Rembrandt van Rijn The Storm on the Sea of Galilee 1633
On March 18, 1990, the painting was stolen by thieves disguised as police officers. They broke into the Isabella Stewart Gardener Museum in Boston, MA, and stole this painting, along with 12 other works. The paintings have never been recovered, and it is considered the biggest art theft in history. The empty frames still hang in their original location.
This is an article written by Dr. D, who last month wrote a series at the Automatic Earth entitled Bitcoin Doesn’t Exist.
It shouldn’t surprise you that bitcoin plays a cameo in his Modest -but actually quite grand- Plan as well.
Dr. D: With all the talk about the bubble market, people are once again saying Donald Trump is a fool, he should never have taken credit for a Dow that’s about to collapse. In addition, how does he think he can get away with claiming we have a great economy made greater? He said in the election the economy was terrible and the Dow was a bubble, that’s why he won.
But hold on: you have to remember, they’re politicians; they may be dishonest but they’re not stupid. Let’s try a scenario to see what they’re thinking:
We have a situation in the U.S. where 100 million people are out of the workforce, the real economy is on life-support, debt is crushing, and monetary velocity is at an all-time low. The Fed’s every effort at market-rigging, lowering rates and pumping in money, bailing out the banks and giving unearned interest for Fed deposits have run up both the housing market and the stock market, neither of which is their legal mandate. If either one goes higher, they’ll pop as workers, particularly millennials, have no income to buy houses, and stocks are levitating on just 5 insider-paid FAANG stocks.
It’s untenable. However, if either falls, the collateral that upholds the whole system will fail, margins will be called, the housing market will fall, and there will be an instant Depression… You know, more than the 100 million out of work Depression we already have. A Depression that makes Congressmen and government workers lose their profits and 401k’s instead of just turning students to open prostitution, and mass opioid death, and starving people in Oklahoma – you know, a Depression that finally hurts someone who matters.
Since this is self-evident and unsustainable, isn’t Trump just stepping in it by pushing all the same policies as Obama? Not necessarily. Look at what matters to him. A tax plan, and barely, not one he liked, but look at what he settled for: return of foreign profits abroad. Why? Large as it is – and it’s already creating long-withheld bonuses – that’s not enough to turn the dial. But that’s a card he wanted. Tax policy and a high stock market. What else?
Well, we have a crippling high debt, easily 100% even 200% of GDP. With that weight, nothing can move, no way to win. Pensions also are nearly dead, along with insurance companies; the high Dow is all that’s saving them from bankruptcy. What else? Well he was interested in health reform but was willing to let it remain for now. He wrote deferrals but not pardons for 5 banks showing he’d like to keep them functioning for the moment. He wanted to increase the military.
Certainly the only other promise was to create jobs and economies again, in a way saying the few protected industries: Finance, Health Care, and Military would have to become a smaller % of GDP, so those dollars could be returned back to Main Street. But we just said those three aren’t happening.
So. What if instead of pulling money from intractable lobbying groups he got new investment money from abroad? We saw this initially with Carrier and Ford and more recently with Japan. But it’s not enough and he knows all this; they all do. How do you solve the problem? How do you get more?
Calling all 1st year econ students: how do you attract capital to your country? With higher rates. As the US 10-year breaks out above 2.6% you’d have to think that’s attractive. Attractive investing in a bankrupt nation that’s barely moving? It does if you’re a company that must maintain legal investment ratios and you’re getting 0% in Japan, and negative rates in Europe, both with economies as bad or worse.
But aren’t rising rates bad? The Fed model raises rates to clamp down on the economy. Money will leave the stock market and go to bonds. Housing prices will fall as the monthly cost increases. Cats and Dogs living together….except it isn’t true.
Let’s go down the list:
1. Trump starts with plausible seed corn, a billboard sign: a tax cut and a few trillion overseas to start economic motion.
2. If the Fed raises rates, that will draw in trillions of world capital Trump wants, enough to turn the dial and really matter.
3. Enough money flowing into the U.S. will create demand for the US$, and the US$ will rise. This part has to work. Be flashy, attract attention. Go big or go home.
4. The US$ rising will attract foreign buyers into U.S. investment and together the stock market will counterintuitively rise.
5. The Fed will detect overheating and raise rates again and again in a reinforcing cycle, drawing capital to only the U.S. and suffocating the world.
6. The massive investment re-industrializes the U.S. to some extent while the high US$ gives some relief to Main Street.
7. Foreign buying, better jobs, and low exchange rates hold off the housing collapse, while all the mortgage bonds are also sold overseas.
8. Emerging markets are hammered by the high US$ and fail, driving ever-more capital to safe havens like the US.
9. Ultimately, the U.S. does what all reserve currencies do and fails LAST.
See why they think they can get away with this? The U.S. can still ravage the world, and Trump can, in fact, call it his “success.” …Just like all the Presidents since Nixon.
But this is history, and it never ends there.
10. The whole world, strangled by the US and its dollar have no choice but to reject the US system entirely in private contracts and move to an alternative.
11. We now have at least three alternatives: the CIPS/Yuan banking bloc, gold, and cryptocurrencies. They aren’t exclusive: the most likely outcome is a gold-backed trading note priced in Yuan on a blockchain, perhaps in the Shanghai Exchange.
12. Being entirely too high the US$ ultimately cripples the U.S. as well, but the alternative currency the world creates becomes the lifeboat to escape. Let’s be simple and say it’s Bitcoin (it won’t be): Bitcoin hits John McAfee’s $1 million. What do you call it when a currency rapidly becomes worth 1/10th, 1/100th, 1/1,000,000th of the standard? Isn’t that hyperinflation?
13. The U.S., like every nation since Adam Smith, defaults on its $20T in $ debt – and all its internal consumer, corporate, and pension debt – using “hyperinflation” of the dollar. New twist is that, instead of gold, it hyperinflates vs. cryptos or the new world exchange standard as planned in 1971 and publicized in 1988.
14. The reset occurs, no one dies (in the U.S.), supply chains are maintained, oil flows, and the economy stops being a feral, diabolical means of theft and control and returns to being a fair, voluntary exchange. For now.
That’s not to say they’ll succeed, but this is why they think they can go this way and win at it. What does the Trump world look like?
1. Stock market rose, like he said.
2. Manufacturing returns, reindustrializing a hollow nation and allowing the country to catch up to the stock prices, like he said.
3. Unemployment drops, like he said.
4. Crime is reduced and the cities are improved, like he said.
5. This helps win the black vote, snatching the rest of the Democratic base and locking them out for years, like Bannon said.
6. Economic growth normalizes the banking/medical oversize, like he wanted.
7. Free, untracked money for bribes and illegal cover end and law and order returns with fair exchange, like he said.
8. The U.S. is unwelcome overseas, and the breaking of bonds re-sets the multipolar world, where the U.S. is just one trading nation among many, like he said.
9. Without the money of empire the military returns home, like he said.
10. The world is pretty mad at us and that renewed military came in handy. That’s okay, they’ll be consoled that the economy now works and the U.S. can no longer start wars and act terribly.
What does the world look like after? A lot more like it was before 1945. You know, back when we were great and before we got terrible.
Again, not to say this WILL happen, but you can see that it CAN happen, and they are now in control of most of the levers required. From their rhetoric, you can see the glass darkly that this is what they find a priority, a possibility, and therefore a doorway out. In addition, downsizing and re-establishing honesty will not allow their opponents to wiggle out and reverse it.
Why wasn’t this done before? My guess is that a) previous planners thought with a little more effort they could take over the world, as seen in the Arab Spring plan that would culminate in the capture of Iran, the only remaining oilfields on the planet, and b) given the world’s first entirely fiat financial system, it was too complex and disruptive to return to a gold standard.
Without a lighting fast crypto base, banking and trade would fail and millions would die. Only when the one was burned out and the other made available could this move be attempted. Watch and see.
The US Senate is due back in session to try to end a budget impasse before the start of the working week when the shutdown of many federal services will be felt around the country. Hundreds of thousands of federal staff face the prospect of unpaid leave. On Saturday, recriminations flew around over the Senate’s failure to pass a new budget and prevent the shutdown. A bill to fund the federal government for the coming weeks did not receive the required 60 votes by Friday. The Republican leader of the US Senate, Mitch McConnell, has said there will be a vote at 01:00 in the early hours of Monday (06:00 GMT) on a bill to fund the government until 8 February. The last government shutdown was in 2013, and lasted for 16 days.
This is the first time a government shutdown has happened while one party, the Republicans, controls both Congress and the White House. The vote on Friday was 50-49, falling far short of the 60 needed to advance the bill. With a 51-seat majority in the Senate, the Republicans do not have enough votes to pass the bill without some support from the Democrats. They want funding for border security – including the border wall – and immigration reforms, as well as increased military spending. The Democrats have demanded protection from deportation of more than 700,000 undocumented immigrants who entered the US as children.
Donald Trump was set to be the first U.S. president to attend the World Economic Forum in Davos, Switzerland, in nearly two decades, but the government shutdown might have scrambled those plans. White House budget chief Mick Mulvaney said Saturday that Trump’s plans to travel to Davos next week are up in the air while Congress scrambles to strike a deal to fund the federal government. “We’re taking Davos, from the president’s perspective and the Cabinet’s perspective, on a day-by-day basis,” Mulvaney told reporters during an impromptu briefing. The government shut down at midnight Friday, after congressional negotiators failed to pass a budget.
Earlier in the day, Trump cancelled a planned trip to Florida, where he was scheduled to host a party at his private Mar-a-Lago club to mark the one year anniversary of his inauguration. Tickets for the Mar-a-Lago party begin at $100,000 per couple, and proceeds will benefit the Trump reelection campaign and the Republican National Committee. On Saturday, RNC staffers were busy setting up TV screens in the private club, so Trump could address the guests via satellite, according to CNN. The budget impasse showed no signs of letting up on Saturday, as both Democrats and Republicans dug their heels in, and each party blamed the other. The president is scheduled to depart for Switzerland on Wednesday, along with a delegation of more than a dozen Cabinet members, including Treasury Secretary Steven Mnuchin, and top White House aides.
One of the gravest and most damaging abuses of state power is to misuse surveillance authorities for political purposes. For that reason, The Intercept, from its inception, has focused extensively on these issues. We therefore regard as inherently serious strident warnings from public officials alleging that the FBI and Department of Justice have abused their spying power for political purposes. Social media last night and today have been flooded with inflammatory and quite dramatic claims now being made by congressional Republicans about a four-page memo alleging abuses of Foreign Intelligence Surveillance Act spying processes during the 2016 election.
This memo, which remains secret, was reportedly written under the direction of the chair of the House Permanent Select Committee on Intelligence, GOP Rep. Devin Nunes, and has been read by dozens of members of Congress after the committee voted to make the memo available to all members of the House of Representatives to examine in a room specially designated for reviewing classified material. The rhetoric issuing from GOP members who read the memo is notably extreme. North Carolina Republican Rep. Mark Meadows, chair of the House Freedom Caucus, called the memo “troubling” and “shocking” and said, “Part of me wishes that I didn’t read it because I don’t want to believe that those kinds of things could be happening in this country that I call home and love so much.”
GOP Rep. Scott Perry of Pennsylvania stated: “You think about, ‘Is this happening in America or is this the KGB?’ That’s how alarming it is.” This has led to a ferocious outcry on the right to “release the memo” – and presumably thereby prove that the Obama administration conducted unlawful surveillance on the Trump campaign and transition. On Thursday night, Fox News host and stalwart Trump ally Sean Hannity claimed that the memo described “the systematic abuse of power, the weaponizing of those powerful tools of intelligence and the shredding of our Fourth Amendment constitutional rights.” Given the significance of this issue, it is absolutely true that the memo should be declassified and released to the public — and not just the memo itself.
The House Intelligence Committee generally and Nunes specifically have a history of making unreliable and untrue claims (its report about Edward Snowden was full of falsehoods, and prior claims from Nunes about “unmasking” have been discredited). Thus, mere assertions from Nunes — or anyone else — are largely worthless; Republicans should provide American citizens not merely with the memo they claim reveals pervasive criminality and abuse of power, but also with all of the evidence underlying its conclusions.
The People’s Bank of China has ordered financial institutions to stop providing banking or funding to any activity related to cryptocurrencies, further tightening the noose since its shutdown of crypto exchanges last September sent digital currency enthusiasts fleeing overseas. “Every bank and branch must carry out self-inspection and rectification, starting from today,” according to a document issued by the central bank on Wednesday. “Service for cryptocurrency trading is strictly prohibited. Effective measures should be adopted to prevent payment channels from being used for cryptocurrency settlement.” The Chinese-language document, as seen by the South China Morning Post, was distributed as an internal document among banks, and not published on the central bank’s official website.
“Banks should enhance their daily transaction monitoring, and the timely shut down of the payment channel once they discover any suspected trading of cryptocurrencies,” the document said, adding that the deadline for disclosing the measures is on January 20. The emphasis was on handling any capital settlement to avoid any financial losses by cryptocurrency investors from escalating into public protests – known as “group events” in China – and preserve social stability, the central bank said. [..] Chinese cryptocurrency traders, who once dominated 90 per cent of the world’s trading volume of bitcoin, the most popular and oldest form of cryptocurrency, have moved to the underground market, or overseas to Japan. Bitcoin is considered legal tender in Japan.
“Most of the trading is taking place via US dollar now, as some big accounts active in digital currency trading are already on China’s official watch list and payment channel already blocked,” said Zhao Dong, an individual bitcoin investor who spends most of his time in Japan now. “This move by the PBOC is further pushing capital and innovation out of China.” Still, a person no less than Zhou Xiaochuan, the longest-serving governor in the Chinese central bank, has himself announced that the People’s Bank of China itself is studying the feasibility of developing its own digital currency.
China’s National Defense Ministry said the U.S. should abandon a “Cold War” mindset and view Chinese national security and military efforts “rationally and objectively.” The instigators of militarization of the South China Sea are “other countries” that don’t seem to want to see peace in the region and are using the banner of “navigational freedom” to undertake military activities in a tyrannical manner, ministry spokesman Ren Guoqiang said in a statement released late Saturday. The statement was in response to a U.S. Defense Department strategy report, released last week, that singled out China’s military modernization and expansion in the South China Sea as key threats to U.S. power.
China has undertaken massive land reclamation in the contested waterway that hosts $5 trillion in trade a year, to strengthen its claim to more than 80 percent of the area. That has strained ties with other claimant states, such as Vietnam and the Philippines, as well as the U.S. The National Defence ministry’s statement on Saturday came shortly after China’s Foreign Ministry vowed to take “necessary measures” to safeguard its sovereignty after a U.S. warship entered waters surrounding the Huangyan Island in the South China Sea. China’s activities in the South China Sea is “a matter within China’s sovereign rights,” Ren said, adding that the country is committed to a path of peaceful development and a harmonious world order.
Brexit, at its heart, is a recognition that Britain has become steadily weaker since it spent much of its empire wealth fighting two world wars – too feeble in the years before the 2016 referendum to sustain an exchange rate of $1.60 and €1.40, just as it was too poor to cope with $4 to the pound in the 1950s and $2 to the pound in 1992. Manufacturers were unable to make things cheaply, reliably or efficiently enough against the headwind of a high-value currency, forcing many to give up. An economy that boasted 20% of its income coming from manufacturing in the 1980s found it was the source of barely 10% at the beginning of this decade.
Surges in GDP growth in the 70 years since the war can be attributed (and this short list makes the point crudely) to periods when there were cheap raw materials and energy costs; or a growing population; or foreign ownership and management of key industries; or the offloading of vast amounts of state and mutually owned assets; or cheap borrowing. Without these in operation to improve the UK’s performance, a lower exchange rate became inevitable. Some Brexit campaigners made a cheaper currency their explicit aim, arguing that while Britain’s wealth and standing in the world would be diminished in the short term, the breathing space given to manufacturers would allow them to sell abroad at cheaper prices, then use the funds to invest and gain the efficiencies needed to cope with a return to a higher exchange rate sometime in the next decade.
There is a good deal of logic to the argument, but it rests, like so many revolutionary aims, on the many and competing forces in the economy doing exactly what its proponents want them to. For instance, manufacturers, with a few honourable exceptions, have refused to invest more than the bare minimum for decades, even when the exchange rate has helped them. There are windfall profits to be made when currencies fall: but these windfalls have been trousered by shareholders, not invested.
Emmanuel Macron has said it would be possible for Britain to secure a bespoke trade deal but only if the UK accepts certain “preconditions”. The French president said that while a special solution could be secured, full access to the single market without accepting its rules was “not feasible”. The comments were made during an interview recorded for BBC One’s The Andrew Marr Show on Sunday. Macron has been in the UK for his first visit since taking office. On Thursday, at the end of a joint press conference with Theresa May at Sandhurst military training college, he rejected the idea of a tailored Brexit deal for Britain’s financial services sector. Macron said full access to EU markets would not be possible unless the UK paid into the EU budget and accepted all its rules.
In the interview with Marr, he said there was “a competition between different countries” to attract financial services companies in the future and that France wanted “to attract the maximum activity”. The Brexit secretary, David Davis, has said he is seeking a “Canada plus plus plus” arrangement, based on the EU-Canada trade treaty, but with additional access for services. However, EU negotiators have stressed that Britain would not be allowed to “cherry-pick” sectors. Pressed on whether there would be a bespoke special solution for the UK, Macron said: “Sure, but … this special way should be consistent with the preservation of the single market and our collective interests. “And you should understand that you cannot, by definition, have the full access to the single market if you don’t tick the box.” He added: “So it’s something perhaps between this full access and a trade agreement.”
Eurozone finance ministers are to meet in Brussels on Monday to assess Greece’s progress in enforcing economic reforms, decide whether to disburse 6.7 billion euros in bailout loans and, Athens hopes, signal talks on debt relief. It was unclear if the loan tranche would be disbursed in its entirety, as some prior actions are pending. However, Greek officials sounded upbeat following a decision late on Friday by Standard & Poor’s to raise Greece’s sovereign credit rating from B- to B with a positive outlook. “Greece’s growth and fiscal outlooks have improved alongside a labor market recovery and amid a period of relative policy certainty,” S&P said.
“These positive developments boost the sense that the trust of the markets and investors in the Greek economy is being restored with steady steps,” the Finance Ministry said on Saturday. “With the conclusion of the program in August 2018 and the securing of steady access to the markets, the Greek economy is definitely moving away from a long period of crisis.” Despite the upbeat rhetoric, there are divisions within SYRIZA over government policies, particularly in the radical Group of 53 faction. In comments to SYRIZA’s central committee on Saturday, Finance Minister Euclid Tsakalotos conceded that there are “many short-term problems” and underlined two major risks. “One is the banks and the other is the IMF,” he said.
Ask Tourism New Zealand what 100% Pure means and they’ll tell you: it’s not a ‘clean, green’ campaign, but a campaign that delivers a “100% Pure New Zealand experience”. What it is is 100% pure advertising, and a slogan fit to replace the fertiliser used in the country’s intensive farming. But while Kiwis do seem to be realising there’s something murky about our clean-green image, there is one area we are still fooling ourselves about – the state of our native creatures. Stuff has just wrapped up its Forgotten Species series, a five-part series looking at a handful of the estimated 3700 native species which are either approaching extinction or at risk. Despite having one of the highest proportions of threatened or endangered species of anywhere on the planet, 70% of the public feel the state of our country’s natives is adequate or doing well, according to a recent Lincoln University study.
Ask study co-author Ross Cullen and he will tell you – 70% of the public is “totally wrong”. All countries advertise, and everyone accepts it with a pinch of salt. If we didn’t we would all be jetting off to England expecting a village in the Cotswolds and end up at a sleazy pub in Plumstead, east London. Advertising is advertising, and good advertising brings in tourism money. However, when the public believes its own advertising, it’s no longer advertising, it’s propaganda –and that’s a problem. It’s a problem because if the populace think something’s going well, they ignore it, the political hot-potato cools, and the decline continues. Case in point – the National Government’s Minister for Conservation, Maggie Barry, paraded the new Threatened Species Strategy in front of voters just as the 2017 general election was heating up.
It promised to increase the number of at-risk species directly managed by 40%. On the face of it, this seems great, but when the Budget was released a couple of weeks later, almost all of DOC’s extra funding was ring-fenced for upgrading tourism infrastructure and developing new Great Walks. It was a great ad delivered by a great ex-garden show host. Kiwis might have kicked up a fuss – if the majority didn’t think we were doing a bang up job on protecting native species already. I remember a telling moment after ex-Parliamentary Commissioner for the Environment Jan Wright’s launched her report finding 80% of native birds were threatened. I was present to hear why Tourism Industry Aotearoa chief executive Chris Roberts didn’t fancy this was a problem. “The people come here for our scenery, not our wildlife,” he said. Roberts didn’t disagree with any of the report’s findings, he just thought a visitor levy would do more harm to the country than the rapid die-off of our native birds.
Sunshine is in short supply across a swathe of north-west Europe, shrouded in heavy cloud from a seemingly never-ending series of low pressure systems since late November and suffering one of its darkest winters since records began. If you live in Brussels, 10 hours and 31 minutes was your lot for the entire month of December. The all but benighted inhabitants of Lille in France got just two hours, 42 minutes through the first half of January. “Sound the alarm and announce the disappearance,” read a despairing headline in photon-deprived northern France’s regional paper, La Voix du Nord. “A star has been kidnapped. We still have no sign of life from the sun.”
Belgium’s Royal Meteorological Institute has declared December 2017 “the second darkest month since 1887”, when it began measuring, after the 10.5 hours of sun recorded at its Uccle weather station last month were beaten only by a bare 9.3 hours in 1934. France’s northern Hauts-de-France region did better with 26 hours of sunshine in December, but that was against a norm of 48. But Météo France described the paltry 2.7 hours of sun recorded from 1 to 13 January in Lille, the region’s biggest city, as “exceptional”. The January average stands at 61.4 hours, according to the agency – meaning Lille and its unfortunate residents were deprived of perhaps 30 hours’ worth of rays in the first part of the month.
[..] Even southern French sun-traps such as Bordeaux and Marseille fell a very long way short of their usual ray quota in the first half of the month, basking in just 10.3 and 26.9 hours respectively against monthly averages of 96 and 92.5. Health experts say a shortage of sunshine can lead to seasonal depression, whose symptoms include a lack of energy, a desire to sleep and a perceived need to consume greater quantities of sugar and fat. “Exposure to morning light inhibits the secretion of melatonin that promotes sleep and favours the production of hormones that will stimulate the body,” Matthieu Hein, a psychiatrist at the Erasmus Hospital in Brussels, said. In the absence of light, we are “rather slow, tired, which is characteristic of SAD, or seasonal affective disorder”. Florent Durand, who runs a massage studio in Lille, told France 3 TV that his €39 light therapy sessions were booked out.
Turkey’s agreement with the European Union to curb human trafficking across the Aegean appears to be in jeopardy again after a top Turkish official warned that a current impasse with the EU gives Ankara no reason to honor the deal. A collapse of the deal would put more pressure on Greek islands where thousands of migrants are cooped up in overcrowded reception centers. The comments on Friday by Turkey’s minister for EU affairs, Omer Celik, essentially rejected a proposal by French President Emmanuel Macron for a partnership rather than full EU membership for Turkey. “A privileged partnership or similar approaches, we don’t take any of these seriously. Turkey cannot be offered such a thing,” Celik told Reuters.
Celik said the EU was not fully honoring its part of the migration deal, noting that financial aid was “not working well” and that no new chapters have been opened in Turkey’s EU accession bid. “Technically there’s no reason for Turkey to maintain this deal,” he said. The minister’s words echoed those of Turkish President Recep Tayyip Erdogan, who, during a landmark visit to Greece in December, hit out at the EU for giving Turkey just a portion of the aid it had pledged as part of the 2016 migrant deal. During Erdogan’s visit, Prime Minister Alexis Tsipras proposed that Turkey take back migrants from facilities on the Greek mainland to free up space for migrants from overcrowded camps on the islands. Erdogan did not publicly respond to the suggestion.
After Celik’s comments on Friday, a spokesman for the Greek Migration Ministry said the government’s position, that all sides must honor the Turkey-EU deal, remained “fixed and firm.” Migration Minister Yiannis Mouzalas visited Lesvos on Friday, together with Valentin Radev, the interior minister of Bulgaria, which holds the EU’s rotating presidency. Mouzalas reassured local residents, who had gathered at the Moria facility, that measures would be taken to ensure that migrants alleged to have been involved in thefts or other offenses will no longer be allowed to leave the premises. Lesvos Mayor Spyros Galinos said the minister was not doing enough to adequately inform residents and was shifting the blame for the situation on the islands on to local authorities.
Fifteen Syrian refugees – some of them children – have been found frozen to death while trying to cross the mountainous border into Lebanon. Thirteen bodies were found on Friday and two more were discovered on Saturday after the area was hit by a fierce snowstorm. Lebanese civil defence officials found the bodies after being told a group of refugees were in trouble near Masnaa. Local reports say the group had been abandoned by smugglers. Two smugglers have reportedly been arrested.
Several refugees were rescued, including a young boy who was found wandering by himself. The group were taking the same route hundreds of thousands of Syrians have taken before them trying to flee the conflict at home. Lebanon, with a population of four million, has taken in nearly one million Syrians since the war began in 2011. The Lebanese authorities brought in new restrictions in 2015 to try to restrict the number of refugees arriving in the country.
A prolonged bull market across stocks, bonds and credit has left a measure of average valuation at the highest since 1900, a condition that at some point is going to translate into pain for investors, according to Goldman Sachs. “It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,” Goldman Sachs International strategists including Christian Mueller-Glissman wrote in a note this week. “All good things must come to an end” and “there will be a bear market, eventually” they said. As central banks cut back their quantitative easing, pushing up the premiums investors demand to hold longer-dated bonds, returns are “likely to be lower across assets” over the medium term, the analysts said.
A second, less likely, scenario would involve “fast pain.” Stock and bond valuations would both get hit, with the mix depending on whether the trigger involved a negative growth shock, or a growth shock alongside an inflation pick-up. “Elevated valuations increase the risk of draw-downs for the simple reason that there is less buffer to absorb shocks,” the strategists wrote. “The average valuation percentile across equity, bonds and credit in the U.S. is 90%, an all-time high.” A portfolio of 60% S&P 500 Index stocks and 40% 10-year U.S. Treasuries generated a 7.1% inflation-adjusted return since 1985, Goldman calculated – compared with 4.8% over the last century. The tech-bubble implosion and global financial crisis were the two taints to the record.
Low inflation has prevailed in the current period, just as it did alongside economic growth in the 1920s and 1950s, according to the Goldman report. “The worst outcome for 60/40 portfolios is high and rising inflation, which is when both bonds and equities suffer, even outside recessions.” An increase in policy rates triggered by price pressures “remains a key risk for multi-asset portfolios. Duration risk in bond markets is much higher this cycle,” they wrote.
As Goldman observes: “we are closing in on the longest 60/40 bull market in history – there has been no 10% drawdown in real terms since 2009. A passive long-only balanced portfolio has delivered attractive risk-adjusted returns since the 90s. A favourable ‘Goldilocks’ macro backdrop, supported by the ‘Great Moderation’ and the central bank put, has boosted returns in both equities and bonds. However, after the recent ‘bull market in everything’, valuations across assets are as expensive as they have been this century, which reduces the potential for returns and diversification in balanced portfolios. Some more statistics: “We are nearing the longest bull market for balanced equity/bond portfolios in over a century – a simple 60/40 portfolio (60% S&P 500, 40% US 10-year bonds) has not had a drawdown of more than 10% since the GFC trough (8.7 years) and has delivered a 143% return (11% p.a.) since then.”
And when was the last time a balance portfolio had such a tremendous return? Goldman answers again: “The longest run has been during the Roaring 20s, ending with the Great Depression. The second longest run was the post-war ‘Golden age’ in the 50s – the 90s Boom has been in third place but is now fourth, after the current run. In other words, one would have to go back to some time in early 1929 to be looking at the kind of returns that a balanced “60/40” portfolio is generating today. In fact, the current period of staggering returns without a 10% total drawdown is now 8.7 years. How long was the comparable period in the 1928s? 9.1 years. Which means that if history is any guide, the second great depression is just around the corner.
Step One in the Pecking Order Lie is to promote a narrative of trickle-down economics — that making the rich even richer is a good thing for the non-rich. This is exactly what Ben Bernanke is saying here, that the Fed’s extraordinary efforts to prop up the stock market aren’t just good for the rich, but will be good for everyone once the “wealth effect” kicks in and the rich start spending their money. Whenever someone uses the phrase “wealth effect”, they are promoting a trickle-down narrative. How does trickle-down monetary policy work? By spending TRILLIONS of dollars to buy financial assets, the world’s central banks have inflated the prices of ALL financial assets, EVERYWHERE in the world. This is not a secret plan. This is not a hidden agenda. This is the avowed purpose of what central bankers call Large Scale Asset Purchases (LSAPs).
The goal is to force us to “reach for yield”. The goal is to force us to buy more and more risky assets (stocks) at higher and higher prices. The Fed is trying to make the stock market go up. And they’re succeeding. Here’s a great chart from TCW showing how this works. The orange line is the growth rate of the US economy. The blue line is the growth rate of how rich we are. By tripling the stock market, the Fed has made us much richer than our economy has grown … SOOO much richer than our economy has grown. But the goodies of a trebled stock market aren’t evenly distributed. Who owns stocks? If we’re talking about households, leaving aside pension funds and endowments and other institutional investors, it’s the rich, mostly. And that household share of the Central Bankers’ Bubble doesn’t increase linearly with wealth, but exponentially, meaning that the really rich own a lot more stocks than the merely rich, so the really rich have gotten a lot richer than the merely rich.
Here’s a chart from Deutsche Bank showing the impact (it’s a year old, so the effect is even more pronounced today with the stock market 20% higher). Thirty years ago, the non-rich (the bottom 90% of American households by income) owned 35% of American household wealth. Today they own about 22%. Forty years ago, the really rich (the top 1/10th of 1% of American households by income) owned about 7% of American household wealth. Today they, too, own about 22%. Moreover, the gains of the really rich have mirrored the losses of the non-rich, which means that the well-off and merely rich (the remaining 9.9% of American households) haven’t seen much of a change one way or another.
Now this shift in relative wealth of the non-rich and the really rich didn’t start with the Central Bankers’ Bubble and its narrative of trickle-down wealth effects from monetary policy. It started roughly in 1980 with the Reagan narrative of trickle-down wealth effects from fiscal policy. And before we make overly facile comparisons with the 1920s and 1930s, this chart isn’t taking into account pensions and social security and other safety net features of the modern semi-sorta-welfare state. So I don’t know how historically abnormal today’s level of significant wealth inequality might be, whether it’s Louis XVI level inequality or simply robber baron level inequality. But I know that it IS.
Donald Trump doesn’t know what he’s talking about when he decries America’s trade deficits with countries around the world—and that’s not his fault. None of us do. Thanks to offshoring practices like those revealed in the Paradise and Panama Papers, global investment figures are “a big black hole,” says Daniel Haberly, an economic geographer at the University of Sussex. “We don’t really know what the world economy actually looks like. That’s the big burning question for me. We have this picture of what it looks like on paper but in reality it’s probably something completely different.” Look no further than the UK for an example of how crazy investment statistics are. The first name on its list of top foreign direct investors doesn’t surprise—it’s the world’s biggest economy, the United States.
Second place, however, isn’t such a behemoth. According to British government stats, the Netherlands supposedly shoveled £139.8 billion ($186 billion), 28% of its GDP, into the UK in 2015. Anglo-Dutch ties run long and deep, but can a country of just 17 million people really be investing so much cash into Britain alone? Quite simply, no. The Netherlands is not just a smallish European trading nation—it’s also one of the world’s biggest conduits for cash going to and from tax havens. When the British government broke down its FDI statistics this year (chapter 6), it realized that only 34.5% of that money actually came from the Netherlands; much of the rest being from European subsidiaries of big US companies or… from British companies rerouting their money.
One month ago, when the BEA released its first estimate of the hurricane-impacted economy during the third quarter (which came in at a stronger than expected 3.0%) we were surprised to report that according to the Department of Commerce, in the third quarter the biggest driver of marginal spending was car sales (technically Motor Vehicles and Parts), which increased by $15.6 billion to $463.5 billion. Which, as we said at the time and considering recent US and global automakers data, was paradoxical in light of the ongoing decline in overall sales in the second half of 2017, and it was far too early to expect the post-hurricane spending spree. It was also surprising because as Americans splurged on cars, they pulled back on gasoline purchases, which was the single biggest detractor to spending, subtracting a marginal $3.5 billion in PCE, to $283.6 billion.
In any case, we concluded by saying that “we now await for the revisions to this initial estimate over the coming two months, because something tells us that the auto spending spree will be thoroughly revised well lower.” One month later, when the BEA released its second Q3 GDP estimate, it appears we were right: the contribution from motor vehicles was indeed revised lower, but not nearly as dramatically as we expected, only from a marginal increase of $15.6 million to $13.5 million. And yet, many other line items did see a downward revision, which means that something had to increase sharply to compensate for the downward revisions among other spending components.
Sure enough, something did: the old faithful “plug” which has saved the US economy every quarter for the past 4 years: Healthcare, or as it is better known, Obamacare, because with Trump failing to repeal Obama’s signature health law, it means that Healthcare will merrily “contribute to GDP” for years to come, by being the single biggest marginal spending item for the foreseeable future.
Finally, for a comparison of how dramatically the contribution of “Healthcare” was revised higher, here is a chart showing side by side the change in spending among all key line items. One can almost hear the orders “from above” to make GDP 3% or higher at any cost when looking at this chart.
In theory, the global financial system is supposed to help every country gain. Mainstream teaching of international finance, trade and “foreign aid” (defined simply as any government credit) depicts an almost utopian system uplifting all countries, not stripping their assets and imposing austerity. The reality since World War I is that the United States has taken the lead in shaping the international financial system to promote gains for its own bankers, farm exporters, its oil and gas sector, and buyers of foreign resources – and most of all, to collect on debts owed to it. Each time this global system has broken down over the past century, the major destabilizing force has been American over-reach and the drive by its bankers and bondholders for short-term gains.
The dollar-centered financial system is leaving more industrial as well as Third World countries debt-strapped. Its three institutional pillars – the IMF, World Bank and World Trade Organization – have imposed monetary, fiscal and financial dependency, most recently by the post-Soviet Baltics, Greece and the rest of southern Europe. The resulting strains are now reaching the point where they are breaking apart the arrangements put in place after World War II. The most destructive fiction of international finance is that all debts can be paid, and indeed should be paid, even when this tears economies apart by forcing them into austerity – to save bondholders, not labor and industry. Yet European countries, and especially Germany, have shied from pressing for a more balanced global economy that would foster growth for all countries and avoid the current economic slowdown and debt deflation.
After World War I the U.S. Government deviated from what had been traditional European policy – forgiving military support costs among the victors. U.S. officials demanded payment for the arms shipped to its Allies in the years before America entered the Great War in 1917. The Allies turned to Germany for reparations to pay these debts. Headed by John Maynard Keynes, British diplomats sought to clean their hands of responsibility for the consequences by promising that all the money they received from Germany would simply be forwarded to the U.S. Treasury. The sums were so unpayably high that Germany was driven into austerity and collapse. The nation suffered hyperinflation as the Reichsbank printed marks to throw onto the foreign exchange also were pushed into financial collapse. The debt deflation was much like that of Third World debtors a generation ago, and today’s southern European PIIGS (Portugal, Ireland, Italy, Greece and Spain).
One in 10 London families are relying on charity handouts to eat and food banks are facing unprecedented strain in the run-up to Christmas, new figures reveal. One in four London parents worry about being able to afford to feed their children, the research found, while almost one in five have to choose between heating their homes or feeding their family. The exclusive poll, conducted by Kellogg’s to mark the start of The Independent and Evening Standard Help a Hungry Child campaign, exposed the devastating choices facing parents around the country as food banks struggle to keep up with growing demand. At least 146,798 three-day emergency parcels were handed out by Trussell Trust foodbanks in December 2016, a 47% spike compared to the average for the overall 2016/17 financial year, according to the charity.
Children accounted for 61,093 of those affected. Now the charity is warning 2017 could herald an even higher increase, following a 13% surge in food bank usage during the first six months of this year. The figures are revealed as a Labour MP urges the Government to accurately measure the number of people going hungry with a food insecurity bill. Emma Lewell-Buck, a member of the All-Party Parliamentary Group on Hunger, will present the cost-neutral bill to the Commons on Wednesday. It will ask the Government to incorporate questions about how often people go without food into national surveys. She called rising food bank usage a “massive dereliction of state duty” and is urging Theresa May to take urgent action to recognise the scale of the problem.
“They have to admit what everybody already knows that the levels of hunger are far higher than we have realised,” she said. “It is the duty of the state, there is no way food banks should have filled the gap left by the welfare state that this Government has created.” She added: “Now food banks are becoming a pillar of the welfare state and they should not be and they should never have been.” The South Shields MP said getting a measure on the true scale of the numbers going hungry would force the Government into taking a more proactive stance in tackling hunger.
When money is tight eight-year-old Emma’s parents are forced to send their daughter to school, tummy rumbling, without any breakfast. In the evening, she fills up on plain pasta or reduced microwave meals – cheap food her parents can afford. Emma says she often feels too tired to concentrate on her schoolwork. The situation Emma lives with is the devastating reality faced by the 500,000 children across the UK who go to school hungry each day. Eight million people in Britain – the world’s sixth largest economy – are living in food poverty, according to the United Nations (UN). And an estimated 870,000 children in England may be going to bed hungry each night because their parents are unable to provide the meals they need.
But not eating isn’t the only problem – access to nourishing and nutrient-filled food is simply out of reach for thousands of families living on the breadline, with far-reaching consequences for too many of Britain’s children. Dr George Grimble, a medical scientist at University College London, said the situation was “disastrous” for developing children, resulting in malnourishment, obesity and squandered potential. “When people are in poverty they are forced to buy the cheapest foods – filling but nutrient-lacking food,” Dr Grimble told The Independent. “Food poverty in the community overlays to a large extent on disease malnutrition.” More than 60% of paediatricians believe food insecurity contributed to the ill health among children they treat, according to a 2017 survey by the Royal College of Paediatricians and Child Health.
The harrowing hunger stats sit juxtaposed with the fact 100 million tons of food is wasted each year across the EU. More than 400 million meals’ worth of edible food was sent to landfill in 2016 which could have been redistributed to feed hungry people across Britain, according to the Government’s waste advisory body, Wrap.
On the face of it, the Visegrad countries – the Czech Republic, Hungary, Poland and Slovakia – are doing well economically. The data for GDP per head suggest a gradual convergence in living standards with Western Europe. They continue to attract a disproportionate share of inward investment in EU manufacturing, and their integration into EU-wide supply chains helps to explain why they are now collectively Germany’s most important trade partner, ahead of China and the US. But the political situation across the Visegrad is anything but rosy. Voters in all four countries have succumbed to populists. The reasons for this populism are complex, but economics probably provides a bigger part of the explanation than the positive headline numbers suggest.
In 2016, GDP per head in the Visegrad four (adjusted for price differences) ranged from 64% of eurozone levels in Poland to 82% in the Czech Republic. The Czech Republic, Slovakia and Poland have experienced significant convergence in GDP per head with the eurozone over the last ten years (though it should be noted that the dire performance of the eurozone economy over that period was a major reason for this). But what matters to the average person is not GDP growth, but personal income growth, and hence living standards. And here the Visegrad picture is less reassuring. In 2016 worker ‘compensation’ (wages and salaries and other benefits) ranged from just 50% of the eurozone’s in Hungary to 59% in the Czech Republic. And the rate of convergence of compensation with the eurozone average has been slower than the rate of convergence of GDP.
Growth in consumption across the Visegrad countries has lagged behind growth in GDP, resulting in a sharp fall in consumption as a share of overall spending. This has happened in nearly all developed economies over the last decade, but the scale of the decline in all four Visegrad economies has been much greater. Average households have not seen enough of the fruits of economic growth. Those rewards have gone disproportionately to the owners of capital, and in these countries, that tends to mean foreigners. In the Czech Republic, Hungary, and Slovakia, the most important sectors are largely or wholly foreign-owned. The Polish economy is much bigger and more diversified than the other three, but the level of foreign ownership is still very high.
The Greek government has announced it will abide by any EU embargo on Saudi Arabia as it faces criticism over a controversial arms deal, including from its own MPs. As cracks appeared in the leftist-led coalition over the €66m weapons agreement with the kingdom, the administration’s spokesman said Athens would apply the law “by the letter” if EU sanctions were announced. “We are waiting to see the decisions of the European parliament and will act accordingly,” said Dimitris Tzannakopoulos. “The process is frozen.” Mounting tensions within the ruling Syriza party have matched international condemnation of the agreement by human rights groups. Amnesty International has said the munitions could end up being used by the Gulf state in its war against neighbouring Yemen, where civilian populations have borne the brunt of the conflict.
“[We] call on Greece to immediately rescind the sale and transfer of military equipment to Saudi Arabia and to refuse approval of the transport of every type of conventional weapons, ammunitions and war material to point of conflicts in Yemen,” the rights group said. Prominent members of the ruling Syriza party have questioned the morality of selling arms to Saudi Arabia, and on Tuesday the Greek parliament’s military procurements committee also hinted it may scrap the deal. “Greece is a hub of stability, peace and friendship in the greater region and that is what it should be exporting,” the former deputy European affairs minister Nikos Xydakis told the Guardian. “There is no need for this [deal] to go through and frankly when we’re talking about €66m, not €66bn, it isn’t worth the trouble. It’s not the sort of money that will save Greece.”
Greek authorities on Thursday said they have moved a few hundred asylum seekers from the island of Lesvos to the mainland in an effort to ease overcrowding in its camps. Thousands of asylum seekers have become stranded on Lesbos and four other islands close to Turkey since the European Union agreed a deal with Ankara in March 2016 to shut down the route through Greece. “I came to heaven from hell,” said 30-year old Mohammad Firuz, who lived for two months in a state-run camp in Lesvos.
Firuz was among 300 people, many of them women and children, aboard a ferry that reached the port of Piraeus early on Thursday morning. The asylum seekers would be taken to camps and apartments in the mainland, authorities said. Lesvos is now hosting some 8,500 asylum-seekers, nearly three times the capacity of state-run facilities. Violence often breaks out, mainly over delays in asylum procedures and poor living standards. Lesvos residents went on strike earlier this month to protest against European policies they say have turned it into a “prison” for migrants and refugees.
The world’s most widely used insecticide may cause migrating songbirds to lose their sense of direction and suffer drastic weight loss, according to new research. The work is significant because it is the first direct evidence that neonicotinoids can harm songbirds and their migration, and it adds to small but growing research suggesting the pesticides may damage wildlife far beyond bees and other insects. Farmland birds have declined drastically in North America and Europe in recent decades and pesticides have long been suspected as playing a role. The first evidence for a link came in 2014 when a study in the Netherlands found that bird populations fell most sharply in the areas where neonicotinoid pollution was highest, with starlings, tree sparrows and swallows among the most affected.
“The reason our new study is special is this is not a correlation – it is actual experimental evidence,” said Prof Christy Morrissey, at the University of Saskatchewan in Canada, who said the results shocked her. “The effects were really dramatic. We didn’t anticipate the acute toxicity, because the levels [of neonicotinoid] we gave them were so low. Three neonicotinoids were banned from use on flowering crops in the European Union in 2013 due to unacceptable risks to bees and other pollinators and a total outdoor ban is being considered. Canada is also considering a total ban. Neonicotinoids now pollute the environment across the world and pressure is growing to slash pesticide use, which research shows would not reduce food production on almost all farms.
The new research, published in the peer-reviewed journal Scientific Reports, analysed the effect of the neonicotinoid imidacloprid on white-crowned sparrows that migrate from the southern US and Mexico to northern Canada in summer. Birds were given doses equivalent to less than a single corn seed and within hours became weak, developed stomach problems and stopped eating. They quickly lost 17-25% of their weight, depending on the dose, and were unable to identify the northward direction of their migration. “Basically, these birds became lost,” said Morrissey. Control birds that were not exposed to the insecticide were unaffected.
The rubbish washing up on the UK’s beaches is continuing to increase, rising by 10% in 2017, the Marine Conservation Society’s (MCS) annual beach clean has revealed. Much of the waste is plastic, leading the MCS to call on the government to urgently introduce a charge on single-use plastic items, such as straws, cups and cutlery. The chancellor, Philip Hammond, recently announced the government is considering such action. About 12m tonnes of plastic litter enters the oceans every year, killing millions of marine animals. People are also believed to be inadvertently eating the plastic, potentially contaminated with toxic chemicals, via seafood. The MCS beach clean in September saw 7,000 volunteers scour 340 beaches and collect an average of 718 pieces of rubbish every 100 metres.
The survey uses a standard methodology and data from the last decade and shows a rising tide of litter along the coast. Most of the litter is small, unidentifiable fragments of plastic, broken down in the sea from larger objects and often mistaken for food by fish and birds. But 20% of the rubbish is packaging from “on the go” food and drink, such as cups, bottles, cutlery, stirrers and sandwich packets. “Our beach clean evidence shows a shocking rise in the amount of litter this year,” said Sandy Luk, MCS chief executive. “Our oceans are choking in plastic. We urgently need a levy on single-use plastic as a first step.” “We are concerned we are continuing on this upwards trend,” said Lizzie Prior, beach and river clean project officer at the MCS. “Plastic never goes away – it does not decompose. It just goes to smaller and smaller pieces and becomes much more harmful for our marine environment.”
She said the tax on plastic bags introduced in 2015, which has seen their use drop by 85%, had a rapid impact, with the number of bags found on beaches down by 40% since 2014. “It is really fantastic to see that small charge completely changed people’s behaviour,” she said. “A levy [on other single use plastic] would be a fantastic next step.”
Concerns over debris littering the world’s oceans are back in the spotlight after a Canadian fishing crew found a lobster with the blue and red Pepsi logo imprinted on its claw. Trapped in the waters off Grand Manan, New Brunswick, the lobster had been loaded onto a crate to have its claws banded when Karissa Lindstrand came across it. Lindstrand, who drinks as many as 12 cans of Pepsi a day, quickly spotted the resemblance. “I was like: ‘Oh, that’s a Pepsi can,’” she said. On closer look, it seemed more like a tattoo on the claw. “It looked like it was a print put right on the lobster claw.” Neither she or any of the crew had seen anything like it. More than a week after the find, debate has swirled over how it might have come to be: some believe the lobster might have grown around a can that ended up at the bottom of the ocean.
Others speculate that part of a Pepsi box somehow become stuck on the lobster. Lindstrand disputes these theories. The image on the claw was pixelated, she said, suggesting it couldn’t have come from a can. And the image on a Pepsi box is far too large to be what she saw on the claw. The logo looked like it came from a printed picture, but paper would have deteriorated in the ocean. “I’m still trying to wrap my brain around what exactly it was,” she said. The find comes amid growing concerns over the amount of debris accumulating in the world’s oceans. Between 5m and 13m tonnes of plastic leak into the world’s oceans each year to be ingested by sea birds, fish and other organisms, leading the record-breaking sailor Dame Ellen MacArthur to warn that by 2050 the sea could have more plastic in it than fish, by weight.
The White House ordered federal agencies Friday to began preparations for a potential partial government shutdown after signaling President Donald Trump would demand money for key priorities in legislation to continue funding the government beyond April 29. But the president and his aides expressed confidence that Congress would work out a spending agreement and that there won’t be any halt in government operations. Administration officials portrayed the order as normal contingency planning, stressing that the previous administration had followed the same practice as funding deadlines approached. “I think we’re in good shape” on avoiding a deadlock on maintaining funding, Trump told reporters in the Oval Office on Friday. White House press secretary Sean Spicer said the administration is “confident” because negotiations are ongoing and “no one wants a shutdown.”
The push to reach an agreement on spending is complicated by White House efforts to try again for a House vote on replacing Obamacare next week, crowding the congressional schedule with two politically thorny measures the same week. House approval of an Obamacare repeal would give the president a legislative victory to boast about before his 100th day in office April 29. But failure to reach an agreement on spending legislation would risk marring the anniversary with a government shutdown. House Republicans plan a conference call Saturday with Ryan and other leaders to discuss the health-care bill as well as spending legislation. Republican Congressional leaders have pushed back against scheduling an Obamacare vote during the week, indicating there isn’t a clear strategy yet for achieving passage.
Mick Mulvaney, Trump’s director of Office of Management and Budget, said Thursday Democrats will need to agree to pay for some Trump’s top priorities, including a wall at the U.S.-Mexico border, in legislation to fund the government for the remainder of the fiscal year, which ends Oct. 1. Democrats responded harshly to Mulvaney’s remarks Thursday. “Everything had been moving smoothly until the administration moved in with a heavy hand,” said Matt House, spokesman for Senate Minority Leader Chuck Schumer of New York.
There is more debt, credit, and leverage today than there was preceding the banking crisis of 2008. No lessons were learned from that catastrophe as trillions of taxpayer dollars were provided in the form of bank bailouts from the US Federal Reserve. Despite their name, US Federal Reserve Banks are not part of the federal government and they are not banks. For the past 11 years, the Federal Reserve has been run by non-elected officials, Ben Bernanke and Janet Yellen (career academics), alongside a host of X Goldman and JP Morgan bankers. Since 2007, these non-elected bankers have provided banks “temporary, emergency liquidity measures.” Since when is eight years temporary?
Banks have continued to lend trillions and trillions of dollars to fund the construction of grotesquely overpriced residential and commercial properties around the world. The trillions of dollars given in bank bailouts are a perfect example of government “pay-to-play.” When giving out this money, most bankers are making at least three flawed assumptions:
1. Real estate prices will always go up. Clearly, this is the denial phase of “a bubble mentality.”
2. Rents will always keep rising. Rents peaked a few years ago. There is a massive oversupply of high-end residential and commercial properties on the market while real wages have declined. This is a sign that a crash is imminent.
3. The Federal Reserve will always bail them out. With zero transparency or an audit the Federal Reserve’s balance sheet has ballooned from 500 billion to nearly 5 trillion in a short period. The Federal Reserve doesn’t have the money to keep bailing companies out.
The Federal Reserve has become nothing more than a rogue hedge fund taking leveraged, wildly speculative, gargantuan and high-risk positions in bonds and mortgages. Next up, the Fed will angle to dump these toxic real estate assets in your pension fund. There are several steps that need to be taken to address this situation and save your pensions:
1. The President and Congress need to order an immediate audit of the Fed.
2. The Fed’s positions need to be unwound.
3. No more taxpayer funded bailouts – save your pension!
Capitalism without bankruptcy is like Catholicism without hell. Constantly printing more money will not end in prosperity, but in ruin. The coming collapse will be much worse than in 2008-2009 because the debt is so much larger and the Federal Reserve has run out of bullets. Since the 1980s, we have seen real average wages decline, college tuition skyrocket nearly 2,000%, and housing prices hitting all-time new highs while high-paying jobs have disappeared. Rents have risen so much that many small businesses are no longer economically viable. The situation doesn’t look any better for graduates. Graduates entering the jobs market have nearly $250,000 in student debt. A graduate may get a job in Manhattan for $40,000 a year ($3,333 a month before tax) but rent on a studio apartment costs $3,000 a month. The numbers just don’t add up anymore.
Avi Gilburt: You’ve said that, once the stock market tops, you expect a major bear market and economic contraction to take hold. What is your general timing for this to occur?
Robert Prechter: The true top for stocks in terms of real money (gold) occurred way back in 1999. Overall prosperity has waned subtly since then. Primary wave five in nominal terms started in March 2009, and wave B up in the Dow/gold ratio started in 2011. Their tops should be nearly coincident.
Gilburt: What do you foresee will set off this event?
Prechter: Triggers are a popular notion, borrowed from the physical sciences. But I don’t think there are any such things in financial markets. Waves of social mood create trends in the stock market, and economic and political events lag behind them. Because people do not perceive their moods, tops and bottoms in markets sneak right past them. At the top, people will love the market, and events and conditions will provide them with ample bases for rationalizing being heavily invested.
Gilburt: You’ve said we will be mired in a “depression-type” event. How long could that last?
Prechter: I don’t know. All I can say for sure is that the degree of the corrective wave will be larger than that which created the malaise of the 1930s and 1940s.
Gilburt: How are conditions going to change from what we have now?
Prechter: The increasingly positive trend in social mood over the past eight years has been manifesting in rising stock and property prices, expanding credit, buoyant pop music, lots of animated fairy tales and adventure movies, suppression of scandals, an improving economy and — despite much opinion — fairly moderate politics. This trend isn’t quite over yet. In the next wave of negative mood, we should see the opposite: declining stock and property prices, contracting debt, angry and somber music, more intense horror movies, eruption of scandals, a contracting economy and political upheaval. That’s been the pattern of history.
It’s all relative, though, and it’s never a permanent condition. Just as people give up on the future, its brightness will return. The financial contraction during the negative mood trend of 2006-2011 was the second worst in 150 years. Yet, thanks to the return of positive mood, many people have already forgotten about it. Investors again embrace stocks, ETFs, real estate, mortgage debt, auto-loan debt and all kinds of risky investments that they swore off just a few years ago.
Stanley Fischer, the vice chairman of the Federal Reserve, on Friday delivered an unusually sharp warning to President Donald Trump and his plan to “do a number” on post-crisis reforms aimed at reining in Wall Street. Fed officials usually go out of their way to not appear political, which makes the comments all the more startling. Fischer, a former Citigroup banker and respected policymaker who led the Bank of Israel for many years, appears truly concerned. “We seem to have forgotten that we had a financial crisis, which was caused by behavior in the banking and other parts of the financial system, and it did enormous damage to this economy,” Fischer told CNBC’s Sara Eisen in the lobby of the IMF, responding to a question about the potential rolling back of Dodd-Frank rules.
This happened just as the president was signing an executive order aimed at what he said was “reviewing” Dodd-Frank. “Millions of people lost their jobs. Millions of people lost their houses,” Fischer said. “This was not a small-time, regular recession. This was huge, and it affected the rest of the world, and it affected, to some extent, our standing in the world as well. We should not forget that. “The strength of the financial system is absolutely essential to the ability of the economy to continue to grow at a reasonable rate, and taking actions which remove the changes that were made to strengthen the structure of the financial system is very dangerous.”
Asked specifically about Trump’s vow to “do a number” on Dodd-Frank, Fischer shot back: “I’m not sure precisely what the president said and what a ‘number’ is, but there are aspects of Dodd-Frank, which if they were taken away would have very serious potential consequences for the economy — not immediately but when times get tough.” What provisions is he most worried about? The ability of the Fed and other regulators to wind down large banks, many of which are still seen as too big to fail. “I think it is very important that big banks be subject to the discipline of the possibility of going bankrupt. It is also very important that that discipline extends to not making those changes, the bankruptcy of a big bank, a huge shock and the source of crisis or damage to the overall economy,” Fischer said. “So we need the resolution mechanisms that have been put in place which will allow the authorities and the markets to wind up a big bank.”
Former Finance Minister Lou Jiwei said China should allow smaller local governments to default on debt because it would signal that central government bailouts aren’t assured. Such defaults would educate investors that their investments will be allowed to go bad, Lou said Friday at a public finance forum in Beijing. “They need to shoulder responsibility,” said Lou, who’s now chairman of the country’s social security fund. “Nobody will save them.” Lou’s comments reiterate those by Premier Li Keqiang and other central government officials such as current Finance Minister Xiao Jie that local government debt shouldn’t be bailed out, or benefit from assumptions it will be.
With economic growth accelerating for a second-straight quarter to 6.9% through March, policy makers have more room to cut leverage and rein in risks. A credit surge since 2014 that underpinned growth has also fueled a further buildup in borrowing. Total debt rose to 258% of economic output last year from 161% in 2008, Bloomberg Intelligence estimates show. Lou said government debt remains broadly safe, but borrowing levels are poised to keep climbing given increased investment in substandard public-private partnership projects.
When Narendra Modi announced on 8th November 2016 that he was demonetizing 86% of the monetary value of all currency in circulation, he gave three major reasons for doing so: to end corruption, to end terrorism and to eliminate counterfeit currency. Ironically, all three are now in far worse condition than they were previously, and even worse than the predictions I made. Many ATMs in India still dispense no cash. The economy is in shatters. This had to happen, as any new cash is rapidly moving under the carpets of the financial powerful that hoard currency. Small businesses are traumatized by the lack of access to cash – many are closing for good. People continue to avoid making non-essential purchases. Even food demand has failed to recover. Poor people very likely are still forced to go to bed half-hungry.
No-one knows whether there are famines in parts of India, as none of the mainstream media are covering the issue. Not unlike North Koreans or the Chinese during the times of Mao, Indians today, particularly members of the so-called educated class, simply cannot see what Modi or their nationalistic paradigm does not want them to see. Indian banks and other financial institutions are extremely unethical. Since privatization was implemented in the 1990s, they have charged fees and commissions for accounts that were never agreed upon. Indians never fight, so this continues. After the demonetization exercise, these mysterious charges have started to appear more often. Then they deduct certain services and financial taxes, and most people don’t make the effort to try to understand them. Indians are getting very tired of the banks – not for moral, but simply for financial reasons.
Bank websites are extremely unwieldy. They require a sequence of passwords and OTPs (one time pad codes), which have an automatic expiry date. Getting the whole sequence right to make an online payment without having these websites freeze during the procedure leaves one with a sense of accomplishment. Most people prefer to walk down to their banks to get bank officials to perform such online transactions. India is simply not ready for the digital age. This experiment in going cashless will end in a disaster. Similar to every tyrant, Modi likes to think that tax collection should be at the heart of society. He imagines a society in which subjects dance around the state. The problem is, one can perfect the tax system or minimize corruption, but with a per capita GDP of $1,718, India simply does not have the required productivity.
Discussions between Greece’s European creditors and the IMF on additional debt relief for the Mediterranean euro region member will be difficult because of political hurdles within the 19-nation bloc, though a solution is on the horizon, Eurogroup Chairman Jeroen Dijsselbloem said. “Greece: We’re very close, it’s really the last stretch,” he said in a Bloomberg Television interview on Friday in Washington with Francine Lacqua and Tom Keene. “We have a full agreement on the major reforms. How they are to be designed, when they are to be implemented, the size of them.”
IMF Managing Director Christine Lagarde said Friday she had “constructive discussions” with Greek Finance Minister Euclid Tsakalotos in preparation for the return of bailout auditors to Athens after euro-area finance ministers reached a tentative agreement on the measures Greece needs to implement to qualify for the next tranche of emergency loans. Dijsselbloem met Tsakalotos earlier on Friday in Washington. “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.
The Hellenic Statistical Authority on Friday unveiled data on last year’s primary surplus, which Eurostat is expected to validate on Monday. The surplus was 3.9% according to the European Union’s statistics office methodology, or 4.2% according to what has been agreed in the bailout program. The bailout target was for a primary surplus of 0.5% of GDP. In spite of its better-than-expected primary surplus last year, the IMF is not convinced Greece will be able to maintain that level of performance for 2018 and beyond. The fund estimates that at least half of the primarily surplus for 2016 came from one-off measures rather than structural changes that will continue delivering results in the years to come, according to a person familiar with its analysis. That has prompted the fund to demand more austerity measures.
German Finance Minister Wolfgang Schaeuble said the Greek government bore responsibility for current delays in the country’s bailout program. Greece is to blame that its creditors didn’t return to Athens during the Greek Easter break to finish negotiations on steps the nation must take to qualify for the next tranche of emergency loans, Schaeuble told reporters Friday on the sidelines of the IMF spring meetings. IMF European Department head Poul Thomsen said at a media briefing there’s been enough progress recently to send back a mission to Greece. Greece and its international creditors struck a tentative agreement at a meeting of euro-area finance ministers in Malta earlier this month, breaking the latest deadlock over the country’s rescue and paving the way for about €7 billion in aid for Athens.
Although the decision represents progress, the euro area won’t unlock the payout until their audit in Athens is concluded. “It would have been possible to continue the mission in Athens immediately in the week after Malta,” said Schaeuble. “This was not possible during the Greek Easter break.” In a statement on Friday, IMF Managing Director Christine Lagarde said she had a “constructive dialogue” with Greek Finance Minister Euclid Tsakalotos “in preparation for the return of the mission to discuss the two legs of the Greece program: policies and debt relief.” The IMF isn’t holding back progress, said Schaeuble. “The IMF isn’t delaying this process at all,” he said.
Greece far exceeded its international lenders’ budget demands last year, official data showed on Friday, posting its first overall budget surplus in 21 years even when debt repayments are included. The primary surplus – the leftover before debt repayments that is the focus of IMF-EU creditors – was more than eight times what they had targeted. Data released by Greek statistics service ELSTAT – to be confirmed on Monday by the EU – showed the primary budget surplus at 3.9% of GDP last year versus a downwardly revised 2.3% deficit in 2015. This was calculated under European System of Accounts guidelines, which differ from the methodology used by Greece’s in bailout deliberations.
Under EU-IMF standards, the surplus was even larger. Government spokesman Dimitris Tzanakopoulos said the primary budget surplus under bailout terms reached 4.19% of GDP last year versus the 0.5% of GDP target. “It is more than eight times above target,” Tzanakopoulos said in a statement. “Therefore, the targets set under the bailout program for 2017 and 2018 will certainly be attained.” Debt-strapped Greece and its creditors have been at odds for months over the country’s fiscal performance, delaying the conclusion of a key bailout review which could unlock needed bailout funds. The IMF, which has reservations on whether Greece can meet high primary surplus targets, has yet to decide if it will fund Greece’s current bailout, which expires in 2018.
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 lightening the country’s debt load. It is no coincidence that German Finance Minister Wolfgang Schaeuble noted in Washington that over the last couple of years, Greek government deficit forecasts are more realistic than those of the IMF.
So we tried that thing called regime change in Iraq, and failed miserably. We tried it in Libya, and now there are now active slave markets in the place. But we satisfied the objective of “removing a dictator”. By the exact same reasoning, a doctor would inject a patient with “moderate” cancer cells “to improve his cholesterol numbers”, and claim victory after the patient is dead, particularly if the post-mortem shows remarkable cholesterol readings. But we know that doctors don’t do that, or, don’t do it in such a crude format, and that there is a clear reason for it. Doctors usually have some skin in the game. And don’t give up on logic, intellect and education, because a tight but higher order logical reasoning would show that the logic of advocating regime changes implies also advocating slavery.
So these interventionistas not only lack practical sense, and never learn from history, but they even make mistakes at the pure reasoning level, which they drown in some form of semi-abstract discourse. The first flaw is that they are incapable in thinking in second steps and unaware of the need for it –and about every peasant in Mongolia, every waiter in Madrid, and every car service operator in San Francisco knows that real life happens to have second, third, fourth, nth steps. The second flaw is that they are also incapable of distinguishing between multidimensional problems and their single dimensional representations –like multidimensional health and its stripped, cholesterol-reading reduced representation. They can’t get the idea that, empirically, complex systems do not have obvious one dimensional cause and effects mechanisms, and that under opacity, you do not mess with such a system.
An extension of this defect: they compare the actions of the “dictator” to the prime minister of Norway or Sweden, not to those of the local alternative. And when a blow up happens, they invoke uncertainty, something called a Black Swan, not realizing that one should not mess with a system if the results are fraught with uncertainty, or, more generally, avoid engaging in an action if you have no idea of the outcomes. Imagine people with similar mental handicaps, who don’t understand asymmetry, piloting planes. Incompetent pilots, those who cannot learn from experience, or don’t mind taking risks they don’t understand, may kill many, but they will themselves end up at the bottom of, say, the Atlantic, and cease to represent a threat to others and mankind.
So we end up populating what we call the intelligentsia with people who are delusional, literally mentally deranged, simply because they never have to pay for the consequences of their actions, repeating modernist slogans stripped of all depth. In general, when you hear someone invoking abstract modernistic notions, you can assume that they got some education (but not enough, or in the wrong discipline) and too little accountability. Now some innocent people, Yazidis, Christian minorities, Syrians, Iraqis, and Libyans had to pay a price for the mistakes of these interventionistas currently sitting in their comfortable air-conditioned offices. This, we will see, violates the very notion of justice from its pre-biblical, Babylonian inception. As well as the ethical structure of humanity.
Almost 30 migrants have been found dead in a boat drifting off the coast of Libya as the number of refugees dying in attempts to reach Europe reach record highs. Fishermen found the bodies of 28 people, including four children, in waters near the smuggling hub of Sabratha after more than 8,300 asylum seekers were rescued over the Easter weekend. “Their boat stopped in the middle of the water because the engine was broken,” said Ahmaida Khalifa Amsalam, the interior ministry’s security commander. He said the victims appeared to have died of thirst and hunger after their vessel was left drifting in the Mediterranean.
They were buried in a cemetery dedicated to migrants whose bodies are regularly washed up on the coast of Libya, which remains embroiled in a bloody civil war six years after the UK helped overthrow Muammar Gaddafi. Smugglers have increasingly resorted to packing migrants into flimsy dinghies that are unable to survive the crossing to Europe, with some being intercepted and forced back by the Libyan coastguard, others being rescued by EU officials and aid agencies, and many sinking. Tuesday’s tragic discovery was the latest incident of refugees being found dead inside boats, with a worrying trend emerging suggesting engines are being removed or sabotaged at sea.
“Consider 0% and near-zero interest rates to be the economic equivalent of a defibrillator: the most-extreme, last-resort attempt to “stimulate” the human body when it is near death. Our economies have had this economic defibrillator attached to them for more than eight years – without the slightest glimmer of life.”
Western economies are “recovering”. How do we know this? We are told this, over and over and over again by our governments. Then this assertion is repeated thousands of times more by the dutiful parrots of the Corporate media. The problem is that in the real world there is not a shred of evidence to support this assertion. In the U.S.; ridiculous official lies were created claiming the creation of 15 million new jobs. In reality, there are three millionless Americans with jobs today than at the official end of the “recession”. These imaginary jobs are invented by assorted statistical frauds, with the primary deceit being so-called “seasonal adjustments”. To be legitimate, all seasonal adjustments must to net to zero at the end of each year. Instead, in the U.S.A., the biggest job creator in the nation every year is the calendar.
Beyond the grandiose but absurd claims of new jobs in the U.S., there have been few signs of economic health across the Corrupt West. Despite this, these traitorous regimes continue the pretense that their horrific mismanagement of our economies is making things better rather than worse. There are numerous subtle means of demonstrating that Western economies have never been in more calamitous ill health than they are today. Fortunately, there are also two very large and important indicators which provide absolute proof that all of the economies of the Corrupt West are in a Greater Depression: interest rates and energy demand. Regular readers have often seen the observation in these commentaries that interest rates across the West have never been this low for this long in the entire history of these nations – not even close. Why not? Two reasons:
1) Interest rates this low have always been perceived (by our governments and all legitimate economic commentators) as being so reckless that any short-term benefit from such rates would have been more than offset by long-term harm.
2) The reason why our governments have always deemed interest rates this low to be reckless is that in remotely healthy economies such rates would cause these economies to “over-heat” so rapidly and extremely that they would reach unsustainable levels of production and demand.
Are our economies over-heating? No. Nothing could be further from the truth. We see nothing but over-capacity all around us: one hundred million permanently unemployed people across the West, relentless business closures, declining real wages, and near-empty shopping malls (in “consumer economies”). Interest rates this low are supposed to cause such rapid business expansion that the economy suffers from a labour shortage. Why are there a hundred million people unemployed across the West instead of labour shortages? Regular readers have seen this question answered in the past in the form of a metaphor.
Consider 0% and near-zero interest rates to be the economic equivalent of a defibrillator: the most-extreme, last-resort attempt to “stimulate” the human body when it is near death. Our economies have had this economic defibrillator attached to them for more than eight years – without the slightest glimmer of life. What would happen to a human body if it was defibrillated continuously for more than eight years? Charred meat. This is what Western economies have become: charred meat.
While it’s impossible to predict the future with certainty, mathematics, science and history can provide hints about the prospects of Western societies for long-term continuation. Safa Motesharrei, a systems scientist at the University of Maryland, uses computer models to gain a deeper understanding of the mechanisms that can lead to local or global sustainability or collapse. According to findings that Motesharrei and his colleagues published in 2014, there are two factors that matter: ecological strain and economic stratification. The ecological category is the more widely understood and recognised path to potential doom, especially in terms of depletion of natural resources such as groundwater, soil, fisheries and forests – all of which could be worsened by climate change.
That economic stratification may lead to collapse on its own, on the other hand, came as more of a surprise to Motesharrei and his colleagues. Under this scenario, elites push society toward instability and eventual collapse by hoarding huge quantities of wealth and resources, and leaving little or none for commoners who vastly outnumber them yet support them with labour. Eventually, the working population crashes because the portion of wealth allocated to them is not enough, followed by collapse of the elites due to the absence of labour. The inequalities we see today both within and between countries already point to such disparities.
For example, the top 10% of global income earners are responsible for almost as much total greenhouse gas emissions as the bottom 90% combined. Similarly, about half the world’s population lives on less than $3 per day. For both scenarios, the models define a carrying capacity – a total population level that a given environment’s resources can sustain over the long term. If the carrying capacity is overshot by too much, collapse becomes inevitable. That fate is avoidable, however. “If we make rational choices to reduce factors such as inequality, explosive population growth, the rate at which we deplete natural resources and the rate of pollution – all perfectly doable things – then we can avoid collapse and stabilise onto a sustainable trajectory,” Motesharrei said. “But we cannot wait forever to make those decisions.”
Commercial real estate and bonds are more overvalued than at any time in history and stocks are trading at their priciest level save one period, the late 1990s before the dotcom implosion. The beer goggles, it would seem, have blinded investors to the bubble wrap that’s enveloped their portfolios. There are a few brave souls at the Fed who have raised a red flag. On March 22nd, Boston Fed President Eric Rosengren warned, “…we must acknowledge that the commercial real estate sector has the potential to amplify whatever problems may emerge when we at some point face an economic downturn.”
Wiser words, especially given so few who recall that it was not the decline in oil prices that made the late 1980s such a painful period for the economy, but rather the crash in commercial real estate the energy crunch catalyzed. Underlying the multiple overheating markets is a persistent underappreciation of financial instability among Fed policymakers. The institution, overladen as it is with PhD economists, has yet to revisit the models that drive its setting of interest rate policy. Had the Fed’s inflation metrics taken into account runaway stock prices in the late 1990s and skyrocketing home prices in the early 2000s, it’s likely they would have intervened to tighten financial conditions much sooner than they did. Revisiting the wisdom of former Fed chair McChesney Martin is useful:
The danger with these econometricians is they don’t know their own limitations, and they have a far greater sense of confidence in their analyses than I have found to be warranted. Such people are not dangerous to me because I understand their limitations.
They are, however, dangerous to people like you and the politicians because you don’t know their limitations, and you are impressed and confused by the elaborate models and mathematics. The flaws in these analyses are almost always embedded in the assumptions on which they are based. And that is where broader wisdom is required, a wisdom that these mathematicians generally do not have.
You always want these technical experts on tap in positions like this, but never on top. The hope is that President Donald Trump heeds McChesney Martin’s 1970s-era wisdom, that he respects the wishes of those who originally envisioned the Fed as an appreciably more intellectually diverse entity. After all, the original 1913 Federal Reserve Act requires the president to appoint leaders across a diversity of industries.
President Trump keeps pushing “Buy American.” He’s planning to tout it again at a stop in Wisconsin on Tuesday. But the alarming reality is Americans aren’t spending much money on anything right now, regardless of where it’s made. Retail sales declined in February and March from the prior month, according the Commerce Department. Shoppers haven’t been this stingy since early 2015, and it’s likely to hurt the economy. The U.S. is on track for very sluggish 0.5% growth in the first three months this year, according to the latest estimates from Macroeconomic Advisers and the Atlanta Federal Reserve. That falls massively short of the 4% growth that Trump has promised. Trump loves to plug how Americans’ confidence in the economy has skyrocketed since he won the election. He’s right.
Consumers, businesses (big and small) and investors are all feeling a lot more optimistic, according to various surveys. But all that enthusiasm isn’t translating into more shopping, which drives the U.S. economy. About 70% of the American economy comes from people buying stuff. Kate Warne, a long-time investment strategist at Edward Jones, calls this the era of “skeptical optimism.” “People are more optimistic, but they’re skeptically optimistic,” Warne told CNNMoney. “I don’t think they are confident yet that things will change as much as they would like them too.” [..] Another twist is that Republicans are a lot more optimistic than Democrats. [..] Overall, the University of Michigan index of consumer confidence has jumped from 87 in October to 98 today. But that headline figure masks a wild division.
Democrats believe “a deep recession” is coming under Trump (their confidence index is a mere 55), while Republicans expected a “new era of robust economic growth” (their index level is a sky-high 122). Independents are in between, as you might expect. If half the country thinks recession is near, that might explain why retail sales are slowing, or even showing some signs of decline.
Prime Minister Theresa May, who was actually against Brexit before she was for it, made another dramatic U-turn on Tuesday, declaring that Britain needs to elect a new Parliament in June, three years ahead of schedule, despite her clear promise not to call an election when she campaigned to succeed David Cameron last year. Her decision to subject Britons to a third national election campaign in just over two years — after the 2015 general election and the referendum on exiting the European Union ten months ago — was met with something less than enthusiasm by many voters. In her address to the nation, May claimed that a fresh election was necessary to keep opposition parties from obstructing her Conservative government during negotiations over Britain’s withdrawal from the European Union.
That argument rang hollow, however, given that the opposition Labour Party had just voted for the government’s bill to begin the process of leaving the E.U. and is not campaigning to overturn the results of last year’s referendum. To most political observers, it was clear that May’s decision was driven by something else: a desire to capitalize on the unprecedented weakness of the Labour Party, which is divided over Brexit, and its own leader, Jeremy Corbyn, and has trailed the Conservatives by up to 21 points in recent polls. As the writer Robert Harris and the broadcaster James O’Brien suggested, it might also be in May’s own self-interest, and that of her party, to ask the nation for a five-year term now, before the costs of Brexit become apparent. Although even many die-hard Labour supporters seemed resigned to defeat, some on the left welcomed the chance to vote against what they see as the potentially disastrous policy of a complete break with Europe.
Theresa May has announced a snap election on 8 June 2017. But as the country prepares for another election campaign, it’s important to remember that MPs in her party are being investigated for election fraud for the 2015 general election. And given the mainstream media’s reluctance to report the issue, we need to ensure it is kept firmly on the agenda. 12 police forces have submitted files to the Crown Prosecution Service (CPS) over allegations that up to 20 MPs and/or their agents broke election spending limits in the 2015 election. The CPS is deciding whether charges should be brought. And a decision is expected soon – and is likely to come during the election campaign. The allegations centre around the ‘battle bus’ campaign, and associated expenses such as hotel rooms.
Many argue that the campaign promoted prospective local MPs in key seats. Under election law, any expenditure which promotes a local candidate should be covered locally. But the ‘battle bus’ and associated costs were declared nationally. Each constituency has a fixed amount of money it can spend locally. And including the ‘battle bus’ expenditure would have meant many candidates overspent. Additionally, the Election Commission has fined the Conservatives £70,000 for multiple breaches in connection to election spending during the 2015 campaign. But it isn’t just the ‘battle bus’ campaigns where the Conservatives have been accused of fraud. As The Canary previously reported, there are questions over how the party used social media and, particularly, Facebook, to target voters.
A report by the London School of Economics has also warned [pdf] that Facebook targeting opens the door to electoral fraud: “The ability to target specific people within a particular geographic area gives parties the opportunity to focus their attention on marginal voters within marginal constituencies. This means, in practice, that parties can direct significant effort – and therefore spending – at a small number of crucial seats. Yet, though the social media spending may be targeted directly at those constituencies, and at particular voters within those constituencies, the spending can currently be defined as national, for which limits are set far higher than for constituency spending.”
China’s shadow banking is back in full swing, an unintended side effect of the government’s campaign against financial leverage, which has curbed traditional lending and squeezed bond financing. Data from the central bank Friday showed that off-balance sheet lending surged 754 billion yuan ($109 billion) in March, taking the first quarter’s total increase to a record 2.05 trillion yuan. Efforts by the People’s Bank of China to curb fresh lending may have prompted borrowers, especially real estate developers, to resort to alternative forms of financing, said Xu Gao at Everbright Securities. Since late last year, the PBOC and regulators have taken steps to rein in risks to China’s financial system, including raising short-term interest rates, clamping down on leverage in the bond market, and curbing funding for property speculation.
The measures have sent debt-reliant borrowers scurrying to shadow financing, an industry Moody’s Investors Service estimates is worth about $8.5 trillion, and another area where regulators are trying to reduce risk. “You must tread a fine line,” said Everbright’s Xu. “Choking the bond market to death doesn’t mean the financing needs will be curbed as well. Instead, it will drive funding to areas that are more unreachable for the regulators. At the end of the day, risks may be declining in the bond market, but in the overall financial system, they would be rising.” The PBOC in January ordered the nation’s lenders to strictly control new loans in the first quarter of the year, putting a particular emphasis on mortgage lending to contain runaway home prices.
The move saw banks extending 4.22 trillion yuan of new loans in the first quarter, 8.5% less than the same period in 2016. It was the first year-on-year decline since 2011. The government is trying to contain the possibility of a shock emanating from the property and construction industries, which contribute about 25 to 30% of China’s economic output, Moody’s estimates. The increasing role of shadow banks as providers of finance is among characteristics that have raised the financial system’s vulnerability to a property-related shock, Moody’s said in a March report. In a move to curb shadow banking, financial regulators are working together to draft sweeping new rules for asset-management products, people familiar with the matter said in February.
Dozens of cities have imposed ever tougher buying restrictions, more stringent down-payment requirements especially for second homes, stricter resale limits, etc. etc., and they’ve redoubled their efforts since mid-March when it became apparent that the prior redoubled efforts had not produced results, as people figured out how to get around them. But China depends heavily on property development and property speculation for its economic growth, and no one really wants to bring it down: The National Bureau of Statistics (NBS) reported on Monday that first-quarter growth in property investment – residential, commercial, and office spaces combined – soared 9.1%. This red-hot property sector, and the 40 other sectors that are directly affected by it, drove China’s official GDP growth in Q1 to 6.9%.
As always, analysts keep saying that it would take a few more months for the restrictions to take effect and start cooling the market. That line was once again repeated on Monday, officially: “Because the latest round of cooling measures came out after March 17, their impact on the entire economy including home prices may show in April or later,” Mao Shengyong, a spokesman for the NBS said at a briefing, according to Reuters. Houses are for habitation, not for speculative investment, he said. That would be a novel concept in these crazy times. But who really wants to cool the market, when state-owned developers and state-owned banks are firing it up? Yet, everyone sees the risks. Reuters: “Most analysts agree an overheating property market poses the single biggest risk to China’s economic growth, with increasingly tough government measures to cool soaring prices raising the risk of a nasty crash.”
But the cooling off is not happening yet. New construction measured in floor space soared 11.6% in the first quarter, year-over-year, the NBS reported, and sales jumped 19.5%, though that growth rate was down a notch from the year 2016, when sales at soared 22.5%, the highest in seven years, as the boom in first-tier cities was spilling into second- and third-tier cities. With state-owned developers, funded by state-owned banks, firing up much of the show, and with speculators, who assume the government has their back, running wild in a gushing celebration of ever-soaring prices and huge automatic profits, there’s little chance that this scheme that has already transcended irrational exuberance will simply “cool” to a level of “stability,” and plateau somewhere soon, as it is hoped. Phenomenal bubbles like this don’t go quietly.
“The Oxford Dictionary defines subsidiarity as “(in politics) the principle that a central authority should have a subsidiary function, performing only those tasks which cannot be performed at a more local level”
One of the various smokescreens that were erected by the European Commission and the bevy of economists that it either paid or were ideologically aligned to justify the design of the monetary union around the time of the Maastricht process was the concept of subsidiarity. In 1993, the Centre for Economic Policy Research (a European-based research confederation) published its Annual Report – Making Sense of Subsidiarity: How Much Centralization for Europe? – which attempted to justify (ex post) the decisions imported from the 1989 Delors Report into the Maastricht Treaty that eschewed the creation of a federal fiscal capacity.
It was one of many reports at the time by pro-Maastricht economists that influenced the political process and pushed the European nations on their inevitable journey to the edge of the ‘plank’ – teetering on the edge of destruction and being saved only because the European Central Bank has violated the spirit of the restrictions that a misapplication of the subsidiarity principle had created. It is interesting to reflect on these earlier reports. We find that the important issues they ignored remain the central issues today and predicate against the monetary union ever being a success. One of the authors of the 1993 Report, Jean-Pierre Danthine has recently reflected on the work some 25 years after its publication.
In his Op Ed (April 12, 2017) – Subsidiarity: The forgotten concept at the core of Europe’s existential crisis – he argues that “the disenchantment with Europe can arguably be traced to the failed application of the subsidiarity principle that was enshrined in the Maastricht Treaty.” He recognises that: “Europe’s deep-seated institutional design problem is tied to the inevitable trade-off between efficiency-enhancing centralisation and democracy-enhancing sovereignty.” Let’s go back to the Delors Report 1989, which I argue in my book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – misapplied the concept of subsidiarity. It is clear from the historical record that the Delors Committee mainly relied on the concept of subsidiarity to justify the absence of a European-level fiscal function in the plan it outlined for monetary union.
The term, subsidiarity, a long-standing concept in political theory (as far back to Aristotle), entered the European dialogue in 1989 as part of a new ‘Eurolanguage’ as the political leaders were intent on pushing through the economic and monetary union. The Oxford Dictionary defines subsidiarity as “(in politics) the principle that a central authority should have a subsidiary function, performing only those tasks which cannot be performed at a more local level”. The concept was popularised by the Roman Catholic Church in the 1931 encyclical, Quadragesimo Anno, which pronounced that: “It is a fundamental principle of social philosophy, fixed and unchangeable, that one should not withdraw from individuals and commit to the community what they can accomplish by their own enterprise and/or industry.”
The Migration Policy Ministry is developing a plan to spread about 20,000 migrants in small towns and rural communities across Greece, offering economic incentives to locals. According to a Proto Thema report, the project has been implemented in the town of Livadia with relative success. Now the ministry is looking for similar communities (with populations of 10,000-15,000) that have economic problems. According to the plan, such communities can accommodate 500-1,500 migrants in rented homes, while migrants can buy food and services using coupons provided by the State and the UNHCR. As authorities expect that some communities will be hostile to Muslim migrants, the ministry aims at counter-balancing religious differences and possible frictions by offering strong financial incentives to boost the ailing local economies.
The project will be extended in towns of Epirus, Western Macedonia and North-Western Greece that have high unemployment rates, provided that they are not located close to international borders. The Migration Policy Ministry also plans to offer high wages to people who wish to work in the migrant hospitality infrastructure. According to the Proto Thema report, a project coordinator working in Livadia right now earns an annual salary of 24,933 euros and a housing program director earns 22,666, wages that are double of that of an average public sector employee. Similar wages are offered to people who wish to work with migrants. The report says that such wages and overall economic incentives aim at mitigating any reactions by locals. Characteristically, the report says, apartments of 60-90 square meters in Livadia are rented for around 400 euros, again, a price above an average rental.
The relationship between Greece and the International Monetary Fund has been, from the start, very contentious to say the least. There is no question that Greece needs to build the trust and confidence of taxpayers and the global capital markets. But, the IMF advice more often than not seems to be more political or ideological than practical. However, the IMF should not be used as a scapegoat for successive Greek governments disappointing performance in building trust and confidence. The EC, especially Germany, enlisted the IMF to act as a foil for any failed policies, arguably smart political insurance. As the political foil, the IMF was provided with a cash cow to milk: Greece. And, milk Greece it has.
Greece has paid almost €4 billion in fees and interest to the IMF since the start of the programme. Interest rates of 3.6% for a super senior risk free lender were almost three times as high as the more junior ESM loans. Greece payments are so important to the IMF that they were 118% of IMF’s operating profit. Since 2010, IMF personnel expense have increased 48% compared to a decline of 8% in the prior seven years. And, not to go unnoticed, the IMF newly refurbished headquarters is 31% over budget at $562 million. With 97% of IMF’s cost now essentially fixed, losing Greece, Portugal, and Ireland, would cause massive financial trauma at the IMF and may well render it insolvent. So, the obvious question is: does the IMF have an incentive to keep Greece in crisis to protect its own financial survival and continue to milk the Greek cow?
The leopard population in a region of South Africa once thick with the big cats is crashing, and could be wiped out within a few years, scientists warned on Wednesday. Illegal killing of leopards in the Soutpansberg Mountains has reduced their numbers by two-thirds in the last decade, the researchers reported in the Royal Society Open Science journal. “If things don’t change, we predict leopards will essentially disappear from the area by about 2020,” lead author Samual Williams, a conservation biologist at Durham University in England, told AFP. “This is especially alarming given that, in 2008, this area had one of the highest leopard densities in Africa.” The number of leopards in the wild worldwide is not known, but is diminishing elsewhere as well. The “best estimate” for all of South Africa, said Williams, is about 4,500.
What is certain, however, is that the regions these predators roam has shrunk drastically over the last two centuries. The historic range of Panthera pardus, which includes more than half-a-dozen sub-species, covered large swathes of Africa and Asia, and extended well into the Arabian Peninsula. Leopards once roamed the forests of Sri Lanka and Java unchallenged. Today, they occupy barely a quarter of this territory, with some sub-species teetering on the brink of extinction, trapped in 1 or 2% of their original habitat. Leopards were classified last year as “vulnerable” to extinction on the International Union for the Conservation of Nature’s Red List of endangered species, which tracks the survival status of animals and plants.
The policy debate in Greece and the EU is burdened with hysteria over the issue of budget deficit and public debt. The proposition is that the less the governments borrow the better and, therefore, the main policy has been to put pressure on the State to curtail as far as possible all capital expenditure, without concern on how productive and desirable that is in itself. The idea is that cuts in government expenditures are not to be used by the government to tax the general population less but to borrow less on the assumption that if the government borrows less the private sector necessarily borrows more, though taxing less the highest rungs of the income distribution might be desirable as it is considered as an incentive to investment.
Second, led by the belief that the main thrust of policy should be internal devaluation, a program of cutbacks in expenditures, decrease in deficits and debts and wage and income restraint is pursued even in a time of recession. The idea is that if producers have reduced costs of production they will produce more and the prices of the produced goods will fall as much as wages. However, as Keynes pointed out that there is no reason to expect that any reduction of purchasing power will be offset by increases in other directions. Certainly, this reduction of purchasing power may cause a reduction of domestic expenditures on imports, which may improve the trade balance. It may also reduce savings, as public employees and others whose salaries are cut and those who lost their jobs may save less or draw on their passed savings to maintain their habitual standard of life.
However, producers will find that the expenditures of consumers (public employees, pensioners, unemployed) are reduced. Consequently, they can only match this reduction of revenue by either cutting down their own expenditure or making redundant some of their employees or both. As a necessary consequence of reduced incomes and profits there should be an increase in unemployment and a decrease in government tax revenues. Importantly, as Keynes noticed, deflation of wages, incomes and prices transfers wealth from the rest of the public to the rentiers and to those who hold titles to money. In effect, internal devaluation redistributes wealth as it transfers money from borrowers to lenders. The real assets in the country constitute the wealth of its citizens. Such real assets are buildings, stocks of commodities, goods in the process of production and the like. As is the usual practice, owners of these assets frequently purchase them by borrowing money.
Greek pensioner Dimitra says she never imagined a life reduced to food handouts: some rice, two bags of pasta, a packet of chickpeas, some dates and a tin of milk for the month. At 73, Dimitra – who herself once helped the hard-up as a Red Cross food server – is among a growing number of Greeks barely getting by. After seven years of bailouts that poured billions of euros into their country, poverty isn’t getting any better; it’s getting worse like nowhere else in the EU. “It had never even crossed my mind,” she said, declining to give her last name because of the stigma still attached to accepting handouts in Greece. “I lived frugally. I’ve never even been on holiday. Nothing, nothing, nothing.” Now more than half of her €332 ($350) monthly income goes to renting a tiny Athens apartment. The rest: bills.
The global financial crisis and its fallout forced four euro zone countries to turn to international lenders. Ireland, Portugal and Cyprus all went through rescues and are back out, their economies growing again. But Greece, the first into a bailout in 2010, has needed three. Rescue funds from the EU and IMF saved Greece from bankruptcy, but the austerity and reform policies the lenders attached as conditions have helped to turn recession into a depression. Prime Minister Alexis Tsipras, whose leftist-led government is lagging in opinion polls, has tried to make the plight of Greeks a rallying cry in the latest round of drawn-out negotiations with the lenders blocking the release of more aid. “We must all be careful towards a country that has been pillaged and people who have made, and are continuing to make, so many sacrifices in the name of Europe,” he said this month.
Much of the vast sums in aid money has simply been in the form of new debt used to repay old borrowings. But regardless of who is to blame for the collapse in living standards, poverty figures from the EU statistics agency are startling. Greece isn’t the poorest member of the EU; poverty rates are higher in Bulgaria and Romania. But Greece isn’t far behind in third place, with Eurostat data showing 22.2% of the population were “severely materially deprived” in 2015. And whereas the figures have dropped sharply in the post-communist Balkan states – by almost a third in Romania’s case – the Greek rate has almost doubled since 2008, the year the global crisis erupted. Overall, the EU level fell from 8.5% to 8.1% over the period. The reality of such statistics becomes clear at places like the food bank run by the Athens municipality where Dimitra collects her monthly handouts.
Here, dozens more Greeks waited solemnly with a ticket in hand to get their share. All are registered as living below the poverty line of about €370 a month. “The needs are huge,” said Eleni Katsouli, a municipal official in charge of the center. Figures for the food bank, which serves central Athens, show a similar trend on a local scale to the wider Eurostat data. About 11,000 families – or 26,000 people – are registered there, up from just 2,500 in 2012 and 6,000 in 2014, Katsouli said. About 5,000 are children.
Greece’s creditors have dashed hopes of a quick resolution to the country’s looming cash crunch, even as talks paved the way for debt inspectors to return to Athens. Jeroen Dijsselbloem, the head of the Eurogroup, told reporters that there had been a “clear shift” in creditor demands following a meeting of finance ministers in Brussels on Monday. Yields on Greek government bonds fell sharply after he announced that representatives from the European Commission and IMF would return to Athens to thrash out an “additional package of structural reforms” to support long term growth and debt sustainability. Greece needs around €7bn in fresh rescue funds before July in order to cover substantial debt repayments to the ECB and private creditors. The Dutch finance minister said new measures would be “designed and agreed on the ground” in Athens, with a greater emphasis on growth.
“At face value, that means less tax rises and spending cuts and deep reforms to the country’s tax system, pensions and labour laws,” Mr Dijsselbloem told reporters. However, he played down reaching a solution before Dutch elections next month or even the French presidential election in May and said creditors were “looking towards the summer” for an agreement. “There is still a lot of work to do, a lot of issues to discuss and calibrate so I want to temper expectations,” he said. “There is no need for a disbursement in March, April or May.” Mr Dijsselbloem also signalled that differences remained between Greece, Brussels and the IMF over the reforms needed to unlock the next loan tranche and secure the institution’s participation in Greece’s third, €86bn rescue package.
Speaking after the meeting, a Greek government official said Athens was prepared to implement reforms beyond 2019. The official added: “The agreement includes the inviolable condition that was set by the Greek side for not even one euro more of austerity.” However, Pierre Moscovici, European Commissioner for economic and financial affairs, signalled that structural reforms, including pension cuts as well as tax and labour reforms would be required before pro-growth measures could be sanctioned. “I think that one word was forgotten [in the Greek official’s statement]. That was ‘net’,” he said.
After the government backed down on its vow not to take new measures at Monday’s Eurogroup, its number one priority now is damage control. In the runup to Monday’s meeting of eurozone finance ministers, Athens had insisted it had drawn its “red lines,” but it left Brussels having promised its EU partners that it will legislate measures after the current bailout program expires in 2018, in exchange for the return of technical experts to Athens in the bid to conclude the second review of the country’s third bailout. Faced with the challenge of explaining its turnaround and agreement to take new measures to an increasingly disillusioned electorate and lawmakers of ruling SYRIZA and Independent Greeks (ANEL), the government is using the term “neutral fiscal balance” in an attempt to sweeten the pill.
According to government sources, the term essentially means that for every euro saved from the new measures, there will be equivalent reductions in value-added, corporate or property taxes. In other words, the government’s narrative is that even though new measures will be implemented, these will be neutral as their burden will be canceled out by tax relief. Senior government officials were also busy laying the groundwork last week, saying that the government may have to accept new measures “for the good of the country” as the protracted negotiations to conclude the review were having a negative impact on the prospects of the country’s economic recovery.
Deep in a vault in the headquarters of the European Central Bank (ECB) lie #TheGreekFiles, a legal opinion about the ECB’s actions towards Greece in 2015 that could send shockwaves across Europe. As a European taxpayer, you paid for these documents. But the ECB’s boss, ex-Goldman Sachs head Mario Draghi, says you can’t see them. So former Greek Finance Minister Yanis Varoufakis and MEP Fabio de Masi, together with a broad alliance of politicians and academics (below), have announced they will file a mass freedom of information request to the ECB to uncover #TheGreekFiles once and for all. If Mario says no, they’ll take the campaign to the next level, and consider all options – including legal action – to make this vital information public. Support their request to release critical documents you paid for by signing this petition now!
What are #TheGreekFiles? In June 2015, the newly-elected Greek government was locked in tense negotiations with its creditors (the ‘Troika’ – the ECB, EC and IMF), doing what it had been voted in to do: renegotiate the country’s public debt, fiscal policy and reform agenda, and save its people from the hardship of the most crushing austerity programme in modern history. The Troika knew they needed to make a drastic move to force the Greek government to capitulate. And that’s just what they did: through the ECB, they took action to force Greece’s banks to close, ultimately driving the Greek government – against its democratic mandate – to accept the country’s third ‘bailout’, together with new austerity measures and new reductions in national sovereignty.
But in their haste, their zeal to crush the Greek government’s resistance, the ECB feared their actions might be legally dubious. So they commissioned a private law firm to examine whether those decisions were legal. The legal opinion of this law firm is contained in #TheGreekFiles. In July 2015, the German MEP Fabio De Masi asked Mario Draghi to release the legal opinion. Mario refused, hiding behind ‘attorney-client privilege’. Clearly #TheGreekFiles contain something he doesn’t want you to see. One of the foremost experts on European Law, Professor Andreas Fischer-Lescano, examined whether the ECB was right to refuse to release #TheGreekFiles. His detailed conclusion leaves no room for doubt: the ECB has no case for withholding from MEPs and the citizens of Europe the legal opinion the ECB secured (and paid for using your money) regarding its own conduct.
[..] the real issue hidden in plain sight is how America — indeed all the so-called “developed” nations — are going to navigate to a stepped-down mode of living, without slip-sliding all the way into a dark age, or something worse. By the way, the Ole Maestro, Alan Greenspan, also chimed in on the “productivity” question last week to equally specious effect in this Business Insider article. None of these celebrated Grand Viziers knows what the fuck he’s talking about, and a nation depending on their guidance will find itself lost in a hall of mirrors with the lights off. So, on one side you have Trump and his trumpets and trumpistas heralding the return of “greatness” (i.e. a booming industrial economy of happy men with lunchboxes) which is not going to happen; and on the other side you have a claque of clueless technocrats who actually believe they can “solve” the productivity problem with measures that really only boil down to different kinds of accounting fraud.
You also have an American public, and a mass media, who do not question the premise of a massive “infrastructure” spending project to re-boot the foundering economy. If you ask what they mean by that, you will learn that they uniformly see rebuilding our highways, bridges, tunnels, and airports. Some rightly suspect that the money for that is not there – or can only be summoned with more accounting fraud (borrowing from our future). But on the whole, most adults of all political stripes in this country think we can and should do this, that it would be a good thing. And what is this infrastructure re-boot in the service of? A living arrangement with no future. A matrix of extreme car dependency that has zero chance of continuing another decade. More WalMarts, Target stores, Taco Bells, muffler shops, McHousing subdivisions, and other accoutrement of our fast-zombifying mode of existence? Isn’t it obvious, even if you never heard of, or don’t understand, the oil quandary, that we have shot our wad with all this? That we have to start down a different path if we intend to remain human?
It’s not hard to describe that waiting world, which I’ve done in a bunch of recent books. We’re going there whether we like it or not. But we can make the journey to it easier or harsher depending on how much we drag our heels getting on with the job. History is pretty unforgiving. Right now, the dynamic I describe is propelling us toward a difficult reckoning, which is very likely to manifest this spring as the political ineptitude of Trump, and the antipathy of his enemies, leaves us in a constitutional maelstrom at the very moment when the financial system comes unglued. Look for the debt ceiling debate and another Federal Reserve interest rate hike to set off the latter. There may be yet another converging layer of tribulation when we start blaming all our problems on Russia, China, Mexico, or some other patsy nation. It’s already obvious that we can depend on the Deep State to rev that up.
When Donald Trump gave a speech last Friday at Boeing’s factory in North Charleston, South Carolina – unveiling Boeing’s new 787 “Dreamliner” – he congratulated Boeing for building the plane “right here” in South Carolina. It’s pure fantasy. I’ll let you know why in a moment. Trump also used the occasion to tout his “America First” economics, stating “our goal as a nation must be to rely less on imports and more on products made here in the U.S.A.” and “we want products made by our workers in our factories stamped by those four magnificent words, ‘Made in the U.S.A.’” To achieve this goal Trump would impose “a very substantial penalty” on companies that fired their workers and moved to another country to make a product, and then tried to sell it back to America. The carrot would be lower taxes and fewer regulations “that send our jobs to those other countries.” Trump seems utterly ignorant about global competition – and about what’s really holding back American workers.
Start with Boeing’s Dreamliner itself. It’s not “made in the U.S.A..” It’s assembled in the United States. But most of it parts come from overseas. Those foreign parts total almost a third of the cost of the entire plane. For example: The Italian firm Alenia Aeronautica makes the center fuselage and horizontal stabilizers. The French firm Messier-Dowty makes the aircraft’s landing gears and doors. The German firm Diehl Luftfahrt Elektronik supplies the main cabin lighting. The Swedish firm Saab Aerostructures makes the cargo access doors. The Japanese company Jamco makes parts for the lavatories, flight deck interiors and galleys. The French firm Thales makes its electrical power conversion system. Thales selected GS Yuasa, a Japanese firm, in 2005 to supply it with the system’s lithium-ion batteries. The British company Rolls Royce makes many of the engines. A Canadian firm makes the moveable trailing edge of the wings.
Notably, these companies don’t pay their workers low wages. In fact, when you add in the value of health and pension benefits – either directly from these companies to their workers, or in the form of public benefits to which the companies contribute – most of these foreign workers get a better deal than do Boeing’s workers. (The average wage for Boeing production and maintenance workers in South Carolina is $20.59 per hour, or $42,827 a year.) They also get more paid vacation days. These nations also provide most young people with excellent educations and technical training. They continuously upgrade the skills of their workers. And they offer universally-available health care. To pay for all this, these countries also impose higher tax rates on their corporations and wealthy individuals than does the United States. And their health, safety, environmental, and labor regulations are stricter.
Not incidentally, they have stronger unions. So why is so much of Boeing’s Dreamliner coming from these high-wage, high-tax, high-cost places?
Saudi Arabia boosted oil exports and production last year to the highest monthly averages on record as the global crude market endured oversupply. Exports climbed to 7.65 million barrels a day on average last year, from 7.39 million barrels a day a year earlier, according to Joint Organisations Data Initiative monthly data compiled by Bloomberg. Production rose to 10.46 million barrels a day from 10.19 million, on average, over the same period. Saudi Arabia led the push by global producers to end a crude glut by cutting output as of Jan. 1. JODI data indicate that the kingdom’s exports surged to more than 8 million barrels a day in November and December right before the cuts were due to start. Shipments in November were the highest since May 2003, JODI data show.
“Whenever there was no agreement with others, Saudi Arabia was running after expanding its market share,” said Mohamed Ramady, an independent analyst in London. Saudi Arabia pumped 10.2 million barrels to 10.67 million barrels a day in the first 10 months as producers discussed output cuts without making an agreement. It reined in production in January following the deal between the Organization of Petroleum Exporting Countries and non-OPEC nations to reduce output by 1.8 million barrels a day, according to data compiled by Bloomberg.
Chinese banks had more than 26 trillion yuan ($3.8 trillion) of wealth-management products held off their balance sheets at the end of December, a 30% increase from a year earlier, according to the central bank. The expansion of this form of shadow banking, with money eventually being diverted to quasi-loans and bonds, outpaced the 10% growth for normal lending during the same period, raising risks for the broader economy and undermining the country’s “deleveraging” efforts, the People’s Bank of China said Friday in its quarterly monetary policy report. The central bank is including off-balance sheet WMPs in its so-called macro prudential assessment framework starting this quarter to better gauge the expansion of credit and potential risks in the financial system.
The move will probably lead to banks reporting higher credit growth and may require them to take steps to maintain sufficient capital reserves to limit risks posed by the investment products. Since late 2014, the China Banking Regulatory Commission has been tightening rules on WMPs, most of which are non-principal guaranteed, meaning they can reside off banks’ balance sheets. The products are a key reason behind the growth of shadow banking in China, and have been used by some financial institutions as a way to extend funds to risky borrowers and evade capital requirements. The investment vehicles are asset-management products by nature and therefore investors should shoulder any risks by themselves, the central bank said in its report. More work is needed to solve problems such as the real amount of capital banks should hold to cover WMPs, risk segmentation, regulatory arbitrage, and the perception of an implicit guarantee of repayment, the PBOC said.
“Let’s drop the pretense. The Toronto housing market and the many cities surrounding it are in a housing bubble,” Bank of Montreal (BMO) Chief Economist Doug Porter told clients in a note last week. Many have called it “housing bubble” for a while, but now it’s official, according to BMO. In January, the benchmark price and the average price were both up 22% year-over-year, with the average price of detached homes up 26%, of semi-detached homes 28%, of townhouses 27%, and of condos 15%. Double-digit price increases have become the rule in recent years. But this jump was “the fastest increase since the late 1980s – a period pretty much everyone can agree was a true bubble – and a cool 21 percentage points faster than inflation and/or wage growth,” Porter explained in his note, cited by BNN.
Home prices in Greater Toronto have become “dangerously detached” from economic fundamentals and are soaring simply on the belief that they will continue to soar, he wrote. “The market is far too hot for comfort.” BNN: “The often-cited mantra that Toronto’s real estate market is being driven largely by a lack of supply is wearing thin, he argues. Housing starts in Toronto and Vancouver recently hit an all-time high of 70,000 units per year and overall Canadian starts are above demographic demand at 200,000 units in the past year, according to BMO.” The “massive price gains” are not driven by lack of supply, but “first and foremost by sizzling hot demand, whether from ultra-low interest rates (negative in real terms), robust population growth, or non-resident investor demand.”
“Toronto and any city that is remotely within commuting distance are overheating, and perhaps dangerously so,” he said. But don’t expect the city of Toronto to do anything other than inflate the bubble further. It has to – unless it wants to fall into a fiscal and financial sinkhole. This became apparent last week, when the city councilors approved Toronto’s operating and capital budgets. What a mess!
The tax-supported operating budget is now expected to grow by 4.4% in 2017, to C$10.5 billion. So more taxes must be extracted from the hapless folks in Toronto. Among sundry fees, taxes, and levies, the councilors approved a 3.29% increase in the residential property tax and raised the municipal land transfer tax. Under the new budget, property taxes would provide 38% of the revenues, and the land transfer tax 7%, for a total of 45% of the C$10.5 billion in taxes, or C$4.7 billion. Just how dependent the funding for Toronto’s ballooning operating budget has become on the house price bubble – and the property-related taxes it generates – is made clear in this chart by Warren Lovely, Head of Public Sector Research & Strategy at National Bank Financial, Toronto:
Canadian police said on Monday they had bolstered their presence at the Quebec border and that border authorities had created a temporary refugee center to process a growing number of asylum seekers crossing from the United States. The Canada Border Services Agency, or CBSA, said at a news conference that it had converted an unused basement into a refugee claimant processing center. Both the border agency and the Royal Canadian Mounted Police are reassigning staff from other locations in the province, as needed, to accommodate rising demand. The CBSA said the number of people making refugee claims at Quebec-U.S. border crossings more than doubled from 2015 to 2016. Last month, 452 people made claims in Quebec compared with 137 in January 2016, the agency said.
The influx is straining police, federal government and community resources from the western prairie province of Manitoba, where people arrive frostbitten from hours walking in freezing conditions, to Quebec, where cabs drop asylum seekers off meters away from the Quebec-U.S.border, the border agency said. A Reuters reporter on Monday saw RCMP officers take in for questioning a family of four – two men, a woman and a baby in a car seat – who had walked across the snowy gully dividing Roxham Road in Champlain, New York, from Chemin Roxham in Hemmingford, Quebec. “Please explain to her that she’s in Canada,” one Canadian officer told another officer.
Police take people crossing the border in for questioning at the border agency’s office in Lacolle, Quebec, which is the province’s biggest and busiest border crossing. Police identify them and ensure they are not a threat or carrying contraband. They are then transferred to the CBSA for fingerprinting and further questions. If people are deemed a threat or flight risk, they are detained. If not, they can file refugee claims and live in Canada while they wait for a decision “It’s touching, and we are not insensitive to that,” Bryan Byrne, the RCMP’s Champlain Detachment commander, told reporters near the border. “Some of these people had a long journey. Some are not dressed for the climate here.”
Asylum seekers cross illegally because Canada’s policy under the Canada-U.S. Safe Third Country Agreement is to turn back refugees if they make claims at border crossings. But as U.S. President Donald Trump cracks down on illegal immigrants, Amnesty International and refugee advocacy groups are pressuring the Canadian government to abandon the agreement, arguing the United States is no safe haven. On Monday, Montreal, Canada’s second most populous city, voted to declare itself a “sanctuary city,” making it the fourth Canadian city to protect illegal immigrants and to provide services to them.
Thousands of people marched through the streets of downtown Barcelona on Saturday shouting the slogan “Casa nostra, casa vostra” (Our home, your home). Barcelona had prepared its plan for welcoming Syrian and Iraqi refugees back in September 2015. It put its municipal services on standby and organized an army of volunteers, whose generosity inspired residents in Madrid and Valencia to open their own cities to refugees. In the meantime, much of the rest of Europe was busy building walls, fencing itself in, warding inflows off, hardening its laws and ignoring not just the plight of the refugees themselves, but also the difficulties faced by Greece and Italy, Lesvos and Lampedusa. This amazing show of solidarity – not rhetorical but actual and tangible – from the Catalans convinced the Spanish government to raise its commitment for taking in refugees trapped in Greece and Italy from the 2,749 it had initially agreed to up to 17,680.
But numbers often suffer the same fate as words, dying out without leaving a single political or moral trace. Up until February 2016, just 18 refugees had been relocated to Spain, a number that makes sense when you consider that of the 160,000 relocations agreed on by the countries of the European Union, just 600 had actually taken place by that time. This failure to live up to commitments prompted Barcelona Mayor Ada Colau at this precise time last year to lash out against the Spanish government and the strategy centers in Brussels, which seem happy to confine their action to the deal made between the European Union and Turkey, even though this has been condemned by every respected humanitarian organization.
Colau’s protests fell on deaf ears, so on August 1, 2016, authorities in Barcelona placed a “counter of shame” on the city’s most popular beach, recording daily how many people are lost at sea in their effort to escape war or extreme poverty. We don’t know whether the counter triggered any feelings of guilt, but it certainly failed to awaken any sense of responsibility. When it was inaugurated, the number of victims stood at 3,034. By the end of the year, and according to official data from Europe, ever the passive observer, this surpassed 5,000. And as far as relocations to Spain go, these barely came to more than 1,000 last year. This, in general terms, is the background of that very encouraging rally we saw in Barcelona on Saturday. Whether the people who took to the streets were motived by their feelings or by their ideological beliefs is a question that only means something to those who think ideology is a fixation and feelings a sign of immaturity.
Pension funds around the world pay benefits through a combination of investment gains and contributions from employers and workers. To ensure enough is saved, plans adopt long-term annual return assumptions to project how much of their costs will be paid from earnings. They range from as low as a government bond yield in much of Europe and Asia to 8% or more in the U.S. The problem is that investment-grade bonds that once churned out 7.5% a year are now barely yielding anything. Global pensions on average have roughly 30% of their money in bonds.Low rates helped pull down assets of the world’s 300 largest pension funds by $530 billion in 2015, the first decline since the financial crisis, according to a recent Pensions & Investments and Willis Towers Watson report.
Funding gaps for the two biggest funds in Europe and the U.S. have ballooned by $300 billion since 2008, according to a Wall Street Journal analysis. Few parts of Europe are feeling the pension pain more acutely than the Netherlands, home to 17 million people and part of the eurozone, which introduced negative rates in 2014. Unlike countries such as France and Italy, where pensions are an annual budget item, the Netherlands has several large plans that stockpile assets and invest them. The goal is for profits to grow faster than retiree obligations, allowing the pension to become financially self-sufficient and shrink as an expense to lawmakers. ABP,[Europe’s largest pension fund], currently holds 90.7 cents for every euro of obligations, a ratio that would be welcome in other corners of the world.
But Dutch regulators demand pension assets exceed liabilities, meaning more cash is required than actually needed. This spring, ABP officials had to provide government regulators a rescue plan after years of worsening finances. ABP’s members, representing one in six people in the Netherlands, haven’t seen their pension checks increase in a decade. ABP officials have warned payments may be cut 1% next year. “People are angry, not because pensions are low, but because we failed to deliver what we promised them,” said Gerard Riemen, managing director of the Pensioenfederatie, a federation of 260 Dutch pension funds managing a total of €1 trillion. Benefit cuts have become such a divisive issue that one party, 50PLUS, plans for parliamentary-election campaigns early next year that demand the end of “pension robbery.” “Giving certainty has become expensive,” said Ms. Wortmann-Kool, ABP’s chairwoman.
Trump’s occasional dovish comments do not match the passion and enthusiasm of his repeated hawkish campaign trail rhetoric. For the past year, the president-elect has been railing against the “false economy” that the Fed has created, as well as the political influence that runs rampant throughout the central bank. Perhaps Trump’s most scathing attack on the institution came last October, when he insinuated that Fed actions are crippling the middle class without creating any type of benefit to the economy at large. “[Chairwoman Yellen] is keeping the economy going, barely,” he said. “You know who gets hurt the most [by her easy money policies]? The people that went through 40 years of their life and saved a hundred dollars every week [in the bank].”
He then paused and shook his head for added effect before adding: “They worked all their lives to save and now what happens is they’re being forced into an inflated stock market and at some point they’ll get wiped out.” These anti-Fed talking points were recycled often on the campaign trail. In September, Trump attacked the Fed for putting us in a “big, fat, ugly bubble” and for keeping rates artificially low for political purposes, points that he again repeated in the first presidential debate. The business mogul has also promised to audit the Fed within the first 100 days of his administration and even included a criticism of the central bank in a recent online video ad. Team Trump’s economic advisers paint an even more optimistic picture of his future monetary policy.
Some of today’s most reasonable mainstream economic voices are included in his inner circle. These names include David Malpass of Encima Global, who co-signed a letter with Jim Grant opposing the Fed’s “inflationary” and “distortive” quantitative easing program; John Paulson of Paulson & Co., who made billions from shorting the housing market before the Great Recession; Andy Beal, a self-described “libertarian kind of guy” who blames the Fed for the credit crisis; and the Heritage Foundation’s Stephen Moore, who told CSIN in 2012 that he is a “very severe critic” of the Fed’s “incredibly easy-money policies policies of the past decade.”
While none of Trump’s economic advisers are by any means Austrians, they are far more hawkish than most of Presidents Bush and Obama’s past economic advisers. Ian Shepherdson, chief economist at Pantheon Macroeconomics, has even said that these advisers are pushing Trump to nominate two “hard money” candidates to fill the Fed’s current vacancies. “A core view of many Trump advisors is that the extended period of emergency policy settings has promoted a bubble in the stock market, depressing the incomes of savers, scared the public and encouraged capital misallocation,” Shepherdson told Market Watch. “Right now, these are minority views on the Fed policymaking committee, but Trump appointees are likely to shift the needle.”
For all its imagination about the future, Silicon Valley’s geography looks a lot like the past. Today’s college-educated millennials might be crowding into city centers, but each day employees at companies like Google and Facebook endure hours in cars or on buses commuting to squat office complexes that have all the charm of a Walmart. Many employees say they would prefer to live closer to work. But these companies reside in small cities that consider themselves suburbs, and the local politics are usually aligned against building dense urban apartments to house them. Take Palo Alto, the Silicon Valley city that has become emblematic of the state’s reputation for rampant not-in-my-backyard politics. Palo Alto has one of the state’s worst housing shortages. With about three jobs for every housing unit, it has among the most out-of-balance mixes anywhere in Silicon Valley.
But instead of dealing with this issue by building the few thousand or so apartments it would take to make a dent in the problem, the city has mostly looked to restraining a pace of job growth that the mayor described as “unhealthy.” Farther up the peninsula near San Francisco, the small city of Brisbane told a developer that its proposal for a mixed-use development with offices and 4,000 housing units should have offices for about 15,000 workers, but no new housing. Play that out a thousand times over and the crux of the state’s housing crisis is clear: Everyone knows housing costs are unsustainable and unfair, and that they pose a threat to the state’s economy. Yet every city seems to be counting on its neighbors to step up and fix it.
The results are strange compromises like the one made by Rebecca and Steven Callister, a couple in their late 20s who live in a double-wide trailer in a Mountain View mobile home park whose residents are retirees and young tech workers. Mr. Callister is an engineer at LinkedIn, the sort of worker who, in most places, would own a home. But given the cost of housing in Mountain View and the brutal commute times from anywhere they could afford, a trailer makes the most sense and lets him spend more time with the couple’s two young children. “We joke that it’s the only mobile home park with Mercedeses and Teslas in the driveway,” Mrs. Callister said. “It’s like the new middle class in California.”
In contrast to Palo Alto, Mountain View is trying to wedge new apartments into its office parks. Much of the action centers on the North Bayshore area, a neighborhood of low-slung office buildings surrounded by asphalt parking lots.
China’s new home sales growth slowed in October from a year earlier, suggesting the push by policy makers to rein in runaway prices is getting traction. The value of homes sold rose 38% to 941 billion yuan ($138 billion) last month from a year earlier, according to Bloomberg calculations based on data the National Bureau of Statistics released Monday. The increase compares with a 61% gain the previous month. Local authorities in nearly two dozens cities have since late September rolled out property curbs ranging from raising down-payments for first and second homes to ruling some potential buyers ineligible.
China’s banking regulator has told banks to review their business related to mortgage lending and property development loans, after China Minsheng Banking Corp. suspended approvals of some non-standard mortgages in Shanghai. Slower home sales have helped moderate credit growth. New medium- and long-term household loans, mostly residential mortgages, stood at 489.1 billion yuan in October, down from 571.3 billion yuan in September, according to central bank data on Friday. New yuan loans edged down to 651.3 billion yuan last month from 1.22 trillion yuan in September.
U.S. President-elect Donald Trump appears to have burst the bond bubble, putting emerging markets (EM) from Mexico to Indonesia at the sharp end of a sell-off. Expectations of fiscal stimulus, infrastructure spending and reflationary policies under a Trump administration were fueling inflation fears, sending benchmark U.S. ten-year Treasury yields and the dollar surging. Expectations for tighter monetary policy and a December rate hike by the Federal Reserve were also playing a role. In the wake of last week’s election outcome, the U.S. 10-year Treasury yield climbed above 2% from levels below 1.8% in the days before the result, with many analysts pointing to expectations that Trump’s promised policies would spur a resurgence of inflation and further interest rate hikes from the U.S. Federal Reserve.
That created a negative feedback loop for emerging market assets. Indonesia’s rupiah fell by as much as 3% against the dollar on Friday to five-month lows, hurting local stocks, with the declines extending on Monday. Malaysia’s ringgit also fell to its lowest against the dollar since late 2015, near levels not seen since the Asian Financial Crisis in 1998. Central banks last week in Malaysia and Indonesia intervened to support their currencies, while foreign investors have slashed holdings of sovereign EM bonds perceived as most risky. Analysts were rejigging their outlook for Asian bonds. “Asian fixed income assets have operated on a ‘lower for longer’ assumption’ for U.S. rates since June,” RBS economists led by Vaninder Singh wrote. “This assumption is being challenged. High-yielding currencies will have to re-price to become attractive again.”
Routs in global bonds and emerging markets intensified, while the dollar climbed with U.S. equity futures and industrial metals as investors position for the wave of fiscal stimulus that Donald Trump plans to unleash. Sovereign bonds in the Asia-Pacific region slid with U.S. Treasuries, extending a record debt selloff, amid speculation President-elect Trump’s pledge to boost infrastructure spending will trigger U.S. interest-rate hikes as economic growth and inflation pick up. Bloomberg’s dollar index climbed to a nine-month high as an earthquake weighed on New Zealand’s dollar. Japanese shares were set for their best close since April after gross domestic product data, while shares in developing nations fell. Copper surged to a 16-month high and gold slumped.
Trump’s election victory continues to send shockwaves through global markets, having already led to $1.2 trillion being wiped off the value of bonds worldwide last week as equities added about $1 trillion and industrial metals soared by the most in four years. Emerging markets are being hit by an exodus of capital as speculation builds that the U.S. is headed for an era of rising interest rates and more protectionist trade policies. “In the short-term the election of Donald Trump as president is causing a bit of uncertainty and markets tend to overreact to that,” said Shane Oliver at AMP Capital. “I suspect the dust will settle down in the next couple of months and this sort of market overreaction will provide opportunities.”
Words matter. The process of understanding why Donald Trump is now heading for the White House starts with the correct description of what has happened in the eight years since Barack Obama became president. Some economists call the turbulent period that followed the collapse of Lehman Brothers the Great Recession. Others say the US along with other developed nations is experiencing secular stagnation. Anything, it seems, to avoid using the D word: depression. The dictionary definition of a depression is a sustained, long-term downturn in economic activity, which sums up precisely what has occurred since 2008. Growth rates globally have remained low despite colossal amounts of stimulus. Living standards have barely risen and the threat of deflation has loomed large.
The depression since 2008 has not been as severe as that of the 1930s but there are echoes of it all the same: in the food banks that are the new soup kitchens; in the mass movements of migrants in search of a better life who are the modern equivalent of the Okies in the Grapes of Wrath; and in Trump, who has tapped into anger that has been bubbling away quietly for decades. The turning point for the average American worker came in the mid-1970s because for the first 30 years after the second world war the gains from rising prosperity were evenly shared. But this trend was broken around the time of Watergate and the end of the Vietnam war. Since 1975, productivity in the US has more than doubled, but average hourly compensation has increased by only 50%. The fruits of growth have been captured by the few, not the many.
It’s done. The foolish, arrogant propaganda excreted by the captive press of the Imperial Establishment is flushed, and they and their owners are eating their hubris, choking down the bitter, toxic medicine they inflicted on themselves. The nightmare they swore could never win is the Chosen One. What this may mean to them, to all of us, and to The Empire, no one can guess. The origin, though, of what Michael Moore called the greatest “Fuck You” in our political history, is clear behind the shock and awe of the elite. Between them, Trump and Clinton diligently stripped away the last shreds of the rent and ragged camouflage that disguised our zombie body politic.
Behind the mantra of Exceptionalism, the American Empire has behaved with exactly the same solipsistic arrogance all empires have embraced. Internationally it has raged, as imperial China did, as if with a “Mandate of Heaven”, flaunting self-interest with no regard for other nations or the laws of war. It has inflicted misery, chaos, and death on many millions of the poor and helpless for a Full Spectrum Dominance it could never impose. America’s Capitalist War Machine has raped and destroyed many countries for its profit, and destablized the entire world in its megalomania. Schumpeter said it best, of Imperial Germany’s military industry: “Created by the wars that required it, the Machine now creates the wars it requires.”
America has been transformed over time from a civil democracy with imperial economics to a militarist empire with vaudeville democracy. This was accomplished by binding both wings of the duopoly to the exclusive interest of Predatory Capitalism with corrupting money. A corporate state imposed via political and military power is the essence of Fascism. For generations, Americans have been dosed with the ultra-nationalist poison of Exceptionalism, with its implicit racist subtext, and its sexism buried in a hoo-rah masculinity cult, but it has always been flavored with the sweetening agent that We, The People, were both masters and beneficiaries of our benign, patristic system. The last several decades have painfully taught any conscious observer that this is a cynical fiction.
As the sellside reports analyzing the post-president Trump world keep pouring in, one that caught our attention was from Morgan Stanley’s Andrew Sheets in which the strategist openly admits that pretty much nobody has any idea what is coming: “Most remarkably, however, after three debates, two conventions and an election that seemed to last forever, there remains a great deal of uncertainty over what type of president Trump will actually be. In an election that was dominated by coverage of tweets, videos and emails, policy questions received surprisingly little airtime. And those questions are now crucial for markets.
“To a remarkable extent, investors we’ve spoken to both before and after November 8 disagree on what President-Elect Trump will actually do. Many have told us, confidently, that they believe that, while he said some extreme things on the campaign trail, he is ultimately a moderate, pragmatic businessman. A deal-maker who will delegate policy to experts, lead with market-friendly (almost Keynesian) fiscal stimulus and ultimately avoid a large fight on trade. Other investors take a less benign view. They say the President-Elect should be taken at his word, and that since the start of his campaign he has defied predictions that he would moderate his tone or policy message.”
The problem, according to Morgan Stanley, is during the campaign, “Trump was a master at keeping both possibilities open, broadening his appeal. Like Schrodinger’s cat, his policies existed in a state of being both pragmatic and radical, all at the same time. Upcoming cabinet appointments offer clues to which interpretation is right. Until then, we promise to keep an open mind, and focus on modelling the different paths a Trump administration could take, and what it means for markets.”
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“The market’s been looking for the fiscal theme to take over,” said Deutsche Bank’s Alan Ruskin. “The burden of responsibility has shifted..”
Count this among the ways that Donald Trump’s election has rocked the financial world: monetary policy is no longer in charge. The president-elect’s proposals for significant commitments to spending and tax cuts have shifted the burden of stimulating growth from central banks, for the moment at least. “The market’s been looking for the fiscal theme to take over,” said Deutsche Bank’s Alan Ruskin. “The burden of responsibility has shifted,” with those who doubt the market’s recalibration being the ones who need to prove their case. That accounts, in part, for the enthusiasm for equities and commodities. Expectations of faster U.S. inflation are also spreading to Europe and Japan as seen in rising breakeven rates.
Trump may get some of the spending and, especially, the tax cuts he wants from Congress. Whether these will have the effect the market is now betting on remains to be seen. Trump will be pushing against an economy that is on a lower long-term growth trend in what many economists call “the new normal.” As a candidate, he promised an expansion of 3.5% or faster. If it doesn’t materialize, will he double-down on his policies? The upward surge in bond yields across the curve, inflation expectations and the dollar may complicate Trump’s plans. Futures show traders are locking in bets on a December rate increase. It’s possible that tightening financial conditions may slow the Fed from further moves until stimulus bears fruit.
But monetary policy is no longer what’s driving these moves. Increasingly, central banks may see themselves in a defensive role, reacting to events rather than dictating trends. The greenback’s rally is already forcing Asian and Latin American central banks to protect their currencies. More such moves may be in the offing if dollar gains continue. Will Europe and Japan turn to the Trump model in an attempt to boost growth and inflation in ways monetary policy hasn’t? Europe may have a limited ability to increase spending, while Japan has essentially exhausted that growth channel, too, said Robert Tipp of Prudential. But for now, after growing weary of monetary-led slow growth, markets are grasping at Trump’s answer to the New Normal.
“Nobody for President, that’s my campaign slogan,” Nick Cannon asserted in “Too Broke to Vote,” his viral criticism of the American electoral process from March of this year. Now, it turns out nobody for president won the 2016 election in a landslide. According to new voter turnout statistics from the 2016 election, 47% of Americans voted for nobody, far outweighing the votes cast for Trump (25.5%) and Hillary (25.6%) by eligible voters. And the “I voted for nobody” group is actually much larger than the 47% reported because that number only includes eligible voters. How many millions of Americans under the legal voting age – not to mention the countless millions who have lost their voting rights – voted for nobody, as well? Factoring in those individuals, around 193 million people did not vote for Trump or Clinton.
That’s nearly two-thirds of the population of the United States. Nobody also seemingly won the presidential primaries, with only 9% of Americans casting their votes for either Trump or Clinton. So when does nobody take office? Nobody won the majority of votes in the primaries or the general election, and the two main candidates who were running didn’t “win” the popular vote — they simply slightly outcompeted each other considering neither garnered over 50% of the eligible voters’ ballots. That’s where the real debate begins. As I wrote back in August when the primary voter turnout rates came in, one could argue that Trump (and Obama) do not have a legitimate mandate to rule over the people of the United States. Trump did not win the majority of Americans’ votes – not even close.
When all Americans are included, Trump only garnered the votes of about 19% of us. This means the United States will be ruled over by a small minority of voters who elected someone to continually impose their political positions on the other 81% of us. Of course, as is the case with Democrats looking to assign blame for Hillary’s loss, pundits and political pontificators argue the people who didn’t vote have no right to complain about the outcome. After all, a non-vote or a vote for a third-party candidate was, in actuality, a vote for Trump. But that logic is flawed. The majority of Americans don’t vote anymore because the political system no longer represents them. We’ve been disenfranchised by decades of corrupt, unrepresentative politicians.
“The dorkiness: the pantsuits. The arrogance: the email server. The smugness: the basket of deplorables. Worse, her mere presence rubs it in that even women from her class can treat working-class men with disrespect. ”
My father-in-law grew up eating blood soup. He hated it, whether because of the taste or the humiliation, I never knew. His alcoholic father regularly drank up the family wage, and the family was often short on food money. They were evicted from apartment after apartment. He dropped out of school in eighth grade to help support the family. Eventually he got a good, steady job he truly hated, as an inspector in a factory that made those machines that measure humidity levels in museums. He tried to open several businesses on the side but none worked, so he kept that job for 38 years. He rose from poverty to a middle-class life: the car, the house, two kids in Catholic school, the wife who worked only part-time. He worked incessantly. He had two jobs in addition to his full-time position, one doing yard work for a local magnate and another hauling trash to the dump.
Throughout the 1950s and 1960s, he read The Wall Street Journal and voted Republican. He was a man before his time: a blue-collar white man who thought the union was a bunch of jokers who took your money and never gave you anything in return. Starting in 1970, many blue-collar whites followed his example. This week, their candidate won the presidency. For months, the only thing that’s surprised me about Donald Trump is my friends’ astonishment at his success. What’s driving it is the class culture gap. One little-known element of that gap is that the white working class (WWC) resents professionals but admires the rich. [..] Why the difference? For one thing, most blue-collar workers have little direct contact with the rich outside of Lifestyles of the Rich and Famous.
But professionals order them around every day. The dream is not to become upper-middle-class, with its different food, family, and friendship patterns; the dream is to live in your own class milieu, where you feel comfortable — just with more money. “The main thing is to be independent and give your own orders and not have to take them from anybody else,” a machine operator told Lamont. Owning one’s own business — that’s the goal. That’s another part of Trump’s appeal. Hillary Clinton, by contrast, epitomizes the dorky arrogance and smugness of the professional elite. The dorkiness: the pantsuits. The arrogance: the email server. The smugness: the basket of deplorables. Worse, her mere presence rubs it in that even women from her class can treat working-class men with disrespect.
Look at how she condescends to Trump as unfit to hold the office of the presidency and dismisses his supporters as racist, sexist, homophobic, or xenophobic. Trump’s blunt talk taps into another blue-collar value: straight talk. “Directness is a working-class norm,” notes Lubrano. As one blue-collar guy told him, “If you have a problem with me, come talk to me. If you have a way you want something done, come talk to me. I don’t like people who play these two-faced games.” Straight talk is seen as requiring manly courage, not being “a total wuss and a wimp,” an electronics technician told Lamont. Of course Trump appeals. Clinton’s clunky admission that she talks one way in public and another in private? Further proof she’s a two-faced phony.
The EU promised to cooperate with U.S. President-elect Donald Trump while vowing to stand by international agreements he has questioned including United Nations deals to curb climate change and ease sanctions on Iran. After a dinner in Brussels to discuss future EU-U.S. relations in the wake of Trump’s victory in the Nov. 8 American election, European foreign ministers also signaled a determination to maintain their opposition to Russia’s encroachment in eastern Ukraine. “We are looking forward to a very strong partnership with the next administration,” EU foreign policy chief Federica Mogherini told reporters late Sunday after hosting the gathering. “For us, it’s extremely important to work on the climate-change agreement implementation but also on non-proliferation and the protection of the Iranian nuclear deal.”
Trump’s win last week threatens to upend eight years of EU-U.S. cooperation during the tenure of President Barack Obama and decades of trans-Atlantic relations underpinned by NATO. As the Republican Party’s presidential candidate, Trump raised doubts about UN accords on global warming and Iran’s nuclear program that the Obama administration helped to forge and about the benefits of U.S.-led NATO. Trump also had praiseworthy words for Russian President Vladimir Putin, whose annexation of the Ukrainian region of Crimea in 2014 and support for pro-Russia rebels in eastern Ukraine prompted the U.S. and EU to impose sanctions that remain in place. “The EU has a very principled position on the illegal annexation of Crimea and the situation in Ukraine,” Mogherini said. “This is not going to change regardless of possible shifts in others’ policies.”
While America’s so-called “establishment”, the legacy political system and mainstream media, appear to be melting, and transforming before our eyes into something that has yet to be determined, Europe also appears to be disintegrating in response to the Trump presidential victory: as the FT reports, in a stunning development, Britain and France on Sunday night snubbed a contentious EU emergency meeting to align the bloc’s approach to Donald Trump’s election, exposing rifts in Europe over the US vote. Hailed by diplomats as a chance to “send a signal of what the EU expects” from Mr Trump, the plan fell into disarray after foreign ministers from the bloc’s two main military powers declined to attend the gathering demanded by Berlin and Brussels.
The meeting, which comes as Trump appointed his key deputies – chosing the more moderate establishment figure, RNC chairman Reince Priebus, to be his chief-of-staff over campaign chairman Stephen Bannon, who becomes chief strategist and counsellor – was supposed to create a framework for Europe in how to deal with a “Trump threat” as Europe itself faces an uphill climb of contenuous, potentially game-changing elections over the coming few months[..] The split in Europe highlights the difficulties “European capitals face in coordinating a response to Mr Trump, who has questioned the US’s commitments to Nato and free trade and hinted at seeking a rapprochement with Russian president Vladimir Putin” much to the amusement of famous euroskeptic Nigel Farage who was the first foreign political leader to meet with Donald Trump at the Trump Tower over the weekend.
Trump’s move infuriated members of Europe’s fraying core, with Carl Bildt, the former Swedish prime minister, tweeting: “If Trump wanted to look statesmanlike to Europe, receiving Farage was probably the worst thing he could [do].” As the FT adds, British foreign secretary Boris Johnson dropped out of the Brussels meeting, with officials arguing that it created an air of panic, while French foreign minister Jean-Marc Ayrault opted to stay in Paris to meet the new UN secretary-general. Hungary’s foreign minister boycotted the meeting, labeling the response from some EU leaders as “hysterical”. Johnson’s refusal to attend will add to an already difficult relationship with his German counterpart Frank-Walter Steinmeier, who has told colleagues that he cannot bear to be in the same room as the British foreign secretary.
The Ecuadorian government has welcomed moves by the Swedish authorities to interview Julian Assange, who will be questioned on Monday inside its embassy over a sex assault allegation. Representatives from the Swedish prosecutor’s office and the Swedish police will be present while questions are put to the WikiLeaks founder by an Ecuadorian official. Assange has been granted political asylum by Ecuador and has been living inside the embassy for more than four years. He believes that if he leaves the embassy he will be extradited to the US for questioning about the activities of WikiLeaks. He denies the allegation against him and has been offering to be interviewed at the embassy.
Guillaume Long, Ecuador’s foreign minister, said: “We are pleased that the Swedish authorities will finally interview Mr Assange in our embassy in London. “This is something that Ecuador has been inviting the Swedish prosecutors to do ever since we granted asylum to Mr Assange in 2012. “There was no need for the Swedish authorities to delay for over 1,000 days before agreeing to carry out this interview, given that the Swedish authorities regularly question people in Britain and received permission to do so on more than 40 occasions in recent years. “Ecuador has never sought to stand in the way of any legal process in Sweden. “What we have asked from Sweden, and the UK, are guarantees that Mr Assange will not be extradited to a third country, where he could be persecuted for his work as a journalist.
China and the United States on Sunday committed anew to refrain from competitive currency devaluations, and China said it would continue an orderly transition to a market-oriented exchange rate for the yuan. A joint “fact sheet”, issued a day after U.S. President Barack Obama and his Chinese counterpart Xi Jinping held talks, also said the two countries had committed “not to unnecessarily limit or prevent commercial sales opportunities for foreign suppliers of ICT (information and communications technology) products or services”. While China and the United States cooperate closely on a range of global issues, including North Korea’s disputed nuclear program and climate change, the two countries have deep disagreements in other areas, like cyberhacking and human rights.
Both countries said they would “refrain from competitive devaluations and not target exchange rates for competitive purposes”, the fact sheet said. Meanwhile, China would “continue an orderly transition to a market-determined exchange rate, enhancing two-way flexibility. China stresses that there is no basis for a sustained depreciation of the RMB (yuan). Both sides recognize the importance of clear policy communication.” China shocked global markets by devaluing the yuan in August 2015 and allowing it to slip sharply again early this year. Though it has stepped in to temper losses in recent weeks, the currency is still hovering near six-year lows against the dollar.
China’s multi-trillion dollar boom in wealth-management products, under scrutiny around the world because of potential threats to financial stability, is set to cool as yields fall on tighter regulation, according to China Merchants Securities analyst Ma Kunpeng. Ma cited a “significant slowdown” in the products’ growth in the first half and said that WMPs may shrink in the future, with money flowing elsewhere. Banks have started to lower yields on WMPs in preparation for requirements for funds to be held in third-party custody, the analyst said, adding that such a change may be implemented over six months to a year. Currently, lenders can use newly invested money to pay off maturing products. The Chinese government and agencies including the IMF are focused on potential risks from WMPs that rose to a record 26.3 trillion yuan ($3.9 trillion) as of June 30.
China’s banks, which dialed down fundraising efforts this year even as bad debts swelled, are making up for lost time. Both lenders and the companies set up to acquire their delinquent assets are bolstering their finances. China Citic Bank last month announced plans to raise as much as 40 billion yuan ($6 billion), while Agricultural Bank of China, Industrial Bank and China Zheshang Bank are also boosting capital. China Cinda Asset Management and China Huarong Asset Management are poised to tap investors. “Chinese banks are preemptively raising capital while pricing remains favorable in order to tackle higher loan impairments,” said Nicholas Yap at Mitsubishi UFJ Securities in Hong Kong.
“Additionally, the mid- and small-sized lenders also need to boost their capital levels as they have been growing their asset bases rapidly, largely through their investment receivables portfolios.” Chinese banks have strained their finances with the busiest first-half lending spree on record, despite having the highest amount of bad debt in 11 years. Still, completed offerings of hybrid capital declined 38% after two consecutive years of record fundraising. A rule change in April that requires lenders to make full provisions for loan rights they have transferred is also encouraging the fundraising. BNP Paribas said Chinese lenders may be assessing the right time to approach investors.
Can the euro be saved? In an interview with Artemis Photiadou and EUROPP’s editor Stuart Brown, Nobel Prize-winning economist and bestselling author Joseph Stiglitz discusses the structural problems at the heart of the Eurozone, why an amicable divorce may be preferable to maintaining the single currency, and how European leaders should respond to the UK’s vote to leave the EU. Your new book, The Euro: And its Threat to Europe, outlines the problems at the heart of the euro and their effects on European economies. Can the euro be saved?
The fundamental thesis of the book is that it is the structure of the Eurozone itself, not the actions of individual countries, which is at the root of the problem. All countries make mistakes, but the real problem is the structure of the Eurozone. A lot of people say there were policy mistakes – and there have been a lot of policy mistakes – but even the best economic minds in the world would have been incapable of making the euro work. It’s fundamentally a structural problem with the Eurozone. So are there reforms that could make the euro work? Yes, I think there are and in my book I talk about what these reforms would be. They are not that complicated economically, after all the United States is made up of 50 diverse states and they all use the same currency so we know that you can make a currency union work. But the question is, is there political will and is there enough solidarity to make it work?
There is an argument that even if the euro was a mistake, the costs of breaking it up may be so severe that it is worth pushing for a reformed euro rather than pursuing what you call an ‘amicable divorce’. Are the benefits of a properly functioning euro worth the costs to get there? You are right. The question of whether you should form the union is different from whether you should break it up: history matters. I think it’s pretty clear now that it was a mistake to start the euro at that time, with those institutions. There will be a cost to breaking it up, but whichever way you look at it, over the last 8 years the euro has generated enormous costs for Europe. And I think that one could manage the cost of breaking it up and that under the current course, the cost of keeping the Eurozone together probably exceeds the cost of breaking it up.
South Korea’s financial regulator said Hanjin Shipping will seek stay orders in 43 countries to protect its vessels from being seized, after its court receivership filing last week roiled companies’ supply chain before the year-end shopping season. Applications in 10 countries will be made this week and the remainder soon, the Financial Supervisory Commission said in a statement Monday. Hanjin Group, owner of the shipping line, should also take more action to account for the “chaos” caused to the shipping industry, FSC Chairman Yim Jong Yong said. Vessels of Hanjin – the world’s 7th-largest container carrier with a 2.9% market share – are getting stranded at sea and ports after the box carrier sought protection, hurting the supply of LG televisions and other consumer goods ahead of the holiday season.
Hanjin Shipping shares resumed trading Monday limit down 30% and later erased losses to rally as much as 18%. Any optimism may be misplaced, said Park Moo Hyun Hana Financial Investment in Seoul. “Retail investors are hoping for the best on false hopes,” Park said. “They think that government measures to help resolve the supply-chain disruptions could mean it’s also supporting Hanjin Shipping. They don’t seem to realize that that’s the wrong conclusion.” The commission said 79 of Hanjin’s vessels, including 61 container ships, have had their operations disrupted. Hanjin Group Chairman Cho Yang Ho and Korean Air Lines, the shipping company’s largest shareholder, should take steps to ease the disruptions, Yim said.
Japanese long-term bonds fell, with 30-year debt adding to its biggest weekly loss in almost 2 1/2 years, as investors prepared to bid at an auction of the securities Tuesday. The rout is being driven by speculation the Bank of Japan will reduce its bond-buying program at its next policy meeting Sept. 20-21 now that it owns a third of the nation’s government debt. BOJ Governor Haruhiko Kuroda said Monday he doesn’t share the view there’s a limit to monetary easing. PIMCO said last month the central bank has pushed monetary policy as far as it can. “Unless Governor Kuroda directly rules out scaling back bond purchases, the market will continue to hold that as a possibility,” said Shuichi Ohsaki, the chief rates strategist at Bank of America’s Merrill Lynch unit in Tokyo. “Selling of longer-dated debt is likely ahead of tomorrow’s 30-year auction.”
Bank of Japan Governor Haruhiko Kuroda signaled his readiness to ease monetary policy further using existing or new tools, shrugging off growing market concerns that the bank is reaching its limits after an already massive stimulus program. He also stressed the BOJ’s comprehensive assessment of its policies later this month won’t lead to a withdrawal of easing. But Kuroda acknowledged that the BOJ’s negative interest rate policy may impair financial intermediation and hurt public confidence in Japan’s banking system, a sign the central bank is becoming more mindful of the rising cost of its stimulus.
“Even within the current framework, there is ample room for further monetary easing … and other new ideas should not be off the table,” Kuroda told a seminar on Monday. “There may be a situation where drastic measures are warranted even though they could entail costs,” he said, adding that the BOJ should “always prepare policy options.” Under its current framework that combines negative rates with hefty buying of government bonds and some riskier assets, the BOJ has gobbled up a third of Japan’s bond market and faced criticism from banks for squeezing already thin profit margins.
The European Commission has found that Volkswagen broke consumer laws in 20 European Union countries by cheating on emissions tests, German daily Die Welt reported, citing Commission sources. Among them are the Consumer Sales and Guarantees Directive – which prohibits companies from touting exaggerated environmental claims in their sales pitches – and the Unfair Commercial Practises Directive, both of which apply across the EU, the paper said. The European Commission said Industry Commissioner Elzbieta Bienkowska has repeatedly invited Volkswagen to consider compensating consumers voluntarily, without an encouraging response, and that it was for national courts to determine whether consumers were legally entitled to compensation.
To ensure consumers are treated fairly, a Commission spokeswoman said, Consumer Commissioner Vera Jourova had written to consumer associations across the EU to collect information. “She will meet relevant representatives in Brussels this week,” the spokeswoman wrote in an emailed response. Jourova has been working with consumer groups to pressure Volkswagen to compensate clients in Europe as it has in the United States over the diesel emissions scandal. Volkswagen has pledged billions of euros to compensate owners of VW diesel-powered cars, but has so far rejected calls for similar payments for the 8.5 million affected vehicles in Europe, where different legal rules weaken the chances of winning a pay out.
It’s the black and white photographs of disheartened men and hungry children from the 1930’s that define the Great Depression for present day generations. Of course after years of government run social engineering disguised as education, most people couldn’t even define when or what constituted the Great Depression. These heart wrenching portraits of average Americans suffering and in despair capture the zeitgeist of the last Fourth Turning crisis. Apologists for the status quo contend the last eight years couldn’t possibly be classified as a depression. The narrative of economic recovery has been peddled by corporate media mouthpieces, feckless politicians, Too Big To Trust Wall Street bankers, Federal Reserve puppets, and government apparatchiks flogging manipulated data as proof of economic advancement. They point to the lack of soup lines as proof we couldn’t be experiencing a depression.
First of all, if there were soup lines, the corporate media would just ignore them. If they don’t report it, then it isn’t happening. Secondly, the soup lines are electronic, as the government downloads the “soup” onto EBT cards so JP Morgan can reap billions in fees to run the SNAP program. Just because there are no pictures of starving downtrodden Americans in shabby clothes waiting in soup lines, doesn’t mean the majority of Americans aren’t experiencing a depression. If the country has actually been experiencing an economic recovery for the last seven years, why would 14% to 15% of all Americans be dependent on food stamps to survive? When the economy is actually growing and employment is really below 5%, the%age of Americans on food stamps is below 8%.
If the government economic data was truthful, there would not be 43.5 million people living in 21.4 households (17% of all households) dependent on food stamps. More than 100 million Americans are now dependent on some form of federal welfare (not including Social Security or Medicare). If the economy came out of recession in the second half of 2009, why would 6 million more Americans need to go on welfare over the next two years?
The G20 meets in tech hub Hangzhou, China, at an extremely tense geopolitical juncture. China has invested immense political/economic capital to prepare this summit. The debates will revolve around the main theme of seeking solutions “towards an innovative, invigorated, interconnected and inclusive world economy.” G20 Trade Ministers have already agreed to lay down nine core principles for global investment. At the summit, China will keep pressing for emerging markets to have a bigger say in the Bretton Woods system. But most of all China will seek greater G20 backing for the New Silk Roads – or One Belt, One Road (OBOR), as they are officially known – as well as the new Asian Infrastructure Investment Bank (AIIB).
So at the heart of the G20 we will have the two projects which are competing head on to geopolitically shape the young 21st century. China has proposed OBOR; a pan-Eurasian connectivity spectacular designed to configure a hypermarket at least 10 times the size of the US market within the next two decades. The US hyperpower – not the Atlanticist West, because Europe is mired in fear and stagnation — “proposes” the current neocon/neoliberalcon status quo; the usual Divide and Rule tactics; and the primacy of fear, enshrined in the Pentagon array of “threats” that must be fought, from Russia and China to Iran. The geopolitical rumble in the background high-tech jungle is all about the “containment” of top G20 members Russia and China.
Shuttling between the West and Asia, one can glimpse, in myriad forms, the graphic contrast between paralysis and paranoia and an immensely ambitious $1.4 trillion project potentially touching 64 nations, no less than 4.4 billion people and around 40 per cent of the global economy which will, among other features, create new “innovative, invigorated, interconnected and inclusive” trade horizons and arguably install a post-geopolitics win-win era. An array of financial mechanisms is already in place. The AIIB (which will fund way beyond the initial commitment of $100 billion); the Silk Road Fund ($40 billion already committed); the BRICS’s New Development Bank (NDB), initially committing $100 billion; plus assorted players such as the China Development Bank and the Hong Kong-based China Merchants Holdings International.
Chinese state companies and funds are relentlessly buying up ports and tech companies in Western Europe – from Greece to the UK. Cargo trains are now plying the route from Zhejiang to Tehran in 14 days, through Kazakhstan and Turkmenistan; soon this will be all part of a trans-Eurasia high-speed rail network, including a high-speed Transiberian. The $46 billion China-Pakistan Economic Corridor (CPEC) has the potential to unblock vast swathes of South Asia, with Gwadar, operated by China Overseas Port Holdings, slated to become a key naval hub of the New Silk Roads. Deep-sea ports will be built in Kyaukphyu in Myanmar, Sonadia island in Bangladesh, Hambantota in Sri Lanka. Add to them the China-Belarus Industrial Park and 33 deals in Kazakhstan covering everything from mining and engineering to oil and gas.
The euro zone will not release additional bailout money for Greece at a meeting in Bratislava this month, Germany’s Handelsblatt Global reported on Sunday, citing European Union diplomats. The online edition of the German business daily quoted the diplomats as saying that Athens had only implemented two of 15 political reforms that are conditions for the bailout money. Above all, they said, Greece had been slow to privatize state assets. Under a deal signed last year with the Troika, the ESM will provide financial assistance of up to €86 billion to Greece by 2018 in return for the agreed reforms.
The debt relief is due to be granted in tranches, including short-term measures to extend Greece’s debt, with a further reduction due after 2018 including interest deferrals and interest rate caps. Handelsblatt Global said the Eurogroup had approved a tranche of €10.3 billion for Greece in May from the overall package. An initial €7.5 billion of that sum had been transferred to Athens with the rest scheduled to arrive in the fall. The diplomats said the Eurogroup will only discuss a progress report on Greece at the Bratislava meeting. The comments came just days after the head of the euro zone’s bailout fund, the European Stability Mechanism (ESM) on Saturday said Greece could secure short-term debt relief measures “very soon” if it implements remaining reforms agreed under its bailout program.
The Hungarian police are advertising for 3,000 “border-hunters”, who will reinforce up to 10,000 police and soldiers patrolling a razor-wire fence built to keep migrants out. The new recruits, like existing officers, will carry pistols with live ammunition, and have pepper spray, batons, handcuffs and protective kit. The number of migrants reaching Hungary’s southern border with Serbia has stagnated, at fewer than 200 daily. The new guards will start work in May.\ The recruits will have six months’ training, they must be over 18, physically fit and must pass a psychological test, police officer Zsolt Pozsgai told Hungarian state television. Monthly pay will be 150,000 forint ($542) for the first two months, then 220,300 forint.
Hungary is in the grip of a massive publicity campaign, launched by Prime Minister Viktor Orban’s right-wing government ahead of a 2 October referendum. Voters will be asked to oppose a European Commission proposal to relocate 160,000 refugees more fairly across the 28-nation EU. Under the EU scheme, Hungary has been asked to take 1,300 refugees. The relocation programme is for refugees from Syria, Iraq and Eritrea. Currently 30 migrants are allowed into Hungary each day through official “transit zones”.
Inevitable when far too many people are forced into far too few places, over prolonged periods of absolute uncertainty about their fate. Though children assaulting children is a new depth. Our friend Kostas says these things originate almost always in a lack of food. The solution is simple: EU countries should live up to their promises regarding refugee relocation.
Authorities say clashes have broken out between rival ethnic groups of refugees and other migrants at a detention camp on the eastern Aegean Sea island of Lesvos. The trouble at the Moria hot spot started shortly after midnight in a wing of the camp where minors are held and then spread, authorities said, adding that child refugees from Syria had been assaulted by a group of Afghan children. An unspecified number of children were injured while about 40 of them escaped into nearby fields. Order was restored around 4 a.m. after intervention by riot police. Authorities were trying to locate the missing children. Nearly 5,000 migrants and refugees are currently sheltered on the islands of Lesvos. Local authorities are demanding immediate government action to decongest overcrowded migrant facilities.
Archeologists working on the Dampier archipelago off Australia’s north-west coast have found evidence of stone houses dating back 9,000 years – to the end of the last ice age – building the case for the area to get a world heritage listing. Circular stone foundations were discovered in a cave floor on Rosemary Island, the outermost of 42 islands that make up the archipelago. The islands and the nearby Burrup peninsula are known as Murujuga – a word meaning “hip bones sticking out” – in the language of the Ngarluma people. Prof Jo Mcdonald, director of the Centre for Rock Art Research and Management at the University of Western Australia, said the excavations showed occupation was maintained throughout the ice age and the period of rapid sea level rise that followed.
“Around 8,000 years ago, it would have been on the coast,” McDonald told Guardian Australia. “This is the time that the islands were starting to be cut off and it’s a time when people were starting to rearrange themselves.” The sea level on Australia’s north-west coast rose 130 metres after the end of the ice age, at a rate of about a metre every five to 10 years. “In people’s lifetimes they would have seen loss of territory and would have had to renegotiate – a bit like Miami these days,” McDonald said. The placement of the stone structures indicated how that sudden space restriction was managed, she said. “The development of housing is really significant in terms of understanding how people actually divided up their space and lived in close proximity to each other in times of environmental stress.”
The world’s largest gorillas have been pushed to the brink of extinction by a surge of illegal hunting in the Democratic Republic of Congo, and are now critically endangered, officials said Sunday. With just 5,000 Eastern gorillas (Gorilla beringei) left on Earth, the majestic species now faces the risk of disappearing completely, officials said at the International Union for Conservation of Nature’s global conference in Honolulu. Four out of six of the Earth’s great apes are now critically endangered, “only one step away from going extinct,” including the Eastern Gorilla, Western Gorilla, Bornean Orangutan and Sumatran Orangutan, said the IUCN in an update to its Red List, the world’s most comprehensive inventory of plant and animal species. Chimpanzees and bonobos are listed as endangered.
“Today is a sad day because the IUCN Red List shows we are wiping out some of our closest relatives,” Inger Andersen, IUCN director general, told reporters. War, hunting and loss of land to refugees in the past 20 years have led to a “devastating population decline of more than 70%,” for the Eastern gorilla, said the IUCN’s update. One of the two subspecies of Eastern gorilla, known as Grauer’s gorilla (G. b. graueri), has drastically declined since 1994 when there were 16,900 individuals, to just 3,800 in 2015. Even though killing these apes is against the law, hunting is their greatest threat, experts said. The second subspecies of Eastern gorilla – the Mountain gorilla (G. b. beringei) – has seen a small rebound in its numbers, and totals around 880 individuals.
I’m not here to argue whether the July report was lousy or not. The US economy may well be spawning big numbers of crappy low paying jobs. Withholding tax collections were huge in the last 4 weeks of July. We know that that didn’t come from big wage gains by existing workers. They’re running at about a 2.5% annual growth rate. So when tax collections increase by a significant margin over a similar period a year ago, it suggests that there were new jobs, maybe a lot of them. I’m also not here to argue that the headline number bears any semblance of reality. The headline number is the seasonally adjusted month to month gain in the estimated number of jobs. The whole process of seasonal adjustment is a bogus attempt to smooth a jagged trend with peaks and valleys into a continuous modified moving average.
The number is a fiction. Because it’s based on a moving average it has a built in lag, for which statisticians try to compensate with a bunch of statistical hocus pocus. That includes constantly revising the number based first on subsequent surveys, and then on benchmarking the data with actual tax collections in the 5 subsequent years. Not only is the number revised twice after the first month it’s issued, but it’s then fit to the curve of actuality for the next 5 years until the reading is finalized. July’s reading won’t be final until July 2021. The process is really “seasonal finagling.” It’s abstract impressionism. It’s a joke. What I have come to argue here is that the not seasonally adjusted (NSA) numbers, which I have always relied upon in my analysis of the jobs trend, is probably also a joke.
Look at this chart. Do those railroad tracks look like the real world to you, or are these some kind of computer generated auto-numbers that merely make a pretense of reality. Law of Large Numbers or not, I have never seen any other economic series behave with such regularity. This is a joke, a farce, a sham. But it doesn’t matter because the economy doesn’t matter. The world’s central banks have attempted, and largely succeeded, in rigging the financial markets. One of the consequences, intended or unintended, is that the bulk of the benefit of that rigging flows to the US financial markets. That has been so been since 2009. The US market has been and remains today, the Last Ponzi Game Standing. All roads lead to the US.
Saxo Bank’s Mike McKenna comments on an Economist cheerleading piece on ‘Open Society’, which somehow -presumably because it sounds positive- has become synonymous to globalization. McKenna’s conclusion: the world can’t afford globalization. Which is what I’ve been saying: without growth there can be no centralization. The Saxo boys seem to think that a return to growth is still possible/desirable. I think not.
The biggest problem facing globalism, however, is neither its hypocrisy nor its will-to-power – these are ordinary human failings common to all ideologies. Its biggest problem is much simpler: it’s very expensive. The world has seen versions of the wealthy, cosmopolitan ideal before. In both Imperial Rome and Achaemenid Persia, for example, societies characterised by extensive trade networks, multicultural metropoli and the rule of law (relative to the times) eventually succumbed to rampant inequality, inter-community strife, and expensive foreign wars in the case of Rome and a death-spiral of economic stagnation and constant tax hikes in the case of Persia.
It seems near-axiomatic that, in the absence of the sort of strong GDP growth that characterised the post-World War Two era, the pluralist ideal might begin to show strains along the seams of its own construction. Such strains can be inter-ethnic, ideological, religious, or whatever else, but the legitimacy of The Economists’s favoured worldview largely came about due to the wealth and living standards it was seen to provide in the post-WW2 and Cold War era. Now that this is beginning to falter, so too are the politicians and institutions that have long championed it. In Jakobsen’s view, the rising tide of populist nationalism is in no way the solution, but it is a sign that globalisation’s elites have grown distant from the population as a whole.
“The world has become elitist in every way,” says Saxo Bank’s chief economist. “We as a society have to recognise that productivity comes from raising the average education level… the key thing here is that we need to be more productive. If everyone has a job, there is no need to renegotiate the social contract.” Put another way, would the political careers of Trump, Le Pen, Viktor Orban, and other such nationalist leaders be where they are if the post-crisis environment had been one of healthy wage growth, inflation, an increase in “breadwinner” jobs, and GDP expansion?
In the first six months of 2005, the US imported 27.2% more in Chinese goods than the first six months of 2004, and that was 28.8% more than the first six months of 2003. In the first six months of 2016, the US imported 6.5% less than the first six months of 2015, itself only 6.1% more than the first six months of 2014. The US actually imported slightly less from China so far this year than two years ago.
As we know very well from US production levels it’s not as if some native “buy American” grassroots opposition has successfully convinced American buyers to ditch the cheaper Chinese alternatives, redistributing “strong” consumer spending toward American products. There is much less goods being produced and traded with and within the United States – alarmingly so. Further, as you can see above and below, the timing of this most recent change from plain weakness to dangerous weakness is significant.
Starting September 2015, meaning dating back to August, US imports from China have dropped off a cliff. While year-over-year growth was slightly positive in September, it has been negative in every month since except February 2016 and that was due to calendar effects here and holiday weeks there (and was easily wiped out by the massive contraction in March). The mainstream reading of the payroll reports up to that point indicated that US demand would and should be nothing but strong. Instead, it has been much worse than it already was.
It isn’t just China that is feeling the increasing absenteeism of the US consumer. US imports from Europe contracted for the third straight month, where the -1.8% 6-month average is the lowest since 2010 and the initial recovery from the Great Recession. Imports from Japan were up for the first time in three months, but overall for the first half of 2016 are down nearly 5% in total.
China’s exports and imports fell more than expected in July in a rocky start to the third quarter, suggesting global demand remains weak in the aftermath of Britain’s decision to leave the EU. Exports fell 4.4% from a year earlier, the General Administration of Customs said on Monday, while adding that it expects pressure on exports is likely to ease at the beginning of the fourth quarter. Imports fell 12.5% from a year earlier, the biggest decline since February, suggesting domestic demand remains sluggish despite a flurry of measures to stimulate growth. That resulted in a trade surplus of $52.31 billion in July, versus a $47.6 billion forecast and June’s $48.11 billion.
China’s crude imports fell to the lowest level in six months as demand from independent refineries eased. Net fuel exports surged to a record. The world’s biggest energy user imported 31.07 million metric tons of crude in July, according to data released by the General Administration of Customs on Monday. That’s about 7.35 million barrels a day, the slowest pace since January. Meanwhile, net fuel exports jumped to 2.49 million tons last month.
The nation’s appetite for overseas crude, which increased 14% in the first half year from the same period of 2015, may be weaker in the near term as insufficient infrastructure and scheduled maintenance at some independent refiners will likely hinder their crude purchases, BMI Research said in a report dated Aug. 4. “Teapots’ crude buying has slowed in the third quarter amid maintenance,” Amy Sun, an analyst with ICIS China, said before data were released. “Some plants have also seen their crude-import quotas filling up.”
There’s a river of steel flooding from China despite the best efforts of governments around the world to dam the flow from the world’s top producer, with data on Monday showing that overseas shipments held above 10 million tons in July. Sales increased 5.8% on-year to 10.3 million metric tons last month, compared with 10.9 million tons in June, according to China’s customs administration. Exports in the first seven months expanded 8.5% to 67.4 million tons, a record volume for the period. That’s in line with what South Korea, the world’s sixth-largest producer in 2015, makes in an entire year.
The robust export showing by China’s mills contrasts with the country’s broader performance last month, which fell in dollar terms, and risks further stoking trade tensions with partners from India to Europe after they imposed curbs to keep out the alloy. Premier Li Keqiang has defended the country’s growing presence in overseas steel markets, saying last month that overcapacity isn’t the fault of a single country. “Orders from abroad have held up relatively well as steelmakers in China have a cost advantage,” Dang Man, an analyst at Maike Futures Co. in Xi’an, said before the data. “Attention is still on global trade friction as the number of cases against Chinese exports is quite large.”
The graph illustrates one thing alright. Food, Alcohol and Tobacco prices rise only because of taxes. That suggests governments could get rid of deflation just by raising taxes. Which, really, is nonsense. Therefore, so is the graph and the methodology it is based on. Rising prices don’t equal inflation.
Whenever Mario Draghi clears a hurdle on his path to higher inflation, a new one appears. Just as the 19-nation economy sends encouraging signals that challenges from Brexit to terrorism won’t derail the modest recovery, a new decline in oil prices is casting a shadow over an expected pick-up in inflation. With growth not strong enough to generate price pressures, the ECB president may have to revise his outlook yet again. Inflation remains far below the ECB’s 2% goal after more than two years of unprecedented stimulus and isn’t seen reaching it before 2018.
Staff will begin to draw up fresh forecasts in mid-August, and while officials are in no rush to adjust or expand their €1.7 trillion quantitative-easing plan in September, economists predict Draghi will have to ease policy before the end of the year. “Now that the euro-area economy seems to have shrugged off the Brexit vote, focus will again shift on inflation, against the background of those negative news from oil prices,” said Johannes Gareis, an economist at Natixis in Frankfurt. “Yes, the ECB has managed to dispel deflation fears, but all the uncertainty means inflation will stay lower for longer – and Draghi will have to take notice.”
For Kaoru Sekiai, getting steady returns for his pension clients in Japan used to be simple: buy U.S. Treasuries. Compared with his low-risk options at home, like Japanese government bonds, Treasuries have long offered the highest yields around. And that’s been the case even after accounting for the cost to hedge against the dollar’s ups and downs – a common practice for institutions that invest internationally. It’s been a “no-brainer since forever,” said Sekiai, a money manager at Tokyo-based DIAM. That truism is now a thing of the past. Last month, yields on U.S. 10-year notes turned negative for Japanese buyers who pay to eliminate currency fluctuations from their returns, something that hasn’t happened since the financial crisis.
It’s even worse for euro-based investors, who are locking in sub-zero returns on Treasuries for the first time in history. That quirk means the longstanding notion of the U.S. as a respite from negative yields in Japan and Europe is little more than an illusion. With everyone from Jeffrey Gundlach to Bill Gross warning of a bubble in bonds, it could ultimately upend the record foreign demand for Treasuries, which has underpinned their seemingly unstoppable gains in recent years. “People like a simple narrative,” said Jeffrey Rosenberg at BlackRock. “But there isn’t a free lunch. You can’t simply talk about yield differentials without talking about currency differentials.”
China’s ambition to revive an ancient trading route stretching from Asia to Europe could leave an economic legacy bigger than the Marshall Plan or the EU’s enlargement, according to a new analysis. Dubbed ‘One Belt, One Road,’ the plan to build rail, highways and ports will embolden China’s soft power status by spreading economic prosperity during a time of heightened political uncertainty in both the U.S. and EU, according to Stephen L. Jen, CEO at Eurizon SLJ Capital, who estimates a value of $1.4 trillion for the project. It will also boost trading links and help internationalize the yuan as banks open branches along the route, according to Jen.
“This is a quintessential example of a geopolitical event that will likely be consequential for the global economy and the balance of political power in the long run,” said Jen, a former IMF economist. Reaching from east to west, the Silk Road Economic Belt will extend to Europe through Central Asia and the Maritime Silk Road will link sea lanes to Southeast Asia, the Middle East and Africa. While China’s authorities aren’t calling their Silk Road a new Marshall Plan, that’s not stopping comparisons with the U.S. effort to rebuild Western Europe after World War II. With the potential to touch on 64 countries, 4.4 billion people and around 40% of the global economy, Jen estimates that the One Belt One Road project will be 12 times bigger in absolute dollar terms than the Marshall Plan.
China may spend as much as 9% of GDP – about double the U.S.’s boost to post-war Europe in those terms. “The One Belt One Road Project, in terms of its size, could be multiple times larger and more ambitious than the Marshall Plan or the European enlargement,” said Jen. It’s not all upside. Undertaking an expansive plan like this one will inevitably run the risk of corruption, project delays and local opposition. Chinese backed projects have frequently run into trouble before, especially in Africa, and there’s no guarantee that potential recipient nations will put their hand up for the aid. In addition, resurrecting the trading route will need funding during a time of slowing growth and rising bad loans in the nation’s banks. Sending money abroad when it’s needed at home may not have an enduring appeal.
Still, at least China has a plan. “The fact that this is a 30-40 year plan is remarkable as China is the only country with any long-term development plan, and this underscores the policy long-termism in China, in contrast to the dominance of policy short-termism in much of the West,” said Jen. And that’s a win-win for soft power. “The One Belt One Road Project could be a huge PR exercise that could win over government and public support in these countries,” he said.
Investors shouldn’t be fooled by this season’s “better-than-expected” earnings—they are still pretty bad. With nearly 90% of the S&P 500 companies having reported second-quarter results through Friday morning (437 out of 505), aggregate earnings-per-share for the group are on course to decline 3.5% from a year ago, according to FactSet. Many Wall Street strategists are pleased, because that is a lot better than expectations of a 5.5% decline on June 30, just before earnings reporting season kicked off. So are investors, as the S&P and Nasdaq Composite Index closed in record territory Friday, and the Dow Jones Industrial Average closed less than 0.3% away. But that is like saying you should be happy with the “D” you got, because it would really be a “B” if the teacher changed the scale to grade on a curve.
“The beat on earnings is due at least in part to negative earnings revisions heading into earnings season, similar to what we have seen for the last 29 quarters with aggregate upside to expectations,” Morgan Stanley equity strategists wrote in a recent note to clients. Earnings might be beating lowered expectations, but they are still worse than the aggregate FactSet consensus of a 3.1% decline at the end of the first quarter on March 31. It also means S&P 500 earnings will suffer the fifth-straight quarter of year-over-year declines, the longest such streak since the five-quarter stretch from the third quarter of 2008 through the third quarter of 2009, the heart of the Great Recession.
One central fact about the global economy lurks just beneath the year’s remarkable headlines: Economic growth in advanced nations has been weaker for longer than it has been in the lifetime of most people on earth. The United States is adding jobs at a healthy clip, as a new report showed Friday, and the unemployment rate is relatively low. But that is happening despite a long-term trend of much lower growth, both in the United States and other advanced nations, than was evident for most of the post-World War II era. This trend helps explain why incomes have risen so slowly since the turn of the century, especially for those who are not top earners. It is behind the cheap gasoline you put in the car and the ultralow interest rates you earn on your savings.
It is crucial to understanding the rise of Donald J. Trump, Britain’s vote to leave the European Union, and the rise of populist movements across Europe. This slow growth is not some new phenomenon, but rather the way it has been for 15 years and counting. In the United States, per-person gross domestic product rose by an average of 2.2% a year from 1947 through 2000 — but starting in 2001 has averaged only 0.9%. The economies of Western Europe and Japan have done worse than that. Over long periods, that shift implies a radically slower improvement in living standards. In the year 2000, per-person G.D.P. — which generally tracks with the average American’s income — was about $45,000.
But if growth in the second half of the 20th century had been as weak as it has been since then, that number would have been only about $20,000. To make matters worse, fewer and fewer people are seeing the spoils of what growth there is. According to a new analysis by the McKinsey Global Institute, 81% of the United States population is in an income bracket with flat or declining income over the last decade. That number was 97% in Italy, 70% in Britain, and 63% in France.
Economics is a bit like musical chairs. In a recession, the economy takes a hit and there are some casualties. Some players fail to get a chair in time and are out of the game. The game then goes on without them. The economy eventually recovers. But a depression is a different game entirely. Since 2007, the world has been in an unacknowledged depression. A depression is like a game of musical chairs in which ten children are walking around, but suddenly nine of the chairs are taken away. This means that nine of the children will soon be out of the game. But it also means that all ten understand that the odds of them remaining in the game are quite slim and that desperate times call for desperate measures. It’s time to toss out the rule book and do whatever you have to, to get the one remaining chair.
Of course, the pundits officially deny that we have even been in a depression. They regularly describe the world as “in recovery from the 2008–2010 recession,” but the “shovel-ready jobs” that are “on the way” never quite materialize. The “green shoots” never seem to blossom. So, what’s going on here? Depressions do not occur all at once. It takes time for them to bottom and, if an economy is propped up through economic heroin (debt), the Big Crash can be a long time in coming. In that regard, this one is one for the record books. As Doug Casey is fond of saying, a depression is like a hurricane. First there are the initial crashes, then a calm as the eye of the hurricane passes over, then, we enter the trailing edge of the other side of the hurricane.
This is the time when things really get rough—when even the politicians will start using the dreaded “D” word. We have entered that final stage, as the economic symptoms demonstrate, and this is the time when the game of musical chairs will evolve into something quite a bit nastier. In normal economic times, even including recession periods, we observe financial institutions maintaining their staunchly conservative image. For the most part, they deliver as promised. But, as we move into the trailing edge of the second half of the hurricane, we notice more and more that the bankers are rewriting the rule book in order to take possession of the wealth that they previously held in trust for their depositors.
And they don’t do this in isolation. They do it with the aid of the governments of the day. New laws are written in advance of the crisis period to assure that the banks can plunder the deposits with impunity. Since 2010, such laws have been passed in the EU, the US, Canada and other jurisdictions. Trial balloons have been sent up to ascertain to what degree they will get away with their freezes and confiscations. Greece has been an excellent trial balloon for the freezes and Cyprus has done the same for the confiscations. The world is now as ready as it’s going to be for the game to be played on an international level.
So what will it look like, this game of musical chairs on steroids? Well, first we’ll see the sudden crashes of markets and/or defaults on debts. Shortly thereafter, one Monday morning (or more likely one Tuesday after a long weekend) the financial institutions will fail to open their doors. The media will announce a “temporary state of emergency” during which the governments and banks must resolve some difficulties in order to “assure a continued sound economy.” Until that time, the banks will either remain shut, or will process only small transactions.
China, Russia and Brazil sold off U.S. Treasury bonds as they tried to soften the blow of the global economic slowdown. They each sold off at least $1 billion in U.S. Treasury bonds in March. In all, central banks sold a net $17 billion. Sales had hit a record $57 billion in January. So far this year, the global bank debt dump has reached $123 billion. It’s the fastest pace for a U.S. debt selloff by global central banks since at least 1978, according to Treasury Department data published Monday afternoon. Treasuries are considered one of the safest assets in the world, but some experts say a sense of panic about the global economy drove the selloff.
“It’s more of global fear than anything,” says Ihab Salib, head of international fixed income at Federated Investors. “There’s still this fear of ‘everything is going to fall apart.'” Judging by the selloff, policymakers across the globe were hitting the panic button often and early in the year as oil prices fell, concerns about China’s economy rose and stock markets were very volatile. In response, countries may be selling Treasuries to prop up their currencies, some of which lost lots of value against the dollar last year. By selling U.S. debt, central banks can get hard cash to buy up their local currency and prevent it from losing too much value.
Also, as investors have pulled money out of developing countries, central bankers seek to replenish those lost funds by selling their foreign reserves. The leader in the selloff: China. “We’ve seen Chinese central bank foreign reserves fall dramatically,” says Gus Faucher, senior economist at PNC Financial. “Their currency is under pressure.” Between December and February, China’s central bank sold off an alarming $236 billion to help support its currency, which China is slowly letting become more controlled by markets and less by the government. In March, China sold $3.5 billion in U.S. Treasury bonds, Treasury data shows. Experts say the sell off may be slowing down now that global concerns have eased. If anything, demand is still high for U.S. Treasury bonds – it’s just coming from private investors.
Economic depressions unfold slowly, which obscures their analysis, although they are simple to understand. Governments and central banks turn recessions into depressions, which are preceded by unsustainable expansions of debt untethered from the real economy. The reduction and resolution of excess debt takes time, and governments and central banks usually act counterproductively, retarding necessary adjustments and lengthening the adjustment, and consequently, the depression. If one dates the beginning of a depression from the beginning of the unsustainable expansion of debt that preceded it, then the current depression began in 1987. Newly installed chairman of the Fed Alan Greenspan quelled a stock market crash, flooding the financial system with fiat liquidity. It was a well from which he and his successors would draw repeatedly.
Throughout the 1990s he would pump whenever it appeared the market and the US economy were about to dump. In 1999, he pumped because the Y2K computer transition might adversely affect the economy and financial system (it didn’t). If one dates the beginning of a depression from the time when the benefits of debt are, in the aggregate, outweighed by its burdens, the depression began in 2000, with the implosion of the fiat-credit fueled, high-tech and Internet stock market bubble. Unsustainable debt and artificially low interest rates lower the rate of return on productive investment and saving, increasing the relative attractiveness of speculation. Central bankers and their minions refer to this as “forcing investors out on the risk curve,” crawling way out on a limb for fruitful returns. They have no term for when markets saw off the branch, as they did in 2000 and again in 2008.
Most people don’t see 2000 as the beginning of a depression, but Washington and Wall Street cloud their vision. Stock markets were once essential avenues for raising capital and valuing corporations. Since central bankers’ remit was broadened to their care and feeding, stock markets have become engines of obfuscation. The “wealth effect” supposedly justified solicitude for markets: a rising stock market would increase wealth, spending, and economic growth. For seven years a rising market has coexisted with an anemic rebound and one hears little about the wealth effect anymore. The stock market is the preeminent symbol of economic health, so keeping it afloat has become a political exercise. Sure, central bankers and governments know what they’re doing, just look at those stock indices.
Central banks have slashed interest rates to nothing. They have printed money on a vast scale. Where that has not quite worked, and if we are being honest that is most places, they now have a new tool. Negative interest rates. Across a third of the global economy, money you put in the bank does not only generate nothing in the way of a return. You actually get charged for keeping it there. That is already producing strange, Alice-in-Wonderland economics, where nothing is quite what it seems. Governments want you to delay paying taxes as long as possible, the mortgage company pays you to stay in the house, and cash becomes so sought after there is even talk of abolishing it. But the real problem with negative rates may be something quite different.
As a fascinating new paper from the St. Louis Fed argues, they are in fact a form of tax. They impose a levy on the banking system that has to be paid by someone — and that someone is probably us. That may explain why central banks and governments are so keen on them. Hugely indebted governments are always in the market for a new tax, especially one that their voters probably won’t notice. But it also explains why they don’t really work — because most of the economics in trouble, especially in Europe, are already suffocating under an impossible high tax burden. Negative interest rates have, like a fast-mutating virus, started to spread across the world. The Swiss first tried them out all the way back in the 1970s.
In June 1972 it imposed a penalty rate of 2% a quarter on foreigners parking money in Swiss francs amid the turmoil of the early part of that decade, but the experiment only lasted a couple of years. In the modern era, the ECB kicked off the trend in June 2014 with a negative rate on selected deposits. Since then, they have spread to Sweden, Denmark, Switzerland (again), and more recently Japan, while the ECB has cut even deeper into negative territory. They already cover about a third of the global economy, and there is no reason why they should not reach further. The Fed might be raising rates this year, but it is the only major central bank to do so, and if, or rather when, there is another major downturn, it may have no choice but to impose negative rates as well.
Back in the early 1980s the US economy was experiencing stagflation: a stagnant economy and an inflating currency. Paul Volcker, who at the time was Chairman of the Federal Reserve, took a decisive step and raised the Federal Funds Rate, which determines the rate at which most other economic players get to borrow, to 18%, freezing out inflation. This was a bold step, not without negative consequences, but it did get inflation under control and, after a while, the US economy stopped stagnating. Well, not quite. Wages didn’t stop stagnating; they’ve been stagnant ever since. But the fortunes of the 1% of the richest Americans have certainly improved nicely! Moreover, the US economy grew quite a bit since that time.
Of course, most of this growth came at the expense of staggering structural deficits and an explosion of indebtedness at every level, but so what? Sure, the national debt went exponential and the government’s unfunded liabilities are now over $200 trillion, but that’s OK. You just have to like debt. Keep saying to yourself: “Debt is good!” Because if everyone started thinking that debt is bad, then the entire financial house of cards would implode and we would be left with nothing. But once interest rates peaked in the early 1980s, they’ve been on a downward trend ever since, with little ups and downs now and again but an unmistakable overall downward trend.
The Federal Reserve had to do this in order to, in Fed-speak, “support economic activity and job creation by making financial conditions more accommodative.” Once it started doing this, it found that it couldn’t stop. The US had entered a downward spiral—of sloth, obesity, ignorance, substance abuse, expensive and disastrous foreign military adventures, bureaucratic insanity, massive corruption at every level—and under these circumstances it needed ever-cheaper money in order to keep the financial house of cards from imploding. And then, in late 2008, the Fed finally reached the ultimate target: the Fed Funds Rate went all the way to zero. This is known as ZIRP, for Zero Interest Rate Policy. And, unfortunately, it stayed there.
It stayed there, instead of continuing to gently drift down as before, because of a conceptual difficulty: how can an interest rate be negative? Does it become a “disinterest rate”? How can that work? After all, lenders are “interested” in lending because they get back more than they lend out (accepting some amount of risk); and depositors are “interested” in keeping money in banks because they get back more than they put in. And if these activities become “of zero interest,” why would lenders lend and depositors deposit? They wouldn’t, now, would they? They’d buy gold, or Bitcoin, or bid up real estate.
None other than the former head of MI6 (the British Secret Intelligence Service) Richard Dearlove expressed his quite candid thoughts on the immigration crisis, as well as the possibility of a British exit from the EU during a speech recently at the BBC. The speech is well worth the listen. Here are some notable quotes from the speech as it relates to the immigration crisis. The former head of intelligence is quick to point out that despite what the public perception may be, the reality is that there are terrorists already among us.
“When massive social forces are at work, and mass migration is such a force, a whole government response is required, and a high degree of international cooperation.” “In the real world, there are no miraculous James Bond style solutions. Simply shutting the door on migration is not an option. History tells us that human tides are irresistible, unless the gravitational pull that causes them is removed. Edward Gibbon elegantly charted how Rome, with all it’s civic and administrative sophistication and military prowess, could not stop its empire from being overrun by the mass movement of Europe’s tribes.”
“We should not conflate the problem of migration with the threat of terrorism. High levels of immigration, particularly from the Middle East, coupled with freedom of movement inside the EU, make effective border conrol more difficult. Terrorists can, and do exploit these circumstances as we saw recently in their movement between Brussels and Paris, and to and from Syria. With large numbers of people on the move, a few of them will inevitably carry the terrorist virus.” A number of the most lethal terrorists are from inside Europe, including the UK. They are already among us.” “The EU, as opposed to its member states, has no operational counter-terrorist capability to speak of. Many of the European states look to the UK for training.”
“The argument that we would be less secure if we left the EU, is in reality rather difficult to make. There would in fact be some gains if we left, because the UK would be fully master of its own house. Counter-terrorist coordination across Europe would certainly continue, and the UK would remain a leader in the field. The idea that the quality of that cooperation depends in any significant way on our EU membership is misleading.” “Is the EU, faced with the problem of mass migration, able to coordinate an effective response from its member countries. Should the UK stay in and continue struggle for fundamental change, or do we conclude that the effort would be wasted, and that the EU in its extended form has run its historical course. For each of us, this is possibly the most important choice we may ever have to make.”
“Whether we will each be worse off, whether our national security might be damaged, even whether the economy might falter, and sterling be devalued, are subsidiary to the key question, which is whether we have confidence in the EU to manage Europe’s future. If Europe cannot act together to persuade a majority of its citizens that it can gain control of its migrant crisis, then the EU will find itself at the mercy of a populist uprising which is already stirring. The stakes are very high, and the UK referendum is the first roll of the dice in a bigger geopolitical game.”
Brussels has granted Italy “unprecedented” flexibility in meeting EU debt reduction targets, using its political leeway to the full as it cautiously polices the eurozone’s fiscal rule book. Italy has emerged as a big winner from the European Commission’s latest review of national budget policies, which is set to pull back from — or postpone — painful corrective measures it had the power to impose. The decisions have sparked an intense debate within the commission over what critics see as its record of tolerating fiscal lapses by countries such as France, Italy and Spain. Some officials were on Tuesday pushing to delay parts of the package to avoid punishing Spain and Portugal before Spain’s election on June 26.
The need for the debate on timing shows the commission under Jean-Claude Juncker has acted as a self-described political body, even at the risk of undermining the credibility of the eurozone’s strengthened fiscal regime. After months of heavy lobbying from Matteo Renzi, the Italian premier, Rome secured most of the “budgetary flexibility” it sought, helping it avoid so-called excessive deficit procedures for failing to bring down its debt levels fast enough. Italy would be allowed extra fiscal room equivalent to 0.85%of GDP — or about €14bn — this year compared with the target mandated under EU budget rules. Such “flexibility” approaches the 0.9% of GDP Italy demanded in drawn-out negotiations with Brussels.
Valdis Dombrovskis and Pierre Moscovici, the two European commissioners responsible for eurozone budget issues, said in a letter to Rome that “no other member state has requested nor received anything close to this unprecedented amount of flexibility”. Zsolt Darvas of the Bruegel think-tank said that “if the rules were taken literally” Italy would be placed under the excessive deficit procedure. Overall the EU fiscal rules “have very low credibility”, he added. “Many countries are violating the rules almost constantly from one year to the next.” Mr Renzi’s government is not completely in the clear, however. In exchange for the flexibility, the commission demanded a “clear and credible commitment” that Italy would respect its budget targets in 2017 to reduce the country’s high debt-to-GDP ratio, which stood at 132.7%of GDP last year.
The US has raised its import duties on Chinese steelmakers by more than five-fold after accusing them of selling their products below market prices. The taxes specifically apply to Chinese-made cold-rolled flat steel, which is used in car manufacturing, shipping containers and construction. The US Commerce Department ruling comes amid heightened trade tensions between the two sides over several products, including chicken parts. Steel is an especially sensitive issue. US and European steel producers claim China is distorting the global market and undercutting them by dumping its excess supply abroad. The ruling itself is only directed at what is small amount of steel from China and Japan and won’t have much of an impact – but it is the politics of the ruling that’s worth noting.
It is an election year, and US presidential candidates have been ramping up the rhetoric on what they say are unfair trade practices by China. US steel makers say that the Chinese government unfairly subsidises its steel exports. Meanwhile China has been under pressure to save its steel sector, which is suffering from over-capacity issues because of slowing demand at home. China’s Ministry of Finance has not directly responded to the US ruling but on its website this morning it has said that China will maintain its tax rebate policy for steel exports as part of its efforts to help the bloated steel sector recover. These tax rebates are seen as favourable policies to shore up ailing steel companies in China, and to avoid massive job losses. Expect more fiery rhetoric from the US on China’s unfair trading practices soon.
It would be like finding out Warren Buffett’s financial empire may have been, quite possibly, a sham. That’s what happened last year when China’s richest man — at least on paper — lost half of his wealth in less than half an hour. It turned out that his company Hanergy may well just be Enron with Chinese characteristics: Its stock could only go up as long as it was borrowing money, and it could only borrow money as long as its stock was going up. Those kind of things work until they don’t. The question now, though, is how much the rest of China’s economy has come down with Hanergy syndrome, papering over problems with debt until they can’t be anymore. And the answer might be a lot more than anyone wants to admit. Although we should be careful not to get too carried away here.
Hanergy is now a nothing that used debt to look like a very big something, while China’s economy actually is a very big something that is using debt to look even bigger. In other words, one looks like a boondoggle and the other a bubble. But in both cases, excessive borrowing — especially from unregulated “shadow banks,” such as trading firms — has made things look better today at the expense of a worse tomorrow. In Hanergy’s case, there will, of course, be no tomorrow. To step back, the first thing to know about Hanergy is that it’s really two companies. There’s the privately owned parent corporation Hanergy Group, and the publicly traded subsidiary Hanergy Thin Film Power (HTF). The latter, believe it or not, started out as a toymaker, somehow switched over to manufacturing solar panel parts, and was then bought by Hanergy Chairman Li Hejun.
And that’s when things really got strange. The majority of HTF’s sales, you see, were to its now-parent company Hanergy — and supposedly at a 50% net profit margin! — but it wasn’t actually getting paid, you know, money for them. It was just racking up receivables. Why? Well, the question answers itself. Hanergy must not have had the cash to pay HTF. Its factories were supposed to be putting solar panels together out of the parts it was getting from HTF, but they were barely running — if at all. Hedge-fund manager John Hempton didn’t see anything going on at the one he paid a surprise visit to last year. It’s hard to make money if you’re not making things to sell. But it’s a lot easier to borrow money and pretend that you’re making it. At least as long as you have the collateral to do so — which Hanergy did when HTF’s stock was shooting up.
Indeed, it increased 20-fold from the start of 2013 to the middle of 2015. But it was how more than how much it went up that raised eyebrows. It all happened in the last 10 minutes of trading every day. Suppose you’d bought $1,o00 of HTF stock every morning at 9 a.m. and sold it every afternoon at 3:30 p.m. from the beginning of 2013 to 2015. How much would you have made? Well, according to the Financial Times, the answer is nothing. You would have lost $365. If you’d waited until 3:50 p.m. to sell, though, that would have turned into a $285 gain. And if you’d been a little more patient and held on to the stock till the 4 p.m. close, you would have come out $7,430 ahead. (Those numbers don’t include the stock’s overnight changes).
China plans to tighten supervision over fund houses’ subsidiaries and rein in the expansion of a sector worth nearly 10 trillion yuan ($1.53 trillion) as regulators target a key channel for so-called shadow banking to contain financial risks, according to a copy of the draft rules seen by Reuters. The Asset Management Association of China (AMAC) will set thresholds for fund houses to establish subsidiaries and use capital ratios to limit the subsidiaries’ ability to expand businesses, the draft rules said. Loosely-regulated subsidiaries set up by mutual fund firms have grown rapidly over the past year, managing 9.8 trillion yuan worth of assets by the end of March, according to the AMAC, and becoming a key channel for shadow banking activities.
Under the proposed rules, fund houses applying to set up subsidiaries must manage at least 20 billion yuan in assets excluding money-market funds, and have a minimum 600 million yuan in net assets. Current thresholds are much lower. The new rules would also require that a subsidiary’s net capital not be lower than the company’s total risk assets, while net assets must not be lower than 20% of its liability, in effect slashing the leverage ratio of the business. China’s prolonged crackdown on riskier practices in the lesser-regulated shadow banking system has taken on fresh urgency amid a growing number of corporate defaults as the economy struggles, and as top policymakers appear increasingly worried about the risks of relying on too much debt-fuelled stimulus.
Abenomics has over-promised and under-delivered. Japanese Prime Minister Shinzo Abe’s bid to revive anaemic growth, reverse falling prices and rein in government debt has relied too heavily on the central bank and been sideswiped by a global slowdown. Keeping the project alive now requires fresh boldness. When he took office in December 2012, Abe set out to lift real economic growth to 2% a year, with consumer prices rising at the same rate. His main weapons were the famous “three arrows” of aggressive monetary policy, a flexible fiscal stance, and widespread structural reform. Abe has achieved some success. Unemployment is just 3.2%, a low last seen in 1997. In his first three calendar years in office, the economy expanded about 5% in nominal terms.
A weaker yen has helped deliver record corporate earnings; as of May 13 the Topix stock index had returned 70% including dividends. Prices have inched upwards. But the core targets remain out of reach. The IMF expects Japan’s GDP to grow just 0.5% this year. Even after cutting out volatile prices for fresh food and energy, the Bank of Japan’s preferred measure of inflation is running at just 1.1%. And the central bank keeps delaying its deadline for hitting the 2% target, which it now expects to reach in the year ending March 2018. Analysts still think that optimistic. Meanwhile, the yen has rallied unhelpfully and the BOJ faces accusations it is ineffective, after unexpectedly making no change to policy at its last meeting.
One snag is psychological: the deflationary mindset is hard to shake. Firms can borrow very cheaply yet hoard lots of cash and resist big pay rises. Workers are not pushy about wage hikes, and reluctant to spend. There were errors, too. Abe faced concerns that Japan’s government debt, at 2.4 times GDP, could become unsustainable. So he kept fiscal policy relatively orthodox, promising that taxes would cover public spending, excluding interest payments, by 2020. He hiked the country’s sales tax in 2014, denting growth and confidence. And he relied heavily on BOJ Governor Haruhiko Kuroda, whose institution now buys an extraordinary 80 trillion yen a year ($740 billion) of bonds. Meanwhile, structural reforms remain far from complete – in everything from encouraging more women into the workforce to reconsidering a deep aversion to immigration.
Congress has embraced free trade for two generations, but the protectionist bent of the 2016 election campaign may mark the end of that era. The first casualty may be the 12-nation Trans-Pacific Partnership, which was already facing a skeptical Congress. A European trade pact in the works may also be in trouble. Lawmakers from both parties are taking lessons from the insurgent campaigns of Donald Trump and Bernie Sanders, which have harnessed a wave of discontent on job losses by linking them to free-trade deals. Even Hillary Clinton has stepped up criticism of the pacts. While past presidential candidates have softened their stance on trade after winning election, the resonance of the anti-free-trade attacks among voters in the primaries may create a more decisive shift. Opponents of these deals are already sensing new openings.
“The gravity has shifted,” said Representative Marcy Kaptur, an Ohio Democrat. She said it could give new traction to proposals like one she’s put forth that would reopen trade deals with nations that have a trade deficit of $10 billion with the U.S. for three years in a row. The success of Trump and Sanders in Rust Belt states and elsewhere will make it even harder, if not impossible, for Congress to back TPP, even in a lame-duck session after the election. Lawmakers say it could also hamper a looming agreement between the U.S. and the EU if it looks like the next president would change course. “It’s a very heavy lift at this point,” said Representative Charlie Dent, a Pennsylvania Republican and longtime free-trade advocate, noting that all three remaining presidential contenders have expressed reservations about the TPP.
People smugglers made over $5 billion from the wave of migration into southern Europe last year, a report by international crime-fighting agencies Interpol and Europol said on Tuesday. Nine out of 10 migrants and refugees entering the European Union in 2015 relied on “facilitation services”, mainly loose networks of criminals along the routes, and the proportion was likely to be even higher this year, the report said. About 1 million migrants entered the EU in 2015. Most paid 3,000-6,000 euros ($3,400-$6,800), so the average turnover was likely between $5 billion and $6 billion, the report said. To launder the money and integrate it into the legitimate economy, couriers carried large amounts of cash over borders, and smugglers ran their proceeds through car dealerships, grocery stores, restaurants or transport companies.
The main organisers came from the same countries as the migrants, but often had EU residence permits or passports. “The basic structure of migrant smuggling networks includes leaders who coordinate activities along a given route, organisers who manage activities locally through personal contacts, and opportunistic low-level facilitators who mostly assist organisers and may assist in recruitment activities,” the report said. Corrupt officials may let vehicles through border checks or release ships for bribes, as there was so much money in the trafficking trade. About 250 smuggling “hotspots”, often at railway stations, airports or coach stations, had been identified along the routes – 170 inside the EU and 80 outside.
Refugees who arrived in Europe last year could repay spending on them almost twice over within just five years, according to one of the first in-depth investigations into the impact incomers have on host communities. Refugees will create more jobs, increase demand for services and products, and fill gaps in European workforces – while their wages will help fund dwindling pensions pots and public finances, says Philippe Legrain, a former economic adviser to the president of the European commission. Simultaneously refugees are unlikely to decrease wages or raise unemployment for native workers, Legrain says, citing past studies by labour economists.
Most significantly, Legrain calculates that while the absorption of so many refugees will increase public debt by almost €69bn (£54bn) between 2015 and 2020, during the same period refugees will help GDP grow by €126.6bn – a ratio of almost two to one. “Investing one euro in welcoming refugees can yield nearly two euros in economic benefits within five years,” concludes Refugees Work: A Humanitarian Investment That Yields Economic Dividends, a report released on Wednesday by the Tent Foundation, a non-government organisation that aims to help displaced people.
A fellow at the London School of Economics, Legrain says he hopes the report will dispel the myth that refugees will cause economic problems for western society. “The main misconception is that refugees are a burden – and that’s a misconception shared even by people who are in favour of letting them in, who think they’re costly but it’s still the right thing to do,” said Legrain in an interview. “But that’s incorrect. While of course the primary motivation to let in refugees is that they’re fleeing death, once they arrive they can contribute to the economy.” While their absorption puts a short-term strain on public finances, Legrain says, it also increases short-term economic demand, which acts as a welcome fiscal stimulus in countries where demand would otherwise be low.