, provides further details on the extent of the leak, which was “obtained recently and covers through 2016”. The time period covered in the latest leak is between the years 2013 and 2016, according to the CIA timestamps on the documents themselves. Secondly, WikiLeaks has asserted that it has not mined the entire leak and has only verified it, asking that journalists and activists do the leg work.

Among the various techniques profiled by WikiLeaks is “Weeping Angel”, developed by the CIA’s Embedded Devices Branch (EDB), which infests smart TVs, transforming them into covert microphones. After infestation, Weeping Angel places the target TV in a ‘Fake-Off’ mode, so that the owner falsely believes the TV is off when it is on. In ‘Fake-Off’ mode the TV operates as a bug, recording conversations in the room and sending them over the Internet to a covert CIA server.

As Kim Dotcom chimed in on Twitter, “CIA turns Smart TVs, iPhones, gaming consoles and many other consumer gadgets into open microphones” and added ” CIA turned every Microsoft Windows PC in the world into spyware. Can activate backdoors on demand, including via Windows update”

Dotcom also added that “Obama accused Russia of cyberattacks while his CIA turned all internet enabled consumer electronics in Russia into listening devices. Wow!”

Julian Assange, WikiLeaks editor stated that “There is an extreme proliferation risk in the development of cyber ‘weapons’. Comparisons can be drawn between the uncontrolled proliferation of such ‘weapons’, which results from the inability to contain them combined with their high market value, and the global arms trade. But the significance of “Year Zero” goes well beyond the choice between cyberwar and cyberpeace. The disclosure is also exceptional from a political, legal and forensic perspective.”

Read more …

“…first public evidence US [Government] secretly paying to keep US software unsafe”

Snowden: What The Wikileaks Revelations Show Is “Reckless Beyond Words” (ZH)

While it has been superficially covered by much of the press – and one can make the argument that what Julian Assange has revealed is more relevant to the US population, than constant and so far unconfirmed speculation that Trump is a puppet of Putin – the fallout from the Wikileaks’ “Vault 7” release this morning of thousands of documents demonstrating the extent to which the CIA uses backdoors to hack smartphones, computer operating systems, messenger applications and internet-connected televisions, will be profound. As evidence of this, the WSJ cites an intelligence source who said that “the revelations were far more significant than the leaks of Edward Snowden.”

Mr. Snowden’s leaks revealed names of programs, companies that assist the NSA in surveillance and in some cases the targets of American spying. But the recent leak purports to contain highly technical details about how surveillance is carried out. That would make them far more revealing and useful to an adversary, this person said. In one sense, Mr. Snowden provided a briefing book on U.S. surveillance, but the CIA leaks could provide the blueprints. Speaking of Snowden, the former NSA contractor-turned-whistleblower, who now appears to have a “parallel whisteblower” deep inside the “Deep State”, i.e., the source of the Wikileaks data – also had some thoughts on today’s CIA dump.

In a series of tweets, Snowden notes that “what @Wikileaks has here is genuinely a big deal”, and makes the following key observations “If you’re writing about the CIA/@Wikileaks story, here’s the big deal: first public evidence USG secretly paying to keep US software unsafe” and adds that “the CIA reports show the USG developing vulnerabilities in US products, then intentionally keeping the holes open. Reckless beyond words.” He then asks rhetorically “Why is this dangerous?” and explains “Because until closed, any hacker can use the security hole the CIA left open to break into any iPhone in the world.” His conclusion, one which many of the so-called conspiratorial bent would say was well-known long ago: “Evidence mounts showing CIA & FBI knew about catastrophic weaknesses in the most-used smartphones in America, but kept them open – to spy.”

Read more …

“..WikiLeaks, which has sometimes been accused of recklessly leaking information that could do harm, said it had redacted names and other identifying information from the collection. It said it was not releasing the computer code for actual, usable weapons “until a consensus emerges on the technical and political nature of the C.I.A.’s program and how such ‘weapons’ should be analyzed, disarmed and published.”

WikiLeaks Releases Trove of Alleged CIA Hacking Documents (NYT)

In what appears to be the largest leak of C.I.A documents in history, WikiLeaks released on Tuesday thousands of pages describing sophisticated software tools and techniques used by the agency to break into smartphones, computers and even Internet-connected televisions. The documents amount to a detailed, highly technical catalog of tools. They include instructions for compromising a wide range of common computer tools for use in spying: the online calling service Skype; Wi-Fi networks; documents in PDF format; and even commercial antivirus programs of the kind used by millions of people to protect their computers. A program called Wrecking Crew explains how to crash a targeted computer, and another tells how to steal passwords using the autocomplete function on Internet Explorer. Other programs were called CrunchyLimeSkies, ElderPiggy, AngerQuake and McNugget.

The document dump was the latest coup for the antisecrecy organization and a serious blow to the C.I.A., which uses its hacking abilities to carry out espionage against foreign targets. The initial release, which WikiLeaks said was only the first installment in a larger collection of secret C.I.A. material, included 7,818 web pages with 943 attachments, many of them partly redacted by WikiLeaks editors to avoid disclosing the actual code for cyberweapons. The entire archive of C.I.A. material consists of several hundred million lines of computer code, the group claimed. In one revelation that may especially trouble the tech world if confirmed, WikiLeaks said that the C.I.A. and allied intelligence services have managed to compromise both Apple and Android smartphones, allowing their officers to bypass the encryption on popular services such as Signal, WhatsApp and Telegram. According to WikiLeaks, government hackers can penetrate smartphones and collect “audio and message traffic before encryption is applied.”

Unlike the National Security Agency documents Edward J. Snowden gave to journalists in 2013, they do not include examples of how the tools have been used against actual foreign targets. That could limit the damage of the leak to national security. But the breach was highly embarrassing for an agency that depends on secrecy. Robert M. Chesney, a specialist in national security law at the University of Texas at Austin, likened the C.I.A. trove to National Security Agency hacking tools disclosed last year by a group calling itself the Shadow Brokers. “If this is true, it says that N.S.A. isn’t the only one with an advanced, persistent problem with operational security for these tools,” Mr. Chesney said. “We’re getting bit time and again.”

Read more …

No ‘evidence’ (and remember none was provided to date) of Russian spying is the least bit credible anymore after today.

Wikileaks: CIA Capable Of Cyber “False Flag” Attack To Blame Russia (TAM)

According to a Wikileaks press release, the 8,761 newly published files came from the CIA’s Center for Cyber Intelligence (CCI) in Langley, Virginia. The release says that the UMBRAGE group, a subdivision of the center’s Remote Development Branch (RDB), has been collecting and maintaining a “substantial library of attack techniques ‘stolen’ from malware produced in other states, including the Russian Federation.” As Wikileaks notes, the UMBRAGE group and its related projects allow the CIA to misdirect the attribution of cyber attacks by “leaving behind the ‘fingerprints’ of the very groups that the attack techniques were stolen from.”

In other words, the CIA’s sophisticated hacking tools all have a “signature” marking them as originating from the agency. In order to avoid arousing suspicion as to the true extent of its covert cyber operations, the CIA has employed UMBRAGE’s techniques in order to create signatures that allow multiple attacks to be attributed to various entities – instead of the real point of origin at the CIA – while also increasing its total number of attack types. Other parts of the release similarly focus on avoiding the attribution of cyberattacks or malware infestations to the CIA during forensic reviews of such attacks. In a document titled “Development Tradecraft DOs and DON’Ts,” hackers and code writers are warned “DO NOT leave data in a binary file that demonstrates CIA, U.S. [government] or its witting partner companies’ involvement in the creation or use of the binary/tool.” It then states that “attribution of binary/tool/etc. by an adversary can cause irreversible impacts to past, present and future U.S. [government] operations and equities.”

While a major motivating factor in the CIA’s use of UMBRAGE is to cover it tracks, events over the past few months suggest that UMBRAGE may have been used for other, more nefarious purposes. After the outcome of the 2016 U.S. presidential election shocked many within the U.S. political establishment and corporate-owned media, the CIA emerged claiming that Russia mounted a “covert intelligence operation” to help Donald Trump edge out his rival Hillary Clinton.[..] the U.S. intelligence community’s assertions that Russia used cyber-attacks to interfere with the election overshadowed reports that the U.S. government had actually been responsible for several hacking attempts that targeted state election systems.

For instance, the state of Georgia reported numerous hacking attempts on its election agencies’ networks, nearly all of which were traced back to the U.S. Department of Homeland Security. Now that the CIA has been shown to not only have the capability but also the express intention of replacing the “fingerprint” of cyber-attacks it conducts with those of another state actor, the CIA’s alleged evidence that Russia hacked the U.S. election – or anything else for that matter – is immediately suspect. There is no longer any way to determine if the CIA’s proof of Russian hacks on U.S. infrastructure is legitimate, as it could very well be a “false flag” attack.

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“..we come to find out the same people who told us the Russians were our enemy, revealing corruption and depravity on a monumental scale via the Podesta emails, they were, in fact, the ones spying on us all along – both lying and mocking us like Lords in a fiefdom.”

CIA Contractor on #VAULT7 Leak: ‘There is Heavy Shit Coming Down’ (RF)

Everything that Wikileaks has revealed over the past year has hurt both the integrity and honor of the United States. The question you have to grapple with, is it well deserved? After all, living inside of a vast and powerful empire has its benefits. As the empire expands, so does the wealth of its citizens. But it hasn’t worked out that way, has it? The CIA deep staters have turned their guns on the people they serve – using third world banana republic tactics to silence opposition, take down regimes not beholden to their world view, using advanced technology to both spy and monitor on American citizens – infringing on our civil rights like nothing we’ve ever seen before. The reason for the populist uprising and the lack of equanimity amongst those traditionally supportive of the CIA lies in the improper distribution of the spoils of war. There aren’t any.

All the average American has received from $10 trillion in Obama inspired deficit spending is American casualties of war, jobs lost to cheaper labor overseas, expensive oil prices, expensive healthcare, and run away education costs – along with a sundry of social disturbances that have people fed up. While the elite flaunt hedonistic lifestyles, eschewing basic decency for the perverse, normies get more of the same old bullshit. After electing a true agent of change in Donald Trump, the people are laughed at and impugned by the elitist media. Their President is set upon by ‘permanent government’ officials in the intelligence agencies – whose only goal is to derail and destroy his term before it even begins.

Then we come to find out the same people who told us the Russians were our enemy, revealing corruption and depravity on a monumental scale via the Podesta emails, they were, in fact, the ones spying on us all along – both lying and mocking us like Lords in a fiefdom. Here’s Fox News reporting on the latest scandal to hit the wires, #VAULT7 Fox New sources inside the CIA said the agency was running around like headless chickens, saying ‘there is heavy shit coming down.’

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US exports are plunging. 10.7% to Germany, 13.4% to China.

US Trade Deficit Jumps To Five-Year High On Imports (R.)

The U.S. trade deficit jumped to a near five-year high in January as cell phones and rising oil prices helped to push up the import bill, suggesting trade would again weigh on economic growth in the first quarter. The Commerce Department said on Tuesday the trade gap increased 9.6% to $48.5 billion, the highest level since March 2012. The deficit was in line with economists forecasts. December’s trade shortfall was unrevised at $44.3 billion. When adjusted for inflation, the trade deficit rose to $65.3 billion from $62.0 billion in December. Both the inflation-adjusted exports and imports were the highest on record in January.

The wider trade gap added to weak data such as housing starts, consumer and construction spending in suggesting the economy struggled to regain momentum early in the first quarter after growth slowed to a 1.9% annualized rate in the final three months of 2016. The economy grew at a 3.5% pace in the third quarter. Trade cut 1.7 percentage points from GDP in the fourth quarter. The Atlanta Fed is forecasting GDP rising at a 1.8% rate in the first quarter. The dollar was trading marginally higher, while prices for U.S. government bonds were little changed. U.S. stock index futures were slightly lower. The Trump administration is eyeing trade as it seeks 4% annual GDP growth. President Donald Trump has vowed sweeping changes to U.S. trade policy, starting with pulling out of the 12-nation TPP.

[..] The bulk of the increase in the trade-weighted value of the greenback occurred in the final months of 2016 and will probably take a while to reflect in the trade data. Exports to Germany tumbled 10.7%. A Trump trade adviser has accused Germany of unfairly benefiting from a weak euro. Shipments of goods to China, also singled out by the Trump administration, dropped 13.4%. The politically sensitive U.S.-China trade deficit increased 12.8% to $31.3 billion in January, while the trade gap with Germany fell 8.0% to $4.9 billion. The United States also saw its trade deficit with Mexico shrink 10.1% to its lowest level since July 2015.

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We need to see: 1) dollar terms and 2) Lunar New Year distortions.

China Posts Rare Trade Deficit As February Imports Surge in Yuan Terms (R.)

China unexpectedly posted a rare trade deficit in February as imports surged far more than expected to feed a months-long construction boom, driven by commodities from iron ore and copper to crude oil and coal. Imports in yuan-denominated terms surged 44.7 percent from a year earlier, while exports rose 4.2 percent, official data showed on Wednesday. That left the country with a trade deficit of 60.63 billion yuan ($8.79 billion) for the month, the General Administration of Customs said. Customs has not yet published dollar-denominated trade figures, on which most economists and investors base their forecasts and analysis. Apart from currency fluctuations, higher commodity prices and the timing of the long Lunar New year holidays early in the year also may have distorted the data.

Most of China’s commodity imports grew strongly in volume terms from a year earlier, but dipped from January. Still, economists say the upbeat readings reinforced a growing view that economic activity in China and globally picked up in the first two months of the year. That could give China’s policymakers more confidence to press ahead with oft-delayed and painful structural reforms such as tackling a mountain of debt. Containing the risks from years of debt-fueled stimulus and heavy spending has been a major focus at the annual meeting of China’s parliament which began on Sunday.

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They know something?!

Why Are Europe’s Small Central Banks Stocking Up Foreign Money? (WSJ)

Europe’s smaller central banks are loading up on foreign currencies at rates usually associated with periods of intense global stress, highlighting the fragile underpinnings of the global economic recovery despite the recent upbeat mood in financial markets. Switzerland’s holdings of foreign assets jumped last month at their fastest pace in over two years as its central bank fought the strong franc, which weakens exports and inflation. The Czech central bank intervened in January on a massive scale to maintain its currency target against the euro. Denmark has also stepped up its foreign-currency purchases to keep the krone from strengthening too much. These central banks are showing crisis-like behavior to protect their currencies even in the absence of obvious trouble. This exposes them to losses if their currencies fail to weaken on their own.

It also raises doubts as to how long they can keep this up in an era when economic and political uncertainties appear to be a lasting feature of the world economy. “There is a little bit of survivor behavior,” said Peter Rosenstreich, head of market strategy at Swissquote Bank. “They’ve been protecting their currencies so long and it’s hard to give up that defensive position.” The Swiss National Bank said Tuesday its foreign exchange reserves swelled nearly 25 billion Swiss francs ($24.63 billion) last month to 668 billion francs, the biggest rise since December 2014, the month before the Swiss abandoned a cap on the franc’s value. The pile of foreign reserves is greater than Switzerland’s entire gross domestic product. “It’s quite bizarre. You’d think at some time you’d run out of surprises,” said Stefan Gerlach, chief economist at BSI Bank in Zurich and a former deputy governor at Ireland’s central bank.

[..] Central banks accumulate foreign reserves when they purchase assets denominated in other currencies, using freshly created money. They do this to weaken their currencies, protecting exports and giving a boost to inflation. Foreign reserves can waver slightly due to changes in currency values, but big increases like Switzerland’s signal aggressive intervention. This tool has gained traction in recent years as official rates have turned negative in Denmark and Switzerland and are near zero in the Czech Republic.

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A few good articles for International Women’s Day. Pettifor’s insistence that households are not like governments is important.

Dispel The Economic Myths That Hold Women Back (Ann Pettifor)

There are two economic myths that fail the interests of women. The first is the fallacy that government budgets conform to “the household analogy”: that, as with family budgets, a state’s outgoings cannot exceed its income. The second is that “there is no money” for the services women use and need. On the first, the public are told that cuts in spending and in some benefits, combined with rises in income from taxes will – just as with a household – balance the budget. Even though a single household’s budget is a) minuscule compared to that of a government; b) does not, like the government’s, impact on the wider economy; c) does not benefit from tax revenues (now, or in the foreseeable future); and d) is not backed by a powerful central bank. Despite all these obvious differences, government budgets are deemed analogous (by economists and politicians) to a household budget.

To understand why the government/household analogy is false it is important to understand that the balance of the government budget, unlike that of a household, is entirely a function of the wider economy. If the economy slumps (as in 2008-9) and the private sector weakens, then like a see-saw the public sector deficit, and then the debt, rises. When private economic activity revives (thanks to increased investment, employment, sales etc) tax revenues rise, unemployment benefits fall, and the government deficit and debt follow the same downward trajectory. So, to balance the government’s budget, efforts must be made to revive Britain’s economy, including the indebted private sector.

Because government spending (unlike a household’s spending) has a big impact on the economy, governments can use loan-financed investment to expand tax-generating employment – both public (for example, nurses and teachers) and private sector employment (construction workers). Both nurses and construction workers will return a large part of their incomes into the economy through spending, benefitting the private sector. Thanks to the multiplier effect, that spending will generate VAT and corporation tax revenues – for repaying government debt. George Osborne believed that government spending cuts would be offset by a rise in private sector confidence, inspired by a government “getting its house in order”. But that did not happen.

As many of us predicted, government spending cuts contracted the economy further. Economic activity (investment, sales, employment) was weaker than expected. Even when employment revived, lower wages and insecure, part-time work meant that income and corporate taxes were lower than expected. So government borrowing did not fall. As a result, public debt as a share of GDP was higher than expected. In the meantime, massive harm had been done to public sector services and those employed in the sector – while the economy endured the slowest post-crisis recovery in history. And it was women who largely paid the price.

One woman can be said to have given the phrase “there is no money” much credibility. In her 1983 speech to the Conservative party conference, Margaret Thatcher declared that: “The state has no source of money, other than the money people earn themselves. If the state wishes to spend more it can only do so by borrowing your savings, or by taxing you more … There is no such thing as public money. There is only taxpayers’ money.” Today this framing of the debate is at odds with reality. After the financial crisis, the Bank of England injected £1,000bn into the private finance sector to prevent systemic economic failure. And after the shock of the Brexit vote, the Bank unveiled the “Term Funding Scheme” as part of a £170bn “stimulus package” aimed at the private finance sector. The money was “public money” offered at a historically low interest rate – to bankers. It was not raised by cutting spending, and it was not raised from “your taxes”, even while its issue was backed by Britain’s taxpayers.

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Good points.

Austerity Is A Feminist Issue (G.)

Women are massively more affected by budget cuts than men, says the Labour peer. They are more likely to be single parents, earn less and work part time than their male counterparts. She argues the government must replace ‘gender-neutral’ budgeting with economic policies that put women first.

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100 years ago.

The Women’s Protest That Sparked The Russian Revolution (G.)

The first day of the Russian revolution – 8 March (23 February in the old Russian calendar) – was International Women’s Day, an important day in the socialist calendar. By midday of that day in 1917 there were tens of thousands of mainly women congregating on the Nevsky Propsekt, the principal avenue in the centre of the Russian capital, Petrograd, and banners started to appear. The slogans on the banners were patriotic but also made forceful demands for change: “Feed the children of the defenders of the motherland”, read one; another said: “Supplement the ration of soldiers’ families, defenders of freedom and the people’s peace”. The crowds of demonstrators were varied. The city’s governor, AP Balk, said they consisted of “ladies from society, lots more peasant women, student girls and, compared with earlier demonstrations, not many workers”. The revolution was begun by women, not male workers.

In the afternoon the mood began to change as female textile workers from the Vyborg side of the city came out on strike in protest against shortages of bread. Joined by their menfolk, they swelled the crowds on the Nevsky, where there were calls for “Bread!” and “Down with the tsar!” By the end of the afternoon, 100,000 workers had come out on strike, and there were clashes with police as the workers tried to cross the Liteiny bridge, connecting the Vyborg side with the city centre. Most were dispersed by the police but several thousand crossed the ice-packed river Neva (a risky thing to do at -5C) and some, angered by the fighting, began to loot the shops on their way to the Nevsky. Balk’s Cossacks struggled to clear the crowds on the Nevsky. They would ride up the demonstrators, only to stop short and retreat. Later it emerged that they were mostly young reservists who had no experience of dealing with crowds.

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How to kill a city part 829.

Vacant Homes Are A Global Epidemic (BD)

Runaway real estate speculation has been filling global capitals with vacant homes, creating artificial shortages in the world’s most sought after cities. The “shortage” has made local home owners wealthy overnight, but it comes at the cost of turning lively cities into empty shells. The city of Paris has decided it’s had enough, and implemented a tax in 2015. They didn’t quite get the results they wanted, so they’re now tripling the tax to 60%. Paris has been trying to deal with vacant property owners for some time. Despite warnings that the city will have to take action, the number of vacant homes is growing. There’s now 107,000 vacant homes, representing 7.5% of all residential dwellings in the city according to France’s INSEE. Deputy Mayor Ian Brossat told Le Monde that 40,000 of those vacant homes aren’t even connected to the electrical grid.

Local developers have argued that more new construction is the solution. However Brossat argues “In a city as dense as Paris, where it is very difficult to build, controlling the occupancy of housing is strategic.” It appears the city believes they have 107,000 reasons more construction is not the solution. Paris implemented a tax recently, but it didn’t quite produce the desired outcome. Starting in 2015 the city elected to tax vacant homes the equivalent of 20% of the fair market value of rent. On January 30 this year, they decided to triple that amount to 60%. The idea isn’t to punish those fortunate enough to own a second (or twelfth) home. They’re trying to discourage speculation and promote a healthy rental market.

Paris’ 107,000 empty homes might seem like a lot, but it’s becoming strangely normal around the world. New York City had a whopping 318,831 vacant units in 2015. It’s a hot topic in Sydney, where 118,499 vacant units were counted in 2013. Heck, London considers it a critical issue, and they “only” have 22,000 empty homes. There’s a massive numbers of vacant homes across the globe, but only Paris has decided to take aggressive action to tackle it. Growing populations have barely put a dent in the vacant homes in global real estate capitals. The amount of speculation has been scaling with demand, which is a curious paradox. This signifies an issue that’s more complex than just a basic supply and demand problem.

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And you can’t call it perjury. But look at the article below this one.

There’s No Housing Bubble in Australia, Heads of Big Banks Say (BBG)

Soaring home prices in Australia’s biggest cities don’t necessarily mean the country is in the grip of a housing bubble, according to the heads of the nation’s biggest banks. Testifying before a parliamentary committee, the chief executives of National Australia, Westpac and Commonwealth Bank of Australia all said that while they are worried about elements of the housing market, prices aren’t over-inflated. “I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify,” Westpac’s Brian Hartzer told the committee in Canberra Wednesday. A bubble isn’t occurring in Sydney or Melbourne, where house prices have risen the most, he said.

“There are increasing risks, but I still believe the answer is no,” National Australia Bank’s Andrew Thorburn said when asked if houses in Sydney and Melbourne are overpriced. Commonwealth Bank, the nation’s largest mortgage lender, is “lending at levels we are comfortable with” across Australia, CEO Ian Narev told the committee when he testified Tuesday. The bank chiefs were appearing in front of the committee, which was set up by the government to ward off calls for a more far-reaching inquiry into the financial industry, for the second time within six months. The banks have been under pressure from opposition parties after a series of scandals in their insurance and wealth divisions and concern they failed to pass on the full benefits of central bank interest-rate cuts to borrowers.

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“Boosting leveraged demand to make housing affordable makes no sense.”

Australian Lenders Are Handing Out Mortgages Like Confetti (LF)

In the thrall of irrational exuberance, Australia is experiencing a debt-financed housing bubble. In our two major cities of Sydney and Melbourne, the housing markets are out of control due to the rapid acceleration of debt enabled by lenders issuing remarkable amounts of mortgages. Household debt to income ratios for the states of NSW and VIC suggest this to be the case. Australian lenders are handing out mortgages like confetti – why? It demonstrates banks and non-bank lenders are quite willing to issue risky mortgages to applicants who will not have the long-term financial capability to repay. Lenders are indeed taking on these excessive risks. Throwing everything but the kitchen sink is today the common approach governments take to ensure housing prices continually rise given their fear of the political and economic damage caused by falling prices.

Governments engaged in co-buying and co-owning housing with FHBs stimulates debt accumulation and hence prices. The VIC government, for instance, is attempting to provide a large gift to current residential land owners and lenders at the cost of FHBs acquiring mortgages they cannot afford to service over the long-run. This is done through the proposed shared equity model whereby the government acquires 25% of the home price. To make matters worse, the VIC government is also cutting stamp duty for FHBs and doubling the FHOB (for new properties in regional areas); both in theory have the effect of boosting housing prices. The VIC government cannot allow housing prices in Melbourne and the rest of Victoria decline significantly because it will suffer the same adverse impact that Dublin and Ireland experienced last decade.

The problems are the same and the end result will be the same. Unfortunately, just like the federal government, the VIC government is stuck. Implementing policies on the demand and supply sides to reduce land prices will cause a great deal of pain to all stakeholders: governments, lenders, homeowners, investors, including employees – many may lose their jobs if debt growth craters and removes a considerable portion of demand from the economy. Government has dug itself into a hole but instead of assessing a way out, it simply continues to dig, hoping to kick the can down the road long enough for the next party in power to deal with the problems. Both the LNP and ALP at the federal and state levels have refused to deal with the issues at hand, and prefer to enslave a generation of Aussies to the most profitable and high-risk banking system in the western world.

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As I’ve been saying forever. Recovery is unpossible in Greece.

Greece’s Still-Falling GDP Dispels Creditors’ “Recovery” Myth (Prime)

The latest GDP figures for Greece, relating to Q4 of 2016, are disastrous. For Greece first and foremost, but also for the credibility of the EU and IMF’s failed harsh austerity (but on the EU side no-debt-cancellation) policy. Far from evidencing the long-promised recovery, they show a new decline in GDP – both on the previous quarter (after seasonal adjustment) and year on year. In fact, the economy has been broadly stagnant at a low level since 2013. In constant volume terms, GDP fell by over 27% from (peak) Q2 2007 to Q4 2013, and in Q4 2016 it was 0.3% smaller than in Q4 2013. In Q4 it was only marginally higher than the post-crisis record low to date, Q3 2015. This chart from Elstat (the Greek Statistical Office) shows the development of GDP over the last decade:

What is more extraordinary is that current price (i.e. nominal) GDP has fallen even further than real GDP over the decade – by 28.5% From 2008 to 2016, GDP fell quarter-on-quarter in no fewer than 27 out of 36 quarters, of which two in 2016. [..] there has been some modest improvement, with unemployment in November 2016 about 66,000 lower than a year before, and employment up by about 50,000. But employment is still 200,000 below its 2011 level. The unemployment rate remains a disastrous 23%, which reminds one of chronic European levels in the 1920s and 1930s:

The Financial Times’ Mehreen Khan yesterday (6 March) described the current state of negotiations towards the absurd requirement of a contractionary 3.5% of GDP budget surplus (i.e. after interest): “Progress on the country’s €86bn rescue deal has stuttered this year following a standoff between the EU and IMF over the level of austerity, reforms and debt relief baked into Greece’s three-year programme. Bailout monitors however returned to Athens last week to ensure the left-wing Greek government was making steps towards legislating for around €2bn in tax and pension measures that will help the country meet a surplus target of 3.5 per cent of GDP from 2018. Approval of the second review would unlock around €6bn in rescue cash for the economy.”

And ah yes, as Jeroen Dijsselbloem, Chair of the Eurogroup finance ministers, put it on 20th February, in an interview with CNBC (h/t Professor Helen Thompson ): “…anyone who wants to talk about crisis can talk to someone else because the Greek economy is gradually recovering and what we need to do is to strengthen that and give that more opportunity and that is what I’m trying to do.” Alas, Mr Dijsselbloem comes from the Dutch Labour Party, not the conservatives, and here symbolizes all that is so profoundly wrong with the Eurozone’s economic policy and ideology. It’s high time he looked again at that table of unemployment in the 1930s – and the terrible ordeal imposed on the Dutch working class.

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The creditors force Greek companies into contortionist tricks just to survive. There is such a thing as too much tax.

Tax Weary Greek Employers Pay In Kind As Creditor Demands Rise (BBG)

When Maria’s employer, a large communications company in Athens, gave her additional tasks at one of its new units, it told her she wouldn’t be paid for the work in euros. “I was informed that this extra payment of 150 euros per month would be in coupons that I can use in supermarkets,” said the 45-year-old, declining to provide her last name for fear of losing her job. Payments in kind are among practices companies are using in Greece as they seek to cap payroll costs, undermining efforts to balance the books of the country’s cash-strapped social security system. As creditors push the government to boost its budget surplus, companies avoiding payroll charges and effectively expanding the shadow economy are making the task harder. By some estimates, the so-called black market already accounts for as much as a quarter of Greece’s economy.

“Such practices help companies to avoid social contributions, but the burden for the economy is huge,” said Panos Tsakloglou, a professor at the Athens University of Economics and Business. “Less contributions for pensions means more budget transfers to them which then leads to more austerity measures to meet fiscal targets, measures that will probably hit pensioners.” Greek officials have been meeting in Athens with representatives of the euro area and IMF to set out the policies the country must undertake to unlock more bailout loans. The government foresees an accord in March or early April, but the scale of pending issues raises concerns they may be politically hard to sell at home. Greece has agreed to target for a budget surplus before interest payments equal to 3.5% of GDP for 2018, which could mean more belt-tightening.

Prime Minister Alexis Tsipras’s government finds itself between a rock and a hard place as it tries to appease creditors while avoiding mass protests. After an anemic recovery, the Greek economy shrank again in the fourth quarter, raising the specter of growing tensions at home even as European creditors and the IMF push for more austerity. With an economy that has shrunk by more than a quarter in the last seven years, Greece has an unemployment rate of 23%, close to a historic high. Creditors, meanwhile, are demanding greater labor-market flexibility that would make it easier for companies to hire and fire people. They want the threshold of collective dismissals to be doubled to 10% and demand that Athens not revoke any of the measures legislated during the crisis.

[..] For overtaxed Greek companies, dodging social security contributions through payments in kind has become a way to make ends meet. According to the latest available data from the Organisation for Economic Co-operation and Development, the average single worker in Greece faced a tax wedge of 39.3% compared with an average of 35.9% among developed economies. About half of the burden falls upon employers. “We do not have the exact picture,” said Nasos Iliopoulos, an official in Greece’s Labor Ministry. “But it is clear that it is not legal to replace payments with coupons. It is only permitted to give coupons as an extra bonus. Companies are seeking to gain from lower social contributions and also from not paying for extra working hours.”

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There’s nothing new.

America’s Forgotten History of Illegal Deportations (Atlantic)

It was a time of economic struggle, racial resentment and increasing xenophobia. Installed in the White House was a president who had never before held elected office. A moderately successful businessman, he promised American jobs for Americans—and made good on that promise by slashing immigration by nearly 90 percent. He wore his hair parted down the middle, rather than elaborately piled on top, and his name was Herbert Hoover, not Donald Trump. But in the late 1920s and early 1930s, under the president’s watch, a wave of illegal and unconstitutional raids and deportations would alter the lives of as many as 1.8 million men, women and children—a threat that would seem to loom just as large in 2017 as it did back in 1929.

What became colloquially known as the “Mexican repatriation” efforts of 1929 to 1936 are a shameful and profoundly illustrative chapter in American history, yet they remain largely unknown—despite their broad and devastating impact. So much so that today, a different president is edging towards similar solutions, with none of the hesitation or concern that basic consciousness would seem to require. [..] Back in Hoover’s era, as America hung on the precipice of economic calamity—the Great Depression—the president was under enormous pressure to offer a solution for increasing unemployment, and to devise an emergency plan for the strained social safety net. Though he understood the pressing need to aid a crashing economy, Hoover resisted federal intervention, instead preferring a patchwork of piecemeal solutions, including the targeting of outsiders.

According to former California State Senator Joseph Dunn, who in 2004 began an investigation into the Hoover-era deportations, “the Republicans decided the way they were going to create jobs was by getting rid of anyone with a Mexican-sounding name.” “Getting rid of” America’s Mexican population was a random, brutal effort. “For participating cities and counties, they would go through public employee rolls and look for Mexican-sounding names and then go and arrest and deport those people,” said Dunn. “And then there was a job opening!” “We weren’t rounding up people who were Canadian,” he added. “It was an absolutely racially-motivated program to create jobs by getting rid of people.”

[..] The so-called repatriation effort was, in large part, a misnomer, given the fact that as many as sixty percent of those sent to “home” Mexico were U.S. citizens: American-born children of Mexican-descent who had never before traveled south of the border. (Dunn noted, “I don’t know how you can repatriate someone to a country they’ve not been born or raised in.”) “Individuals who left at 5, 6 and 7 years old found themselves in Mexico dealing with process of socialization, of learning the language, but they maintained an American identity,” said Balderrama. “And still had the dream to come back to ‘my country.’”

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Oct 252016
 
 October 25, 2016  Posted by at 9:26 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle October 25 2016


NPC Grief monument, Rock Creek cemetery, Washington DC 1915

The Eurozone Is Turning Into A Poverty Machine (Tel.)
Barclays Warns ‘Politics of Rage’ Will Slow Global Growth (BBG)
China Capital Outflows Highest Since Data Publishing Began In 2010 (BBG)
Credit Card Lending To US Subprime Borrowers Is Starting To Backfire (WSJ)
Bank of England Optimism Evaporates in Long-Term Debt (BBG)
The Deficit Is Too Small, Not Too Big (McCulley)
Welcome to the George Orwell Theme Park of Democracy (Jim Kunstler)
How Democrats Killed Their Populist Soul (Matt Stoller)
Hillary Clinton Is The Republican Party’s Last, Best Hope (Heat St.)
Clinton Ally Aided Campaign of FBI Official’s Wife (WSJ)
M5S Blasts Italian Constitutional Reform Proposed By PM Renzi (Amsa)
100 Million Canadians By 2100? Key Advisers Back Ambitious Goal (CP)
A 1912 News Article Ominously Forecasted Climate Change (Q.)
Refugee Camp On Lesbos Damaged In Riots As Rumors Fly (Kath.)
Ex-US Ambassador To Ukraine Geoffrey Pyatt Now Ambassador To Greece (Kath.)

 

 

Why does this truth have to come from the right wing press?

The Eurozone Is Turning Into A Poverty Machine (Tel.)

There are constant bank runs. The bond markets panic, and governments along its southern perimeter need bail-outs every few years. Unemployment has sky-rocketed and growth remains sluggish, no matter how many hundreds of billions of printed money the ECB throws at the economy. We are all tediously aware of how the euro-zone has been a financial disaster. But it is now starting to become clear that it is a social disaster as well. What often gets lost in the discussion of growth rates, bail-outs and banking harmonisation is that the eurozone is turning into a poverty machine. As its economy stagnates, millions of people are falling into genuine hardship. Whether it is measured on a relative or absolute basis, rates of poverty have soared across Europe, with the worst results found in the area covered by the single currency.

There could not be a more shocking indictment of the currency’s failure, or a more potent reminder that living standards will only improve once the euro is either radically reformed or taken apart. Eurostat, the statistical agency of the European Union, has published its latest findings on the numbers of people “at risk of poverty or social exclusion”, comparing 2008 and 2015. Across the 28 members, five countries saw really significant rises compared with the year of the financial crash. In Greece, 35.7pc of people now fall into that category, compared with 28.1pc back in 2008, a rise of 7.6 percentage points. Cyprus was up by 5.6 points, with 28.7pc of people now categorised as poor. Spain was up 4.8 points, Italy up 3.2 points and even Luxembourg, hardly known for being at risk of deprivation, up three points at 18.5pc.

It was not so bleak everywhere. In Poland, the poverty rate went down from 30.5pc to over 23pc. In Romania, Bulgaria, and Latvia, there were large falls compared to the 2008 figures – in Romania for example the percentage was down by seven points to 37pc. What was the difference between the countries where poverty went up dramatically, and those where it went down? You guessed it. The largest increases were all countries within the single currency. But the decreases were all in countries outside it. It gets worse. “At risk of poverty” is defined as living on less than 60pc of the national median income. But that median income has itself fallen over the last seven years, because most countries inside the eurozone have yet to recover from the crash. In Greece, the median income has dropped from €10,800 a year to €7,500 now.

[..] Why should Greece and Spain be doing so much worse than anywhere in Eastern Europe? Or why Italy should be doing so much worse than Britain, when the two countries were at broadly similar levels of wealth in the Nineties? (Indeed, the Italians actually overtook us for a while in GDP per capita.) Even a traditionally very successful economy such as the Netherlands, which has not been caught up in any kind of financial crisis, has seen big increases in both relative and absolute poverty. In fact, it is not very hard to work out what has happened. First, a dysfunctional currency system has choked off economic growth, driving unemployment up to previously unbelievable levels. After countries went bankrupt and had to be bailed out, the EU, along with the ECB and the IMF, imposed austerity packages that slashed welfare systems and cut pensions. It is not surprising poverty is increasing under those conditions.

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If you ask me, they’ve got it the wrong way around. If growth hadn’t slowed down, there’d be much less rage.

Barclays Warns ‘Politics of Rage’ Will Slow Global Growth (BBG)

Brexit, rising populism across Europe, the ascent of Donald Trump in America, and the backlash against income inequality everywhere. A slew of political and economic forces have nurtured a growing narrative that globalization is now on life support—a potential game-changer for global financial markets, which have staged a rapid expansion since the end of the Cold War thanks to unfettered cross-border flows. No more: Trade volumes have stalled while the “politics of rage” has taken root in advanced economies, driven by a collapse in the perceived legitimacy of political and economic institutions, a new report from Barclays warns.

The result, the bank says, is an oncoming protectionist lurch—restrictions on the free movement of goods, services, labor, and capital—combined with an erosion of support for supranational bodies, from the EU to the WTO. “Even mild de-globalization likely will slow the pace of trend global growth,” Marvin Barth, head of European FX strategy at Barclays, writes in the report. “A sense of economic and political disenfranchisement due to imperfect representation in national governments and delegation of sovereignty to supranational and intergovernmental organisations” has generated the backlash, he said. He cites as a major factor the collapse in support for centrist parties in advanced economies and adds that the role of income inequality may be overstated.

The report echoes Harvard University economist Dani Rodrik’s earlier contention that democracy, sovereignty, and globalization represent a “trilemma.” Expansion of cross-border trade links—and the attendant increase in the power of supranational authorities to adjudicate economic matters—is a direct threat to representative democracy, and vice-versa. The veto Monday of the EU’s free trade deal with Canada by the Belgian region of Wallonia—whose leader said the deadline to secure backing for the deal was “not compatible with the exercise of democratic rights”—is a sharp illustration of this trilemma.

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Breaking the dollar peg is a dangerous game, given the amount of debt denominated in USD. It can get expensive quite fast.

China Capital Outflows Highest Since Data Publishing Began In 2010 (BBG)

The offshore yuan traded near a record low as Chinese policy makers signaled they are willing to allow greater currency flexibility amid a slump in exports and an advance in the dollar. The exchange rate was at 6.7836 a dollar as of 1:01 p.m. in Hong Kong, after dropping to 6.7885, the weakest intraday level in data going back to 2010. In Shanghai, the currency was little changed at 6.7760, close to a six-year low and past the 6.75 year-end median forecast in a Bloomberg survey. The Chinese currency has come under increased pressure on signs that investors are taking more money out of the country. A gauge of the dollar rose to a seven-month high versus major currencies Monday as traders bet that the Federal Reserve may raise borrowing costs soon.

Unlike the yuan selloff earlier this year which sparked a global market rout, there’s no sense of panic yet as policy makers maintain a steady exchange rate against other currencies. “The central bank is tolerating more orderly depreciation of the yuan,” said Gao Qi, a Singapore-based foreign-exchange strategist at Scotiabank. “But it will step in to avoid market panic arising from a sharp yuan depreciation. The 6.8 level is critical in the near term.” [..] The onshore yuan has weakened 4.2% this year, the most in Asia. It has declined in all but two sessions this month as some analysts speculated that the central bank has reduced support following the yuan’s inclusion in the IMF’s basket of reserves on Oct. 1.

A net $44.7 billion worth of payments in the Chinese currency left the nation last month, according to data released by the State Administration of Foreign Exchange. That’s the most since the government started publishing the figures in 2010. [..] Chinese policy makers have downplayed the importance of the yuan-dollar exchange rate, saying they aim to keep the yuan steady against a broad basket of currencies. A Bloomberg gauge mimicking China Foreign Exchange Trade System’s yuan index against 13 major currencies has been little changed around 94 since August after falling more than 6 percent in the previous eight months.

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Imagine my surprise.

Credit Card Lending To US Subprime Borrowers Is Starting To Backfire (WSJ)

Credit-card lending to subprime borrowers is starting to backfire. Missed payments on credit cards that lenders issued recently are higher than on older cards, according to new data from credit bureau TransUnion. Nearly 3% of outstanding balances on credit cards issued in 2015 were at least 90 days behind on payments six months after they were originated. That compares with 2.2% for cards that were given out in 2014 and 1.5% for cards in 2013. The poorer performance on newer cards pushed up the 90-day or more delinquency rate for all credit cards to 1.53% on average nationwide in the third quarter. That’s the highest level since 2012.

The recent increase in subprime lending is one of the big contributors. Lenders ramped up subprime card lending in 2014 and have been doling out more of these cards recently. They issued just over 20 million credit cards to subprime borrowers in 2015, up some 20% from 2014 and up 56% from 2013, according to Equifax. Separately, missed payments in states with large oil or energy sectors continue to worsen. The share of card balances that were at least 90 days past due increased 12% in Oklahoma, 10% in Texas and 20% in Wyoming in the third quarter from a year prior, according to TransUnion.

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Really? They thought Carney could save the day?

Bank of England Optimism Evaporates in Long-Term Debt (BBG)

Long-term sterling bonds suggest investors are quickly losing confidence in the Bank of England’s ability to support debt markets through the U.K.’s departure from the EU. Holders have lost about 10% in as little as seven weeks on long-dated notes issued by Vodafone, British American Tobacco and WPP. The bond sales took place after the central bank announced plans in August to buy corporate debt, sparking investor optimism. The mood has since soured because of concerns about a so-called hard Brexit, sterling’s tumble and the outlook for inflation. “With the benefit of hindsight, August was the best time to issue,” said Srikanth Sankaran, head of European Credit and ABS strategy at Morgan Stanley. “The market was more focused on the Bank of England’s support rather than the longer-term Brexit risk.”

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McCulley used to be something big at PIMCO. He’s right, but it’s doubtful a change of course would be sufficient at this point. Austerity has killed a lot.

The Deficit Is Too Small, Not Too Big (McCulley)

[..] while Clinton gets my vote, her insistence at the final debate that her proposed fiscal program will not “add a penny” to the national debt is fouling my wonk serenity this morning. Every penny of new expenditure, she says, will be “paid for” with a new penny of tax revenue. Her deficit-neutral fiscal proposal is, I readily acknowledge, better than the status quo, as her proposed new spending would add 100 cents on the dollar to the nation’s aggregate demand, while her proposed tax increases would not subtract 100 cents on the dollar. Why? Because she proposes getting the new tax revenue from those with a low marginal propensity to spend, or alternatively, a high marginal propensity to save. To wit, from the not poor, including yes, the rich.

Thus, in simple Keynesian terms, there is some solace in her deficit-neutral fiscal package: It would be net stimulative to the economy, because it would – in technical terms – drive down the private sector’s savings rate. In less technical terms, it would take money from people who don’t live paycheck to paycheck, who would still spend the same, but just have less left over to save. And I have no problem with that. What sends me around the bend is the notion that the only way to boost aggregate demand is to drive down the private-sector savings rate, in the context of holding constant the public sector’s savings rate. But, you retort: The public sector, notably at the federal level, has a negative savings rate; it runs a deficit! Are you nuts?

No, I am not. Unless faced with an incipient inflation threat, born of an overheated economy, there is no reason whatsoever that the public sector should ever have a positive savings rate. What it should have is a positive, a bigly positive, investment rate. And in fact, a higher public investment rate and a lower public savings rate are exactly what our economy presently needs. Yes, a larger fiscal deficit. [..] investment drives aggregate demand, which begets aggregate production and thus, aggregate income, the fountain from which savings flow. Thus, if and when there is insufficient aggregate demand to foster full employment at a just income distribution, the underlying problem is a deficiency of investment, not savings. More investment is the solution, and investment is constrained not by a shortage of savings, but literally a deficiency of investment itself.

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“..the demonization of Russia – a way more idiotic exercise than the McCarthyite Cold War hysteria..”

Welcome to the George Orwell Theme Park of Democracy (Jim Kunstler)

If Trump loses, I will essay to guess that his followers’ next step will be some kind of violence. For the moment, pathetic as it is, Trump was their last best hope. I’m more comfortable about Hillary — though I won’t vote for her — because it will be salutary for the ruling establishment to unravel with her in charge of it. That way, the right people will be blamed for the mismanagement of our national affairs. This gang of elites needs to be circulated out of power the hard way, under the burden of their own obvious perfidy, with no one else to point their fingers at. Her election will sharpen awareness of the criminal conduct in our financial practices and the neglect of regulation that marked the eight years of Obama’s appointees at the Department of Justice and the SEC.

The “tell” in these late stages of the campaign has been the demonization of Russia – a way more idiotic exercise than the McCarthyite Cold War hysteria of the early 1950s, since there is no longer any ideological conflict between us and all the evidence indicates that the current state of bad relations is America’s fault, in particular our sponsorship of the state failure in Ukraine and our avid deployment of NATO forces in war games on Russia’s border. Hillary has had the full force of the foreign affairs establishment behind her in this war-drum-banging effort, yet they have not been able to produce any evidence, for instance, in their claim that Russia is behind the Wikileaks hack of Hillary’s email.

[..] The media has been on-board with all this. The New York Times especially has acted as the hired amplifier for the establishment lies – such a difference from the same newspaper’s role in the Vietnam War ruckus of yesteryear. Today (Monday) they ran an astounding editorial “explaining” the tactical necessity of Hillary’s dishonesty: “In politics, hypocrisy and doublespeak are tools,” The Times editorial board wrote. Oh, well, that’s reassuring. Welcome to the George Orwell Theme Park of Democracy.

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Absolute must read by Stoller, American history you didn’t know.

How Democrats Killed Their Populist Soul (Matt Stoller)

While not a household name today, Wright Patman was a legend in his time. His congressional career spanned 46 years, from 1929 to 1976. In that near-half-century of service, Patman would wage constant war against monopoly power. As a young man, at the height of the Depression, he challenged Herbert Hoover’s refusal to grant impoverished veterans’ accelerated war pensions. He successfully drove the immensely wealthy Treasury Secretary Andrew Mellon from office over the issue. Patman’s legislation to help veterans recoup their bonuses, the Bonus Bill—and the fight with Mellon over it—prompted a massive protest by World War I veterans in Washington, D.C., known as “the Bonus Army,” which helped shape the politics of the Depression.

In 1936, he authored the Robinson-Patman Act, a pricing and antitrust law that prohibited price discrimination and manipulation, and that finally constrained the A&P chain store—the Walmart of its day—from gobbling up the retail industry. He would go on to write the Bank Secrecy Act, which stops money-laundering; defend Glass-Steagall, which separates banks from securities dealers; write the Employment Act of 1946, which created the Council of Economic Advisors; and initiate the first investigation into the Nixon administration over Watergate.

Far from the longwinded octogenarian the Watergate Babies saw, Patman’s career reads as downright passionate, often marked by a vitality you might see today in an Elizabeth Warren—as when, for example, he asked Fed Chairman Arthur Burns, “Can you give me any reason why you should not be in the penitentiary?” Despite his lack of education, Patman had a savvy political and legal mind. In the late 1930s, the Federal Reserve Board refused to admit it was a government institution. So Patman convinced the District of Columbia’s government to threaten foreclosure of all Federal Reserve Board property; the Board quickly produced evidence that it was indeed part of the federal government.

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Kind of like a second chapter to Stoller’s piece above.

Hillary Clinton Is The Republican Party’s Last, Best Hope (Heat St.)

While Trump has pushed a populist, anti-free trade message, Hillary champions the large multinational corporations that create jobs for everyday Americans. As secretary of state, she worked tirelessly to advance the Trans-Pacific Partnership, the “gold standard” of trade agreements. As a candidate, she expertly silenced the gullible radicals supporting Bernie Sanders by pretending she won’t sign TPP into law as president. (She will.) Hillary’s disdain for left-wing agitators does not end there. She has also gone to bat for the heroes in America’s fracking industry, telling environmentalists to “get a life” in emails uncovered by Wikileaks. [..]

One of the greatest sources of frustration for Republicans during the Obama presidency has been his weak-sauce, isolationist foreign policy. In the absence of strong American leadership, the world has plunged into chaos. Trump shares Obama’s ideology of avoiding foreign entanglements, even going so far as to question the need for NATO as Putin runs amok unchecked. It is precisely at this moment that America needs the hawkish leadership of Hillary Clinton to defend American exceptionalism and reassert our hegemony on the world stage. Among her fellow neoconservative war hawks, Hillary is admired for her sterling record on foreign policy — from supporting the invasion of Iraq in 2002 to her valiant efforts as secretary of state to persuade Obama to stop being such a pushover on the world stage.

During the Arab Spring in 2011, Hillary impressed upon Obama the need for a U.S.-led “coalition of the willing” to help mold the future of the Middle East in the name of freedom. Muammar Gaddafi wound up dead in a ditch. Later, when the president sought input on Syria, Hillary recommended force and arming rebel groups. Obama’s failure to follow her advice led to the current migrant crisis and ongoing tragedy in Syria. Bashar al-Assad is still alive and well. Imagine our enemies cowering in the shade as President Hillary’s massive drone armada blocks out the sun en route to visit death upon the enemies of freedom. Slay Queen, indeed. Voters looking for a reliable pro-business, conservative hawk to undo eight years of Obama’s feckless progressivism and combat the cancer of Trumpism need look no further than Hillary Rodham Clinton. She is the GOP’s last, best hope.

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Incredible. Just incredible.

Clinton Ally Aided Campaign of FBI Official’s Wife (WSJ)

The political organization of Virginia Gov. Terry McAuliffe, an influential Democrat with longstanding ties to Bill and Hillary Clinton, gave nearly $500,000 to the election campaign of the wife of an official at the FBI who later helped oversee the investigation into Mrs. Clinton’s email use. Campaign finance records show Mr. McAuliffe’s political-action committee donated $467,500 to the 2015 state Senate campaign of Dr. Jill McCabe, who is married to Andrew McCabe, now the deputy director of the FBI. The Virginia Democratic Party, over which Mr. McAuliffe exerts considerable control, donated an additional $207,788 worth of support to Dr. McCabe’s campaign in the form of mailers, according to the records.

That adds up to slightly more than $675,000 to her candidacy from entities either directly under Mr. McAuliffe’s control or strongly influenced by him. The figure represents more than a third of all the campaign funds Dr. McCabe raised in the effort. Mr. McAuliffe and other state party leaders recruited Dr. McCabe to run, according to party officials. She lost the election to incumbent Republican Dick Black. [..] Dr. McCabe announced her candidacy in March 2015, the same month it was revealed that Mrs. Clinton had used a private server as secretary of state to send and receive government emails, a disclosure that prompted the FBI investigation. At the time the investigation was launched in July 2015, Mr. McCabe was running the FBI’s Washington, D.C., field office, which provided personnel and resources to the Clinton email probe.

That investigation examined whether Mrs. Clinton’s use of private email may have compromised national security by transmitting classified information in an insecure system. [..] At the end of July 2015, Mr. McCabe was promoted to FBI headquarters and assumed the No. 3 position at the agency. In February 2016, he became FBI Director James Comey’s second-in-command. As deputy director, Mr. McCabe was part of the executive leadership team overseeing the Clinton email investigation, though FBI officials say any final decisions on that probe were made by Mr. Comey, who served as a high-ranking Justice Department official in the administration of George W. Bush.

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“Di Maio was also ironic about the endorsement of the reform received by Renzi from President Obama during a recent visit to Washington. “Let’s say it is not the first time Obama has intervened concerning a referendum in another country, he supported ‘Remain’ in England and ‘Brexit’ won. Now he is backing the Yes vote and so the No front should be reassured..”

M5S Blasts Italian Constitutional Reform Proposed By PM Renzi (Amsa)

The anti-establishment Five Star Movement (M5S) will vote No in the December 4 referendum on Constitutional reform because the law “deprives us of democratic rights”, party bigwig and Deputy House Speaker Luigi Di Maio said on Monday. “In our opinion, the title of the law does not in any way reflect its content, in the same way that the title of the Good School law does not in any way reflect the content of that reform,” Di Maio told radio broadcaster Rtl 102.5. The M5S recently lost a legal challenge against the question in the consultative referendum, which echoes the wording of the title of the constitutional law, arguing it amounts to a “deceptive” advertisement for the government’s position in favour of a Yes vote.

On December 4, Italians will be called to answer ‘yes’ or ‘no’ on a question that reads: “Do you approve a constitutional law that concerns the scrapping of the bicameral system (of parliament), reducing the number of MPs, limiting the operating costs of public institutions, abolishing the National Council on Economy and Labour (CNEL), and amending Title V of the Constitution, Part II?”. The reform approved by parliament in April would turn the Senate into a leaner body of indirectly elected regional and local representatives with limited lawmaking powers. Critics of the reform, including M5S and a left-wing faction within Premier Matteo Renzi’s own Democratic Party (PD), say it will actually make procedures more complicated.

Di Maio was also ironic about the endorsement of the reform received by Renzi from US President Barack Obama during a recent visit to Washington. “Let’s say it is not the first time Obama has intervened concerning a referendum in another country, he supported ‘Remain’ in England and ‘Brexit’ won. Now he is backing the Yes vote and so the No front should be reassured,” he said.

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There is a reason why Canada is sparsely populated. Let’s not tell them. Don’t spoil the fun.

100 Million Canadians By 2100? Key Advisers Back Ambitious Goal (CP)

Imagine Canada with a population of 100 million — roughly triple its current size. For two of the most prominent voices inside the Trudeau government’s influential council of economic advisers, it’s much more than a passing fancy. It’s a target. The 14-member council was assembled by Finance Minister Bill Morneau to provide “bold” advice on how best to guide Canada’s struggling economy out of its slow-growth rut. One of their first recommendations, released last week, called for a gradual increase in permanent immigration to 450,000 people a year by 2021 — with a focus on top business talent and international students. That would be a 50% hike from the current level of about 300,000.

The council members — along with many others, including Economic Development Minister Navdeep Bains — argue that opening Canada’s doors to more newcomers is a crucial ingredient for expanding growth in the future. They say it’s particularly important as more and more of the country’s baby boomers enter their golden years, which eats away at the workforce. The conviction to bring in more immigrants is especially significant for at least two of the people around the advisory team’s table. Growth council chair Dominic Barton, the powerful global managing director of consulting firm McKinsey, and Mark Wiseman, a senior managing director for investment management giant BlackRock, are among the founders of a group dedicated to seeing the country responsibly expand its population as a way to help drive its economic potential.

The Century Initiative, a five-year-old effort by well-known Canadians, is focused on seeing the country of 36 million grow to 100 million by 2100. Without significant policy changes on immigration, the current demographic trajectory has Canada’s population on track to reach 53 million people by the end of the century, the group says on its website. That would place it outside the top 45 nations in population size, it says.

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It goes back quite a bit further.

A 1912 News Article Ominously Forecasted Climate Change (Q.)


Published Aug. 14, 1912. (The Rodney and Otamatea Times and Waitemata and Kaipara Gazette)

A short news clip from a New Zealand paper published in 1912 has gone viral as an example of an early news story to make the connection between burning fossil fuels and climate change. It wasn’t, however, the first article to suggest that our love for coal was wreaking destruction on our environment that would lead to climate change. The theory—now widely accepted as scientific reality—was mentioned in the news media as early as 1883, and was discussed in scientific circles much earlier than that. The French physicist Joseph Fourier had made the observation in 1824 that the composition of the atmosphere is likely to affect the climate. But Svante Arrhenius’s 1896 study titled, “On the influence of carbonic acid in the air upon the temperature on the ground” was the first to quantify how carbon dioxide (or anhydrous carbonic acid, by another name) affects global temperature.

Though the study does not explicitly say that the burning of fossil fuels would cause global warming, there were scientists before him who had made such a forecast. The earliest such mention that Quartz could find was in the journal Nature in December of 1882. The author HA Phillips writes: “According to Prof Tyndall’s research, hydrogen, marsh gas, and ethylene have the property to a very high degree of absorbing and radiating heat, and so much that a very small proportion, of say one thousandth part, had very great effect. From this we may conclude that the increasing pollution of the atmosphere will have a marked influence on the climate of the world.” Phillips was relying on the work of John Tyndall, who in the 1860s had shown how various gases in the atmosphere absorb heat from the sun in the form of infrared radiation.

Now we know that Phillips was wrong about a few scientific details: He ignored carbon dioxide from burning coal and focused more on the by-products of mining. Still, he was drawing the right conclusion about what our demand for fossil fuels might do to the climate. Newspapers around the world took those words published in a prestigious scientific journal quite seriously. In January 1883, the New York Times published a lengthy article based on Phillips’ letter to Nature, which said: “The writer who has partially discussed the subject in the columns of Nature has fixed upon 1900 as the date when the earth’s atmosphere will become entirely irrespirable. This is probably a misprint, for unless the consumption of cigarettes increases unlooked-for rapidly the atmosphere ought to remain respirable until 1910, or even 1912. At the latter date all mankind will have perished, and nothing except the hardier plants will be living on the surface of the earth.”

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The EU is a failure of historical proportions economically, politically and above all morally.

Refugee Camp On Lesbos Damaged In Riots As Rumors Fly (Kath.)

Migrants on Monday attacked the premises of the European Asylum Support Office (EASO) inside the Moria hot spot on the eastern Aegean island of Lesvos, completely destroying four container office units and damaging another two during a protest that was contained by riot police. Officials said the protesters, most of them men from Pakistan, threw rocks and burning blankets at the EASO facilities, allegedly frustrated at delays in processing their asylum applications. Riot police were called in to contain the riot. The blaze was put out by the fire service before it could cause further damage. There were no reports of injuries.

The violence at Moria prompted authorities on other migrant-hosting islands, including Chios, Samos, Kos and Leros, to beef up their security measures. Speaking on condition of anonymity, a local government official told Kathimerini that migrant riots were often triggered by rumors. “Refugees and migrants are told that if their facilities are destroyed they will have nowhere to stay and so they will be transferred to the mainland,” the source said.

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Victoria Nuland’s neocon and Kiev coup instigator buddy. Bad news for Greece. Wonder what the pressure on Tsipras has been.

Ex-US Ambassador To Ukraine Geoffrey Pyatt Now Ambassador To Greece (Kath.)

The official welcome ceremony for new US Ambassador to Greece Geoffrey R. Pyatt took place on the US 6th Fleet command and control ship USS Mount Whitney, in the port of Piraeus south of Athens, Monday. Earlier in the day, Pyatt presented Greek President Prokopis Pavlopoulos with his diplomatic credentials at the Presidential Mansion. The ceremony was attended by Foreign Minister Nikos Kotzias. Nominated by President Obama, Pyatt is widely regarded as an experienced diplomat. He previously served as US ambassador in Kiev and had to deal with the fallout of the Ukrainian crisis. His appointment comes at a key time for both Athens and Washington. Recent developments in the wider region have created challenges as well as opportunities for the two NATO allies. Obama is expected to visit Athens in November. Political and military officials have been exchanging visits ahead of the trip.

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Oct 152016
 
 October 15, 2016  Posted by at 10:18 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle October 15 2016


Harris&Ewing Motorcycle postman, Washington, DC 1912

US Deficit Up for First Time Since 2009 on Spending Surge (BBG)
Why the Economy Doesn’t Roar Anymore (WSJ)
Jim Rogers: Sterling Is In Serious Decline, Could Go Below Dollar (Ind.)
What The United States Needs (Varoufakis)
German Government Has Ruled Out Taking Stake in Deutsche Bank (WSJ)
Varoufakis, Others Deny Hollande’s Russian Drachma-Printing Claim (Kath.)
A Child Born Today Comes Into the World With More Debt Than You (BBG)
The Press Buries Hillary Clinton’s Sins (WSJ)
Donald Trump Uncensored: This Is America’s “Moment Of Reckoning” (ZH)
The Fury and Failure of Donald Trump (Matt Taibbi)
Hypernormalisation: Adam Curtis’ Path From Syria To Trump, Via Jane Fonda (G.)
Greece, The Hot Corner (Stavridis)

 

 

You don’t say!: “The slowdown in tax collections suggests some cooling in labor market activity..”

US Deficit Up for First Time Since 2009 on Spending Surge (BBG)

The U.S. budget deficit as a share of the economy widened for the first time in seven years, marking a turning point in the nation’s fiscal outlook as an aging population boosts government spending and debt. Spending exceeded revenue by $587.4 billion in the 12 months to Sept. 30, compared with a $439.1 billion deficit in fiscal 2015, the Treasury Department said in a report released Friday. That was in line with a Congressional Budget Office estimate on Oct. 7 for a shortfall of $588 billion. As a share of gross domestic product, the shortfall rose to 3.2% from 2.5% a year earlier, the first such increase since 2009, government figures show. “The slowdown in tax collections suggests some cooling in labor market activity,” said Gennadiy Goldberg at TD Securities in New York. He sees the higher budget deficits implying more borrowing needs by Treasury.

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Accepting that today’s reality is normal, and boom times are not, is at least a first step.

Why the Economy Doesn’t Roar Anymore (WSJ)

The U.S. presidential candidates have made the usual pile of promises, none more predictable than their pledge to make the U.S. economy grow faster. With the economy struggling to expand at 2% a year, they would have us believe that 3%, 4% or even 5% growth is within reach. But of all the promises uttered by Donald Trump and Hillary Clinton over the course of this disheartening campaign, none will be tougher to keep. Whoever sits in the Oval Office next year will swiftly find that faster productivity growth—the key to faster economic growth—isn’t something a president can decree. It might be wiser to accept the truth: The U.S. economy isn’t behaving badly. It is just being ordinary. Historically, boom times are the exception, not the norm.

[..] It is tempting to think that we know how to do better, that there is some secret sauce that governments can ladle out to make economies grow faster than the norm. But despite glib talk about “pro-growth” economic policies, productivity growth is something over which governments have very little control. Rapid productivity growth has occurred in countries with low tax rates but also in nations where tax rates were sky-high. Slashing government regulations has unleashed productivity growth at some times and places but undermined it at others. The claim that freer markets and smaller governments are always better for productivity than a larger, more powerful state is not one that can be verified by the data.

Here is the lesson: What some economists now call “secular stagnation” might better be termed “ordinary performance.” Most of the time, in most economies, incomes increase slowly, and living standards rise bit by bit. The extraordinary experience of the Golden Age left us with the unfortunate legacy of unrealistic expectations about our governments’ ability to deliver jobs, pay raises and steady growth. Ever since the Golden Age vanished amid the gasoline lines of 1973, political leaders in every wealthy country have insisted that the right policies will bring back those heady days. Voters who have been trained to expect that their leaders can deliver something more than ordinary are likely to find reality disappointing.

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Q: “How low could it get?”
A: “If I told you Mark, you’d hang up”.

Jim Rogers: Sterling Is In Serious Decline, Could Go Below Dollar (Ind.)

International investor Jim Rogers has warned that the value of the pound could go under one dollar within three to four years if Scotland was to leave the UK. His comments came on the day that Nicola Sturgeon said declaring independence could help Scotland escape the uncertainty triggered by UK’s vote to leave the EU. Rogers, who co-founded the Quantum Fund with George Soros, said the UK is facing serious problems. Speaking to the BBC, Rogers said: “If Scotland leaves they are going to take their oil with them and the pound could go down a great deal. It would certainly go down under one US dollar.”

“You’ve got a lot of debt, you’ve got a serious balance of trade problem which shows no signs of being corrected. I don’t see anything to make sterling go up.“ Rogers warned that the City of London is now going to be under serious pressure as Europe is hoping to attract as much business leaving London as possible. His warning came as the pound fell below $1.22 against the dollar in early trading on Friday, pushed down by comments from the President of the European Council Donald Tusk and the French finance minister Michel Sapin. Sterling was still below the $1.22 mark at market closing time.

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Not bad as an analysis in itself, but the conclusion that America needs “progressive internationalism” is a goal-seeked illusion, and useless. As is wishing for “massive private sector growth”.

What The United States Needs (Varoufakis)

When the world faced Armageddon in the 1940s, in the form of Hitler’s atom bomb program, Washington responded with the Manhattan Project. In effect, they gathered the best scientists, gave them as much money as they needed in fully-appointed facilities, and said to them: “You have two years to deliver the bomb.” Today, we face similar threats to the planet: climate change, rising seas, water shortages, etc. Our cities are less sustainable than ever. Commuters waste more and more of their lives in stationary cars. America needs a new Manhattan Project, one located on hundreds of campuses around the United States, that helps put to work the idle trillions of dollars, our scientists, and the next generation of youngsters (who must be educated with government subsidies to end the student debt scandal).

The joint effort would produce technologies that could lead to a cost-effective green transition. Who will pay for it? Just as the government-funded Internet spurred massive private sector growth – and taxes – so would the technologies that could spring out of a new Manhattan Project. But first the initial investment must come from government. To do this, the United States needs to collect more taxes. It is scandalous, for instance, that the IRS does not exercise its right to tax the earnings of corporations like Apple, Google and Gilead for intellectual property rights developed on American soil, letting them park billions upon billions of dollars in tax havens, including Ireland.

Overall, US federal taxes must rise from the present ultra-low 17% of GDP to at least 25%, with all of the increase coming from the top 1%. This is what logic and justice demands. What stops America from doing this service to itself? It is the 30-year-old bipartisan class war waged against America’s working class and shrinking middle class. Republicans automatically gravitated to tax cuts for the rich. Democrats served Wall Street and exhausted their talents at finding ways to curtail welfare. Both burdened the young with unbearable student debt. The US has reached a point where sensible policies, that the nation needs, are off the table.

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What’s German for bail-in?

German Government Has Ruled Out Taking Stake in Deutsche Bank (WSJ)

Aides to Angela Merkel have told lawmakers the state wouldn’t take a stake in Deutsche Bank if it were to issue new stock to shore up its thin capital cushion, one person who attended the briefing said. The fact that Berlin appears to have ruled out any aid for the embattled lender as both unnecessary and politically unfeasible could put Deutsche Bank under renewed pressure as it works to stabilize its share price and stay out of the news while negotiating an acceptable settlement in a U.S. misconduct investigation. In a closed-door briefing with a small group of lawmakers last week, Chancellery aides and senior Finance Ministry officials said it was “inconceivable for the state to take a stake in Deutsche Bank,” said one person.

“We have a different bank resolution system than in 2009 and this must apply to us in Germany too,” the government officials said according to this person. This referred to recent legal changes that now force European governments to bail-in creditors—and in some cases depositors—before they shore up a struggling bank with taxpayer money. Deutsche Bank is currently negotiating with the U.S. Justice Department to bring down a settlement in several investigations over the mis-selling of mortgage-backed securities. Last month, The Wall Street Journal reported that U.S. authorities had floated a $14 billion amount as an opening bid, sparking a rout in the bank’s share price. The bank has said it would not pay anywhere near this amount, which would wipe out nearly all of its existing capital.

It is still unclear whether Deutsche Bank will need to increase capital and, if it does, whether it would need the government to pitch in. But the fact that Ms. Merkel’s government has ruled out any aid for the bank will come as a negative surprise to investors, given widespread expectations in the market that the state would offer some form of last-resort assistance given the scale of Deutsche Bank and the shock its failure could inflict on Europe’s financial system.

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That Greece would have made some official request, that they would have asked Putin himself, and that he would have called up Hollande to tell him that, it’s all not very credible.

Varoufakis, Others Deny Hollande’s Russian Drachma-Printing Claim (Kath.)

Former finance minister Yanis Varoufakis on Friday hastened to dismiss claims made by French President Francois Hollande in a new book that Russian President Vladimir Putin had told him he had been approached by Greek officials a day after a referendum on the country’s third bailout agreement on July 5, 2015, and asked whether Athens could print drachmas in Russia. “I can confirm that during my tenure at the Finance Ministry there were no thoughts of printing a new currency, let alone overtures to third parties at home or abroad,” Varoufakis said in a statement on Friday. Parliament Speaker Nikos Voutsis also denied the existence of such a plan on Friday, dismissing the discussion as being irrelevant, while Alternate Defense Minister Dimitris Vitsas brushed off the claims as “nonsense.”

Speaking on Skai TV on the same day, however, ruling SYRIZA MP Sakis Papadopoulos admitted that the leftist-led government had discussed a possible Greek exit from the eurozone in the days building up to the referendum and just after it. “This information did not come out of the blue,” he said. In “A President Shouldn’t Say That,” based on a series of interviews with Hollande by two journalists from daily Le Monde, the French president is quoted as saying he received a call from Putin, who allegedly told him that “Greece asked us to print drachmas in Russia because they no longer have a printing machine to do so.”

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How about forgiving each new born the $66,000 (s)he owes, as a first step toward debt restructuring?!

A Child Born Today Comes Into the World With More Debt Than You (BBG)

Each newborn’s share of the national debt today is more than double what it was in the 1990s. In the past 35 years, the national debt on a per capita basis has increased with each U.S. president. Under President Bill Clinton, the debt grew at the slowest pace — with a net increase of 1.4% over his two terms. After reducing the slope of public debt in his first term, he shrunk it in his second. Under current law, U.S. inflation-adjusted debt per person is expected to reach the $66,000 milestone by April 2026, based on Bloomberg calculations of Congressional Budget Office and Census Bureau data. So what would the debt path look like under either a Hillary Clinton or Donald Trump presidency? It would be pretty bleak in either case, according to a report released by the Committee for a Responsible Federal Budget.

And while the committee is non-partisan, they do have a policy bent on fixing the national debt and improving the way the budget is developed. The committee projects debt held by the public to grow by $9 trillion over the next decade under current law. Economic proposals put forth by both presidential candidates would add to the national debt, and Trump’s would add even more than Clinton’s. The report estimates that Clinton’s policies would increase the national debt by $200 billion over the next decade, while Trump’s proposals would add $5.3 trillion.

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Again, the WSJ diverging from the rest of the mainstream press. “.. the “vast majority” of [FBI] career agents and prosecutors working the case “felt she should be prosecuted” and that giving her a pass was “a top-down decision.”

The Press Buries Hillary Clinton’s Sins (WSJ)

If average voters turned on the TV for five minutes this week, chances are they know that Donald Trump made lewd remarks a decade ago and now stands accused of groping women. But even if average voters had the TV on 24/7, they still probably haven’t heard the news about Hillary Clinton: That the nation now has proof of pretty much everything she has been accused of. It comes from hacked emails dumped by WikiLeaks, documents released under the Freedom of Information Act, and accounts from FBI insiders. The media has almost uniformly ignored the flurry of bombshells, preferring to devote its front pages to the Trump story. So let’s review what amounts to a devastating case against a Clinton presidency.

Start with a June 2015 email to Clinton staffers from Erika Rottenberg, the former general counsel of LinkedIn. Ms. Rottenberg wrote that none of the attorneys in her circle of friends “can understand how it was viewed as ok/secure/appropriate to use a private server for secure documents AND why further Hillary took it upon herself to review them and delete documents.” She added: “It smacks of acting above the law and it smacks of the type of thing I’ve either gotten discovery sanctions for, fired people for, etc.” A few months later, in a September 2015 email, a Clinton confidante fretted that Mrs. Clinton was too bullheaded to acknowledge she’d done wrong. “Everyone wants her to apologize,” wrote Neera Tanden, president of the liberal Center for American Progress.

“And she should. Apologies are like her Achilles’ heel.” Clinton staffers debated how to evade a congressional subpoena of Mrs. Clinton’s emails—three weeks before a technician deleted them. The campaign later employed a focus group to see if it could fool Americans into thinking the email scandal was part of the Benghazi investigation (they are separate) and lay it all off as a Republican plot. A senior FBI official involved with the Clinton investigation told Fox News this week that the “vast majority” of career agents and prosecutors working the case “felt she should be prosecuted” and that giving her a pass was “a top-down decision.”

[..] Voters might not know any of this, because while both presidential candidates have plenty to answer for, the press has focused solely on taking out Mr. Trump. And the press is doing a diligent job of it.

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Not a bad analysis. At all.

Donald Trump Uncensored: This Is America’s “Moment Of Reckoning” (ZH)

Sometimes, you just have to listen…

“There is nothing that the political establishment wil not do; no lie they will not tell, to hold their prestige and power at your expense… and that’s what’s been happening. The Wasshington establishment – and the financial and media corporations that fund it – exists for one thing only… to protect and enrich itself.”

“For those who control the levers of power in Washington and for the global special interests – they partner with these people that don’t have your good in mind – our campaign represents a true existential threat… like they haven’t seen before. This is not simply another four-year election; this is a crossroads in the history of our civilization that will determine whether or not we, the people, reclaim control over our government.”

Turn off MSNBC, CNBC, CNN, and NBC and listen – away from the spectacle – to some uncomfortable deep state realities…

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It’s more the failure of the Republican party than of Trump, if you read Matt well.

The Fury and Failure of Donald Trump (Matt Taibbi)

Trump’s early rampage through the Republican field made literary sense. It was classic farce. He was the lewd, unwelcome guest who horrified priggish, decent society, a theme that has mesmerized audiences for centuries, from Vanity Fair to The Government Inspector to (closer to home) Fear and Loathing in Las Vegas. When you let a hands-y, drunken slob loose at an aristocrats’ ball, the satirical power of the story comes from the aristocrats deserving what comes next. And nothing has ever deserved a comeuppance quite like the American presidential electoral process, which had become as exclusive and cut off from the people as a tsarist shooting party The first symptom of a degraded aristocracy is a lack of capable candidates for the throne.

After years of indulgence, ruling families become frail, inbred and isolated, with no one but mystics, impotents and children to put forward as kings. Think of Nikolai Romanov reading fortunes as his troops starved at the front. Weak princes lead to popular uprisings. Which brings us to this year’s Republican field. There wasn’t one capable or inspiring person in the infamous “Clown Car” lineup. All 16 of the non-Trump entrants were dunces, religious zealots, wimps or tyrants, all equally out of touch with voters. Scott Walker was a lipless sadist who in centuries past would have worn a leather jerkin and thrown dogs off the castle walls for recreation. Marco Rubio was the young rake with debts. Jeb Bush was the last offering in a fast-diminishing hereditary line. Ted Cruz was the Zodiac Killer. And so on.

The party spent 50 years preaching rich people bromides like “trickle-down economics” and “picking yourself up by your bootstraps” as solutions to the growing alienation and financial privation of the ordinary voter. In place of jobs, exported overseas by the millions by their financial backers, Republicans glibly offered the flag, Jesus and Willie Horton. In recent years it all went stale. They started to run out of lines to sell the public. Things got so desperate that during the Tea Party phase, some GOP candidates began dabbling in the truth. They told voters that all Washington politicians, including their own leaders, had abandoned them and become whores for special interests. It was a slapstick routine: Throw us bums out!

[..] How Giuliani isn’t Trump’s running mate, no one will ever understand. Theirs is the most passionate television love story since Beavis and Butthead. Every time Trump says something nuts, Giuliani either co-signs it or outdoes him. They will probably spend the years after the election doing prostate-medicine commercials together.

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Adam Curtis has no peers. Available from Sunday at BBCiPlayer (only in Britain?!) Great video excerpt on -some of- Trump’s Atlantic City losses.

Hypernormalisation: Adam Curtis’ Path From Syria To Trump, Via Jane Fonda (G.)

I struggle to think a more perfect union of medium and message than HyperNormalisation, Adam Curtis’s new film for the BBC iPlayer. Though he’s spent the best part of four decades making television, Curtis’s signature blend of hypnotic archive footage, authoritative voiceover and a seemingly inexhaustible appetite for bizarre historical tangents is better suited to the web, a place just as resistant to the narrative handholding of broadcast TV as he is. Safe in the knowledge that his audience now has the ability to pause and rewind at will, Curtis crafts a mammoth labyrinth of political storytelling in the film, his follow-up to last year’s “war on terror” epic Bitter Lake.

Launching on Sunday, his 165-minute opus makes a feature of its sheer unwieldiness, as Curtis veers from social history to conspiracy theory via the odd rambling bar-room anecdote, like a man who’s two-dozen browser tabs into a major Wikipedia binge. He argues that an army of technocrats, complacent radicals and Faustian internet entrepreneurs have conspired to create an unreal world; one whose familiar and often comforting details blind us to its total inauthenticity. Not wishing to undersell the concept, Curtis begins the film with a shot of a torch shining limply into a thicket, so that viewers find themselves literally unable to see the wood for the trees.

From there, HyperNormalisation tracks a course to the present day, allowing Curtis to weigh in on Trump, Putin and Syria. But those expecting a snappy crash course in our chaotic world (“You won’t believe how this veteran BBC film-maker explains the Islamic State! What happens at 156:34 will shock you!”) clearly aren’t familiar with his methods. The film may address some of today’s most critical global issues, but it also allocates space to Jane Fonda, the fall of the Soviet Union and a supercut of pre-9/11 disaster movies. And unlike Curtis’s earlier work for TV, HyperNormalisation refuses to drop the kind of storytelling breadcrumbs that might anchor a viewer in its overarching narrative.

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Not bad from US general with Greek roots. Who’s also a typical 13 in a dozen Putin basher, unfortunately.

Greece, The Hot Corner (Stavridis)

First and foremost, Greece – perhaps more than any other country – represents the confluence of values in the trans-Atlantic community. These values are fundamental to our societies and cultures: democracy, liberty, freedom of speech, freedom of religion, freedom of education and assembly. They came to us from ancient Greece, passed through the Age of Enlightenment in Western Europe, and washed up on our shores as the principles of the American Revolution. To walk away from a nation that represents the core of those values would be an abiding mistake.

Second, geography continues to matter, and Greece’s position – on the figurative hot corner of Europe – means that without stability there, there will be an open gateway for migrant and refugee populations fleeing the violence in the Levant, the larger Arab world, and northern Africa. As a geographic location, Greece offers the best bases in the NATO Alliance from which to operate in the trouble spots of the Middle East and the Mediterranean. Our military-to-military relations with Greece are exceptionally good and provide us true strategic advantage both unilaterally for the USA and via the NATO Alliance.

A third crucial element that argues for supporting Greece is the excellence and professionalism of the Greek military. It is a relatively large and very technologically advanced force, with fine capabilities at sea, in the air, and via its land army. Greek soldiers, sailors, and airmen have participated in every NATO operation over the past decade: Afghanistan, the Balkans, Libya, and piracy, to name a few. Ensuring Greece’s economic viability will ensure those troops and capabilities are available for future operations as well.

Fourth, Greece has a unique and positive position in the Balkans and elsewhere via its influence in the Orthodox world. Greeks are well established regionally, and have useful connections in most of the Balkan countries (despite some disputes, including, for example over the name of Macedonia). The Greeks also have a relatively good set of relationships with fellow orthodox nation Russia, and are leaders in the broader global Orthodox community, providing a bridge to a variety of nations and communities around the world.

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