Jun 082018
 


B-25s fly past erupting Vesuvius, Italy 1944

 

Why Bringing Assange Home Would Be The Best Possible Thing For Australia (CJ)
Julian Assange Gets Embassy Visit From Australian Officials (ITV)
Ben Bernanke: US Economy To Go Off The Cliff In 2020 (ZH)
The Return Of King Dollar Could Create A Feeding Frenzy For US Stocks (MW)
Trouble Brewing in Emerging Markets (Rickards)
Deutsche Bank’s Junk Bond Firesale (ZH)
China Trade Surplus Falls, But US Gap Widens (MW)
Argentina Clinches $50 Billion IMF Financing Deal (R.)
Welcome To The Post-Westphalian World (Escobar)
Turkey Suspends Migrant Deal With Greece (R.)
Mediterranean A ‘Sea Of Plastic’ (AFP)
All UK Mussels Contain Plastic And Other Contaminants (Ind.)

 

 

Caitlin Johnstone: “A beautiful continent where the Aboriginal Dreamtime has been paved over with suburbs and shopping centers.”

Why Bringing Assange Home Would Be The Best Possible Thing For Australia (CJ)

Well I’ll be damned, it’s about time. According to a new report by the Sydney Morning Herald, officials from Australia’s High Commission have just been spotted leaving the Ecuadorian embassy in London, accompanied by Julian Assange’s lawyer Jennifer Robinson. Robinson confirmed that a meeting had taken place, but declined to say what it was about “given the delicate diplomatic situation.” So, forgive me if I squee a bit. I am aware how subservient Australia has historically been to US interests, I am aware that those US interests entail the arrest of Assange and the destruction of WikiLeaks, and I am aware that things don’t often work out against the interests of the US-centralized empire. But there is a glimmer of hope now, coming from a direction we’ve never seen before. A certain southerly direction.

If the Australian government stepped in to protect one of its own journalists from being persecuted by the powerful empire that has dragged us into war after war and turned us into an asset of the US war/intelligence machine… well, as an Australian it makes me tear up just thinking about it. It has been absolutely humiliating watching my beloved country being degraded and exploited by the sociopathic agendas of America’s ruling elites, up to and including the imprisonment and isolation of one of our own, all because he helped share authentic, truthful documents exposing the depraved behaviors of those same ruling elites. I have had very few reasons to feel anything remotely resembling patriotism lately. If Australia brought Assange home, this would change.

We Australians do not have a very clear sense of ourselves; if we did we would never have stood for Assange’s persecution in the first place. We tend to form our national identity in terms of negatives, by the fact that we are not British and are not American, without any clear image about what we are. A bunch of white prisoners got thrown onto a gigantic island rich with ancient indigenous culture, we killed most of the continent’s inhabitants and degraded and exploited the survivors [..] That’s pretty much our entire nation right now. A beautiful continent where the Aboriginal Dreamtime has been paved over with suburbs and shopping centers.

[..] Bringing Julian Assange home could be the first step to giving ourselves a bright, shining image of who we are and what we stand for. At the moment, Australia is a lifeless vassal state hooked up to the US power establishment with our every orifice and resource being used to feed the corporatist empire. Anesthetized to the eyeballs and in a state of total submission, the return of Julian might just be the little spark we need to get the old ticker pumping for itself again. Finally standing up for ourselves, for what’s right, and for the things that Julian stands for might just be the very thing we need as a nation to discover who we really are again.

Bring him home. It’s time.

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It must have been so strange for him. How can he trust these people?

Julian Assange Gets Embassy Visit From Australian Officials (ITV)

WikiLeaks founder Julian Assange has been visited by officials from the Australian High Commission. Two officials went to the Ecuadorian Embassy in London where Mr Assange has been living for almost six years. His internet and phone connections were cut off by the Ecuadorian government six weeks ago and he was denied visitors. The Australian-born campaigner fears being extradited to the US if he leaves the embassy and being questioned about the activities of WikiLeaks. It is believed to be the first time officials from the Australian High Commission in London have visited him.

Jennifer Robinson, a member of Mr Assange’s legal team, said: “I can confirm we met with Australian government representatives in the embassy today. “Julian Assange is in a very serious situation, detained without charge for seven-and-a-half years. “He remains in the embassy because of the risk of extradition to the US. “That risk is undeniable after numerous statements by Trump administration officials, including the Director of the CIA and the US attorney-general. “Given the delicate diplomatic situation we cannot comment further at this time.”

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He probably doesn’t get the irony in contradicting himself.

Ben Bernanke: US Economy To Go Off The Cliff In 2020 (ZH)

Speaking at the American Enterprise Institute, Bernanke echoed Bridgewater’s biggest concern about the sugar high facing the US economy for the next 18 months, saying that the stimulative impact from Trump’s $1+ trillion fiscal stimulus “makes the Fed’s job more difficult all around” because it’s happening at a time of very low unemployment; it also means that the more supercharged the economy gets thanks to the fiscal stimulus, the greater the fall will be when the hangover hits. “What you are getting is a stimulus at the very wrong moment,” Bernanke said Thursday during a policy discussion at the American Enterprise Institute, a Washington think tank. “The economy is already at full employment.”

Stealing further from the Bridgewater note, Bernanke said that while the stimulus “is going to hit the economy in a big way this year and next year and then in 2020 Wile E. Coyote is going to go off the cliff, and it’s going to look down” just when the US economy collides head on with what Bridgewater called “an unsustainable set of conditions.” The irony here is delightful: after all it was Ben Bernanke who consistently blamed Congress for not doing enough to jumpstart the economy during his time in office – a core topic of his 2015 memoir “The Courage to Act: A Memoir of a Crisis and Its Aftermath”; it is the same Bernanke who three years later is now blaming the President and Congress for doing too much. Here is the NYT on the very topic:

“Congress is largely responsible for the incomplete recovery from the 2008 financial crisis, Ben S. Bernanke, the former Federal Reserve chairman, writes in a memoir published on Monday. Mr. Bernanke, who left the Fed in January 2014 after eight years as chairman, says the Fed’s response to the crisis was bold and effective but insufficient. “I often said that monetary policy was not a panacea — we needed Congress to do its part,” he says. “After the crisis calmed, that help was not forthcoming.” And now that Congress has more than done its part, Bernanke predicts collapse in under 2 years.

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It’s starting to feel that way.

The Return Of King Dollar Could Create A Feeding Frenzy For US Stocks (MW)

While Wall Street stocks may well be on their way to fresh highs, the dollar has been taking hits from all comers. That buck weakness is largely due to speculation the ECB may be nearing its own quantitative-easing unwind. The dollar is also sagging a bit as investors fret about the upcoming G-7 and Trump-Kim Jong Un meetings next week. But try to imagine a not-so-distant future, where King Dollar sits on the Iron Throne, while the world burns in chaos. That’s the vision laid out in our call of the day from Santiago Capital CEO Brent Johnson, who predicts the dollar will go “much, much higher” over the next one to two years. That in turn should trigger a global currency crisis and drive investors into U.S. stocks, he argues.

“What it means is we haven’t seen the blowoff top yet. I think equities are going a lot higher. This isn’t a Polyanna view — I’m not saying to go out and buy equities because things are good. I’m saying buy equities because things are bad,” says Johnson in a recent interview with Real Vision . Johnson sees big blowback from the Fed’s unwinding of quantitative easing, already underway and well ahead of the rest of the world’s central banks. That will leave fewer dollars sloshing around the global financial system, even as the world still has a big need for them. He estimates demand for the buck tops $1 trillion a year, just to pay interest on dollar-based debt.

As the Fed tightens and injects less liquidity into the system, it will cause the dollar to go higher and higher, driving more investors toward the buck and then U.S. stocks as well. And a super strong dollar will just cause chaos elsewhere, as other currencies crumble. Just ask emerging-market central bankers how hot it’s getting in the kitchen right now. In Johnson’s opinion, global financial trade revolves around the dollar, which is why it matters so much if it decides to take off in a big way. “And when that money flows into the dollar, it eventually goes into U.S. assets, and I think it is going to push equities to all-time highs,” he says.

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“The U.S. will need to borrow over $3 trillion of new money in the next three years in addition to rolling over the existing $21 trillion in U.S. Treasury debt.”

Trouble Brewing in Emerging Markets (Rickards)

Hot money has been heading out of stocks and moving in the direction of government bonds, where higher risk-adjusted returns await. With this market backdrop in mind, what are the prospects for emerging markets in the months ahead? Outflows from EM stocks have just begun and are set to accelerate dramatically in the months ahead. This could lead to a full-blown emerging-market debt crisis with some potential to morph into a global liquidity crisis of the kind last seen in 2008, possibly worse. Some of the main drivers of this outflow from EMs are:

• China has begun cracking down on excessive leverage, zombie companies and shadow banking. The result will be a slowdown in growth in the world’s second- largest economy as the Communist Party tries to bring a credit bubble in for a soft landing. If they fail, the result will be worse than a slowdown; it could be a made- in-China credit crisis

• President Trump has launched a trade war. Major U.S. trading partners such as China, Canada and Mexico are in the cross hairs. Retaliation by those trading partners will be quick in coming. This trade war is another head wind for world growth and will put added stress on EM exports to developed economies

• The U.S. budget deficit is out of control. The U.S. will need to borrow over $3 trillion of new money in the next three years in addition to rolling over the existing $21 trillion in U.S. Treasury debt. The Federal Reserve is no longer monetizing this debt and is actually reducing its holdings of U.S. Treasuries by shrinking the base money supply and deleveraging its balance sheet. This debt will find buyers at progressively higher interest rates. Since central banks are no longer buyers, private parties will have to buy this debt. Those private buyers will have to sell stocks in developed and emerging markets to have the liquidity to buy government bonds

This is an extremely potent combination. Slower growth in China, a global trade war and an epic portfolio rebalancing from stocks to government bonds will sink U.S. and emerging-market stocks. The best case will be a 30% drawdown in stocks. The worst case will be a new global liquidity crisis that makes 2008 look like a warm-up for the main event.

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The most desperate bank in the world.

Deutsche Bank’s Junk Bond Firesale (ZH)

Deutsche Bank is seeking to sell its portfolio of non-investment grade energy loans, worth about $3 billion, according to people with knowledge of the matter.

The potential firesale comes as Deutsche’s short-dated CDS (counterparty risk) is soaring..

And comes as European HY Energy debt is weakening notably and US HY Energy is as good as it gets… Bloomberg reports that Deutsche is planning to sell the loan book as a whole and has marketed it to North American and European peers, said one of the people. The portfolio is expected to sell for par value, said the people, who asked not to be identified because they weren’t authorized to speak publicly; good luck with that! The bank’s energy business is expected to wrap up on June 30, one of the people said. The bank has been an active lender in the energy space in the past year, participating in the financing of companies including Peabody Energy Corp. and Coronado Australian Holdings Pty., according to data compiled by Bloomberg.

So to summarize: Moody’s is warning that when the economy weakens we will see an avalanche of defaults like we haven’t seen before; Corporate debt-to-GDP and investor risk appetite is reminding a lot of veterans of previous credit peaks; and now the most desperate bank in the world is offering its whole junk energy debt book in a firesale… just as high yield issuance starts to slump. All of which raises more than a single hair on the back of our previous lives in credit necks… and reminds us of this…

Thank you all for coming in a little early this morning. I know yesterday was pretty bad and I wish I could say that today is gonna be less so, but that isn’t gonna be the case. Now I’m supposed to read this statement to you all here, but why don’t you just read it on your own time and I’ll just tell you what the fuck is going on here. I’ve been here all night… meeting with the Executive Committee. And the decision has been made to unwind a considerable position of the firm’s holdings in several key asset classes. The crux of it is… in the firms thinking, the party’s over as of this morning. “For those of you who’ve never been through this before, this is what the beginning of a fire sale looks like.” – Sam Rogers, Margin Call

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“Concerns about more tariffs ahead likely caused some companies to front-load shipments..”

China Trade Surplus Falls, But US Gap Widens (MW)

China’s trade surplus narrowed in May on strong imports, through the gap with the U.S. widened–in part, some economists said, because of concerns that trade tensions could worsen in the months ahead. China reported a trade surplus of $24.92 billion last month, according to customs data released Friday, narrower than April’s $28.78 billion and the $32.6 billion forecast in a poll of economists. Imports were up 26% from a year earlier–driven by rising oil prices and bigger purchases of factory inputs, some economists said–accelerating from April’s 21.5% and beating forecasts. The higher-than-expected figure came after Beijing pledged to its trading partners to increase purchases and narrow trade gaps.

Stripping out price effects, Julian Evans-Pritchard, an economist with Capital Economics, estimated that import volumes in May were still up a seasonally adjusted 5.2% from April, reversing most of the decline since the start of 2018. The increase suggests that industrial activity remains strong following the easing of wintertime pollution controls, he said. Washington and Beijing have skirmished over trade this year, increasing tariffs on some products and threatening to do so on tens of billions of dollars in other goods. Beijing in recent weeks extended an olive branch, announcing plans to increase purchases from abroad and reduce tariffs on automobiles and some consumer products ranging from food and cosmetics.

Even so, China’s trade surplus with the U.S. in May was up 11% from April, at $24.58 billion, according to Friday’s data. Concerns about more tariffs ahead likely caused some companies to front-load shipments, said Liu Xuezhi, an economist with Bank of Communications.

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Shackles.

Argentina Clinches $50 Billion IMF Financing Deal (R.)

Argentina and the International Monetary Fund said on Thursday they reached an agreement for a three-year, $50 billion standby lending arrangement, which the government said it sought to provide a safety net and avoid the frequent crises of the country’s past. Argentina requested IMF assistance on May 8 after its peso currency weakened sharply in an investor exodus from emerging markets. As part of the deal, which is subject to IMF board approval, the government pledged to speed up plans to reduce the fiscal deficit even as authorities now foresee lower growth and higher inflation in the coming years.

The deal marks a turning point for Argentina, which for years shunned the IMF after a devastating 2001-2002 economic crisis that many Argentines blamed on IMF-imposed austerity measures. President Mauricio Macri’s turn to the lender has led to protests in the country. “There is no magic, the IMF can help but Argentines need to resolve our own problems,” Treasury Minister Nicolas Dujovne said at a news conference. Dujovne said he expected the IMF’s board to approve the deal during a June 20 meeting. After that, he said he expects an immediate disbursement of 30% of the funding, or about $15 billion. Argentina will seek to reduce its fiscal deficit to 1.3% of GDP in 2019, down from 2.2% previously, Dujovne said. The deal calls for fiscal balance in 2020 and a fiscal surplus of 0.5% of GDP in 2020.

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Overview of all initiatives to move away from western dominance.

Welcome To The Post-Westphalian World (Escobar)

In his latest, avowedly “provocative” slim volume, Has the West Lost It? former Singaporean ambassador to the UN and current Professor in the Practice of Public Policy at the National University, Kishore Mahbubani frames the key question: “Viewed against the backdrop of the past 1,800 years, the recent period of Western relative over-performance against other civilizations is a major historical aberration. All such aberrations come to a natural end, and that is happening now.” It is enlightening to remember that at the Shangri-la Dialogue two years ago, Professor Xiang Lanxin, director of the Centre of One Belt and One Road Studies at the China National Institute for SCO International Exchange and Judicial Cooperation, described BRI as an avenue to a ‘post-Westphalian world.’

That’s where we are now. Western elites cannot but worry when central banks in China, Russia, India and Turkey actively increase their physical gold stash; when Moscow and Beijing discuss launching a gold-backed currency system to replace the US dollar; when the IMF warns that the debt burden of the global economy has reached $237 trillion; when the Bank for International Settlements (BIS) warns that, on top of that there is also an ungraspable $750 trillion in additional debt outstanding in derivatives. Mahbubani states the obvious: “The era of Western domination is coming to an end.” Western elites, he adds, “should lift their sights from their domestic civil wars and focus on the larger global challenges. Instead, they are, in various ways, accelerating their irrelevance and disintegration.”

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The Greek court system works.

Turkey Suspends Migrant Deal With Greece (R.)

Turkey has suspended its migrant readmission deal with Greece, Foreign Minister Mevlut Cavusoglu was quoted as saying by state-run Anadolu agency, days after Greece released from prison four Turkish soldiers who fled there after a 2016 attempted coup. The four soldiers were released on Monday after an order extending their custody expired. A decision on their asylum applications is still pending. “We have a bilateral readmission agreement. We have suspended that readmission agreement,” Cavusoglu was quoted as saying, adding that a separate migrant deal between the EU and Turkey would continue. Under the bilateral deal signed in 2001, 1,209 foreign nationals have been deported to Turkey from Greece in the last two years, data from the Greek citizens’ protection ministry showed.

Cavusoglu was quoted as saying that he believed the Greek government wanted to resolve the issue about the soldiers but that Greek judges were under pressure from the West. “The Greek government wants to resolve this issue. But we also see there is serious pressure on Greece from the West. Especially on Greek judges,” Cavusoglu was quoted as saying. The eight soldiers fled to Greece following the July 2016 failed coup in Turkey. Ankara has demanded they be handed over, accusing them of involvement in the abortive coup. Greek courts have rejected the extradition request and the soldiers have denied wrongdoing and say they fear for their lives. In May, Greece’s top administrative court rejected an appeal by the Greek government against an administrative decision by an asylum board to grant asylum to one of the Turkish soldiers.

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Worst offender? Turkey.

Mediterranean A ‘Sea Of Plastic’ (AFP)

The Mediterranean could become a “sea of plastic”, the WWF warned on Friday (June 8) in a report calling for measures to clean up one of the world’s worst affected bodies of water. The WWF said the Mediterranean had record levels of “micro-plastics,” the tiny pieces of plastic less than 5mm in size which can be found increasingly in the food chain, posing a threat to human health. “The concentration of micro-plastics is nearly four times higher” in the Mediterranean compared with open seas elsewhere in the world, said the report, “Out of the Plastic Trap: Saving the Mediterranean from Plastic Pollution.” The problem, as all over the world, is simply that plastics have become an essential part of our daily lives while recycling only accounts for a third of the waste in Europe.

Plastic represents 95 per cent of the waste floating in the Mediterranean and on its beaches, with most coming from Turkey and Spain, followed by Italy, Egypt and France, the report said. To tackle the problem, there has to be an international agreement to reduce the dumping of plastic waste and to help clear up the mess at sea, the WWF said. All countries around the Mediterranean should boost recycling, ban single-use plastics such as bags and bottles, and phase out the use of micro plastics in detergents or cosmetics by 2025. The plastics industry itself should develop recyclable and compostable products made out of renewable raw materials, not chemicals derived from oil.

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Bon appetit.

All UK Mussels Contain Plastic And Other Contaminants (Ind.)

All mussels sampled from UK coastlines and supermarkets were found to contain tiny shards of plastic and other debris in a new study. The scientists behind the report said microplastic consumption by people eating seafood in Britain was likely “common and widespread”. Though they were less certain about the resulting impact on human health, the research team emphasised the importance of further studies to determine any potential harm as a result of people eating plastic. In samples of wild mussels from eight coastal locations around the UK and eight unnamed supermarkets, 100 per cent were found to contain microplastics or other debris such as cotton and rayon.

Every 100 grams of mussels eaten contains an estimated 70 pieces of debris, according to the researchers, whose study is published in the journal Environmental Pollution. Mussels feed by filtering seawater through their bodies, meaning they ingest small particles of plastic and other materials as well as their food. There was more debris in the wild mussels, which were sampled from Edinburgh, Filey, Hastings, Brighton, Plymouth, Cardiff and Wallasey, than in the farmed mussels bought in shops. But mussels from the supermarkets, which came from various places around the world, had more particles in them if they had been cooked or frozen than if they were freshly caught, the study found.

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Jun 042018
 


Roy Lichtenstein Crying girl 1964

 

This Is Why The Global Collapse Will Be Devastating (von Greyerz)
If Trump Wants To Win A Trade War, The Market Has To Crash – Goldman (ZH)
Deutsche Bank Faces Another Challenge With Fed Stress Test (R.)
The Big Con: How Neoliberals Convinced Us There Wasn’t Enough To Go Around (G.)
Greece Relaxes Capital Controls To Prove Worst Of Turmoil Is Over (G.)
Australia’s Commonwealth Bank Agrees To $530M Fine Over Money-Laundering (AFP)
Merkel’s Comeuppance is Europe’s – and the World’s – Misfortune (Varoufakis)
Dozens Drown After Migrant Boat Sinks Off Tunisia Coast (G.)
Six Children, Three Adult Migrants Drown Off Turkish Coast (AFP)
Bayer To Close Monsanto Takeover, To Retire Target’s Name (R.)
Global Airport Capacity Crisis Amid Passenger Boom (AFP)
Eerie Silence Falls On Shetland Cliffs That Once Echoed Seabirds’ Cries (G.)
Notes on Heartache and Chaos (Jim Kunstler)

 

 

“.. If the above forecast of a major fall in the population as well as a substantial increase in debt is even vaguely accurate, Italy is on its way to the Dark Ages..”

This Is Why The Global Collapse Will Be Devastating (von Greyerz)

“The ECB (European Central Bank) just had its 20th birthday. But there is really nothing to celebrate. The EU is in a total mess and the Euro, which was launched on January 1, 1999, is a failed currency. Every president of the ECB has had to deal with fires that had very little to do with price stability but were more a question of survival. Most of these fires were a lot more serious than the candles in the Euro cake above which Draghi is trying to blow out. During the Frenchman Trichet’s watch, he had to deal with the Great Financial Crisis that started in 2006…

[..] The EU now has major economic and/or political problems in many countries. Italy’s new coalition government is a protest against the EU and Euro. With debt to GDP already the highest in Europe, the new regime will exacerbate the problems. Lower taxes and higher spending will guarantee that. As the chart below shows, Italian debt to GDP is already 140%. By 2050 this is projected to grow to 210%. As interest rates go up, servicing the growing debt will soon absorb all tax revenue. Italy will be bankrupt long before 2050 and default on all its debt.

Between now and 2050, the Italian working age population is forecast to decline by 1/3, from 36 million to 24 million. There will be a lot less people to pay for a much higher debt.

The consequences of massive debt, economic stagnation and population decline will be a much lower GDP, which is expected to decline 35% by 2050.

If the above forecast of a major fall in the population as well as a substantial increase in debt is even vaguely accurate, Italy is on its way to the Dark Ages. I must stress here that I find it so sad that this glorious country is suffering so much already and will suffer a lot more. Personally I love Italy — the people, the food, the architecture, the history and the Giola di Vivere (joie de vivre) of the Italians. It will be so tragic to see all of this disintegrate. Hopefully it will take a long time, although, sadly, the crisis might actually be around the corner.

But Italy is just one of many countries which will collapse in coming years. Spain is in a similar situation and the prime minister has just been kicked out. Greece’s problems have never been resolved and this fine country is also bankrupt and so are the Greek banks. I could go on with Portugal, France, Ireland, the UK and many others. Most of these countries have insoluble problems. It is only a matter of degree and time when the EU/Eurozone house of cards comes down.

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To make tariffs threats credible.

If Trump Wants To Win A Trade War, The Market Has To Crash – Goldman (ZH)

[..] to maintain leverage in negotiations, the Administration must convince trading partners that the US intends to impose trade restrictions. However, and this is the key part, “it is unlikely that the White House can convince trading partners that tariff threats are credible without also convincing financial markets.” In other words, for Trump’s trade negotiations to be successful, and for US trade partners to take a flip-flopping Trump credibly, the market has to crash. Incidentally, this makes sense when one considers that when Trump officially launched the trade war with China in early April, the president explicitly warned that stocks “may take a hit”, and told investors to prepare for “pain” in the market, a statement which promptly became a self-fulfilling prophecy and sent the market sharply lower.

The other consequence is that markets may tumble not as an effect, but as a cause of the trade war: after all Trump needs to be taken seriously, and that could mean another slide in the S&P. Goldman agrees as much: “… we do not expect trade policy risks to fade anytime soon. While we think that financial market sentiment around trade issues is unlikely to become as negative again as it was in early April, when the President floated the possibility of tariffs on another $100 billion in imports from China, we do not expect markets to become entirely comfortable with the outlook for trade policy, either.”

The punchline: “The challenge that the White House faces is that, to maintain leverage in negotiations, trading partners must believe that the US intends to follow through with proposed actions like tariffs. However, repeated threats begin to lose credibility unless they are followed up with action.” In short, just as China said earlier, the US can’t have its cake and eat it too: Trump can’t have trade war, or the threat thereof, and record high stocks.

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It’s going to be public. But can the Fed afford to damage Deutsche?

Deutsche Bank Faces Another Challenge With Fed Stress Test (R.)

Deutsche Bank AG will face another challenge this month when the Federal Reserve publishes the results of a “stress test” on the bulk of its U.S. operations for the first time. Germany’s largest lender is already facing challenges with U.S. bank regulators and in financial markets, with its stock price falling to historic lows on Thursday. Standard & Poor’s downgraded its credit rating to BBB+ from A- on Friday. The downgrade came after reports earlier in the week that the Fed designated one of Deutsche Bank’s U.S. businesses as “troubled” last year, something a person with knowledge of the matter confirmed to Reuters on Friday. The Fed’s stress test results, expected to be released sometime this month, will be the next big public barometer of Deutsche Bank’s financial strength.

It could be difficult for a bank with a subsidiary on the “troubled” list to pass the scenarios, according to a person familiar with the tests who was not authorized to speak publicly. That is because the capital, liquidity and risk management failures that would land a bank on the list are similar to those that lead banks to flunk the stress test, the person said. The Fed has been examining how the biggest U.S. banks would handle a range of adverse economic and market scenarios since 2009, requiring many to shore up their capital buffers and risk management controls. But this is the first year it will publicly release results of six foreign lenders, including Deutsche Bank, after requiring them to create consolidated U.S. holding companies with ring-fenced capital. The Fed tested those new entities last year in a trial run, the results of which are confidential.

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Austerity eats people.

The Big Con: How Neoliberals Convinced Us There Wasn’t Enough To Go Around (G.)

Australia just experienced one of the biggest mining booms in world history. But even at the peak of that boom, there was no talk of the wonderful opportunity we finally had to invest in world-class mental health or domestic violence crisis services. Nor was there much talk from either major party about how the wealth of the mining boom gave us a once-in-a-generation opportunity to invest in remote Indigenous communities. Nope, the peak of the mining boom was not the time to help those who had missed out in decades past, but the Howard government thought it was a great time to introduce permanent tax cuts for high-income earners. These, of course, are the tax cuts that caused the budget deficits we have today.

Millions of tonnes of explosives were used during the mining boom to build more than 100 new mines, but it wasn’t just prime farmland that was blasted away in the boom, it was access to the middle class. At the same time that Gina Rinehart was becoming the world’s richest woman on the back of rising iron-ore prices, those on the minimum wage were falling further and further behind their fellow Australians. Australia isn’t poor; it is rich beyond the imagining of anyone living in the 1970s or ’80s. But so much of that new wealth has been vacuumed up by a few, and so little of that new wealth has been paid in tax, that the public has been convinced that ours is a country struggling to pay its bills.

Convincing Australians that our nation is poor and that our governments “can’t afford” to provide the level of services they provided in the past has not just helped to lower our expectations of our public services and infrastructure, it has helped to lower our expectations of democracy itself. A public school in Sydney has had to ban kids from running in the playground because it was so overcrowded. Trains have become so crowded at peak hours that many people, especially the frail and the disabled, are reluctant to use them.

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Relax capital controls when nobody has any money left to get out of the bank.

Greece Relaxes Capital Controls To Prove Worst Of Turmoil Is Over (G.)

Greece is to take a substantial step towards easing capital controls – restrictions associated with the worst days of economic crisis – as it prepares to exit its current bailout programme. Signalling that confidence is gradually returning to the country’s banking system, the leftist-led government has doubled the amount depositors will be able to withdraw from their accounts as of Monday. “As is usually the case with the economy, this is about psychology,” said a senior official at the Bank of Greece. “The relaxation is as much about boosting confidence among investors and savers as showing banks can now afford to work under normal conditions.” Barely three months before its third international bailout programme expires, the country once at the epicentre of the euro crisis is keen to prove its financial turmoil is over.

Under the new rules, the limit on cash withdrawals from local banks will be raised from €2,300 to €5,000 per month. Business transactions will also be facilitated, with cash transfers abroad being doubled to €40,000 a month. The Greek finance ministry said it had similarly decided to increase the amount depositors can take abroad, in euros or foreign currency, from €2,300 to €3,000 per trip. From 1 July, banks will be allowed to accept customer orders for money transfers overseas for up to €4,000 bi-monthly. In a statement the finance ministry said the aim was to fully lift restrictions “as soon as possible” while ensuring macroeconomic and financial stability.

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“serious and systemic non-compliance” of anti-money laundering laws more than 53,000 times…”

Australia’s Commonwealth Bank Agrees To $530M Fine Over Money-Laundering (AFP)

The Commonwealth Bank Monday agreed to the largest civil penalty in Australian corporate history to settle claims it breached anti-money laundering and counter-terrorism financing laws. The Aus$700 million (US$530 million) fine – which is subject to court approval – comes after mediation between the nation’s biggest lender and the country’s financial intelligence agency AUSTRAC. It follows the bank being taken to court last August for “serious and systemic non-compliance” of anti-money laundering laws more than 53,000 times, with AUSTRAC filing 100 further claims in December. CBA was also accused of failing to adequately monitor suspected terrorist financiers.

“While not deliberate, we fully appreciate the seriousness of the mistakes we made,” said CBA chief executive Matt Comyn in a statement. “Our agreement today is a clear acknowledgement of our failures and is an important step towards moving the bank forward. On behalf of Commonwealth Bank, I apologise to the community for letting them down.” The bank, which in the fallout has replaced senior leadership overseeing financial crimes and pumped millions of dollars into improving its systems, also agreed to pay AUSTRAC’s Aus$2.5 million legal fees.

After slumping more than 10 percent over the past month, during which it admitted losing financial records for almost 20 million customers, CBA’s share price rallied 1.44 percent on the settlement to close at Aus$69.69. The scandal is only the latest issue to damage the reputation of Australian banks, which have been under intense scrutiny amid allegations of dodgy financial advice, life insurance and mortgage fraud, and rigging benchmark interest rates. Last week, ANZ Bank was accused of “cartel arrangements” over a multi-billion-dollar capital raising, along with its advisers Deutsche Bank and Citigroup. They face potential criminal charges.

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Germany blows up the EU in slow motion.

Merkel’s Comeuppance is Europe’s – and the World’s – Misfortune (Varoufakis)

The causal link between Germany’s two political headaches has an economic basis. Trump understands one thing well: Germany and the eurozone are at his mercy, owing to their increasing dependence on large net exports to the US and the rest of the world. And this dependence has grown inexorably as a result of the austerity policies that were first tried out in Greece and then implemented in Italy and elsewhere.

To see the link, recall the “fiscal compact” to eliminate structural budget deficits that Germany insisted upon as a condition of agreeing to bailout loans for distressed governments and banks. Then note that this pan-European austerity drive took place against the backdrop of massive excess savings over investment. Finally, note that large excess savings and balanced government budgets necessarily mean large trade surpluses – and thus the increasing reliance of Germany, and Europe, on massive net exports to the United States and Asia. In other words, the same incompetent policies that gave rise to the xenophobic, anti-Europeanist Italian government also bolstered Trump’s power over Merkel.

Europe’s inability to get its own house in order has engendered a new Italian majority that is planning to expel a half-million migrants, blowing fresh winds into the sails of militant racists in Hungary, Poland, France, Britain, the Netherlands, and, of course, Germany itself. Meanwhile, with Europe too enfeebled to tame Trump, the US will aim to force China to deregulate its financial and tech sectors. If it succeeds, at least 15% of China’s national income will gush out of the country, adding to the deflationary forces that are breeding political monsters in Europe and in the US.

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And still no UN emergency meeting. The shame will not wash away.

Dozens Drown After Migrant Boat Sinks Off Tunisia Coast (G.)

At least 47 people died and 68 others were rescued after their migrant boat sank off Tunisia’s southern coast, according to the country’s defence ministry. Authorities said about 180 people, of both Tunisian and other nationalities, were hemmed in onboard the vessel. A survivor said the captain had abandoned the boat after it hit trouble in order to escape arrest. “I survived by clinging to wood for nine hours,” he told Reuters from a hospital in the city of Sfax where people were arriving in search of relatives and friends. Flavio Di Giacomo, a spokesman for the International Organisation for Migration (IOM), warned on Twitter that the final number of missing was still not known.

Tunisia has recently seen growing use of its coasts by human traffickers ferrying migrants from Africa to Europe, as Libyan authorities have cracked down on similar activity on their own shores. Tunisia has been suffering from an economic crisis since the toppling of Zine al-Abidine Ben Ali as president in 2011, which led to rocketing unemployment and inflation. In a separate incident, nine people including six children were killed off the coast of Turkey on Sunday after their speedboat sank, the Turkish coast guard said. By 30 May, the IOM had recorded 32,080 people as having reached Europe by boat in 2018 and around 660 as having died or gone missing in the attempt.

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And there’s always more.

Six Children, Three Adult Migrants Drown Off Turkish Coast (AFP)

Nine migrants, including six children, seeking to head to Europe in a speedboat drowned on Sunday when the vessel sank off Turkey’s Mediterranean coast, state media reports said. The boat hit trouble off the Demre district of Turkey’s Mediterranean Antalya province, a popular holiday spot, the state-run Anadolu news agency said. Five were rescued while one person was still missing, it added. Two adults, one woman and six children lost their lives, it said. The Dogan news agency said that they were seeking to head illegally to Europe but their planned route was not immediately clear. The nearest EU territory is the small Greek island of Kastellorizo to the west which lies off the Turkish resort of Kas.

The nationalities of those on board have yet to be made clear. Over a million people, many fleeing the war in Syria, crossed to European Union member Greece from Turkey in 2015 after the onset of the bloc’s worst migration crisis since World War II. [..] According to the International Organisation for Migration (IOM), 10,948 people crossed to Greece this year up to May 30, sharply more than in the same period in 2017. Thirty-five people lost their lives using this route so far this year, according to the IOM. As well as migrants from countries such as Syria, Eritrea, Iraq and Afghanistan, the route has been used by Turkish citizens fleeing the crackdown that followed the 2016 failed coup.

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Bayer wants to get rid of the bad name Monsanto has. Let’s give Bayer an even worse name.

Bayer To Close Monsanto Takeover, To Retire Target’s Name (R.)

Germany’s Bayer will wrap up the $62.5 billion takeover of Monsanto on Thursday this week and also retire the name of the U.S. seeds maker, it said on Monday. The German drugmaker had received all required approvals from regulatory authorities, it said in a statement. “Bayer will remain the company name. Monsanto will no longer be a company name. The acquired products will retain their brand names and become part of the Bayer portfolio,” it said. Bayer launched a 6 billion euro ($7 billion) rights issue on Sunday, a cornerstone of the financing package for the deal.

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Yeah. We need more air travel. Without counting the externalities.

Global Airport Capacity Crisis Amid Passenger Boom (AFP)

Governments need to urgently tackle a capacity crisis facing airports as demand for international travel grows, but they should be cautious about private sector involvement, airline industry group IATA warned Monday. With passenger levels projected to nearly double to 7.8 billion by 2036, infrastructure such as airports and air traffic control systems were not keeping pace, the International Air Transport Association said. Major airports have sought to address the crisis by managing slots — giving airlines specific operating rights at particular times. But there was still a need for new airports, IATA chief Alexandre de Juniac said at the body’s annual meeting in Sydney.

“We are in a capacity crisis. And we don’t see the required airport infrastructure investment to solve it,” he said, adding that cash-strapped governments were increasingly turning to private firms to increase airport capacity. But he cautioned against privatised airports, warning that they have “not lived up to airline expectations” with many carriers having “far too many bitter experiences”. [..] IATA Monday projected global air passenger traffic to rise by 6.5 percent this year to 4.36 billion, after increases of 7.0 and 7.3 percent in 2016 and 2017 respectively.

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Not sure it’s wise to blame this on climate change. The extinction stories come too fast. How about blaming Monsanto and booming air travel?

Eerie Silence Falls On Shetland Cliffs That Once Echoed Seabirds’ Cries (G.)

Sumburgh Head lies at the southern tip of mainland Shetland. This dramatic 100-metre-high rocky spur, crowned with a lighthouse built by Robert Louis Stevenson’s grandfather, has a reputation for being one of the biggest and most accessible seabird colonies in Britain. Thousands of puffins, guillemots, razorbills, kittiwakes and fulmars gather there every spring to breed, covering almost every square inch of rock or grass with teeming, screeching birds and their young. Or at least they used to – for this year Sumburgh Head is a quiet and largely deserted place. Where seabirds once swooped and cried in their thousands, only a handful of birds wheel round the cliffs.

The silence is uncanny – the result of a crash in seabird numbers that has been in progress for several years but which has now reached an unprecedented, catastrophic low. One of the nation’s most important conservation centres has been denuded of its wildlife, a victim – according to scientists – of climate change, which has disrupted food chains in the North Sea and North Atlantic and left many seabirds without a source of sustenance. The result has been an apocalyptic drop in numbers of Arctic terns, kittiwakes and many other birds. “In the past, Sumburgh Head was brimming with birds, and the air was thick with the smell of guano. The place was covered with colonies of puffins, kittiwakes, fulmars, and guillemots,” said Helen Moncrieff, manager of RSPB Scotland’s office in Shetland.

“There were thousands and thousands of birds and visitors were guaranteed a sight of puffins. Today they have to be very patient. At the same time, guillemots have halved in numbers. It is utterly tragic.” This grim description is backed by figures that reveal the staggering decreases in seabird numbers in Shetland, the most northerly part of the British Isles. In 2000, there were more than 33,000 puffins on the island in early spring. That figure dropped to 570 last year and there are no signs of any recovery this year, although it is still early in the season. Similarly, Shetland’s kittiwake population plummeted from over 55,000 in 1981 to 5,000 in 2011, and observers believe those numbers have declined even further in the past few years.

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Absolutely wonderful from Jim.

Notes on Heartache and Chaos (Jim Kunstler)

I was interviewing a couple of homesteaders on an island north of Seattle at twilight last night when they noticed that the twelve-year-old family dog, name of Lacy, had not come home for dinner as ever and always at that hour. A search ensued and they soon found her dead in the meadow a hundred feet behind the house with two big puncture wounds in her body. Nobody had heard a gunshot. We’d just been talking inside and a nearby window was open. They suspect the dog met up with a black-tailed deer buck out there and was gored to death. We hadn’t heard a yelp, or anything. A week ago, an eagle got one of their geese, and some land-based monster got its companion just the other day.

Nature is what it is, of course, and it’s natural for human beings to think of its random operations as malevolent. That aspersion probably inclines us to think of ourselves as beings apart from nature (some of us, anyway). We at least recognize the tragic side of this condition we’re immersed in, and would wish that encounters between its denizens might end differently — like maybe that two sovereign creatures meeting up by sheer chance on a mild spring evening would exchange pleasantries, ask what each was up to, and go on their ways.

Malevolent nature visited me the night before, back home in upstate New York. Something slit the screened window of my henhouse, got inside, and slaughtered two of my birds. Big Red was missing altogether except for a drift of orange feathers. I found Little Blue just outside in a drift of her own feathers, half-eaten. I suspect a raccoon got them, slitting the window screen cleverly with its dexterous hand-like paws — yes, so much like our own clever hands. (In classic after-the-fact human style, I fortified the window with steel hardware cloth the next day.)

It’s the time of year when the wild critters of field and woodland are birthing their young and anxious to procure food for them. Who can blame them for that. Chicken is an excellent dish. I eat it myself, though never my own hens. I actually rescued Little Blue from the clutches of a red-tailed hawk last year as the hawk struggled to get airborne with her and let go as I screeched at it. Blue recovered from the talon punctures and had a good year — one good year on this earth with all its menace, when it is not busy being beautiful.

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Jun 022018
 


Edward S. Curtis Crow Scout in Winter 1908

 

The US Economy Suddenly Looks Like It’s Unstoppable (CNBC)
Record 95.9 Million Americans Are No Longer In The Labor Force (ZH)
The Pause That Refreshes (Roberts)
EU Joins Global Battle Against Trump Tariff Onslaught (AFP)
Eurozone Not Facing New Debt Crisis – Juncker (R.)
Three Critical Lessons From Europe’s Recent Mini-Meltdown (Black)
EU Lawmakers From Italy’s Coalition Parties Seek Funds To Quit Euro (R.)
Canada Auditor General To Public Service: Stop Ignoring My Reports (CBC)
Greece’s Busiest Port Reveals the Perils of Privatization (Nation)
EU Scraps Plans To Tackle Antibiotics Abuse (G.)

 

 

And I have a bridge in Brooklyn.

The US Economy Suddenly Looks Like It’s Unstoppable (CNBC)

In the face of persistent fears that the world could be facing a trade war and a synchronized slowdown, the U.S. economy enters June with a good deal of momentum. Friday’s data provided convincing evidence that domestic growth remains intact even if other developed economies are slowing. A better-than-expected nonfarm payrolls report coupled with a convincing uptick in manufacturing and construction activity showed that the second half approaches with a tail wind blowing. “The fundamentals all look very solid right now,” said Gus Faucher, chief economist at PNC. “You’ve got job growth and wage gains that are supporting consumer spending, and tax cuts as well. There’s a little bit of a drag from higher energy prices, but the positives far outweigh that. Business incentives are in good shape.”

The day started off with the payrolls report showing a gain of 223,000 in May, well above market expectations of 188,000, and the unemployment rate hitting an 18-year low of 3.8%. Then, the ISM manufacturing index registered a 58.7 reading — representing the%age of businesses that report expanding conditions — that also topped Wall Street estimates. Finally, the construction spending report showed a monthly gain of 1.8%, a full point higher than expectations. Put together, the data helped fuel expectations that first-quarter growth of 2.2% will be the low-water point of 2018. “May’s rebound in jobs together with yesterday’s report of solid income growth and the rise in consumer confidence points to the economy functioning very well,” the National Retail Federation’s chief economist, Jack Kleinhenz, said in a statement.

“Solid fundamentals in the job market are encouraging for retail spending, as employment gains generate additional income for consumers and consequently increase spending.” The most recent slate of widely followed barometers could see economists ratchet up growth expectations. Already, the Atlanta Fed’s GDPNow tracker sees the second quarter rising by 4.8%. While the measure also was strongly optimistic on the first quarter as well, at one point estimating 5.4% growth, other gauges are positive as well. CNBC’s Rapid Update, for instance, puts the April-to-June period at 3.6%.

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The unemployment rate is meaningless. Is that why it keeps being reported?

Record 95.9 Million Americans Are No Longer In The Labor Force (ZH)

In what was otherwise a solid jobs report – one which Donald Trump may or may not have leaked in advance – in which the establishment survey reported that a higher than expected 223K jobs were added at a time when numbers below 200K are expected for an economy that is allegedly without slack, the biggest surprise was not in the Establishment survey, but the household, where the unemployment rate tumbled once more, sliding to a new 18 year low of 3.8%, even as the participation rate declined once again, as a result of a stagnant labor force, which was virtually unchanged (161.527MM in April to 161.539MM in May, even as the total civilian non-inst population rose by 182K to 257.454LMM).

What was perhaps more interesting, however, is that for all the talk that the slack in the labor force is set to decline, precisely the opposite is taking place, because in May, the number of people not in the labor force increased by another 170K, rising to 95.915 million, a new all time high. Adding to this the 6.1 million currently unemployed Americans, there are 102 million Americans who are either unemployed or out of the labor force (and it is also worth noting that of those employed 26.9 million are part-time workers). In other words, contrary to prevailing economist groupthink, there is a lot of slack in the economy, and if as the latest Beige Book revealed, employers are now hiring drug addicts and felons to make up for the shortage of qualified candidates, a long time will pass before wages see significant gains.

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Deutsche is dangerous.

The Pause That Refreshes (Roberts)

As long as interest rates remain low and negative in some cases, debt can continue to be accumulated even with weaker rates of economic growth. More importantly, as long as rates remain low, the banking system can continue to play the “hide-the-debt game” through derivatives, swaps and a variety of other means. But rates are rising, and sharply, on the shorter-end of the curve. Historically, sharply rising rates have been a catalyst for a debt related crisis. As long as everything remains within the expected ranges, the complicated “math” behind trillions of dollars worth of financial instruments function properly. It is when those boundaries are broken that things “go wrong” and quickly so.

People have forgotten that in 2008 a major U.S. financial firm crashed as its derivative based exposure “blew up.” No, I am not talking about Lehman Brothers, the poster-child of the financial crisis, I am talking about Bear Stearns. In just 365-days, Bear Stearns stock went from $159 to $2, with about half of the loss occurring within a few weeks. Bear Stearns was the warning shot for the financial markets in early 2008 that no one heeded. Within a couple of months, the markets dismissed Bear Stearns as a “non-event” and rallied to a higher level than prior to the event, and almost back to highs for the year. Remember, there was “nothing to worry about” at the time, even though the Fed was increasing interest rates, as the “Goldilocks economy” could handle tighter monetary policy.

Sure, housing had been slowing down, mortgage delinquencies were rising, along with credit card defaults, but there wasn’t much concern. Today, we are seeing similar signs.Interest rates are rising, along with delinquencies, defaults, and a slowing housing market. But no one is concerned as the “Goldilocks economy” can clearly offset these mild risks. And no one is paying attention to, what I believe to be, one of the biggest risks to the global financial markets – Deutsche Bank.

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Globalization in reverse.

EU Joins Global Battle Against Trump Tariff Onslaught (AFP)

The EU on Friday launched its first counteroffensive against Washington’s punishing steel and aluminum tariffs while the US began meetings in Canada with outraged finance ministers from its top trading partners. Meanwhile in Washington, US President Donald Trump floated the possibility of scrapping the 24-year-old North American Free Trade Agreement in favor of separate bilateral deals with Canada and Mexico. And in another leg of Trump’s multi-front trade offensive, Commerce Secretary Wilbur Ross arrived in Beijing to continue fraught talks with Chinese officials. Trump has vowed to press ahead with tariffs on as much as $50 billion in imports from China.

Brussels and Ottawa on Friday filed legal challenges at the World Trade Organization against Washington’s decision. The EU, Canada and Mexico also threatened stiff retaliatory tariffs as they pushed back against Trump’s moves. Canadian Prime Minister Justin Trudeau said Friday he was dumbfounded by Washington’s national security basis for the tariffs, given that US and Canadian troops had fought together in World War II, Afghanistan and elsewhere. “This is insulting to them,” he told NBC News. British Prime Minister Theresa May said she was “deeply disappointed” and reiterated a call for Britain and the EU to be “permanently exempted” from the “unjustified” metals tariffs.

At the Group of Seven ministerial meeting in Canada, US Treasury Secretary Steven Mnuchin faced stern reactions from his counterparts, who accused Trump of jeopardizing the world economy with steps that would prove job killers for all concerned. “The French, British and Germans held firm,” French Finance Minister Bruno Le Maire told reporters. “Everyone expressed their complete incomprehension of the American decisions and everyone said it was up to the Americans to take the next step since they were the ones who imposed the tariffs.”

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This is like the owner of a sports team publicly declaring the coach has their full support. Bad sign.

Eurozone Not Facing New Debt Crisis – Juncker (R.)

There is no threat of a new sovereign debt crisis in the euro zone despite an anti-establishment coalition government taking power in Italy, European Commission President Jean-Claude Juncker said in remarks published on Saturday. Asked by the RND network of German newspapers if the single currency bloc faced a new crisis, Juncker said: “No. The reactions of the financial markets are irrational. People should not draw political conclusions from every fluctuation in the stock market. Investors have been wrong on so many occasions before.” A governing coalition comprising two parties hostile to the euro was installed in Italy on Friday, calming markets spooked by the possibility of a new election that might have become a referendum on quitting the single currency. “I am certain the Italians have a keen sense of what is good for their country,” Juncker said. “They will sort it out.”

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It will just take one little spark.

Three Critical Lessons From Europe’s Recent Mini-Meltdown (Black)

1) On the day that the finance minster was rejected, financial markets worldwide tanked. Italy’s stock market plunged 5%, which is considered a major drop. But curiously, the stock market in the US fell as well, with the Dow Jones Industrial Average shedding 400 points. Even markets in China and Japan had significant drops as a result of the Italy turmoil. Now, it’s easy to see why Italy’s markets fell. And even the rest of Europe. But the entire world? Granted, a lot of people made a really big deal out of this event, concluding that it signals the end of the euro.. or Europe itself… or some other such drama. Sure, maybe. But it’s almost impossible to foretell a trend as significant as ‘the end of the euro’ based on a single event.

At face value, the rejection of a cabinet minister in Italy should have almost -zero- relevance on economies as large and diversified as the US, China, and Japan. To me, this is another sign that we’re near the peak of the bubble… and possibly already past it. Markets are so stretched, and investors are on such pins and needles, that even a minor, insignificant event induces panic. And it makes me wonder: if financial markets are so tightly wound that something so irrelevant can cause such an enormous impact, how big will the plunge be when something serious happens?

2) It wasn’t just stocks either. Bond markets were also keenly impacted. Bear in mind that stocks are volatile by nature; prices move much more wildly than other asset classes. But bonds, on the other hand, are supposed to be safe, stable, boring assets. Especially government bonds in highly developed nations. In Italy the carnage was obviously the worst. Investors dumped the 2-year Italian government bond, and yields (which move opposite to prices) surged from 0.9% to 2.4% in a matter of hours. Simply put, that’s not supposed to happen. And it hadn’t happened in at least three decades. Again, though, even in the United States, yields on the US 10-year note dropped 16 basis points overnight, from 2.93% to 2.77% (which means US bond prices increased).

That’s considered MAJOR volatility for US government bonds. To put it in context, the only day over the past few YEARS that saw 10-year yields move more than that was the day after Donald Trump won the US Presidential Election in 2016. So it was a pretty big deal. Again, this leads me to wonder: if safe, stable assets like government bonds can react so violently from such an insignificant event, how volatile will riskier assets be when there’s an actual crisis? Just imagine what’s going to happen to all the garbage assets out there (like unprofitable, heavily indebted businesses) when a real downturn kicks in.

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No, they supported setting up a fund for countries in trouble.

EU Lawmakers From Italy’s Coalition Parties Seek Funds To Quit Euro (R.)

European Union lawmakers from the two parties forming Italy’s new government coalition backed this week a rejected proposal to set up EU funds to help countries quit the euro, a sign of the Italian leadership’s ambivalent position on the common currency. Their vote came as the anti-establishment 5-Star Movement and far-right League were finalising a deal to form an executive in Rome, under pledges that leaving the euro was not in their government programme. The government was sworn in on Friday. An earlier attempt to form a government foundered after the parties proposed as economy minister an economist who had devised a plan for Italy’s departure from the euro zone, prompting his rejection by the head of state.

Despite the declared intentions to stay in the euro, all six EU lawmakers from the League and all but one of the 14 5-Star Members of the European Parliament voted on Wednesday for a document that called for the establishment of programmes of financial support “for member states that plan to negotiate their exit from the euro.” The document voted on by their EU lawmakers called for compensation for “the social and economic damages caused by the euro zone membership.” The document was an amendment to a European Parliament resolution on the EU budget for the 2021-2027 period. The proposal, advanced by three leftist MEPs, was backed by 90 lawmakers but was rejected by a majority of the 750 MEPs.

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Sure this is very recognizable across the globe.

Canada Auditor General To Public Service: Stop Ignoring My Reports (CBC)

Canada’s auditor general says he’s getting tired of filing annual reports recommending reforms to the way the government does business — only to see those recommendations disappear down the memory hole afterward. Michael Ferguson released his spring audits on Tuesday. They included scathing criticisms of the government’s performance on the Phoenix pay system, Indigenous services and military justice. Many of these problems have been highlighted in Ferguson’s reports in the past. And that, he told CBC News, is the problem. “We always get the department agreeing to our recommendation but then somehow we come back five years later, 10 years later and we find the same problems,” he told host Chris Hall on CBC Radio’s The House on Wednesday.

“It almost is like the departments are trying to make our recommendations and our reports go away by saying they agree with our recommendations.” His work has made one thing clear, he said: the federal government has a culture problem that makes meaningful change difficult. “They need to do things to make the results better.” Part of the problem stems from political pressure on the public service, said Ferguson. Politicians tend to think from election to election, he said, which can undermine public servants’ efforts to bring in a longer-term plan. “It seems like the political side of things ends up having more weight in the conversation.” In Parliament, he said — and particularly with respect to Indigenous Services — progress tends to be measured on the basis of how much money the government spends on a particular policy file, and not on measurable outcomes.

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“.. it is clear there were strong interests to see Greece’s public wealth turned over into other peoples’ hands..”

Greece’s Busiest Port Reveals the Perils of Privatization (Nation)

In 2015, as a condition of the $100 billion European Union bailout that followed the 2008 financial crisis, the Greek government agreed to privatize a number of state-held assets including the Piraeus Port Authority, which manages the port’s container and passenger terminals. The Greek state sold a majority stake for $330 million to COSCO. For the Chinese company, the purchase had a clear financial logic. About 80 percent of China’s imports and exports to and from Europe are transported by sea, and by avoiding the need to sail to busy Northern European ports like Rotterdam or Hamburg, COSCO could offload containers in Piraeus, reducing the time it takes cargo to get to Europe by nearly a week. Plus, by owning the port authority, COSCO could help determine how much its own ships would have to pay itself in port fees.

As part of the deal, COSCO pledged to participate in financing $410 million worth of investment in the port, including a repair of port equipment and the dredging of Piraeus’s central port. Supporters of privatization argue these improvements signal a coming maritime renaissance at Piraeus—already the busiest port in the eastern Mediterranean. Nektarios Demenopolous, the deputy manager for investor relations at Piraeus Port Authority, told me, “There are 300 million euros [$350 million] of investment to come in the next five years, followed by another 50 million. Privatization has made the port much more dynamic and will reboot activities at the port like ship repair that have been in recession. It will be remembered as a success story.”

But a “success story” for whom? The dockworkers of Piraeus say they and their families have seen little of the alleged gains brought by COSCO. As Piraeus Port Authority boasts of widening profit margins and increasing maritime traffic, wages for dockworkers haven’t budged since they were slashed from 1500 euros ($1,750) per month to 600 euros after the financial crisis. Beyond that, COSCO now hires few dockworkers as full-time employees, and tends to enlist unskilled laborers for complex container unloading. COSCO also primarily remunerates people on an ad hoc basis as subcontractors, leaving dockworkers and their families entirely dependent on the ebb and flow of traffic into Piraeus. It also means their traditional retirement benefits have disappeared.

The long list of Greek public assets in the privatization pipeline includes Athens International Airport, the oil refiner Hellenic Petroleum, and the electric-grid operator. To date, some roughly $5 billion in Greek state assets, including the Port of Piraeus and Greece’s regional airport network, have been sold, and it is expected that the Greek government will sell nearly $55 billion worth of state assets within the next decade. There is no conclusive evidence that privatized state assets are more efficiently managed than their state-owned predecessors, but privatization is undoubtedly an effective means for a cash-strapped government to raise funds when its creditors are getting impatient. “Piraeus was always a profitable port. However, it is clear there were strong interests to see Greece’s public wealth turned over into other peoples’ hands,” said Giorgos Gogos, head of the Piraeus dockworkers’ union.

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How corrupt is Juncker?

EU Scraps Plans To Tackle Antibiotics Abuse (G.)

The EU has scrapped plans for a clampdown on pharmaceutical pollution that contributes to the spread of deadly superbugs. Plans to monitor farm and pharmaceutical companies, to add environmental standards to EU medical product rules and to oblige environmental risk assessments for drugs used by humans have all been discarded, leaked documents seen by the Guardian reveal. An estimated 700,000 people die every year from antimicrobial resistance, partly due to drug-resistant bacteria created by the overuse, misuse and dumping of antibiotics. The UK’s chief medical officer, Dame Sally Davies, has warned that failing to act could lead to a post-antibiotic apocalypse, spelling “the end of modern medicine” as routine infections defy effective treatment.

Some studies predict that antimicrobial resistance could cost $100tn (£75tn) between now and 2050, with the annual death toll reaching 10 million over that period. An EU strategy for pharmaceuticals in the environment was supposed to propose ways to avert the threat, but leaked material shows that a raft of ideas contained in an early draft have since been diluted or deleted. Proposals that have fallen by the wayside include an EU push to have environmental criteria for antibiotic use included in international agreements as “good manufacturing practice requirements”. This would have allowed EU inspectors to visit factories in Asia or Africa, sanctioning them were evidence of pharmaceutical pollution found.

[..] The pharmaceutical industry spent nearly €40m on lobbying EU institutions in 2015, according to voluntary declarations, and enjoys infamously easy access to officials. Public records show that the European Federation of Pharmaceutical Industries and Associations had more than 50 meetings with the Juncker commission in its first four and a half months of office. In the same period, GlaxoSmithKline had 15 meetings with the commission, Novartis had eight engagements, Sanofi and Johnson & Johnson had six sessions apiece, while Pfizer and Eli Lilly both met with EU officials five times each.

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Jun 012018
 


Edward Hopper Rooms by the sea 1951

 

Deutsche Bank Downgraded By S&P Over Restructuring Plans (MW)
ANZ, Deutsche Bank and Citigroup Face ‘Criminal Cartel’ Charges (BBC)
Deutsche Bank’s US Ops Deemed “Troubled” By Fed A Year Ago (R.)
Why Turkey And Argentina Are Doomed (ZH)
US On Brink Of Trade War With EU, Canada and Mexico (G.)
China To Slash Import Tariffs On Many Consumer Products By 60% From July 1 (R.)
Populist Government To Be Sworn In As Italy’s Political Deadlock Ends (G.)
Italians Back Euro But Rail Against EU’s Rules (G.)
Juncker: Italians Need To Work Harder And Be Less Corrupt (G.)
Spain’s Government Poised To Fall As Socialists Prepare For Power (Ind.)
UK’s “Bank of Mum & Dad” is Running Out of Liquidity (DQ)
Ecuador’s President Says Assange Can Stay In Embassy ‘With Conditions’ (G.)

 

 

Deutsche is enormous. Its derivatives portfolio is gigantic. This is a big story.

Deutsche Bank Downgraded By S&P Over Restructuring Plans (MW)

Deutsche Bank was downgraded Friday by S&P Global Ratings, which cited concerns over the German lender’s restructuring plans. The ratings agency cut the long-term issuer credit rating to ‘BBB+’ from ‘A-‘on the bank and its core operating subsidiaries. The troubled bank last week announced plans to cut thousands of jobs in a bid to overhaul its operations and cut costs, but S&P said they see “significant execution risks in the delivery of the updated strategy amid a continued unhelpful market backdrop, and we think that, relative to peers, Deutsche Bank will remain a negative outlier for some time,” in a statement. Investors also demanded the resignation of the bank’s chairman, Paul Achleitner, at the Annual General Meeting last week.

Shares have tumbled 42% so far this year. The agency kept a stable rating on the bank’s outlook, saying that management will execute the plan over time and achieve longer-term objectives. Meanwhile, Australia’s consumer watchdog on Friday announced that it would be bringing criminal cartel charges against Deutsche Bank, Citigroup and Australia & New Zealand Banking. Shares of Deutsche Bank opened up 1.5%, bouncing off a 7% drop Thursday, which came after the Federal Reserve designated the German lender’s U.S. business in “troubled condition,” people familiar with the matter told The Wall Street Journal.

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Deutsche again. Insult and injury.

ANZ, Deutsche Bank and Citigroup Face ‘Criminal Cartel’ Charges (BBC)

Financial institutions ANZ, Deutsche Bank and Citigroup will be prosecuted on criminal cartel charges, Australia’s consumer watchdog says. The allegations concern arrangements for the sale of A$2.5bn (£1.4bn; $1.9bn) worth of ANZ shares in 2015. The three banks said they would fight the charges. ANZ said it would also defend allegations against an employee. Australia’s scandal-plagued financial sector is at the centre of a national inquiry into misconduct. Several “other individuals” are also expected to be charged by prosecutors, the Australian Competition and Consumer Commission (ACCC) said.

“The charges will involve alleged cartel arrangements relating to trading in ANZ shares following an ANZ institutional share placement in August 2015,” chairman Rod Sims said in a statement. “It will be alleged that ANZ and the individuals were knowingly concerned in some or all of the conduct.” ANZ, one of Australia’s so-called “big four” banks, said the charges related to a placement of 80.8 million shares. The deal was underwritten by global giants Deutsche Bank, Citigroup and JP Morgan, as part of a bid by ANZ to raise capital to meet regulatory requirements. ANZ said regulators were now investigating whether it should have stated that 25.5 million shares of the placement had been taken up by “joint lead managers”.

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And it’s OK to keep that from -potential- shareholders, bondholders for over a year?!

Deutsche Bank’s US Ops Deemed “Troubled” By Fed A Year Ago (R.)

The United States Federal Reserve last year designated Deutsche Bank U.S. operations to be in “troubled condition”, The Wall Street Journal reported on Thursday, citing people familiar with the matter. The Fed’s assessment has not previously been made public, it said, sending shares in the German lender down 7.2% to 9.16 euros, their lowest level in more than a year and a half. The “troubled condition” status is one of the lowest designations employed by the Fed, The WSJ said. The report comes a month after Deutsche Bank’s new Chief Executive Christian Sewing announced plans to cut back bond and equities trading, where it has been unable to compete with U.S. powerhouses such as Goldman Sachs and JP Morgan.

Deutsche Bank’s attempts to break into the U.S. markets, which are seen as an essential plank for delivering a global investment banking platform, proved to be costly as it ended up paying out billions of dollars to settle regulatory breaches, prompting speculation at one point of a bailout by Berlin. The WSJ said that the Fed downgrade of Deutsche Bank’s U.S. operations caused the U.S. Federal Deposit Insurance Corporation (FDIC) to put Deutsche Bank Trust Company Americas on its list of “Problem Banks”.

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Clear enough.

Why Turkey And Argentina Are Doomed (ZH)

It was all the rage in 2017. Not long after contrarians like Jeff Gundlach and Russell Clark said to go long Emerging Markets, suddenly everyone was doing it, either as a standalone trade or as part of a pair trade shorting one or more DMs. Of course, maybe all they were doing was indirectly shorting the USD, which was arguably the biggest driver behind EM outperformance. But, in no small part due to the recent surge in the dollar, after outperforming developed equity markets by 20% in 2016-2017, EM is underperforming by 2.5% so far this year. Of course, it’s not just the dollar, but also interest rates, which until the recent Italian fiasco, were at 4 year, or greater, highs.

And, as JPM’s Michael Cembalest writes in his latest “Eye on the market” note, investor fears are predictably focused on the impact of rising US interest rates and the rising US dollar on EM external debt, and on rising oil prices. And yet, despite the occasional scream of terror from EM longs who refuse to throw in the towel, a closer look shows that the market reaction has been orderly so far, with two exceptions: Argentina and Turkey, which are leading the way down. However, as the JPM Asset Management CIO shows below, the collapse in these two countries has been largely a function of state-specific/idiosyncratic reasons.

The chart below, courtesy of Cembalest, shows each country’s current account (x-axis), the recent change in its external borrowing (y-axis) and the return on a blended portfolio of its equity and fixed income markets (the larger the red bubble, the worse the returns have been). This outcome looks sensible given weaker Argentine and Turkish fundamentals. And while Cembalest admits that the rising dollar and rising US rates will be a challenge for the broader EM space, most will probably not face balance of payments crises similar to what is taking place in Turkey and Argentina, of which the latter is already getting an IMF bailout and the former, well… it’s only a matter of time.

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1: look if present conditions are fair. 2: adapt them.

US On Brink Of Trade War With EU, Canada and Mexico (G.)

The United States and its traditional allies are on the brink of a full-scale trade war after European and Canadian leaders reacted swiftly and angrily to Donald Trump’s decision to impose tariffs on steel and aluminium producers. The president of the European commission, Jean-Claude Juncker, promised immediate retaliation after the US commerce secretary, Wilbur Ross, said EU companies would face a 25% duty on steel and a 10% duty on aluminium from midnight on Thursday. Europe, along with Canada and Mexico, had been granted a temporary reprieve from the tariffs after they were unveiled by Donald Trump two months ago.

However, Ross sent shudders through global financial markets when he said insufficient progress had been made in talks with three of the US’s traditional allies to reduce America’s trade deficit and that the waiver was being lifted. Wall Street slumped as the Dow Jones Industrial Average closed down more than 250 points as investors sold off shares in manufacturers and corporations with global reach. Shares across Europe also declined. The move from Washington – which comes at a time when Trump is also threatening protectionist action against China – triggered an immediate and angry response from Canada, Brussels and from individual European capitals.

Juncker called the US move “unjustified” and said the EU had no choice but to hit back with tariffs on US goods and a case at the World Trade Organisation in Geneva. “We will defend the Union’s interests, in full compliance with international trade law,” he added. Brussels has already announced that it would target Levi’s jeans, Harley-Davidson motorbikes and bourbon whiskey.

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Something’s working.

China To Slash Import Tariffs On Many Consumer Products By 60% From July 1 (R.)

China will cut import tariffs on nearly 1,500 consumer products ranging from cosmetics to home appliances from July 1, in a bid to boost imports as part of efforts to open up the economy. The move would be in step with Beijing’s pledge to its trade partners – including the United States – that China will take steps to increase imports, and offers a boon to global brands looking to deepen their presence in China. The finance ministry published a detailed list of products affected and their new reduced tax rates on Thursday, following early announcements of the broader plan. Starting next month, the average tariff rate on 1,449 products imported from most favored nations will be reduced to 6.9% from 15.7%, which is equivalent to a cut of about 60%, the finance ministry said in a statement on its website.

That followed an announcement from the State Council, or the country’s Cabinet, on Wednesday that China will cut import tariffs on consumer items including apparel, cosmetics, home appliances, and drugs. The tariff cuts this time are more broad-ranging than previous reductions. Import tariffs for apparel, footwear and headgear, kitchen supplies and fitness products will be more than halved to an average of 7.1% from 15.9%, with those on washing machines and refrigerators slashed to just 8%, from 20.5%. Tariffs will also be cut on processed foods such as aquaculture and fishing products and mineral water, from 15.2% to 6.9%.

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Savona comes out strong. His replacement as finance minister is no fan of the euro, and he himself is EU minister.

Populist Government To Be Sworn In As Italy’s Political Deadlock Ends (G.)

A populist government will be sworn into power in Italy on Friday after president Sergio Mattarella agreed to a revised slate of ministers – just days after a bitter row over the incoming leaders’ stance on the euro ended their initial bid to assume power. A joint statement by the anti-establishment Five Star Movement (M5S) and the far-right League announced that political newcomer Giuseppe Conte, who had been seen as a controversial choice, would serve as prime minister. The relatively unknown law professor met Mattarella late on Thursday night to put forward a list of ministers, which the president has accepted.

“All the conditions have been fulfilled for a political, Five Star and League government,” said Luigi Di Maio, the Five Star chief, and Matteo Salvini, the League leader, in a joint statement after a day of talks in Rome. The deal will bring at least temporary calm to a political crisis that has embroiled Italy for weeks. The tumult raised questions – in Brussels and among investors around the world – about whether the rise in Italian populism and the collapse of traditional parties posed a fundamental threat to the country’s future in the eurozone.

The formation of the new government will at least temporarily allay those concerns, because it will remove for now the threat that snap elections will be called later this summer, a prospect which worried investors because it could have bolstered support for anti-EU parties. The populist leaders stepped back from their insistence that Paolo Savona, an 81-year-old Eurosceptic, should serve as finance minister. The choice had been vetoed by Mattarella, prompting the M5S and the League to call off their deal. Savona will now serve as EU minister instead. But there are still many unknowns about how the new administration – an uneasy alliance between two former political opponents, both jockeying for power – will govern Italy.

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If the EU doesn’t adapt to its new reality, it’s doomed.

Italians Back Euro But Rail Against EU’s Rules (G.)

Ever since the inception of the EU, Italians have been among the staunchest defenders of the European project. But the political crisis that engulfed the bloc’s third largest economy this week, centring on a debate over Italy’s commitment to the eurozone, has spooked investors and worried Brussels. It has raised a question that just a few years ago would have seemed unfathomable: are Italians ready to ditch the euro? The answer, like most aspects of Italian politics, is complicated. Opinion polls show that a majority of Italians – 59%, according to Eurobarometer – support the country’s continued inclusion in the eurozone. But that does not mean they want to continue to abide by the rules set by Brussels, which Italy agreed to when it adopted the currency.

Instead, more Italians are seeking a tougher and more antagonistic approach towards Brussels, after years of frustration over fiscal constraints set by the EU coupled with a feeling that Europe has abandoned Italy to cope on its own with the migration crisis. The latest Eurobarometer survey found that only 3 in 10 Italians believed their voices counted within the EU. While a full break from the EU – an “Italexit” – is not a matter of public debate (such a move is considered implausible even among the most hardline Eurosceptics), surveys show Italians generally have a dim view of the bloc. Eurobarometer found that 39% believed Italy’s inclusion in the EU was a “good thing” and 44% believed Italy benefited from being in the EU.

In March, stagnant economic growth and concerns about immigration drove voters across Italy to vote in large numbers for two populist parties – the Five Star Movement and the League, formerly the Northern League – while the most pro-EU party, the Democratic party (PD), suffered a humiliating defeat. Josef Janning, a senior policy fellow at the European Council on Foreign Relations, said: “There is no desire to exit. But there is a willingness to follow the League and the Five Star Movement and to say ‘we don’t want to follow the rules’. That seems to be the new consensus.”

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It’s like he’s talking about himself.

Juncker: Italians Need To Work Harder And Be Less Corrupt (G.)

Jean-Claude Juncker has said Italians need to work harder, be less corrupt and stop looking to the EU to rescue the country’s poor regions, in comments unlikely to ease the fraught political battle over Italy’s future relationship with Brussels. Days after the Italian president, Sergio Mattarella, defended Italy’s place in the eurozone against the country’s populist leaders, the president of the European commission said he was in “deep love” with “bella Italia”, but could not accept that all the country’s problems should be blamed on the EU or the commission. “Italians have to take care of the poor regions of Italy. That means more work; less corruption; seriousness,” Juncker said.

“We will help them as we always did. But don’t play this game of loading with responsibility the EU. A country is a country, a nation is a nation. Countries first, Europe second.” Officials in Brussels and markets around the world are awaiting the outcome of ongoing talks between Italy’s two populist leaders, Luigi Di Maio of the Five Star Movement (M5S) and Matteo Salvini of the far-right League, on forming a new government. After making the remarks during a question and answer session in Brussels, Juncker added it would be best to be “silent and prudent and cautious” this week, whenever he was asked about Italy. “I have full confidence in the genius of the Italian people,” he said.

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“..the PP’s former treasurer, as well as 28 others previously linked to the party, sentenced to jail for 33 years for fraud and money-laundering..”

Spain’s Government Poised To Fall As Socialists Prepare For Power (Ind.)

Mariano Rajoy’s chances of remaining Spanish Premier evaporated almost completely after the moderate Basque Nationalist Party (PNV) confirmed that its MPs would vote in favour of a parliamentary no-confidence motion against him if he did not resign. Despite its tiny number of MPs – five deputies in a 350 seater parliament – it is widely believed that the PNV’s decision will tip the balance against Mr Rajoy in a no-confidence motion, by a mere four votes. If successful, the Socialist party leader Pedro Sánchez, who tabled the no-confidence motion last week, would be automatically elected as Spanish PM, ending seven years of centre-right rule by the Partido Popular (PP) in Spain.

However, given that those voting in favour of the motion – ranging from Catalan Republican Nationalists, currently at daggers drawn with almost all Spain’s mainstream political parties, through to the left-wing Podemos coalition – have little in common beyond a desire to depose Mr Rajoy so a new government could prove highly unstable. Should Mr Rajoy lose the vote, he will be Spain’s first PM to leave office as a result of a no-confidence motion since democracy was restored to the country more than four decades ago.

[..] the impact of a court verdict last week in the so called Gurtel case, a cash-for-kickback scandal that saw the PP’s former treasurer, as well as 28 others previously linked to the party, sentenced to jail for 33 years for fraud and money-laundering, coupled with a €240,000 (£210,000) fine for the PP itself, left Mr Rajoy looking unexpectedly vulnerable.

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“Mum & dad are lending money to their kids so their kids can afford to pay the prices demanded by mum & dad & their friends..” “It’s like a giant Ponzi scheme but where the victims are your children.”

UK’s “Bank of Mum & Dad” is Running Out of Liquidity (DQ)

Mortgages for 100% (or above) of the purchase price not only help fuel high-octane housing bubbles, they also make them a lot riskier when home prices decline, and when more and more borrowers end up with negative equity – where someone’s home is worth less than their debt. That, in turn, significantly raises the likelihood of borrowers defaulting on their loans. And that’s why these 100% mortgages are risky for banks. Today’s new breed of 100% mortgages has a twist in its tail: to provide the banks extra security, they are insisting on family members acting as guarantors for parts of the loans. In other words, if a borrower falls behind on repayments, a parent’s home can also be put at risk.

This kind of deal is becoming increasingly common in the UK, where property prices still remain close to their all-time high despite fears prompted by Brexit and the recent cooling of London’s property market. Underpaid and over-indebted, many young people cannot afford to put down even a 5% deposit on houses whose prices, after they’re adjusted for inflation, have almost doubled in the last 20 years. And a 10% or 15% down-payment is totally out of reach. Their only hope of getting onto the “property ladder” is to get a financial leg up from their parents.

So widespread is this phenomenon that in 2017 the so-called “Bank of Mum and Dad” became the ninth biggest mortgage lender in the UK shelling out some £6.5 billion in loans. Parents helped provide deposits for more than 298,000 mortgages last year — the equivalent of 26% of all transactions. “The Bank of Mum and Dad continues to grow in importance in helping young people take their early steps onto the housing ladder,” said Nigel Wilson, chief executive of the financial service company Legal & General.

It is not driven purely by altruism. The UK’s multi-decade property boom, propelled by artificially low interest rates and supportive government policies, has provided a huge source of wealth for baby boomers. If the Bank of Mum and Dad didn’t lend this money to the new generation, demand for new mortgages would dry up and the UK’s multi-decade housing bubble would have begun to deflate some time ago. As a result, the houses that mum and dad own would lose much of their “value” and their respective net worth would plummet. “Mum & dad are lending money to their kids so their kids can afford to pay the prices demanded by mum & dad & their friends,” explained buyers agent Henry Pryor. “It’s like a giant Ponzi scheme but where the victims are your children.”

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A glimmer of hope.

Ecuador’s President Says Assange Can Stay In Embassy ‘With Conditions’ (G.)

Lenín Moreno, the president of Ecuador, has said Julian Assange’s asylum status in the country’s London embassy is not under threat – provided he complies with the conditions of his stay and avoids voicing his political opinions on Twitter. However, in an interview with Deutsche Welle on Wednesday, Moreno said his government would “take a decision” if Assange didn’t comply with the restrictions. “Let’s not forget the conditions of his asylum prevent him from speaking about politics or intervening in the politics of other countries. That’s why we cut his communication,” he said. Ecuador suspended Assange’s communication’s system in March.

Moreno’s statements come two weeks after an investigation by the Guardian and Focus Ecuador revealed the country had bankrolled a multimillion-dollar spy operation to protect and support Assange, employing an international security company and undercover agents to monitor his visitors, embassy staff and even the British police. Over more than five years, Ecuador put at least $5m (£3.7m) into a secret intelligence budget that protected him while he had visits from Nigel Farage, members of European nationalist groups and individuals linked to the Kremlin. Earlier this month, Moreno withdrew additional security assigned to the Ecuadorian embassy in London, where the WikiLeaks founder has remained for almost six years.

Moreno has previously described Assange’s situation as “a stone in his shoe” and repeatedly hinted that he wants to remove the Australian from the country’s London embassy. In an interview in Quito, the president said granting Assange Ecuadorian citizenship in December last year had not been his idea but that of the foreign minister, María Fernanda Espinosa. He had delegated all decisions related to the case to her, Moreno told Deutsche Welle.

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May 292018
 


Roy Lichtenstein Crying girl 1963

 

Showdown Looms In Italy As Caretaker PM Assembles Team (AFP)
The Biggest Short-Sellers Of Italian Bonds (ZH)
If Italy Exits The Euro, It Could Be The End Of The Single Currency (Tel.)
Stock Market Borrowing at All Time High, Increasing Risk of Downdrafts (NC)
The Financial Scandal No One Is Talking About (G.)
Fears Of Bad Brexit Deal Raise Tension Between Bank of England, Treasury (G.)
Eastern, Southern African Finance Leaders Debate Yuan As Reserve Currency (R.)
Indonesia’s Currency Is Spiraling. Sacrifices Are Needed To Save It (CNBC)
Papua New Guinea Bans Facebook For A Month To Root Out ‘Fake Users’ (G.)
Deutsche Bank Chief Economist Lashes Out At Former CEO Ackermann (HB)
Fake Maths: The NHS Doesn’t Need £2,000 From Each Household To Survive (G.)
After China’s Waste Import Ban EU Wants To Get Rid Of Single-Use Plastics (RT)
Great Barrier Reef On Sixth Life In 30,000 Years (AFP)

 

 

A team he knows will never be accepted.

Showdown Looms In Italy As Caretaker PM Assembles Team (AFP)

Italy’s caretaker prime minister was Tuesday assembling a cabinet lineup despite almost certain rejection by the populists whose bid for power collapsed at the weekend. Fresh elections are now looming as the most likely outcome of the long-running political saga sparked by inconclusive elections in March. Carlo Cottarelli, a former IMF economist, was tasked with naming a technocrat government on Monday after President Sergio Mattarella nixed a cabinet proposed by the far-right League and anti-establishment Five Star Movement (M5S). The president in particular vetoed their pick for economy minister, fierce eurosceptic Paolo Savona, throwing the eurozone’s third largest economy into a fresh crisis.


Savona has called the euro a “German cage” and said that Italy needs a plan to leave the single currency “if necessary”. Mattarella said that an openly eurosceptic economy minister was counter to the parties’ joint promise to simply “change Europe for the better from an Italian point of view”. Cottarelli said Italy would face new elections “after August” if parliament did not endorse his team, a near certainty given that M5S and the League together hold a majority. [..] Salvini and Di Maio furiously denounced the presidential veto, blasting what they called meddling by Germany, debt ratings agencies, financial lobbies and even lies from Mattarella’s staff. “Paolo Savona would not have taken us out of the euro. It’s a lie invented by Mattarella’s advisors,” Di Maio said in a live video on Facebook. “The truth is that they don’t want us in government.”

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Draghi vs the vigilantes.

The Biggest Short-Sellers Of Italian Bonds (ZH)

[..] it was in December when we first pointed out a dramatic observation by Citi, which noted that over the past several years, the only buyer of Italian government bonds was the ECB, and that even the smallest political stress threatened a repeat of the 2011 “Berlusconi” scenario, when the freshly minted new ECB head Mario Draghi sent Italian yields soaring to prevent populist forces from seizing power in Italy. Or maybe it didn’t, and it only took the bulls far longer than the bear to admit that nothing in Europe had been fixed, even as the bears were already rampaging insider Europe’s third largest economy.

Consider that according to the latest IHS Markit data, demand to borrow Italian government bonds — an indicator of of short selling — was up 33% to $33.3 billion worth of debt this year to Tuesday while demand to borrow bonds from other EU countries excluding Italy has risen only 5% this year. That said, things certainly accelerated over the last week, when demand to borrow Italian bonds soared by $1.2 billion, which according to WSJ calculations, takes demand, i.e. short selling, close to its highest level since the financial crisis in 2008 (while demand to borrow bonds from EU countries excluding Italy has fallen by $800 million over the past week).


Said otherwise, while the events over the past week may have come as a surprise to many, to the growing crowd of Italian bond shorts today’s plunge and the blowout in Italian-German spreads was not only expected, but quite predictable and extremely lucrative… which is also a major problem as Brussels is well-known to take it very personally when a hedge fund profits from the ongoing collapse of Europe’s failing experiment in common everything, and tends to create huge short squeezes in the process, no matter how obvious the (doomed) final outcome is.

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Sorry, but I said it a lot better on Friday.

If Italy Exits The Euro, It Could Be The End Of The Single Currency (Tel.)

You might think that it would be fitting if the European Union were to come to a sticky end because of Italy. After all, the agreement that established the entity that we now call the European Union was signed in Rome. For several decades after that 1957 treaty, Italy was one of the strongest supporters of the European project. Having endured first fascism and then, after the war, unstable and ineffectual government, it suffered none of the angst about the loss of sovereignty that plagued British debates about joining the European Community. Moreover, in the early years of the union, Italy prospered. At one point its GDP overtook the UK’s, an event that was widely celebrated in Italy as “il sorpasso”, the surpassing, or, if you like, the overtaking.


But the overtaking did not last long. Indeed, since the euro was formed in 1999, the Italian economy has grown by a mere 9%, or less than 0.5% per annum. Over the same period, the UK economy has grown by 42%. This recent disastrous economic performance, plus mounting anxiety about inward migration and the fact that the EU has left Italy to cope with this huge influx on its own, has changed many Italians’ attitudes to the EU. Understandably. These failings go to the heart of the EU project. The truth is that Italy should never have joined the euro in the first place. And it isn’t only Anglo-Saxon euro pessimists such as myself who believe this. At the time the German Bundesbank was appalled at the idea that Italy should be admitted. After all, even then it had a huge public debt and a history of high inflation offset by frequent currency depreciation.

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“..the Chinese stock markets permit a much higher level of borrowings than those in the West..”

Stock Market Borrowing at All Time High, Increasing Risk of Downdrafts (NC)

I find it hard to get excited about stock market risks unless defaults on the borrowings can damage the banking/payments system, as they did in the Great Crash. This is one reason the China perma-bears have a point: even though the Chinese government has managed to do enough in the way of rescues and warnings to keep its large shadow banking system from going “boom,” the Chinese stock markets permit a much higher level of borrowings than those in the West, which could make them the detonator for knock-on defaults. The US dot-com bubble featured a high level of margin borrowing, but because the US adopted rules so that margin accounts that get underwater are closed and liquidated pronto, limiting damage to the broker-dealer, a stock market panic in the US should not have the potential to produce a credit crisis.

But if stock market bubble has been big enough, a stock market meltdown can hit the real economy, as we saw in the early 2000s recession. Recall that Greenspan, who saw the stock market as part of the Fed’s mission, dropped interest rates and kept them low for a then unprecedented nine quarters, breaking the central bank’s historical pattern of reducing rates only briefly. Greenspan, as did the Bank of Japan in the late 1980s, believed that the robust stock market prices produced a wealth effect and stimulated consumer spending. It isn’t hard to see that even if this were true, it’s a very inefficient way to try to spur growth, since the affluent don’t have anything approach the marginal propensity to spend of poor and middle class households.


Subsequent research has confirmed that the wealth effect of higher equity prices is modest; home prices have a stronger wealth effect. A second reason for seeing stock prices as potentially significant right now be is that the rally since Trump won the election is important to many of his voters. I have yet to see any polls probe this issue in particular, but in some focus groups, when Trump supporters are asked why they are back him, some give rise in their portfolios as the first reason for approving of him. They see him as having directly improved their net worth.1

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Accounting.

The Financial Scandal No One Is Talking About (G.)

For centuries, accounting itself was a fairly rudimentary process of enabling the powerful and the landed to keep tabs on those managing their estates. But over time, that narrow task was transformed by commerce. In the process it has spawned a multi-billion-dollar industry and lifestyles for its leading practitioners that could hardly be more at odds with the image of a humble number-cruncher. Just four major global firms – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and KPMG – audit 97% of US public companies and all the UK’s top 100 corporations, verifying that their accounts present a trustworthy and fair view of their business to investors, customers and workers.

They are the only players large enough to check the numbers for these multinational organisations, and thus enjoy effective cartel status. Not that anything as improper as price-fixing would go on – with so few major players, there’s no need. “Everyone knows what everyone else’s rates are,” one of their recent former accountants told me with a smile. There are no serious rivals to undercut them. What’s more, since audits are a legal requirement almost everywhere, this is a state-guaranteed cartel. Despite the economic risks posed by misleading accounting, the bean counters perform their duties with relative impunity.


The big firms have persuaded governments that litigation against them is an existential threat to the economy. The unparalleled advantages of a guaranteed market with huge upside and strictly limited downside are the pillars on which the big four’s multi-billion-dollar businesses are built. They are free to make profit without fearing serious consequences of their abuses, whether it is the exploitation of tax laws, slanted consultancy advice or overlooking financial crime.

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Interesting fight.

Fears Of Bad Brexit Deal Raise Tension Between Bank of England, Treasury (G.)

The growing risk of a bad Brexit deal for the City of London is causing severe tensions between the Bank of England and the Treasury, according to reports. Amid mounting fears that Brussels will reject plans put forward by the chancellor, Philip Hammond, for maintaining close ties with the EU for financial services, the Financial Times reported that Bank officials are at loggerheads with the Treasury over the search for a “Plan B” arrangement. Threadneedle Street fears it could be left as a “rule taker” should Britain agree to a new deal that maintains European market access for financial firms without giving the Bank sufficient control over City regulations in future. The concerns stem from the sprawling scale of the City as one of the biggest financial centres in the world.


Mark Carney, the Bank’s governor, used a speech in London last week to highlight the risks posed to the financial system from Brexit and said it was one of the issues raised by Britain leaving the European Union that made him most “nervous”. He also warned in plain terms last year that “we do not want to be a rule taker as an authority”. According to the FT, a number of officials at Threadneedle Street said Jon Cunliffe, the Bank’s deputy governor for financial stability, had fallen out with the Treasury over the issue. The paper quoted one anonymous official saying “the fear is the Treasury is going to give it all away”. The breakdown in relations comes as Hammond strives to prevent an exodus of international banks from the Square Mile, having attempted to reassure them in March that the UK would seek to maintain European market access after Brexit.

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Wishful thinking.

Eastern, Southern African Finance Leaders Debate Yuan As Reserve Currency (R.)

Eastern and southern African central bankers and government officials are to consider the use of China’s yuan as a reserve currency for the region, the official Xinhua news agency said on Tuesday. Seventeen top central bankers and officials from 14 countries in the region will meet at a forum in Harare to consider the viability of the Chinese yuan as a reserve currency, Xinhua said, citing a statement from the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI). The forum, to take place on Tuesday and Wednesday, will be attended by deputy permanent secretaries and deputy central bank governors, as well as officials from the African Development Bank, Xinhua reported.


Attendees will strategies on the weakening external positions of most member countries, following the global economy slowdown. “Most countries in the MEFMI region have loans or grants from China and it would only make economic sense to repay in termini (Chinese yuan),” said MEFMI spokesperson Gladys Siwela-Jadagu. “This is the reason why it is critical for policy makers to strategize on progress that the continent has made to embrace the Chinese yuan which has become what may be termed ‘common currency’ in trade with Africa,” she added. “Ascendancy of Chinese yuan in the Special Drawing Rights (SDR) basket of currencies is an important symbol of its importance and the IMF’s approval as an official reserve currency,” said Siwela-Jadagu.

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Argentina, Turkey, Indonesia. Next!

Indonesia’s Currency Is Spiraling. Sacrifices Are Needed To Save It (CNBC)

Indonesia’s rupiah has been growing worryingly weak, and the country’s central bank has seen little success after multiple attempts to prop up the currency. Now, Bank Indonesia said it will meet again on Wednesday — and speculations are rife that the central bank has more tricks up its sleeve. The rupiah has been one of the worst-hit Asian currencies as investors pull out of the Indonesian stock and bond markets amid rising U.S. Treasury yields and strengthening in the greenback. The falling value of the rupiah could spell trouble for the country’s large foreign currency debt, and the outflows from its bonds are bad news for its government.


The central bank has tried to stem the currency weakness with measures including hiking interest rates and buying sovereign bonds, but the rupiah still depreciated: It fell to 14,202 per U.S. dollar on May 23. That was the weakest in more than two years. With the persistent rupiah weakness, more “rate hikes may be needed, with the next one possibly as early as this week,” Eugene Leow, a strategist at Singapore’s DBS Bank, wrote in a Monday note. The central bank hiked interest rates by 25 basis points in its mid-May meeting — the first raise since November 2014. Central bankers were scheduled to convene again in June, but Bank Indonesia last Friday said an additional policy meeting would be held on May 30.

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Censors?!

Papua New Guinea Bans Facebook For A Month To Root Out ‘Fake Users’ (G.)

The Papua New Guinean government will ban Facebook for a month in a bid to crack down on “fake users” and study the effects the website is having on the population. The communication minister, Sam Basil, said the shutdown would allow his department’s analysts to carry out research and analysis on who was using the platform, and how they were using it, admits rising concerns about social well-being, security and productivity. “The time will allow information to be collected to identify users that hide behind fake accounts, users that upload pornographic images, users that post false and misleading information on Facebook to be filtered and removed,” Basil told the Post Courier newspaper. “This will allow genuine people with real identities to use the social network responsibly.”


Basil has repeatedly raised concerns about protecting the privacy of PNG’s Facebook users in the wake of the Cambridge Analytica revelations, which found Facebook had leaked the personal data of tens of millions of users to a private company. The minister has closely followed the US Senate inquiry into Facebook. “The national government, swept along by IT globalisation, never really had the chance to ascertain the advantages or disadvantages [of Facebook] – and even educate and provide guidance on use of social networks like Facebook to PNG users,” said Basil last month. “The two cases involving Facebook show us the vulnerabilities that Papua New Guinean citizens and residents on their personal data and exchanges when using this social network.”

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Blame game. Deutsche is hanging in the ropes.

Deutsche Bank Chief Economist Lashes Out At Former CEO Ackermann (HB)

German executives rarely wash their dirty laundry in public. This week was a notable exception, when David Folkerts-Landau, Deutsche Bank’s chief economist, accused his former bosses of causing the bank’s current woes by racing hell-for-leather into investment banking. Mr. Folkerts-Landau, who has been with Deutsche’s investment banking division for over two decades, accused its former CEOs of reckless expansion and of losing control of the ship. “Since the mid-1990s, the bank’s management has left operational and strategic control of its financial markets business to the traders,” he said in an interview with Handelsblatt. The bank is still reeling from the consequences of this “reverse takeover,” the economist said.


Deutsche Bank has accumulated more than €9 billion in losses over the past three years, due chiefly to the woes of its investment banking division. The bank is in the throes of a revamp intended to refocus operations on more stable sources of revenue, such as private and commercial banking and asset management. Mr. Folkerts-Landau singled out Josef Ackermann, the bank’s flamboyant boss from 2002 to 2012, for particular criticism over his aggressive expansion into investment banking. “Ackermann was (…) fixed on the magic goal of a return on equity of 25% before taxes. At that time, however, this could only be achieved by accepting major financial and ethical risks,” said the German-born economist. After the financial crisis, Mr. Ackermann rejected state aid from the German authorities and postponed tackling the bank’s structural problems, Mr. Folkerts-Landau added.

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Yeah, you can do the math in many different ways.

Fake Maths: The NHS Doesn’t Need £2,000 From Each Household To Survive (G.)

Last week, the Institute for Fiscal Studies and the Health Foundation published a report on funding for health and social care. One figure from the report was repeated across the headlines. For the NHS to stay afloat, it would require “£2,000 in tax from every household”. Shocking stuff! The trouble with figures like this is that while there may be a sense in which this is mathematically true, that kind of framing is dangerously close to being false. If you’re sitting at a bar with a group of friends and Bill Gates walks in, the average wealth of everyone in the room makes you all millionaires. But if you try to buy the most expensive bottle of champagne in the place, your debit card will still be declined.

Similarly, the IFS calculated its “average” figures by taking the total amount it calculated the NHS would need and dividing it by the number of households in the country. That’s certainly one way of doing it – it’s not wrong per se – but in terms of informing people about the actual impact on their own finances, it’s very misleading. We have progressive taxation in this country: not every household gets an equally sized bill. Could you pay more if the government chose to cover the cost of social care through a bump in income tax? Sure, but for the vast majority of the country it would be a few hundred pounds.


That’s without engaging with the underlying assumption that a bump in income tax is the way the government will choose to go. Some people have argued that, since the last couple of decades have seen wealth accumulate disproportionately at the very top, government should tax wealth rather than income. Alternatively, researchers have shown that health spending is one of the best ways to stimulate the economy, so the government could opt against tax increases in the short term and instead let healthcare spending act as a fiscal stimulus, at least until purchasing power had increased.

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The reason why is revealing.

After China’s Waste Import Ban EU Wants To Get Rid Of Single-Use Plastics (RT)

The European Commission wants to ban single-use plastic products like disposable cutlery, straws and cotton buds to fight the plastic epidemic littering our oceans – months after China banned millions of tons of imported EU waste. The EC unveiled the market ban proposal on Monday, which included 10 items that make up 70% of all the marine litter in the EU. As well as the aforementioned items, the list includes plastic plates, drink stirrers, sticks for balloons and single-use plastic drinks containers. The crackdown comes less than six months after the EU announced its first-ever Europe-wide strategy on plastic recycling following China’s ban on waste imports from Western countries.

At the end of 2017, Beijing banned the import of 24 types of waste from the US and EU and accused the nations of flouting waste standard rules. The new proposal says the ban on single-use plastic products will be in place wherever there are “readily available and affordable” alternatives. Where there aren’t “straight-forward alternatives,” the focus will be on limiting their use through a national reduction in consumption. In order for the products to be sold in the EU, they will have to be made exclusively from sustainable materials. Single-use drink containers will only be allowed on the market if their caps and lids remain attached.


[..] The EC’s proposal will now go to the European Parliament and Council for adoption. It will need the approval of all EU member states and the European Parliament in order to pass – a process which could take three to four years before the rules come into force. Once fully implemented in 2030, the EC estimates that the new measures could cost businesses more than €3 billion ($3.5 billion) per year. But they could also save consumers about €6.5 billion per year, create 30,000 jobs and avoid €22 billion in environmental damage and cleanup costs.

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Resilient little bugger.

Great Barrier Reef On Sixth Life In 30,000 Years (AFP)

Australia’s Great Barrier Reef, under severe stress in a warmer, more acidic ocean, has returned from near-extinction five times in the past 30,000 years, researchers said Monday. And while this suggests the reef may be more resilient than once thought, it has likely never faced an onslaught quite as severe as today, they added. “I have grave concerns about the ability of the reef in its current form to survive the pace of change caused by the many current stresses and those projected into the near future,” said Jody Webster of the University of Sydney, who co-authored a paper in the journal Nature Geoscience.


In the past, the reef shifted along the sea floor to deal with changes in its environment – either seaward or landward depending on whether the level of the ocean was rising or falling, the research team found. Based on fossil data from cores drilled into the ocean floor at 16 sites, they determined the Great Barrier Reef, or GBR for short, was able to migrate between 20 centimetres (7.9 inches) and 1.5 metres per year. This rate may not be enough to withstand the current barrage of environmental challenges. The reef “probably has not faced changes in SST (sea surface temperature) and acidification at such a rate,” Webster told AFP. Rates of change “are likely much faster now — and in future projections.”

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Apr 262018
 


James McNeill Whistler Miss Ethel Philip Reading 1894

 

Debt-Enabled Asset Bubbles On Crash Course With Demographics (Park)
‘Grotesque’ Leverage and Rising Rates Already Causing Damage – SocGen (BBG)
‘Big Bear Market’ For Stocks Appears To Have Begun (MW)
Market Is Obsessed With 10-Year Yield, Should Be Watching The 2-Year (CNBC)
Deutsche Bank Plans ‘Significant’ Job Cuts After Sharp Drop In Profits (CNBC)
Ford Kills Most US Cars (BBG)
Yield Shock On Wall Street, Conservative Default In Washington (Stockman)
Democrats Have a Plan to Save the Post Office – and Kill Payday Lenders (NYMag)
The Democratic Party Is Paying Millions For Hillary Clinton’s Email List (IC)
Finland Denies Claims Basic Income Experiment Has Fallen Flat (Ind.)
NATO Think-Tank Expert: Russia Is ‘Comfortable’ Using Nuclear Weapons (RT)
North Korea Nuclear Test Site Has Collapsed Beyond Use – Chinese Study (G.)
President Trump Will Personally Review Documents In Cohen Case (ABC)
UK Businesses Make World-First Pact To Ban Single-Use Plastics (Ind.)
Is The World’s Most Drastic Plastic Bag Ban Working? (G.)

 

 

A useful summary fo many things we’ve said many times.

Debt-Enabled Asset Bubbles On Crash Course With Demographics (Park)

If finance had not been able to ‘securitize’ debts (turn them into assets) and sell them to speculators/investors over the past two decades, then debt creation could not have gone to such extremes and consumers would not have been able to borrow and spend themselves so far into financial ruin. If western consumers had not been able to borrow themselves so far into ruin, they would also not have been able to buy so many goods from Asia and other developing nations for a time.

Asia and developing nations would not then have been able to mint so many new millionaires and billionaires in their governments and businesses who then funneled capital into western property markets, and western property markets would not have appreciated so far beyond domestic income gains. If property prices had not increased so far beyond income gains, then households would not have had to borrow so much just to get a roof over their heads or a post-secondary education. If they had not been able to borrow so much, property prices, education and related services would never have been able to rise so much for so long, and become so unaffordable for the masses. But they did.

[..] The old need the young to drive productivity and innovation, pay taxes and support the social safety net. They also need the young to buy their assets (real estate, securities, businesses) when they wish to downsize and raise liquidity. If the young are broke: under-employed, over-indebted and under-saved, they cannot get a footing and the social contract is undone. Twenty years of central bank and government-enabled debt-driven asset bubbles, have broken long-standing laws of financial and social equilibrium. A secular global repricing cycle is necessary to break the impasse and reboot the system. The status quo is unraveling, as it must.

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The same as above.

‘Grotesque’ Leverage and Rising Rates Already Causing Damage – SocGen (BBG)

The fear over 10-year U.S. Treasury yields breaking through 3 percent has been a long time coming, according to Societe Generale. “Interest rates are already doing damage, people just haven’t noticed,” Andrew Lapthorne, the firm’s global head of quantitative strategy, said in an interview Tuesday. “Leverage in the U.S. is grotesque for this stage of the cycle. At the moment you’ve got peak leverage at peak prices. It’s not like you have to dig deep to find a problem.” The number-one conversation Societe Generale’s having with clients right now is about the correlation between bonds and equities. But risks to corporate balance sheets is a bigger problem at the moment, particularly in the U.S. and China.

Lapthorne said he worries about volatility in debt because of the impact it can have on the economy, particularly how it weighs on businesses and the job market. Credit markets may get choppier due to triggers like high-profile bankruptcies, such as Toys ‘R’ Us, or if corporate buybacks drop, Lapthorne said. While Credit Suisse anticipates fewer share repurchases this year, they’re an outlier. JPMorgan Chase estimates they’ll rise to a record $800 billion from $530 billion last year. Bank of America said if the current pace continues there may be as much as $850 billion in 2018, while Goldman Sachs sees buybacks becoming “less constructive” in 2019. [..] He has further concerns about the direction of the markets as well. “Instead of the usual market driver of economic growth, this bull market has been driven by valuation growth,” Lapthorne said, adding that confidence in asset prices is deteriorating as volatility has risen.

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“..a technical indicator using exponential moving averages of closing price data..”

‘Big Bear Market’ For Stocks Appears To Have Begun (MW)

The “big bear market” for stocks that market timer Tom McClellan has been expecting appears to have begun, as Tuesday’s broad selloff turned a key technical indicator down from an already negative position to convey a “promise” of lower lows. McClellan, publisher of the McClellan Market Report, said there could be a pause in the downtrend this week, as his market-timing signals point to a minor top due on Friday. But with his “price oscillator” turning lower following the Dow Jones Industrial Average 425-point drop, and the S&P 500 1.3% slide on Tuesday, he turned bearish for short- and intermediate-term trading styles. He has been bearish for long-term trading styles since Feb. 28.

“I have been looking for a big downturn in late April….We appear to have gotten that downturn now,” McClellan wrote in a note to clients. He said it is possible that the big down move pauses briefly in honor of the minor top signal due Friday, “but it should be a lasting and painful downtrend, heading down toward a bottom due in late August.” His bearishness for all trading styles was a result of the McClellan Price Oscillator, a technical indicator using exponential moving averages of closing price data, turning down after it was already in negative territory, as the chart below shows. “Turning down a Price Oscillator while it is still below zero conveys the promise of a lower closing low on the ensuing move,” McClellan wrote. Since “promise” isn’t the same as a “guarantee,” he said the indication can get revoked if the Price Oscillator turns up right away.

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Central bank control is an illusion. Naked emperors.

Market Is Obsessed With 10-Year Yield, Should Be Watching The 2-Year (CNBC)

The government’s benchmark debt instrument saw its yield pass 3% Tuesday, a four-year high that ostensibly helped to trigger a violent stock market reversal that saw the Dow industrials close lower by about 425 points. The calculus behind fear of the 3% yield seems obvious: With the S&P 500 dividend yield at 1.9%, a risk-free investment like U.S. Treasurys yielding 3% makes more sense in a volatile environment. But that reasoning is weak. The play assumes holding the bond to duration and clipping coupons, and the stock market has never shown inflation-adjusted returns that low over a 10-year period. Absent a major crash and a deep recession it likely won’t over the next decade as well.

The next two years, though? That could be a different story. While everyone on Wall Street is pounding the table over the rising 10-year yield, the 2-year note rose above 2.5% Wednesday, a level it last closed at August 2008, just a month before the financial crisis imploded with the collapse of Lehman Brothers. A risk-free investment with a 2.5% yield over two years? That seems a little more reasonable. Investors who bought the 2-year in mid-2006 would have gotten it at 5%, ahead of a stock market that was about to drop 60%. “As much as every investor knows market timing is very difficult, that’s the sort of case study that resonates just now,” Nick Colas, co-founder of DataTrek Research, said in his daily note Wednesday.

Investors have been testing the waters over the past month, yanking $868 million out of U.S. equity ETFs while pouring $5.2 billion into funds that invest in fixed income with duration of less than three years, Colas said, citing XTF data. The iShares Short Treasury Bond fund, which focuses on fixed income with duration between one and 12 months, alone has pulled in $3.4 billion over the past month, according to FactSet.

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This can’t be good. How much longer?

Deutsche Bank Plans ‘Significant’ Job Cuts After Sharp Drop In Profits (CNBC)

Deutsche Bank posted first-quarter net profits of 120 million euros ($146 million) Thursday, a 79% fall from last year’s figure. The bank announced plans to significantly reduce its workforce through the rest of 2018, particularly in its corporate and investment bank and infrastructure functions. It also aims to scale back operations in bond sales and equities trading, particularly in the United States and Asia.

The net profit number was significantly lower than a Reuters poll prediction of 376 million euros. The Frankfurt-based lender has been under scrutiny from shareholders for posting three consecutive years of losses, including a 497 million euro loss for 2017. Revenues for the quarter were down by 5% on the prior year period at 7 billion euros, pressured by the appreciation of the euro against the dollar and lower corporate and investment bank revenues, which fell 13% year-on-year to 3.8 billion euros. Revenues for all businesses were lower year-on-year.

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Oh, good, everyone will drive a truck. These things are 40x your weight, not just 20x.

Ford Kills Most US Cars (BBG)

Ford Motor is sharpening its knives to cleave another $11.5 billion from spending plans and cut several sedans, including the Fusion and Taurus, from its lineup to more quickly reach an elusive profit target. The automaker expects to save $25.5 billion by 2022, Chief Financial Officer Bob Shanks told reporters Wednesday as Ford reported first-quarter earnings per share and revenue that beat estimates. The company now anticipates reaching an 8 percent profit margin by 2020, two years ahead of schedule. The cuts are aimed at kick-starting a turnaround effort almost one year after Ford’s board ousted its chief executive officer.

New CEO Jim Hackett has been trying to convince investors that betting on a rebound is a worthwhile wager by laying out plans to get rid of slow-selling, low-margin car models and refocusing the company around more lucrative sport utility vehicles and trucks. “We’re going to feed the healthy part of our business and deal decisively with areas that destroy value,” Hackett said on an earnings call Wednesday. “We aren’t just exploring partnerships; we’ve now done them. We aren’t just talking about ideas; we’ve made decisions.” Ford finds itself on a road similar to the route Fiat Chrysler followed to pass Ford in North American profitability. Fiat Chrysler CEO Sergio Marchionne now wants to eclipse General Motors before his retirement in 2019.

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“..they have had virtually no role in real governance since the Gipper last nodded in their direction decades ago..”

Yield Shock On Wall Street, Conservative Default In Washington (Stockman)

[..] capitalist prosperity depends upon keeping the state and its central banking branch at bay and out of the way. And once upon a time that pretty much happened because the conservative party in Washington adhered reasonably well to the pillars of sound money, fiscal rectitude, free markets at home and non-intervention abroad. In the last three decades, however, the GOP has either jettisoned these pillars of capitalist prosperity or relegated them to ritual incantation. Either way, they have had virtually no role in real governance since the Gipper last nodded in their direction decades ago. What has happened, instead, is that the neocons hijacked the GOP and turned it into the party of Empire—the very opposite of Robert Taft’s notion of homeland security and non-intervention.

Likewise, the supply siders spread the insidious lie that deficits don’t matter and that you can grow your way out of unfinanced tax cuts. So, too, the devotees of Alan Greenspan and the Wall Street lobbies buried the storied idea of sound money–supplanting it with the new ideology of monetary central planning and stock market bailouts. Stated differently, the GOP in Washington today is essentially useless because it has abandoned the pillars of prosperity and has become an opportunistic gang of neocons, social cons, tax cons and Wall Street hand maidens. As a result, we now have a financial system that is flying blind toward a monumental monetary/fiscal crack-up.

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Makes too much sense.

Democrats Have a Plan to Save the Post Office – and Kill Payday Lenders (NYMag)

Generally speaking, advancing economic justice is neither cheap nor easy. The Democratic Party has assembled a long list of worthwhile economic reforms — almost all of which, for all their considerable virtues, pose either a significant budgetary cost, or policy-design challenge, or political risk (universal child-care costs money; the federal job guarantee is complicated and untested; and Medicare-for-all is disruptive … and complicated, and costs money). But Kirsten Gillibrand’s new plan to establish a public option for banking is an exception to the rule: By requiring the post office to provide basic financial services, Gillibrand’s bill would significantly mitigate the economic exploitation of America’s most vulnerable people, punish predatory lenders — and increase federal revenue — all without requiring policy wonks to navigate uncharted territory, or even break a sweat.

The stagnation of working-class wages in the U.S. combined with the rising cost of housing, and declining value of welfare benefits have left millions of American families dependent on short-term loans to make ends meet. And payday lenders have mined their financial desperation for hefty profits. A parent with a gap in employment and a hungry child is liable to accept a loan no matter how usurious the interest rate. Thus, the average annualized interest rate on a payday loan is 390%. And the average American household that uses alternative forms of credit earns just $25,500 a year — and spends nearly 10% of that meager salary on interest and fees, according to a 2011 KPMG study.

But the post office — with its economies of scale, and freedom from avaricious shareholders — could offer America’s working class access to short-term credit at a fraction of the present cost. Under the current system, billions of dollars move from the pockets of the poor into the coffers of payday lenders each year. Postal banking could redirect those funds — saving low-income borrowers billions on fees and interest, while plowing the (non-usurious) interest payments they do still make into the post office’s trust fund. According to a 2014 study by the Postal Service Inspector General, if just 10% of the money that working Americans currently spend on high-risk financial products were instead spent on loans from the post office, the agency could offer said loans at 90% less than the current market cost — and gain nearly $9 billion in annual revenue in the process.

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This, too, are the Democrats. A deeply troubled party. The power of email lists, reminiscent of Facebook.

The Democratic Party Is Paying Millions For Hillary Clinton’s Email List (IC)

Heading Into The 2018 midterms, with Democrats hoping to take back the House of Representatives and even make a run at the Senate, the party has spent more than $2 million worth of campaign resources on payments to Hillary Clinton’s new group, Onward Together, according to Federal Election Commission filings and interviews with people familiar with the payments. The Democratic National Committee is paying $1.65 million for access to the email list, voter data, and software produced by Hillary for America during the 2016 presidential campaign, Xochitl Hinojosa, a spokesperson for the DNC, told The Intercept. The Democratic Congressional Campaign Committee has paid more than $700,000 to rent the same email list.

Clinton is legally entitled to rent her list to the party, rather than hand it over as a gift, but in 2015, Barack Obama gave his email list, valued at $1,942,640, to the DNC as an in-kind contribution. In 2013 and 2014, OFA had similarly made in-kind contributions exceeding $3.4 million for uses of the list that cycle. Obama’s list was at one point considered to be the most valuable in politics and raised more than twice as much money for the 2012 Obama campaign as Clinton’s did for hers in 2016. The DNC agreement with the Clinton campaign calls on the debt-ridden organization to fork the money over to an entity of Clinton’s choosing, which wound up being Onward Together, the operation she formed after her campaign ceased to exist.

Former DNC Chair Donna Brazile told The Intercept the deal was the result of “tough negotiations between the Clinton campaign and the DNC. I wanted to bring back our assets. I wanted to get as much from them as they got from us,” she said. “Under the terms I worked out, we had to pay quarterly for items that the DNC acquired. The final payment would have been in February of this year.” The DNC announced in April 2017 that Clinton had turned over her email list and related data and tools as an in-kind contribution to the party, with no suggestion that payments would later be made for it. “[P]utting the DNC on a strong footing is something that she’s been very focused on since the campaign, when she set out to leave the DNC in the black and did so,” said Clinton spokesman Nick Merrill at the time.

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The biggest problem is people don’t understand the issue, as illustrated by the original headline, which said universal basic income. That’s not what Finland is doing.

Finland Denies Claims Basic Income Experiment Has Fallen Flat (Ind.)

Finland has denied widespread claims its basic income experiment has fallen flat. A series of media reports said the Finnish government had decided not to expand its trial – a version of events which has been repudiated by officials. Miska Simanainen, a social affairs official, said the trial, where about 2,000 unemployed people aged 25-58 are being paid a tax-free €560 monthly income with no questions asked, was “proceeding as planned.” The €20m programme, which seeks to reform Finland’s social security system, ends in December, at which point Prime Minister Juha Sipila’s centre-right government will assess initial results.

Reports have said the government social affairs agency has requested up to €70m in extra funding this year, something Mr Simanainen says is false. Finland became the first country in Europe to start the basic income experiment in January 2017. Supporters of basic income argue it would help get unemployed people into temporary jobs, rather than forcing them to remain unemployed to qualify for benefits. They say it would provide a safety net, address insecurities associated with workers not having full-time staff contracts, and help boost mobility in the labour market as people would have a source of income between jobs.

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Sheer insanity.

NATO Think-Tank Expert: Russia Is ‘Comfortable’ Using Nuclear Weapons (RT)

Russia is more willing to run the risk of nuclear war than the West and NATO must pour more money into developing new capabilities to deter Moscow’s nuclear aggression, according to Atlantic Council analysts.
In a lengthy discussion on preparing for nuclear war with Russia, analysts from the neocon think tank lobbied for the US and NATO to spend more money on low-yield nuclear weapons and other methods of deterrence in order to dissuade Russia from using a limited nuke strike in order to “de-escalate” a conflict using the scare factor. The panel argued that Russia has adopted a policy of “escalate to de-escalate” which lowers the bar for nuclear weapons use.

Under this policy, Russia would respond to a large-scale conventional military attack by employing a limited nuclear response in order to deter further aggression against itself. Matthew Kroenig, the deputy director for strategy at the Atlantic Council’s Scowcroft Center for Strategy and Security, went further by suggesting that Russia is simply “more comfortable using and threatening nuclear weapons” than the West. Russia’s so-called “escalate to de-escalate” policy was even referred to in the latest Nuclear Posture Review from the Trump administration. But while the Atlantic Council and White House are seemingly adamant that Russia is almost looking for excuses to use nuclear weapons, others have argued that the West has actually misunderstood Russia’s policy on nuclear use.

There is weak evidence that Russia has actually dropped its threshold for nuclear use at all. [..] Russia’s 2014 doctrine actually introduced the term “system of non-nuclear deterrence,” which is explained as a focus on preventing aggression “primarily through reliance on conventional (non-nuclear) forces.” It is more than likely that the Atlantic Council and its members are fully aware of this, which leads to the question: are they misleading people on Russia’s intentions in order to lobby for more military spending in Eastern Europe?

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We sort of knew that already. But yeah, makes one wonder what Kin is giving up.

North Korea Nuclear Test Site Has Collapsed Beyond Use – Chinese Study (G.)

North Korea’s main nuclear test site has partially collapsed under the stress of multiple explosions, possibly rendering it unsafe for further testing and leaving it vulnerable to radiation leaks, a study by Chinese geologists has shown. The findings could cast doubt on North Korea’s sincerity in announcing last weekend that it would stop testing nuclear weapons at the site ahead of Friday’s summit between the country’s leader, Kim Jong-un, and the South Korean president, Moon Jae-in. The test site at Punggye-ri, in a mountainous area in North Korea’s north-east, has been the location for all six of the regime’s nuclear tests since 2006.

The findings, by scientists at the University of Science and Technology of China, suggest the partial collapse of the mountain that contains the testing tunnels, as well as the risk of radiation leaks, have potentially rendered the site unusable. The study was published soon after Kim said his country would stop testing nuclear weapons and ballistic missiles, and close down Punggye-ri before his meeting with Moon just south of the countries’ heavily armed border. Nuclear explosions release enormous amounts of heat and energy, and the North’s largest test, in September last year, was believed early on to have rendered the site – a network of tunnels beneath Mount Mantap – unstable.

The Chinese scientists collected collected data for their study following the most powerful of the North’s six nuclear tests, on 3 September. The controlled explosion, which caused an initial magnitude-6.3 tremor, is believed to have triggered four more earthquakes over the following weeks. The study concluded that eight-and-a-half minutes after the test, there was “a near-vertical on-site collapse towards the nuclear test centre”.

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Obvious. But he won’t be the only one.

President Trump Will Personally Review Documents In Cohen Case (ABC)

In a filing Wednesday afternoon, attorneys for President Donald Trump told the federal judge overseeing the investigation of his personal attorney, Michael Cohen, that Trump would, as necessary, personally review documents to ensure that privileged information is not revealed accidentally to the FBI or prosecutors. “…Our client will make himself available, as needed, to aid in our privilege review on his behalf,” wrote attorneys Joanna Hendon, Christopher Dysard and Reed Keefe in their filing. The filing is part of the ongoing effort by Cohen and Trump to get the first crack at reviewing records seized earlier this month from Cohen’s home, hotel and office.

So far, US District Judge Kimba Wood has ruled against Cohen and Trump, though she has said she would be willing to consider their backup request to have an independent third-party review record before prosecutors and agents do. Trump’s attorneys made their submission late Wednesday in advance of a Thursday status meeting in US District Court in Manhattan. The issue of document review arose after the FBI raids and the subsequent public confirmation that Cohen has been under federal investigation for months. The probe is focused both on Cohen’s private business dealings as well as his work for and on behalf of Trump.

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May and her government are behind this? And Windrush at the same time?

UK Businesses Make World-First Pact To Ban Single-Use Plastics (Ind.)

More than 40 major businesses have pledged to eradicate single-use plastics from packaging in an effort to tackle the global pollution crisis. The launch of the UK Plastics Pact comes amid concerns over the impact such waste is having on the environment as it pervades the world’s land, oceans and waterways. With members across major food and non-food brands – including Sainsbury’s, Nestlé and Coca-Cola – the pact’s participants are collectively responsible for more than 80% of the UK’s supermarket plastic packaging. As the first initiative of its kind in the world, it is hoped the pact will serve as a template for other countries and spark a “global movement for change”.

The pact, which was welcomed by government ministers and environmental campaigners, consists of a series of targets that the industry as a whole will aim to meet by 2025. These include the complete elimination of “problematic or unnecessary” single-use plastic packaging by developing new designs and alternative delivery methods. Other targets include all plastic packaging being reusable, recyclable or compostable, and ensuring that at least 70% of packaging that is used actually makes it to recycling or composting facilities. There is also a commitment to ensuring 30% of the content of all plastic packaging comes from recycled sources by the target date.

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Contact ourman in Kenya about this: “Yes it happened last year. About 300 factories were shut down, about 6 months notice was given. BUT there is still a black market for low quality black plastic bags amongst smaller vendors in rural areas and small towns.  In the major supermarkets plastic has been entirely phased out, though please note that Kenya has a much lower number and density of supermarkets vs Europe. We’re looking at 120/150 major supermarkets country wide and 300-500 mini marts and mostly thousands of smaller kiosks. 

Also plastic packaging has not been phased out yet. But they are targeting for the conversion of plastic to paper packaging in products. And also to phase out plastic water bottles if a national recycling scheme is not put in place.  They’ve also banned forest logging as the tree cover of the nation is under 6-7%. So we will have to import trees and paper now instead of oil for plastic. [..] There’s been a large number of bans on all sorts of things since last year, we’re in a very weird phase politically. “

Is The World’s Most Drastic Plastic Bag Ban Working? (G.)

Waterways are clearer, the food chain is less contaminated with plastic – and there are fewer “flying toilets”. A year after Kenya announced the world’s toughest ban on plastic bags, and eight months after it was introduced, the authorities are claiming victory – so much so that other east African nations Uganda, Tanzania, Burundi and South Sudan are considering following suit. But it is equally clear that there have been significant knock-on effects on businesses, consumers and even jobs as a result of removing a once-ubiquitous feature of Kenyan life. “Our streets are generally cleaner which has brought with it a general ‘feel-good’ factor,” said David Ong’are, the enforcement director of the National Environment Management Authority.

“You no longer see carrier bags flying around when its windy. Waterways are less obstructed. Fishermen on the coast and Lake Victoria are seeing few bags entangled in their nets.” Ong’are said abattoirs used to find plastic in the guts of roughly three out of every 10 animals taken to slaughter. This has gone down to one. The government is now conducting a proper analysis to measure the overall effect of the measure. The draconian ban came in on 28 August 2017, threatening up to four years’ imprisonment or fines of $40,000 (£31,000) for anyone producing, selling – or even just carrying – a plastic bag.

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Aug 182017
 
 August 18, 2017  Posted by at 8:53 am Finance Tagged with: , , , , , , , , ,  6 Responses »


Edward S. Curtis Slow Bull Dakota Sioux Medicine Man In Prayer 1907

 

Never Doubt Regression To The Mean (Rosso)
The Stock Market Bubble is So Big Even the Fed’s Talking About It (Phoenix)
Ice-Nine: The Plan To Freeze The Financial System (Rickards)
Neoliberalism: The Idea That Changed The World (G.)
So When Will China’s Debt Bubble Finally Blow Up? (WS)
Charlene Chu Lays Out China’s “Doomsday” Scenario (ZH)
China’s New Problem: Frenzy Of Consumer Lending Creates Debt Explosion (CNBC)
‘Simply Doesn’t Cut It’: Elizabeth Warren Slams Wells Fargo Board Changes (BI)
Deutsche Bank, Bank of America Settle Agency Bond Rigging Lawsuits (R.)
Who Is Lobbying Mike Pence And Why? (IBT)
Mr. President: Close Down More “Advisory Councils” (Rossini)
Spain Lacks Capacity To Handle Migration Surge – UNHCR (G.)

 

 

After a week of senseless violence and rhetoric, we could sure do with a medicine man praying for peace. I know, they say this is what the Fourth Turning looks like. But I don’t have to like it. Seeing some of the pictures of traumatized people in Barcelona I couldn’t help thinking how much they looked like those I’ve seen from Syria and Libya. Senseless violence.

 

 

Part of a longer piece on retirement distributions. Very strong graph.

Never Doubt Regression To The Mean (Rosso)

Since 1877, secular bull years have totaled 80 vs. 52 for bears, which is a 60/40 ratio. Surprised? Bear markets happen more often than investors are led to believe. They usually occur at times of overvaluation which makes recent retirees or those close to retirement at greater risk of experiencing negative or poor future returns. Bad luck or rotten timing. Either way, it’s going to be important to remain cognizant of portfolio distribution rates, place renewed priority on risk management, and adjust spending accordingly perhaps over the next ten years. Those who were proactive to minimize stock and high-yield bond portfolio risk (like several of the writers for Real Investment Advice), and redeployed capital into stocks at 13x earnings in the summer of 2009, helped new retirees at that time meet their retirement objectives. In addition, they have experienced a cyclical tailwind in stocks that has allowed greater distribution rates. Great luck!

Stock market cycles are vast and span decades. Don’t stumble into a Recency Bias trap where you believe current complacent market conditions lay the path to a smooth, high-return future. Markets are mean reverting mechanisms. Cycles indeed change. Usually, markets are more volatile with periods of 5% pullbacks occurring every 3-4 months. As investors, this year we’ve witnessed shallow retracements followed up by buys on the dips. An environment like this fosters overconfidence. Volatility may excite traders and be helpful to those who are seeking lower prices to purchase risk assets. For those in retirement distribution mode, volatility and corrections have potential to place portfolio longevity in jeopardy.

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“Remember, we’re talking about the Fed here… a group of people who go above and beyond to ignore risks in order to maintain the status quo…”

The Stock Market Bubble is So Big Even the Fed’s Talking About It (Phoenix)

The Fed confirmed yesterday that stocks are in a bubble. Lost amidst the usual Fed-speak about inflation and other items were the following nuggets. 1) “Equities” (read: stocks) were the primary reason the Fed discussed financial stability risks. 2) The Fed raised its assessment of financial stability from “notable” to “elevated.” 3) The Fed discussed “stock valuations.” This is simply incredible. Remember, we’re talking about the Fed here… a group of people who go above and beyond to ignore risks in order to maintain the status quo. Put another way, the stock market bubble is now so massive that even THE FED is talking about it. Indeed, the Fed is even openly states that the bubble might cause financial instability (read: a CRASH). It’s not difficult to see what the Fed is talking about. Based on their cyclical adjusted price to earnings ratio (CAPE) stocks are in CLEAR bubble territory.

As you can see, stocks are currently as overpriced as they were at the 1929 peak. Indeed, the only time stocks were MORE expensive was the Tech Bubble: the single largest stock market bubble in history. They say you don’t ring a bell at the top. But what the Fed did yesterday is DARN close. So what happens when the markets wake up to the fact that yet another massive bubble is beginning to burst?

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Freeze it before the collapse.

Ice-Nine: The Plan To Freeze The Financial System (Rickards)

In my book The Road to Ruin, I discuss a phenomenon called “ice-nine.” The name is taken from a novel, Cat’s Cradle, by Kurt Vonnegut. In the novel, a scientist invents a molecule he calls ice-nine, which is like water but with two differences. The melting temperature is 114.4 degrees Fahrenheit (meaning it’s frozen at room temperature), and whenever ice-nine comes in contact with water, the water turns to ice-nine and freezes. The ice-nine is kept in three vials. The plot revolves around the potential release of ice-nine into water, which would eventually freeze the rivers and oceans and end all life on Earth. Cat’s Cradle is darkly comedic, and I highly recommend it. I used ice-nine in my book as a metaphor for financial contagion.

If regulators freeze money market funds in a crisis, depositors will take money from banks. The regulators will then close the banks, but investors will sell stocks and force the exchanges to close and so on. Eventually, the entire financial system will be frozen solid and investors will have no access to their money. Some of my readers were skeptical of this scenario. But I researched it carefully and provided solid evidence that this plan is already in place — it’s just not well understood. But the ice-nine plan is now being put into practice. Consider a recent Reuters article that admitted elites would likely shut down the entire system when the next financial crisis strikes. The article claimed that the EU is considering actions that would temporarily prevent people from withdrawing money from banks to prevent bank runs.

“The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” said one source. Very few people are aware of these developments. They get a brief mention in the media, if they get mentioned at all. But people could be in for a shock when they try to get their money out of the bank during the next financial crisis. Think of it as a war on currency or a war on money. Even the skeptics can see how the entire financial system will be frozen solid in the next crisis. The only solution is to have physical gold, silver and bank notes in private storage. The sooner you put your personal ice-nine protection plan in place, the safer you’ll be.

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“..the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties)..”

Neoliberalism: The Idea That Changed The World (G.)

Last summer, researchers at the IMF settled a long and bitter debate over “neoliberalism”: they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism. In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a “neoliberal agenda” for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics. In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left’s traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality. Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it’s a meaningless insult: they’re the ones most meaningfully insulted by it.)

But “neoliberalism” is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses. Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But “neoliberalism” indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Still peering through the lens, you see how, no less than the welfare state, the free market is a human invention. You see how pervasively we are now urged to think of ourselves as proprietors of our own talents and initiative, how glibly we are told to compete and adapt. You see the extent to which a language formerly confined to chalkboard simplifications describing commodity markets (competition, perfect information, rational behaviour) has been applied to all of society, until it has invaded the grit of our personal lives, and how the attitude of the salesman has become enmeshed in all modes of self-expression. In short, “neoliberalism” is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.

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I’m still convinced that people will react shocked if China is the first domino. But though Charlene Chu is right that China controls most of its system, its control over Chinese obligations abroad isn’t nearly that strong. Xi knows this, and that’s why Chinese purchases abroad are shrinking. China has become part of the global financial system with monopoly money. And sure, it has dollars and Treasuries, but they’re neither limitless nor limitlessly fungible. Weakest point? Local governments who have borrowed from foreign sources. Or from domestic ones that get their credit from foreigners. Shadow banks.

So When Will China’s Debt Bubble Finally Blow Up? (WS)

Corporate debt in China has soared to $18 trillion, or 169% of GDP, the largest pile of corporate debt in the world, according to the worried BIS. The OECD has warned about it earlier this year. The New York Fed warned about this debt boom in February and that it could lead to a “financial crisis,” but that authorities have many tools to control it. The IMF regularly warns about China’s corporate debt, broken-record-like, and did so again a few days ago, lambasting the authorities for their reluctance to tamp down on the growth of debt. The “current trajectory,” it said, “could eventually lead to a sharp adjustment.” The Chinese authorities – the government and the central bank, supported by the state-owned megabanks – have allowed some bonds to default, rather than bail them out, to make some kind of theoretical point, and they have been working furiously on a balancing act, tamping down on the credit growth that fuels the economy and simultaneously stimulating the economy with more credit to keep the debt bubble from imploding.

A misstep could create a global mess. “Everyone knows there’s a credit problem in China, but I find that people often forget about the scale; it’s important in global terms,” Charlene Chu told the FT. Back in 2011, when she was still a China banking analyst at Fitch Ratings, she went out on a limb with her radical estimates that there was much more debt than disclosed by the central bank, particularly in the shadow banking system, that banks were concealing risky loans in off-balance-sheet vehicles, and that this soaring opaque debt could have nasty consequences. Her outlandish views at the time have since then become the consensus. And this pile of debt is in much worse shape than officially acknowledged, she says in her latest report, cited by the FT. She’s now with Autonomous Research.

She figured that by the end of 2017, bad debt in China could hit 51 trillion yuan, or $7.6 trillion. Or about 68% of GDP! It would take the bad-debt ratio to an astronomical 34% of all loans, and way above the 5.3% that the authorities are proffering. And the authorities – the government, the central bank, supported by the state-owned banks – are now pulling all levers to keep this under control. “What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities,” she said. “The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.”

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More Chu. Remarkable how she says “.. the ability to avoid recognizing losses only delays the inevitable day of reckoning as problems fester for longer, and grow larger than in an economy where actors respond purely to market incentives.” Remarkable because that describes America as much as it does China.

Charlene Chu Lays Out China’s “Doomsday” Scenario (ZH)

The first time we laid out the dire calculations about what is perhaps the biggest mystery inside China’s financial system, namely the total amount of its non-performing loans, by former Fitch analyst Charlene Chu we called it a “neutron bomb” scenario, because unlike virtually every other rosy forecast the most dire of which topped out at around 8%, Chu argued that the amount of bad debt in China was no less than a whopping 21% of total loans. While traditional bank loans are not Chu’s prime focus – she looks at the wider picture, including shadow banking – she says her work suggests that nonperforming loans may be at 20% to 21%, or even higher. The chart below shows just how much of an outlier Chu’s stark forecast was in comparison to her peers, and especially the grotesquely low and completely fabricated official number released by the banks and the government.

Recall that one of the biggest scandals in China in 2014 was the realization (as many had warned previously) that millions of tons of commodities were rehypothecated countless times, and thus “pledged” as collateral to numerous counterparties, and that as a result these same counterparties were unable to make sense of who owns what at one of China’s largest ports, Qingdao. In this context, it is safe to assume that loss given default rates in China are if not 100% (or more, which is impossible in theoretical terms but in practice is quite possible, as another curious side effect of unlimited collateral rehypothecation), then as close to it as possible.

Fast forward to today, when Charlene Chu, described by the FT as “one of the most influential analysts of China’s financial system” is back with a revised estimate that the bad debt in China has now reached a stunning $6.8 trillion above official figures and warns that the government’s ability to enforce stability has allowed underlying problems to go unchecked. [..] So if Chu held the wildly outlier view nearly two years ago that China’s NPLs amount to 21% of total, what is her latest estimate? The number is a doozy: in her latest report, Chu estimates that bad debt in China’s financial system will reach as much as Rmb51 trillion , or $7.6 trillion, by the end of this year, more than five times the value of bank loans officially classified as either non-performing or one notch above.” That estimate implies a bad-debt ratio of 34%, orders of magnitude above the official 5.3% ratio for those two categories at the end of June.

One factor that has foiled countless shorts over the years is that Beijing can simply order state-owned banks to keep lending to a lossmaking zombie company or to a smaller lender that relies on short-term interbank funding to stay liquid, and that’s precisely what has been happening, when looking at the various non-conventional credit pathways in China in recent years, which include Wealth Management Products, Bank Loans to Non-Bank Institutions, Shadow Banking, Repos and Certificates of Deposit.

But Chu said the ability to avoid recognizing losses only delays the inevitable day of reckoning as problems fester for longer, and grow larger than in an economy where actors respond purely to market incentives. That said, the recent spike in corporate bankruptcies indicates that even Beijing is slowly shifting to a more “market” driven stance. “What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities,” she said. “The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.” Finally, putting it all in context is the following chart showing the total size of China’s financial sector, which as of the latest quarter has grown to $35 trillion, double the size of the US.

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Subtle tactics from Xi. Shift the debt but keep it high. What do you think the odds are that after the Party Congress China will withdraw into itself?

China’s New Problem: Frenzy Of Consumer Lending Creates Debt Explosion (CNBC)

The Chinese government is moving to tackle high debt levels, but the country is still borrowing more, Deutsche Bank said in a report released Thursday. That’s because short-term consumer debt in China has begun to surge as authorities try to alleviate the high levels of corporate indebtedness. The redistribution comes as Beijing is trying to strike a balance between stability and strength in its economy. Household debt in China is growing “very fast” and has accelerated in the last three to four months, according to Deutsche Bank: “If we focus purely on the consumer lending … then China has been undergoing something akin to a consumer lending frenzy.” According to Deutsche Bank, corporate credit has fallen to 45% of net new credit, down from 65% in the last 10 years. Instead, Beijing is allowing households and governments to borrow more to fund growth, which is targeted for around 6.5% in 2017, said the analysts.

Now, short-term consumer credit is growing 35% year-over-year, and may hit about 40% year-over-year by the end of December at the current trend, Deutsche Bank said. The bank said it isn’t yet clear where exactly the short-term consumer credit is being deployed, although 70 to 80% of that debt has historically been credit card-related. Overall household credit growth in China, the analysts noted, is growing around 24% year-over-year. At the end of the first half of 2017, corporate the debt-to-GDP ratio fell to 165% from the peak of 169% in the first quarter of 2016. That was “more of a ‘stabilization’ than a significant reduction,” Deutsche Bank said, calling it an “explosion” of growth. Meanwhile, household and government debt however rose by 8 to 9% of GDP. “So when viewed in aggregate China is still leveraging up apace,” the Deutsche Bank report concluded.

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Maybe somoneone should explain to Warren what the Fed is and does. Or Washington for that matter.

‘Simply Doesn’t Cut It’: Elizabeth Warren Slams Wells Fargo Board Changes (BI)

Wells Fargo’s effort to turn the page on consumer fraud scandals is falling short. That’s according to Massachusetts senator Elizabeth Warren, who has requested the Federal Reserve remove the bank’s board members who served between May 2011 and July 2015 in response to a series of vast consumer fraud scandals. The bank, already in hot water for creating millions of unauthorized accounts, recently admitted to also selling auto insurance without customers’ knowledge. Wells Fargo’s response? It has promoted an ex-Fed board governor, Elizabeth Duke, to chairwoman of the board. Duke, a champion of community banks while at the Fed, became a Wells Fargo director in 2015 and was named vice chair last year after the first round of scandals broke and led to the resignation of then-CEO John Stumpf.

Business Insider contacted Senator Warren to get her reaction. “Letting a few board members retire early and shuffling around current board members simply doesn’t cut it,” Warren said in an email. “The Fed should remove all remaining board members who served during the fake-accounts scandal.” Warren also renewed her call for board members’ removal with a new letter to Fed chairman Janet Yellen dated August 16, and voicing her dissatisfaction at what she sees as central bank inaction. “Instead of taking steps to remove the responsible Wells Fargo Board members, the Federal Reserve has actually sought to reduce their obligations and the obligations of other directors at the country’s biggest banks,” the letter said. In July, Warren repeatedly pressed Fed Chair Janet Yellen on the issue during recent Congressional testimony but Yellen would only say the central bank had the power to remove the directors — not that it had any inclination to do so.

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More free rides for bankers. Warren! Oh wait, your own party takes their contributions.

Deutsche Bank, Bank of America Settle Agency Bond Rigging Lawsuits (R.)

Deutsche Bank and Bank of America agreed to pay a combined $65.5 million to settle investor litigation accusing large banks of rigging the roughly $9 trillion government agency bond market over a decade. Preliminary settlements totaling $48.5 million for Deutsche Bank and $17 million for Bank of America were filed on Thursday with the U.S. District Court in Manhattan, and require a judge’s approval. Both banks denied wrongdoing. The settlements were the first in litigation accusing 10 banks of engaging in a “brazen conspiracy” to rig the market for U.S. dollar-denominated supranational, sub-sovereign and agency (SSA) bonds, court papers show. The investors are led by the Iron Workers Pension Plan of Western Pennsylvania, KBC Asset Management, and the Sheet Metal Workers Pension Plan of Northern California.

They accused banks of communicating by phone, chatrooms and instant messaging to share pricing data and function as a collective “super-desk,” while letting traders coordinate their strategies, to boost profit. This collusion allegedly ran from 2005 to 2015, and forced customers to accept unfair prices on bonds they bought and sold, court papers show. BNP Paribas, Citigroup, Credit Agricole, Credit Suisse, HSBC, Nomura, Royal Bank of Canada and Toronto-Dominion Bank were also sued, and all sought dismissals. U.S. regulators have also examined possible manipulation in the SSA bond market. The Manhattan court is home to a slew of private litigation accusing big banks of conspiring to rig various financial markets, interest rate benchmarks and commodities. Late Wednesday night, another group of investors sued six banks, claiming they rigged the more than $1 trillion stock lending market.

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Simply how all of Washington works.

Who Is Lobbying Mike Pence And Why? (IBT)

Mike Pence has been among the Trump administration’s most prominent voices pressing to replace the Affordable Care Act, repeal post-crisis financial regulations, privatize American infrastructure and promote fossil fuels. Those positions would benefit the industries that have been directly lobbying Pence since he was elected vice president, according to federal documents reviewed by International Business Times. Amid speculation that Pence could mount his own presidential bid — or replace Trump if he leaves office early — the former Indiana governor and U.S. congressman has been directly lobbied by major health care and drug companies, Wall Street firms, oil and gas interests and industry groups interested in shaping a federal infrastructure privatization initiative.

Pence’s office has also been lobbied by his former congressional chief of staff on behalf of insurance, defense contracting and telecommunications companies — and that lobbying revolved around health care policy, defense spending and net neutrality. Pence has enthusiastically backed the policies by the lobbying firms. While other vice presidents have been the target of lobbying in the past, Pence has been viewed as one of the most powerful vice presidents in recent history. He is a longtime politician serving a president with no experience in elected office, and during his vice-presidential selection process, Trump was reportedly offering potential running mates a vast policy portfolio to oversee. Pence also oversaw Trump’s White House transition, which shaped the administration’s personnel decisions and many of its policy proposals.

Companies that have lobbied the vice president have spent tens of millions of dollars in total federal lobbying so far this year. Here is a deeper look at the major industries lobbying him — and what exactly they have been pushing for in their efforts to influence the vice president. Despite his onetime support for expanding Obamacare subsidies in his home state, Pence has reversed course and led the Trump administration’s legislative bid to repeal the Affordable Care Act — just as health insurers have been lobbying him in 2017.

“If you’re one of those Americans who want to see Obamacare repealed and replaced, we literally are days, or maybe just weeks, away from being able to accomplish that historic objective,” he told conservative talk radio host Rush Limbaugh last month. “We believe if they can’t pass this carefully crafted repeal and replace bill — we do those two things simultaneously — we ought to just repeal only and then have enough time built into that legislation to craft replacement legislation.” The Pence-led repeal effort could be a financial boon to health insurers like Blue Cross and Blue Shield, as well as UnitedHealthcare Group — both which have been in direct contact with Pence, according to records reviewed by IBT.

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Libertarian view.

Mr. President: Close Down More “Advisory Councils” (Rossini)

So President Trump closed down his “Manufacturing Council” and no one cheered? What a shame. Why was there a “Manufacturing Council” to begin with? It’s not the job of the president to meddle with our economy. His job description says nothing about benefitting “manufactures” or “scientists” or “Silicon Valley” or anyone else. These “Councils” are breeding grounds for the cronyism that has virtually destroyed the American Dream. If a CEO has the ear of the president, do you think he’s going to “advise” the president to do anything that will hurt his own business? On the other hand, would the CEO be tempted to advise the president to hurt his competitors, both foreign and domestic? Would the CEO advise the president to make it hard for start-ups and entrepreneurs to compete?

Would he advise for subsidies? Strict licensing laws? The president doesn’t need Advisory Councils, Czars, or any other destroyer of our economic liberties. Let the CEO’s be “counciled” themselves by free market prices. Let them deal with economic reality as it is, not massage the president for unconstitutional interventions. Let them stand on their own. Either satisfy consumers profitably, or fold up so that other people can. The president, at the same time, should stop pretending that he can push buttons and pull levers to make the economy run. Nothing could be further from the truth. Government intervention only stifles the economy.

The economy continues to function despite the political intrusions that exist. Fortunately, entrepreneurs are creative enough to always find ways around so-called government “regulations”. There’s always a loophole somewhere. But why make it hard on entrepreneurs to begin with? Just get the heck out of the way! But alas, the government and multi-national corporations are attached at the hip. One scratches the back of the other. Mr. President, close down all the “Advisory Councils,” and keep your hands off the economy.

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Spain’s views on this may have changed last night.

Spain Lacks Capacity To Handle Migration Surge – UNHCR (G.)

Spain lacks the resources and capacity to protect the rising number of refugees and migrants reaching it by sea, the UN refugee agency has said. The warning from UNHCR comes as the Spanish coastguard said it rescued 593 people in a day from 15 small paddle boats, including 35 children and a baby, after they attempted to cross the seven-mile Strait of Gibraltar. The number of refugees and migrants risking the sea journey between Morocco and Spain has been rising sharply, with the one-day figure the largest since August 2014, when about 1,300 people landed on the Spanish coast in a 24-hour period. About 9,300 migrants have arrived in Spain by sea so far this year, while a further 3,500 have made it to two Spanish enclaves in north Africa, Ceuta and Melilla, the EU’s only land borders with Africa.

María Jesús Vega, a spokeswoman for UNHCR Spain, said police were badly under-resourced and there was a lack of interpreters and a shortage of accommodation for the new arrivals. “The state isn’t prepared and there aren’t even the resources and the means to deal with the usual flow of people arriving by sea,” she said. “Given the current rise, we’re seeing an overflow situation when it comes to local authorities trying to cope at arrival points.” Vega said the agency was seeing a very high number of vulnerable people including women, victims of people-trafficking, and children. “What we’re asking is for there to be the right mechanisms in place to ensure people are treated with dignity when they come,” she said.

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Jul 202017
 


Margaret Bourke-White Breadline, Kentucky 1937

 

Trump Ends CIA Arms Support For Anti-Assad Syria Rebels (R.)
Did the City of London Just Press the Panic Button on Brexit?
Single Payer Is The Only Real Answer, Says Medicare Architect (IC)
Deutsche Bank Expects Subpoenas Over Trump-Russia Investigation (G.)
Asia’s Coal-Fired Power Boom ‘Bankrolled By Foreign Governments And Banks’ (G.)
When Does a Home Become a Prison? (FAFC)
Saudi-Led Bloc Drops List Of Demands For Qatar (BBC)
Toronto Man Builds Park Stairs For $550, Irking City After $65,000 Estimate (CTV)
US-Style Mega Farms Invade The World (G.)
Australia Was Colonized By Humans 20,000 Years Before Europe (Ind.)
Child Refugees Denied Care Amid Suicide And Abuse In Greek Camps (Ind.)
UK Has Not Taken In Any Child Refugees Under Dubs Scheme This Year (G.)
The World Has Made More Than 9 Billion Tons of Plastic (CNBC)
World’s Plastic Waste Could Bury Manhattan 2 Miles Deep (AP)

 

 

The CIA will not like this. The press just can’t mention Putin enough. But a good decision.

Trump Ends CIA Arms Support For Anti-Assad Syria Rebels (R.)

The Trump administration has decided to halt the CIA’s covert program to equip and train certain rebel groups fighting the government of Syrian President Bashar al-Assad, two U.S. officials said, a move sought by Assad ally Russia. The U.S. decision, said one of the officials, is part of an effort by the administration to improve relations with Russia, which along with Iranian-supported groups has largely succeeded in preserving Assad’s government in the six-year-civil war. The CIA program began in 2013 as part of efforts by the administration of then-President Barack Obama to overthrow Assad, but produced little success, said the officials, both of whom are familiar with the program and spoke on the condition of anonymity.

The decision was made with National Security Adviser H.R. McMaster and CIA Director Mike Pompeo after they consulted with lower ranking officials and before Trump’s July 7 meeting with Russian President Vladimir Putin at the G-20 summit in Germany. It was not part of U.S.-Russian negotiations on a ceasefire in southwestern Syria, the two officials said. One of the officials said the United States was not making a major concession, given Assad’s grip on power, although not on all of Syria, “but it’s a signal to Putin that the administration wants to improve ties to Russia.” A downside of the CIA program, one of the officials said, is that some armed and trained rebels defected to Islamic State and other radical groups, and some members of the previous administration favored abandoning the program.

Before assuming office in January, Trump suggested he could end support for Free Syrian Army groups and give priority to the fight against Islamic State. A separate effort by the U.S. military effort to train, arm and support other Syrian rebel groups with air strikes and other actions will continue, the officials said.

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The real Macron.

Did the City of London Just Press the Panic Button on Brexit?

Oh the irony: EU capitals are trying to attract the very institutions that caused some of the worst financial scandals of the last ten years.

In a sign of growing desperation, the City of London Corporation, the enigmatic city within the city that serves as the ultimate bastion of privilege in the UK, is now trying to appeal to brute populist sentiment to defend its position as the world’s most important financial center. In a memo to the British Treasury, MPs, and financial institutions, the City’s Brexit envoy to the EU, Jeremy Browne, bemoaned that the French are pushing for the most damaging Brexit possible, even if France doesn’t directly benefit. The memo was duly leaked to one of the UK’s most anti-EU newspapers, The Daily Mail: “Browne’s recent meeting at the Banque de France was the worst he had had “anywhere in the EU”. The French, he said, “are crystal clear about their objectives: the weakening of Britain and the ongoing degradation of the City of London” and plotting to “actively disrupt and destroy” the UK’s financial sector when Britain leaves the EU.

France isn’t the only country aggressively trying to poach business from the City of London; so too are Germany, Spain, Luxembourg, the Netherlands and even Italy. But France differs from the rest in one key aspect, says Browne: it “sees Britain and the City of London as adversaries, not partners.” The recent election as president of Emmanuel Macron, a former investment banker at Rothschild & Cie Banque, has merely intensified this dynamic. Paris has promised to unfurl the red carpet for the City of London’s highest paid bankers by offering low tax rates and bank-friendly legislation, including scrapping a proposed financial transaction tax, while also seeking to grow as a clearing center. Clearing is a huge business for the City of London. The U.K. is estimated to handle 75% of all euro-denominated derivatives transactions, equivalent to around €930 billion of trades per day.

It’s also home to roughly 90% of US dollar domestic interest-rate swaps. The world’s largest clearinghouse for interest rate swaps, LCH, is based there and is majority-owned by London Stock Exchange Group Plc. LCH functions as a middle man collecting collateral and standing between derivatives and swaps traders to prevent a default from spiraling out of control. As Bloomberg reports, the role of clearing houses like LCH in global finance has become far more entrenched since the 2008 Financial Crisis and the inexorable expansion of derivatives trading. For years the French government, together with the European Central Bank, has wanted a piece of the action. Ironically, it was the European Court of Justice (ECJ) — the same court whose jurisdiction the UK government is now determined to elude — that, in 2015, stopped that from happening on the grounds that the ECB cannot discriminate against an EU member. But if the UK leaves the EU, and thus the ECJ’s jurisdiction, that ruling will no longer be applicable.

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They had the money but not the interest in the idea,” he lamented, “instead spending a year developing a complex bill that was DOA on [Capitol] Hill.”

Single Payer Is The Only Real Answer, Says Medicare Architect (IC)

Thanks to a pair of defections from more GOP senators late yesterday, the Republican plan to repeal and replace or simply repeal the Affordable Care Act is dead — for now. But the health care status quo is far from popular, with 57% of Americans telling Gallup pollsters in March that they “personally worry” a “great deal” about health care costs. Many health care activists are now pushing to adopt what is called a “single payer” health care system, where one public health insurance program would cover everyone. The U.S. currently has one federal program like that: Medicare. Expanding it polls very well. One of the activists pushing for such an expansion is Max Fine, someone who is intimately familiar with the program — because he helped create it.

Fine is the last surviving member of President Kennedy’s Medicare Task Force, and he was also President Johnson’s designated debunker against the health insurance industry. Fine, now 91, wrote to The Intercept recently to explain that Medicare was never intended to cover only the elderly population, and that expanding it to everyone was a goal that its architects long campaigned for. “Three years after the enactment of Medicare, in Dec. 1968, a Committee of 100 leading Americans was formed to campaign for single payer National Heath Insurance. The campaign leaders were UAW pres. Walter Reuther, Dr. Michael DeBakey, Nat. Urban League Pres Whitney Young and Mary Lasker, a leader in the formation and funding of NIH,” he wrote.

”The NY Times and other newspapers gave front page play to the announcement of the campaign for ‘Medicare for All’ but the Committee gained even more attention when, shortly before xmas, pres-elect Nixon, emerging from his doctor’s office in San Diego, denounced us as socialists who were trying to create a problem when none existed.” Fine noted that this movement towards single payer has “risen and fallen over the years,” reaching a high point in the early 70s when former Democratic Massachusetts Sen. Ted Kennedy’s bill covering all Americans with government health insurance had 36 co-sponsors. But the Democratic Party decided to go a different direction, turning instead to private insurance to cover Americans.

Fine said he met with former First Lady Hillary Clinton’s health care task force in the early 1990’s, and advised them to incrementally expand Medicare, starting first with children and then lowering the age for the elderly. “They had the money but not the interest in the idea,” he lamented, “instead spending a year developing a complex bill that was DOA on [Capitol] Hill.”

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Deutsche already did a review and reported nothing suspicious. Does that make them suspect?

Deutsche Bank Expects Subpoenas Over Trump-Russia Investigation (G.)

Executives inside Deutsche Bank, Donald Trump’s personal bankers, are expecting that the bank will soon be receiving subpoenas or other requests for information from Robert Mueller, the special counsel who is investigating possible collusion between the Kremlin and the Trump campaign. A person close to the matter who spoke to the Guardian on the condition of anonymity said that Mueller’s team and the bank have already established informal contact in connection to the federal investigation. Deutsche’s relationship with Trump and questions about hundreds of millions in loans have dogged the German bank and the White House for months. They have also been the subject of intense scrutiny among some Democrats on Capitol Hill, who have demanded the bank turn over detailed information about the president’s accounts.

The requests for information from Maxine Waters, the top Democrat on the House financial services committee, have focused on whether any Russian entities may have provided financial guarantees for the loans that were made to the president or his immediate family members. The Guardian reported in February that the bank launched a review of Trump’s account earlier this year in order to gauge whether there were any suspicious connections to Russia and did not discover anything suspicious. Ivanka Trump, the president’s daughter and adviser in the White House; her husband, Jared Kushner, who is also a presidential adviser; and Kushner’s mother, Seryl Stadtmauer, are all clients of Deutsche Bank.

US media outlets have reported that Mueller’s investigation into possible Russian collusion with the Trump campaign will include a close examination of the president’s finances and businesses. While Deutsche Bank did engage in banking transactions with Russian banks as late as 2005, including some loan activity, a person familiar with the matter said the activity was not related to Trump’s accounts or his family.

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What a surprise. The same ones that signed on to the Paris Accord, by any chance?

Asia’s Coal-Fired Power Boom ‘Bankrolled By Foreign Governments And Banks’ (G.)

The much-discussed boom in coal-fired power in south-east Asia is being bankrolled by foreign governments and banks, with the vast majority of projects apparently too risky for the private sector. Environmental analysts at activist group Market Forces examined 22 deals involving 13.1 gigawatts of coal-fired power in Indonesia and found that 91% of the projects had the backing of foreign governments through export credit agencies or development banks. Export credit agencies, which provide subsidised loans to overseas projects to assist export industries in their home countries, were involved in 64% of the deals and provided 45% of the total lending. The majority of the money was coming from Japan and China, with the Japan Bank for International Cooperation (JBIC) involved in five deals and the Export-Import Bank of China (Cexim) involved in seven deals.

All the deals closed between January 2010 and March 2017. The China Development Bank was the biggest development bank lending to the projects, imparting $3bn, with a further $300,000 in development funds coming from Korea’s Korea Development Bank. The lending comes despite the world’s biggest development bank – the World Bank – warning last year that plans to build more coal-fired power plants in Asia would be a “disaster for the planet” and overwhelm the deal forged at Paris to fight climate change. “Right now, several key countries supporting the Paris climate change agreement are actively undermining it by trying to expand the polluting coal-power sector in other countries,” said Julien Vincent, executive director of Market Forces.

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The upside down logic of the First American Financial Corporation. They need people to buy and sell, or their business is dead. Your home is a prison if you don’t sell it. But the supply shortage illusion is really gone, guys.

When Does a Home Become a Prison? (FAFC)

In most markets, the seller, or supplier, makes their decision about adding supply to the market independent of the buyer, or source of demand, and their decision to buy. In the housing market, the seller and the buyer are, in many cases, actually the same economic actor. In order to buy a new home, you have to sell the home you already own. So, in a market with rising prices and strong demand, what’s preventing existing homeowners from putting their homes on the market? The housing market has experienced a long-run decline in mortgage rates from a high of 18% for the 30-year, fixed-rate mortgage in 1981 to a low of almost 3% in 2012. Today, five years later, mortgage rates remain just a stone’s throw away from that historic low point.

This long-run decline in rates encouraged existing homeowners to both move more often and to refinance more often, in many cases refinancing multiple times between each move. It’s widely expected that mortgage rates will rise further. This is more important than we may even realize because the housing market has not experienced a rising rate environment in almost three decades! No longer is there a financial incentive to refinance for most homeowners, and there’s more to consider when moving. Why move when it will cost more each month to borrow the same amount from the bank? A homeowner can re-extend the mortgage term another 30 years to increase the amount one can borrow at the higher rate, but the mortgage has to be paid off at some point.

Hopefully before or soon after retirement. Existing homeowners are increasingly financially imprisoned in their own home by their historically low mortgage rate. It makes choosing a kitchen renovation seem more appealing than moving.” There is one more possibility caused by the fact that the existing-home owner is both seller and buyer. In today’s market, sellers face a prisoner’s dilemma, a situation in which individuals don’t cooperate with each other, even though it is seemingly in their best interest to do so. Consider two existing homeowners. They both want to buy a new house and move, but are unable to communicate with each other. If they both choose to sell, they both benefit because they increase the inventory of homes available, and collectively alleviate the supply shortage.

However, if one chooses to sell and the other doesn’t, the seller must buy a new home in a market with a shortage of supply, bidding wars and escalating prices. Because of this risk, neither homeowner sells (non-cooperation) and neither get what they wanted in the first place – a move to a new, more desirable home. Imagine this scenario playing out across an entire market. If everyone sells there will be plenty of supply. But, the risk of selling when others don’t convinces everyone not to sell and produces the non-cooperative outcome. Rising mortgage rates and the fear of not being able to find something affordable to buy is imprisoning homeowners and causing the inventory shortages that are seen in practically every market across the country. So, what gives in a market short of supply relative to demand? Prices. According to the First American Real House Price Index, the fast pace of house price growth, combined with rising rates, has had a material impact on affordability.

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A weird turnaround in an already weird file. Tillerson?

Saudi-Led Bloc Drops List Of Demands For Qatar (BBC)

The four Arab nations leading a boycott of Qatar are no longer insisting it comply with a list of 13 specific demands they tabled last month. Diplomats from Saudi Arabia, the United Arab Emirates, Bahrain and Egypt told reporters at the UN they now wanted it to accept six broad principles. These include commitments to combat terrorism and extremism and to end acts of provocation and incitement. There was no immediate comment from Qatar, which denies aiding terrorists. It has refused to agree to any measures that threaten its sovereignty or violate international law, and denounced the “siege” imposed by its neighbours. The restrictions put in place six weeks ago have forced the gas-rich emirate to import food by sea and air to meet the basic needs of its population of 2.7 million.

At a briefing for a group of UN correspondents in New York on Tuesday, diplomats from the four countries said they wanted to resolve the crisis amicably. Saudi permanent representative Abdullah al-Mouallimi said their foreign ministers had agreed the six principles at a meeting in Cairo on 5 July and that they “should be easy for the Qataris to accept”. This latest development does, on the surface, hint at a possible way out of the current standoff between Qatar and its neighbours. But it is unlikely to provide a permanent solution. The problem comes down to how countries choose to interpret “extremism and terrorism”. Qatar has long prided itself on giving voice to alternative views to the edited, government-approved ones aired by its conservative neighbours. Hence one of the reasons why Qatar’s Al Jazeera network has been such a thorn in their sides. However, the charge levelled against Qatar is that those alternative voices include people committed to the overthrow of governments in the region.

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Please pay $64.450 to comply with bylaws.

Toronto Man Builds Park Stairs For $550, Irking City After $65,000 Estimate (CTV)

A Toronto man who spent $550 building a set of stairs in his community park says he has no regrets, despite the city’s insistence that he should have waited for a $65,000 city project to handle the problem. The city is now threatening to tear down the stairs because they were not built to regulation standards. Retired mechanic Adi Astl says he took it upon himself to build the stairs after several neighbours fell down the steep path to a community garden in Tom Riley Park, in Etobicoke, Ont. Astl says his neighbours chipped in on the project, which only ended up costing $550 – a far cry from the $65,000-$150,000 price tag the city had estimated for the job. “I thought they were talking about an escalator,” Astl told CTV News Channel on Wednesday.

Astl says he hired a homeless person to help him and built the eight steps in a matter of hours. Astl’s wife, Gail Rutherford, says the stairs have already been a big help to people who routinely take that route through the park. “I’ve seen so many people fall over that rocky path that was there to begin with,” she said. “It’s a huge improvement over what was there.” Astl says members of his gardening group have been thanking him for taking care of the project, especially after one of them broke her wrist falling down the slope last year. “To me, the safety of people is more important than money,” Astl said. “So if the city is not willing to do it, I have to do it myself.” City bylaw officers have taped off the stairs while officials make a decision on what to do with it. However, Astl has not been charged with any sort of violation.

Mayor John Tory acknowledged that the city estimate sounds “completely out of whack with reality” on Wednesday. However, he says that still doesn’t justify allowing private citizens to bypass city bylaws to build public structures themselves. “I think everyone will understand that it will be more than $550,” he said on Wednesday. “We just can’t have people decide to go out to Home Depot and build a staircase in a park because that’s what they would like to have.”

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Result: reisistant superbugs.

US-Style Mega Farms Invade The World (G.)

Since the days of the wild west frontier, the popular image of American farming has been of cowboys rounding up steers on wide open ranches, to whoops, whips and hollers. Today, the cowboys on their ranches under wide open skies have been replaced by vast sheds, hulking over the plains, housing tens of thousands of animals each, with the noises and smells spreading far beyond their fences. The US has led the world in large-scale farming, pioneering the use of intensive livestock rearing in hog farms, cattle sheds and sheep pens. There are now more than 50,000 facilities in the US classified as concentrated animal feeding operations (CAFOs), with another quarter of a million industrial-scale facilities below that threshold. Around the world, developing countries in particular were quick to catch up.

Intensive farming of livestock offers many advantages over traditional open ranges, not least economies of cost and scale, more efficient healthcare for the herds and flocks, and ultimately cheaper food. According to the UN, globally CAFOs account for 72% of poultry, 42% of egg, and 55% of pork production. In 2000, there were an estimated 15 billion livestock in the world, according to the Worldwatch Institute. By last year, that had risen to about 24 billion, with the majority of eggs, chicken meat and pork produced on intensive farms. Ranching was never an option in the UK, but most people still expect farms to consist of green fields rather than vast industrial-scale sheds. The reality is an increasing number of livestock are “zero graze”, spending all or almost all of their time indoors in large warehouse-type facilities.

[..] at least 789 megafarms, meeting the US definition of CAFOs, now operate around the UK, with every region of the country hosting several such operations, many of them owned by foreign multinationals. These are the biggest in a wave of intensive farms that has increased by more than a quarter in six years. [..] Emma Slawinski, director of campaigns at Compassion in World Farming, said the problems of mega farms around the world included over-medication, where animals are given antibiotics whether they are needed or not. “Factory-farmed animals are regularly given antibiotics in their feed or water, because of the higher risk of disease when large numbers of animals are kept in these overcrowded conditions. There is strong evidence that this overuse of antibiotics in intensive farming is contributing to antibiotic resistance in human medicine.

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How is this new information?

Australia Was Colonized By Humans 20,000 Years Before Europe (Ind.)

Australia was colonised about 20,000 years before humans first arrived in Europe, according to new research. The discovery of the world’s oldest stone axes with ground edges, ochre used to make “spectacular rock art” and other artefacts in northern Australia pushes back the earliest known presence of humans to 65,000 years ago. Despite the relative closeness of Europe to Africa, where modern humans first evolved about 200,000 to 3000,000 years ago, the first concrete signs of Europeans are about 45,000 years old. In addition to their sophisticated axes, the people who first arrived on Australia’s shores may also have been armed with spears. The objects were found at Madjedbebe within the traditional lands of the Mirarr clan, an area of land that was excluded from the surrounding Kakadu National Park after a lease to mine uranium in the area was granted in 1982.

Representatives of the Mirarr said the research showed the “universal importance” of the area and called for it to receive the “highest level of conservation and protection”. Writing in the journal Nature, the researchers said: “The settlement of Madjedbebe around 65,000 years ago … sets a new minimum age for the human colonisation of Australia and the dispersal of modern humans out of Africa and across south Asia. “The final stages of this journey took place at a time of lower sea level, when northern Australia was cooler and wetter. “Our chronology … extends the period of overlap of modern humans and Homo floresiensis [the hominin species better known as hobbits] in eastern Indonesia to at least 15,000 years and, potentially, with other archaic hominins – such as Homo erectus – in southeast Asia and Australasia.”

In addition to changing the story of our species’ expansion across the globe, the new much older date challenges theories that Australia’s astonishing megafauna – a two-tonne wombat, giant kangaroos that were so big they couldn’t hop and a two-metre-tall bird – were quickly wiped out by humans. “Our chronology places people in Australia more than 20,000 years before continent-wide extinction of the megafauna,” the Nature paper said.

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Deterrent is still the favorite approach for Greece as well as the EU. Cowards.

Child Refugees Denied Care Amid Suicide And Abuse In Greek Camps (Ind.)

Unaccompanied child refugees are being wrongly identified as adults by Greek authorities and denied vital care in squalid camps, a new report has found. Human Rights Watch (HRW) interviewed children as young as 15, who said they had been denied special protections required under international law. The group found Greece’s legal age assessment procedure was not being “followed in practice” on the island of Lesbos, which has been at the epicentre of the Aegean refugee crisis. [..] Under Greek law, the government is supposed to appoint a guardian for each child to represent them in legal proceedings, hear their views and act in their best interests, separating minors into designated areas of “hotspot” processing centres.

The Greek Reception and Identification Service (RIS) is responsible for identifying unaccompanied children and other vulnerable groups, with support from the UN, Frontex border agency and EU, and referring them to social services and information. But HRW said the authority was “failing to meet its responsibilities” and sometimes “arbitrarily” recording ages above those given, sometimes using controversial dental examinations without any other evidence. Those classified as adults are left to fend for themselves at heightened risk of exploitation, trafficking and other abuse, including prostitution, aid workers have warned. “They live in official and unofficial sites with unrelated adult single men; are exposed to inhumane living conditions, including overcrowding, unsanitary conditions, and frequent incidents of violence; and are unable to go to school or otherwise access education,” HRW said.

[..] When there is no space in safe shelters for unaccompanied children, authorities frequently detain them in police stations, immigration detention facilities and asylum processing centres, with 1,149 unaccompanied minors currently awaiting places. The uncertainty and distress provoked by the process is worsening an ongoing mental health crisis in Greek camps, aid workers said, having already warned of increasing rates of suicide and self-harm. [..] Greek officials told HRW that a thorough procedure is followed to establish the ages of asylum claimants [..] The group called on authorities in Greece to bring age assessments in line with international best practice, so proper accommodation, care, education, counselling and legal aid can be given to those who need it.

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Scandalous. But at least something UK and EU can agree on: let ’em rot.

UK Has Not Taken In Any Child Refugees Under Dubs Scheme This Year (G.)

Home Office ministers have tried to deflect cross-party anger as it emerged that not a single extra lone child refugee has been brought to Britain from Europe under the “Dubs amendment” this year. The immigration minister, Brandon Lewis, met accusations that the government was “dragging its feet” by disclosing he will visit Italy and Greece next week to follow up the invitation to refer eligible children to be brought to Britain. But during an urgent Commons question raised by the outgoing Liberal Democrat leader, Tim Farron, he faced cross-party criticism that it was taking too long to process eligible refugee children in Europe to bring them to Britain. Home Office ministers have confirmed in written answers that only 200 children were transferred under Dubs in 2016 after the closure of the Calais camp and 280 local authority places remain to be filled.

The Dubs amendment, known as section 67, was passed in April 2016 amid a campaign to bring 3,000 lone refugee children stuck in camps in Europe to Britain. Ministers initially estimated local authority capacity at 350 but extended it to 480 in April after saying there had been “an administrative error” in the initial figure. Lily Caprani, of Unicef UK, said: “It’s unacceptable that we have seen no children brought under the Dubs scheme this year. As a nation we showed our compassion and our principles when we helped refugee children stranded in Calais, but we were told this was not the end of the story. We are seeing too many children still having to make dangerous journeys to reach safety.”

In the Commons, Farron said it was hard to see the government’s response as anything more than lip service and demanded to know when the “measly commitment” of 480 would be met. “I have visited the camps in Greece and elsewhere – something neither the home secretary nor the prime minister have done. I have met these children who, through no fault of their own, find their lives paused as ministers have chosen to ignore them,” said the Lib Dem leader. “Has the UK government even signed a memorandum of understanding with Greece to get these transfers under way? I know of two young people who signed a consent form to be transferred under Dubs over a year ago. They are still stuck in Greece.”

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Bringing carbon to the surface.

The World Has Made More Than 9 Billion Tons of Plastic (CNBC)

More than 9 billion tons of plastic have been made since the 1950s, and the vast majority of it has been thrown in the trash, says a new study. The paper says it is the first attempt to measure the total amount of plastic produced since the beginning of mass plastic production in the middle of the 20th century. A team of researchers from the University of California, Santa Barbara, the University of Georgia, and the Woods Hole Oceanographic Institution, say that although plastic materials such as Bakelite were in use in the early 20th century, the material’s popularity began to rapidly rise after World War II, making it one of the most commonly used man-made materials. For example, the researchers estimated that the amount of plastic in use now is 30% of all the plastic ever produced.

While that has brought its benefits, such as lower-cost materials or capabilities like water resistance, our love of plastic has also produced a lot of trash. About 7 billion tons of it, by their estimate. And as of 2015, only 9% of the plastic waste produced ended up recycled, and another 12% was incinerated, the researchers found in their report. The remaining 79% has built up in landfills or ended up elsewhere in the environment. The team published their results in the journal Science Advances on Wednesday. To make their estimates, the researchers cobbled together datasets on global plastic production, such as global annual pure polymer (resin) production data from 1950 to 2015, published by the Plastics Europe Market Research Group, and global annual plastic fiber production data from 1970 to 2015 published by The Fiber Year and Tecnon OrbiChem.

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Production is not just growing, growth is still accelerating.

World’s Plastic Waste Could Bury Manhattan 2 Miles Deep (AP)

Industry has made more than 9.1 billion tons of plastic since 1950 and there’s enough left over to bury Manhattan under more than two miles of trash, according to a new cradle-to-grave global study. Plastics don’t break down like other man-made materials, so three-quarters of the stuff ends up as waste in landfills, littered on land and floating in oceans, lakes and rivers, according to the research reported in Wednesday’s journal Science Advances . “At the current rate, we are really heading toward a plastic planet,” said study lead author Roland Geyer, an industrial ecologist at the University of California, Santa Barbara. “It is something we need to pay attention to.” The plastics boom started after World War II, and now plastics are everywhere. They are used in packaging like plastic bottles and consumer goods like cellphones and refrigerators.

They are in pipes and other construction material. They are in cars and clothing, usually as polyester. Study co-author Jenna Jambeck of the University of Georgia said the world first needs to know how much plastic waste there is worldwide before it can tackle the problem. They calculated that of the 9.1 billion tons made, nearly 7 billion tons are no longer used. Only 9% got recycled and another 12% was incinerated, leaving 5.5 billion tons of plastic waste on land and in water. Using the plastics industry own data, Geyer, Jambeck and Kara Lavender Law found that the amount of plastics made and thrown out is accelerating. In 2015, the world created 448 million tons of plastic — more than twice as much as made in 1998.

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May 182017
 
 May 18, 2017  Posted by at 9:10 am Finance Tagged with: , , , , , , , , , ,  4 Responses »


Paul Klee Fire at Full Moon 1933

 

‘Bobby Three Sticks’ Mueller to Probe Russia-Trump imbroglio (R.)
Trump To Announce $350bn Saudi Arabia Arms Deal – One Of Largest Ever (Ind.)
America’s Reign of Terror: A Nation Reaps What It Sows (Whitehead)
Investors Supercharge Bet Amazon Will Destroy US Retail (BBG)
Fed’s Kashkari Says Don’t Use Rate Hikes To Fight Bubbles (R.)
US Banks Tighten Auto Lending as More Borrowers Fall Into Default (BBG)
Canadian Officials Say Housing Risks Are Contained (BBG)
Prosecutor To Label Deutsche Bank An International Criminal Association (BBG)
Germany Asks US For Classified Briefing On Lockheed’s F-35 Fighter (R.)
Brazil: Explosive Recordings Implicate President Michel Temer In Bribery (G.)
Get Ready For The Franco-German Revival (Pol.)
Greek Parliament Committee Finds Salary, Pension Cuts Unconstitutional (GR)
Deal On Greece Is Touch And Go (K.)
Traffickers, Smugglers Exploit Record Rise In Unaccompanied Child Refugees (G.)

 

 

The echo chamber expands. It’s ironic to see how everyone praises Mueller’s independence, yet many are sure he will be Trump’s undoing. What flack will he get when he doesn’t do what the MSM demand?

‘Bobby Three Sticks’ Mueller to Probe Russia-Trump imbroglio (R.)

Former FBI director and prosecutor Robert Mueller, known for his independence in high-profile government investigations, is taking on a new challenge in the midst of a crisis that threatens the presidency of the United States. Mueller, 72, was named on Wednesday by the Justice Department to probe alleged Russian efforts to sway November’s presidential election in favor of Donald Trump and to investigate whether there was any collusion between Trump’s campaign team and Moscow. President Trump said in a statement there was no collusion between his campaign and “any foreign entity.” Mueller is known by some as “Bobby Three Sticks” because of his full name – Robert Mueller III – a moniker that belies the formal bearing and no-nonsense style of the former Marine Corps officer who was decorated during the Vietnam War.

Democrats and Republicans alike praised his appointment and hailed his integrity and reputation. Mueller was named to the post by Deputy Attorney General Rod Rosenstein. His investigation will run in parallel to those being carried out by the FBI and the U.S. Congress. It would be difficult to fire Mueller, and past special counsel appointments have shown that the job comes with independence and autonomy. Chicago federal prosecutor Patrick Fitzgerald was appointed during the George W. Bush administration in 2003 to a similar role to investigate the leak of the identity of Valerie Plame, an undercover CIA officer whose husband had criticized Bush administration policies. Fitzgerald indicted I. Lewis “Scooter” Libby, a top aide to Vice President Dick Cheney. Bush granted Libby clemency from a prison sentence before he left office.

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If you want to protest Trump, protest this….

Trump To Announce $350bn Saudi Arabia Arms Deal – One Of Largest Ever (Ind.)

Donald Trump will use his upcoming Saudi Arabia trip to announce one of the largest arms sales deals in US history – somewhere in the neighbourhood of $98bn to $128bn worth of arms. That could add up to $350bn over ten years. The deal will be what the Washington Post said is a “cornerstone” of the proposal encouraging the Gulf states to form its own alliance like the NATO military alliance, dubbed “Arab Nato.” Nato is comprised of 28 countries including the US. Mr Trump been an outspoken critic of the organisation but after a face-to-face meeting with Nato Secretary General Jens Stollenberg, he said the alliance was “no longer obsolete.” The White House said the president will propose it as a template for an alliance that will fight terrorism and keep Iran in check.

Saudi Crown Prince Mohammed bin Salman began negotiations on this deal shortly after the 2016 US election when he sent a delegation to Trump Tower to meet with the president’s son-in-law Jared Kushner, who is serving as a senior advisor of sorts to Mr Trump. The idea of an Arab Nato is not new. There was talk in 2015 of a “response force” in Egypt, comprised of approximately 40,000 troops from Egypt, Jordan, Morocco, Saudi Arabia, Sudan, and a few other Gulf nations. The “response force” would have had a Nato-like command structure, with soldiers paid for by their own countries and the Gulf Cooperation Council made up of wealthy oil economies finance operations and management of the force.

President Barack Obama’s administration brokered more arms sales than any US administration since World War II – estimated at $200bn. They sold Saudi Arabia alone $60bn in arms, which sparked criticism by Democrats concerned with Saudi Arabia’s alleged human rights violations. Mr Trump benefits by bringing about a more “fair” deal; he has claimed several times that Nato is unfair to the US because of the amount of contributions and support provided by the US compared to countries like Germany. If Arab Nato succeeds, the White House official said the US could shift the responsibility for security to those in the region and create jobs at home through the arms sales.

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…because that Saudi arms deal is a further expansion of this long-term insanity. Military industrial complex.

America’s Reign of Terror: A Nation Reaps What It Sows (Whitehead)

Who designed the malware worm that is now wreaking havoc on tens of thousands of computers internationally by hackers demanding a king’s ransom? The US government. Who is the biggest black market buyer and stockpiler of cyberweapons (weaponized malware that can be used to hack into computer systems, spy on citizens, and destabilize vast computer networks)? The US government. What country has one the deadliest arsenals of weapons of mass destruction? The US government. Who is the largest weapons manufacturer and exporter in the world, such that they are literally arming the world? The US government. Which is the only country to ever use a nuclear weapon in wartime? The United States. How did Saddam Hussein build Iraq’s massive arsenal of tanks, planes, missiles, and chemical weapons during the 1980s? With help from the US government.

Who gave Osama bin Laden and al-Qaida “access to a fortune in covert funding and top-level combat weaponry”? The US government. What country has a pattern and practice of entrapment that involves targeting vulnerable individuals, feeding them with the propaganda, know-how and weapons intended to turn them into terrorists, and then arresting them as part of an elaborately orchestrated counterterrorism sting? The US government. Where did ISIS get many of their deadliest weapons, including assault rifles and tanks to anti-missile defenses? From the US government. Which country has a history of secretly testing out dangerous weapons and technologies on its own citizens? The US government. Are you getting the picture yet? The US government isn’t protecting us from terrorism. The US government is creating the terror. It is, in fact, the source of the terror.

Just think about it for a minute: almost every tyranny being perpetrated against the citizenry—purportedly to keep us safe and the nation secure—has come about as a result of some threat manufactured in one way or another by our own government. Cyberwarfare. Terrorism. Bio-chemical attacks. The nuclear arms race. Surveillance. The drug wars. In almost every instance, the US government has in its typical Machiavellian fashion sown the seeds of terror domestically and internationally in order to expand its own totalitarian powers.

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Let’s celebrate progress.

Investors Supercharge Bet Amazon Will Destroy US Retail (BBG)

Investors who think Amazon.com Inc. is about to destroy the retail industry as we know it have figured out a way to supercharge that bet – by buying the online giant’s stock and pairing it with a short position in the SPDR S&P Retail ETF, symbol XRT, a foundering fund that primarily holds bricks-and-mortar stores. “If you are long Amazon, wouldn’t it make sense to be short the stocks Amazon will look to decimate?” said Ihor Dusaniwsky, head of research for S3 Partners. “It’s going long the ‘best of the breed’ and shorting the ‘worst of the breed.’” Traders are building up short positions in anticipation of XRT dropping to $40 or $41, Dusaniwsky said. The fund, which is down more than 5% this year, closed at $41.74 on Tuesday.

XRT’s top holdings include furniture stores, supermarkets and groceries, electronics chains and media streaming, all areas where Amazon is spending heavily, Dusaniwsky said. “If Amazon succeeds, it will be at the expense of companies like Wayfair, Sprouts Farmers Market, Whole Foods, Best Buy and Netflix,” Dusaniwsky said. These five companies make up around 7% of XRT, which also holds $3.37 million of Amazon stock, making it 1.2% to the portfolio. So far Amazon is holding up its end of the bet. The world’s largest online retailer beat profit and revenue estimates in the first quarter and said sales may top projections in second quarter, according to an April 27 statement. The stock’s up 28% this year, as the company continues to add subscribers to its $99-a-year Prime program, locking in loyalty and building a moat against competitors.

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Is Kashkari denying the existence of bubbles?

Fed’s Kashkari Says Don’t Use Rate Hikes To Fight Bubbles (R.)

Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday warned against using interest-rate hikes to address unwanted asset bubbles, saying that bubbles are hard to identify and such hikes would likely do more harm than good. Kashkari is a voting member this year on the U.S. central bank’s policy committee, and in March was the lone dissenter on a Fed vote to raise rates for the third time since the Great Recession. He has previously said he opposed the rate hike because he felt keeping rates low would result in more jobs for Americans who want to work. Some Fed officials have worried that keeping rates too low for too long could create asset bubbles that could set the U.S. economy up for another recession.

But the main reason Fed chair Janet Yellen and others have given for raising rates is not to tamp down bubbles, but to keep a now nearly fully employed economy from going into overdrive. Kashkari’s latest essay argues that keeping a sharp eye out for potential bubbles and using supervisory powers to protect banks from failures are better options than raising rates. “Given the challenges of identifying bubbles with any confidence and the costs of making a policy mistake, I believe the odds of circumstances ever making sense to use monetary policy to try to slow asset prices down are very low,” he wrote. “I won’t say never but a whole lot of evidence would have to line up just right for it to be the prudent course of action.”

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Horse. Barn.

US Banks Tighten Auto Lending as More Borrowers Fall Into Default (BBG)

Lenders are tightening the spigot on new auto loans, making it harder for U.S. consumers with weak credit to buy a car, data from the Federal Reserve Bank of New York show. New car loans for subprime borrowers fell in the first quarter to $25.9 billion, the lowest in two years, according to the New York Fed’s quarterly report on household debt and credit. Drivers with credit scores below 620 now comprise less than 20% of new loans, down from almost 30% a decade ago. Borrowers with the highest credit scores – 760 or more – made up nearly a third of new auto loan originations in the first quarter as lenders target the safer deals. Banks including Fifth Third Bank have been trimming their loan books and cutting back on riskier credit as delinquent auto loan balances surge.

The share of auto debt more than 90 days overdue rose to 3.82% in the first quarter, the highest in four years. While caution may be good for banks’ balance sheets, it doesn’t offer much relief for automakers, who relied on cheap credit to fuel a seven-year stretch of booming sales. Now they’re boosting discounts and cutting production to address swelling inventory on dealer lots. Ford said Wednesday it’s cutting 1,400 jobs in North America and Asia to improve profits as the U.S. auto industry recorded a fourth straight drop in monthly sales in April, after eking out a record year in 2016. Tighter credit “is a big impediment to future strength in auto sales,” said Yelena Shulyatyeva, senior U.S. economist for Bloomberg Intelligence. “A lot of this demand was driven by loose lending standards.”

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Not helping.

Canadian Officials Say Housing Risks Are Contained (BBG)

Canadian government officials delivered a vote of confidence in the country’s housing sector and banking system, telling lawmakers that Vancouver and Toronto’s real estate markets are supported by fundamentals that leave risks well-contained. Senior officials from Canada’s Finance Department testified Wednesday evening to the Senate finance committee, fielding questions about the stability of the housing market, risks posed by high household debt levels in Canada and the recent downgrade of banks by Moody’s Investors Service Inc. The hearing came amid questions about the future of Home Capital and any knock-on effect that a potential failure there could have on Canada’s housing sector, particularly in Vancouver and Toronto.

The core message from the officials was Canada’s market was stable and, despite some risks, policy makers’ measures are taking effect. “We don’t think there’s any systemic risk across the country,” said Phil King, a director at the economic and fiscal policy branch at Finance Canada. “There are specific pockets of concern, which seem to have ameliorated somewhat in the very-near term but we’re keeping a very close eye on those.” Vancouver and Toronto have “very, very strong fundamentals” supporting prices including immigration, strong job creation, strong income gains and high wealth, he said. King described a national housing market with distinct regions — surging Toronto and Vancouver, soft markets in energy-producing regions such as Calgary, and other cities like Montreal and Ottawa where policy makers have “no concerns whatsoever.”

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As Goldman Sachs should be for its activities in Greece.

Prosecutor To Label Deutsche Bank An International Criminal Association (BBG)

Deutsche Bank, on trial in Milan for allegedly helping Banca Monte dei Paschi di Siena conceal losses, must face accusations that it was running an international criminal organization at the time. Prosecutors used internal Deutsche Bank documents and emails to persuade a three-judge panel to consider whether there were additional, aggravating circumstances to the charges the German lender already faces related to derivatives transactions. The material included a London trader’s “well done!” message to a banker who is now on trial, evidence seen by Bloomberg shows. Allowing prosecutors to argue that the alleged market manipulation crimes were committed by an organization operating in several countries could lead to higher penalties if they win a conviction.

Giuseppe Iannaccone, a lawyer for Deutsche Bank and some of the defendants, sought to block the move at Tuesday’s hearing, saying there wasn’t a clear connection between the original charge of market manipulation and the alleged aggravating circumstances. “The trial for Deutsche Bank managers becomes more problematic after the judge’s decision,” said Giampiero Biancolella, an attorney specializing in financial crime who isn’t involved in the case. “If proven, the aggravating circumstance may increase the eventual jail sentence for the market manipulation to a maximum of nine years.” The German bank and Nomura went on trial in Milan in December, accused of colluding with Monte Paschi to cover up losses that almost toppled the Italian lender before its current battle for survival. Thirteen former managers of Deutsche Bank, Nomura and Monte Paschi were charged for alleged false accounting and market manipulation.

Deutsche Bank and Nomura are accused of using complex derivative trades to hide losses at the Italian lender, leading to a misrepresentation of its finances between 2008 and 2012. After the deals came to light in a 2013 Bloomberg News report, Monte Paschi restated its accounts and tapped shareholders twice to replenish capital. Deutsche Bank and six current and former managers were indicted in Milan Oct. 1 for allegedly helping falsify the Siena-based lender’s accounts through a deal known as Santorini. The prosecution’s request to label Deutsche Bank an international criminal association hinged on events that occurred in other parts of the globe, including the possible manipulation of an index, which isn’t the subject of charges in the Milan case.

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History’s biggest ever financial boondoggle. And nobody dares stop it.

Germany Asks US For Classified Briefing On Lockheed’s F-35 Fighter (R.)

The German Air Force this month sent the U.S. military a written request for classified data on the Lockheed Martin F-35 fighter jet as it gears up to replace its current fleet of fighter jets from 2025 to 2035. The letter, sent by the Air Force’s planning command and seen by Reuters, makes clear that the German government has not yet authorized a procurement program and is not committed to any particular aircraft to replace its current warplanes. It said the defense ministry would carry out “an in-depth evaluation of market available solutions, including the F-35, later this year,” with a formal “letter of request” to be issued in coming months.

Germany’s interest in the F-35 – the Pentagon’s most advanced warplane and its costliest procurement program – may surprise some given that it is part of the four-nation consortium that developed the fourth-generation Eurofighter Typhoon, which continues to compete for new orders. The Eurofighter is built by Airbus as well as Britain’s BAE Systems and Leonardo of Italy. Germany will need to replace its current fleet of fourth-generation warplanes – Tornadoes in use since 1981 and Eurofighters – between 2025 and 2035. The F-35 is considered a fifth-generation fighter given stealth capabilities that allow it to evade enemy radars.

Berlin’s letter also comes amid growing tensions between the West and Russia over Moscow’s support for separatists in eastern Ukraine, with NATO officials saying that Russian naval activity now exceeds levels seen even during the Cold War. Britain, the Netherlands, Norway, Turkey and Italy – key NATO allies of Germany – are already buying the F-35 fighter jet to replace their current aircraft, and other European countries such as Switzerland, Belgium and Finland are also looking at purchasing the fifth-generation warplane. Germany’s gesture may be aimed at strengthening its hand in negotiations with its European partners over the scale and timing of development of a next generation of European fighters. Any moves to buy a U.S. built warplane could run into political resistance in Germany, which has strong labor unions.

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Just turn parliament into a prison building. Most effective solution.

Brazil: Explosive Recordings Implicate President Michel Temer In Bribery (G.)

Angry crowds and outraged members of Brazil’s congress have demanded the impeachment of President Michel Temer following reports he was secretly recorded discussing hush money pay-offs to a jailed associate. The tapes were presented to prosecutors as part of a plea bargain by Joesley and Wesley Batista, brothers who run the country’s biggest meat-packing firm JBS, according to O Globo newspaper. They are said to contain conversations that incriminate several leading politicians, including the former presidential candidate Aecio Neves and the former finance minister Guido Mantega. Temer is alleged to have talked with Joesley about cash payments to Eduardo Cunha, the former speaker of the House who has been jailed for his role in the sprawling Petrobras corruption scandal.

Cunha is in the same ruling Brazilian Democratic Movement party as Temer and initiated the impeachment of Dilma Rousseff that allowed him to take over the presidency. He has alluded to the many secrets he knows about his former colleagues. In covert recordings made during two conversations in March, Joesley tells Temer he is paying Cunha to keep him quiet, to which the president allegedly replies: “You have to keep it going, OK?” According to Globo, police also have audio and video evidence that Temer’s aide Rocha Loures negotiated bribes worth 500,000 reais (US$160,000) a week for 20 years in return for helping JBS overcome a problem with the fair trade office.

No audio or transcripts were released. The supreme court has refused to comment on the validity of the alleged leak – but the news has enraged the public. Shouts and pot-banging (a traditional form of protest in Latin America) could be heard when the allegations were aired on TV. Crowds also gathered outside the presidential palace chanting “Fora Temer” (Temer out). Two congressmen submitted impeachment motions in the lower house.

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Macron falls in line with what Berlin wants as much as Hollande did. Where’s the difference? Merkel and Schäuble like it, because now no-one will dare speak up anymore.

Get Ready For The Franco-German Revival (Pol.)

With none of the previous three presidents Merkel has sat across from in the past 12 years did the cautious chancellor achieve the deep mutual understanding and political serendipity that powered European integration in the eras of Konrad Adenauer and Charles de Gaulle, Helmut Schmidt and Valéry Giscard d’Estaing, or Helmut Kohl and François Mitterrand. Macron promised to be a “frank, direct and constructive partner” for Berlin. If he can convince Merkel to revive the frequent, unscripted, plain-speaking meetings between French and German leaders of the past, it will be a crucial step toward setting a joint agenda for Europe. July’s joint cabinet session — where both defense and the economy will be on the agenda — will be a first test of the promised Franco-German revival.

Macron has made it clear he intends to use France’s major contribution to European defense and security as a lever to help secure progress in the eurozone. But his influence in Berlin, as he acknowledged, will depend on his ability to break the rigidities in the French labor market and put the country’s young people to work. He will need to overcome deep-seated resistance to eurozone intervention in national budget policies. The last Socialist government was as defiant as its Gaullist predecessors when the European Commission repeatedly criticized France’s excessive deficits, high tax burden on business and employment, and generous welfare and pension systems. But Macron is committed to the right track. Honoring commitments to EU-supervised economic reforms are part of his vision for a more integrated eurozone, he said in Berlin.

[..] When it comes to the eurozone, Germany will have to end its resistance to further risk-sharing to complete the EU’s banking union. And here progress is likely to be difficult. Macron will need Berlin to lift its blockade on common deposit insurance and a joint fiscal backstop for the European bank resolution fund. Finance Minister Wolfgang Schäuble — who has expressed support for some of Macron’s ideas — will hold both steps hostage at least until after the German general election in September. Schäuble is holding out for a very different form of eurozone governance, in which an inter-governmental (i.e. German-controlled) European Monetary Fund, built on the existing European Stability Mechanism, would impose automatic debt restructuring and an austerity program on any eurozone country that needed assistance.

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Can Tsipras impose cuts when they violate his constitution? Can the Troika?

Greek Parliament Committee Finds Salary, Pension Cuts Unconstitutional (GR)

The Parliamentary Scientific Committee in its new report that accompanies the new omnibus bill expressed concern over the constitutionality of the provisions of Law 4387/2016 that calls for new cuts to pensions and special salaries. According to Professor and former SYRIZA lawmaker Alexis Mitropoulos, the report was posted on the parliament site shortly after midnight on Tuesday. Mitropoulos spoke on Ant1 television on Wednesday saying that, “After the recent Court of Audit decision, and following a long meeting, the committee found that the cuts in special wages, pensions and taxation were found to be unconstitutional.”

The new bill includes deep cuts in pensions and slashes in salaries of army and police personnel, sectors where special salary regulations apply. “The proposed reductions disrupt the balance that must exist between, on the one hand, the pension as a personal asset, which is protected by Article 1 and, on the other, of the public interest,” the report says regarding the pension cuts. As for cuts in special salaries, the report argues that, the cuts “are part of a wider fiscal adjustment program containing a package of measures to revive the Greek economy and consolidate public finances” but their implementation “is a necessary but not sufficient condition for the constitutionality of these cuts.”

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A child can tell that this is nonsense:

Growth predicted at “..2.1% this year and 2.5% in 2018, and continuing at a similar pace until 2060(!)..”. While the demanded budget surplus is 3.5% for the next 5 years. Which guarantees the growth predictions won’t be achieved.

Deal On Greece Is Touch And Go (K.)

A senior eurozone official put on Wednesday the chances of a complete agreement on Greece being reached at this Monday’s Eurogroup meeting at 50%, while many issues remain open and the negotiation battle at this stage is mainly between Berlin and the IMF. The official also reiterated that there will be no tranche disbursement without the IMF agreeing to participate in the Greek program. There are three scenarios on the negotiating table, according to two eurozone officials who took part in last Monday’s Euro Working Group. All three provide for the primary budget surplus to remain at 3.5% of GDP until 2022, showing that this is not negotiable anymore.

The main obstacle to an agreement among Greece’s creditors is that they disagree on the rate of Greek growth in the coming years, a key parameter for the extent of Greek debt easing. The first scenario provides for growth to match the European Commission’s estimates for 2.1% this year and 2.5% in 2018, and continuing at a similar pace until 2060. If there is a primary surplus of 2-2.6% of GDP, then the measures agreed last May will suffice to make the Greek debt sustainable. According to the second scenario, growth will be below even the IMF forecast and will not exceed 1% per year in the long term. That should take the primary surplus down to 1.5% of GDP from 2023, and more measures will be needed to render the debt sustainable. The third scenario is similar to the second, but the growth forecast is slightly higher, at 1.25%.

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Forget about hoping Brussels is looking for a solution NOT located in southern Libya. Just imagine what you would do if this was your child.

Traffickers, Smugglers Exploit Record Rise In Unaccompanied Child Refugees (G.)

A record increase in the number of refugee and migrant children travelling alone has left many exposed to sexual abuse and exploitation at the hands of traffickers and opportunists. At least 300,000 unaccompanied and separated children were recorded in 80 countries in 2015-16, a rise of almost 500% on the 66,000 documented in 2010-2011, according to a Unicef report published on Wednesday. The central Mediterranean passage is one of several migration routes identified as particularly dangerous for children. More than 75% of the 1,600 14- to 17-year-olds who arrived in Italy reported being held against their will or forced to work.

“One child moving alone is one too many and yet, today, there are a staggering number of children doing just that – we as adults are failing to protect them,” said Unicef’s deputy executive director, Justin Forsyth. “Ruthless smugglers and traffickers are exploiting their vulnerability for personal gain, helping children to cross borders, only to sell them into slavery and forced prostitution. It is unconscionable that we are not adequately defending children from these predators.” The sheer number of migrant and refugee arrivals has left states struggling to cope, with children often falling through the cracks.

Border closures, aggressive pushback measures, overcrowded shelters, makeshift camps and heavy-handed authorities have only served to exacerbate the risk of child exploitation, encouraging unaccompanied minors to take highly dangerous routes in a desperate bid to reach their destinations. One 17-year-old girl from Nigeria told Unicef that she was trapped in Libya for three months and sexually assaulted by her smuggler-turned-trafficker as she attempted to travel alone to Italy. “Everything [he] said – that we would be treated well and that we would be safe – it was all wrong. It was a lie,” she said of the man who offered to help her. “He said to me if I didn’t sleep with him, he would not bring me to Europe. He raped me.”

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Apr 112017
 
 April 11, 2017  Posted by at 9:11 am Finance Tagged with: , , , , , , , , ,  6 Responses »


Carole Lombard 1934

 

54% Of Canadians Think Home Prices Will Never Fall (BNN)
Wild Housing Speculation Drives Entire Canadian Economy (WS)
Third of US Car Owners Can’t Afford Surprise Repairs (UT)
The Retail Apocalypse’s Terrifying Impact On One Corner Of Wall Street (BI)
China Is Playing a $9 Trillion Game of Chicken With Savers (BBG)
Currency-Issuing Governments Never Have To Worry About Bond Markets (Bilbo)
Recessions Are Never Desirable Events And Are Always Avoidable (Bilbo)
So Many Triggers (Thomas)
American Carnage – The New Landscape of Opioid Addiction (Caldwell)
How Erdogan’s Referendum Gamble Might Backfire (Spiegel)
Share of Member States in EU GDP (EC)
Austria FinMin Calls For €1 Billion EU Investment In Greece (R.)
JP Morgan Report Sees ‘Light At The End Of The Tunnel’ For Greece (Amna)
Refugee Community Center Set To Open On Lesvos (K.)

 

 

Stupefying. “Of those in the younger generation who are already in the housing market, more than four of every five plan to sell..”

54% Of Canadians Think Home Prices Will Never Fall (BNN)

More than half of the country believes home prices will never fall, according to a new poll from CIBC. Despite lofty valuations in the Toronto and Vancouver housing markets, 54% of respondents to the CIBC poll say housing prices will rise indefinitely, while only 40% think prices will decline over the course of the next five years. David Madani, senior Canadian economist at Capital Economics, thinks the unbridled optimism is just one more sign the Toronto housing market is in bubble territory. “The fact that the majority of Canadians still think home prices can continue to shoot up is sort of testament to the fact we’re in a full-blown housing bubble,” he said in an interview with BNN. According to the poll, those high prices are keeping homeowners on the sidelines, with 62% of respondents saying they’re reluctant to sell their home, lest they become buyers again.

Home prices in Toronto are up more than 30% over the course of the last year, and prices in Vancouver have risen more than 14%. Those who are looking to sell are largely of the baby boomer cohort, with more than two-thirds of respondents older than 55 saying they plan to downsize to a smaller home or condo. CIBC says boomers are motivated to sell not just due to the ease of maintaining a smaller home, but also as a boost to their retirement savings. What’s less clear is who they’re going to sell their home to: 52% of the millennial generation either don’t believe they’ll ever own a home, or are unsure if home ownership is in their future, according to the CIBC poll. Of those in the younger generation who are already in the housing market, more than four of every five plan to sell, with 63% complaining the mortgage and housing costs are making them cash-poor.

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It drives it and will make it crumble. But Justin isn’t listening.

Wild Housing Speculation Drives Entire Canadian Economy (WS)

Here’s another data point on the Canadian housing bubble, how immense it really is, and how utterly crucial wild housing speculation has become to the Canadian economy. Housing starts surged to 253,720 units in March seasonally adjusted, the highest since September 2007, according to Canada Mortgage & Housing Corp. Of them, 161,000 were multi-family starts of condos and rental units in urban areas. In Toronto, one of the hot beds of Canada’s house price bubble, housing starts jumped by 16,600 units, all of them condos and apartments, defying any expectation of a slowdown. Housing starts are an indication of construction activity, a powerful additive to the local economy with large secondary effects. Housing construction gets fired up by the promise of ever skyrocketing housing prices, and thus big payoffs for developers, lenders, real estate agents, and the entire industry.

National home price data covers up the real drama in certain cities, particularly Vancouver (British Columbia) and Toronto (Ontario), but it does show by how much Canadian housing prices have overshot the already lofty US housing prices. The chart below by Stéfane Marion, Chief Economist at Economics and Strategy, National Bank of Canada, compares US home prices per the Case-Shiller 20-City index to Canadian home prices per the Teranet-National Bank 26-market index. Both indices are based on similar methodologies of comparing pairs of sales of the same home over time. The shaded areas denote recessions in Canada. Note that during the housing crisis in the US, there was only a blip in Canada’s housing market:

How important is real estate and housing construction to the Canadian economy? Hugely important! It accounts for an ever larger proportion of the Canadian economy. For all of Canada, according to data by Statistics Canada, housing construction and real estate activities combined account for 15.5% of GDP, up from 14.7% in 2011. This chart shows housing construction and real estate activities in the largest four provinces as percent of the province’s GDP in 2015, and for Canada overall. StatCan data for 2016 are not yet available. Note British Columbia: 22% of its economy is based on residential construction and real estate activities – due to Canada’s number one housing hot-bed Vancouver:

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As I said last week: it seems there’s an article on this theme every week now.

Third of US Car Owners Can’t Afford Surprise Repairs (UT)

Nearly one-in-three American motorists cannot pay for vehicle repairs without taking on debt, according to a new study from AAA. The study estimates 64 million drivers could not pay out-of-pocket for an average repair bill of $500 to $600. There are about 210 million licensed motorists in the country, according to the U.S. Department of Transportation. About 76% of men said they could afford the expense, while only 62% of women could do the same. “We were a little shocked at the results,” said Michael Calkins, AAA manager of technical services. “That one-third of American drivers couldn’t afford the cost of a $500 auto repair is a little concerning.”

AAA suggests motorists adhere to a scrupulous vehicle maintenance schedule and set aside $50 a month to build a fund for maintenance and unexpected repairs. But some motorists don’t – or can’t. About one-third of U.S. drivers delay or skip recommended car maintenance, Calkins said, a possible lingering repercussion of the 2008 recession. Motorists pay later for putting off vehicle maintenance now, as worn-down parts increase the likelihood of costly roadside breakdowns, Calkins said. A car-care fund can help motorists stick to their maintenance schedules, but for many low-income families, $50 a month is a big ask, said Asley Orr, executive director of Good News Mountaineer Garage, a nonprofit that donates used cars to West Virginians who need transportation to work.

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Who owns the stores and malls? Who owns the debt that keeps them going until it doesn’t?

The Retail Apocalypse’s Terrifying Impact On One Corner Of Wall Street (BI)

One of the biggest waves of retail closures in decades is killing off malls across the US and taking some Wall Street investments with it. Struggling with online competition, huge retailers like Sears, JCPenney, and Macy’s are closing hundreds of stores that typically anchor malls, meaning they occupy the largest spaces at mall entrances and drive most shopper traffic. When a big store shuts down, it triggers a chain reaction that can end with the shopping mall being unable to collect enough rent to cover its debts, forcing it to default. By one measure, as many as a third of the malls in the US are at risk of facing this situation. This has become a nightmare for investors who are expecting to collect on those debts. They own bonds – called commercial mortgage-backed securities, or CMBSs – that are backed by the mall properties’ rents.

If this sounds familiar, that’s because it’s similar to one element of the financial crisis. Back then, mortgage-backed securities, which pooled homeowners’ mortgages into a multitrillion-dollar financial market, were part of the problem. They encouraged risky lending, and together with derivatives on the bonds that were ginned up by Wall Street, they left banks and investors with massive losses that threatened the financial system. Nobody is predicting anything that dire today, but CMBSs, which Morgan Stanley says account for nearly 10% of the $3.6 trillion commercial real-estate mortgage market, work similarly. They pool debt payments from several malls or other commercial properties and then splice them so that investors can buy the segment and take on the kind of risk they want.

What’s happening in the retail market, though, is worse than anyone who invested in the bonds could’ve imagined a few years ago. “Malls are hard to turn around once they go downhill,” said Steve Jellinek, vice president of CMBS analytical services for Morningstar Credit Ratings. As a result, many CMBS investments are getting wiped out, and “retail lending has really taken a beating,” he said. About $48 billion in loans backed by mall properties are at risk of default, according to Morningstar.

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This is how the Chinese see Beijing, first as full of hot air (true), and second as capable of making good on any and all losses (not true): “Cracking down on implicit guarantees is just like curbing home prices,” she says. “It’s something that the government needs to say, but it’s not something they will eventually do.”

China Is Playing a $9 Trillion Game of Chicken With Savers (BBG)

Like many individual investors in China, Yang Mo has no idea what’s in the wealth management products that make up a big chunk of her net worth. She says there’s really no point in finding out. Sure, WMPs invest in all kinds of risky assets, but the government would never let a big one fail, she explains. “It’s not how the Chinese government does things, and it’s not even Chinese culture,” says Yang, a 29-year-old public relations professional in Beijing. Hers is a common refrain in Asia’s largest economy, where savers have poured $9 trillion into WMPs and similar products on the assumption that they’ll get bailed out if the investments sour. Even after news in February that policy makers are drafting rules to make it clear that state guarantees don’t exist, Yang is undaunted.

She says she’ll only withdraw money from WMPs in the unlikely event that they start to suffer losses. “Cracking down on implicit guarantees is just like curbing home prices,” she says. “It’s something that the government needs to say, but it’s not something they will eventually do.” Yang’s steadfast faith in bailouts illustrates the dilemma for authorities as they try to reduce moral hazard and improve the pricing of risk in China’s financial system: It may require a major WMP blowup to shake investors out of their complacency, an event that could wreak havoc on banks that increasingly rely on the products for funding. [..] WMPs – a key part of China’s shadow banking system – are getting squeezed as the nation’s central bank increases interest rates to discourage excessive leverage.

That’s not only putting pressure on products that use borrowed funds to meet their fixed return targets, it’s also weighing on the Chinese bond market, where WMPs allocate the biggest portion of their funds. For as long as they can, banks will make investors whole when WMPs run into trouble because they fear the reputational damage of a failed product, according to Hong. At some point, though, WMP shortfalls may be too large for the banks to cover, forcing policy makers to decide whether they’re willing to allow losses. Intervention is becoming less likely, if the new draft rules are anything to go by. Regulators are working on language that would make clear there are no state guarantees on asset-management products – which include WMPs, trusts, mutual funds and other products – people familiar with the matter said in February.

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Snippets from a great and long article by Australian economist Bill Mitchell. Everything they tell you about austerity is a lie.

Currency-Issuing Governments Never Have To Worry About Bond Markets (Bilbo)

How many times have you heard a politician claim they had to cut government spending and move the fiscal balance to surplus because they had to engender the confidence of the bond markets. Apparently, this narrative alleges that if bond markets are not ‘confident’ (whatever that means) then they will stop begging treasury departments for more debt issues and the government, in question, will run out of money and then pensions will stop being paid and the public service will be sacked and public trains and buses will stop running and before we know it the skies will blacken and collapse on us. The narrative ignores the usual statistics that bid-to-cover ratios are typically high (hence my ‘begging’ terminology) which are supplemented by well documented cases where the bond dealers (including banks etc) do actually beg central banks to stop driving yields down in maturity segments where these characters have pitched their “business model” (read: where they make the most profits).

The facts are exactly the opposite to the neo-liberal pitch. Currency-issuing governments never need to worry about how bond markets ‘feel’. Essentially, the bond markets are irrelevant to the ability of such a government to design and implement its fiscal plans. And, the central bank always can counteract any tendencies that the bond markets might seek to impose where governments do actually issue debt. [..] Nothing a student learns in a mainstream macroeconomics course at university (at any level – and the deception becomes worse the in later years as the student enters graduate school) about the relative powers of governments and bond markets is true. [..] So next time you hear an economist or a politician talk about how bond markets have to be satisfied and they use that as a justification for hacking into public spending (and driving up unemployment and poverty rates) you know they are lying and are frauds.

The bond traders never have to be satisfied. They can be forced to live on crumbs by the central bank if it so chooses. [..] The narrative that asserts that governments have to assuage the sentiments of the bond markets – which is an oft-repeated claim to justify job-destroying and poverty-inducing austerity – is just fake. It is a lie. It is just one of many lies that the elites use to pursue their biased austerity. Biased because they never advocate cutting spending or government support that helps them. They just support cuts that help the most disadvantaged who have little political voice and so can be disregarded. The point is that currency-issuing governments never have to worry about bond markets. And it would be better if the government eliminated the public debt market altogether – then the bond traders would have to do something productive for a living and get off the corporate welfare teat!

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More Bill Mitchell.

Recessions Are Never Desirable Events And Are Always Avoidable (Bilbo)

Bloomberg published an article last week (April 7, 2017) that it should not have published given that the article offers only fake knowledge to its readership. The article in question – Australia’s Delayed Recession Fallout Is Showing Up in Its Jobs Data – carried the sub-title “There may be trouble ahead” and purported to argue that because the Australian government’s fiscal stimulus allowed our nation to avoid a recession in 2009 we now have to ‘pay the piper’ and take our medicine and suffer a recession anyway. The proposition is ridiculous to say the least. The article uses as authority some nonsensical statements from a “business management consultant”, who doesn’t appear to have a very sound grasp of either history or what is actually going on. This is another case of misinformation.

The fact is that the Australian government’s fiscal stimulus in 2008 and 2009 saved the economy from recession. The current slowdown and parlous labour market is not some delayed effect from that. Rather, it is because the Australian government caught the ‘fiscal surplus bug’ obsession, and began a misguided pursuits of surpluses, irrespective of what the external and private domestic sectors were doing. It caused an immediate slowdown and all the virtuous dynamics that were accompanying the stimulus-led growth (for example, fall in household debt and the rise in the household saving ratio) were reversed, as we would expect. Far from being delayed effects, the poor jobs data is because current fiscal policy is too restrictive. Simple solution: expand the discretionary fiscal deficit (preferably with a large-scale public sector job creation strategy).

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“..Deutsche is ten times larger than Lehman Brothers..”, ” (90% of Deutsche’s revenue has been from derivative trading, which is what brought down Lehman.)”

So Many Triggers (Thomas)

Deutsche Bank has announced that it will create more shares, selling them at a 35% discount. Existing shareholders have not been pleased and, in the first four days since the offer was announced, the value of existing shares dropped by 13% as shareholders began dumping them. So why on earth would Germany’s foremost bank do something so rash? Well, in recent years, the bank has been involved in many arbitrations, litigations, and regulatory proceedings as a result of fraudulent activities, including the manipulation of markets. Having been found guilty, they presently owe $7.2 billion to the US Department of Justice and are now facing an additional $10 billion litigation bill. Unfortunately, the bank is already broke and, should Deutsche actually be able to sell the new shares, the $8.6 billion they hope to receive will still not save them from bankruptcy.

Business has also not been so good. They’ve lost nearly $2 billion in the last two years, instituted a hiring freeze, cut bonuses by 80%, and are facing a $2.5 million civil penalty to pay to the Commodity Futures Trading Commission for failure to report transactions and, not surprisingly, have been downgraded. The German government has stated that they will not bail out Deutsche and, indeed, under the EU agreement, they cannot do so. It’s safe to say that Germany’s largest bank will soon go the way of the dodo. For those who don’t live in Europe, this may not seem all that significant. However, Deutsche is the bank that funds the euro system, which they can now no longer do. Further, Deutsche is ten times larger than Lehman Brothers, an American bank that famously went down in 2008, heralding in that year’s economic crash. (90% of Deutsche’s revenue has been from derivative trading, which is what brought down Lehman.)

Upon the collapse of Deutsche Bank, four major US banks would be expected to become insolvent in a matter of days. The ripples would then continue to spread outward into the economic system as a whole. For many years, I’ve made repeated reference to the fact that the Western powers have been headed south economically, repeatedly relying on strategies that would provide short-term gain but would ultimately create long-term pain. They’ve been remarkably consistent and steadfast in this trend and, at this point, Deutsche is merely the latest trigger that may bring down the system.

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Chilling.

American Carnage – The New Landscape of Opioid Addiction (Caldwell)

There have always been drug addicts in need of help, but the scale of the present wave of heroin and opioid abuse is unprecedented. Fifty-two thousand Americans died of overdoses in 2015—about four times as many as died from gun homicides and half again as many as died in car accidents. Pawtucket is a small place, and yet 5,400 addicts are members at Anchor. Six hundred visit every day. Rhode Island is a small place, too. It has just over a million people. One Brown University epidemiologist estimates that 20,000 of them are opioid addicts—2% of the population. Salisbury, Massachusetts (pop. 8,000), was founded in 1638, and the opium crisis is the worst thing that has ever happened to it. The town lost one young person in the decade-long Vietnam War. It has lost fifteen to heroin in the last two years.

Last summer, Huntington, West Virginia (pop. 49,000), saw twenty-eight overdoses in four hours. Episodes like these played a role in the decline in U.S. life expectancy in 2015. The death toll far eclipses those of all previous drug crises. And yet, after five decades of alarm over threats that were small by comparison, politicians and the media have offered only a muted response. A willingness at least to talk about opioid deaths (among other taboo subjects) surely helped Donald Trump win last November’s election. In his inaugural address, President Trump referred to the drug epidemic (among other problems) as “carnage.” Those who call the word an irresponsible exaggeration are wrong.

Jazz musicians knew what heroin was in the 1950s. Other Americans needed to have it explained to them. Even in the 1960s and 1970s, with bourgeois norms and drug enforcement weakening, heroin lost none of its terrifying underworld associations. People weren’t shooting it at Woodstock. Today, with much of the discourse on drug addiction controlled by medical bureaucrats, it is common to speak of addiction as an “equal-opportunity disease” that can “strike anyone.” While this may be true on the pharmacological level, it was until quite recently a sociological falsehood. In fact, most of the country had powerful moral, social, cultural, and legal immunities against heroin and opiate addiction. For 99 percent of the population, it was an adventure that had to be sought out. That has now changed.

America had built up these immunities through hard experience. At the turn of the nineteenth century, scientists isolated morphine, the active ingredient in opium, and in the 1850s the hypodermic needle was invented. They seemed a godsend in Civil War field hospitals, but many soldiers came home addicted. Zealous doctors prescribed opiates to upper-middle-class women for everything from menstrual cramps to “hysteria.” The “acetylization” of morphine led to the development of heroin. Bayer began marketing it as a cough suppressant in 1898, which made matters worse. The tally of wrecked middle-class families and lives was already high by the time Congress passed the Harrison Narcotics Tax Act in 1914, threatening jail for doctors who prescribed opiates to addicts. Americans had had it with heroin. It took almost a century before drug companies could talk them back into using drugs like it.

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Referendum on April 16: “..some pollsters see the “no” camp ahead by as much as 10%.”

How Erdogan’s Referendum Gamble Might Backfire (Spiegel)

Support for the presidential system is crumbling. Erdogan may be giving the impression that the entire country is behind him, with his speeches resembling religious masses. On Sunday a week ago, tens of thousands cheered him on in Ankara. But some pollsters see the “no” camp ahead by as much as 10%. Even previously loyal Erdogan supporters, including party functionaries, don’t understand why the president so desperately wants this referendum. According to polls, one third of AKP voters are fluctuating between yes and no. The new system would concede powers to the president that even the nation’s founder, Mustafa Kemal Atatürk, didn’t have.

The president would be able to appoint ministers and 12 of 15 constitutional judges, and he would have the power to dissolve parliament any time he wanted to. The position of prime minister would also be eliminated. Erdogan claims the reform is necessary to secure stability and prevent further coup attempts. But he already has more power than any other politician in recent Turkish history. Campaign posters plasterd with Erdogan’s visage hang everywhere in Bursa. The balconies are decorated with Turkish flags and vehicles drive through the streets blaring AKP election songs. The AKP is trying to create excitement, and that shouldn’t be too difficult here in Bursa. The city is Turkey’s fourth-largest and a higher-than-average share of residents voted for the AKP in the November 2015 parliamentary election.

For a long time, the residents of Bursa were the way Erdogan wanted them to be: hard-working and pious. The city has developed into an industrial center and the government built brand new residential neighborhoods, with shopping malls and mosques. But since the attempted coup, the economy has collapsed and many storefronts now stand empty. Mumcu’s cousin, who runs a textile company, says that his revenue has dropped from €50 million to €2 million in the past year.

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Germany and France are half of EU GDP. The rest are mere pawns.

Share of Member States in EU GDP (EC)

In 2016, the GDp of the European Union (EU) amounted to €14 800 billion (bn) at current prices. Over half of it was generated by three Member States: Germany, the United Kingdom and France. With a GDP worth €3 100bn in 2016, Germany was the leading EU economy, accounting for over a fifth (21.1%) of EU GDP. It was followed by the United Kingdom (16.0%), France (15.0%), Italy (11.3%), Spain (7.5%) and the Netherlands (4.7%). At the opposite end of the scale, eleven Member States had a GDP of less than 1% of the EU total. They were: Malta, Cyprus, Estonia, Latvia, Lithuania, Slovenia, Croatia, Bulgaria, Luxembourg, Slovakia and Hungary. As regards the 19 Member States which form the euro area, their cumulated GDP stood at €10 700 bn in 2016, meaning that they accounted all together for 72.5% of the EU GDP. Germany (29.2%) and France (20.7%) made up half of the euro area GDP.

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Schäuble is shaking his head.

Austria FinMin Calls For €1 Billion EU Investment In Greece (R.)

The European Union should consider a one-billion-euro special investment programme to spur growth in debt-ridden Greece, Austria’s finance minister told daily Der Standard in an interview published on Monday. Hans Joerg Schelling said Greece would only be able to get back on track and regain access to capital markets if it was able to generate sustainable growth in the mid- and long-term. It was important to help the country participate in a pick-up in growth in the euro zone, he added. There was no immediate comment from Athens which has called for more help and debt relief as it struggles to cope with its financial crisis and attain a budget surplus of 3.5% of economic output, excluding debt servicing outlays next year.

“You must assess whether to start a big investment programme through the European Investment Bank or maybe with the (European bailout fund) ESM… to get an additional boost (for the Greek economy),” the paper quoted Schelling as saying. “I would define a scale of one billion euros.” Schelling, seen as a possible successor to Eurogroup President Jeroen Dijsselbloem, said one project could be an investment in renewable energy to make Greece less dependent on energy imports. The European Investment Bank (EIB) launched a one billion euro credit line to Greek banks in December, mainly to be used for on-lending to small and medium sized companies and firms promoting youth employment.

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JP Morgan doesn’t understand the state the Greek economy is in.

JP Morgan Report Sees ‘Light At The End Of The Tunnel’ For Greece (Amna)

The decision reached by Eurozone finance ministers in Malta concerning Greece increases the chances of a solution for completing the second review of the Greek programme before May 22, according to a report by J. P. Morgan released on Monday. The U.S. banking and financial services giant said the decisions appears to have clarified most of the obstacles that were delaying talks for concluding the review and point to a higher possibility of a good outcome for Greece. J.P. Morgan’s central scenario, to which it gives an 85 pct probability, predicts that the next step will be the return of the institutions’ missions to Greece to finalise the technical details that will support a staff-level agreement (SLA).

If its predictions are correct, the report said, there will be great progress over the next few weeks, while the sequence of events will be the signature of the SLA, passing of the measures agreed by the Greek Parliament and the completion of the review ensuring future disbursements and further details on debt relief measures. As a part of this positive scenario, J.P. Morgan said, it was also expected that Greece will become eligible for inclusion in the ECB’s quantitative easing programme in the summer. “We give an 85 pct probability to this development. This is the most positive result for the Greek bond market and we expect that 10-year Greek bonds will have price/yield rations of about 85 euros/5.5-6 pct with this scenario,” the report says. Even if the worst of the three scenarios it has drawn up should be proved right, J.P. Morgan said that an accident leading to Grexit was extremely unlikely after last Friday’s decisions and that in its medium-term outlook on Greek bonds “the reward for the risk remains attractive.”

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Fantastic. The Automatic Earth and its very generous readers play a substantial role in this. Thank you so much for making it possible.

Refugee Community Center Set To Open On Lesvos (K.)

Just a 10-minute walk from the municipal-run camp of Kara Tepe and a bit over a half-hour from the Moria migrant camp north of Mytilene, the capital of Lesvos, a community center currently under construction on a 1.5-acre site aspires to become a magnet for individuals stranded on the eastern Aegean island by offering a wide range of activities. Run by the Swiss Cross charity, the center, which is set to open in the coming days, was built by migrants with the help of volunteers who arrived here from different parts of Europe. The project is called “One Happy Family.” The facility will provide a coffee shop (complete with nargile), a home cinema, a library and a garden.

The O Allos Anthropos (Fellow Man) group has agreed to provide about 1,000 servings of food [daily]. The entire project will cost 200,000 euros, which includes rent for the first 12 months. “The Swiss are very good at organizing, while the Greeks are good at hospitality, so great things can come out of that mix,” Achilleas Peklaris, a writer and journalist now working for Swiss Cross, told Kathimerini. After doing charity work in Thessaloniki, northern Greece, Swiss Cross moved to Lesvos, prompted by the tragic deaths of Moria camp residents living outdoors in tents in freezing conditions this past winter.

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