Sep 082017
 
 September 8, 2017  Posted by at 9:29 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Irma heads for Florida

 

Irma Heads For Florida (R.)
Magnitude 8.4 Earthquake Strikes Off Mexico’s Southern Coast (DW)
Worst US Consumer Data Hack Ever? Equifax Confesses (WS)
Consumer Credit & The American Conundrum (Roberts)
Low Interest Rates Major Source Of Concern – German Financial Watchdog (CNBC)
Japan’s April-June Economic Growth Much Slower Than Preliminary Reading (R.)
The North Korean Endgame is Playing Out Now – Rickards (DR)
Theresa May Apponts Cronies In ‘Sweeping Power Grab’ (Ind.)
At Democracy’s Birthplace, Macron Dreams Of Europe 2.0 (AP)

 

 

650,000 mandatory evacuations. But gas shortages make it hard to get away. Irma is twice the size of hurricane Andrew.

Irma Heads For Florida (R.)

The eye of Hurricane Irma grazed the Turks and Caicos Islands on Thursday, rattling buildings after it smashed a string of Caribbean islands as one of the most powerful Atlantic storms in a century, killing 14 people on its way to Florida. With winds of around 185 miles per hour (290 km per hour), the storm the size of France has ravaged small islands in the northeast Caribbean in recent days, including Barbuda, Saint Martin and the British and U.S. Virgin Islands, ripping down trees and flattening homes and hospitals. Winds dipped on Thursday to 165 mph as Irma soaked the northern coasts of the Dominican Republic and Haiti and brought hurricane-force winds to the Turks and Caicos Islands. It remained an extremely dangerous Category 5 storm, the highest designation by the National Hurricane Center (NHC).

Irma was about 55 miles (85 km) south of Great Inagua Island and is expected to bring 20-foot (6-m) storm surges to the Bahamas, before moving to Cuba and ploughing into southern Florida as a very powerful Category 4 on Sunday, with storm surges and flooding due to begin within the next 48 hours. Across the Caribbean authorities rushed to evacuate tens of thousands of residents and tourists. On islands in its wake, shocked locals tried to comprehend the extent of the devastation while simultaneously preparing for another major hurricane, Jose, now a Category 3 and due to hit the northeastern Caribbean on Saturday.

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“Mexico earthquake is most powerful to hit the country in a century, president says”

Magnitude 8.4 Earthquake Strikes Off Mexico’s Southern Coast (DW)

The quake struck late on Thursday, and was recorded as a magnitude 8.4 on the Richter scale according to Mexico’s National Seismological Service. Government officials said that at least five people died in the country’s south. The US Tsunami Warning Center has cautioned that widespread, devastating tidal waves were possible on Mexico’s coast, as well as in Guatemala, El Salvador, Costa Rica, Nicaragua, Panama, Honduras and Ecuador. Shortly thereafter, authorities reported a tsunami was indeed headed towards the coast, fortunately only 0.7 meters (2.3 feet) tall. While there were no immediate reports of major damage, Mexico’s civil protection agency reported that it was the strongest tremor to hit the country since a 1985 earthquake that killed thousands and destroyed entire buildings.

Its epicenter was about 123 km (76 miles) south of the town of Pijijiapan in Chiapas state, but the shock was felt as far away as Mexico City, sending residents fleeing swaying buildings and knocking out electricity in parts of the city. The quake was also felt in much of Guatemala, which borders Chiapas. Civil Defense officials wrote on Twitter that their personnel were patrolling the streets in Chiapas aiding residents and looking for damage. They also issued a warning for aftershocks, several of which themselves registered a 5.0 magnitude according to the US Geological Survey (USGS). Chiapas Governor Manuel Velasco told broadcaster Televisa some homes had been damaged and a shopping center had collapsed in the town of San Cristobal. “Homes, schools and hospitals have been affected,” Velasco said.

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The execs delayed reporting the hack so they could offload their shares. Why are these guys walking around free?

Worst US Consumer Data Hack Ever? Equifax Confesses (WS)

Equifax, as a consumer credit bureau, collects financial, credit, and other data on every US consumer. It has names, birth dates, social security numbers, driver’s license numbers, bank account numbers, credit card numbers, mortgage data, and payment history data, including to utilities, wireless service providers, and the like. It collects data on bank balances, loan balances, credit card balances, credit card purchases, and myriad personal details. It has massive digital dossiers on every consumer in the US and in some other countries. And it sells this data to other companies, such as banks, credit card companies, car dealerships, retailers, and others, as a routine part of its business model. That’s how it makes money. But when someone breaks in and steals this data without paying Equifax for it, well, that’s a huge deal. And it is.

Turns out, Equifax got hacked – um, no, not today. Today it disclosed that it had discovered on July 29 – six weeks ago – that it had been hacked sometime between “mid-May through July,” and that key data on 143 million US consumers was stolen. There was no need to notify consumers right away. They’re screwed anyway. But it gave executives enough time to sell 2 million shares between the discovery of the hack and today, when they crashed 13% in late trading. Given the quantity and sensitivity of the stolen data, it may well be the biggest and worst breach in US history. That stolen data “primarily includes”:• Names • Social Security numbers • Birth dates • Addresses • “In some instances,” driver’s license numbers.

In addition, the stolen data includes: • Credit card numbers of around 209,000 US consumers • “Certain dispute documents with personal identifying information” of around 182,000 US consumers. • “Limited personal information for certain UK and Canadian residents.” This is the kind of information with which identities can be stolen and money can be borrowed in your name. Those data points are the crown jewels for hackers.

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It has all been built on debt for decades.

Consumer Credit & The American Conundrum (Roberts)

Under more normal circumstances rising consumer credit would mean more consumption. The rise in consumption should, in theory, led to stronger rates of economic growth. I say, in theory, only because the data doesn’t support the claim. Prior to 1980, when the amount of debt used to support consumption was fairly stagnant, the economy, wages, and personal consumption expanded. However, as I noted previously, that all changed with financial deregulation in the early 80’s which fostered three generations of debt driven excesses. In the past, if they wanted to expand their consumption beyond the constraint of incomes they turned to credit in order to leverage their consumptive purchasing power. Steadily declining interest rates and lax lending standards put excess credit in the hands of every American. (Seriously, my dog Jake got a Visa in 1999 with a $5000 credit limit) .

This is why during the 80’s and 90’s, as the ease of credit permeated its way through the system, the standard of living seemingly rose in America even while economic growth rate slowed in America along with incomes. Therefore, as the gap between the “desired” living standard and disposable income expanded it led to a decrease in the personal savings rates and increase in leverage. It is a simple function of math. But the following chart shows why this has likely come to the inevitable conclusion, and why tax cuts and reforms are unlikely to spur higher rates of economic growth.

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Draghi has a fight on his hands. And he’s going to lose it.

Low Interest Rates Major Source Of Concern – German Financial Watchdog (CNBC)

The continued low interest environment in key markets such as Europe, the U.S. and the U.K. is a “major source of concern”, according to Felix Hufeld, the president of the German financial regulatory authority. Alluding to the results of a recent survey, the authority over which he presides carried out alongside staff at Germany’s central bank, the Bundesbank, Hufeld described the effect on domestic banks. “The impact is massive and is creeping into the balance sheets more and more. The longer it continues, the higher the risk for a change of interest rates is increasing as well,” he warned, speaking from the Handelsblatt annual banking summit in Frankfurt on Thursday. His wariness comes despite his acknowledgment that the banking system has become much more solid than it was 10 years ago when the financial crisis broke out.

“Both the amount as well as the quality of capital has been massively increased. Risk management procedures have been improved, governance procedures have been improved. Remuneration has been curbed – so all sorts of things – a very wide range of things have been done,” he explained before sounding a note of caution. “But one thing should be clear – no regulatory system and no financial market in the world is invulnerable. There can be and there will be new crises coming up somewhere in the future,” Hufeld declared, pointing to real estate as the most notable cause for concern. The BaFin president’s comments echoed those of fellow Handelsblatt summit participants such as Deutsche Bank CEO John Cryan and Goldman Sachs’s CEO Lloyd Blankfein. Cryan joined Hufeld in warning of the possibility of bubbles forming in certain asset classes, adding, “If you look at the higher risk end of the market, I don’t think you get the right reward for the risk you’re taking right now.”

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What a surprise.

Japan’s April-June Economic Growth Much Slower Than Preliminary Reading (R.)

Japan’s economic growth in the second quarter was much slower than seen in a stellar preliminary reading, government data showed on Friday, confounding hopes for a long awaited pick-up in domestic demand. The downgrade was widely expected after data used to revise gross domestic product figures showed capital spending in April-June rose at a slower annual pace than the previous quarter. While the disappointing data may weaken confidence in the government’s economic policies and the business outlook, analysts still expect the economy to sustain a steady recovery as robust global demand underpins exports and a tightening job market improves the prospects for higher wages.

Japan’s economy, the world’s third largest, expanded at an annualized rate of 2.5% in the April-June quarter, less than the initial estimate of annualized 4.0% growth, Cabinet Office data showed. That was also lower than a median market forecast for a revision to a 2.9%. On the quarter, the economy grew a revised 0.6% in real, price-adjusted terms, against a preliminary reading of a 1.0% increase and the median estimate of a 0.7% expansion. Capital expenditure, a key component of GDP, rose 0.5% for the quarter, marked down from the preliminary estimate of a 2.4% increase.

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“The United States is facing a six month window to act and I believe they will.”

The North Korean Endgame is Playing Out Now – Rickards (DR)

“North Korea has already beaten the world to the punch. They’ve been building up their strategic oil reserves. What that means is they have an estimated year’s worth of held in reserve and China has played a role in these things in the past.” “The area that would be effective for a reactionary measure would be for the United States to exclude the People’s Bank of China, the Industrial and Commercial Bank of China and some of the other major Chinese banks from within the U.S dollar payment systems. The U.S could completely shut down the U.S operations.” “Ultimately, the Chinese are facilitating the North Korean finance. The move would be a kind of sanction with bite behind it. My expectation would be that China wouldn’t necessarily put pressure on North Korea. In reaction we could see escalation of further sanctions from the Chinese against the United States leaving for a trade and financial war without solving the North Korean situation.”

“Currently, North Korea is in what is classified as a ‘break out.’ Under typical nuclear development phases, we’ve normally seen countries that are cheating on nuclear development programs complete their operations in baby steps. In the process they proceed gradually and when they do draw attention will stall programs until beginning again at a later date. North Korea has put that pattern aside and is in complete breakout.” “To give a U.S football comparison, they’re in the red zone and the quarterback is simply about to throw a pass into the end zone. The leader of North Korea is going for it and not hiding anything. The leadership in North Korea is hoping that the United States is bluffing and that they will be able to get a serviceable intercontinental ballistic missile (ICBM) with a hydrogen bomb that could threaten or destroy Los Angeles before the U.S could do anything. The United States is facing a six month window to act and I believe they will.”

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The mess keeps getting bigger.

Theresa May Apponts Cronies In ‘Sweeping Power Grab’ (Ind.)

Theresa May is poised to make an unprecedented attempt to fix the parliamentary system, allowing her to grab sweeping powers ahead of Brexit, The Independent can reveal. A late-night Commons vote to secure the Conservatives the muscle to use so-called “Henry VIII powers” to make new laws – behind the backs of MPs – will be staged next week. The move has been disguised on the Commons order paper under the innocuous description of “motions relating to House business”, but will be a decisive act in the Brexit process. It will allow the Tories to pack a crucial Commons committee with their own MPs, in defiance of Parliament’s rules, in order to carry out the power grab. To win the vote, the Conservatives will need the backing of the Democratic Unionist Party (DUP), under the much-criticised “cash-for-votes” deal that props up Ms May in power.

Opposition parties immediately accused the Prime Minister of a bid to “sideline Parliament and grant ministers unprecedented powers” – despite promises to restore sovereignty to MPs. “This is an unprecedented power grab by a minority government that lost its moral authority as well as its majority at the general election,” Valerie Vaz, Labour’s Shadow Commons Leader, told The Independent. And Alistair Carmichael, the Liberal Democrat chief whip, said: “The Tories seem determined to ram through their destructive hard Brexit even though they have no mandate for it.” The bid to seize control of the Committee of Selection comes despite unequivocal advice from parliamentary officials that the Tories must not do so, after losing their Commons majority at the election. Without the fix, it would be impossible to force through up to 1,000 “corrections” to EU law as intended through the EU (Withdrawal) Bill – the reason for the accusations of a power grab.

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Europe 2.0 won’t be a democracy.

At Democracy’s Birthplace, Macron Dreams Of Europe 2.0 (AP)

Standing at a Greek site where democracy was conceived, French President Emmanuel Macron called on members of the European Union to reboot the 60-year-old bloc with sweeping political reforms or risk a “slow disintegration.” Macron, on a visit on Thursday to Athens, urged EU nations to carry out six-month national reviews on EU reforms before imposing them — signaling his distance with the German-backed approach based on fiscal discipline within the eurozone. “It would be a mistake to abandon the European ideal,” Macron said. “We must rediscover the enthusiasm that the union was founded upon and change, not with technocrats and not with bureaucracy.” Elected by a landslide in May, the 39-year-old Macron has vowed to back efforts for closer integration in the EU, which has been rattled by a financial crisis, migration issues, a populist backlash and Britain’s decision to leave.

His proposal found enthusiastic support in bailout-stricken Greece, which considers France a vital ally and counterweight to fiscally hawkish Germany in its efforts to ease the stringent terms of its international rescue loans. Reinforcing his message, Macron urged the IMF to step back from its role in European bailouts — breaking with a widely accepted policy adopted when Greece sought international help seven years ago. “I don’t think it was the right method for the IMF to supervise European programs and intervene in the way it did,” he said. “Let’s work within Europe and not turn to outside agencies.” The eurozone rescue fund, the European Stability Mechanism, should play the lead role in financial rescue within the euro currency zone, he said. France, Europe’s No. 2 economy, had previously backed Germany’s insistence in involving the IMF to enforce austerity measures that came with bailout programs in Greece and other rescued economies including Ireland, Portugal and Cyprus.

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Jul 242017
 
 July 24, 2017  Posted by at 8:40 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Jackson Pollock The She Wolf 1943

 

We Are Now In The Frightening Endgame (Egon von Greyerz)
China’s Dollar Debt Specter Haunts Fed’s Policy Meetings (R.)
Federal Reserve Faces Prospect Of Global Monetary Policy Tightening (R.)
Bank of Japan Dot Plot Paints a Pessimistic Picture of Inflation (BBG)
European Banks Struggle To Solve Toxic Shipping Debt Problem (R.)
Saudi Economic Pain Will Test Resolve of Prince’s Reform Push (BBG)
While Hammond Looks For A Magic Money Tree, Labour Has Found One (G.)
Strip Mining the World (Robert Gore)
Alexis Tsipras: ‘The Worst Is Clearly Behind Us’ (G.)
European and African Ministers Discuss Plan To Tackle Flow Of Refugees (G.)
The Strange Similarity of Neuron and Galaxy Networks (Vazza & Feletti)

 

 

Sorry for you lovely summer day, but it’s time to get serious. Excellent read. “The gullibility of people today is exacerbated by the power of the internet and social media.”

We Are Now In The Frightening Endgame (Egon von Greyerz)

“Stock investors are rejoicing about stock markets making new highs in many countries, totally oblivious of the risks or the reasons. It seems that this is an unstoppable rally in a “new normal” market paradigm. No major increase is expected in the inflation rate or the historically low interest rates. The present rally has lasted 8 years since the 2009 low. There is virtually no fear in the stock market so investors see no reason why this favorable climate would not continue for another 8 years at least. Yes, of course it could. All that is needed is that governments worldwide print another $20-50 trillion at least and that global debt goes up by another $200-500 trillion. “The gullibility of people today is exacerbated by the power of the internet and social media. Anything we read is accepted as fact or the truth, while a major part of it is just fake news.

[..] The power of the internet and other media has facilitated spreading news and propaganda to billions of people and very few can distinguish if they hear or read “real” news or “fake” news. Anyone in government is incapable of telling the truth. Automatically when someone assumes an elected position their Pinocchio nose grows extremely long since their entire purpose is then to be all things to all people in order to be re-elected. This is why virtually no elected official has a backbone nor any morals or principles. Because if they had, telling the truth would make them unelectable.

[..] The system we now have is based on Fake News, Fake Money with no morals, no principles and no moral or ethical values. In spite of, or more correctly because of, all the lawyers, government legislation, compliance and regulations, the financial system is today functioning much worse than ever with more fraud, more government intervention and more manipulation of markets. Also, clients today are secondary. Instead, it is all about lining the pockets of the bankers with their multi-billion dollar deals and multi-million dollar bonuses and options. As we experienced in 2006-9, profits are for the bankers and losses for governments and customers. During that time of the Great Financial Crisis, many Investment Bankers received the same bonuses during the crisis years as before, in spite of the fact that most of them would have gone under without the government support they benefitted from to the extent of $25 trillion.

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Yellen is lost in China. How can they keep the dollar low in the face of this? And how long for? Trump likes it, China needs it. But the numbers say no.

China’s Dollar Debt Specter Haunts Fed’s Policy Meetings (R.)

In September 2015, the U.S. Federal Reserve cited risks from China as a key reason for delaying its first interest rate hike in a decade. A wall of Chinese debt maturing in the next few years could jolt the country back into the U.S. central bank’s policy deliberations. Two years ago, it was a collapse in Chinese stocks, a surprise yuan devaluation and shrinking foreign exchange reserves that roiled financial markets that delayed the Fed, but it did raise rates three months later and has tightened further since. Now, some see risks emerging in China’s dollar-denominated bonds that could give the Fed greater pause for thought as it raises rates, even as other central banks signal a shift from ultra-easy policy. To be sure, Fed officials have not publicly flagged China’s debt as a major risk in their policy discussions.

However, debt analysts point to the possibility of another September 2015 moment in which the Fed takes its cues from concerns about China. “Back then, I said that U.S. monetary policy is not made in Washington, it’s made in Beijing,” said Joachim Fels, global economic advisor at bond giant PIMCO. “China does have a major impact on monetary policies elsewhere … This year has been smooth sailing for global central banks because there were no shockwaves from China but I expect that to change if we think beyond the next few months.” The outstanding amount of dollar bonds issued by Chinese entities has grown almost 20 times since the 2008-09 global financial crisis to just over half a trillion dollars, according to data from the Bank for International Settlements.

Since September 2015, it has grown almost 50%. China’s dollar bonds are now almost a third of the emerging market total dollar issuance, up from a quarter in September 2015 and less than 5% before the Fed first began printing money in December 2008. A fifth of China’s dollar bonds mature within a year, according to BIS data. More than half are due in the next five, Thomson Reuters data show. If U.S. borrowing costs start rising as a result of the Fed’s exit from its unconventional monetary policy, that debt would have to be rolled over at higher costs, chipping away at the real economy in China. Alternatively, Chinese companies might decide to refinance their debt in local currency, creating weakening pressure on the yuan.

Either development would reverberate globally and create a major external challenge for Fed policy. For its part, the Fed doesn’t see any immediate dangers with China’s dollar debt. “You’ll find if you look at China they certainly have dollar-denominated debt but … you’ll see that they are not as reliant on external debt as people might have thought,” Dallas Fed chief Robert Kaplan said in Mexico City on Friday. Also, a significant portion of Chinese dollar borrowing makes economic sense – such as companies funding overseas investment projects. And if those dollars are converted into yuan, they could help ease any weakening pressure on the Chinese currency.

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They’re stuck. Nobody wants to admit it, but they are. One way out: a huge crisis, so they can put the blame there.

Federal Reserve Faces Prospect Of Global Monetary Policy Tightening (R.)

Prospects for tighter monetary policy in Europe and other countries could pose a fresh problem for the Federal Reserve when it meets next week to ponder its plan to reduce its $4.2 trillion bond portfolio purchased after the 2008 financial crisis. The Fed bought U.S. Treasuries and mortgage-backed securities (MBS) for about six years in a program known as “quantitative easing” which kept interest rates at record lows to spur borrowing and economic recovery. But at its June meeting this year, as well as raising interest rates for the third time in six months, the Fed also announced a plan to begin by letting $6 billion a month in Treasuries mature without reinvestment and to increase that amount at three month intervals up to $30 billion. Similarly, the Fed said it would run down its agency debt and mortgage backed securities by $4 billion a month until it reaches $20 billion.

Now, the ECB also appears likely to decide later this year on when to scale back its monthly bond purchases. When ECB President Mario Draghi first hinted at the prospect last month, world bond yields rose sharply for a while. Moreover, Canada’s central bank raised interest rates for the first time in seven years this month, and the Bank of England is expected to raise rates next year to combat rising inflation. The Fed led the way in tightening monetary policy as the global economy recovered from the 2008 recession but must now determine how plans by other central banks’ plans may affect their own policy. While a stronger European economy has been welcomed by the Fed, lessening risks to the global economy, a move by major central banks to all tighten monetary policy simultaneously has not been seen for a decade.

“The effects of ECB tapering are not limited” to euro zone countries, Cornerstone analyst Roberto Perli wrote recently. Draghi’s comments in June drove up 10-year Treasury yields US10YT=RR by the most since the U.S. election last November, and a move by the ECB to stop printing money could prompt the Fed to slow its plans for fear that financial conditions would tighten too fast. When Fed policymakers meet on July 25-26 they will need to decide a start date for reducing their bond holdings or leave more time to evaluate what Fed Governor Lael Brainard recently cited as a possible “turning point” in global monetary policy that may affect economic growth.

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The failure of Abenomics is taking on comical forms.

Bank of Japan Dot Plot Paints a Pessimistic Picture of Inflation (BBG)

Even a quick glance at the Bank of Japan’s latest inflation forecasts makes for disappointing reading. The BOJ pushed back its timetable for hitting 2% price gains for a sixth time since Governor Haruhiko Kuroda took over. And it cut its estimates for core CPI for this fiscal year and the next two. A close look at the individual projections of the board’s nine members released after its July 19-20 policy meeting is cause for even more pessimism. Eight of them see risks “tilted to downside” for their price forecast for fiscal 2019 – the year when the BOJ currently hopes to reach its inflation goal. Put another way, the chances of prices dropping below forecast are way higher than beating it. Downward pointing triangles in the dot plot below represent estimates from board members who see downside risks to their projection while circles indicate risks are evenly balanced.

There are no upward pointing triangles giving reason for optimism. When the BOJ released its previous dot plot in April, there were only six downward triangles for 2019. Kuroda said it’s “regrettable” that the BOJ has had to repeatedly push back the timing of when it will reach the inflation goal, while repeating that he still sees momentum to get there eventually. “The BOJ seems to be losing a lot of confidence in its inflation outlook,” Chotaro Morita, chief rates strategist at SMBC Nikko Securities, wrote in a report Friday. So what does this mean for policy? According to former BOJ executive director Hideo Hayakawa, the delay to fiscal 2019 is an acknowledgment that the central bank will continue stimulus even beyond 2020, as it’s very unlikely the BOJ would start cutting stimulus at the same time as the government makes a planned increase to the sales tax.

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Grossly overbuilt. No easy way out: “an estimated capital shortfall of $30 billion this year.”

European Banks Struggle To Solve Toxic Shipping Debt Problem (R.)

Dutch shipowner Vroon is finding talks with banks tough going as it tries to navigate a way out of a long slump in the shipping industry. But it is not an easy time for the lenders either. Vroon, a 127-year-old family-owned group which operates about 200 vessels and transports livestock, oil and other commodities, wants to extend its credit lines and adjust repayment schedules. But European banks that lent heavily to the sector when it boomed more than a decade ago have a heavy toxic debt burden following the 2008-09 global financial crisis and a shipping markets crash in 2010. Shipping firms and banks are caught in a vicious circle of debt, causing a credit crunch that is hindering the industry’s recovery. Overcapacity – a glut of available ships for hire – is a big concern, and another is a lack of profitability caused by problems such as slower demand and global economic turmoil.

One of the major companies, South Korean container line Hanjin, has gone under. “We have difficulty in meeting all repayment obligations that we have and that is what we are in discussion with our banks about. Those discussions are constructive but are not easy — not for us, or the banks,” Herman Marks, the chief financial officer at Vroon, told Reuters. “It is the lack of profitability for the industry that is causing the lack of availability of finance.” Shipping finance sources say the shipping industry, which transports 90% of the world’s goods including oil, food and industrial products such as coal and iron ore, has an estimated capital shortfall of $30 billion this year. Some banks are being driven out of shipping and those that remain are now more conservative in their financing, Marks said. “It is an industry that requires consolidation,” he added.

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One day we will know how poorly Saudi is doing. But not now.

Saudi Economic Pain Will Test Resolve of Prince’s Reform Push (BBG)

Saudi Arabia’s drive to reduce the economy’s reliance on oil has hit a snag: its reliance on oil. More than a year after the kingdom’s dominant leader, Crown Prince Mohammed bin Salman, unveiled a blueprint for the post-oil era, the drop in crude prices is making economists more skeptical about whether some of the plan’s medium-term targets can be met. The reason: lower oil revenue deprives the government of money needed to balance its books by 2020 while trying to stimulate growth to ease the transition’s burden on the population. IMF data released Friday underscored the challenge. The fund lowered its forecasts for Saudi economic growth this year to “close to zero.” Analysts at Citigroup, EFG-Hermes and Standard Chartered see a bleaker picture, expecting the economy to shrink for the first time since the global financial crisis in 2009.

Deeper economic pain will test the authorities’ resolve to pursue tough reform measures as they seek to go against the run of history, which suggests that successful diversification efforts depended largely on policies put in place before a price shock. “Unless you start seeing some economic growth drivers kicking in, which would really have to come from the government and would require higher oil prices, the pace of fiscal reforms would likely remain slower than in 2016,” when authorities cut spending and lowered costly subsidies, Monica Malik, chief economist at Abu Dhabi Commercial Bank, said in an interview. “We see the possibility of having a very low growth or stagnant economic environment with the deficit still remaining high,” she said. “This is a key risk.”

Brent crude prices have declined 15% this year to $48 a barrel, well below the level that the kingdom needs to balance its budget, as producers grapple with how to eliminate a global supply glut. Under an accord between OPEC and other major producers, Saudi Arabia has cut its output. The IMF revised its forecast for Saudi growth this year to 0.1% from 0.4%. And while it now expects non-oil GDP to grow 1.7% after stalling last year, the new figures compare with an earlier estimate of about 2%.

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Transaction tax. It will come.

While Hammond Looks For A Magic Money Tree, Labour Has Found One (G.)

If Hammond is to find money for higher public spending without increasing borrowing, he will either have to ditch government plans to reduce personal and corporate taxes or find new sources of revenue. One option would be for the government to embrace the idea of a financial transaction tax, AKA the Robin Hood tax. This idea, fleshed out in detail last week by Prof Avinash Persaud at an event in London, ticks all the right boxes. Persaud’s starting point is that Britain already has a financial transaction tax, and has had one for more than 300 years. It is called stamp duty, which is levied on the purchase of shares issued by British companies, and raises just over £3bn a year, half of it from citizens of other countries. Some trading activities are exempt from stamp duty and Persaud believes these exemptions should be restricted.

He also proposes that the tax should be broadened to cover transactions in corporate bonds and cash flows arising from equity and derivative transactions. He estimates that this would raise £4.7bn a year. One argument against a financial transaction tax is that it would lead to fewer transactions and so would not raise any money. Persaud said he accepted that the tax would change behaviour (indeed, that is part of the reason for having one), but that he had already made allowances for the reduction in activity in his calculations. If there was no change in behaviour, the tax would raise £13bn a year. Nor does he accept that a tougher stamp duty regime would lead to a relocation of business. Liability for the tax would depend on where the financial instruments were issued and who owned them.

A US investor, for example, would pay the tax on shares issued in the UK, but not on securities traded in the UK but not issued there. Likewise, a British investor would pay the tax on securities wherever they were issued and traded. Persaud, himself a former banker, thinks big finance is a bit of a racket. If a company wants to raise money in the City, the charges amount to 2% of the trade – a rate unchanged in more than 100 years. Put another way, all the efficiency gains since the late 19th century have been captured by those who run the industry rather than shared with the customers. It is hard to think of any other sector where this is true.

The Treasury has always been opposed to a financial transaction tax, in large part due to its institutional capture by the City. Official attitudes would change, though, with a Labour government. Why? Because Persaud’s presentation was organised by the Labour party and he was introduced by the shadow chancellor. While Spreadsheet Phil is looking for a magic money tree, John McDonnell has already found one.

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Can’t beat a good rant.

Strip Mining the World (Robert Gore)

The government is a strip mining operation, plundering the dwindling residual value of a once wealthy America. Forget ostensible justifications, policy is crafted to allow those who control the government to maximize their take and put the costs on their victims, leaving devastation in their wake. Wars are no longer about defending the country or even making the world safe for democracy. They are about appropriations, not to be won, but profitably prolonged. The Middle East and Northern Africa have been a mother lode. You would think their sixteen-year war in backward and impoverished Afghanistan would be a shameful disgrace for the military and the intelligence agencies. It’s not. They’ve milked that conflict for all its worth, and now brazenly talk about a “generational war”: many more years of more of the same.

We can also look forward to generational wars in Iraq, Syria, Libya, and Yemen. The strip miners are agitating for an Iranian foray. That’s got Into The 22nd Century written all over it, a rich, multi-generational vein, perhaps America’s first 100-year war. The only rival for richest mother lode is medicine. Health care is around 28% of the federal budget, defense 21%. Medical spending no longer cures the sick; it’s the take for insurance, pharmaceutical, and hospital rackets. The US spends more per capita on health care than any other nation (36% more than second-place Switzerland) but quality of care ranks well down the list. In education there is the same gap between per capita spending (the US ranks at or near the top) and value received, in this instance as measured by student performance.

What’s paid is out of all proportion to what’s received, especially at a time when computer and communications technology should be driving down the costs of education across the board. Indoctrination factories formerly known as schools, colleges, and universities dispense approved propaganda. For students, higher education is now on the government-sponsored installment plan. There’s a litany of excuses why Johnny, Joan, Juan, Juanita, Jamal and Jasmine can’t read, compute, or think, but lack of funding and student loans don’t wash. Education dollars fund teachers’ unions, their pensions, administrators, and edifice complexes; learning is an afterthought. This vein will play out as the pensions funds, and the governments that have swapped promises to fund them for educators’ votes, go bankrupt. Probably around the same time as the student loan bubble pops.

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Tsipras is trying to put the blame on Varoufakis. He won’t find that an easy road, even if many Greeks agree. And no, the worst is not behind either him or Greece.

Alexis Tsipras: ‘The Worst Is Clearly Behind Us’ (G.)

Today, Tsipras wants to dwell neither on Varoufakis – blamed widely by Greeks for the bungled “game of chicken” that led to the EU and IMF enforcing the harshest austerity measures yet – nor his nemesis, Germany’s finance minister, Wolfgang Schäuble. “Yanis is trying to write history in a different way,” he allows himself to say. “Perhaps the moment will come when certain truths are told … when we got to the point of reading what he presented as his plan B it was so vague, it wasn’t worth the trouble of even talking about. It was simply weak and ineffective.” Far from being a hate figure, Varoufakis held Schäuble in high esteem, Tsipras says. “I think he was his alter ego. He loved him. He respected him a great deal and he still respects him.”

Attempting to set the record straight, Tsipras says that while the Syriza government’s original strategy was one of collision politics – “in line with our mandate” – quitting the single currency, and by extension the EU, was never in question, even in the white heat of crisis when Athens was days away from default. “Leave Europe and go where … to another galaxy?” he quips. “Greece is an integral part of Europe. Without it, what would Europe look like? It would lose an important part of its history and its heritage.” Besides, Grexit would have amounted to acceptance of the “punishment plan” concocted by Schäuble that foresaw Athens taking “time out” of the bloc.

Compromise was the only option, says Tsipras, likening the measures that came with it to a ghastly medicine endured when life is at stake. “You hold your nose, you take it … You know that there is no other way … because you have tried everything else to survive, to stay alive.” Despite the firestorm of criticism he now endures, non-Greek observers say, the once firebrand leader has also shown courage in implementing policies he evidently loathes. Tsipras has managed to persuade many of those opposed to austerity to swallow the bitter pill that has kept Greece in the family of nations it has long identified with. The scenario of a “left parenthesis”, peddled by political enemies at the start of his tenure, has been put to rest.

[..] Ultimately, the great clash between Athens and the lenders keeping Greece afloat will be what is left imprinted on the collective memory, but Tsipras’s legacy, he says, will rest on something else. “It will be that I managed to take the country out of the bog in which it had been led by those who bankrupted it … and move ahead with a programme of deep reform.” That, at least, is the hope. For Greece has become an unpredictable place and, as with history itself, there are no straight lines. “No one,” he says, “can ever be sure that the crisis won’t come back.”

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They found a new term: regularize. As in: regularized refugees. This can only go horribly wrong.

European and African Ministers Discuss Plan To Tackle Flow Of Refugees (G.)

European and African ministers are to meet in Tunis on Monday to discuss a plan to try to regularise the flow of refugees from Africa to Europe to about 20,000, coupled with a much tougher strategy to deport illegal migrants from Italy and break up smuggling rings. The plan to regularise the migrant flow is being pushed by the UNHCR, the UN refugee agency, which warns that EU efforts to train the Libyan coastguard along with Italy’s intention to impose a new code of conduct on NGO rescue ships operating in the Mediterranean do not match the scale of the problem, or recognise the extent to which the flow of refugees and migrants is likely to become permanent. The aim is to set up screening systems for EU-bound migrants in countries en route to Libya, such as Mali, Niger, Burkina Faso, Ethiopia, Chad and Sudan.

The EU at a meeting in July set aside enough cash for 40,000 regularised refugees, with as many as half coming from claimants in Syria, and the remainder from Africa. Although the European commission has struggled to persuade all countries to take migrants after a similar scheme set up in following the 2015 migration crisis from Syria, the new scheme would represent a form of solidarity, and provide Italy with some relief. Italy is gripped by deep political and civil divisions on the issue, with more than 90,000 migrants reaching Italy from Libya this year. A reduction to 20,000 from Africa would represent a transformation.

Explaining the thinking, Vincent Cochetel, UNHCR’s new special envoy to the central Mediterranean, said: “We need to regularise the system and stop these dangerous journeys into Libya. Any remedy that focuses on trying to stop the flow of migrants at sea, such as a code of conduct for a NGOs, cannot be the solution. The issue has to be addressed earlier in the countries of origin and transit. “Italy also needs to be able to process claimants so the economic migrants are returned much more quickly, or else there will be no deterrent to travel to Italy. Only a third of the migrants reaching Italy are found to be in need of international protection.” He added that by the time migrants reached Libya it was often too late.

It is thought there are 300,000 Africans from outside Libya trying to get across to Europe or to get some work in Libya. They are living in Libyan detention centres or in warehouses or so-called “connection houses” in the hands of traffickers. The refugees need to be taken out of Libya and these detention centres so they can be processed elsewhere.

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Self-similarity. The ultimate fractals.

The Strange Similarity of Neuron and Galaxy Networks (Vazza & Feletti)

The total number of neurons in the human brain falls in the same ballpark of the number of galaxies in the observable universe.

Christof Koch, a leading researcher on consciousness and the human brain, has famously called the brain “the most complex object in the known universe.” It’s not hard to see why this might be true. With a hundred billion neurons and a hundred trillion connections, the brain is a dizzyingly complex object. But there are plenty of other complicated objects in the universe. For example, galaxies can group into enormous structures (called clusters, superclusters, and filaments) that stretch for hundreds of millions of light-years. The boundary between these structures and neighboring stretches of empty space called cosmic voids can be extremely complex. Gravity accelerates matter at these boundaries to speeds of thousands of kilometers per second, creating shock waves and turbulence in intergalactic gases.

We have predicted that the void-filament boundary is one of the most complex volumes of the universe, as measured by the number of bits of information it takes to describe it. This got us to thinking: Is it more complex than the brain? So we—an astrophysicist and a neuroscientist—joined forces to quantitatively compare the complexity of galaxy networks and neuronal networks. The first results from our comparison are truly surprising: Not only are the complexities of the brain and cosmic web actually similar, but so are their structures. The universe may be self-similar across scales that differ in size by a factor of a billion billion billion.

The task of comparing brains and clusters of galaxies is a difficult one. For one thing it requires dealing with data obtained in drastically different ways: telescopes and numerical simulations on the one hand, electron microscopy, immunohistochemistry, and functional magnetic resonance on the other. It also requires us to consider enormously different scales: The entirety of the cosmic web—the large-scale structure traced out by all of the universe’s galaxies—extends over at least a few tens of billions of light-years. This is 27 orde
rs of magnitude larger than the human brain. Plus, one of these galaxies is home to billions of actual brains. If the cosmic web is at least as complex as any of its constituent parts, we might naively conclude that it must be at least as complex as the brain.

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Aug 102016
 
 August 10, 2016  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 10 2016
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Lewis Wickes Hine Workshop of Sanitary Ice Cream Cone Co., OK City 1917

Bank Of England Suffers Stunning Failure On Second Day Of QE (ZH)
Bank of England QE and the Imaginary “Brexit Shock” (AM)
Negative-Yield Debt Is Doing The Opposite Of What It Was Supposed To Do (CNBC)
The Private Pain of China’s Economy (WSJ)
Oil Companies Face $110 Billion Debt Wall Over Next 5 Years (BBG)
The Problem With Europe Is The Euro (Stiglitz)
The EU Enters Its Endgame (Dowd)
Marc Faber: Tesla Shares Are Going To $0 (CNBC)
The US Public Pensions Ponzi (ZH)
Housing ‘Shell Shock’ Faces Danes Who Think Market Can Only Rise (BBG)
Call Blockchain Developers What They Are: Fiduciaries (Walch)
Construction Of Giant Dam In Canada Prompts Human Rights Outcry (G.)

 

 

Did Carney really not see this coming? That would be stunning indeed. Not hard at all to find out.

Bank Of England Suffers Stunning Failure On Second Day Of QE (ZH)

It started off well enough. On the first day of the Bank of England’s resumption of Gilt QE after the central bank had put its monetization of bonds on hiatus in 2012, bondholders were perfectly happy to offload to Mark Carney bonds that matured in 3 to 7 years. In fact, in the first “POMO” in four years, there were 3.63 offers for every bid of the £1.17 billion in bonds the BOE wanted to buy. However, earlier today, when the BOE tried to purchase another £1.17 billion in bonds, this time with a maturity monger than 15 years, something stunning happened: it suffered an unexpected failure which has rarely if ever happened in central bank history: only £1.118 billion worth of sellers showed up, meaning that the BOE’s second open market operation was uncovered by a ratio of 0.96.

Simply stated, the Bank of England encountered an offerless market. What makes this particular failure especially notable – and troubling – is that while technically uncovered sales of government securities happen frequently, and Germany is quite prominent in that regard as numerous Bund auctions have failed to find enough demand in the open market in recent years forcing the “retention” of the offered surplus, when it comes to a central bank’s buying of securities, there should be, at least in practice, full coverage of the operation as the central bank is willing and able to pay any price to sellers to satisfy its quota. For example, in today’s operation, the scarcity led to the BOE accepting all submissions, even as some investors offered prices above the prevailing market.

The highest accepted price for the 4% bond due in 2060, for example, was 194.00, compared with a weighted average of 192.152, which means that the happy seller obtained a yield well in excess of that implied by the market. And yet, despite having a completely price indiscriminate buyer, some £52 million worth of bond sellers simply refused to sell to the BOE at any price! The QE failure quickly raised alarm signals among the bond buying community. In a Bloomberg TV interview, Luke Hickmore at Aberdeen Asset Management said that “lots of people are bidding us for bonds – Mark Carney is now bidding me for bonds and he still can’t have them. The problem is he was trying to buy 15-year plus bonds today in the gilt market. That’s a really difficult area.”

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“One might as well try to improve one’s health by playing a few rounds of Russian roulette every morning before breakfast.”

Bank of England QE and the Imaginary “Brexit Shock” (AM)

For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame). The adulation he receives is really a major head-scratcher. What has he ever done aside from operating the “Ctrl. Prnt.” buttons? As far as we are aware, nothing. As we have discussed previously, his main legacy is that he has left Canada with one of the greatest and scariest real estate and consumer credit bubbles extant in the world today. Some accomplishment!

With respect to his economic analysis, it seems not the least bit different from the neo-Keynesian/ semi-monetarist mumbo jumbo we get to hear from central bankers everywhere. This is by the way no surprise: they’re an incestuous bunch and have largely received their education at the same institutions. Most of them seem genuinely convinced that central planning not only works, but is necessary to improve on the alleged drawbacks of an “unfettered market” (i.e., the mythical unhampered free market economy no-one alive today has ever experienced). If one looks closely at what they are actually doing, it soon becomes clear that it is in principle not much different from what John Law did in France in the early 18th century (the difference is one of degree only).

The much-dreaded “Brexit” has now given Mr. Carney the opportunity to do what he does best, namely open the monetary spigots wide. One might as well try to improve one’s health by playing a few rounds of Russian roulette every morning before breakfast.

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NIRP scares the sh*t out of people. And rightly so.

Negative-Yield Debt Is Doing The Opposite Of What It Was Supposed To Do (CNBC)

Paying someone to borrow your money sounds like a questionable idea on paper, and seems not to be working out so well in practice. Yet that’s exactly what people who buy negative-yielding bonds do: Instead of collecting payments in the form of yields, investors have to pay someone to take their cash. Investors ostensibly hope they can sell the debt elsewhere and make a profit, as prices go up when yields fall. It’s a strange arrangement that nonetheless has become policy in Japan and parts of Europe. The goal that sovereign debt issuers and central banks hope to achieve is a world where money is pushed toward risk and all that no-yielding debt causes inflation that leads to growth.

However, as the arrangement spreads around the world to the point where more than $11 trillion of global debt holds negative yields, questions are growing quickly about its efficacy. “It’s the definition of insanity: Keep doing the same thing over and again and expect a different result. That’s my assessment of central banks in a nutshell,” said Kim Rupert, managing director of global fixed income analysis at Action Economics. “I never thought I’d say that. I had a lot of respect for central bankers. But they’re getting way overindulgent with very little success as far as I can tell.”

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“..urged local officials to “chant bright songs about the China economy loudly” to boost confidence..”

The Private Pain of China’s Economy (WSJ)

Private investment is withering in China. Companies are shying away from risking their capital, discouraged by a cloudy global outlook and four years of slowing Chinese growth, intermittent deflation and conflicting policy messages. The development risks setting back Beijing’s aim to shift the economy from low-end manufacturing to the kind of high-tech industries and services that dynamic private companies tend to provide. Private investment on capital goods like factories and trucks grew by just 2.8% in the year’s first half following nearly 30% annual average growth over the past decade. In June, it fell for the first time since China started tracking the data in 2004. The July figure, to be released Aug. 12, is expected to show further weakness.

In a bid to reverse the trend, Beijing has stepped up efforts to slash red tape and reduce barriers for entrepreneurs and urged local officials to “chant bright songs about the China economy loudly” to boost confidence, according to one circular. Beijing also has tried to flood the economy with credit to compensate for the decline in private investment. It boosted total social financing, a broad measure of credit that includes both bank loans and nonbank lending, to a first-quarter record. But state banks, China’s main lenders, aren’t always cooperating. In the second quarter, state banks charged private companies interest rates that were 6 percentage points higher than for their public-sector counterparts, according to investment bank CICC. Officials at two state banks said they are careful when lending to smaller private borrowers given concerns over risk and lack of sufficient collateral.

Private companies also report more difficulty in raising informal loans from nonbank lenders, friends and relatives as bad loans increase and lenders grow more cautious. China’s leaders also have pressured state-owned firms to invest more. They responded with a 23% first-half jump in investment that helped prop up economic growth. But the strategy sidelines private companies that account for three-fifths of China’s economy and four-fifths of its workforce. “The government plans a lot of large-scale investments but rarely thinks about private investors getting squeezed out,” said Jon Chan Kung, founder of research group Beijing Anbound Information Co. “Companies are facing a lot of confusion and questions about China’s future.”

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It’s all about hoping prices will rise. If they don’t, and soon, these guys are toast.

Oil Companies Face $110 Billion Debt Wall Over Next 5 Years (BBG)

The worst may be yet to come for some strained oil services companies as $110 billion in debt, most of it junk rated, creeps closer to maturity. More than $21 billion of debt from oilfield services and drilling companies is estimated to be maturing in 2018, almost three times the total burden in 2017, according to a report from Moody’s Investors Service on Aug. 9. More than 70% of those high-yield bonds and term loans are rated Caa1 or lower, and more than 90% are rated below B1. Speculative-grade debt is becoming increasingly risky, as the default rate is expected to reach 5.1% in November, according to a separate Moody’s report.

The 12-month global default rate rose to 4.7% in July, up from its long-term average of 4.2%, Moody’s wrote. Of the 102 defaults this year, 49 have come from the oil and gas sector, Moody’s noted. “While some companies will be able to delay refinancing until business conditions improve, for the lowest-rated entities, onerous interest payments and required capital expenditure will consume cash balances and challenge their ability to wait it out,” Morris Borenstein, an assistant vice president at Moody’s, said in the report.

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The problem is the silly assumptions it was built on.

The Problem With Europe Is The Euro (Stiglitz)

Advocates of the euro rightly argue that it was not just an economic project that sought to improve standards of living by increasing the efficiency of resource allocations, pursuing the principles of comparative advantage, enhancing competition, taking advantage of economies of scale and strengthening economic stability. More importantly, it was a political project; it was supposed to enhance the political integration of Europe, bringing the people and countries closer together and ensuring peaceful coexistence. The euro has failed to achieve either of its two principal goals of prosperity and political integration: these goals are now more distant than they were before the creation of the eurozone. Instead of peace and harmony, European countries now view each other with distrust and anger.

Old stereotypes are being revived as northern Europe decries the south as lazy and unreliable, and memories of Germany’s behaviour in the world wars are invoked. The eurozone was flawed at birth. The structure of the eurozone – the rules, regulations and institutions that govern it – is to blame for the poor performance of the region, including its multiple crises. The diversity of Europe had been its strength. But for a single currency to work over a region with enormous economic and political diversity is not easy. A single currency entails a fixed exchange rate among the countries, and a single interest rate. Even if these are set to reflect the circumstances in the majority of member countries, given the economic diversity, there needs to be an array of institutions that can help those nations for which the policies are not well suited.

Europe failed to create these institutions. Worse still, the structure of the eurozone built in certain ideas about what was required for economic success – for instance, that the central bank should focus on inflation, as opposed to the mandate of the Federal Reserve in the US, which incorporates unemployment, growth and stability. It was not simply that the eurozone was not structured to accommodate Europe’s economic diversity; it was that the structure of the eurozone, its rules and regulations, were not designed to promote growth, employment and stability. Why would well-intentioned statesmen and women, attempting to forge a stronger, more united Europe, create something that has had the opposite effect? The founders of the euro were guided by a set of ideas and notions about how economies function that were fashionable at the time, but that were simply wrong.

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Strong by Kevin Dowd: “..what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?”

The EU Enters Its Endgame (Dowd)

The list of countries with strong sentiment for their own Exit votes is a long one: according to a recent opinion poll, over half of the French and Italian electorates want their own exit referenda, and around 40% of the Swedish, Belgian, German, Hungarian, Polish and Spanish electorates want them. There is also strong support in Austria, Denmark, Finland, the Netherlands, Portugal, Slovakia and Sweden. Other opinion polls suggest even stronger support, but by my count, there is strong support for exit referenda in at least 16 of the 28 member countries of the EU—and then there is Greece, which has its own bone or two to pick with the EU.

Further afield, there were calls for secessionist votes in the United States and the Canadian Prime Minister was soon fending off calls for a Quexit vote. The cat is well and truly out of Pandora’s bag. The issues now are not whether there will be a similar referendum in another country but rather which country will be next and then how many will follow after that. Brexit was merely the first domino. The EU will not survive the process—and by that I do not mean that it will not survive in its current form, which is obvious—I mean that it will not survive at all. The EU “project”—the attempt to establish a federalist European superstate against the wishes of many of its subjects—has failed and the EU itself is unraveling. The only question now is how unpleasant the endgame will be.

[..] A week or so ago, I saw the German Chancellor on the news again repeat her mantra that the UK will only have access to the Single Market if it complies with her demand that it maintain free movement of peoples across what is still now the EU. I found myself scratching my head. Memo to Planet Merkel: does she not see that free movement no longer exists? Schengen has largely broken down: border controls within the EU are already a reality and the Nordics are preparing or already have plans to impose further controls to prevent their welfare states being overwhelmed by migrants. So would someone please explain to me: what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?

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“Anybody in the world can make it eventually, at much lower cost and probably much more efficiently..”

Marc Faber: Tesla Shares Are Going To $0 (CNBC)

Marc Faber, editor of the Gloom, Boom & Doom Report, is well-known his perennially bearish take on the overall market. But there are also some specific stocks of which the investor known as “Dr. Doom” takes a particularly dim view – and right now, prime among those is Tesla. “What they produce can be produced by Mercedes, BMW, Toyota, Nissan. Anybody in the world can make it eventually, at much lower cost and probably much more efficiently,” Faber said Monday on CNBC’s “Trading Nation.”

“The market for Toyota and these large automobile companies is simply not big enough, but the moment it becomes bigger, they’ll move into the field and then Tesla will have a lot of competition.” Faber sees this increased competition causing more than a small dent in the company’s business and stock performance. “I think Tesla is a company that is likely to go to zero eventually,” Faber said.

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“Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.”

The US Public Pensions Ponzi (ZH)

Defined Benefit Pension Plans are, in many cases, a ponzi scheme. Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities… classic Ponzi. But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit. Everyone from government officials to union bosses are incentivized to maintain the status quo…public employees get to sleep better at night thinking they have a “retirement plan,” public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.

We even published a note several days ago entitled “Establishment Tries To Suppress “Dissident Actuaries” Explosive Report On Public Pensions,” which pointed out that the American Academy of Actuaries and the Society of Actuaries killed a report that would have warned about the implications of lowering long-term expected returns on pension assets. Apparently the truth was just too scary. Bill Gross has been warning of the unintended consequences of low interest rates for years, and reiterated his concerns to Bloomberg recently: “Fund managers that have been counting on returns of 7% to 8% may need to adjust that to around 4%, Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, said. Public pensions, including the California Public Employees’ Retirement System, the largest in the U.S., are reporting gains of less than 1% for the fiscal year ended June 30.”

To our great surprise, certain pension funds are finally taking notice. Richard Ingram of Illinois’s largest pension fund recently announced that he would be taking another look at long-term return expectations noting that “anybody that doesn’t consider revisiting what their assumed rate of return is would be ignoring reality.” Ingram’s Illinois Teachers’ Retirement System is only 41.5% funded and currently assumes annual returns of 7.5%, down from 8% in 2014. We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.

We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we’ve seen estimates that suggest $3.5 trillion or more might be more appropriate. We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates. Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.

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There’s lots of this in Europe.

Housing ‘Shell Shock’ Faces Danes Who Think Market Can Only Rise (BBG)

Denmark’s biggest mortgage bank is urging homeowners to remember that a seemingly unstoppable series of price gains can end, and even go into reverse. At Nykredit, chief analyst Mira Lie Nielsen says Danes need to start putting the possibility of housing price declines “on their radars” or risk going into “shell shock when it happens.” “Our expectation isn’t that home prices will fall in the near future, but it’s important to say, again and again, that especially apartment prices can also fall,” Nielsen said in an e-mail. After almost half a decade of negative interest rates, many homeowners in Denmark are being paid to borrow, excluding bank fees.

Most analysts estimate Danish rates won’t go positive until 2018 at the earliest, threatening to create an atmosphere of complacency as borrowers take on bigger mortgages based on assumptions that low rates are here to stay. Home prices rose an annual 4.5% across Denmark in July, according to Boligsiden.dk, a web portal that tracks the property market. Copenhagen apartment prices soared 9.4%, underpinning the “continued need to be particularly aware” of the potential risks, Nielsen said. “Prices for city dwellings are at a markedly higher level today and are in a range where few people who aren’t already benefiting from the price gains can join in,” Nielsen said.

“So the price level is playing its own damping role on the market, because incomes haven’t quite been able to keep up. This is already visible in Copenhagen.” Apartment prices in Denmark are about 5% above their 2006 peak, according to the latest data from Statistics Denmark. Back then, the country’s bubble burst and apartment prices slumped about 30% through 2009. But there’s also a flip side to record-low interest rates. Banks have suffered fewer writedowns as borrowers find it easier to repay cheaper loans. The number of homeowners unable to honor their mortgage commitments is falling, with just 0.19% failing to meet payment deadlines in the first quarter, according to industry data published on Tuesday.

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“..the romance of decentralization..”

Call Blockchain Developers What They Are: Fiduciaries (Walch)

The recent hack of the DAO (short for Decentralized Autonomous Organization) and the subsequent reversal of funds on Ethereum’s blockchain should finally put an end to a decentralization charade. People are, in fact, governing public blockchains, and we need to be able to trust them. From the beginning, the core developers (who write, evaluate and modify the software code) and the powerful miners (holders of significant chunks of computing power within the network) have been the governing bodies of these so-called decentralized systems. Yet the romance of decentralization – with the seductive idea that we don’t have to trust anyone because no human is doing anything – has allowed many to overlook this important truth.

In the techno-utopian world of blockchain technology, it has become fashionable to proclaim that software code and its operation can replace the need for human governance. Hence, the push toward “decentralized autonomous organizations,” which are essentially corporations run through code rather than by people. The first of these, the DAO, began operating in May 2016, raising $150 million from investors to operate as a venture fund for blockchain technology. The DAO is just software, coded by an ambitious group at the company Slock.It. It was embarrassingly compromised through a computer hack for $60 million within a month of its inception.

The theft’s fallout has been dramatic. Since the DAO was built on the Ethereum blockchain, everyone involved with the technology was affected: DAO investors, owners of ether (the cryptocurrency of Ethereum) and anyone building anything on Ethereum, which has sought to be a platform for so-called smart contracts. This raised serious questions like: Should folks try to get the stolen ether back? Should they leave it be, as the hack was simply an exploitation of a bug in the purportedly unstoppable code?

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“The rivers are the arteries of the Earth. When we block them up, the earth becomes unhealthy.”

Construction Of Giant Dam In Canada Prompts Human Rights Outcry (G.)

Human rights campaigners are calling on Canadian authorities to halt construction of a huge hydroelectric dam in western Canada over concerns that the mega-project tramples on the rights of indigenous peoples in the area. A global campaign launched by Amnesty International on Tuesday called on the federal government and the provincial government of British Columbia to withdraw all permits and approvals for the Site C hydroelectric dam, a C$9bn project that will see more than 5,000 hectares (12,350 acres) of land – roughly equivalent to about 5,000 rugby fields – flooded in north-east British Columbia. The land is part of the traditional territories of indigenous peoples in the region, said Craig Benjamin of Amnesty International Canada.

“It’s an area that people have used for thousands upon thousands of years. Their ancestors are buried in the land; there are hundreds of unique sites of cultural importance; there is cultural knowledge of how to live on land that is associated with this specific spot.” Many continue to rely on the land to hunt, fish, plant medicines, gather berries and conduct ceremonies. “There are really few other places where they can go to practice their culture and to exercise their rights because this is a region that has been so heavily impacted by large-scale resource development.” Amid protests by several First Nations groups, the project was approved by provincial and federal authorities in 2014, allowing preparatory work to begin last summer.

Earlier this year, as clear-cutting began in the area, part of the construction was held up by a protest camp set up by indigenous activists. “This is home,” said Helen Knott, one of the half a dozen protesters who occupied the site. “The rivers are the arteries of the Earth. When we block them up, the earth becomes unhealthy. It’s about being able to protect something to pass on to our children.” After two months in the snow and braving temperatures that dropped as low as -20C, a provincial court ordered them to dismantle the camp.

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Jun 142015
 
 June 14, 2015  Posted by at 10:24 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Harris&Ewing Newsie, Washington DC 1920

The IMF Knew In 2010 That The Greek Memorandum Would Increase Debt (SYRIZA)
Why Greece Should Reject the Latest Offer From Its Creditors (Philippe Legrain)
The Saga Of The Greek Review That Never Ended (Kathimerini)
Endgame Looms For Greek Crisis As Both Sides Take Talks To The Brink (Guardian)
Greece’s Last-Ditch Talks Aim at Agreement Before Monday (Bloomberg)
Germany Is Bluffing On Greece (Weisbrot)
Spain Swears In Leftist Mayors for Madrid, Barcelona in Historic Turn (AP)
Why Keynesian Voodoo Doesn’t Work Anymore (Bawerk)
US Labor Movement’s War Against Fast-Track May Not Be Over (Guardian)
Doubts Over EU Proposals For Saving TTIP Deal (Reuters)
The Warren Buffett Economy – Why Its Days Are Numbered-Part 4 (David Stockman)
End of the Line: China and Germany Look Ready to Pop (Herry Dent)
IMF Says It Will Continue To Back Ukraine (DW)
How One Accounting Rule Wrecked The Middle Class (Daniel Drew)
Britain Pulls Out Spies As Russia, China Crack Snowden Files (Reuters)
US Is Poised to Put Heavy Weaponry in Eastern Europe (NY Times)
Did Mathematician John Nash Help Invent Bitcoin? (CoinDesk)
Elon Musk Asks Permission To Put 4,000 Internet Satellites Into Orbit (Ind.)
High-Tech Solar Projects Fail To Deliver (WSJ)

The Audit Commission is set to unveil its findings June 18.

The IMF Knew In 2010 That The Greek Memorandum Would Increase Debt (SYRIZA)

An IMF document is in the possession of the Greek Audit Commission proving that the creditor knew that the memorandum would increase the Greek debt. The Audit Commission has in its possession a document which shows that the IMF knew from March 2010 that the Greek memorandum would increase Greek debt. The President of the Greek Parliament Zoe Konstantopoulou and the scientific coordinator of the Audit Commission of the Greek debt, Dr. Eric Toussaint, spoke yesterday about the contents of this document.

“We have an internal document of the IMF of March 2010, detailing the measures provided for inclusion in the 2010 Memorandum This is a very detailed and predefined plan, which was not communicated to the parliaments of 14 European Union countries who have lent to Greece nor to the Greek Parliament. Because, as you know, there was a violation of the Greek Constitution in May 2010, when the agreement was concluded, “said Mr. Toussaint.

“During our work, we have also managed to establish that the means used to make the Greek debt restructuring in 2010 was absolutely detrimental, because the rights of the pension funds of Greece and of Greek citizens who held State bonds were sacrificed. For example, there was a haircut of over 50% for some employees of Olympic Airways, who had received government bonds after their dismissal without their own agreement, and through no fault of their own. No compensatory measure was arranged for them. However the big private banks that participated in the haircut received compensation of €30 billion, which was added to the Greek public debt. ” said Toussaint.

On her part the President of the Parliament said: “We seek the truth corresponding to the legitimate and illegitimate parts of the debt and of our burdensome obligation.” The preliminary findings of the Greek debt Audit Commission will be published in June 17-18, 2015.

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Legrain gets it too.

Why Greece Should Reject the Latest Offer From Its Creditors (Philippe Legrain)

Reform — Greece sorely needs it. Cash — the government is running desperately short of it. So it is time for Prime Minister Alexis Tsipras to do what’s best for Greece and accept its creditors’ reform demands in exchange for much-needed cash. That is how the Greek situation is usually framed. It is utterly misleading. Imagine you’re in prison for not being able to pay your debts. (You’re right, it’s almost unthinkable — civilized societies no longer lock up bankrupt individuals. But bear with me.) After five years of misery, you lead a rebellion, take control of the prison, and demand your release. The jailers respond by cutting off your water supply. Should you back down and return to your cell, perhaps negotiating for slightly less unpleasant conditions, in order to obtain a little liquidity?

Or should you keep fighting to be free? That, in essence, is what the standoff between an insolvent Greece and its eurozone creditors is really about. For months, Greece has had “only days” to agree a deal with its creditors before it runs out of cash. Eventually that will be true. But even if Tsipras accepted the creditors’ demands, Greece would still have “only days” before it ran out of cash. The €7.2 billion on offer right now wouldn’t even cover the Greek government’s debt repayments until the end of August. And for a measly two months of liquidity, Tsipras is expected to surrender his democratic mandate: break his election promises, agree to yet more tax increases and spending cuts that would depress Greece’s economy further, and relinquish his demands for debt relief.

Then the wrangling would start again. Because so long as Greece remains in its debtors’ prison, it will be dependent on its jailers for liquidity and therefore expected to comply with whatever additional conditions they impose. Tsipras should not submit to this debt bondage. Nine of every 10 euros that eurozone governments and the IMF have lent to the Greek government since 2010 have gone to repay its unbearable debts, which should instead have been restructured back then. But from now on, every last cent of additional funding would go to pay back debt. The Greek government now has a small primary surplus: It doesn’t need to borrow, except to service its debts of 175% of GDP.

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Nice history lesson. Not flawless.

The Saga Of The Greek Review That Never Ended (Kathimerini)

It was a sunny morning in Brussels on November 7 last year when Greek Finance Minister Gikas Hardouvelis received an e-mail from the team of inspectors of the International Monetary Fund, European Commission and European Central Bank – collectively known as the troika – that changed everything. In that moment it became clear that the review of the Greek reform process was not about to end anytime soon, as the troika was toughening its stance and demanding that Athens complete all the prior actions outlined in its second bailout deal to the letter. The government was shocked as the e-mail came just a few hours after a Eurogroup meeting ended with what appeared to be a positive message for Greece.

It came at the moment when, if the country passed the review that was being carried out – and is still being carried out – it would be able to turn over a new leaf, free of demands for more austerity, and would be able to apply for a precautionary credit line that would allow it access to the markets. That e-mail, however, detailed 19 tough measures the Greek government had a month to implement in order to wrap up the review. For the government, those measures were impossible to implement given the political climate at the time.

Seven months after that e-mail, and with a different government in Athens and the same review still pending, Kathimerini seeks answers as to why the talks with the troika stalled by speaking to the protagonists, and attempts to explain what went wrong, ultimately leading the country to elections on January 25. Did the creditors pull the rug from under Antonis Samaras by increasing their demands, as some of the former prime minister’s associates argue? Was it that the Europeans misread the intentions of the opposition SYRIZA party and its chief, current Prime Minister Alexis Tsipras? Or was it fatigue after years of tough fiscal adjustment that prevented the Greek economy from rebounding?

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Endgame’s been looming forever. Why still use that word?

Endgame Looms For Greek Crisis As Both Sides Take Talks To The Brink (Guardian)

Eleventh-hour talks to avoid Greece defaulting on its debt and plunging the eurozone into crisis intensified at the weekend with Greek officials flying to Brussels only days before a meeting of Europe’s finance ministers that many regard as a final deadline. Almost five months after he assumed power, the Greek prime minister, Alexis Tsipras, has come to a fork in the road: either he accepts the painful terms of a cash-for-reform deal that ensures Greece’s place in the single currency or he decides to go it alone, faithful to the vision of his anti-austerity Syriza party. Either way, the endgame is upon him.

Thursday’s meeting of eurozone finance ministers is viewed as the last chance to clinch a deal before Athens’s already extended bailout accord expires on 30 June. “It is in his hands,” Rena Dourou, governor of the Attica district, said. “Tsipras, himself, is acutely aware of the historic weight his decision will carry.” The drama of Greece’s battle to keep bankruptcy at bay has, with the ticking of the clock, become ever darker in tone. What started out as good-tempered brinkmanship has turned increasingly sour as negotiations to release desperately needed bailout funds have repeatedly hit a wall over Athens’s failure to produce persuasive reforms.

“It is as if they work in Excel and we work in Word,” said one insider. “There just seems to be no meeting of minds.” Last week the mood became more febrile as it emerged that Eurocrats, for the first time, had debated the possibility of cash-starved Athens defaulting. The revelation came amid reports that Germany’s chancellor, Angela Merkel, was resigned to letting Greece go. Berlin is by far the biggest contributor to the €240bn bailout propping up the near-bankrupt state. Last week, the EU council president, Donald Tusk, ratcheted up the pressure, warning: “There is no more time for gambling. The day is coming, I am afraid, that someone says the game is over.”

On Saturday Greek finance minister Yanis Varoufakis hit back, telling Radio 4 that he did not believe “any sensible European bureaucrat or politician” would seriously contemplate the country’s euro exit. “The reason why we are not signing up to what has been offered is because it is yet another version of the failed proposals of the past,” he said. The persistent demand of foreign lenders for pension reform, given the scale of austerity already undertaken in a country that has seen its economy shrink by more than a quarter in the past five years, was not only silly but plainly a deal-breaker, he said. “It is just the kind of proposal that one puts forward if you don’t want an agreement,” insisted the academic-turned-politician.

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Endgame, last ditch. Whatever.

Greece’s Last-Ditch Talks Aim at Agreement Before Monday (Bloomberg)

Greece and its creditors are locked in last-ditch talks, with European Commission President Jean-Claude Juncker trying to broker a deal over the weekend. Prime Minister Alexis Tsipras sent a delegation to Brussels Saturday with a new set of proposals to close differences on pensions, taxes and a primary surplus target. With positions hardening on all sides, the talks are Juncker’s last attempt to try to bring the sides to a compromise, according to a European Union official, who asked not to be identified. Representatives of the Troika are waiting in the wings to join the discussions if progress is made between Greece’s envoy and Juncker’s chief of staff and the aim is to reach an accord before markets open on Monday. Both sides are prepared to continue talks on Sunday.

European leaders have voiced growing exasperation with Greece’s brinkmanship that has pushed Europe’s most-indebted country to the edge of insolvency. Flitting between intransigence and conciliatory overtures, Tsipras has spent four months locked in an impasse with the country’s creditor institutions. The latest Greek counter-proposal is the second in June. The first was roundly dismissed. Greek stocks dropped 5.9% on Friday, with bank shares dropping 12%, as talks remained deadlocked. The yield on Greek 2017 bonds rose 137 basis points to 20.03%. US and European equities and the euro-area’s higher-yielding bonds also tumbled amid growing concern Greece will run out of time for reaching a deal to stave off default.

An attempt by Juncker to broker a compromise allowing Greece to defer €400 million of cuts in small pensions if it reduced military spending by same amount was spiked by the IMF, Frankfurter Allgemeine Sonntagszeitung reported, citing unidentified people with knowledge of the negotiations. With a deadline for a deal looming, Merkel told Tsipras it’s time to accept the framework for financial aid. Greece’s bailout extension expires June 30 and some national parliaments need to ratify any agreement before funds can be disbursed, which narrows the window for a deal.

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Germany simply believes its own fiction.

Germany Is Bluffing On Greece (Weisbrot)

It would be nice to think that the worst features of US foreign policy have changed since the collapse of the Soviet Union, but they have not. The Cold War never really ended, at least insofar as the US is still a global empire and wants every government to put Washington’s interests ahead of those expressed by its own voters. The current hostilities with Russia add a sense of déjà vu, but they are mainly an added excuse for what would be US policy in any case. Once we take all these interests into account and where they converge, the strategy of Greece’s European partners is pretty clear: It’s all about regime change. One senior Greek official involved in the negotiations referred to it as a “slow-motion coup d’état.” And those who were paying attention could see this from the beginning.

Just 10 days after Syriza was elected the ECB cut off its main line of credit to Greece and then capped the amount that Greek banks could lend to the government. All the hype and brinkmanship destabilize the economy, and some of this is an intentional effect of European authorities’ statements and threats. But the direct sabotage of the Greek economy is most important, and it is remarkable that it has gotten so little attention. The unannounced objective is to undermine political support for the Syriza government until it falls and get a new regime that is preferable to the European partners and the US This is the only strategy that makes sense, from their point of view. They will try to give Greece enough oxygen to avoid default and exit, which they really don’t want, but not enough for an economic recovery, which they also don’t want.

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Thai is getting Brussels scared. “Madrid and Barcelona for the first time are not going be governed by political parties, but by coalitions made up of social movements..”

Spain Swears In Leftist Mayors for Madrid, Barcelona in Historic Turn (AP)

Spain’s biggest cities — Madrid and Barcelona — completed one of the nation’s biggest political upheavals in years Saturday by swearing in far-left mayors. The radical leaders have promised to cut their own salaries, halt homeowner evictions and eliminate perks enjoyed by the rich and famous. The landmark changes came three weeks after Spain’s two largest traditional parties were punished in nationwide local elections by voters groaning under the weight of austerity measures and repulsed by a string of corruption scandals. In Madrid, 71-year-old retired judge Manuela Carmena was sworn in to cheers from jubilant leftists who crowded the streets outside city hall shouting “Yes We Can!” as they ended 24 years of city rule by the conservative Popular Party, which runs the national government.

“We want to lead by listening to people who don’t use fancy titles to address us,” Carmena said after being voted in as mayor by a majority of Madrid’s new city councilors. Carmena has vowed among other things to take on wealthy Madrilenos who enjoy exclusive use of the city-owned Club de Campo country club — opening it up to the masses. “We’re creating a new kind of politics that doesn’t fit within the conventions,” she said before being voted in. “Get ready.” In Barcelona, anti-eviction activist Ada Colau was later sworn in as the city’s first female mayor. Smiling broadly, Colau took possession of the city’s mayoral sash and scepter before thanking voters and her coalition partners. “Thank you for making possible something that had seemed impossible,” she said.

Colau has questioned whether it’s worth spending €4 million of city money to help host the glitzy Formula 1 race every other year. She thinks the funds would be better spent on free meals for needy children at public schools. Carmena and Colau ran for office as leaders of leftist coalitions supported by the new pro-worker and anti-establishment Podemos party formed last year. It is led by the pony-tailed college professor Pablo Iglesias, a big supporter of Greece’s governing far-left Syriza Party. Iglesias smiled from a balcony inside Madrid’s city hall as he watched Carmena being sworn in, then pumped his arm into the air with a clenched fist as he celebrated the victory with others on the streets.

The left’s takeover of Madrid, Iglesias said, is the goal his party has nationally for general elections that must be called by Prime Minister Mariano Rajoy by the end of the year. “Our principal objective is to beat the Popular Party in the general elections,” he said. The political fragmentation propelling Carmena and Colau into office marks a historic moment in Spanish politics, said Manuel Martin Algarra at the University of Navarra. “Madrid and Barcelona for the first time are not going be governed by political parties, but by coalitions made up of social movements,” he said.

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“Just as with drugs, the abuser must increase the dosage to feel the same high and spend accordingly.”

Why Keynesian Voodoo Doesn’t Work Anymore (Bawerk)

Keynesian policy of manipulating economic “aggregates” through countercyclical macro-measures appeared to work when balance sheets were not stretched to the brink. As we wrote in “Goebbelnomics”

“If collective exuberance and apathy is the sole cause of the business cycle, then it logically follows that human emotions need to be manipulated accordingly. Only by doing so can policymakers smooth out the ups and downs in economic activity. And what better way to do that then to change the money supplied to the general public.”

While people called this the “most sickening article ever written” it is unfortunately what economics has come down to. Through fractional reserve banking and a central bank freed from the shackles of a barbarous relic, the money supply can be expanded without limit…or at least as long as the greater populace voluntarily will leverage up their balance sheets to buy stuff and simultaneously agree to their own servitude. Nothing more than collective manipulation on a scale that would make Goebbels himself envious. The glaringly obvious result of such policies, gross capital consumption through malinvestments epitomized through a serial bubble economy, did not discourage our money masters. The best and brightest even suggest bubbles are the only remedy to what they believe is some sort of secular stagnation. Just as with drugs, the abuser must increase the dosage to feel the same high and spend accordingly.

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Many more rounds to come.

US Labor Movement’s War Against Fast-Track May Not Be Over (Guardian)

Richard Trumka, president of the AFL-CIO, the main US labor federation, was uncharacteristically ebullient after the House voted down fast track on trade Friday, delivering a sharp rebuke to Barack Obama. Trumka called the vote “a marvelous contrast to the corporate money and disillusionment that normally mark American politics today”. He added that “this was truly democracy in action”, a nod to the millions of Americans who had sent emails, met with lawmakers and marched in the streets to oppose fast track and Trans-Pacific Partnership (TPP), a 12-nation pact that is being negotiated.

Trumka repeatedly boasted that never before had so many unions fought so vigorously on a trade issue – they fear TPP will cause job losses, push down wages and do little to increase worker protections in Asia. Labor’s threats to deny donations and campaign support to Democrats who embraced fast track pressured many lawmakers to vote against, and not risk labor’s ire. Fast-track authority would ease efforts to ratify TPP because it requires an up-or-down vote and prohibits amendments. Even while rejoicing, many fast-track foes voiced fears that the war was not over –House Republicans said they would seek to pass a re-worked bill next week. “I don’t think it’s over yet,” Tim Waters, political director of the United Steelworkers, told the Guardian.

“They’re trying to do everything they can to get this back on track.” Organized labor’s victory – one of its biggest triumphs in years – grew out of a new strategy the AFL-CIO adopted two years ago. Trumka announced that labor would henceforth seek to form broad coalitions out of recognition that it was no longer as powerful and was having a harder time securing legislation it supported. The anti-fast track coalition was immense – labor was at its heart, and it included environmental, faith, immigrant and food safety groups. The coalition spanned the Democratic base, including 2,000 groups, among them the American Civil Liberties Union, Consumers Union, the Electric Frontier Foundation, Friends of the Earth and the National Association for the Advancement of Colored People.

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A lot more protest will be needed.

Doubts Over EU Proposals For Saving TTIP Deal (Reuters)

The European Union has more work to do, experts say, if it hopes to seal a transatlantic trade deal that has been criticized for leaving governments open to international legal action from companies affected by changes to tax and regulation. The European Commission, the EU’s executive arm, is right now negotiating a trade and investment treaty with the United States – the Transatlantic Trade and Investment Partnership (TTIP) – that it says could add €119 billion annually to Europe’s economy and €95 billion to the US economy. However the treaty faces growing opposition in Europe from politicians, labor unions and campaign groups who fear it may prevent governments from being able to ban unsafe products or tax businesses because of a provision protecting investors’ rights.

The provision referring to “fair and equitable treatment”, was introduced to treaties decades ago to allow investors to seek redress if their assets were expropriated by governments. It allows businesses to sue via international courts that do not defer to national interests and has increasingly been used to sanction governments over everything from banning chemicals, withdrawing tax breaks or writing new environmental regulations. Matthias Fekl, French minister for trade, is especially critical of the EU’s plan to include this right to sue in tribunals in the TTIP. He said in a recent interview that France would “never allow private tribunals in the pay of multinational companies to dictate the policies of sovereign states.”

But businesses and their lobby groups have told the European Commission they object to any scaling back in their ability to sue governments or any requirement they do so in national courts. In response, the EC has redrafted parts of the trade treaty to limit the circumstances under which a claim can be made. It has also proposed a new appeals process for governments and suggested new rules for selecting arbitrators – currently mainly corporate lawyers who campaigners say are biased towards corporations. It’s not a watertight solution, some say. “There are definitely some improvements but it’s not a dramatic reform,” said Lise Johnson, Head of Investment Law and Policy at Columbia University’s Center on Sustainable Investment.

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“..the real 2014 US unemployment rate was 42.9%, not 5.5%!”

The Warren Buffett Economy – Why Its Days Are Numbered-Part 4 (David Stockman)

The Fed has generated a $50 trillion financial bubble since Alan Greenspan took the helm in August 1987. After 27 years, honest price discovery has been destroyed, thereby reducing the nerve centers of capitalism – the money and capital markets – to little more than gambling casinos. Accordingly, speculative rent-seeking in the financial arena has replaced enterprenurial innovation and supply side investment and productivity as the modus operandi of the US economy. This has resulted in a severe diminution of main street growth and a massive redistribution of windfall wealth to the tiny share of households which own most of the financial assets. Warren Buffett’s $73 billion net worth is the poster boy for this untoward state of affairs.

The massive and systematic falsification of asset prices which lies at the heart of this deformation of capitalism is a direct and unavoidable consequence of monetary central planning. That is, the pursuit of Keynesian business cycle management and stimulus through central bank interest rate pegging and massive monetization of existing public debt and other securities – especially since the latter has no purpose other than to artificially goose the price of bonds and lower their yields; and also via other indirect methods of financial asset levitation such as the Greenspan/Bernanke/Yellen doctrine of wealth effects and the implicit central bank “put” which underpins the economics of buy-the-dip speculators.[..]

At the present time, there are 210 million adult Americans between the ages of 16 and 68—to take a plausible measure of the potential work force. That amounts to 420 billion potential labor hours, if we accept the convention that all adults are at least theoretically capable of holding a full-time job (2,000 hours/year) and pulling their share of society’s need for production and work effort. By contrast, during 2014 only 240 billion hours were actually supplied to the US economy, according to the BLS estimates. Technically, therefore, there were 180 billion unemployed labor hours, meaning that the real unemployment rate was 42.9%, not 5.5%!

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Watch out below.

End of the Line: China and Germany Look Ready to Pop (Herry Dent)

The US stock market has finally hit a speed bump after more than six years of a Fed- and QE-driven rally. The S&P 500 is up 232% since March of 2009 despite this unprecedented stimulus in the feeblest economic recovery in history. But since late December 2014, US stocks have gone nowhere as investors face some growing realities. GDP, retail sales, production and exports are slowing. The dollar’s sharp rise in recent years has crushed global exports. Long term interest rates are rising consistently… what I call the beginning of the end of stimulus policies designed to keep rates low forever. Meanwhile, in just six months Germany saw its key stock market, the DAX, rise nearly 50% from mid-October into early April. Germany’s bubble has shot up 245% since March 2009 — greater than the US, despite its slower economy. It won’t last! [..]

But if Germany looks bad, there’s nothing short of “terrible” to say about China! China’s stock market makes Germany’s late-stage bubble look pathetic! China saw the shortest and steepest bubble from early 2005 to late 2007, up over 500% in less than two years. Its crash into 2008 was one of the largest, down 72%. After a “dead” market from 2010 into mid-2014, China’s stocks have literally exploded again… up 159% in a straight shot in one year while its economy and exports have continued to slow! A 48% late-stage bubble in Germany unwarranted by its demographics… 159% in China despite its weakening economy.

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Dismantle the IMF along with NATO.

IMF Says It Will Continue To Back Ukraine (DW)

The IMF stated that it can continue backing Ukraine amid stalled negotiations between Kyiv and its private creditors. Christine Lagarde, head of the Washington-based crisis lender, which had launched a four-year loan program of $17.5 billion (15.6 billion euros) in March for Ukraine’s government, said that the IMF was still encouraging a settlement in the debt talks, while highlighting that there were backup options in place. “But in the event that a negotiated settlement with private creditors is not reached and the country determines that it cannot service its debt, the fund can lend to Ukraine consistent with its lending-into-arrears policy,” Lagarde explained. “Rapid completion of the debt operation with high participation is vital for the success of the program, since Ukraine lacks the resources under the program to fully service its debts on the original terms.”

Lagarde had met with Ukrainian Prime Minister Arseniy Yatsenyuk and Finance Minister Natalie Jaresko in Washington earlier this week to discuss economic developments and implementation of economic reforms. Bloomberg Business reported that Jaresko has now been in talks with private creditors for months, seeking a write-down of its debts from creditors who had only offered delayed payments. “I believe that their program warrants the support of the international community, including the private sector, which is indispensable for the success of this program,” Lagarde said. She stressed that the IMF did not have to cut off its funding of the Ukraine government if it stopped servicing its private debts.

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Employees are counted as a liablity. Paper clips are an asset.

How One Accounting Rule Wrecked The Middle Class (Daniel Drew)

Maybe you heard your CEO say, “Our people are our greatest asset.” He’s probably lying. That’s not how he really feels about you. Despite how much management talks about “human capital” as if it were an asset, it’s not. The accounting system that the whole world uses classifies labor as an expense. Anyone who has studied accounting even briefly can see that it’s a lot of bullshit designed to appear objective. In reality, it is filled with assumptions, estimates, and sometimes, fraud. Yes, it is rule-based, but with any system, who makes the rules is often more important than the rules themselves. Accounting is the language of business, and in the mouth of a double-talking CEO, it’s just another way to promote their own interests.

One of the most insidious rules in accounting is that labor must be classified as an expense on the income statement. Actually, it should be classified as an asset on the balance sheet. The accounting profession has rigged the system against the worker. The misclassification of labor as an expense has branded every employee with a negative dollar sign. The way the accounting system defines labor causes CEOs and upper management to view employees as expendable. When profits decline, the CEO says, “It must be those damned employees dragging us down! Let’s fire a few thousand of them. That will get us on track again.”

According to current accounting rules, inanimate objects like pencils, clothing, or any type of inventory are assets, but people are expenses. The CEOs want you to believe that a pen is an asset, but a person with knowledge, skills, and experience is an expense, something that should be avoided. This is actually what they teach business students in school all around the world, and the students just accept it as fact. Have we all gone insane? We are being held captive by dumbass accountants and shrewd CEOs who realize the whole system is rigged in their favor. The proper way to account for labor would be to classify it as an asset on the balance sheet.

The employee would be valued with mark to market accounting at every reporting period, and the value would be determined by calculating the profit per employee, the average tenure, and the net present value of this amount. This would accurately account for the true value of labor. If this rule were implemented, balance sheets would be dramatically altered. Some companies that appeared valuable before might look like complete garbage. Other companies would prove to be much more valuable than previously thought.

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Here’s wondering how recent this is.

Britain Pulls Out Spies As Russia, China Crack Snowden Files (Reuters)

Britain has pulled out agents from live operations in “hostile countries” after Russia and China cracked top-secret information contained in files leaked by former US National Security Agency contractor Edward Snowden, the Sunday Times reported. Security service MI6, which operates overseas and is tasked with defending British interests, has removed agents from certain countries, the newspaper said, citing unnamed officials at the office of British Prime Minister David Cameron, the Home Office (interior ministry) and security services.

The United States wants Snowden to stand trial after he leaked classified documents, fled the country and was eventually granted asylum in Moscow in 2013. Russia and China have both managed to crack encrypted documents which contain details of secret intelligence techniques that could allow British and American spies to be identified, the newspaper said citing officials. However an official at Cameron’s office was quoted as saying that there was “no evidence of anyone being harmed.”

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The bogeyman narrative expands.

US Is Poised to Put Heavy Weaponry in Eastern Europe (NY Times)

In a significant move to deter possible Russian aggression in Europe, the Pentagon is poised to store battle tanks, infantry fighting vehicles and other heavy weapons for as many as 5,000 American troops in several Baltic and Eastern European countries, American and allied officials say. The proposal, if approved, would represent the first time since the end of the Cold War that the United States has stationed heavy military equipment in the newer NATO member nations in Eastern Europe that had once been part of the Soviet sphere of influence. Russia’s annexation of Crimea and the war in eastern Ukraine have caused alarm and prompted new military planning in NATO capitals.

It would be the most prominent of a series of moves the United States and NATO have taken to bolster forces in the region and send a clear message of resolve to allies and to Russia’s president, Vladimir V. Putin, that the United States would defend the alliance’s members closest to the Russian frontier. After the expansion of NATO to include the Baltic nations in 2004, the United States and its allies avoided the permanent stationing of equipment or troops in the east as they sought varying forms of partnership with Russia. “This is a very meaningful shift in policy,” said James G. Stavridis, a retired admiral and the former supreme allied commander of NATO, now at Tufts University.

“It provides a reasonable level of reassurance to jittery allies, although nothing is as good as troops stationed full-time on the ground, of course.” The amount of equipment included in the planning is small compared with what Russia could bring to bear against the NATO nations on or near its borders, but it would serve as a credible sign of American commitment, acting as a deterrent the way that the Berlin Brigade did after the Berlin Wall crisis in 1961. “It’s like taking NATO back to the future,” said Julianne Smith, a former defense and White House official who is now a senior fellow at the Center for a New American Security and a vice president at the consulting firm Beacon Global Strategies.

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Interesting argument.

Did Mathematician John Nash Help Invent Bitcoin? (CoinDesk)

Could John Nash, someone who had been at the forefront of mathematical and economic thought into the prospect of ‘ideal money’, be justly attributed credit for the formation of the electronic cash system of cryptocurrency? He once stated in a lecture:

“The special commodity or medium that we call money has a long and interesting history. And since we are so dependent on our use of it and so much controlled and motivated by the wish to have more of it or not to lose what we have we may become irrational in thinking about it and fail to be able to reason about it like a bout of technology, such as a radio, to be used more or less efficiently.”

Nash described the concept of ideal money as having the function of a standard of measurement and, thus, it should become comparable to the watt, the hour or a degree of temperature. He asserted an ideal form of money should provide a viable solution to the Triffin dilemma – it should serve both short-term domestic and international long-term objectives where central banking money has utterly failed (the average lifespan of a fiat currency is 27 years). Asymptotically ideal money, a concept Nash studied in depth, focuses on the fluctuations and long-term perceived value of money, where the ideal inflation rate is as close to zero as possible, without being negative (deflation). Currently, this accurately describes the economic nature of bitcoin, as it is a disinflationary money supply by design – that is, it is decreasing in its inflationary nature by halving the block reward (and new currency issuance rate) at regular intervals.

The inflation rate of bitcoin asymptotically approaches zero as we inch closer to the currency limit of 21 million units. Nash described this ideal of money as something which could provide a global savings outlet for people who would otherwise be subject to ‘bad money’, or money expected to lose value over time under conditions of inflation among other things. In a paper published in the Southern Economic Journal, Nash described a nonpolitical value standard for comparisons of value, asserting that an industrial consumption price index could be “appropriately readjusted depending on how patterns of international trade would actually evolve”. Moreover, Nash described how actors that were in control of this standard could corrupt this continuity, yet the probability of damages through corruption would be as small as the probability of politicians altering the measurements of meters and kilometers.

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And for the subsidies to pay for it.

Elon Musk Asks Permission To Put 4,000 Internet Satellites Into Orbit (Ind.)

Elon Musk has asked the government to let his private space travel company, SpaceX, put 4,000 satellites into orbit to provide internet for the earth. The PayPal founder hopes that the satellites could take on conventional internet companies by sending internet signals across the globe, allowing it to provide cheap and fast internet even to places that have traditionally struggled to get connected. It hopes to find success by both taking customers from existing internet service providers as well as getting the billions of people that can’t get online onto the internet. Musk has moved forward with the project by filing with the US Federal Communications Commission to ask to be given permission put the satellites into space.

It was first mooted at the beginning of the year, but the submission was made public by the Washington Post. The filing asks to start testing the satellites next year, according to the newspaper. After that, the service could be working in about five years. In the tests, Musk would send the satellites up on a Falcon 9 rocket, made by SpaceX. They would communicate with ground stations in the US, and establish whether those connections would be enough to send information from the ground to the satellites with enough speed and consistency to work for internet connections.

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Always over-promise.

High-Tech Solar Projects Fail To Deliver (WSJ)

Some costly high-tech solar power projects aren’t living up to promises their backers made about how much electricity they could generate. Solar-thermal technology, which uses mirrors to capture the sun’s rays, was once heralded as the advance that would overtake old fashioned solar panel farms. But a series of missteps and technical difficulties threatens to make newfangled solar-thermal technology obsolete. The $2.2 billion Ivanpah solar power project in California’s Mojave Desert is supposed to be generating more than a million megawatt-hours of electricity each year. But 15 months after starting up, the plant is producing just 40% of that, according to data from the US Energy Department.

The sprawling facility uses “power towers”–huge pillars surrounded by more than 170,000 mirrors, each bigger than a king-size bed–to capture the sun’s rays and create steam. That steam is used to generate electricity. Built by BrightSource and operated by NRG Energy, Ivanpah has been advertised as more reliable than a traditional solar panel farm, in part, because it more closely resembles conventional power plants that burn coal or natural gas. Turns out, there is a lot more to go wrong with the new technology. Replacing broken equipment and learning better ways to operate the complex assortment of machinery has stalled Ivanpah’s ability to reach full potential, said Randy Hickok, a senior vice president at NRG.

New solar-thermal technology isn’t as simple as traditional solar panel installations. Since older solar photovoltaic panels have been around for decades, they improve in efficiency and price every year, he said. “There’s a lot more on-the-job learning with Ivanpah,” Mr. Hickok said, adding that engineers have had to fix leaky tubes connected to water boilers and contend with a vibrating steam turbine that threatened nearby equipment.

One big miscalculation was that the power plant requires far more steam to run smoothly and efficiently than originally thought, according to a document filed with the California Energy Commission. Instead of ramping up the plant each day before sunrise by burning one hour’s worth of natural gas to generate steam, Ivanpah needs more than four times that much help from fossil fuels to get plant humming every morning. Another unexpected problem: not enough sun. Weather predictions for the area underestimated the amount of cloud cover that has blanketed Ivanpah since it went into service in 2013.

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May 182015
 
 May 18, 2015  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Harris&Ewing Car exterior. Washington & Old Dominion R.R. 1930

Q Ratio: Today’s Stock Market Has at Least One Similarity to 1929 (Bloomberg)
Greece’s Debt Battle Exposes Deeper Eurozone Flaws (WSJ)
Would Staying In The Euro Be A Catastrophe For Greece? (Guardian)
Greek Endgame Nears for Tsipras as Bank Collateral Hits Buffers (Bloomberg)
Greek Lessons for UK’s David Cameron (WSJ)
David Blanchflower: Bank of England In Cloud-Cuckoo Land On Wages (Independent)
UK Police Warn Big Budget Cuts Will Lead To ‘Paramilitary’ Force (Guardian)
If Numbers Don’t Lie Then… (Mark St. Cyr)
China Home Prices Drop Over 6% In April (Reuters)
China Struggles To Make Its Debt Problems Go Away (MarketWatch)
Merkel Under Pressure To Reveal Extent Of German Help For US Spying (Reuters)
A Diplomatic Victory, and Affirmation, for Putin (NY Times)
The Democratic Party Would Triangulate Its Own Mother (Matt Taibbi)
TPP: Fast-Track Measure Will Pass ‘This Week’, McConnell Says (Guardian)
The American Press Tried To Discredit Seymour Hersh 40 Years Ago, Too (Ames)
Huge El Niño Becoming More Likely In 2015 (Slate)
Antarctic Larsen B Ice Shelf In Last Throes Of Collapse (Livescience)

“It is very strongly indicated .. that we’re looking at a stock market which is something like 80% over-priced.”

Q Ratio: Today’s Stock Market Has at Least One Similarity to 1929 (Bloomberg)

If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you’d have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality. The concept is embodied in a measure known as the Q ratio developed by James Tobin, a Nobel Prize-winning economist at Yale University who died in 2002. According to Tobin’s Q, equities in the U.S. are valued about 10% above the cost of replacing their underlying assets – higher than any time other than the Internet bubble and the 1929 peak. Valuation tools are being dusted off around Wall Street as investors assess the staying power of the bull market that is now the second longest in 60 years.

To Andrew Smithers, the 77-year-old former head of SG Warburg’s investment arm, the Q ratio is an indicator whose time has come because it illuminates distortions caused by quantitative easing. “QE is a very dangerous policy, in my view, because it has pushed asset prices up and high asset prices, we know from history, are very dangerous,” Smithers, of Smithers & Co. in London, said in a phone interview. “It is very strongly indicated by reliable measures that we’re looking at a stock market which is something like 80% over-priced.” Acceptance of Tobin’s theory is at best uneven, with investors such as Laszlo Birinyi saying the ratio is useless as a signal because it would have kept you out of a bull market that has added $17 trillion to share values. Others see its meaning debased in an economy whose reliance on manufacturing is nothing like it used to be.

To Smithers, the ratio’s doubling since 2009 to 1.10 is a symptom of companies diverting money from their businesses to the stock market, choosing buybacks over capital spending. Six years of zero-percent interest rates have similarly driven investors into riskier things like equities, elevating the paper value of assets over their tangible worth, he said. Standard & Poor’s 500 Index members last year spent about 95% of their profits on buybacks and dividends, with stock repurchases exceeding $2 trillion since 2009, data compiled by S&P Dow Jones Indices show. In the first four months of this year, almost $400 billion of buybacks were announced, with February, March and April ranking as three of the four busiest months ever, according to data compiled by Birinyi Associates Inc.

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“Our discussions on the Greek side progressed a lot more easily than the discussions on the European side..”

Greece’s Debt Battle Exposes Deeper Eurozone Flaws (WSJ)

Since there is no international bankruptcy court, sovereign restructurings always face political challenges as the debtor and creditor countries’ taxpayers, and the shareholders of private lending institutions all duke it out to determine how to distribute the losses. But in this case, it’s further complicated by the close financial integration between eurozone member countries. It brings a heightened level of contagion risk to the table – the idea that investors in other eurozone countries’ bonds will sell them to cover losses incurred in Greece and unleash a vicious cycle of market pressure. To forestall that risk, eurozone authorities were always reluctant to let private-sector creditors suffer big “haircuts” on their investments – which inevitably translated into a bigger burden for taxpayers.

Yet there were no pan-European political institutions to pool fiscal resources and automatically apportion how to share those burdens. Without a U.S.-style centralized federal government, the 17 member states would fight over every dollar. The result was something close to paralysis. “The technological and capital market integration was so advanced, and the world was so fragile after the 2008 crisis, that in order to really create freedom of decision-making in Greece you needed a huge amount of institutional buffers that weren’t there — buffers against contagion,” says Georgetown law professor Anna Gelpern, a long-time scholar of sovereign debt markets.

It’s tempting to suggest that bankers and hedge funds exploited this dysfunction at taxpayers’ expense. But one fund manager who participated in the private sector involvement, or PSI, talks of 2012, complained that even when the creditor committee was poised to sign a deal, the 16 EU finance ministers couldn’t agree on the terms among themselves. “Our discussions on the Greek side progressed a lot more easily than the discussions on the European side,” he said. This tortured process looms over the eurozone’s future, even if Greece finally gets a successful debt restructuring. The same flawed structure means that contagion could rear its head again in Portugal – or worse, in Spain or Italy – currently low bond yields could spike again and the panic that of 2012 could return.

While we are a long ways from those levels, this month’s rapid selloff in the region’s bond markets hints at how quickly things could unwind. For now, the ECB’s massive bond-buying program functions as the de facto institutional buffer that the eurozone politicians failed to build. But its powers aren’t limitless – the ECB can only act within a narrow mandate of achieving price stability and suffers internal political divisions of its own. Such alternative “buffer institutions are cushions to buy space to find a political solution,” said Ms. Gelpern. “If you run through those buffers without getting a political solution, then the system is going to crack. We are closer than ever to that.”

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It would if the German attitude towards power doesn’t change.

Would Staying In The Euro Be A Catastrophe For Greece? (Guardian)

Yanis Varoufakis rues the day when Greece joined the euro. The Greek finance minister says his country would be better off if it was still using the drachma. Deep down, he says, all 18 countries using the single currency wish that the idea had been strangled at birth but understand that once you are in you don’t get out without a catastrophe. All of that is true, and explains why Greece is involved in a game of chicken with all the other players in this drama: the International Monetary Fund, the European commission, the European Central Bank and the German government. Varoufakis wants more financial help but not if it means sending the Greek economy into a “death spiral”. Greece’s creditors will not stump up any more cash until Athens sticks to bailout conditions that Varoufakis says would do just that.

Things will come to a head this summer because it is clear Greece cannot make all the debt repayments that are coming up. It has to find €10bn (£7.3bn) in redemptions to the IMF, the ECB and other bondholders before the end of August and the money is not there. Greece’s creditors know that and are prepared to let the government in Athens stew. They know that Greece really has only two choices: surrender or leave the euro, and since it has said it wants to stay inside the single currency, they expect the white flag to be fluttering any time soon. Greece’s willingness to go ahead with the privatisation of its largest port, Piraeus, will be seen as evidence by the hardliners in Brussels and Berlin that they have been right to take a tough approach in negotiations with the Syriza-led government.

But before he admits he has lost the game of chicken, Alexis Tsipras, the Greek prime minister, should think hard about Varoufakis’s analysis. Was it a mistake for Greece to join the euro? Clearly, the answer is yes. Would Greece be better off with the drachma? Given that the economy has shrunk by 25% in the past five years and is still shrinking, again the answer is yes. Can you leave the euro and return to the drachma without a catastrophe? Undoubtedly there would be massive costs from doing so, including credit controls to prevent currency flight, and a profound shock to business and consumer confidence. There are also the practical difficulties involved in substituting one currency for another.

In a way, though, this is not the question the Greek government should be asking itself. Greece has been suffering an economic catastrophe since 2010. It is suffering from an economic catastrophe now and will continue to suffer from an economic catastrophe if it stays in the euro without generous debt forgiveness and policies that facilitate, rather than impede, growth. So the real question is not whether leaving the euro would be a catastrophe, because it would. The real question is whether it would be more of a catastrophe than staying in.

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Turning into a long endgame.

Greek Endgame Nears for Tsipras as Bank Collateral Hits Buffers (Bloomberg)

Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors. As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more and more emergency liquidity every week. In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say. “The point where collateral is exhausted is likely to be near,” JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients May 15. “Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June.”

European policy makers are losing patience with Tsipras who said as recently as May 14 that he won’t compromise on any of his key demands. While talks are centering on whether to give Greece more money, the European Central Bank could raise the stakes if it increases the discount on the collateral Greek banks pledge in exchange for cash under its Emergency Liquidity Assistance program. Such a move might inadvertently prompt a further outflow of bank deposits and pressure Tsipras to choose between doing a deal and putting his country on the road to capital controls. “We are in an endgame,” ECB Executive Board member Yves Mersch said Saturday. “This situation is not tenable.”

The arithmetic goes as follows: Greek lenders have so far needed about €80 billion under the ELA program. Banks have enough collateral to stretch that lifeline to about €95 billion under the terms currently allowed by the ECB, a person familiar with the matter said. With the central bank raising the ELA by about €2 billion every week, that could take banks to the end of June. A crunch will come if the ECB increases the haircut on Greek collateral to levels not seen since last year. That could be prompted by anything from a complete breakdown in talks to a missed debt payment, the official said. A continuation of the current impasse could even be all that’s needed, the official said. An increased haircut would reduce the ELA limit to about €88 billion, the person said. While that gives banks about four weeks before hitting the buffers, the leeway is so limited that Greece might need to impose capital controls, limiting transactions such as ATM withdrawals, to conserve the cushion.

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Nice comparison.

Greek Lessons for UK’s David Cameron (WSJ)

David Cameron and Alexis Tsipras are miles apart politically, but they share more in common than either may care to admit. Both the U.K. and Greek prime ministers took office after elections in which their parties secured just 37% of the vote. Both claim a strong mandate to reform their country’s relationship with the European Union—and boast that their real aim is to reform the EU itself. Both face pressure from party hard-liners who would rather risk a permanent rupture than accept any compromise. And both leaders believe the rest of Europe will do anything to avoid such a rupture and so will ultimately have to accept their demands. Mr. Tsipras will find out soon enough if his assessment was right: Greece’s debt negotiations are approaching their drop-dead moment when failure to agree on a new funding deal will push the government into a messy default.

But Mr. Cameron’s EU odyssey has only just begun: He must now follow through on his election pledge to hold a referendum on Britain’s continued membership of the EU by the end of 2017. The stakes could hardly be higher. Many analysts think a Greek euro exit would be destabilizing but ultimately containable. But a British exit from the EU would diminish the union in the eyes of the world, weakening its capacity to secure trade deals, deepen the European single market and to confront threats from Russia and the Mediterranean. Just as Mr. Tsipras says he wants to keep Greece in the euro, Mr. Cameron has no desire to lead the U.K. out of the EU. And as in Greece, there is little public appetite for an exit. A recent poll showed British voters back EU membership by 45%—against 33% who want out—rising to 56% to 20% if Mr. Cameron can renegotiate the terms of membership.

Like Mr. Tsipras, Mr. Cameron’s problem lies with his party, not the public. Up to a quarter of his 331 parliamentarians look certain to campaign to leave the EU since their demands for opt-outs for large swaths of EU law, a U.K. veto on future EU rules and an end to the right of EU citizens to seek work in the U.K. can never be met. Mr. Cameron’s objective is to avoid an even bigger split that would damage his authority and could become permanent. For a prime minister who has bet his country’s strategic future on his ability to renegotiate the terms of EU membership, the lack of detailed planning is striking. U.K. officials say that as things stand, Downing Street has no clear process, no team, no detailed policy proposals, no clear view on what is needed to declare the renegotiation a success and no decision on the timing of the referendum.

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“There is no such thing as an expansionary fiscal contraction.”

David Blanchflower: Bank of England In Cloud-Cuckoo Land On Wages (Independent)

In his reply to a letter from the Monetary Policy Committee this week outlining why CPI inflation was 2% below the target he had set for them, the Chancellor made clear there was more austerity heading everyone’s way. “Ultimately, the credibility of our economic policy rests on the strength of our public finances. This new Government now has a clear mandate to take the steps needed to return them to surplus and ensure continued economic security.” Here we go again, and this time he thinks he has a “mandate’ to slash and burn. It really is amazing that he hasn’t learnt from his past errors. In 2010 George Osborne imposed austerity and the economy stalled for two years; he relaxed austerity and went to plan B, and growth picked up.

So Slasher Osborne is back to his old tricks. Sadly for Slasher this time he has a slowing economy to deal with, rather than the rapidly growing one he inherited in 2010. Now the bond markets really do seem to be in free-fall, just as they weren’t in 2010. As the Governor of the Bank of England, Mark Carney, made clear in his press conference this week, “there is persistent fiscal drag … just as there has been over the last several years”. That’s one of the headwinds that weighs on the economy. The headwinds are once again going to become hurricane force. Hurricane Slasher is heading your way. Austerity is likely to smash growth once again. It seems almost inevitable that monetary policy will have to compensate for such tightening, so I fully expect the next interest rate move to be downwards, with another significant round of quantitative easing, if this austerity is implemented.

There is no such thing as an expansionary fiscal contraction. Just to remind readers, GDP growth was 1% in Q2 2010 and 0.3% in Q1 2015, the latest data that we have. To put this in context, the first chart plots quarterly GDP growth rates for the 19 EU countries that to this point have produced estimates. The UK’s growth rate of 0.3% is below both the EU and the eurozone averages of 0.4%, and is growing at half France’s growth rate of 0.6%. The UK ranks joint 11th with Belgium, Germany and Italy. There are several other countries who are yet to report for 2015 but whose growth rates for Q4 2014 were higher than 0.3%: the Czech Republic, Denmark, Luxembourg, Malta, Poland and Sweden, plus two non-EU members, Norway and Switzerland. The UK is now one of the slowest-growing European economies.

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A very valuable insight: “You police by consent by having a relationship with local communities.”

UK Police Warn Big Budget Cuts Will Lead To ‘Paramilitary’ Force (Guardian)

Police will be forced to adopt a “paramilitary” style of enforcement if the government inflicts big budget cuts on them, the head of the police officers’ organisation has warned. Steve White, chair of the Police Federation, said his 123,000 members, from police constables to inspectors, fear a move towards a more violent style of policing as they try to keep law and order with even fewer officers than now. White told the Guardian that more cuts would be devastating: “You get a style of policing where the first options are teargas, rubber bullets and water cannon, which are the last options in the UK.” White said cuts would see the bedrock principle of British law enforcement, policing by consent, ripped apart. The week ahead sees the federation stage its annual conference, which starts on Tuesday 19 May.

The key day will be Wednesday when the home secretary, Theresa May, will address rank-and-file officers. Last year May stunned delegates with a speech telling them to reform or be taken over by government, and telling them policing was failing too often. Police leaders have a fine line to walk in opposing cuts. Rank-and-file members are furious at the effects of austerity on their terms and conditions, as well as falling officer numbers nationally. But May and her advisers believe some members of the police force use over-the-top rhetoric in predictions that cuts would lead to chaos on the streets, and instead believe they should squeeze maximum value out of the public money given. White said police had already endured five years of austerity and were braced for more “swingeing cuts” after the election of a Conservative government with a majority.

White said that since 2010, when the Conservative-led coalition started slashing its funding to police by 20%, the service had been cut by 17,000 officers and 17,000 civilian staff, but had managed to limit the effect on the public. He said the service was now “on its knees”, with some internal projections within policing of a further 20% to 25% of cuts by the end of the next parliament in 2020. This would lead to more than 15,000 officers disappearing off the streets, only being seen when responding to crime or serious events such as disorder on the streets. White said: “You are left with a police service who you only speak to in the direst of circumstances, a police service almost paramilitary in style.”

“You police by consent by having a relationship with local communities. “If you don’t have a relationship, because the officers have been cut, you will lose the consent which means the face and style of policing changes. “The whole service, from top to bottom, is deeply concerned about the ability to provide the service that the public have come to expect over the next five years.”

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First, falling gas prices were supposed to boost the economy. Now rising prices are to do the same thing.

If Numbers Don’t Lie Then… (Mark St. Cyr)

One argument now being proposed to help bolster the projections that Q2 will be closer to 3% as opposed to the abysmal print of Q1 is (even as the Atlanta Fed. is now predicting the same if not worse) that this jump will be fueled by (wait for it…) “Cap-ex spending relating to the bump up in crude prices over the recent weeks…” (insert rimshot here) This wasn’t coming from some ancillary small fund manager. This line of thought and analysis was coming from one of our “too big to fail” taxpayer-funded bail-out houses of financial acumen. As this “insight” was simultaneously broadcast throughout television and radio, heralded as “This is why we have people like you on – for exactly this type of insightful analysis and perspective.” I couldn’t help myself but to agree.

For this is what “financial” brilliance across the financial media now represents: Financial spin. My analysis? With analysis like this? Taxpayers better get ready – again! This objective “seasoned” analysis is being professed by one of the same that expected the prior GDP print to show “great improvement” based on “the gas savings made possible from lower crude prices.” The result? If the build in inventory hadn’t been “adjusted” in formulations Pythagoras would marvel at – the print would have been negative. So now you’re being led to believe with the recent rise in crude prices: drillers, refiners, etc., etc., are going to load up on cap-ex only months after many have scuttled rigs, buildings, employees, and more? Again, soon enough to effect Q2?

If cap-ex can be effected that soon, and to that degree as to pull GDP prints from near negative to 3% in a single quarter all by itself – as every other macro data point is collapsing? Why would lower gas prices have ever been wanted let alone touted as “good for the economy?”I’ll just remind you that this “insightful analysis” was coming from one of the many who loved to tout endlessly how the U.S. economy is based on “consumer spending” and “more money in consumers wallets based on lower prices at the pump was inevitable.”

All I’ll ask is: when does “inevitable” materialize? Before? Or, after the next revisions? Again, now since it’s been shown that the “inevitable consumer” spent nothing of their gas savings to help prop up the prior GDP. (sorry I forgot, yes they did in higher health insurance costs) Where the case was made to bludgeon any doubters of their analysis: i.e., “lower crude prices resulting in lower gas prices = more consumer spending.” We are now supposed to embrace the inverted narrative where: “GDP for Q2 will show growth of around 3% based on higher crude prices resulting in increased cap-ex?”

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Still, nothing the media can’t put a positive spin on.

China Home Prices Drop Over 6% In April (Reuters)

Average new home prices in China’s 70 major cities dropped 6.1% last month from a year ago, the same rate of decline as in March, according to Reuters calculations based on official data published today. But nationwide prices steadied from March, further narrowing from a 0.1% fall in the previous month. Beijing saw prices rise, albeit modestly, for the second month in a row, while those in Shanghai rose for the first time in 12 months. But prices in many smaller cities, which account for around 60% of national sales, continued to fall. Analysts said that property investment, which comprises around 20% of China’s GDP, may grow less than 5% this year, compared with 10.5% in 2014, knocking 1 %age point off economic growth.

Data last week showed home sales measured by floor area rebounded 7.7% in April from a year ago, the first growth since November 2013. But property investment growth continued to slow in the first four months of 2015 to the lowest since May 2009 as new construction slumped, impacting demand for everything from steel and cement to appliances and furniture. However, government measures seem to be slowing enticing some buyers back into the market. Mortgages rose 2.1% in the months from Janaury to April from the same time a year earlier. China relaxed tax rules and downpayment requirements on second homes in late March. Earlier this month, the central bank cut interest rates for the third time since November to lower companies’ borrowing costs and stimulate loan demand.

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“..the interest-cost burden of servicing debt has risen to 15% of GDP.”

China Struggles To Make Its Debt Problems Go Away (MarketWatch)

China’s latest plan to tackle its local-government-debt problem appears to be pretending there isn’t one. This might actually stave off a wave of unpleasant corporate busts and bankruptcies, but investors need to be alert for other signs of distress in China’s repressed financial system. In recent weeks, plans floated to address local government debt — estimated to be some 22 trillion yuan ($3.54 trillion) — have included swapping loans for bonds and even potential quantitative easing by the central bank. But as these initiatives appeared to lose steam, it emerged Friday that Beijing had reverted to a more traditional plan: Tell banks to keep lending to insolvent state projects and roll over such loans.

The directive was jointly issued by the Ministry of Finance, the banking regulator and the central bank, saying that financial institutions should keep extending credit to local-government projects, even if borrowers are unable to make payments on existing loans. The positive take is that this latest maneuver postpones a painful debt reckoning and will help protect the property market and broader economy from another leg down after more weak economic data for April. Caution is understandable, as local-government debt presents numerous contagion risks. SocGen describes it as the “critical domino” in the chain of China’s credit risk. This is not just because of the size of the problem, but also due to the labyrinth of funding which straddles special-purpose-funding vehicles and the shadow-banking market.

Further, local governments are inextricably linked to the property market, as they rely on land sales for their revenue. So if the implicit guarantee on state debt were to be removed at the local-government level, the potential for a messy unraveling looks high. It’s also easy to see how this represents a larger systematic risk, as Fitch estimates banks’ total exposure to property could exceed 60% of credit if non-loan financing is also taken into account. Yet any relief that funding taps will not be switched off will also be balanced by concerns over the dangers of building up an even larger debt burden. Fitch warns that the more authorities permit loans by weak entities to be rolled over, the greater the build-up and cost of servicing that debt, and the greater the strain on banks and the overall economy. They calculate that the interest-cost burden of servicing debt has risen to 15% of GDP.

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Apparently, the BND now claims it was instrumental in catching Osama Bin Laden. Get in line!

Merkel Under Pressure To Reveal Extent Of German Help For US Spying (Reuters)

The German chancellor, Angela Merkel, is coming under increasing pressure to divulge a list of targets, including the IP addresses of individual computers, that German intelligence tracked on behalf of the US National Security Agency (NSA). Critics have accused Merkel’s staff of giving the BND foreign intelligence agency the green light to help the NSA spy on European firms and officials. The scandal has strained relations between Merkel’s conservative Christian Democratic Union and its junior coalition partner, the Social Democrats, whose leader, Sigmar Gabriel, has publicly challenged her over the affair.

Gabriel told the German newspaper Bild am Sonntag that parliament needed to see the list, which contains names, search terms and IP addresses. The government has said it must consult the US before revealing the list, whose contents are thought crucial to establishing whether the BND was at fault in helping the NSA. Gabriel, who is also Germany’s vice-chancellor, said: “Imagine if there were suspicions that the NSA had helped the BND to spy on American firms. Congress wouldn’t hesitate for a second before looking into the documents.”

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Big victory indeed. That’s why we read so little about it.

A Diplomatic Victory, and Affirmation, for Putin (NY Times)

For Russia, victory came three days after Victory Day, in the form of Secretary of State John Kerry’s visit this week to the Black Sea resort city of Sochi. It was widely interpreted here as a signal of surrender by the Americans — an olive branch from President Obama, and an acknowledgment that Russia and its leader are simply too important to ignore. Since the seizure of Crimea more than a year ago, Mr. Obama has worked aggressively to isolate Russia and its renegade president, Vladimir V. Putin, portraying him as a lawless bully atop an economically failing, increasingly irrelevant petrostate. Mr. Obama led the charge by the West to punish Mr. Putin for his intervention in Ukraine, booting Russia from the Group of 8 economic powers, imposing harsh sanctions on some of Mr. Putin’s closest confidants and delivering financial and military assistance to the new Ukrainian government.

In recent months, however, Russia has not only weathered those attacks and levied painful countersanctions on America’s European allies, but has also proved stubbornly important on the world stage. That has been true especially in regard to Syria, where its proposal to confiscate chemical weapons has kept President Bashar al-Assad, a Kremlin ally, in power, and in the negotiations that secured a tentative deal on Iran’s nuclear program. Mr. Putin, who over 15 years as Russia’s paramount leader has consistently confounded his adversaries, be they foreign or domestic, once again seems to be emerging on top — if not as an outright winner in his most recent confrontation with the West, then certainly as a national hero, unbowed, firmly in control, and having surrendered nothing, especially not Crimea, his most coveted prize.

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“..you’ve been had.”

The Democratic Party Would Triangulate Its Own Mother (Matt Taibbi)

Barack Obama made headlines this week by taking on Sen. Elizabeth Warren in a dispute over our latest labor-crushing free trade deal, the Trans-Pacific Partnership. The president’s anger over Warren’s decision to lead the Senate in blocking his authority to fast-track the TPP was heavily covered by the Beltway media, which loves a good intramural food fight. It was quite a show, which was the first clue that something wasn’t quite right in this picture. The Beltway press made a huge spectacle out of how the “long-simmering” Obama-Warren “feud” had turned “personal.”

And there were lots of suggestions that the president, in his anger toward Warren, simply let his emotions get the best of him – that he let slip impolitic and perhaps sexist words in his attacks on Warren, whom he described as “absolutely wrong” and “a politician like everyone else.” Reuters, taking the cheese all the way with this “it just got personal” storyline that people on both sides of the Warren-Obama spat have been pimping to us reporters all week, quoted observers who put it like this: The president miscalculated in making this about Elizabeth Warren, that backfired badly. It only served to raise awareness of the issue and drive people away from his position,” said Chris Kofinis, a Democratic strategist who has worked with labor unions opposed to the pact. “It never makes sense to make these kinds of issues personal,” he said.

Politicians do get angry. They even sometimes get angry in public. They are, after all, human, in some cases anyway. But politicians mostly only take their masks off when cornered: stuck in a televised argument with an expert irritant, called to speak in a legislative chamber just as that nagging case of intermittent explosive disorder kicks in, surprised by a ropeline question on the campaign trail, etc. But if you think that Barack Obama, one of the coolest cucumbers ever to occupy the White House, sat down for a scheduled interview in front of a professional softballer like ex-Times and current Yahoo pundit Matt Bai – a setup that’s the presidential media equivalent of a spa treatment – and just suddenly “lost it” in a discussion about the TPP, you’ve been had.

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GOP praise for Obama. Can’t be a good sign.

TPP: Fast-Track Measure Will Pass ‘This Week’, McConnell Says (Guardian)

Republican majority leader Mitch McConnell said on Sunday the Senate will pass “fast-track” authority to negotiate major trade deals this week, despite opposition to the measure from many of President Barack Obama’s fellow Democrats. “Yes, we’ll pass it. We’ll pass it later this week,” McConnell said in an interview with ABC. The trade issue has made unlikely allies of the Republican majority leader and the Democratic president. McConnell said on Sunday that Obama has “done an excellent job” on the trade issue. The Senate voted last week to consider the fast-track measure, two days after Democrats had blocked debate on the bill, which would clear the way for a 12-nation Pacific trade agreement.

The strong support on the second vote suggested senators were unlikely to reject the trade measure. Heated debate is still expected in the Senate over amendments and later in the House of Representatives, where many Democrats staunchly oppose the Trans-Pacific Partnership on fears trade liberalisation will cost US jobs. The Republican representative Paul Ryan said on CNN that he was confident the measure would pass the House. “We will have the votes,” said Ryan, who is chairman of the House ways and means committee. “We’re doing very well. We’re gaining a lot of steam and momentum.”

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How many investigative journalists are left?

The American Press Tried To Discredit Seymour Hersh 40 Years Ago, Too (Ames)

Seymour Hersh found himself in the middle of an F-5 shitstorm this week after breaking his biggest blockbuster story of the Obama Era, debunking the official heroic White House story about how Navy SEALs took out Osama Bin Laden in a daring, secret nighttime raid in the heart of Pakistan. According to Hersh’s account, OBL was given up by one of his Pakistani ISI prison wardens—our Pakistaini allies had been holding him captive since 2006, with backing from our Saudi allies, to use for leverage. Hersh’s account calls into question a lot of things, starting with the justification for the massive, expensive, and brutal US GWOT military-intelligence web, which apparently had zilch to do with taking out the most wanted terrorist in the world. All it took, says Hersh, was one sleazy Pakistani ISI turncoat walking into a CIA storefront in Islamabad, handing them the address to Bin Laden’s location, and picking up his $25 million bounty check. About as hi-tech as an episode of Gunsmoke.

The celebrated Navy SEAL helicopter raid and killing of OBL was, according to Hersh, a stage production co-directed by the US military and Pakistan’s intelligence agency, who escorted the SEALs to Bin Laden’s room, pointed a flashlight at the captive, and watched the SEALs unload hot lead on the old cripple, turning him into spaghetti bolognese. (Raising other disturbing questions—such as, why would the White House want to silence forever the one guy with all the names, the most valuable intelligence asset in the world… unless of course that was the whole point of slaughtering him in his Abbottabad cell? Which leads one to wonder why the US wanted to make sure Bin Laden kept his secrets to himself, should one bother wondering.)

Hersh has pissed off some very powerful people and institutions with this story, and that means the inevitable media pushback to discredit his reporting is already underway, with the attacks on Hersh led by Vox Media’s Max Fisher, CNN’s Peter Bergen, and even some on the left like Nation Institute reporter Matthieu Aikins. Yesterday Slate joined the pile-on, running a wildly entertaining, hostile interview with Hersh. Such attacks by fellow journalists on a Sy Hersh bombshell are nothing new—in fact, he used to relish them, and probably still does. He got the same hostile reaction from his media colleagues when he broke his biggest story of his career: The 1974 exposé of the CIA’s massive, illegal domestic spying program, MH-CHAOS, which targeted tens, maybe hundreds of thousands of Americans, mostly antiwar and leftwing dissidents.

Hersh is better known today for his My Lai massacre and Abu Ghraib exposés, but it was his MH-CHAOS scoop, which the New York Times called “the son of Watergate,” that was his most consequential and controversial—from this one sensational exposé the entire intelligence apparatus was nearly taken down. Hersh’s exposés directly led to the famous Church Committee hearings into intelligence abuses, the Rockefeller Commission, and the less famous but more radical Pike Committee hearings in the House, which I wrote about in Pando last year. These hearings not only blew open all sorts of CIA abuses, assassination programs, drug programs and coups, but also massive intelligence failures and boondoggles.

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“At the top end, this El Niño could be the strongest in recorded history.”

Huge El Niño Becoming More Likely In 2015 (Slate)

For the first time since 1998—the year of the strongest El Niño on record, which played havoc with the world’s weather patterns and was blamed for 23,000 deaths worldwide—ocean temperatures in all five El Niño zones have risen above 1 degree Celsius warmer than normal at the same time. That’s the criteria for a moderately strong event, and the latest forecast models are unanimous that it’s going to keep strengthening for the rest of the year. A sub-surface wave of warm water is driving this trend, which has reached off-the-charts levels during the first four months of 2015. That data was enough for Australia’s Bureau of Meteorology to officially upgrade the Pacific Ocean to El Niño conditions this week. David Jones, head of climate monitoring for the BOM, told reporters that the 2015 El Niño is shaping up to be “quite a substantial event … not a weak one or a near miss.”

The U.S. weather service, which uses slightly different criteria, declared official El Niño conditions back in March. The U.S. updated its outlook on Thursday, boosting odds of a continuation of El Niño until this summer to around 90%—what they called a “pretty confident forecast.” Autumn outlooks made this time of year normally have an error of plus-or-minus 0.6 degrees Celsius, meaning the current forecast of a 2.2 degree warming of the tropical Pacific by December essentially locks in a strong event. At the low end, we can expect the biggest El Niño since the last one in 2009-2010, a moderately strong event. At the top end, this El Niño could be the strongest in recorded history.

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“The Larsen B ice shelf existed for 12,000 years before it fell apart in 2002..”

Antarctic Larsen B Ice Shelf In Last Throes Of Collapse (Livescience)

A vast Antarctica ice shelf that partly collapsed in 2002 has only a few years left before it fully disappears, according to a new study. Radar data reveals that the Larsen B ice shelf could shatter into hundreds of icebergs by 2020, researchers reported Thursday (March 14) in the journal Earth and Planetary Science Letters. “It’s really startling to see how something that existed on our planet for so long has disappeared so quickly,” lead study author Ala Khazendar, a scientist at NASA’s Jet Propulsion Laboratory in Pasadena, California, told Live Science. An ice shelf is like a floating ice plateau, fed by land-based glaciers. The Larsen B ice shelf existed for 12,000 years before it fell apart in 2002, separate studies showed.

The ice shelf is on the Antarctica Peninsula, the strip of land that juts northward toward South America. Larsen B is about half the size of Rhode Island, some 625 square miles (1,600 square kilometers). Because the ice shelf is already in the ocean, its breakup won’t further boost sea level rise. But Khazendar and his co-authors also discovered that the glaciers feeding into Larsen B’s remaining ice shelf have dramatically thinned since 2002. “What matters is how much more ice the glaciers will dump into the ocean once this ice shelf is removed,” Khazendar said. “Some of these glaciers are most likely already contributing to sea level rise because they are in the process of accelerating and thinning.”

The Leppard and Flask glaciers thinned by 65 to 72 feet (20 to 22 meters) between 2002 and 2011, the new study reported. The fastest-moving part of Flask Glacier sped up by 36%, to a speed of 2,300 feet (700 m) a year. The glaciers that were behind the vanished section of the Larsen B ice shelf sped up by as much as 8 times their former rate after the ice crumbled over a six-week period in 2002, earlier studies showed. The northwestern part of the Larsen B ice shelf is also becoming more fragmented, the researchers said. But the southeastern part is cracking up. A huge rift has appeared just 7.5 miles (12 km) from the grounding line, where the ice loses contact with the ground and starts floating on the ocean, the study reported. This crack marks where the ice shelf may start to break apart, the researchers said.

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Apr 162015
 
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NPC Sidney Lust Leader Theater, Washington, DC 1920

Greece In ‘Slow-Death Scenario’ Amid Defaults Fears (CNBC)
IMF Knocks Greek Debt Rescheduling Hopes (FT)
The Endgame For Greece Has Arrived (Zero Hedge)
Why The Grexit Is Inevitable – How About May 9th? (Raas Consulting)
UBS Says Europe Risks Bank Runs On Grexit (Zero Hedge)
Fed’s Bullard Says Rate Hikes Are Needed For Coming ‘Boom’ (MarketWatch)
Warren Says Auto Lending Reminds Her Of Pre-Crisis Housing Days (MarketWatch)
27% Of US Students Are Over A Month Behind On Their Loan Payments (Zero Hedge)
China’s True Economic Growth Rate: 1.6% (Zero Hedge)
The South (China) Sea Bubble (Corrigan)
Don’t Invest In ‘Unsustainable’ China: Professor (CNBC)
The Major Paradox at the Heart of the Chinese Economy (Bloomberg)
China Seen Expanding Mortgage Bonds to Revive Housing (Bloomberg)
Bonds Beware As Money Catches Fire In The US And Europe (AEP)
ECB’s Mario Draghi Says Stimulus Is Working (WSJ)
Schaeuble Says Greece Must Ditch False Hopes, Commit to Reform (Bloomberg)
Schaeuble Criticizes Greece for Backsliding as Time Runs Out (Bloomberg)
Australia’s Economy: Is The Lucky Country Running Out Of Luck? (Guardian)
US Military Lands in Ukraine (Ron Paul Inst.)
Greece In Talks With Russia To Buy Missiles For S-300 Systems (Reuters)
Putin to Netanyahu: Iran S-300 Air Defense System is .. Defensive (Juan Cole)
Vatican Announces Major Summit On Climate Change (ThinkProgress)

“It would be a slow-death scenario and in a way we are in this scenario. Something needs to change in order to avoid an accident..”

Greece In ‘Slow-Death Scenario’ Amid Defaults Fears (CNBC)

Greece faces a “slow-death scenario”—including a default and messy exit from the euro zone—one analyst warned Thursday, as the country’s economic crisis took another turn for the worse following a credit rating downgrade. BofA’s Thanos Vamvakidis warned Thursday that if Greece fails to reach a deal with its European partners, a Grexit—or Greek exit from the euro zone becomes inevitable. His comments come after Greece’s unresolved negotiations with its international creditors prompted ratings agency Standard & Poor’s to cut its credit rating to “CCC+” from “B-” with a negative outlook.

“Without an agreement (with creditors over reforms), without official funding, there is a very high probability that Greece will default sometime in May and this could lead to a very negative scenario,” Vamvakidis told CNBC Thursday. He said that although nobody wants that, “the more they delay the higher the risks.” “(A Grexit) is not going to be overnight. It would be a slow-death scenario and in a way we are in this scenario. Something needs to change in order to avoid an accident,” he added. Reform discussions between Greece and the bodies overseeing its bailout program—the EC, ECB and IMF—have been unsuccessful over recent weeks. The country’s creditors agreed to extend its bailout program by four months in February in order to give Greece’s new leftwing government more time to enact reforms.

Lack of progress on reforms means Greece’s last tranche of aid—needed in order to make loan repayments to the IMF and ECB in the coming weeks and months—has not been released. [..] Despite growing fears of a euro zone exit, some euro zone officials have refused to countenance such a scenario, which could bring with it significant upheaval and potentially disastrous consequences for the euro zone. Not only could a default and Grexit prompt capital controls to prevent bank runs, international financial isolation and the introduction of a new currency in Greece, it could threaten the future of the 19-country single currency bloc.

Knowing that any such talk could spark international panic over Greece and the intergrity of the euro zone and its currency, the European Central Bank’s President Mario Draghi dismissed fears of a Greek default Wednesday, saying he was not ready to even “contemplate” such a scenario. Officials in the U.S. have openly warned over the risks posed by Greece, however. Greek Finance Minister, Yanis Varoufakis, is due to meet U.S. President Barack Obama on Thursday, and U.S. Treasury Secretary Jacob Lew on Friday (along with the ECB’s Draghi and IMF officials).

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Time for some US pressure?

IMF Knocks Greek Debt Rescheduling Hopes (FT)

Greek officials have made an informal approach to the IMF to delay repayments of loans to the international lender, highlighting the parlous state of Greek finances, but were told that no rescheduling was possible. According to officials briefed on the talks by both sides, Athens was persuaded not to make a specific request for a delay to the Fund, which is owed almost a €1bn in two separate payments due in May. Although Athens was rebuffed, the discussions, which occurred in private earlier this month, are a sign that the Greek government is finding it increasingly difficult to scrape together enough money to continue to pay wages and pensions while meeting its debt payments to external lenders.

Officials representing Greece’s creditors are unsure whether Athens will be able to make the payments in May. Even if they do, they are certain that the matter will come to a head by June, before much larger payments on bonds held by the ECB start coming due.
IMF officials have repeatedly said that a rescheduling of repayments can only come as part of a completely renegotiated new bailout programme. Were it to miss a payment, Greece would become the first developed economy to go into arrears at the Fund, something only counties like Zaire and Zimbabwe have done in the past.

Greece informally raised the precedent of delaying IMF payments by at least one other developing country a generation ago in the 1980s. But IMF officials stuck to their guns saying that none of the underlying problems had been solved by payment delays. One source briefed on the approach said the proposal was to “reshuffle the repayment schedule for the IMF loan over the coming months,” allowing the new Greek government led by Alexis Tsipras to have the money to pay bills for pensions and public sector salaries while negotiating with European creditors over payment of the next tranche of bailout loans.

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“..the Greek Finance Minister “will on Friday meet with infamous sovereign debt lawyer Lee Buchheit, who has helped numerous countries restructure their debt.”

The Endgame For Greece Has Arrived (Zero Hedge)

To think it was just recently in September of last year when the S&P, seemingly unaware of the tragic reality facing Greece in just a few months (by reality we meen democratic elections which overthrew the previous regime which was merely a group of Troika picked technocrats), upgraded Greece to B and said “The upgrade reflects our view that risks to fiscal consolidation in Greece have abated.” Well, the risks have unabated, and two months after S&P flip-flopped and downgraded Greece back to B- on February 6, moments ago it downgraded it again, this time to triple hooks, aka the dreaded CCC+. S&P said that without deep economic reform or further relief, S&P expects Greece’s debt, other financial commitments to be unsustainable. S&P views that Greece increasingly depends on favorable business, financial, and economic conditions to meet its financial commitments.

The rater adds that “conditions have worsened due to the uncertainty stemming from the prolonged negotiations between the Greek govt and its official creditors” and that economic prospects could deteriorate further unless talks between Greece and its creditors conclude soon.” In short: Greece is about to default and/or exit the Eurozone so this time at least S&P is prepared. Ironically this comes a day before Varoufakis is set to meet with Obama. It will be followed by meetings with European Central Bank head Mario Draghi on Friday, Secretary of the Treasury Jack Lew, Italy’s finance minister Pier Carlo Padoan and IMF officials. But, as City AM reports, the biggest news is that the Greek Finance Minister “will on Friday meet with infamous sovereign debt lawyer Lee Buchheit, who has helped numerous countries restructure their debt. Buchheit is a partner at top US law firm Cleary Gottlieb.”

It comes just a week before a vital meeting of Eurozone finance ministers on 24 April which could be the last chance Greece has of gaining extra funds before hefty repayments are due to its creditors in May.

As a reminder, “Lee Buchheit, a leading sovereign-debt attorney and the man who managed the eventual Greek debt restructuring in 2012, was harshly critical of the authorities’ failure to face up to reality. As he put it, “I find it hard to imagine they will now man up to the proposition that they delayed – at appalling cost to Greece, its creditors, and its official-sector sponsors – an essential debt restructuring.” The endgame for Greece has arrived.

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One kind of logic.

Why The Grexit Is Inevitable – How About May 9th? (Raas Consulting)

One thing in common for almost all of my Pinewood International Schools (TiHi to some) class of ’78 is that we left. Many still live in Greece and in Thessaloniki or have returned, and they are closest to the pain. The real pain of the past decade, that has destroyed wealth and hope. Unemployment is running at levels not see in Europe since after the war, and at levels that encouraged the socialist – fascist civil wars of the 1930s. Those did not end well.

But that does not explain why the Grexit is inevitable, and why it will happen very soon.
1) This is what the Greek people voted for. No, they did not vote to stay in the Euro, they voted for the party that said it would reduce the debt and meet pension obligations. The Greek people and voters are not stupid. They knew this could only happen by either the rest of Europe bailing out Greece again, or by leaving the Euro.
2) The Greek people know perfectly well that Europe is not going to bail them out, because to do so will only set everyone up for the next bailout.
3) The Greek people, and the rest of Europe, know full well that the debt will never be repaid, and that the Troika are now acting as nothing better than the enforcers of loan sharks.
4) Syriza knows that it had six months before the voters would throw them out, and once out, Syriza would never come back.
5) The Greeks needed to show “good faith” in actually attempting to negotiate a resolution with the Troika. This has now been done, and is failing.
6) The demand for reparations from Germany is designed not to actually extract the reparations, but to anger the Germans to the point that they will block any compromise that Syriza would have been required to accept.

The Greek government, elected by a battered and exploited Greek people, has been establishing the conditions that will give them the moral high ground (in the eyes of their voters) needed to actually leave the Euro. Having set the conditions, when will it happen? I’m still guessing May 9th. Why? Greece will leave the Euro, and they will do it sooner than later. They’ve made the April payment, but simply do not have the money for the May or June payments, and they cannot pass the legislation required by Europe and the Germans and stay in power. That gives us a late May or June date. So why earlier?

Capital flight. Imposing currency controls will be a fundamental element of any Grexit. Accounts will be frozen, and any money in accounts will be re-denominated in New Drachmas. Once the bank accounts are unfrozen, the residual, former Euros will now be worth whatever the New Drachma has dropped to, and the drop will be significant, over–correcting to the downside. Once it is accepted that the Grexit is coming and there will be no last minute deal, and with memories of Cyprus too fresh in every Greek’s mind, the money will flow out of the country. Not just corporate money (most of which is probably off-share already) but any remaining personal money in bank accounts. So Greece has to move before the coming Grexit is perceived as inevitable, and the money starts to flow out.

Weekend event. When the Grexit happens, it will be on a weekend. The banks will be closed, parliament will be called into emergency session, and a packet of laws will be passed. As this needs to be on a Saturday to avoid wholesale capital flight the moment that parliament is called into session, were it a weekday. This leaves only a few possible dates. And where there are few possible dates, I’m punting on the earlier date, so earlier in May. And looking at the calendar, that leaves us with May 2nd, 9th or 16th. My own guess is that the 2nd is too soon, and the 16th is too late. That leaves me guessing May 9th.

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It is pretty silly that anyone would doubt this. Or believe reassurances to the contrary.

UBS Says Europe Risks Bank Runs On Grexit (Zero Hedge)

UBS: When examining the risk of contagion from any possible Greek exit from the Euro we come back again and again to the fact that in every monetary union collapse of the last century, the trigger for breakup was not the bond markets, current account positions, or political will, but banks. If ordinary bank depositors lose faith in the integrity of a monetary union they will hasten its demise by shifting their money out of their banks – either into physical cash, or into banks domiciled in areas of the monetary union that are perceived as “stronger”. Both of these traits were evident in the US monetary union breakup, and have been in evidence in more recent events this century.

The contagion risk after a possible Greek exit arises if bank depositors elsewhere in the Euro area believe that a physical euro note held “under the mattress” at home today is worth more than a euro in a bank – because a euro in a bank might be forcibly converted into a national currency tomorrow. In a breakup scenario it is more likely that retail bank deposits withdrawn will end up as physical cash, owing to the difficulties of opening and using a bank account in a different country. This is not a question of banking system solvency. Highly solvent banks will be subject to deposit flight if it is the value of the currency in that country that is uncertain…

The contagion story is serious. Even if a depositor thinks that there is only a 1% chance their country will exit the Euro, why take a 1% chance that your life savings are forcibly converted into a perceived worthless currency if by acting quickly (and withdrawing deposits) one can have 100% certainty that your life savings remain in Euros? If Greece were to walk away from the Euro, then the policy makers of the Euro area would have to convince bank depositors across the Euro area that a Euro in their local banking system was worth the same as a Euro in another country’s banking system, and that the possibility of any other country exiting the Euro was nil. If that double guarantee was not utterly credible, then the risk of other countries joining Greece in exiting the Euro would be high.

This suggests that financial markets are treating the risks around Greek exit with too little regard for the probable dangers.

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Like before the recovery gets out of hand.

Fed’s Bullard Says Rate Hikes Are Needed For Coming ‘Boom’ (MarketWatch)

A leading hawk on the Federal Reserve on Wednesday made a case for raising interest rates soon, arguing the level needs to be appropriate for the coming “boom” for the U.S. economy. St. Louis Fed President James Bullard, speaking at the annual Hyman Minsky conference here, acknowledged a boom by current standards might not be the same as the growth in the late 1990s. He pointed out that even if gross domestic product expanded just 1.5% in the first quarter, the four-quarter growth rate would be about 3.3%.With the current potential growth around 2%, growth in the low 3% range “represents growth well above trend,” he said. The first reading on first-quarter GDP is due April 29. Unlike his colleagues, Bullard expects the unemployment rate to fall below 5% from a current level of 5.5%. Bullard said jobless rates in the 4% range are consistent with a boom.

In his remarks, he notably did not specify a month to lift interest rates, and asked by reporters afterwards, he said, “I’m being deliberately vague.” The June meeting is considered the first in which the Federal Open Market Committee will give serious consideration to lifting interest rates. His biggest fear from keeping low rates — they have been near zero for 6.5 years — is that they could lead to financial-stability problems later. He said asset valuations currently look fairly valued, with the notable exception of bonds which Fed policy influences. “So it’s hard to know what that really means.” But he pointed out that Fed policy typically impacts the economy with a lag. “Boom times ahead, plus us already charting out low interest rates, sounds like risky from a bubble perspective,” he said.

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She’s not the only one. But perhaps she should have said this a year ago.

Warren Says Auto Lending Reminds Her Of Pre-Crisis Housing Days (MarketWatch)

Senator Elizabeth Warren on Wednesday used a major address on financial regulation to chide automobile lending practices as she continued her criticism of the country’s largest banks. Warren was speaking on the topic of the unfinished business of financial reform, and looking at the financial sector five years after the passage of the Dodd-Frank reform law. Warren, the leading contender to block a Hillary Clinton presidential nomination on the Democratic side if she were to step into the race, took particular aim at the fast-growing automobile lending category. “Right now, the auto loan market looks increasingly like the pre-crisis housing market, with good actors and bad actors mixed together,” the Massachusetts Democrat said.

“The market is now thick with loose underwriting standards, predatory and discriminatory lending practices, and increasing repossessions.” Warren pointed out that car dealers got a specific exemption from the Consumer Financial Protection Bureau, the agency which Warren all but singlehandedly brought to life. “It is no coincidence that auto loans are now the most troubled consumer financial product. Congress should give the CFPB the authority it needs to supervise car loans – and keep that $26 billion a year in the pockets of consumers where it belongs,” she said, referring to an estimate of dealer markups.

The CFPB has taken some steps in the area of automobile loans and has proposed a rule that would bring larger auto lenders that are not already banks under its jurisdiction. Warren was on more familiar ground with her call to break up the nation’s banks. She pointed out that last summer the Federal Reserve and the Federal Deposit Insurance Corp. said 11 banks were risky enough to bring down the U.S. economy if they were to fail. She also blasted the Justice Department, the Federal Reserve and the Securities and Exchange Commission for timidity in going after major banks. “The DOJ and SEC sit by while the same giant financial institutions keep breaking the law — and, time after time, the government just says, ‘Please don’t do it again.’ ”

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How much further must this go before something is done?

27% Of US Students Are Over A Month Behind On Their Loan Payments (Zero Hedge)

As we’ve documented exhaustively in the past, the country is laboring under around $1.3 trillion in non-dischargeable loans to students which isn’t a good thing, especially in a country where the jobs driving the economic “recovery” have, until last month, been created in the food service industry and where wage growth is a concept reserved for only 20% of the workforce. It would seem that this could make it increasingly difficult for students to repay their debt, especially considering how quickly tuition costs have risen. In other words, tuition is going up, wages aren’t, and the latter point there is only relevant in the event you find a job that pays you a wage in the first place (i.e. where your compensation isn’t determined by the generosity of the “supervisory” Americans who can still afford to eat out).

The severity of the problem has been partially masked at times by the tendency to inflate the denominator when one goes to calculate delinquency rates. That is, if you include all student debt outstanding, even that in deferment or forbearance in the denominator, then clearly the delinquency rate will be biased to the downside because the numerator will by necessity only include those students who are currently in repayment. That’s really convenient if you want to make things look less bleak than they actually are.

Of course you can’t be delinquent when you aren’t yet required to make payments, so the more accurate way to calculate the figure would be to include only those students in repayment in the denominator. This apples-to-apples comparison is likely to paint much more accurate picture and sure enough, a new St. Louis Fed (who recently documented the shrinking American Middle Class) study finds that the delinquency rate for students in repayment is 27.3%, well above the 17% figure for all student borrowers. Here’s more:

[..] if we adjust the delinquency rate to consider that only a fraction of the borrowers have payments due, this level of delinquency is very concerning: A delinquency rate of 15% for all student loan borrowers implies a delinquency rate of 27.3% for borrowers with loans in repayment. This level of delinquency is much higher than for any other type of debt (credit cards, auto loans, mortgages, and so on).

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That feels more like it. Over 70% of capital invested in housing, which fell 6%…

China’s True Economic Growth Rate: 1.6% (Zero Hedge)

Cornerstone Macro reports, “Our China Real Economic Activity Index Slowed To Just 1.6% YY In 1Q.” The indicator in question looks at many of the components shown above, such as retail sales, car sales, rail freight, industrial production, and several others, to determine an accurate indicator of the true state of China’s economy. It finds that not only is China’s economic growth rate not rising at a 7.0% Y/Y rate, but is in fact the lowest it has been in modern history! And a 1.6% growth rate by what was formerly the world’s most rapidly growing (and largest according to the IMF) economy explains perfectly what happened with the US economy over the past 6 months. Hint: it has nothing to do with the winter, and everything to do with China hard landing into a brick wall.

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“China is currently enjoying the somewhat dubious fruits of one of the all-time great stock manias.”

The South (China) Sea Bubble (Corrigan)

The first hard data release of the month for China was hardly guaranteed to reassure. Two-way trade in USD terms dropped 6.3% in the first quarter from its level of a year ago, the second most severe setback since the Crash and only the third such instance in the whole era of ‘Opening Up’. From a strictly local perspective, the bad news was mitigated by the fact that exports managed to eke out a modest YOY gain of 4.7% (though that still means they were effectively unchanged from 2013 levels) and so the trade surplus was left at a record seasonal high. For the rest of us, however, anxious as we are to sell more of our wares to China, there was no such comfort. Imports plunged by more than a sixth to a four-year low, registering a drop which, if nowhere near as large in percentage terms, was, when measured in numbers of dollars, equal to that suffered in the global freeze which ensued in the aftermath of the Lehman collapse.

Though it always does to await the full data release for the first quarter – given the inordinate impact on comparisons of that highly moveable feast, the Lunar New Year – these numbers are fully consonant with the evidence presented during the first two months which showed flat non-residential electricity use and rail freight volumes down to seven year seasonal lows. It is undoubtedly the case that the bulk of the pain being felt is concentrated where it should be – up in the dirty, surplus capacity-plagued end of heavy industry and extraction – but, nevertheless, Chinese data show that 12-month running profits have dwindled to zero (if we strip out companies’ non-core – qua speculative – activities) and that for the last three months for which we have numbers they had actually declined in a manner not seen since the world stood still in late 2008/early 2009.

Revenue growth was also sickly, while balance sheets continue to swell with debt and receivables. Granted, private joint-stock companies continue to outperform their state-owned peers – or so the NBS would have us believe – but, even here, core profit growth over the whole of 2014 was a mere 4.2% with turnover up 9.2% (suggesting that margins simultaneously contracted). In such an environment, you might think that investor spirits would be dampened but, as anyone who has opened a paper in recent days will be aware, that is very much far from being the case.

Indeed, China is currently enjoying the somewhat dubious fruits of one of the all-time great stock manias. The CSI300 composite of Shanghai and Shenzhen equities has double since last July, with the seven-eighths of those gains coming in the last six months and almost a third of them in the past six weeks. With first Y1 trillion then Y1.5 trillion trading days being recorded and with 1.6 million [sic] new trading accounts being opened in the latest week for which we have the numbers, it is easy to see that this has rapidly degenerated into an indiscriminate free-for-all.

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“..a Keynesian-on-steroids stimulus that occurs at the municipal level by building all sorts of public infrastructure that requires stealing land from farmers..”

Don’t Invest In ‘Unsustainable’ China: Professor (CNBC)

China bear Peter Navarro is telling investors not to put their money in the country because its economic model is unsustainable. “What you got is a mercantilist export-driven model for China coupled with a Keynesian-on-steroids stimulus that occurs at the municipal level by building all sorts of public infrastructure that requires stealing land from farmers,” the University of California, Irvine economics professor told CNBC’s “Power Lunch” on Wednesday. Navarro, who co-wrote “Death By China,” attributes China’s slowing growth to less demand coming from the U.S. and Europe for Chinese exports.

“The problem is simply that Europe and the U.S., which provided the 10% growth year after year for three decades, are now too weak to sustain that,” he said. In addition, China is facing rising wages, labor issues, water shortages and a stock market and real estate bubble, Navarro said. On Wednesday, China’s statistics bureau announced that GDP grew an annual 7% in the first quarter, slowing from 7.3% in the previous quarter. That was the country’s slowest pace of growth in six years, suggesting the world’s second-largest economy was still losing momentum.

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“..every investment-led growth miracle in the last 100 years has broken down.”

The Major Paradox at the Heart of the Chinese Economy (Bloomberg)

“The latest GDP report underscores offsets coming from China’s services-led transformation — a key underpinning of consumer demand,” said Stephen Roach… “I suspect the economy is close to bottoming and could well begin to pick up over the balance of this year.” Chinese officialdom has little choice but to tap on the brakes of the old-line economy. Years of politically driven investment with diminishing returns led to too much debt and industrial overcapacity, as well as ghost towns with unfinished hotels and unoccupied residential towers. Bad debt piled up at a faster pace at China’s big state banks in the fourth quarter. Meanwhile, the country’s total debt — government, corporate and household — rose to about $28 trillion by mid-2014, according to an estimate by McKinsey, or about 282% of GDP.

Xi and Premier Li Keqiang are trying to defuse that debt bomb, rein in banks and local governments and promote the nation’s stock markets as a primary way for innovative and smaller companies to raise capital. Both leaders say they’ve mapped out more than 300 reforms that over time will reduce state intervention in the economy. Among the initiatives is scaling back energy-price controls that favor manufacturers. The changes are also designed to improve the social safety net and encourage market-driven deposit rates to get Chinese families saving less and spending more.

Few countries with the scale of China’s credit boom have escaped unscathed without experiencing some sort of banking crisis. Research by Michael Pettis, a finance professor at Peking University, shows that “every investment-led growth miracle in the last 100 years has broken down.” Avoiding that fate requires a high-wire balancing act for the government. It needs to wind down the torrent of investment – 49% of China’s GDP from 2010 to 2014 – without cratering the economy and worsening the situation for indebted local governments or the bad-debt burden of Chinese banks.

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Anything goes by now?!

China Seen Expanding Mortgage Bonds to Revive Housing (Bloomberg)

China is poised to expand mortgage bonds to lift its slumping real estate market that accounts for a third of the economy. Officials will likely allow banks to sell commercial mortgage-backed notes for the first time by the end of the year after reviving securities tied to home loans in 2014, according to China Merchants Securities Co. and China Chengxin International Credit Rating Co. The offerings, which help banks boost mortgage lending by freeing space on balance sheets, will grow “substantially” this year, China Credit Rating Co. said. The government of Premier Li Keqiang eased home-purchase rules after new housing prices slid in many cities across China in February.

Authorities, who halted securitization in 2009 after subprime mortgage bonds triggered the global financial crisis, are returning to such offerings to spur an economy growing at the slowest pace since 1990. “The launch of commercial mortgage-backed securities may send a strong policy signal because it will give banks more space to lend money directly to property developers,” said Zuo Fei, a Shenzhen-based director of structured finance at China Merchants Securities, underwriter of the first RMBS deal this year. “The regulators are trying to improve property purchases in a gradual and an appropriate way.”

The People’s Bank of China on March 30 cut the required down payment for some second homes to 40% from 60% and has reduced benchmark interest rates twice since November. The central bank and the China Banking Regulatory Commission said on Sept. 30 that they will encourage lenders to issue mortgage-backed securities. The government is trying balance efforts to provide new financing with steps to rein in unprecedented borrowing. Real estate companies sold a record $44.4 billion-equivalent of bonds in 2014, data compiled by Bloomberg show. In the latest sign of industry stress, Kaisa Group Holdings Ltd., based in the southern city of Shenzhen, is seeking a restructuring that would impose noteholder losses, fueling speculation that builder defaults may spread.

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Is Ambrose seeking to offset the bleak views he posted lately?

Bonds Beware As Money Catches Fire In The US And Europe (AEP)

Be thankful for small mercies. The world economy is no longer in a liquidity trap. The slide into deflation has, for now, run its course. The broad M3 money supply in the US has been soaring at an annual rate of 8.2pc over the past six months, harbinger of a reflationary boomlet by year’s end. Europe is catching up fast. A dynamic measure of eurozone M3 known as Divisia – tracked by the Bruegel Institute in Brussels – is back to growth levels last seen in 2007. History may judge that the ECB launched quantitative easing when the cycle was already turning, but Italy’s debt trajectory needs all the help it can get. The full force of monetary expansion – not to be confused with liquidity, which can move in the opposite direction – will kick in just as the one-off effects of cheap oil are washed out of the price data.

“Forecasters ignore broad money at their peril,” says Gabriel Stein, at Oxford Economics. Inflation will soon be flirting with 2pc across the Atlantic world. Within a year, the global economic landscape will look entirely different, with an emphasis on the word “look”. In my view this will prove to be mini-cyclical in a world of “secular stagnation” and deficient demand, but mini-cycles can be powerful. Mr Stein said total loans in the US are now growing at a faster rate (six-month annualised) than during the five-year build-up to the Lehman crisis. “The risk is that the Fed will have to raise rates much more quickly than the markets expect. This is what happened in 1994,” he said. That episode set off a bond rout. Yields on 10-year US Treasuries rose 260 basis points over 15 months, resetting the global price of money. It detonated Mexico’s Tequila crisis.

Bonds are even more vulnerable to a reflation shock today. You need a very strong nerve to buy German 10-year Bunds at the current yield of 0.16pc, or French bonds at 0.43pc, at time when EMU money data no longer look remotely “Japanese”. Granted, there may be tactical reasons for buying Bunds, even at negative yields out to eight years maturity. Supply is drying up. Berlin is pursuing a budget surplus with religious zeal, paying down €18bn of debt over the past year. It has left the Bundesbank little to buy as it launches its share of QE. Yet this is collecting pfennigs on the rails of a high-speed train. The German property market is on the cusp of a boom. David Roberts, of Kames Capital, warns of a “poisonous cocktail” of resurgent inflation and rising wages. “If you look at Bunds in anything other than the shortest possible timescale, the risk becomes very clear.”

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Dick Tator. Mr. Dick Tator.

ECB’s Mario Draghi Says Stimulus Is Working (WSJ)

European Central Bank President Mario Draghi said the bank’s stimulus efforts are beginning to take hold in the European economy and batted away concerns in financial markets that the bank may have to end its more than €1 trillion ($1.1 trillion) asset purchase program early. Mr. Draghi’s Wednesday news conference, held after the ECB decided to keep interest rates and other policies unchanged, was briefly interrupted by a confetti-throwing protester who jumped on the table where Mr. Draghi was seated and shouted “end the ECB dictatorship” as he began his opening remarks.

Mr. Draghi, who appeared unfazed by the ruckus after being whisked away by his bodyguards to a side room for a few minutes, said the bank’s stimulus drive is “finally finding its root” in the economy through easier credit conditions and lower inflation-adjusted interest rates. “The euro area economy has gained further momentum since the end of 2014,” said Mr. Draghi. “We expect the economic recovery to broaden and strengthen gradually.” Still, Mr. Draghi said the region’s recovery depends on full implementation of the ECB’s policies. Those include a record-low lending rate that the ECB kept unchanged Wednesday; cheap four-year loans to banks; and a €60 billion-a-month program to buy mostly government bonds that the ECB launched last month and intends to continue through September 2016.

On Tuesday, the IMF raised its forecast for eurozone growth this year to 1.5% from 1.2%. Though well below the levels of growth the U.S. has achieved during its recovery, it was a welcome development for a region that last year narrowly escaped its third recession in six years. Mr. Draghi cited a long list of reasons why this recovery should continue whereas previous ones have faltered. Lower oil prices, which cut costs for businesses and households, are joining the ECB’s stimulus in boosting the economy, Mr. Draghi said, noting that business and consumer confidence is up and that there should be fewer headwinds from fiscal policy.

[..] Mr. Draghi also played down concerns that the superlow interest rates brought on by the ECB’s policies could fuel bubbles in financial markets. “So far we have not seen evidence of any bubble,” he said, adding that regulatory policies, known as macroprudential tools, would be “the first line of defense” if imbalances started to form. He sidestepped questions about how the ECB would react in the event Greece isn’t able to reach agreement with its international creditors to unlock bailout funds, saying developments are “entirely in the hands of the Greek government.”

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Schaeuble needs to stop telling Greece what to do.

Schaeuble Says Greece Must Ditch False Hopes, Commit to Reform (Bloomberg)

German Finance Minister Wolfgang Schaeuble ruled out further concessions to Greece, saying it’s up to the Greek government to commit to the reforms needed to release aid rather than give false hopes to its people. Schaeuble, speaking in a Bloomberg Television interview in New York on Wednesday, said that another debt restructuring wasn’t up for discussion now, and that Greek demands for war reparations from Germany were “completely unrealistic.” “It’s entirely down to Greece,” said Schaeuble, 72. While some kind of restructuring might be on the agenda in 10 years, “today the issue for Greece is reforming its economy in such a way that it becomes competitive at some point.”

Greece’s plight is deepening with no end in sight to the standoff with creditors over releasing the final installment of bailout aid that has been stalled since the January election of Prime Minister Alexis Tsipras’s anti-austerity government. Greek 10-year bond yields surged and bank stocks plunged to their lowest level in at least 20 years on Wednesday after a report in Die Zeit newspaper the German government was working on a plan to keep Greece in the euro area if the country defaulted, triggering a halt to European Central Bank funding. “We don’t have such plans, and if we were working on them – because ministry staff are taking just about everything into consideration – then we would definitely not talk about it,” said Schaeuble. “It makes no sense to speculate about it.”

With a monthly bill of about €1.5 billion for pensions and salaries and repayments to its international creditors looming, Greece is targeting next week’s meeting of euro-area finance ministers in Riga, Latvia, as a deadline for unlocking the funds. While Schaeuble said earlier Wednesday that “no one” in the euro region expects a resolution of the standoff by the Riga meeting on April 24, he softened his tone in the interview, saying that the end of the program on June 30 was the only deadline that mattered. “If Greece wants support, we will give this support as in recent years, but of course within the framework of what we agreed,” he said. While the decisions ultimately lie with Greece, “whatever happens: we know that Greece is part of the European Union and that we also have a responsibility for Greece and we will never disregard this solidarity.”

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“..Tsipras’s government had “destroyed” progress made by previous administrations..” That’s the progress that led to hungry children?!

Schaeuble Criticizes Greece for Backsliding as Time Runs Out (Bloomberg)

German Finance Minister Wolfgang Schaeuble criticized Greece for backsliding on reforms, saying that “no one” expects a resolution next week of the standoff with Alexis Tsipras’s government over untapped bailout funds. Schaeuble, in his first comments on the matter since before the Easter holidays, said Tsipras’s government had “destroyed” progress made by previous administrations in overhauling the Greek economy. “It’s a tragedy,” he said Wednesday at the Council on Foreign Relations in New York, adding that the country needed to become competitive to stop being a “bottomless pit.” The comments by the finance chief of the region’s biggest economy underscored the rising concern in European capitals that Greece is running out of time to unfreeze the aid needed to keep the country afloat.

Standard & Poor’s cut Greece’s rating Wednesday, citing the country’s deteriorating outlook. Schaeuble is among European officials who are skeptical that there’s enough time to work out a deal ahead of a meeting of euro-area finance ministers at the end of next week in Riga, Latvia, to assess whether Greece has made enough progress to warrant a disbursement from its €240 billion bailout fund. Leaders are pressuring Greece to submit specific reforms as the country runs out of cash and faces debt payments and monthly salary obligations in the coming weeks.

Germany said Wednesday that an aid payment from the bailout fund won’t happen this month, and that Greece’s negotiations with creditors have failed to move forward. “I said last time that there has been progress, but that really there is still a considerable need for negotiations,” Friederike von Tiesenhausen, a German Finance Ministry spokeswoman, said. “Things have not really changed.” Greece’s credit rating was lowered one level to CCC+, with a negative outlook, by S&P, which estimated that the country’s economy contracted close to 1% in the past six months. The downgrade leaves the nation’s rating seven steps into junk territory.

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“..taxes might have to go up to cover a $25bn budget black hole caused by falling commodity prices..” “..BHP Billiton and Rio Tinto launched a huge expansion which saw mining investment as a percentage of the Australian economy peak at a whopping 7% in 2012. ”

Australia’s Economy: Is The Lucky Country Running Out Of Luck? (Guardian)

After 24 years of uninterrupted economic growth, Australia is entering the kind of difficult waters experienced by every other major developed country in the past decade. Even if Thursday’s unemployment figures show more jobs were added last month, the Coalition is set to go into the next election with an unusually gloomy outlook. Australians are finding it harder to get a job than at any time in more than decade and those who are in work are seeing the weakest wage growth for two decades. There are even fears that taxes might have to go up to cover a $25bn budget black hole caused by falling commodity prices. As one leading economist put it, the lucky country is running out of luck. Growth is still on target for a healthy at 2.8% for this year, according to the IMF, the kind of number that would send European leaders scrambling for the tweet button.

But the question of whether Australia loses its remarkable record of continuous growth depends, as with almost everything else in the economy, on what happens in China. “Australia has gone 24 years without a recession thanks to good management and good luck,” said Saul Eslake at BoA in Sydney. “Up to the early 2000s it was managed well and then it wasn’t. But then the luck improved because of China’s huge stimulus after the global financial crisis. Now the luck is running out.” The slowdown in the world’s second biggest economy is now well and truly underway. Demand for Australia’s iron ore and coal has plummeted from a decade ago as Beijing seeks to scale back its huge building schemes and create a more consumer-led economy. The price of the steel-making commodity, Australia’s biggest export, has fallen from $130 at the start of 2014 to around $50. Coal has halved in price in the past four years.

Buoyed by the good times, resource companies led by BHP Billiton and Rio Tinto launched a huge expansion which saw mining investment as a percentage of the Australian economy peak at a whopping 7% in 2012. The new output from their giant mines in Western Australia is now hitting the market, making export figures look healthy but adding to the pressure on prices and leaving Australia with a potentially wretched hangover.

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How does this not violate the Minsk agreement?

US Military Lands in Ukraine (Ron Paul Inst.)

Paratroopers from the US Army’s 173rd Airborne Brigade have arrived in Ukraine to begin training that country’s national guard and provide it with new military equipment. The Ukrainian government took power in a US-backed coup in early 2014 and has waged war on eastern provinces that wish to breakaway from what they see as an illegitimate government. The US military action, dubbed “Operation Fearless Guardian,” will improve the Washington-backed faction’s ability to wage war against the breakaway regions, but at least in spirit will violate the “Minsk II” ceasefire agreement which mandates a “pullout of all foreign armed formations, military equipment.”

The US military involvement on behalf of the US-backed government in Kiev comes at a key time in the shaky ceasefire. The Organization for Security and Cooperation in Europe (OSCE) has noted a serious increase in fighting in the breakaway eastern regions of Ukraine and OSCE monitors have pointed the finger at US-backed Kiev as the instigator of these new attacks. The relevant OSCE report finds:

…that the Ukrainian side (assessed to be the Right Sector volunteer battalion) earlier had made an offensive push through the line of contact towards Zhabunki (“DPR”-controlled, 14km west-north-west of Donetsk…

The US military’s “Operation Fearless Guardian” will ultimately involve some 300 US Army personnel “training three battalions of Ukrainian troops in a range of infantry tactics.” With Ukraine’s US-backed president promising to “retake” the breakaway regions in the east despite having signed the ceasefire, it is clear that US training constitutes the beginning of direct US military involvement in the Ukrainian conflict. As such it is undeniably an escalation.

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Well, they sure have no money to buy entirely new systems.

Greece In Talks With Russia To Buy Missiles For S-300 Systems (Reuters)

Greece is negotiating with Russia for the purchase of missiles for its S-300 anti-missile systems and for their maintenance, Russia’s RIA news agency quoted Greek Defense Minister Panos Kammenos as saying on Wednesday. The report followed a visit by Greek Prime Minister Alexis Tsipras last week to Moscow, where he won pledges of Russian moral support and long-term cooperation but no fresh funds to help avert bankruptcy for his heavily indebted nation. NATO member Greece has been in possession of the Russian-made S-300 air defense systems since the late 1990s.

“We are limiting ourselves to replacement of missiles (for the systems),” RIA quoted Kammenos, who is in Moscow for a security conference, as saying. “There are negotiations between Russia and Greece on the maintenance of the systems … as well as for the purchase of new missiles for the S-300 systems,” he said. The Greek defense ministry in Athens later issued a statement quoting Kammenos as saying: “The existing defense cooperation programs will continue. There will be maintenance for the existing programs.”

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Paid for years ago.

Putin to Netanyahu: Iran S-300 Air Defense System is .. Defensive (Juan Cole)

Russian President Vladimir Putin spoke by phone with Israeli Prime Minister Binyamin Netanyahu Tuesday with regard to the Russian Federation’s decision to go ahead with the sale to Iran of S-300 anti-aircraft batteries. Iran bought the batteries several years ago, but delivery was delayed by Moscow because of US and international pressure. The US has led the imposition of severe economic sanctions on Iran, perhaps the most severe ever applied to any country in modern history, including having Iran kicked off the SWIFT bank exchange. In deference to US wishes, Russia did not ship the system.

Two things have now changed. First, Russia and the US are not getting along nearly as well in the wake of the Russian annexation (or reclaiming, from Moscow’s point of view) of Crimea from Ukraine and its support for ethnically Russian fighters in Ukraine’s east. In fact, the US has begun imposing sanctions on Russia. In turn, Russia no longer has great regard for US wishes. Second, the five permanent members of the UN Security Council plus Germany have concluded a framework agreement permitting Iran’s civilian nuclear enrichment program, which is aimed at imposing inspections and equipment restrictions that would make it very difficult if not impossible for Iran to break out and create a nuclear weapon.

Russia and China have been the least supportive of severe sanctions on Iran, and Russia appears to have decided that since the negotiations have reached a serious phase, it is time to go ahead with this deal, concluded some time ago. The announcement alarmed Israeli Prime Minister Binyamin Netanyahu, whose government has often hinted around that it might bomb Iran. The Putin government issued a communique that “gave a detailed explanation of the logic behind Russia’s decision…emphasizing the fact that the tactical and technical specifications of the S-300 system make it a purely defensive weapon; therefore, it would not pose any threat to the security of Israel or other countries in the Middle East.”

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“..safeguard Creation … Because if we destroy Creation, Creation will destroy us!”

Vatican Announces Major Summit On Climate Change (ThinkProgress)

Catholic officials announced on Tuesday plans for a landmark climate change-themed conference to be hosted at Vatican later this month, the latest in Pope Francis’ faith-rooted campaign to raise awareness about global warming. The summit, which is scheduled for April 28 and entitled “Protect the Earth, Dignify Humanity. The Moral Dimensions of Climate Change and Sustainable Development,” will draw together a combination of scientists, global faith leaders, and influential conservation advocates. UN Secretary General Ban Ki-moon is slotted to offer the opening address, and organizers say the goal of the conference is to “build a consensus that the values of sustainable development cohere with values of the leading religious traditions, with a special focus on the most vulnerable.”

“[The conference hopes to] help build a global movement across all religions for sustainable development and climate change throughout 2015 and beyond,” read a statement posted on several Vatican-run websites. According to a preliminary schedule of events for the convening, attendees hope to offer a joint statement highlighting the “intrinsic connection” between caring for the earth and caring for fellow human beings, “especially the poor, the excluded, victims of human trafficking and modern slavery, children, and future generations.” The gathering will undoubtedly build momentum for the pope’s forthcoming encyclical on the environment, an influential papal document expected to be released in June or July.

The Catholic Church has a long history of championing conservation and green initiatives, but Francis has made the climate change a fixture of his papacy: he directly addressed the issue during his inaugural mass in 2013, and told a crowd in Rome last May that mistreating the environment is a sin, insisting that believers “safeguard Creation … Because if we destroy Creation, Creation will destroy us! Never forget this!” The Vatican also held a five-day summit on sustainability in 2014, calling together microbiologists, economists, legal scholars, and other experts to discuss ways to address climate change.

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