Jan 302017
 
 January 30, 2017  Posted by at 10:15 am Finance Tagged with: , , , , , , , , ,  7 Responses »
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Edvard Munch Vampire 1893


Canadian PM Says Québec Mosque Shooting A ‘Terrorist Attack On Muslims’ (R.)
Canada To Offer Temporary Residency To Travelers Stranded By US (R.)
Trump Immigration Order Restricted By More US Judges (R.)
Priebus Says Trump’s Immigration Ban Doesn’t Include Green Card Holders (BBG)
Theresa May Confirms UK Exempt From Trump’s ‘Muslim Ban’ (Ind.)
A Clarifying Moment in American History (Eliot A. Cohen)
US Became A Dumping Ground For The World. No More (CNBC)
The Persuasion Filter and Immigration (Adams)
Theresa May To Warn Devolved Nations: You Have No Veto On Brexit (G.)
UK and EU Heading For Economic Cold War – Italian Foreign Minister (G.)
Eurozone ‘Destruction’ Necessary For Countries To Thrive Again – Stark (Tel.)
The Dollar Will Die With a Whimper, Not a Bang (Rickards)
Dow Companies Report Worst Revenues since 2010, Dow Rises to 20,000 (WS)
Eurozone Bailout Fund Says Greek Public Debt Is ‘Manageable’ (R.)
Turkish Gunboat With Army Chief Sails Into Greek Waters; High Alert (K.)
Greek Fishermen Who Brave The Seas To Rescue Refugees Now Need Saving (NBC)
NASA – 30 Years Of Before And After Images Around The World (F.)

 

 

Be wary of false flags. And ponder how much Canada is ahead of anybody else on immigration.

Canadian PM Says Québec Mosque Shooting A ‘Terrorist Attack On Muslims’ (R.)

Six people were killed and eight wounded when gunmen opened fire at a Quebec City mosque during Sunday night prayers, in what Canadian Prime Minister Justin Trudeau called a “terrorist attack on Muslims”. Police said two suspects had been arrested, but gave no details about them or what prompted the attack. Initially, the mosque president said five people were killed and a witness said up to three gunmen had fired on about 40 people inside the Quebec City Islamic Cultural Centre. Police said only two people were involved in the attack. “Six people are confirmed dead – they range in age from 35 to about 70,” Quebec provincial police spokeswoman Christine Coulombe told reporters, adding eight people were wounded and 39 were unharmed.

The mosque’s president, Mohamed Yangui, who was not inside when the shooting occurred, said he got frantic calls from people at evening prayers. “Why is this happening here? This is barbaric,” he said. Prime Minister Justin Trudeau said in a statement: “We condemn this terrorist attack on Muslims in a center of worship and refuge”. “Muslim-Canadians are an important part of our national fabric, and these senseless acts have no place in our communities, cities and country.” The shooting came on the weekend that Trudeau said Canada would welcome refugees, after U.S. President Donald Trump suspended the U.S. refugee program and temporarily barred citizens from seven Muslim-majority countries from entering the United States on national security grounds.

A Canadian federal Liberal legislator, Greg Fergus, tweeted: “This is an act of terrorism – the result of years of sermonizing Muslims. Words matter and hateful speeches have consequences!” The premier of Quebec province, Philippe Couillard, said security would be increased at mosques in Quebec City and Montreal. “We are with you. You are home,” Couillard said, directing his comments at the province’s Muslim community. “You are welcome in your home. We are all Quebecers. We must continue together to build an open welcoming and peaceful society”.

Read more …

Immigration Minister Ahmed Hussen was born in Somalia.

Canada To Offer Temporary Residency To Travelers Stranded By US (R.)

Canada will offer temporary residency to any travelers stranded by U.S. President Donald Trump’s orders temporarily barring people from seven Muslim-majority countries, a senior official said on Sunday. Immigration Minister Ahmed Hussen told a news conference he did not know how many people might be eligible but said only a handful of passengers headed to the United States from Canada had been denied boarding. Trump’s decision on Friday, which also affects refugees, left many people uncertain of whether they could enter the United States. “Let me assure those who may be stranded in Canada that I will use my authority as minister to provide them with temporary residency if they need it,” Hussen said.

Liberal Prime Minister Justin Trudeau’s government has refrained from criticizing the United States, which takes 75% of Canadian exports, preferring instead to stress Canada is open to refugees. “Every country has the right to determine their policies,” said Hussen. The Canadian Council for Refugees and the Canadian Civil Liberties Association, or CCLA, called on Ottawa to withdraw from a Safe Third Country agreement with the United States, under which Canada returns asylum seekers crossing the border. “There’s a danger that the U.S. is doing blanket detentions and deportations … and not honoring asylum claims,” said CCLA Executive Director Sukanya Pillay. Such a move would be diplomatically insulting and Hussen said the pact would remain unchanged for now.

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Many many lawsuits in the pipeline. Attorneys general are getting together to challenge this. Sharp edges are already being blunted.

Trump Immigration Order Restricted By More US Judges (R.)

U.S. judges in at least four states blocked federal authorities from enforcing President Donald Trump’s executive order restricting immigration from seven Muslim-majority countries. Judges in Massachusetts, Virginia and Washington state, each home to major international airports, issued their rulings late Saturday or early Sunday, following an order on Saturday night by U.S. District Judge Ann Donnelly in New York’s Brooklyn borough. Donnelly had ruled in a lawsuit by two men from Iraq being held at John F. Kennedy International Airport. While none of the rulings struck down the executive order, the growing number of orders could complicate the administration’s effort to enforce it. Trump’s order on Friday halted immigration from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen for 90 days, and stopped the resettlement of refugees for 120 days.

The new Republican president said these actions were needed “to protect the American people from terrorist attacks by foreign nationals admitted to the United States.” Condemnation of the order was swift and broad-based. Democratic politicians and civil rights groups weighed in, as well as U.S. allies who view the actions as discriminatory and divisive. Democratic attorneys general from California, New York and other states, meanwhile, were discussing whether to pursue their own legal challenges. The U.S. Department of Homeland Security on Sunday said it “will comply with judicial orders,” while enforcing Trump’s executive order in a manner that ensures those entering the United States “do not pose a threat to our country or the American people.”

Across the United States, lawyers worked overnight to help confused international travelers at airports. Activists and lawyers tracking the arrivals said some Border Patrol agents appeared to be disregarding the various court orders. “There is really no method to this madness,” Becca Heller, director of the New York-based International Refugee Assistance Project organization, told reporters on a conference call.

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Homeland Security Secretary John Kelly has confirmed this.

Priebus Says Trump’s Immigration Ban Doesn’t Include Green Card Holders (BBG)

The White House defended President Donald Trump’s executive order halting entry to the U.S. from seven predominantly Muslim Middle East countries after judges blocked parts of the plan. Republican lawmakers suggested the president’s action was too broad and potentially damaging to the U.S. Trump’s chief of staff said the immigration order doesn’t include holders of green cards, although those people could be subject to additional steps when they travel overseas. A federal judge in Boston became the latest to curb Trump’s immigration order, directing customs officials at the city’s Logan International Airport on Sunday to let passengers from the seven countries with valid visas disembark and go on their way. Trump told his almost 23 million Twitter followers on Sunday morning: “Our country needs strong borders and extreme vetting, NOW. Look what is happening all over Europe and, indeed, the world – a horrible mess!”

[..] The judges’ moves came at the end of a day when a number of students, refugees and dual citizens were stuck overseas or detained, and some businesses, including Google, warned employees from those countries not to risk leaving the U.S. Spontaneous protests erupted at a number of airports around the nation, and world leaders including London’s mayor and Canada’s prime minister joined U.S. lawmakers in crying foul. Although some U.S. visa and green-card holders were blocked from boarding flights to the U.S. on Saturday after the order was issued, “the executive order doesn’t affect green-card holders moving forward,” Reince Priebus, the White House chief of staff, said Sunday on NBC’s “Meet the Press” in what seemed to be an adjustment to the administration’s policy.

He added that green-card holders – legal permanent residents – may be subject to additional screening if they travel to one of the seven countries targeted by the order. Even U.S. citizens may be affected: “I would suspect that if you’re American citizen traveling back and forth to Libya you’re likely to be subjected to further questioning when you come into an airport.,” Priebus said.

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As is Canada.

Theresa May Confirms UK Exempt From Trump’s ‘Muslim Ban’ (Ind.)

Theresa May has confirmed most UK citizens will not be affected by Donald Trump’s “Muslim ban” in a frantic bid to prevent a broad backlash against the policy from damaging her government. Foreign Secretary Boris Johnson sought the clarification in anxious calls to senior figures in Mr Trump’s team, highlighting the political problems the ban was causing Ms May’s administration. The Prime Minister had finally told Mr Johnson and Home Secretary Amber Rudd to “make representations” to their US counterparts, after she initially refused to condemn the ban sparking an angry backlash from her own MPs and others. Her early reluctance to criticise it came after she was the first foreign leader to visit Mr Trump at the White House, where the pair were pictured holding hands and the President delighted Ms May by expressing a desire to sign a quick post-Brexit trade deal with the UK.

The clarification to Mr Trump’s plan to temporarily ban travellers coming into the US from a group of predominantly Muslim countries – Iraq, Iran, Libya, Somalia, Sudan, Syria and Yemen – confirms that the only people affected will be dual citizens of the UK and a listed country, going directly to the US from the listed country. But it is unclear if the move by ministers will be enough to quell anger over the ban, much of which was targeted at its discriminatory nature rather than the effect on Britons alone. As events unfolded on Sunday, Conservatives demanded Mr Trump be forbidden from addressing Parliament on his state visit, Labour and the Lib Dems called for the President to be banned from the country and champion athlete Sir Mo Farah launched an outspoken attack on the ban.

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“..as Lincoln put it, a perpetual story of “a rebirth of freedom”..”

A Clarifying Moment in American History (Eliot A. Cohen)

In an epic week beginning with a dark and divisive inaugural speech, extraordinary attacks on a free press, a visit to the CIA that dishonored a monument to anonymous heroes who paid the ultimate price, and now an attempt to ban selected groups of Muslims (including interpreters who served with our forces in Iraq and those with green cards, though not those from countries with Trump hotels, or from really indispensable states like Saudi Arabia), he has lived down to expectations. Precisely because the problem is one of temperament and character, it will not get better. It will get worse, as power intoxicates Trump and those around him. It will probably end in calamity—substantial domestic protest and violence, a breakdown of international economic relationships, the collapse of major alliances, or perhaps one or more new wars (even with China) on top of the ones we already have.

It will not be surprising in the slightest if his term ends not in four or in eight years, but sooner, with impeachment or removal under the 25th Amendment. The sooner Americans get used to these likelihoods, the better. The question is, what should Americans do about it? To friends still thinking of serving as political appointees in this administration, beware: When you sell your soul to the Devil, he prefers to collect his purchase on the installment plan. Trump’s disregard for either Secretary of Defense Mattis or Secretary-designate Tillerson in his disastrous policy salvos this week, in favor of his White House advisers, tells you all you need to know about who is really in charge. To be associated with these people is going to be, for all but the strongest characters, an exercise in moral self-destruction.

For the community of conservative thinkers and experts, and more importantly, conservative politicians, this is a testing time. Either you stand up for your principles and for what you know is decent behavior, or you go down, if not now, then years from now, as a coward or opportunist. Your reputation will never recover, nor should it. Rifts are opening up among friends that will not be healed. The conservative movement of Ronald Reagan and Jack Kemp, of William F. Buckley and Irving Kristol, was always heterogeneous, but it more or less hung together. No more. New currents of thought, new alliances, new political configurations will emerge. The biggest split will be between those who draw a line and the power-sick—whose longing to have access to power, or influence it, or indeed to wield it themselves—causes them to fatally compromise their values.

For many more it will be a split between those obsessed with anxiety, hatred, and resentment, and those who can hear Lincoln’s call to the better angels of our nature, whose America is not replete with carnage, but a city on a hill. This is one of those clarifying moments in American history, and like most such, it came upon us unawares, although historians in later years will be able to trace the deep and the contingent causes that brought us to this day. There is nothing to fear in this fact; rather, patriots should embrace it. The story of the United States is, as Lincoln put it, a perpetual story of “a rebirth of freedom” and not just its inheritance from the founding generation.

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Isn’t it simply the result of having the reserve currency, though?

US Became A Dumping Ground For The World. No More (CNBC)

America’s shift toward bilateral trade deals shows a total loss of faith in the ability of multilateral forums (G7 … G20) and U.N. agencies (IMF, etc.) to rebalance the world economy through effective international policy coordination. That was long time coming – a sad coda to the global economic (political) and financial order created at the Bretton Woods Conference in July 1944. It is at that time that the economic policy coordination was enshrined as one of the fundamental principles in the IMF’s Articles of Agreement, enjoining both surplus and deficit countries to balance out their external trade positions. What followed – to this day – has been an unending comedy of errors, recriminations and hypocrisy as policy coordination and rules of a sustainable free trade were shunned in pursuit of self-serving national interests.

Predictably, surplus countries refused to adjust (i.e., to reduce their surpluses by running stronger domestic demand to boost imports), extolled their “economic virtue” and continued to live off their trade partners. But deficit countries had no choice; they had to adjust (i.e., to reduce their deficits by shrinking their domestic demand and cutting down their imports) because they ran out of money and had to submit to foreign lenders demanding strict conditions with respect to the timing and magnitude of their trade adjustment. And here is the world we ended up with. Germany is currently running the world’s largest trade surplus of $300 billion. China is not very far behind with a $264 billion surplus. Japan’s $200 billion surplus is rapidly catching up with its large Asian neighbor, and a group of smaller export-driven East Asian countries is showing a steadily rising surplus of $300 billion.

These countries account for 40% of world GDP, but their combined trade surpluses of $1 trillion represent about 80% of the world’s total. In other words, nearly half of the world economy is a drag on the rest of the global demand, output and employment. Do you still wonder why the world economy is stuck in a hopelessly slow lane? With its systematic half-a-trillion dollars of quasi structural trade deficits, the U.S. accounts for 40% of the world’s total (trade deficits) and bears the brunt of what some would call beggar-thy-neighbor trade policies. In a more polished diplomatic “G something” language, you could also call that a “collateral damage” of uncoordinated global economic policies. Damage it is. Over the last two years, these trade deficits have taken an entire percentage point out of America’s sluggish economic growth.

Think also of the huge downward pressure on output and employment these deficits exerted, and continue to exert, in our import-competing industries. And think of this, too. While the surplus countries keep accumulating reserves and net foreign assets by recycling the money we pay for our imports, our trade deficits got us to a huge net foreign debt of $7.8 trillion during the first three quarters of last year – a $1 trillion increase from the same period in 2015. People carping about imaginary trade wars say that this is nothing to worry about. They believe that China, Japan and the rest of “dynamic Asia” will keep lending us the money we pay for their imports, and that they will be happy to hold $2.7 trillion of our IOUs – 46% of the total held by foreign investors – as they did at the end of last November. These, of course, are fairy tales. America’s trade problems are urgent and vitally important policy issues.

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I know people hate him, but he’s interesting.

The Persuasion Filter and Immigration (Adams)

[..] my starting point is the understanding that human brains did not evolve to show us reality. We aren’t that smart. Instead, our brains create little movies in our heads, and yours can be completely different from mine. We see that situation now. Half the country thinks President Trump is well on his way to becoming a Hitler-like dictator. But many other Americans think Trump is an effective business person with good intentions. They can’t both be right. I use the word “filter” to describe an optional way of looking at the world. A good filter is one that makes you happy and does a good job of predicting what happens next. Let’s use that standard to compare the Hitler Filter to what I call the Persuasion Filter. The Hitler filter clearly isn’t making people happy. The people watching that movie are protesting in the streets.

Meanwhile, the people who see Trump as a good negotiator looking out for the country are quite happy with the job he has done so far. The Persuasion Filter says Trump opens with a big first offer and negotiates back to something reasonable. If you don’t recognize the method, it looks crazy, random, and racist. But what about predictions? The Persuasion Filter predicting Trump would become president when the Hitler Filter thought he had no chance. Now we have another chance to test the predictive power of the Persuasion Filter. If Trump is a Master Persuader, as I have been telling you for over a year, he just solved his biggest problem with immigration and you didn’t notice. The biggest problem is that his supporters on the right want more immigration control than he can (or should) deliver while his many critics on the left want far less.

Normally when you negotiate there is only one party on the other side. But in this case, Trump is negotiating two extremes in two different directions. It’s the toughest possible situation. Best case scenario is that 40% of the country want you dead when it’s all over. Not good. So what does a President Trump do when he is in an impossible situation? According to the Hitler Filter, he does more Hitler stuff, such as being more extreme than anyone expected with his recent immigration declarations. That filter accurately predicted that he would be “worse” once elected. Sure enough, his temporary immigration ban is more extreme than most people expected. If things never get worse from this point on, we would have to question the Hitler Filter. But if things get worse still, the Hitler Filter is looking good.

Compare to the Persuasion Filter. This filter says Trump always opens with an extreme first offer so he has room to negotiate to the middle. The temporary ban fits that model perfectly. On the immigration topic alone, both the Hitler Filter and the Persuasion Filter predict that we get to exactly the point we are at today. Let’s call that a tie in terms of predictive power. The hard part is predicting what happens next. The Persuasion Filter says Trump is negotiating with his critics on the extreme right at the same time as he is negotiating with his critics on the left. He needed one “opening offer” that would set up both sides for the next level of persuasion. And he found it. You just saw it.

Read more …

Devolved: Scotland, Wales and Northern Ireland. What a mess this is going to be.

Theresa May To Warn Devolved Nations: You Have No Veto On Brexit (G.)

Theresa May is set for a bracing final round of Brexit talks with the leaders of the devolved nations before the likely triggering of article 50, with the prime minister warning her counterparts from Scotland, Wales and Northern Ireland that they can have no veto over the process. May is to see the other leaders in Cardiff on Monday at a meeting of the joint ministerial committee (JMC), the forum for soliciting views from around the UK on the process of leaving the UK. While the first ministers of Scotland and Wales, Nicola Sturgeon and Carwyn Jones, have stressed they cannot accept a hard Brexit without membership of or full access to the EU’s single market, May is set to tell them this will not be possible.

“We will not agree on everything, but that doesn’t mean we will shy away from the necessary conversations and I hope we will have further constructive discussions,” May said in comments released ahead of the meeting. Last week’s supreme court judgment on the need for MPs to vote on triggering article 50 “made clear beyond doubt that relations with the EU are a matter for the UK government and UK parliament”, May said. While the main element of the ruling was to oblige May to put the article 50 process, which will trigger departure from the EU, as a bill to parliament – a subsidiary element of the judge’s decision was that the devolved governments could not veto the process.

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Line of the day: “..We don’t need these kinds of tensions at this time of a geopolitical Jurassic Park..”

UK and EU Heading For Economic Cold War – Italian Foreign Minister (G.)

A senior Italian official has warned that the UK and the European Union are heading into an “economic cold war” over Brexit that could wreak havoc on the west and weaken the continent. Mario Giro, Italy’s deputy foreign minister, said that while many countries in the EU had said the UK’s vote to leave the EU represented a loss to the union, there were more hardliners in the EU against the UK than it appeared. “When we are among the 27 [countries within the EU, not including the UK], the hardliners are more numerous than it appears. I cannot quote a country in particular at the moment. We will see it at the beginning of the negotiation,” Giro said in an interview with the Guardian.

He added: “We are hearing more and more that there are people – economic interests – who are thinking they can inherit some economic position, thinking that they can take away from the UK some of the position of the City of London. Not Italy, of course, because we are not in that position. And this will be an economic war. Let’s say an economic cold war, and we are not in favour of it.” The statement followed remarks this month by the British prime minister, Theresa May, in which she said the UK was prepared for a “hard Brexit” if she could not negotiate a reasonable agreement with the EU over Britain’s departure. She said attempts by other EU countries to wreak vengeance on the UK would be an “act of calamitous self-harm” because the UK in turn would be prepared to radically cut taxes to attract businesses.

Italian officials have always said their top priority in Brexit negotiations would be to guarantee the rights of hundreds of thousands of Italians who lived in the UK. Giro suggested that a coming “battle of interests” – which he described as a competition between economic interests, not necessarily individual states – could have terrible consequences. “This will be a disgrace. To enter into a new era of hard competition on big money questions involving companies, this is very bad for the western world. We don’t need these kinds of tensions at this time of a geopolitical Jurassic Park,” he said, meaning that it was a world where every interest was out for itself.

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Creative destruction.

Eurozone ‘Destruction’ Necessary For Countries To Thrive Again – Stark (Tel.)

The eurozone must break up if its members are to thrive again, according to a former ECB official. Jürgen Stark, who served on the ECB’s executive board during the financial crisis, said it was time to “think the unthinkable” and work towards a “reset” of Europe that pulled power away from Brussels. The former vice-president of Germany’s Bundesbank said the creation of a two-speed eurozone, with France and Germany at its core, would help to ensure the smaller bloc’s survival. “We have to think the unthinkable. And it is already unthinkable to think about the restart of Europe, which means we have to be creative. But in order to be creative, you have to destruct [sic] something.” Mr Stark said countries such as Italy, which has seen its economy stagnate since the crisis, would be better off outside the single currency area.

“Italy was accustomed to this ongoing devaluation of the lira from the mid-Seventies until the late Nineties. Maybe they need devaluation and their own currency in order to become more competitive again,” he said. Speaking at an event organised by ETF Securities, Mr Stark said current accommodative ECB policy meant countries were likely to “muddle through” in the coming years and move closer “by coincidence”. However, he said the eurozone’s problems would resurface, regardless of the political landscape. “In the long run, in the context of a European reset, one has to discuss the issue of whether it is still appropriate to keep these countries with different economic structures and different economic performances together. There is no convergence anymore. “We have had divergence rather than convergence… from the very beginning.”

Mr Stark said Belgium, France, Luxembourg, the Netherlands and Germany “plus Austria and Finland” could form the core of a system with “staggered integration” for other countries such as Italy and Greece. While he described Marine Le Pen’s victory in French elections this year as “unlikely” due to the country’s voting system, Mr Stark said the Front National leader’s victory would also be the catalyst of a eurozone split. Mr Stark, who resigned from the ECB in 2011, said he “blamed” the central bank for allowing countries to drag their heels on reforms. “As long as the ECB gives a signal in its operations to governments that ‘we are the backstop’ and ‘we will prevent country ‘a’ or country ‘b’ from becoming insolvent’ – there will be no structural reforms,” he said.

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A correlation vs causation problem. Where the US was very strong, China is not.

The Dollar Will Die With a Whimper, Not a Bang (Rickards)

[..] the dollar and sterling seesawed over the 20 years following the First World War, with one taking the lead from the other as the leading reserve currency and in turn giving back the lead. In fact, the period from 1919–1939 was really one in which the world had two major reserve currencies — dollars and sterling — operating side by side. Finally, in 1939, England suspended gold shipments in order to fight the Second World War and the role of sterling as a reliable store of value was greatly diminished apart from the U.K.’s special trading zone of Australia, Canada and other Commonwealth nations. The 1944 Bretton Woods conference was merely recognition of a process of dollar reserve dominance that had started in 1914. The significance of the process by which the dollar replaced sterling over a 30-year period has huge implications for you today.

Slippage in the dollar’s role as the leading global reserve currency is not necessarily something that would happen overnight, but is more likely to be a slow, steady process. Signs of this are already visible. In 2000, dollar assets were about 70% of global reserves. Today, the comparable figure is about 62%. If this trend continues, one could easily see the dollar fall below 50% in the not-too-distant future. It is equally obvious that a major creditor nation is emerging to challenge the U.S. today just as the U.S. emerged to challenge the U.K. in 1914. That power is China. The U.S. had massive gold inflows from 1914-1944. Although China’s gold purchases may have fallen off recently, it has been experiencing massive gold inflows. Gold reserves at the People’s Bank of China increased to 1,842 tonnes at the end of 2016, according to the China Gold Association. That’s up 11% from the 1,658 tonnes it held in June, 2015.

But China has acquired thousands of metric tonnes since without reporting these acquisitions to the IMF or World Gold Council. Based on available data on imports and the output of Chinese mines, actual Chinese government and private gold holdings are likely much higher. It’s hard to pinpoint because China operates through secret channels and does not officially report its gold holdings except at rare intervals. China’s gold acquisition is not the result of a formal gold standard, but is happening by stealth acquisitions on the market. They’re using intelligence and military assets, covert operations and market manipulation. But the result is the same. Gold’s been flowing to China in recent years, just as gold flowed to the U.S. before Bretton Woods.

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Get your shades out. The future’s so bright.

Dow Companies Report Worst Revenues since 2010, Dow Rises to 20,000 (WS)

The Dow-20,000 hats have come out of the drawer after an agonizingly long wait that had commenced in early December with the Dow Jones Industrial Average tantalizingly close to the sacred number before the selling started all over again. What a ride it has been. From the beginning of 2011 through January 27, 2017, so a little more than six years, the DJIA has soared 73%, from 11,577 to 20,094. Glorious!! But when it comes to revenues of the 30 Dow component companies – a reality that is harder to doctor than ex-bad-items adjusted earnings-per-share hyped by Wall Street – the picture turns morose. The 30 Dow component companies represent the leaders of their industries. They’re among the largest, most valuable, most iconic American companies. And they’re periodically booted out to accommodate a changed world.

[..] Ah-ha, you say. It’s all the oil bust’s fault. Without the oil companies that have been ravaged by the oil bust, revenues are fine. OK, maybe not fine. Revenues without the oil bust companies are up 13% since 2011. That’s an average annual growth rate of 2.5%, barely above the rate of inflation! But the DJIA hit 20,000 with the oil majors in the average. So in looking at the relationship between aggregate revenues and stock price movements, we need to leave them in the mix. And reality looks even worse. Apple, whose revenues have skyrocketed by over 1,000% since 2006, from $19.3 billion to $216 billion, became a Dow component in 2015, replacing AT&T. And its revenues weren’t part of the 30 Dow components until 2015. So here’s what the aggregate revenues of the Dow components look like without Apple (blue columns) and without Apple but with AT&T (brown columns). A pure stagnation fest:

In both scenarios, revenues in 2016 were lower than they had been in 2008. Only 2009 and 2010 were lower. So in terms of revenues, 2016 was for the Dow components ex-Apple the worst year since 2010! And this despite the five-year binge in acquisitions! So how have the last two years been? Don’t even ask. Of the 30 companies in the Dow, 16 sported declining revenues in 2016. And 17 sported declining revenues over the two-year span since 2014! Only two of them are oil companies! This table shows that inglorious list in all its beauty:

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Deliberate torture in a sort of good cop bad cop routine.

Eurozone Bailout Fund Says Greek Public Debt Is ‘Manageable’ (R.)

Greece’s public debt can be manageable, the eurozone bailout fund said on Sunday, responding to a leaked report by the IMF that the country’s debt will explode to 275% of GDP by 2060. A spokesman for the bailout fund, the European Stability Mechanism (ESM), said the path for Greek public finances agreed between Athens and the eurozone was credible and backed by contingency measures in case of unforeseen events. “We believe that Greece’s debt burden can be manageable, if the agreed reforms are fully implemented, thanks to the ESM’s exceptionally favorable loan conditions over the long term and the recently adopted short-term debt relief measures,” the ESM said. In the document, seen by the Financial Times, the IMF calculated that Greece’s debt load would reach 170% of gross domestic product by 2020 and 164% by 2022.

But it would become explosive thereafter and grow to 275% of GDP by 2060, the paper quoted the report as saying. The spokesman said, however, that the eurozone had promised to offer Greece additional debt relief if Athens delivers on all its reform promises. “As a result, we see no reason for an alarmistic assessment of Greece’s debt situation”. The IMF has long been calling for substantial eurozone debt relief for Athens, but Germany, which faces elections this year, has been strongly opposed to such a move until after 2018, when Greece is to finish all its promised reforms. The IMF assessment of Greek debt developments may make it impossible for the Fund to join the current bailout for Greece, now shouldered only by eurozone governments, because the fund’s policy is to enter programs which in the end allow a country to cope on its own. Eurozone governments want the IMF on board, but do not seem to be ready to provide the debt relief to Greece that is necessary for the Fund to join.

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Incursions into Greek air space have become ‘normal’. Now this. Brussels better act. Or Greece will, at some point. It puts Theresa May’s fast trip to Ankara to sell more weaponry in a bleak light.

Turkish Gunboat With Army Chief Sails Into Greek Waters; High Alert (K.)

The Greek military was on high alert on Sunday after a Turkish gunboat carrying Chief of General Staff Hulusi Akar sailed into Greek waters and around the Imia islets at around 10.30 a.m. The Turkish gunboat was escorted by several assault craft carrying commandos, which also circled the islets that brought Greece and Turkey to the brink of war 21 years ago, almost to the day. Greek authorities responded to what is being viewed as Turkish provocation with warnings and dispatched the Hellenic Navy’s Krataios gunboat, which escorted the Turkish flotilla out of Greece’s territorial waters. Diplomatic officials believe the incident to be a response to a Greek Supreme Court ruling last week rejecting a request from Ankara for the extradition of eight Turkish servicemen accused of taking part in failed coup last summer. Turkish military authorities released photographs showing Akar on the gunboat, with Imia in the background.

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Bless their souls.

Greek Fishermen Who Brave The Seas To Rescue Refugees Now Need Saving (NBC)

At the height of the refugee crisis in Sept. 2015, the 63-year-old Marmarinos and the rest of the village’s fishermen gave up working to spend months saving families from the rough, cold waters. Many of them were seeking safety from the bombs falling on Syria. “Mothers, pregnant women, children,” Marmarinos recalled. “So many children, all in the waters, wet, in a horrible situation.” Pideris, 40, says the fishermen risked their own lives “because it was the humane thing to do.” He said refugees and migrants “would fall overboard, they didn’t know how to navigate, boats were left adrift, they’d lose their engines, they’d break apart and the sea would fill with people.” But today, it’s Pideris and Marmarinos who need help after a winter storm on January 9 dropped nearly two feet of snow in their village. The boat canopies couldn’t take the weight and capsized while tied up in the harbor.

The boats are the pair’s sole sources of income. Pideris said he was in shock. “I’ve been in danger at sea, fishing and helping refugees, and my boat sinks in the safety of the harbor,” he said. “My brain stopped. My heart stopped. I was the living dead.” Both vessels sat in the corrosive sea water for three days, until the roads cleared enough to bring in a crane. The electronics and engines on both vessels were destroyed and require thousands of dollars in repairs. The mayor of Lesbos says money from a humanitarian award — the Olof Palme prize, which given to the islanders for embracing migrants – will go toward the cost of repairs. Marmarinos says he’s proud “because I offered help and I see it’s coming back to me … Even if no one helped I’d still be proud and if it happens again, I’d do the same.” Marmarinos and Pideris hope to be fishing again by early next month.

Read more …

I think that’s the clearest picture of what has happened to Arctic sea ice that I’ve seen.

NASA – 30 Years Of Before And After Images Around The World (F.)

The Arctic’s sea ice has been in decline for decades as pictured above comparing September 1984 to September 2016. The total area of persistent (4 years or older) ice has declined from 718,000 square miles to 42,000 square miles in the time period above. In the above images blue/grey ice is younger whereas white ice is older.

Read more …

Jan 062017
 
 January 6, 2017  Posted by at 4:52 pm Finance Tagged with: , , , , , , ,  4 Responses »
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Dorothea Lange Farm family fleeing OK drought for CA, car broken down, abandoned Aug 1936

 

Since the new year will bring yuuge and bigly changes to us all (I truly hope both the year and the changes will leave you happy), I thought I’d start off by ‘reduxing’ two articles that contain further ‘reduxes’, Russian doll style. I do this because the man the articles are about is set to play a large role in those changes, certainly where Europe is concerned. And since the changes in Europe will be weally weally bigly, they will impact the entire world.

That is to say, we must seriously doubt if the EU -or rather, what’s left of it post-Brexit-, will live to see January 1 2018 in one piece. This is hardly an exaggeration, as you may be inclined to think. As I said recently, in Europe it’s not and-and, it’s if-or: with elections in Germany, France, Holland and probably Italy coming up, they don’t all have to turn out ‘badly’ for the pro-EU camp, if just one of them goes against the EU, it may well be game over.

Therefore Beppe Grillo, leader of the Five Star movement, is a man to keep an eye on. And not just for that. The first item below, a 1998 video, is an addition to my original article from November 14 2014, and it makes clear, once more, that Beppe is no fool. Nor is he a right wing nut, or anything remotely like that. Beppe actually understands what money is, much much better than any of the politicians and economists that rule the old continent. That makes him a threat to them.

Below that video from 1998, my November 14 2014 article, which in turn cites a 2013 article. I know some things will look dated, but you’ll get it, I’m sure. I hope you also get why I repost it all: 2017 has begun.

 

Beppe Grillo: Whom does the money belong to? Who does its ownership belong to? To the State, fine, so to us, we are the State.

You know that the State doesn’t exist, it is only a legal entity. WE are the state, the money is ours.

Then tell me one thing: if the money belongs to us, why do they lend it to us?

 

 

 

From November 14 2014: That says quite something, that title. And it’s probably not entirely true, it’s just that I can’t think of any others. And also, I’m in Europe myself right now, and I still have a European passport too. So there’s two of us at least. Moreover, I visited Beppe Grillo three years ago, before his 5-Star Movement (M5S) became a solid force in Italian politics. So we have a connection too.

Just now, I noticed via the BBC and Zero Hedge that Beppe not only expects to gather far more signatures than he said he would recently (1 million before vs 4 million today) for his plan to hold a referendum on the euro, he also claims to have a 2/3 majority in the Italian parliament. Well done. But he can’t do it alone.

Martin Armstrong thinks the EU may have him murdered for this before they allow it to take place. Which is a very good reason for everyone, certainly Europeans, to come out in support for the only man in Europe who makes any sense. I know many Italians find Beppe too coarse, but they need to understand he’s their only way out of this mess.

The smear campaigns against him are endless. The easier ones put him at the same level as Nigel Farage and Marine Le Pen, the more insidious ones paint him off as a George Soros patsy. There’ll be a lot more of that. And given the success of this year’s anti-Putin campaign in Europe, and the ongoing pro-Euro one, it’s going to take a lot not to have people believe whatever they are told to.

Just take this to heart: since Italy joined the euro, its industrial production has fallen by 25%. How is that not a disaster? Meanwhile, the eurozone economy is in awful shape, and the longer that lasts, the more countries like Italy will be disproportionally affected and dragged down further. There’s a reason for that numbers such as that: it’s not like Germany and Holland lost 25% of their production.

The eurozone must end before it starts to do irreversible damage, and before it turns Europe into a warzone, a far more real and imminent risk than anyone dares suggest.

The first bit here is from Zero Hedge, and then after that I will repost a lengthy piece about Beppe that I first published on February 12, 2013.

Italy’s Grillo Rages “We Are Not At War With ISIS Or Russia, We Are At War With The ECB”

Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying, we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that “we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.

Beppe Grillo also said today:

It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.

We’ll send you packing at the same time as Italy leaves the Euro. It can be done! You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase.

Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.

The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.

As Martin Armstrong asks rather pointedly…

Since the introduction of the euro, all economic parameters have deteriorated, the founder of the five-star movement in Italy is absolutely correct. The design or the Euro was a disaster. There is no fixing this any more. We have crossed the line of no return. Beppe is now calling for referendum on leaving euro. Will he be assassinated by Brussels? It is unlikely that the EU Commission will allow such a vote.

And then here’s my February 2013 article; it seems silly to try and rewrite it. There is nobody in Europe other than him who understands what is going on, and is willing to fight for it. Grillo is a very smart man, a trained accountant and an avid reader of anything he can get his hands on. The image of him as a populist loud mouthed good for little comedian is just plain false. It was Grillo who exposed the Parmalat scandal, and the Monte Dei Paschi one.

Never forget what political and behind the veil powers he’s up against in his country, and how they seek to define the image the world has of him. What Beppe Grillo does takes a lot of courage. Not a lot of people volunteer to be smeared and insulted this way, let alone run the risk of being murdered. Those who do deserve our support.

 

 

Beppe Grillo Wants To Give Italy Democracy

In the fall of 2011, The Automatic Earth was on another European lecture tour. Nicole Foss had done a series of talks in Italy the previous year, and there was demand for more. This was remarkable, really, since a knowledge of the English language sufficient to understand Nicole’s lectures is not obvious in Italy, so we had to work with translators. Certainly none of this would have happened if not for the limitless drive and energy of Transition Italy’s Ellen Bermann.

In the run-up to the tour I had asked if Ellen could perhaps set up a meeting with an Italian I found very intriguing ever since I read he had organized meetings which drew as many as a million people at a time for a new – political – movement. Other than that, I didn’t know much about him. We were to find out, however, that every single Italian did, and was in awe of the man. A few weeks before arriving, we got word that he was gracious enough to agree to a meeting; gracious, because he’d never heard of us either and his agenda was overloaded as it was.

So in late October we drove the crazy 100+ tunnel road from the French border to Genoa to meet with Beppe Grillo in what turned out to be his unbelievable villa in Genoa Nervi, high on the mountain ridge, overlooking – with a stunning view – the Mediterranean, and set in a lovely and comfortable sunny afternoon. I think the first thing we noticed was that Beppe is a wealthy man; it had been a long time since I had been in a home where the maids wear uniforms. The grand piano was stacked with piles of books on all sorts of weighty topics, politics, environment, energy, finance. The house said: I’m a man of wealth and taste.

 


Eugenio Belgeri, Raúl Ilargi Meijer, Beppe Grillo, Nicole Foss and Ellen Bermann in Genoa Nervi, October 2011

 

I don’t speak Italian, and Beppe doesn’t speak much English (or French, German, Dutch), so it was at times a bit difficult to communicate. Not that it mattered much, though; Beppe Grillo has been a super charged Duracell bunny of an entertainer and performer all his life, and he will be the center of any conversation and any gathering he’s a part of no matter what the setting. Moreover, our Italian friends who were with us – and couldn’t believe they were there – could do a bit of translating. And so we spent a wonderful afternoon in Genoa, and managed to find out a lot about our very entertaining host and his ideas and activities.

Beppe had set up his Five Star movement (MoVimento Cinque Stelle, M5S) a few years prior. He had been organizing V-day “happenings” since 2007, and they drew those huge crowds. The V stands for “Vaffanculo”, which can really only be translated as “F**k off” or “Go f**k yourself”: the driving idea was to get rid of the corruption so rampant in Italian politics, and for all sitting politicians to go “Vaffanculo”.

At the time we met, the movement was focusing on local elections – they have since won many seats, have become the biggest party on Sicily (after Beppe swam there across the Straits of Messina from the mainland) and got one of their own installed as mayor of the city of Parma.

Grillo explained that M5S is not a political party, and he himself doesn’t run for office. He wants young people to step forward, and he’s already in his sixties. Anyone can become a candidate for M5S, provided they have no ties to other parties, no criminal record (Beppe does have one through a 1980 traffic accident); they can’t serve more than two terms (no career politicians) and they have to give back 75% of what they get paid for a public function (you can’t get rich off of politics).

I found it surprising that our friends at Transition Italy and the general left were reluctant to endorse Grillo politically; many even wanted nothing to do with him, they seemed to find him too coarse, too loud and too angry. At the same time, they were in absolute awe of him, openly or not, since he had always been such a big star, a hugely popular comedian when they grew up. Grillo offered to appear through a video link at Nicole’s next talk near Milan, but the organizers refused. It was only the first sign of a lot of mistrust among Italians even if they all share the same discontent with corrupt politics. Which have made trust a major issue in Italy.

 

 

This may have to do with the fact that Grillo is a comedian in the vein of perhaps people like George Carlin or Richard Pryor in the US. On steroids, and with a much wider appeal. Rough language, no holds barred comedy turns a lot of people off. Still, I was thinking that they could all use the visibility and popularity of the man to get their ideas across; they preferred anonymity, however.

By the way, the Five Stars, perhaps somewhat loosely translated, stand for energy, information, economy, transport and health. What we found during our conversation is that Beppe Grillo’s views on several topics were a little naive and unrealistic. For instance, like so many others, he saw a transition to alternative energy sources as much easier than it would realistically be. That said, energy and environment issues are important for him and the movement, and in that regard his focus on decentralization could carry real benefits.

Still, I don’t see the present naive ideas as being all that bad. After all, there are limits to what people can do and learn in a given amount of time. And Beppe certainly has a lot to do, he’s leading a revolution, so it’s fine if the learning process takes some time. Ideally, he would take a crash Automatic Earth primer course, but language will be a barrier there. I hope he finds a way, he’s certainly smart and curious enough.

 

 

When his career took off in the late 70’s, early 80’s, Beppe Grillo was just a funny man, who even appeared on Silvio Berlusconi’s TV channels. Only later did he become more political; but then he did it with a vengeance.

Grillo was first banned from Italian TV as early as 1987, when he quipped about then Prime Minister Bettino Craxi and his Socialist Party that if all Chinese are indeed socialists, who do they steal from? The ban was later made permanent. In the early 90’s, Operation Clean Hands was supposed to have cleaned up corruption in politics. Just 15 years later, Beppe Grillo started the Five Star movement. That’s how deeply engrained corruption is in Italy, stretching across politics, business and media.

We are- almost – all of us living in non-functioning democracies, but in Italy it’s all far more rampant and obvious. There’s a long history of deep-seated corruption, through the mafia, through lodges like P5 and Opus Dei, through many successive governments, and through the collaboration between all of the above, so much so that many Italians just see it as a fact of life. And that’s what Beppe Grillo wants to fight.

Ironically, he himself gets called a neo-nazi and a fascist these days. To which he replies that perhaps he’s the only thing standing between Italy and a next bout of fascism. I’ve read a whole bunch of articles the past few days, the international press discovers the man in the wake of the general elections scheduled for February 24-25, and a lot of it is quite negative, starting with the all too obvious notion that a clown shouldn’t enter politics. I don’t know, but I think Berlusconi is much more of a clown in that regard than Grillo is. A whole lot more of a clown and a whole lot less funny.

Beppe is called a populist for rejecting both right and left wing parties, a neo-nazi for refusing to block members of a right wing group from M5S, a Jew hater in connection with the fact that his beautiful wife was born in Iran, and a dictator because he’s very strict in demanding potential M5S candidates adhere to the rules he has set. Oh, and there are the inevitable right wing people calling him a communist.

There are of course tons of details that I don’t know, backgrounds, I’m largely an outsider, willing to be informed and corrected. And this would always be much more about the ideas than about the man. Then again, I did talk to the man in his own home and I don’t have the impression that Grillo is a fraud, or part of the same system he purports to fight as some allege, that he is somehow just the existing system’s court jester. He strikes me as being too loud and too embarrassing for that. And too genuinely angry.

Moreover, I think Italy is a perfect place for a nasty smear campaign, and since they can’t very well murder the man – he’s too popular – what better option than to make him look bad?! If anything, it would be strange if nobody did try to paint him off as a demagogue, a nazi or a sad old clown.

 


Photo: AFP: Marcello Paternostro

 

After being banned from TV, Grillo went on the build one of the most visited blogs/websites in the world, and the number one in Europe. Ironically, he is now in some media labeled something of a coward for not appearing in televised election debates. But Beppe doesn’t do TV, or – domestic – newspapers. For more than one reason.

Because he was banned from TV, because of the success of the internet campaign, and because Silvio Berlusconi incessantly used “lewd” talk shows on his own TV channels to conduct politics, Beppe Grillo insists his councilors and candidates stay off TV too, and he has his own unique way of making clear why and how: When a female Five Star member recently ignored this and appeared on a talk show anyway, Grillo said “the lure of television is like the G-spot, which gives you an orgasm in talk-show studios. It is Andy Warhol’s 15 minutes of fame. At home, your friends and relations applaud emotionally as they share the excitement of a brief moment of celebrity.”. Of course Beppe was labeled a sexist for saying this.

The internet is central to Grillo’s ideas. Not only as a tool to reach out to people, but even more as a way to conduct direct democracy. Because that is what he seeks to create: a system where people can participate directly. Grillo wants to bring (back) democracy, the real thing, and he’s long since understood that the internet is a brilliant tool with which to achieve that goal. One of his spear points is free internet access for all Italians. Which can then be used to let people vote on any issue that can be voted on. Not elections once every four years or so, but votes on any topic anytime people demand to vote on it. Because we can.

Since we had our chat in that garden in Genua, Beppe Grillo and M5S have moved on to bigger pastures: they are now set to be a major force in the general elections that will establish a new parliament. Polls differ, but they can hope to gain 15-20% of the vote (Grillo thinks it could be even much more). The leader in the polls is the Socialist Party, and then, depending on which poll you choose to believe, M5S comes in either second or third (behind Berlusconi). What seems certain is that the movement will be a formidable force, carrying 100 seats or more, in the new parliament, and that they could have a lot of say in the formation of any new coalition government.

In the run-up the elections, Beppe has now traded his home for a campaign bus, going from town to town and from one jam-packed campaign event to the next on what he has labeled the Tsunami Tour, in which he, in his own words, brings class action to the people.

As was the case in the local elections, Beppe Grillo says he wants “normal” people (“a mother of three, a 23-year-old college graduate, an engineer [..] those are the people I want to see in parliament”) to be elected, not career politicians who enrich themselves off their status and influence, and who he labels “the walking dead”, and though he acknowledges his candidates have no political experience, he says: “I’d rather take a shot in the dark with these guys than commit assisted suicide with those others.” In the same vein, another one of his lines is:“The average age of our politicians is 70. They’re planning a future they’re never going to see”.

On his immensely popular website beppegrillo.it, which has quite a bit of English language content, Grillo has some nice stats and tools. There is a list of Italian parlimentarians and Italian members of the EU Parliament who have been convicted of crimes. At this moment there are 24; their number has come down, but still. There is also a great little thing named “Map of Power of the Italian Stock Exchange” that graphically shows the links various politicians have with various corporations. I remember when Grillo proudly showed it to us, that after clicking just 2-3 politicians and 2-3 businesses, the screen was so full of lines depicting connections it had become an unreadable blur.

In between all the other activities, Beppe was instrumental 10 years ago in exposing the stunning $10 billion accounting fraud at dairy and food giant Parmalat before it went bankrupt, as well as the recent scandal at the world’s oldest bank, Monte Dei Paschi Di Siena, which will cost a reported $23 billion. Corruption is everywhere in Italy, which has a large political class that is all too eager to share in the spoils. Mr. Grillo was trained as an accountant, and he understands what he’s talking about when it comes to dodgy numbers. What he needs is the power to act.

 

 

Apart from the strong stance that Grillo and M5S take against corruption and for direct representation, critics say they have few clear policy objectives, that they don’t even know what they want. Being a movement instead of a party doesn’t help. But then, these critics think inside the very old system that M5S wants to replace with one that is far more transparent and direct. It’s more than obvious that existing powers have no interest in incorporating the possibilities for improvement offered by new technologies, but it should also be obvious that people, wherever they live, could potentially benefit from a better functioning political system.

There will be many who say that no such thing can be achieved, but perhaps it not only can, but is inevitable. All it could take is for an example to show that it can work. One might argue that the only reason our current systems continue to exist in all their opaqueness is that those who stand to profit from them are the ones who get to vote on any changes that could be applied. What Beppe Grillo envisions is a system in which every one can vote directly on all relevant issues, including changes to the system itself. It’s about class action, about taking back power from corrupt existing politics. Italy looks like a good testing ground for that, since its systemic rot is so obvious for all to see. But in other western countries, just like in Italy, it could return the power where it belongs: in the hands of the people.

Radical ideas? Not really, because when you think about it, perhaps it’s the technology itself that’s radical, not the use of it. And maybe it’s the fact that we’re so stuck in our existing systems that keeps us from using our new technologies to their full potential. Just like it keeps us from restructuring our financial systems and our energy systems for that matter. We continue to have systems and institutions guide our lives long after they’ve ceased to be useful for our present day lives, as long as we’re snug and warm and well-fed. And we do so until a real bad crisis of some sort comes along and makes it absolutely untenable, often with a lot of misery and blood thrown into the equation.

Beppe Grillo wants to break that chain. And he’s got a recipe to do it. It may not be perfect or foolproof, but who cares when it’s replacing something that no longer functions at all, that just drags us down and threatens our children’s lives? Who cares? Well, the Monti’s and Berlusconi’s and Merkel’s and Obama’s and Exxon’s and BP’s and Monsanto’s of the world do, because it is the old system that gave them what they have, and they don’t want a new one that might take it away. Our so-called democracies exist to please our leaders and elites, not ourselves. And we’re unlikely to figure that one out until it’s way too late.

Unless the Italians do our work for us and vote for the Cinque Stelle in huge numbers.

 

 

Oct 252016
 
 October 25, 2016  Posted by at 9:26 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle October 25 2016
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NPC Grief monument, Rock Creek cemetery, Washington DC 1915


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

 

 

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

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

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

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

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

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

Read more …

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

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

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

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

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

Read more …

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

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

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

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

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

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Imagine my surprise.

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

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

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

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Really? They thought Carney could save the day?

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

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

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

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

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

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

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

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

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

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

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

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

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

How Democrats Killed Their Populist Soul (Matt Stoller)

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

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

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

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

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

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

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

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

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Incredible. Just incredible.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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It goes back quite a bit further.

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


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

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

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

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

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

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

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

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

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

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

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

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Jul 172016
 
 July 17, 2016  Posted by at 8:45 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle July 17 2016
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Russell Lee Store, La Forge, Missouri 1938


Why Brexit Is The Shot In The Arm Britain’s Economy Needs (CityAM)
Italy’s Banking Crisis Will Shake The Eurozone To Its Core (Tel.)
Italy Hires JP Morgan To Hammer Out €50 Billion Bad Bank Bailout Plan (Tel.)
Great Numbers! Curious Timing? (Rubino/ZH)
A Historical Measurement Of The Insanity Of Central Bankers (Gordon)
Russia Purges Its Banking Industry (BBG)
China Will Struggle To Maintain Growth Pace For Wages (R.)
Homebuilders Struggle To Keep Up With Canada Boom (R.)
Bank of Mum and Dad Is Now Paying The Rent, Too (Ob.)
A Travesty of Financial History (Michael Hudson)
One of India’s Poorest States Just Created a Happiness Ministry (BBG)

 

 

No-one knows how this will play out, not the leavers nor the fear mongerers on the other side. And basing conclusions on anything that happens in today’s highly manipulated markets is fraught with error.

Why Brexit Is The Shot In The Arm Britain’s Economy Needs (CityAM)

It is less than three weeks since the British people voted to leave the EU. In that time, much of the media response has been verging on hysterical. The political establishment, City and even bookmakers simply did not see Leave coming. Figures who were top of their game a month ago have fallen on their swords: David Cameron, George Osborne, Michael Gove. We have been treated to tales of woe and despair, highlighting the fall in sterling, claiming there was no Plan B, portrayals of Leave supporters as naive at best, stupid at worst and being responsible for economic catastrophe. This analysis is unreasonable – early signs post-Brexit are encouraging.

First, the political earthquake is subsiding; we now have a new Prime Minister and cabinet. At the time of writing, the pound is up 3.4% since the beginning of the week, taking a cue from the political stability Theresa May’s appointment brings and the Bank of England’s decision to leave interest rates unchanged, at 0.5%. Second, the reaction of capital markets has not been out of the ordinary anyway. While the decline of sterling against the dollar and euro has been pronounced, at around 8% against the average of the three months preceding the referendum, this is broadly in line with our expectations – and somewhat less than some of the more aggressive scaremongering predictions. Remember, it was the fall in sterling in 1992 that resulted in an export-led boom; the same can happen now. Port Talbot steel plant has just become 8% more competitive, but for some reason the BBC don’t want to know.

Third, UK gilts have strengthened. The cost of borrowing has fallen by around 0.6 percentage points to 0.72 percentage points for UK 10-year gilts. The debt market anticipates that the Bank will cut rates in August, which has the direct effect of lowering the cost of bank borrowing and mortgages. We are now seeing the embryo of a mortgage price war. HSBC, for example, is now offering a two year fix at 0.99%. This is good news for a consumer driven economy. Fourth, the FTSE 100 continues to power ahead at the years’ all-time high and over 1,000 points higher than the February low. It has been one of the three very best performing markets in the world in 2016.

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“They call them le sofferenze – the suffering. The imagery is striking, the thousands of sofferenze across Italy, unwanted and ignored, a problem unsolved. But despite the emotional name, these are not people. They are loans.”

Italy’s Banking Crisis Will Shake The Eurozone To Its Core (Tel.)

They call them le sofferenze – the suffering. The imagery is striking, the thousands of sofferenze across Italy, unwanted and ignored, a problem unsolved. But despite the emotional name, these are not people. They are loans. Bad debts, draining banks of profits and undermining economic growth. The name is less clinical than the English term “non-performing loans”, a reflection of the Italian authorities’ emotional rather than business-like approach to the problem. None the less, the loans are indeed causing real suffering. The €360bn (£300bn) of sofferenze from Italian banks show borrowers are weighed down with debts they cannot afford, while the banks are struggling to offer new credit to the households and firms that need them.

When other countries such as the UK, Ireland and Spain ran into trouble, they bit the bullet and cleaned up their banks quickly. Italy did not. In a way, Italy’s authorities had good intentions. When loans turn bad and banks lose money, someone has to pay. It should be the banks’ investors, the shareholders and bondholders who take the risk of investing in return for the chance of profits. Unfortunately in Italy, households are keen investors in bank bonds, and would be badly burnt if they had to face up to those losses. So nothing was done. The bondholders have so far kept sight of their savings, and the banks have been allowed to ignore their bad loans. It saved the country some short-term pain, but the financial problems never went away.

Now they have spread to the wider economy, and are morphing into a political crisis with implications across the EU. It could bring down Italy’s government. If no compromise is reached between Rome, which wants to protect bondholders, and the EU, which wants to enforce the rules, it could even bring down the eurozone. “This could be a bigger risk than Brexit,” says a lawyer who is close to the situation. “The Greeks are desperate to be anchored into Europe, they are willing to suffer and suffer and suffer to stay in – I am not sure that Italy is willing to suffer.” The stakes are that high, and nobody knows whether the EU can muddle through another crisis, or if shock waves from Italy will split the union. Long nights and fraught nerves lie ahead.

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Yeah, getting Wall Street involved in eurozone problems has proven to be a real good idea.

Italy Hires JP Morgan To Hammer Out €50 Billion Bad Bank Bailout Plan (Tel.)

The Italian government is working on plans to set up a €50bn bad bank which would aim to clean up the country’s stricken lenders, the Sunday Telegraph has learned. It is understood that €10bn of public money could be used to buy bad loans at a knock-down price, taking assets with a face value of €50bn off the banks’ hands, allowing them to start giving out more good loans instead. The scheme, which is being put together by JP Morgan, could help clean up the banks, but also puts the country’s authorities on a collision course with the EU, which does not want taxpayers bailing out banks before private investors take a hit. Italy’s banks are labouring under €360bn of bad loans but have set aside funds to cover less than half of the associated losses.

This is dragging down the banks and the wider economy, and the government is keen to help recapitalise the institutions, restoring them to health and potentially boosting the economy by re-starting the provision of credit to households and firms. One key part of the bailout package is being built by the investment bankers, who envisage the government taking on some of the bad loans at a price of 20 cents in the euro. The state-backed entity would then work through the loans to either sell them onto other investors, hold them to maturity if there is a chance of borrowers paying them back, or offer debt relief if the customers are in such poor financial shape they cannot repay the loans.

The plan is not certain be implemented, in part because other ideas are also under discussion, but also because the Italian government is currently at loggerheads with the EU over the scheme. European rules state that private investors such as shareholders and bondholders have to pay up before the taxpayer does, in an effort to avoid a repeat of the bailouts of the financial crisis. Italy’s government does not want to inflict harm on the households across the country who invest their savings into those bonds. It hopes that this scheme to split the cost of recapitalisation between the government and the banks will show some thought has been given to the new rules, even if it does not fully comply.

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Not everything adds up…

Great Numbers! Curious Timing? (Rubino/ZH)

Pretend you’re running a corrupt government and something big and scary happens in another part of the world. Brexit, for instance. You’re quite naturally worried about the impact on your local economy and political system. What do you do? Well, one obvious thing would be to call the statisticians who compile your economic reports and tell them to fudge the next batch of numbers. [ZH:Notice the spike in macro data hit right as Brexit crashed markets… but bonds aren’t buying it…]

[ZH: And some more context for this sudden ramp in awesome data…]

Since you already do this prior to most major elections, they’re neither surprised by the request nor concerned with how to comply. They simply go into the black boxes that control seasonal adjustments or fabricate things like “hedonic quality” or “imputed rent,” and bump up the near-term levels. Later revisions will lower them to their true range but by that time, hopefully, the danger will have passed and no one will be paying attention. So…Brexit spooks the global markets and — surprise — some big economies report excellent numbers. Among them:

China’s GDP growth comes in at 6.7%, slightly better than expected

US retail sales pop by 0.6%, versus expectations of just 0.1%

US industrial output surges in June, led by autos

These are indeed really good numbers, and anyone looking solely at the headlines would have to conclude that the things the major governments have done lately are working. Nothing to see here folks, everything is fine. The experts have it covered. But a clearer, far less rosy picture emerges when you look at the numbers below the headlines, which are either harder to fudge because they’re calculated by private sector entities or are too obscure to be worth fudging. Industrial Production is in the middle of its longest non-recessionary slump in American history…

Business inventories, for instance, are a pretty good indicator of future activity, with high inventories implying slow growth (because factories have already produced plenty of stuff for the months ahead) and low inventories meaning the opposite (because factories will have to resupply their customers shortly). Here’s a chart from Zero Hedge showing “Business Inventories At Highest Level To Sales Since The Crisis”:

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“…we must recognize and attempt to fully appreciate that global central banks are on a collective suicide mission.”

A Historical Measurement Of The Insanity Of Central Bankers (Gordon)

One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. For example, in Japan this explicit intervention into the stock market is being performed with the composed tedium of a dairy farmer milking his cows. The activity is more art than science. Similarly, if you stop – even for a day – pain swells in certain sensitive areas. In late April, a Bloomberg study found that the Bank of Japan (BOJ), through its purchases of ETFs, had become a top 10 shareholder in about 90% of companies that comprise the Nikkei 225.

At the time, based on “estimates gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan,” Bloomberg assumed the BOJ was buying about 3 trillion yen ($27.2 billion) of ETFs every year. The rate of buying has likely accelerated since then. In fact, this week ZeroHedge reported, via Matt King of Citibank, that net global central bank asset purchases had surged to their highest since 2013. This seems to explain why, even with investors pulling money out of equity funds for 17 consecutive weeks, and at a pace that suggests a full flight to safety, stock markets are trading at all-time highs. In short, central banks are pumping “liquidity” into stock markets faster than investors are pulling their money out.

The main culprits, at the moment, are the BOJ and the ECB. Similar efforts may soon come from a central banker near you. Other than attempting to, somehow, boost the economy by levitating the stock market, the objective of this explicit central banking intervention is unclear. The popular theory seems to be that the “wealth effect” of inflated asset prices stimulates demand in the economy. The premise, as we understand it, is supposed to play out along the following narrative…or a derivative thereof. An economic boom ensues. [..].. we must recognize and attempt to fully appreciate that global central banks are on a collective suicide mission. They think that printing money and buying stocks will save us from ourselves. In practice, this means that before stocks melt down we could be treated to the grand spectacle of an epic melt up; a historical measurement of the insanity of central bankers.

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Elvira Nabiullina is an actual central banker, who tries to do what’s best for the country.

Russia Purges Its Banking Industry (BBG)

After felling more than a quarter of its banks, Russia wants to make sure the survivors get more than a slap on the wrist for flouting the rules. As part of its campaign against money laundering, the Bank of Russia is taking a page from the playbooks of regulators in the U.S. and Europe. It’s now planning to reduce the reporting requirements on lenders while increasing the punishment for getting caught, Deputy Governor Dmitry Skobelkin said in an interview in Moscow. “We are prepared to reconsider that approach,” Skobelkin said. “But in that case we need to raise responsibility proportionally.”

Unlike the billions of dollars in penalties imposed for infractions on U.S. and European banks, Russia hasn’t leaned heavily on fines during an unsparing purge of the industry by Governor Elvira Nabiullina. Even after reducing what it calls illegal capital flight to 64 billion rubles ($1 billion) in the first quarter, less than than half the level a year earlier, the Bank of Russia is asking lenders to commit to cutting operations that have hallmarks of money laundering by 20% every quarter, according to Skobelkin. The financial industry is fighting a crisis as asset quality worsens during the second year of recession, the longest since President Vladimir Putin came to power.

Regulators have been hunting down banks deemed mismanaged or under-capitalized, with Nabiullina shutting down more than 250 banks since her appointment in 2013 to restore the system to health. With the closures, the number of banks suspected of a large share of dubious transactions has fallen to five at the end of the first quarter from 150 in mid-2013, Skobelkin said. The regulator defines “dubious operations” as fake trades or loans used to move money abroad.

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China will struggle, period.

China Will Struggle To Maintain Growth Pace For Wages (R.)

Wages in China kept pace with economic growth in the first half of 2016 but maintaining that will be difficult, the country’s statistics bureau said on Sunday. It cited issues such as overcapacity in China’s coal and steel sectors as well as some declining agricultural prices as taking a toll on salaries. Maintaining the relationship between the pace of growth and that of wage increases is a challenge requiring “close attention”, Wang Pingping, head of the National Bureau of Statistics’ (NBS) household survey office said, according to the bureau’s website. Disposable household income, adjusted for inflation, rose 6.5% in the first half of the year, compared with economic growth of 6.7%, the statistics bureau reported on July 15.

Economic growth in the second quarter was faster than expected as a government spending spree and housing boom boosted industrial activity, but a slump in private investment growth points to a loss of momentum later this year. Several Chinese provinces have slowed or halted increases to minimum wages, as companies face pressure from rising expenses and weakening demand. China’s human resources vice minister this month called for a slowdown in wage increases in order to maintain competitiveness. China plans to allocate 100 billion yuan ($14.96 billion) to help local authorities and state-owned firms finance layoffs in the steel and coal sectors this year and in 2017.

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More struggle, but of a different kind.

Homebuilders Struggle To Keep Up With Canada Boom (R.)

The housing boom in Canada’s hottest cities has spilled over into the suburbs, where builders say they are working as fast as they can to meet soaring demand and get homes to market before a much-feared housing bust. With the supply of existing homes at a six-year low and the average price up 11.2% from a year ago, according to data released on Friday, new developments have become the next frontier in a what some fear is a housing bubble. Canadian new home prices rose 0.7% in May, the largest monthly increase since 2007, Statistics Canada said on Thursday. Builders with decades of experience say they have not seen anything like it, and are eager to build while the boom lasts.

“It’s definitely ‘Build as quickly as possible and get your pre-sales out,'” said Robert de Wit, chief executive of the Greater Vancouver Home Builders’ Association. But with land prices rising as quickly as home prices, builders are paying a lot of money now for land that may not have a house on it to sell for two years. “They are gambling. They are taking a calculated risk. They are buying the land at prices that anticipate future prices going up,” de Wit said. Builders say it is a challenge to find enough skilled tradespeople to do the work, while entire developments sell out within days of being advertised – months before construction even begins. “It’s scary to try to figure out what’s going on with the marketplace,” said Heather Weeks, marketing manager at Rosehaven Homes, which builds in the outskirts of Toronto.

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What you get when a government relies on bubbles to look good.

Bank of Mum and Dad Is Now Paying The Rent, Too (Ob.)

The Bank of Mum and Dad – the lender of last resort for their grown-up children unable to afford a deposit to buy a home – has moved into the private rentals market. The country’s housing crisis has become so acute that parents are now having to subsidise their children’s rent to the tune of £1bn a year. Research by the housing charity Shelter says that 450,000 adults need help from their parents to keep them in their rented home. An analysis of almost 4,000 adult people who rent carried out by YouGov suggests that more than one in 20 have either borrowed or received money from their parents this year to pay their rent or help them with moving costs.

Younger people are particularly reliant on their parents for help, with 11% of those aged 18-24, and 8% of those aged 25-34, receiving financial support. Shelter estimates that this amounts to about £850m a year on rent and £150m a year on moving costs. “With housing costs sky high it’s not surprising that the Bank of Mum and Dad is no longer just relied on for help with buying a home, but renting costs too,” said Campbell Robb, Shelter’s chief executive. “We know that the majority of private renters are forking out huge proportions of their income to cover the rent each month, and that’s not even taking into account the extortionate deposits and fees that need to be paid.”

Almost 150,000 renting households in England were at risk of losing their home in the past year – some 350,000 people, says Shelter. “For those who aren’t lucky enough to receive help from parents, expensive and unstable private renting leaves many struggling,” Robb said. “We hear from people every day who simply can’t keep up with rising rents on where to live.” [..] The problem is particularly serious in London, where Shelter claims 54% of private renters are struggling to pay. Government figures show rents rose by 19% in London in the past five years. And while the average for a two-bedroom flat in the capital is now more than £1,600 a month, wages have not kept pace.

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Wonderful. Hudson always is.

A Travesty of Financial History (Michael Hudson)

Debt mounts up faster than the means to pay. Yet there is widespread lack of awareness regarding what this debt dynamic implies. From Mesopotamia in the third millennium BC to the modern world, the way in which society has dealt with the buildup of debt has been the main force transforming political relations. Financial textbook writers tell happy-face fables that depict loans only as being productive and helping debtors, not as threatening social stability. Government intervention to promote economic growth and solvency by writing down debts and protecting debtors at creditors’ expense is accused of causing an economic crisis (defined as bankers and bondholders not making as much money as they thought they would).

Creditor lobbyists are not eager to save indebted consumers, businesses and governments from bankruptcy and foreclosure. The result is a biased body of analysis, which some extremists project back throughout history. The most recent such travesty is William Goetzmann’s Money Changes Everything, widely praised in the financial press for its celebration of finance through the ages. A Professor of Finance and Management at the Yale School of Management, he credits “monetization of the Athenian economy” – the takeoff of debt – as playing “a central role in the transition to … democracy”, and assures his readers that finance is inherently democratic, not oligarchic: “The golden age of Athens owes as much to financial litigation as it does to Socrates”.

That litigation consisted mainly of creditors foreclosing on the property of debtors. Goetzmann makes no mention of how Solon freed Athenians from debt bondage with his seisachtheia (“shaking off of burdens”) in 594. Also airbrushed out of history is the subsequent buildup of financial oligarchies throughout the Mediterranean. Cities of the Achaean League called on Rome for military intervention to prevent Sparta’s kings Agis, Cleomenes and Nabis from cancelling debts late in the third century BC.

Violence has often turned public policy in favor of debtors, despite what philosophers and indeed most people believed to be fair, just and stable. Rome’s own Social War opened with the murder of supporters of the pro-debtor Gracchi brothers in 133 BC. By the time Augustus was crowned emperor in 29 BC, the die was cast. Creditor elites ended up stifling prosperity, reducing at least 15% (formerly estimated as a quarter) of the Empire’s population to bondage. The Roman legal principle placing creditor rights above the property rights of debtors has been bequeathed to the modern world.

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Hope they don’t conclude it’s about money.

One of India’s Poorest States Just Created a Happiness Ministry (BBG)

A central Indian state that ranks among the nation’s least developed will set aside 38 million rupees ($567,000) to study how to make its people happy. The cabinet in Madhya Pradesh – home to India’s famous Khajuraho temples and the national park where Rudyard Kipling set his Jungle Book – on Friday approved setting up the department. It will conduct research and prepare plans to measure and enhance its citizens’ wellbeing, according to the government’s website. Increasing growth and prosperity among India’s poorest states – which hold the bulk of the nation’s population – is crucial for Prime Minister Narendra Modi to retain power with elections due 2019. India ranks 118 of 156 in the World Happiness Report 2016, behind Pakistan, Serbia and Ethiopia.

“The largest regional drop was in South Asia, in which India has by far the largest population share,” the report stated. Five input variables – per capita income, life expectancy, freedom to make life choices, generosity, and freedom from corruption – improved for India but were offset by a fall in social support. With analysts questioning the credibility of statistics in the world’s fastest-growing big economy, social indicators stand to be increasingly used to measure progress. Madhya Pradesh, which calls itself the heart of India, was ranked among the bottom three in social indicators by a panel appointed by the federal government in 2013. Its per capita income is among the lowest for an Indian state.

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Mar 032016
 
 March 3, 2016  Posted by at 9:52 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Fenno Jacobs Schoolchildren staging a patriotic demonstration, Southington, CT 1942


Fresh Recession Will Cause Eurozone Collapse, Warns Credit Suisse (Telegraph)
“If Schengen Disappears, It Will Never Come Back” (BBG)
Earnings Downgrades Turning Into Deluge as First Quarter Craters (BBG)
Negotiating Debt Relief for Greece in the Shadow of the Brexirendum (Howse)
German Demand To Cap Banks’ Sovereign Debt Throws Italy Under The Bus (BBG)
Germany Is The New PiiG (BI)
Europe Without the Union (Startfor)
Death and Despair in China’s Rustbelt (BBG)
China’s Other Growth Figure Is Flashing a Warning (BBG)
George Osborne Has ‘Foot In Mouth’ Disease: Varoufakis (CNBC)
Donald Trump Embodies How Great Republics Meet Their End (Wolf)
Global Trade: Structural Shifts (FT)
In ‘Half Earth,’ E.O. Wilson Calls for a Grand Retreat (NY Times)
Syria Drought ‘Likely Worst In 900 Years’ (Guardian)
Albania’s Crucial Role In The Refugee Crisis (Venetis)
Greece Risks Being ‘Concentration Camp’ For Refugees: Varoufakis (CNBC)
Austerity-Hit Greeks Help Refugees With Food, Toys, Time (Reuters)
Greece Prepares To Help Up To 150,000 Stranded Refugees (AP)

What recovery? “The viability of the euro is contingent on the current recovery..”

Fresh Recession Will Cause Eurozone Collapse, Warns Credit Suisse (Telegraph)

A recession in Europe could lead to the collapse of the eurozone, as the single currency would buckle under the political turmoil unleashed by a fresh downturn, a leading investment bank has warned. In a research note titled “Close to the edge”, economists at Swiss bank Credit Suisse warned the fate of monetary union hangs in the balance if Europe’s policymakers are unable to ward off another global slump and quell anti-euro populism. “The viability of the euro is contingent on the current recovery,” said Peter Foley at Credit Suisse. “If the euro area were to relapse back into recession, it is not clear it would endure.” Although the bloc’s nascent recovery was likely to persist in the coming months, Credit Suisse said there were worrying signs of deterioration emanating from Europe’s economies. These include heightened credit stress in the banking sector and market volatility.

“The near-term outlook for economic activity, as well as the risks around it, has shifted materially downwards,” said the seven-page report. The eurozone’s 19 member states only managed to grow by 0.3pc in the last three months of 2015, despite asset purchases from the European Central Bank and the collapsing price of oil. Unlike the US and UK, the eurozone’s GDP still lags below its pre-financial crisis peak. Italy, the euro’s third largest economy, was stagnant at the end of last year, while Greece has slipped back into recession. Growth in Europe’s dominant economic power Germany has steadied to just 0.3pc. Insipid growth has been coupled with a fresh fall into deflation in February, raising fears the continent is stuck in a low growth trap where it is unable to tackle mounting debts.

This has put pressure on the ECB to devise more stimulatory measures to revive economic fortunes and escalated calls for governments to deploy their fiscal policy tools to support growth. But a failure to fight off recessionary forces would cause “irrevocable damage” to the eurozone six years after the onset of the financial crisis, said Mr Foley. Rising unemployment, falling asset prices, and mounting costs of debt would embolden anti-euro populist forces across the continent, “radicalising” electorates, said the report. Europe’s fragile banks – which have been in the eye of a market storm since the start of the year – could also find themselves at the heart of a new financial crisis as their profitability is squeezed and lending to the economy grounds to a halt. “The capacity for a renewed downturn to push the euro area into a destructive negative economic, political and financial feedback loop is considerable,” added Mr Foley.

The Swiss bank’s warning comes ahead of a crucial meeting of ECB policymakers next week, when they are widely expected to unleash a new round of quantitative easing and interest rate cuts. Benoit Cœuré , executive board member at the ECB, said the central bank’s policy stance could not “become a source of uncertainty” for expectant markets. “In the still fragile environment we face today, what is essential is that policy works to reduce uncertainty,” Mr Cœuré said on Wednesday. He admitted that the ECB’s move into negative interest rates could have adverse effects on the continent’s lenders, hinting policymakers would mitigate the impact of its -0.3pc deposit rate on bank profitability. “We are well aware of this issue. We are monitoring it on a regular basis and we are studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel,” said Mr Cœuré .

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Schengen exists in name only anymore.

“If Schengen Disappears, It Will Never Come Back” (BBG)

The EU has no plan to even temporarily cut Greece out of its passport-free Schengen zone and any suspension of open travel means “it will never come back,” Luxembourg Foreign Minister Jean Asselborn said. With Europe likely to face increased migration from Syria and other conflict zones throughout the next decade, the 28-member bloc must immediately start giving more money, equipment and authority to its Frontex border forces, Asselborn said Wednesday during a visit to Prague. Sealing Greece’s northern borders with Former Yugoslav Republic of Macedonia (FYROM) and unilaterally reinstating border checks within the Schengen area is “not a solution,” he said. Tensions over the handling of the refugee crisis have escalated, with Austria and some eastern EU members pushing for sealing the Greek-FYROM border.

Austria began admitting only a limited number of migrants, triggering a chain reaction of closures in countries to the south that’s stoking fears that Schengen may cease functioning. Political divisions are widening ahead of an extraordinary summit of the EU leaders on March 7 called to take stock of efforts to secure the bloc’s external frontiers. German Chancellor Angela Merkel, who is defending her open-border policy in three regional elections in March, is pushing for EU states to share the burden of redistributing migrants in the face of opposition from countries who have rejected the plan. Some EU members including Slovakia, Hungary and Poland have called for a “Plan B” that would cut Greece out of the Schengen area, pointing to Greece’s inability to secure its Mediterranean shores. “There is no plan B,” Asselborn said. “If Schengen disappears, it will never come back.”

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Without earnings, it ain’t much.

Earnings Downgrades Turning Into Deluge as First Quarter Craters (BBG)

The pace at which earnings estimates are being cut is getting worse, not better. While bulls cling to predictions that profit growth will resume for S&P’s 500 Index companies in 2016, analysts just reduced income estimates for the first quarter at a rate that more than doubled the average pace of deterioration in the last five years. Forecasts plunged by 9.6 percentage points in the last three months, with profits now seen dropping the most since the global financial crisis, data compiled by Bloomberg show. Growing skepticism among analysts is another example of an economic truth, that once corporate income starts to fall across industries, it’s rarely temporary. Most of the downward revisions in projections came in January and February – a clue as to why equities staged their worst selloff to start a year since 2009 and almost $3 trillion was wiped from share prices at the worst point.

“S&P 500 is not immune from the malaise of the global economy and we’re seeing that translated into earnings figures,” said Ethan Anderson, a senior portfolio manager who helps oversee $1.5 billion at Rehmann Financial in Grand Rapids, Michigan. “With the strong dollar, it obviously makes that made-in-U.S.A. look less attractive. Couple that with the weakness that we’re seeing in the global economy, most notably China, some of these estimates had looked fairly rosy.” Once a key support that helped stocks navigate through financial and geopolitical turmoil, earnings have increasingly become a contributor to market volatility along with concerns ranging from the price of oil to the path of interest rates. The decline in corporate profits has worsened every quarter since mid 2015, coinciding with a period where the S&P 500 suffered two corrections after reaching an all-time high in May.

Forecasters see the stretch of profit contractions now lasting 15 months. In the seven times earnings have fallen at least that long since 1970, stocks slipped into a bear market in all but one instance, data compiled by Bloomberg and S&P Dow Jones Indices show. Skepticism is rising over the durability of a bull market approaching its seventh anniversary with valuations based on legendary investor Peter Lynch’s favored measure that now surpass levels seen in the previous two runs. Investors hoping for a quick bounce in earnings to ease the multiple pressure may find little comfort in analysts’ estimates.

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“..Greece is quite capable of throwing the EU into crisis, conflict and even chaos, precisely at a time when the utmost solidarity is needed to help out the campaign against Brexit.”

Negotiating Debt Relief for Greece in the Shadow of the Brexirendum (Howse)

I’ve been saying for some time now that Greek PM Alexis Tsipras is, contrary to conventional wisdom, a shrewd negotiator and tactician. These traits were clearly on display this last week, when Europe’s leaders met to broker a deal on which British Prime Minister David Cameron could base his case for staying in the EU when Brexit gets put to a vote in the UK this June. Tsipras threatened to veto the deal if Greece were not given assurance that it could remain in Schengen for the time being, despite concerns about the control of its border with Turkey during the ongoing refugee crisis. Not surprisingly, given the stakes,Tsipras won. Now let’s turn to Greece’s other crisis. The European institutions are stalling on approving further disbursements to Greece, stretching out the current review of Greece’s implementation of last summer’s bailout memorandum.

Debt relief, a key element in the deal, has also been postponed. In particular, with the complicity of the IMF, Greece has been pushed to make deep across the board cuts in public pensions. Some pensions in Greece are anomalously high, and the responsible minister, George Katrougalos, freely admits that restructuring the pension system and creating a modern, effective social welfare state in Greece is a necessity for economic recovery and good governance. But with sky-high unemployment and falling wages, for many, pensions have become a de facto safety net; whole families are living from the income of a single pensioner. In these circumstances, the kind of indiscriminate slashing that the institutions want would inflict extreme and unjustifiable human hardship. It is difficult to know what is behind the unreasonableness in dealing with Greece on this issue.

Is it just the usual Germanic pious cruelty, or is it a strategy to try to bring down the Tsipras government in the hope of being able to deal with a more pliable, conservative new regime? Recently, the IMF’s point man on Greece, Poul Thomsen, publicly defended the hard line on pensions, on the basis that this is the only way that Greece can meet its budgetary targets that are necessary for restoring debt sustainability. But Thomsen made a key admission, perhaps unwittingly: debt relief, he suggested, could have the same effect on sustainability as would slashing pensions. He thus essentially told the Greeks to their face that further hardship was being forced on them, not because of any deep economic logic, but just because the needed amount of debt relief was not forthcoming.

The current line in the mainstream financial press is that Tsipras has no real cards he can play to resist the demands of the institutions on pensions. I think that’s wrong. If the institutions won’t be reasonable and moderate their demands, he can always blow up the third programme and default on Greece’s official debt to Europe; one way to do that would be to draw up a final offer on pensions and related reforms, and put it to the people in a new referendum that if Europe doesn’t accept that offer, Greece should default. Now, you say, isn’t that exactly the “nuclear” option that Tsipras backed off from last summer, for fear of utter economic and social catastrophe in Greece, despite then winning a mandate for it by referendum? True enough, but certain things have changed since. Back then, it became painfully clear very quickly that Greece’s banking system would have collapsed had it been cut off from further support from Europe in the wake of default.

Now the banks have been recapitalized; and the problem of marginal,failing banks addressed by restructuring and consolidation. Secondly, Greece has, shrewdly, built a new friendship with Israel; Netanyahu, ever the savvy politician, sees the value of having a country in the Mediterranean amenable to Israel’s interests and point of view (and there are the mutual gains of cooperation on offshore gas as well). Israel may well have made some kind of promise to Greece to function as a lender of last resort if things get bad. But, most importantly, there is the looming referendum on Brexit (I call it Brexirendum for convenience). By defaulting but keeping the Euro, and perhaps also threatening non-cooperation on refugees, Greece is quite capable of throwing the EU into crisis, conflict and even chaos, precisely at a time when the utmost solidarity is needed to help out the campaign against Brexit.

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“The German proposals are “pure folly,” and would amount to Italy “hitting itself over the head with a hammer..”

German Demand To Cap Banks’ Sovereign Debt Throws Italy Under The Bus (BBG)

A drive to tighten rules over how much sovereign debt banks are allowed to own has raised the alarm in the home of the euro region’s largest bond market. Italy’s prime minister, Matteo Renzi, vowed last month to veto any attempt to cap holdings, putting him at odds with Germany. Italian government securities account for 10.4% of the country’s bank assets, the most among major European economies and compared with 3.2% in Germany, the latest ECB figures show. A limit would mean “altering the balance of the Italian banking system,” said Francesco Boccia, a lawmaker from Renzi’s Democratic Party who heads the budget committee in Italy’s lower house of parliament. “Banks are already struggling to lend money to small- and medium-sized companies,” he said. “This would be the final blow.”

In essence, the euro region’s biggest debtor is on a collision course with its biggest paymaster over how to fix the failures of the past. Having financial institutions willing to finance the government is vital to most countries, but especially in Italy. The country has outstanding debt of €2.17 trillion ($2.36 trillion), more than anywhere else in Europe. It amounts to 133% of its economic output, the largest ratio except for Greece. The problem in Berlin is that it highlights Europe’s “doom loop,” the too-tight connection between sovereigns and their lenders that fueled the debt crisis and landed Germany with the biggest bill. Chancellor Angela Merkel’s government has been leading the campaign to tackle the practice of banks treating the debt as risk-free.

Germany has resisted moving toward closer financial ties, including initiatives such as a common euro-area deposit insurance system, until progress is made on reducing risk. Among Germany’s proposals was an an automatic maturity extension for bonds of nations that apply for aid from the European Stability Mechanism crisis fund. Another possibility is a 25% limit on the sovereign bonds some banks can hold risk-free as a share of eligible capital, according to two people with knowledge of the deliberations. The German proposals are “pure folly,” and would amount to Italy “hitting itself over the head with a hammer,” said Mario Baldassarri, chairman of the Economia Reale think-tank and a former head of the Italian Senate’s finance committee.

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“And when Germany falls, and it will, that’s when the panic begins to set in.”

Germany Is The New PiiG (BI)

This is as good as it gets for Germany and Europe. Previously, it was the debt of the eurozone’s peripheral countries that was of concern to the markets. But in an interview with Business Insider, Geopolitical Futures founder George Friedman proclaimed that Europe now has a much bigger problem: Germany. And at the heart of the looming issue for Germany and Europe is the Italian banking system. “[Problems in Italian banks are] going to spill over into the Netherlands, it’s going to spill over into Germany,” Friedman said. “Germany is the new PIIG. Germany depends on exports and its markets are drying up.” The PIIGS economies — Portugal, Italy, Ireland, Greece, and Spain — were the main concerns during the European debt crisis of 2011 and 2012.

And with those crises seemingly having passed and Europe moving back towards a path to economic stability, Germany has been a big winner with its economy as strong as its been since re-unification and an unemployment rate down to 4.5%. Germany has, however, been running a structural trade surplus underpinned by a weak euro with its trade surplus hitting a record $23.9 billion in June. And Friedman thinks Germany’s export well is about to run dry. Friedman believes that the problems in the Italian banking system are going to take Germany — the strongest economy in the eurozone — down with it. Data released in late-2015 showed non-performing loans at Italian banks totaled €300 billion, 17.3% of outstanding loans.

That is a massive number considering the average for the euro zone is 6.8%, and Germany’s NPL’s are at just 2.3%. According to Friedman, this is a big deal because Italy is the 4th largest economy in Europe and the 8th largest economy in the world. Italy’s home to the largest banking system in Eastern Europe and there’s a lot of inter-connectivity in play. For example, Germany’s largest bank, Deutsche Bank, has an enormous amount of exposure to Italy, and so does the rest of Europe. Ultimately Friedman thinks it will be Germany that has to save Italy. And that will cost a lot of money. “It’s not the PIIGS one should worry about,” Friedman said. “Germany hasn’t even begun falling yet. And when Germany falls, and it will, that’s when the panic begins to set in.”

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Not a big fan of Stratfor, but some things to think about here: “Perhaps the most likely scenario at this point would be for the EU to survive as a ghost of its former self, with its laws ignored..”

Europe Without the Union (Startfor)

The European project was always bound to fail. Europe is a continent riven by geographic barriers. It has spent two millennia not only indulging in massive and constant internal wars, but also keeping written records of them, informing each generation of all the times their forebears were wronged. Over the centuries, great empires have risen and fallen, leaving behind distinct groups of people with different histories, languages and cultures. Any project attempting to fuse these disparate cultures into one monolithic state over the course of just 70 years was by its very nature doomed. It would inevitably encounter insurmountable levels of nationalistic resistance, and eventually the project would stall. That is the point at which we now find ourselves.

Crises abound, and though they all have different facades, each stems from the same underlying issue: Citizens ultimately prize their national and regional identities over the supranational dream. The sovereign debt crisis and repeating Grexit scares, born of the introduction of the euro in 1999, have exposed Northern Europe’s unwillingness to subsidize the south. The Brexit referendum, scheduled for June, can trace its roots to the 2004 enlargement of the EU, and the ensuing wave of Polish migration to the United Kingdom. Meanwhile, amid the ongoing immigration crisis, national leaders are appeasing their populations by bypassing European rules and re-erecting border controls to stem the flow of refugees across their territory. In all of these situations, the same factors are at work: The driving forces within Europe are national in nature, and countries will ultimately put their own interests first.

Today’s problems were both predictable and predicted. The next step, however, is harder to foresee. Having identified a system’s inherent flaw, one can very well state that it is unsustainable, but unfortunately the flaw provides no guide as to the exact circumstances of the system’s end. There are still many different ways that the demise of the European Union’s current form could come about. For example, the project could unravel via market forces, as it nearly did in 2012 when investors tested the commitment of the core to save the periphery and found it to be (barely) willing to do so. Or a disaffected populace could elect a nationalist party such as France’s National Front, which could either lead the country out of the EU or make the bloc so unmanageable that it ceases to function. Perhaps the most likely scenario at this point would be for the EU to survive as a ghost of its former self, with its laws ignored and stripped back to the extent that it holds only a loose grip on its members.

The exact circumstances of the European project’s end are not yet clear, but there are certain fixed, underlying truths that are sure to outlast the EU’s current form. With them, a forecast can still be made of the shape of things to come. These fundamental realities stem from deeper, unchanging forces that will bring countries together according to their most basic goals; they are the same forces that limited the European project’s lifespan in the first place. By looking at these underlying factors, one can predict which countries will emerge from a weakened or collapsed EU with close ties, and which are likely to drift apart in pursuit of their own interests once they are freed from the binding force of the EU and its integrationist ideals.

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“..leaving a valley of brutal murder, protests, anger, suicide and regret.”

Death and Despair in China’s Rustbelt (BBG)

In a snow-covered valley in northeast China, an hour from the North Korean border, a street with brightly-painted apartment blocks hides a story of fear and anger as dangerous to the country as its rollercoaster stock market or sliding currency. The frozen alluvial river plain that was once at the forefront of the Communist Party’s first attempt to build a modern economy, has now fallen behind, leaving a valley of brutal murder, protests, anger, suicide and regret. This is the city of Tonghua in China’s rustbelt, where a desperate handful of steelworkers has gathered each week outside the management office of their mill in freezing temperatures to demand months of wages they say they’re owed. The answer, according to interviews with workers and residents, is always the same: there is no money.

This is the last vestige of protests that once drew thousands, and which, one fateful day nearly seven years ago, ended with a manager being beaten to death. Since then, the city’s once-vaunted state-run steel mills have slipped inexorably into decline, weighed down by slumping global markets, a changing economy, and the burden of costs and responsibilities to the people of the town they fostered. Tonghua’s story is repeated across the country, where state-owned enterprises that were the bedrock of China’s industrial development have become its biggest burdens. Typically overstaffed, inefficient and heavily indebted, they offer President Xi Jinping a stark warning of what the country could face if the millions of workers who depend on these lumbering corporations should get thrown out of work with nothing to fall back on. Uprisings have started from less in China.

The country’s leaders have vowed to reduce excess industrial capacity and labor in state enterprises even as they battle the slowest economic growth in a quarter of a century. China will eliminate up to 150 million metric tons of steel-making capacity in the next five years, the State Council said after a Jan. 22 meeting. The council, China’s cabinet, said it will achieve the target through mergers and acquisitions, relocation or converting some plants to other industries. It pledged to set up special funds to subsidize companies and laid-off workers during the change, and to help lenders write down bad debts. “The market has forced our hands,” said the official Xinhua News Agency in a Jan. 24 commentary. “Local governments and companies will bear the main responsibility, while the central government will help.”

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The real numbers: “..GDP in dollars, unadjusted for price changes, rose just 4.25% in the fourth quarter of 2015..”

China’s Other Growth Figure Is Flashing a Warning (BBG)

Obscured by the focus on the accuracy of China’s growth figures is a tumble in estimates for the economy without adjusting for inflation – a slide that gives a clearer picture of why the country’s slowdown has stoked rising concern about its debt burden. GDP in dollars, unadjusted for price changes, rose just 4.25% in the fourth quarter of 2015 compared with the same period of 2014 – a gain of $439 billion. Just two years before, China added $1.1 trillion to the global economy, expanding 13% from a year earlier. “Looked at in this way, financial markets reaction to deteriorating Chinese data is more understandable,” said Arthur Kroeber at research firm Gavekal Dragonomics in Hong Kong. Weakening nominal growth makes debt servicing harder, forming the backdrop for moves this week by Moody’s Investors Service to lower its outlook on China’s credit rating and HSBC to cut its recommendations on the country’s big banks.

With Premier Li Keqiang’s cabinet having eased a deleveraging drive last year, investors will get fresh insights into the Communist leadership’s priorities at a gathering of the national legislature starting Saturday. Along with economic targets for 2016, officials will discuss the party’s new five-year plan. While in yuan terms the slowdown is more gradual, the decline in nominal GDP gains is still dramatic – to a 6.4% pace at the end of 2015 compared with 10.1% back in 2013 and in excess of 18% in 2010 and 2011. The slide highlights the need to follow through on slashing excess industrial capacity, eliminating unprofitable enterprises and revving up new drivers of expansion.

“The biggest problem with plunging nominal GDP growth is that the cash-flow growth to the corporate sector has declined at a time when growth in its debt servicing has accelerated,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “Because debt is so much larger than the economy, debt servicing each year will still be two to three times the incremental growth of nominal GDP.” China’s debt-to-GDP ratio surged to 247% last year from 166% in 2007, propelled by a lending binge in the aftermath of the global financial crisis. Days before the National People’s Congress, the central bank this week lowered the ratio of deposits major banks must hold in reserve, letting them deploy more in lending.

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To be honest, Osborne was funny too: “Varoufakis was recruited because Chairman Mao was dead and Mickey Mouse was busy.”

George Osborne Has ‘Foot In Mouth’ Disease: Varoufakis (CNBC)

Yanis Varoufakis, the former Greek finance minister, has said that the U.K. finance minister has got a bad case of “foot in mouth disease” and is doing himself no favors by mocking him in parliament. On Wednesday, the U.K.’s Chancellor George Osborne ridiculed a report saying that Varoufakis was advising the opposition Labour party, telling the House of Commons that “Varoufakis was recruited because Chairman Mao was dead and Mickey Mouse was busy.” Responding to the slur, Yanis Varoufakis told CNBC that he was intrigued that George Osborne had “this foot in mouth disease.” “So when George Osborne comes out and pokes fun at me, obviously trying to luxuriate in the fact that I’m a defeated finance minister, yes, I am a defeated finance minister but in the hands of whom? Of an iron-clad European Union that decided to asphyxiate us using bank closures in order to impose upon us another extend and pretend bailout. The British people know that.”

“Does George Osborne really seriously believe that by mocking me he is doing himself any favors in his intellectual class?…I don’t think he is doing himself any intellectual favors.” “He seems unable to prevent own goals being scored all the time,” he added. Varoufakis said he was supporting the campaign for Britain to stay in the European Union (EU) but that he had been impressed with the “leave” arguments put forward by conservative politicians Boris Johnson and Michael Gove. They had, he said, “sounder intellectual ideas” than Osborne.

Earlier in the week it emerged that the Greek Marxist economist was going to advise the U.K.’s Labour party “in some capacity,” according to Labour leader Jeremy Corbyn. Varoufakis told CNBC that there was no formal contract and that he was “talking to everybody” including Caroline Lucas from the Green party and former Conservative Chancellor Normal Lamont. Talking to each other, he said, would help find common ground and a “common program to stop this slide into the abyss” in Europe. Asked whether he was receiving any money from the Labour party, he said: “Of course not. I have no such contract with anyone, let alone Jeremy Corbyn and the Labour party.”

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“..pluto-populism”: the marriage of plutocracy with rightwing populism..”

Donald Trump Embodies How Great Republics Meet Their End (Wolf)

What is one to make of the rise of Donald Trump? It is natural to think of comparisons with populist demagogues past and present. It is natural, too, to ask why the Republican party might choose a narcissistic bully as its candidate for president. But this is not just about a party, but about a great country. The US is the greatest republic since Rome, the bastion of democracy, the guarantor of the liberal global order. It would be a global disaster if Mr Trump were to become president. Even if he fails, he has rendered the unthinkable sayable. Mr Trump is a promoter of paranoid fantasies, a xenophobe and an ignoramus. His business consists of the erection of ugly monuments to his own vanity. He has no experience of political office. Some compare him to Latin American populists.

He might also be considered an American Silvio Berlusconi, albeit without the charm or business acumen. But Mr Berlusconi, unlike Mr Trump, never threatened to round up and expel millions of people. Mr Trump is grossly unqualified for the world’s most important political office. Yet, as Robert Kagan, a neoconservative intellectual, argues in The Washington Post, Mr Trump is also “the GOP’s Frankenstein monster”. He is, says Mr Kagan, the monstrous result of the party’s “wild obstructionism”, its demonisation of political institutions, its flirtation with bigotry and its “racially tinged derangement syndrome” over President Barack Obama. He continues: “We are supposed to believe that Trump’s legion of ‘angry’ people are angry about wage stagnation. No, they are angry about all the things Republicans have told them to be angry about these past seven-and-a-half years”.

Mr Kagan is right, but does not go far enough. This is not about the last seven-and-a-half years. These attitudes were to be seen in the 1990s, with the impeachment of President Bill Clinton. Indeed, they go back all the way to the party’s opportunistic response to the civil rights movement in the 1960s. Alas, they have become worse, not better, with time. Why has this happened? The answer is that this is how a wealthy donor class, dedicated to the aims of slashing taxes and shrinking the state, obtained the footsoldiers and voters it required. This, then, is “pluto-populism”: the marriage of plutocracy with rightwing populism. Mr Trump embodies this union. But he has done so by partially dumping the free-market, low tax, shrunken government aims of the party establishment, to which his financially dependent rivals remain wedded. That gives him an apparently insuperable advantage. Mr Trump is no conservative, elite conservatives complain. Precisely. That is also true of the party’s base.

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A curious attempt to deny there’s a crisis in the first place. No, we’re ‘transitioning to a digital economy’, or something..

Global Trade: Structural Shifts (FT)

The Port of Charleston spent most of the early 2000s enjoying double-digit growth as an accelerating wave of globalisation — fuelled by a rising China and a US consumer boom — brought robust volumes of cargo into the seaport. But those days are long gone. Jim Newsome, chief executive of the South Carolina Ports Authority, says he would be happy with 3% growth in Charleston this year, a goal he concedes may be too ambitious. In January, container traffic at the port fell 5.1% versus the same month of 2015, and the strong dollar is causing problems for US exporters. “Most of the exporters that I talk to are just not doing the same business that they were a year ago,” he says. The story is repeated and amplified far beyond Charleston.

Last year saw the biggest collapse in the value of goods traded around the world since 2009 – when the impact of the global financial crisis was at its worst. Major ports such as Hamburg and Singapore have also reported slowing growth and even declining volumes. Barring a spectacular turnround in the global economy, the subpar performance is likely to be repeated in 2016, making it the fifth straight year of lacklustre growth in global trade, a pattern not seen since the doldrums of the 1970s. “It has been a very long time since trade .. has grown this weakly”, says Robert Koopman, chief economist at the WTO. Much of this recent feeble performance is down to the economic slowdown in China and the knock-on effect that its declining appetite for commodities has had on other emerging markets.

An anaemic recovery in Europe adds to the headwinds hitting global commerce. While these factors explain part of the weakness in global trade, some say there are even bigger factors at work. A growing number of economists argue that the slowdown is not merely cyclical, but a sign that the forces that have driven globalisation for decades are beginning to shift. The first big transition is China’s attempt to rebalance from a manufacturing and export-led economy towards one focused on domestic consumption. And some economists note that the plateau in worldwide trade in goods and capital has coincided with a surge in data flows — an indicator, they say, that the digital economy of the 21st century is starting to overturn the old order.

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One of my favorite people on the planet.

In ‘Half Earth,’ E.O. Wilson Calls for a Grand Retreat (NY Times)

Why publish this book now? Because a lifetime of research has magnified my perception that we are in a crisis with reference to the living part of the environment.We now have enough measurements of extinction rates and the likely rate in the future to know that it is approaching a thousand times the baseline of what existed before humanity came along.

Reading your book, one senses you felt a great urgency to write it? The urgency was twofold. First, it’s only been within the last decade that a full picture of the crisis in biodiversity has emerged. The second factor was my age. I’m 86. I had a mild stroke a couple of years ago. I thought, “Say this now or never.” And what I say is that to save biodiversity, we need to set aside about half the earth’s surface as a natural reserve. I’m not suggesting we have one hemisphere for humans and the other for the rest of life. I’m talking about allocating up to one half of the surface of the land and the sea as a preserve for remaining flora and fauna.

In a rapidly developing world, where would such a reserve be? Large parts of nature are still intact — the Amazon region, the Congo Basin, New Guinea. There are also patches of the industrialized world where nature could be restored and strung together to create corridors for wildlife. In the oceans, we need to stop fishing in the open sea and let life there recover. The open sea is fished down to 2% of what it once was. If we halted those fisheries, marine life would increase rapidly. The oceans are part of that 50%. Now, this proposal does not mean moving anybody out. It means creating something equivalent to the U.N.’s World Heritage sites that could be regarded as the priceless assets of humanity. That’s why I’ve made so bold a step as to offer this maxim: Do no further harm to the rest of life. If we can agree on that, everything else will follow. It’s actually going to be a lot easier than people think.

Why? Because many problems of human occupancy that we once thought of as insoluble are taking care of themselves. Demographers tell us that the human population could stabilize at about 10 or 11 billion by the end of the century. High tech is producing new products and ways of living that are congenial to setting side more space for the rest of life. Instrumentation is getting smaller, using less material and energy. Moreover, the international discourse is changing. I’m very encouraged by the Paris Climate Accords. I was excited to see at the time of the Paris meeting that a consortium of influential business leaders concluded that the world should go for net zero carbon emissions. Towards that end, they recommended we protect the forests we have and restore the damaged ones. That’s consistent with the “Half Earth” idea.

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It’s not just the war.

Syria Drought ‘Likely Worst In 900 Years’ (Guardian)

The relentless flow of refugees from the Middle East into Europe continues to raise tensions across the region. This weekend, fires ignited at a refugee camp in Calais, France, and countries are beginning to tighten their borders as more than 1 million people have streamed into Europe in the past year. The 1 million refugees represent just a portion of the 4.2 million that have fled Syria in all directions. And that’s on top of the 7.6 million people internally displaced in Syria who are trapped in limbo in their home country. War has been the direct driver of the refugee flux and behind that is a complex mix of social and political factors both inside and outside the region. One fiercely studied and debated driver has been a recent dip into a series of severe droughts starting in the late 1990s.

Previous work has prescribed some of the drought — and its impact on the socioeconomic fabric in the Middle East — to climate change. New findings published in the Journal of Geophysical Research-Atmospheres put it in even starker context, showing that the drought is likely the worst to affect the region in 900 years. The Mediterranean as a whole has been subject to widespread drought at various points in the past 20 years. Climate models project that the region is likely to get drier in the future, which Ben Cook, a climate scientist at the NASA Goddard Institute for Space Studies, said drove the new line of inquiry. “These recent drought events have motivated a lot of concern that this could be an indication of climate change, with the eastern Mediterranean and Syrian droughts being the most obvious,” Cook said.

Using tree ring data that covered 900 years of drought history, Cook led a team of researchers to look at drought across different regions in the Mediterranean. Dry spells in parts of the western Mediterranean have been severe but still within the range of natural variability over that 900-year span. What stands out is the drought in the eastern Mediterranean, which includes war-torn Syria. Drought has had a firm grip on the region since 1998 and Cook’s findings show that the recent bone-dry spell is likely the driest period on record in 900 years and almost certainly the worst drought in 500 years. In either case, it’s well outside the norm of natural variability indicating that a climate change signal is likely emerging in the region.

“This is a really important study that increases our understanding of low frequency (decadal to multidecadal) natural variability over the past 900 years and provides strong evidence that the severity of the recent drying in the eastern Mediterranean/Levant is human induced,” Colin Kelley, a drought expert who authored previous research on the region, said.

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Interesting angle. Officially, Albania’s borders are shut. But they’re not.

Albania’s Crucial Role In The Refugee Crisis (Venetis)

With the border between Greece and the Former Yugoslav Republic of Macedonia (FYROM) closed, Greece appears to be isolated from the neighborhood and the European mainland. While the problems are growing, the government of Prime Minister Alexis Tsipras trying to improvise a solution and Brussels still looking, Greece seems again favored by geography. Among Greece’s long Greek borders with its Balkan neighbors, only the Greek-Albanian one cannot be controlled because it is mountainous and with a large number of accessible paths. Therefore, the government of Edi Rama may verbally express its opposition to the possibility of migration flows going through Albania but it is impossible to implement such a decision. The reasons are obvious. Nobody can stop the peaceful determination of populations to move.

Given Skopje’s policy of closed borders and the willingness of immigrants to move northwards, as well the failure of each transit country to provide them with the basics for a temporary stay, it should be viewed as certain that in the coming days and weeks, with the arrival of spring, the migrants now trapped in Greece will head towards the border with Albania. What will happen then? Albania will try to stop this flow through the Greek border stations of Krystalopigi, Mertziani and Kakavia – but in vain. No wall can be erected on uneven terrain. Parallel paths are not patrolled because they are numerous, anomalous and extensive. Therefore, the Albanian authorities will not be able to stop the flows peacefully. Albanians know this and although the prime minister has expressed his opposition, he has already ordered the construction of two reception centers for a total of 10,000 immigrants in Korce and Gjirokaster.

Such a development would essentially mean the cancellation of the Austrian refugee policy in the Balkans because immigrants will be able to access the FYROM territories and Kosovo from Albania and therefore to move northwards to Serbia, Montenegro and Bosnia. Additionally, the problem will be internationalized once more and put more pressure on Brussels to find an effective solution. Austria is expected to attempt to erect a new wall to the north, but to no avail, because the problem will be shared not only by Greece but the whole of the Balkans. The Albanian corridor can give Greece a chance to gain some time in dealing with the influx from Turkey, to relieve the Greek-FYROM border and to provide the EU with a final opportunity to prove that it is a union of friends and not enemies.

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That’s been my point all along, and it’s too late already: “..you cannot buy back the lost dignity of the European Union..”

Greece Risks Being ‘Concentration Camp’ For Refugees: Varoufakis (CNBC)

The refugee crisis is a “manifestation of the disintegration of the European Union,” Greece’s controversial former finance minister told CNBC on Thursday, as he warned against Turkey and Greece becoming a “large concentration camp for hapless refugees.” Yanis Varoufakis, who served as finance minister in 2015 under the ruling left-wing Syriza party, said Europe was “rich enough” to cope with the influx of refugees who have flooded to Europe in the wake of the turmoil in Syria. “The EU should be a proper union with borders, which we control in a humane way. When somebody knocks on your door and they’ve been shot at, they have kids that are dying or thirsty or hungry, you just open your door to them,” he told CNBC at the Global Financial Markets Forum in Abu Dhabi.

According to the UN, 131,724 refugees and migrants made the risky journey across the Mediterranean Sea during January and February. The large majority of these people, 122,637, landed in Greece. The EU, of which Greece is a member, has struggled to agree to a strategy to deal with the waves of people, particularly in the wake of terrorist attacks from the group that calls itself the “Islamic State.” However, on Wednesday, the EU launched a €700 million fund to help Greece cope with the crisis. “The fact that we are now spending some money on refugees is a good thing, but you cannot buy back the lost dignity of the European Union,” Varoufakis told CNBC.

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“I don’t have an income but I have a child,” she said before handing out another balloon, while her sister distributed milk.”

Austerity-Hit Greeks Help Refugees With Food, Toys, Time (Reuters)

Three Syrian children holding balloons follow Constantina Tsouklidou who is handing out toys and food to refugees sheltering by the hundreds in a ferry passenger terminal at the Greek port of Piraeus. “I don’t have an income but I have a child,” she said before handing out another balloon, while her sister distributed milk. Tsouklidou, 50, is one of thousands of Greeks volunteering their time to assist refugees and migrants stranded in Greece. She is also one of the legions of Greece’s unemployed. Greece, whose economy was struggling even before Europe’s migrant crisis and which has received more than 240 billion euros since its first international bailout in 2010, is in its eighth year of recession. More than a million people are unemployed, according to statistics agency ELSTAT, which put the latest jobless rate at 24.6%.

“Half of the Greek population has to a smaller or bigger extent assisted refugees. We are not like central Europe,” Tsouklidou told Reuters, referring to border closures through the Balkans. At least 25,000 people were stranded in Greece on Tuesday, their journey to wealthier central and northern European nations blocked by the failure of European nations to agree a common policy to deal with one of the worst humanitarian crises in decades. Austria and countries along the Balkans migration route have imposed restrictions on their borders, limiting the numbers able to cross. Many of the migrants hope to reach Germany. Macedonian police fired tear gas to disperse hundreds of migrants who stormed the border from Greece on Monday. “I am worried about what will happen if people keep coming in and the borders remain closed,” said Kyriakos Sarantidis, 65, who donates time cooking for refugees from a minivan parked at Pireaus port.

Greece’s migration minister said on Sunday the number of migrants trapped in Greece could reach up to 70,000 in coming weeks if the borders remain sealed, as refugees fleeing war and poverty in the Middle East and North Africa continue to arrive in Greece, mainly on small boats from Turkey. At Victoria Square, a downtrodden area of central Athens where many homeless refugees have converged, Greeks turned up in droves with bags of food, fruit and medicine after seeing images on television of families sleeping in the open, on cardboard boxes, on chilly winter nights. Eleftheria Baltatzi, a 73-year-old pensioner, was one of the many people who saw images of sick children on television and turned up at the square with medicine and food. “I made toasted cheese sandwiches,” she said. “We also have people who are hungry and need help, but these people have a bigger need.”

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No longer a transit nation.

Greece Prepares To Help Up To 150,000 Stranded Refugees (AP)

Greece conceded Wednesday it is making long-term preparations to help as many as 150,000 stranded migrants as international pressure on Balkan countries saw Macedonia open its border briefly for just a few hundred refugees. “In my opinion, we have to consider the border closed,” Greek Migration Minister Ioannis Mouzalas said. “And for as long as the border crossing is closed, and until the European relocation and resettlement system is up and running, these people will stay in our country for some time.” At the moment, some 30,000 refugees and other migrants are stranded in Greece, with 10,000 at the Idomeni border crossing to Macedonia. On Wednesday, hundreds of more people, including many families with small children, continued to arrive at two official camps by the border that are so full that thousands have set up tents in surrounding fields.

Greek police helped one man who fainted after being turned back by Macedonian authorities. Others waited stoically for rain covers, or food and other essentials in chilling temperatures [..] Mouzalas, the migration minister, met for several hours with mayors from across Greece, examining ways to ramp up shelter capacity. The ministers of health and education also held emergency talks to provide health care and basic schooling for children, who make up about a third of arrivals in Greece. Nikos Kotzias, the foreign minister, said the country could handle a capacity of up to 150,000. “No one in Europe predicted this problem would reach such a giant scale,” Kotzias told private Skai television. “But this is not a cause for panic. The problems must be addressed soberly.”

Macedonia intermittently opened the border Wednesday, letting hundreds of people in, as European Council President Donald Tusk arrived in the country as part of a tour of the region for talks on the migration crisis. Tusk, who is due to travel onto Greece and Turkey Thursday, is hoping to ease tension among European Union leaders — notably neighbors Austria and Germany — before they hold a summit on migration on Monday with Turkey. “We must urgently mobilize the EU and all member states to help address the humanitarian situation of migrants in Greece and along the western Balkan route,” he said. Greece has asked for €480 million in emergency aid from the EUto deal with the crisis. EU Humanitarian Aid Commissioner Christos Stylianides said he wants to swiftly push through a proposal to earmark €700 million in aid for the refugee crisis, with €300 million paid out this year.

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Aug 182015
 
 August 18, 2015  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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G. G. Bain 100-mile Harkness Handicap, Sheepshead Bay Motor Speedway, Brooklyn 1918


China Shanghai Stocks Lose 6.15% Overnight On Yuan Fears (CNBC)
World Shipping Slump Deepens As China Retreats (AEP)
Japan Exports Its Way to Irrelevance (Pesek)
China’s Currency Move Rattles African Economies (WSJ)
The Great Emerging-Market Bubble (BIll Emmott)
Bonds Signal Trouble Ahead As Equities Keep Calm (FT)
Greek Senior Bank Bonds Fall on Dijsselbloem Bail-In Comment (Bloomberg)
Greek Deposits Become Eligible For Bail-In On January 1, 2016 (Zero Hedge)
Greek Government On Its ‘Last Legs’, Merkel Faces Growing Rebellion (Telegraph)
Leftist Veteran Glezos Appeals To Syriza Leadership To ‘Come To Senses’ (Kath.)
Thanks To The EU’s Villainy, Greece Is Now Under Financial Occupation (Zizek)
A New Approach to Eurozone Sovereign Debt (Yanis Varoufakis)
Yanis Varoufakis: Bailout Deal Allows Greek Oligarchs To Maintain Grip (Guardian)
The Future of Europe (James Galbraith)
Brutish, Nasty And Not Even Short: The Ominous Future Of The Eurozone (Streeck)
Greece To Trouble Eurozone For Decades, Says Finland’s Soini (Reuters)
Banks Braced For Billions In Civil Claims Over Forex Rate Rigging (FT)
US Graft Probes May Cost Petrobras Record $1.6 Billion Or More (Reuters)
Ron Paul: Fed May Not Hike Because ‘Everything Is Vulnerable’ (CNBC)
Junk-Rated Offshore Drillers Headed into Bankruptcy (WolfStreet)
How Money, Race and Religion Determine the Fate of Europe-Bound Migrants (WSJ)

Kept going down after this article was posted.

China Shanghai Stocks Lose 6.15% Overnight On Yuan Fears (CNBC)

Chinese shares led losses in Asia on Tuesday, as nerves over China’s struggling economy and a deadly bomb explosion in Thailand sent investors scrambling for safety. A positive handover from Wall Street did little to help sentiment; the tech-heavy Nasdaq led gains with a 0.9% rise overnight, as investors scooped up battered biotech plays, while the Dow Jones Industrial Average and the S&P 500 notched up 0.4 and 0.5%, respectively, on the back of positive homebuilder data. China’s Shanghai Composite index widened losses to 5.2%, hitting a more than one-week low, as concerns over the yuan eclipsed data which showed monthly home prices up for a third straight month in July, indicating that country’s all-important property sector may be finally bottoming.

Prior to the market open, the People’s Bank of China (PBOC) set the midpoint rate at 6.3966 per dollar, firmer than the previous fix of 6.3969. However, the yuan fell against the greenback, slipping 0.2% to last change hands at 6.4086. Among the mainland’s other indexes, the blue-chip CSI300 and the smaller Shenzhen Composite plummeted 4.9 and 5.7%, respectively. Hong Kong’s Hang Seng index tracked the losses in its mainland peers to move down 0.9%. [..] utilities and industrial sectors were among the hardest-hit, with China Shipbuilding and China Shenhua Energy being two of the biggest drags on the index despite news that Beijing may be close to announcing broad plans to reform its state-owned enterprises (SOEs) this month.

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From the same Ambrose who mere days ago was quite upbeat on world trade.

World Shipping Slump Deepens As China Retreats (AEP)

World shipping has fallen into a deep slump over the late summer, dashing hopes of a quick recovery from the global trade recession earlier this year and heightening fears that the six-year economic expansion may be on its last legs. Freight rates for container shipping from Asia to Europe fell by over 20pc in the second week of August, even though trade volumes should be picking up at this time of the year. The Shanghai Containerized Freight Index (SCFI) for routes to north European ports crashed by 23pc in five trading days. The storm in the shipping industry comes as the New York state manufacturing index for July plummeted to a recessionary low of minus 14.9, the lowest since the Great Recession and one of the steepest one-month drops ever recorded.

The new shipments component fell to -13.8, and new orders to -15.7. A similar drop occurred in 2005 and proved to be a false alarm but the latest fall comes at a delicate moment for the world economy. There is now a full-blown August storm sweeping through global markets. The Bloomberg commodity index dropped to a fresh 13-year low on Monday and the MSCI index of emerging market equities touched depths not seen since August 2009. A closely-watched gauge of emerging market currencies has fallen for the eighth week – the longest run of unbroken declines since the beginning of the century – led by the Malaysian Ringgit, the Russian rouble and the Turkish lira. China’s surprise devaluation last week continues to send after-shocks through skittish global markets, already on edge over a likely rate rise by the US Fed in September – though this is now in doubt.

The currency move was widely taken as a warning that the Chinese economy is in deeper trouble than admitted so far, a menacing prospect for exporters of raw materials and for trade competitors in Asia. It threatens to transmit a fresh deflationary impulse through the global system. The great worry is that companies in emerging markets will struggle to service $4.5 trillion of US dollar debt taken out in the boom years when quantitative easing by the Fed flooded the world with cheap money, much of it at irresistible real rates of 1pc. This is up from $1 trillion in 2002. The monetary cycle has gone into reverse since the Fed ended QE in October 2014 and cut off the flow of fresh liquidity. While the first rate rise in eight years has been well-telegraphed, nobody knows for sure what will happen once tightening starts in earnest.

This stress-test could prove even more painful if China really has abandoned its (crawling) dollar peg and is seeking to protect export margins by driving down its currency. The yuan has risen by 60pc against the Japanese yen and 105pc against the rouble since mid-2012. Yet China nevertheless has a trade surplus of 6pc of GDP. Data from the Port of Hamburg released on Monday show much damage this currency surge may be doing to Chinese companies. Axel Mattern, the port’s chief executive, said a 10.9pc drop in trade with China was the chief reason why volumes of container cargoes passing through the port fell 6.8pc in the first six months.

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Abenomics was always only a huge failure.

Japan Exports Its Way to Irrelevance (Pesek)

There’s a difference between bad economic news and the devastating variety that Japan received Monday. Prime Minister Shinzo Abe might have been able to weather the second-quarter data showing a drop in Japanese consumption and a 1.6% decline in annualized growth. But it’s not clear his government can recover from the latest news about sputtering exports, which fell 4.4% from the previous quarter. An export boom, after all, was the main thing Abenomics, the prime minister’s much-heralded revival program, had going for it. The yen’s 35% drop since late 2012 made Japanese goods cheaper, companies more profitable and Nikkei stocks more attractive. But China is spoiling the broader strategy.

The economy of Japan’s biggest customer is slowing precipitously, which has imperiled earnings outlooks for Toyota, Sony, and trading houses like Mitsui. But Abe needs to recognize, as China already has, that this is only the latest sign of a broader reality: Asia’s old export model of economic growth no longer works. China’s devaluation last week raised fears of a return of the currency wars that devastated Asia in the late 1990s. That’s a reach, considering that exports are playing less and less of a role in China. McKinsey, for example, found that as far back as 2010, net exports were contributing only between 10% and 20% of Chinese GDP. The services sector is growing in size and influence to rebalance the economy – not fast enough, perhaps, but change is nevertheless afoot.

If any major country has been relying too much on exports it’s Japan. As yet another recession beckons, the Bank of Japan will likely respond with yet more easing to extend the yen’s declines and save giant exporters. No matter how cheap the yen gets, though, China will still be slowing. All the stimulus BOJ Governor Haruhiko Kuroda can muster won’t change the worsening trajectory of the region’s most-populous nation. That’s why Abe needs to take a page from Beijing and focus more on creating new industries at home. Tokyo seldom acknowledges it can learn anything from Beijing. Japan wrote the book on exporting your way to prosperity, one followed to great effect from South Korea to Vietnam, and eventually even China. But recent years have seen the student (China) surpass the teacher in moving past that simplistic growth strategy.

Abenomics, meanwhile, has proven to be a time machine endeavoring to return Japan to the export boom times of 1985. But even with additional BOJ stimulus, says Diana Choyleva of Lombard Street Research, exports don’t offer Japan a path to sustainable growth. Europe is still limping, the U.S. consumer isn’t the reliable growth engine it was a decade ago, and China’s relatively modest devaluation (about 3.5% in total) still means the yen’s value will rise on a trade-weighted basis.

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Better find an alternative to the term “emerging”.

China’s Currency Move Rattles African Economies (WSJ)

The shock waves from China’s surprise yuan devaluation are ricocheting through African economies, sending currencies tumbling and stoking anxiety that the continent’s biggest trading partner might be losing its appetite for everything from oil to wine. In South Africa, the rand hit a 14-year low of 12.94 to the dollar on Monday, extending a 2% drop since Aug. 10 and a 12% slide this year. Currencies in other African countries with close ties to China, like Angola’s kwanza and Zambia’s kwacha, are also down sharply after Beijing unexpectedly cut the yuan’s value by 2% against the dollar last Tuesday. China’s demand for Angolan oil, Zambian copper and South African gold has fueled a steep increase in trade, helping fuel rapid growth but leaving economies exposed to policy shifts in Beijing.

In 2013, Africa’s trade with China was valued at $211 billion, the African Development Bank said in June, more than twice the continent’s trade with the U.S. By contrast, 15 years ago, the U.S. traded three times as much with Africa as China did. Now, a weaker yuan is stoking fears in some African treasury departments and boardrooms that China’s buying power will be eroded—and that the world’s second-biggest economy may be slowing even more than official statistics suggest. Razia Khan, chief Africa economist at Standard Chartered bank, said China’s move was happening at a difficult moment for many African economies, which have been buffeted by volatility that has sent many regional currencies lower this year as oil prices dropped and the dollar surged. “Countries…with narrow export bases will be substantially disadvantaged,” she said.

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“..although countries can ride waves of growth and exploit commodity cycles despite having dysfunctional political institutions, the real test comes when times turn less favorable..”

The Great Emerging-Market Bubble (BIll Emmott)

Officially, Chinese growth is rock-steady at 7% per year, which happens to be the government’s declared target, but private economists’ estimates mostly range between 4% and 6%. One mantra of recent years has been that, whatever the twists and turns of global economic growth, of commodities or of financial markets, “the emerging-economy story remains intact.” By this, corporate boards and investment strategists mean that they still believe that emerging economies are destined to grow a lot faster than the developed world, importing technology and management techniques while exporting goods and services, thereby exploiting a winning combination of low wages and rising productivity.

There is, however, a problem with this mantra, beyond the simple fact that it must by definition be too general to cover such a wide range of economies in Asia, Latin America, Africa, and Eastern Europe. It is that if convergence and outperformance were merely a matter of logic and destiny, as the idea of an “emerging-economy story” implies, then that logic ought also to have applied during the decades before developing-country growth started to catch the eye. But it didn’t. The reason why it didn’t is the same reason why so many emerging economies are having trouble now. It is that the main determinants of an emerging-economy’s ability actually to emerge, sustainably, are politics, policy and all that is meant by the institutions of governance. More precisely, although countries can ride waves of growth and exploit commodity cycles despite having dysfunctional political institutions, the real test comes when times turn less favorable and a country needs to change course.

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“..if there is ever a dispute between what the bond market is saying and what the stock market is saying, the bond market is usually right..”

Bonds Signal Trouble Ahead As Equities Keep Calm (FT)

Confidence levels in corporate bond and equity markets have diverged to an extent not seen since the financial crisis as fixed income traders signal rougher times ahead to their stock market peers. Investment-grade bond yields and equity volatility, measures of investor sentiment in their respective markets, have moved further apart than at any time since March 2008, according to Bank of America Merrill Lynch analysts. US equities tumbled for the rest of that year as the financial crisis intensified. “Somebody has to be wrong here,” said Hans Mikkelsen, credit strategist at BofA. The contrast between equities and bonds comes as many economists expect the US Federal Reserve to increase overnight borrowing costs next month, the first rate rise in almost a decade.

“If I was an equity investor I would pay close attention to what’s going on in the corporate bond market, probably more than they are currently,” said Mr Mikkelsen. The broad S&P 500 has largely traded sideways this year, and briefly turned negative last week, while implied volatility, as measured by the CBOE Vix index, remains quiescent. The Vix has eased below 13, after a brief rise above 20 in July, a threshold that in the past has signalled an escalation of investor anxiety over equities. According to the BofA corporate bond index, the gap between yields on investment-grade corporate bonds and US government bonds has moved to 164 basis points.

This takes the difference between credit spreads per point of equity volatility to 10.26bp, BofA calculates, its highest level in more than seven years. “It’s a signal, but not necessarily a timing tool,” said Jack Ablin, chief investment officer at BMO Private Bank. He agreed that equity investors should be concerned by pessimism in the bond markets. “In my experience, if there is ever a dispute between what the bond market is saying and what the stock market is saying, the bond market is usually right,” he added.

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“We call Dijsselbloem’s solution a bail-up: part bail-out, part bail-in and part cock-up.” But that’s not the whole story (see article below this one).

Greek Senior Bank Bonds Fall on Dijsselbloem Bail-In Comment (Bloomberg)

Senior bonds of Greek banks tumbled after Euro-area finance ministers protected depositors from any losses in the nation’s €86 billion bailout. While Greece’s third bailout will spare depositors in any restructuring of the nation’s financial system, senior bank bondholders may not be so lucky, according to comments from Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem. The bondholders will be in line for losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout. “Bondholders were overly optimistic because bail-in of senior bonds was not explicitly mentioned before,” said Robert Montague, a senior analyst at ECM Asset Management in London. “Today they were brought back down to earth with a bump.”

Under the bailout terms, as much as €25 billion will be made available in a fund to recapitalize the Greek banks, including €10 billion as a first installment. Greek stocks rose and government bond yields dropped on the deal, though senior unsecured bank bonds fell. “The bail-in instrument will apply for senior bondholders, whereas the bail-in of depositors is explicitly excluded,” Dijsselbloem said at a press conference in Brussels on Friday. Greece’s euro-area creditors made adoption of the EU’s Bank Resolution and Recovery Directive, or BRRD, a precondition of the bailout. The directive, which makes it easier to impose losses on senior creditors, should rank senior unsecured bondholders and depositors equally, said Olly Burrows at brokerage firm CRT Capital.

By protecting deposits, Greece is walking a different path to neighboring Cyprus, which imposed a levy on uninsured depositors as part of a rescue package in 2013. “It is not clear how they will make it possible to bail-in bonds while excluding deposits, but as we have seen in other problematic situations, where there is a will there will be a way,” Burrows said. “We call Dijsselbloem’s solution a bail-up: part bail-out, part bail-in and part cock-up.”

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No bail-in for deposits?! Here’s the real story.

Greek Deposits Become Eligible For Bail-In On January 1, 2016 (Zero Hedge)

Europe’s eagerness to promise depositor stability is transparent: the finmins will do everything in their power to halt the bank run from banks which will likely be grappling with capital controls for months if not years. Still, absent some assurance, there is no way that the depositors would be precluded from withdrawing all the money they had access to, which in turn would assure that the €86 billion bailout of which billions are set aside for bank recapitalization, would be insufficient long before the funds are even transfered. According to an Aug. 14 Eurogroup statement an asset quality review of Greek banks will take place before the end of the year,

“We expect a comprehensive assessment of the banks – so-called Asset Quality Review and Stress Tests – by the ECB/SSM to take place first,” EC spokeswoman Annika Breidthardt tells reporters in Brussels. “And this naturally takes a few weeks.” In other words Europe is stalling for time: time to get more Greeks to deposit their cash in the bank now, when deposits are “safe” and while everyone is shocked with confusion at the nonsensical financial acrobatics Europe is engaging in. But once Jan.1, 2016 rolls around, it will be a vastly different story. This was confirmed by the very next statement: “I must also stress that, depositors will not be hit” in this year’s review, she says. In this year’s, no. But the second the limitations from verbal promises of deposit immunity expire next year, everyone who is above the European deposit insurance limit becomes fair game for bail-in.

Dijsselbloem concluded on Friday that “Depositors have been excluded from the bail-in because in the first place it’s concerning SMEs and private persons. But it is only concerning depositors with more than 100,000 euros and those are mainly SMEs. That would again lead to a blow to the Greek economy. So the ministers said we will exclude them explicitly, it would bring damage the Greek economy.” Right, exclude them… until January 1, 2016. And only then impair them because Greece will never again be allowed to escape a state of permanent “damage” fo the economy. As for Greeks and local corporations whose funds are parked in a bank and who are wondering what all this means for their deposits, here is the answer: for the next 4.5 months, your deposits are safe, which under the current capital control regime doesn’t much matter: it’s not as if the money can be withdrawn in cash and moved offshore.

However, once January 1, 2016 hits and Greece becomes subject to a bank resolution process supervised and enforced by the BRRD, all bets are off. Which likely means that as the Greek bank balance sheet is finally “rationalized”, any outsized deposits will be promptly Cyprused. For our part, we tried to warn our Greek readers about the endgame of this farcical process since January of this year: we will warn them again – capital controls or not, pull whatever money you can in the next few months because once 2016 rolls around, all the rules change, and those unsecured bank liabilities yielding precisely nothing, and which some call “deposits” will be promptly restructured to make the Greek financial balance sheet at least somewhat remotely viable.

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Sounds more dramatic than it is. In Greece, democracy works. In Germany, differences are much less pronounced.

Greek Government On Its ‘Last Legs’, Merkel Faces Growing Rebellion (Telegraph)

Greek MPs are poised to hold a vote of confidence in the government of Alexis Tsipras after Leftist party rebels deserted the prime minister over the punishing terms of a third international bail-out agreement. Syriza’s energy minister Panos Skourletis said it was now “self evident” that parliamentarians would decide on whether or not to continue supporting the government after a “deep wound” had been inflicted on the ruling coalition. Lawmakers voted to ratify a 30-page “Memorandum of Understanding” to keep the country in the eurozone for the next three years on Friday. But the terms of the deal, which roll back a number of key pledges from the anti-austerity government, have split the ruling party. Mr Tsipras failed to get the backing of at least 120 of his own MPs, a constitutional threshold that could oblige him to trigger a vote in his leadership.

In a detailed evisceration of the austerity measures, former rebel finance minister Yanis Varoufakis denounced the agreement as encapsulating “the Greek government’s humiliating capitulation”. “Greek sovereignty is being forfeited wholesale” he said. “Not since the Soviet Union has wishful thinking, unsupported by anything tangible, posed as policymaking.” Support for the ruling coalition has becoming vanishingly thin. Greece’s two main opposition parties – which have so far voted to keep the country in the euro – vowed to pull the plug on the embattled premier should a vote be called in the coming weeks. Pasok, the much depleted socialist opposition, joined the conservative New Democracy in refusing to endorse Mr Tsipras and his junior coalition partner, led by defence minister Panos Kammenos.

[..] Chancellor Angela Merkel is facing the biggest domestic rebellion in her 10 years in office over the aid package. More than 60 of her Christian Democrat MPs rejected restarting talks over a new Greek rescue in an initial vote in July. This insurrection is set to mount when the package is put before a final parliamnetary vote on Wednesday, according to a key ally of the German premier. Michael Fuchs, deputy chairman of the CDU, said he had yet to decide whether or not he would back the bail-out as doubts over the involvement of the IMF continue to hang over Berlin. “There might be some changes by tomorrow, even,” said Mr Fuchs in an interview with Bloomberg.

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A broad summit sounds like the by far best idea available.

Leftist Veteran Glezos Appeals To Syriza Leadership To ‘Come To Senses’ (Kath.)

Leftist veteran Manolis Glezos, a former SYRIZA MEP, called on the party leadership to “come to your senses” and hold a broad summit, saying that the country’s third bailout “binds the Greek people hand and foot and enslaves them for entire decades.” “Let’s not allow the Left to become a seven-month parenthesis,” Glezos said in a statement. Describing the government’s strategy as “fickle and faltering,” he accused the party’s leadership of “erasing and destroying hopes and dreams.” “Finally come to your senses, fellow fighters and comrades of the leadership of the United Party,” Glezos wrote. “Before it is too late and before rushed initiatives are taken, listen to the voice of the people, of SYRIZA’s organizations and call a broad summit,” Glezos wrote, adding that “despite the intense dialogue that will take place, a solution will be found.”

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“.. the Greek retreat is not the last word for the simple reason that the crisis will hit again..[..]..The task of the Syriza government is to get ready for that moment..”

Thanks To The EU’s Villainy, Greece Is Now Under Financial Occupation (Zizek)

When my short essay on Greece after the referendum “The Courage of Hopelessness” was republished by In These Times, its title was changed into “How Alexis Tsipras and Syriza Outmaneuvered Angela Merkel and the Eurocrats”. Although I effectively think that accepting the EU terms was not a simple defeat, I am far from such an optimist view. The reversal of the NO of referendum to the YES to Brussels was a genuine devastating shock, a shattering painful catastrophe. More precisely, it was an apocalypse in both senses of the term, the usual one (catastrophe) and the original literal one (disclosure, revelation): the basic antagonism, deadlock, of the situation was clearly disclosed.

Many Leftist commentators (Habermas included) got it wrong when they read the conflict between the EU and Greece as the conflict between technocracy and politics: the EU treatment of Greece is not technocracy but politics at its purest, a politics which even runs against economic interests (as it was clearly stated by IMF, a true representative of cold economic rationality, which declared the bailout plan unworkable). If anything, it was Greece which stood for economic rationality and EU which stood for politico-ideological passion. After the Greek banks and stock exchange reopened, there was a tremendous flight of capital and fall of stocks which were not primarily a sign of the distrust of the Syriza government but of the distrust of the imposed EU measures a clear brutal message that (as we are used to put it in today s animistic terms) capital itself does not believe in the EU bailout plan.

(And, incidentally, most of the money given to Greece goes to the Western private banks, which means that Germany and other EU superpowers are spending taxpayers money to save their own banks which made the mistake of giving bad loans. Not to mention the fact that Germany profited tremendously from the escape of the Greek capital from Greece to Germany.) When Varoufakis justified his vote against the measures imposed by Bruxelles, he compared the deal to the Versailles treaty which was unjust and harboured a new war. Although his parallel is correct, I would prefer another one, with the Brest-Litovsk treaty between Soviet Russia and Germany at the beginning of 1918, in which, to the consternation of many of its partisans, the Bolshevik government ceded to Germany’s outrageous demands.

True, they retreated, but this gave them a breathing space to fortify their power and wait. And the same goes for Greece today: we are not at the end, the Greek retreat is not the last word for the simple reason that the crisis will hit again, in a couple of years if not earlier, and not only in Greece. The task of the Syriza government is to get ready for that moment, to patiently occupy positions and plan options. Keeping political power in these impossible conditions nonetheless provides a minimal space for preparing the ground for future action and for political education.

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“The ECB will service (as opposed to purchase) a portion of every maturing government bond corresponding to the percentage of the member state’s public debt that is allowed by the Maastricht rules.”

A New Approach to Eurozone Sovereign Debt (Yanis Varoufakis)

Greece’s public debt has been put back on Europe’s agenda. Indeed, this was perhaps the Greek government’s main achievement during its agonizing five-month standoff with its creditors. After years of “extend and pretend,” today almost everyone agrees that debt restructuring is essential. Most important, this is true not just for Greece. In February, I presented to the Eurogroup (which convenes the finance ministers of eurozone member states) a menu of options, including GDP-indexed bonds, which Charles Goodhart recently endorsed in the Financial Times, perpetual bonds to settle the legacy debt on the ECB’s books, and so forth. One hopes that the ground is now better prepared for such proposals to take root, before Greece sinks further into the quicksand of insolvency.

But the more interesting question is what all of this means for the eurozone as a whole. The prescient calls from Joseph Stigltiz, Jeffrey Sachs, and many others for a different approach to sovereign debt in general need to be modified to fit the particular characteristics of the eurozone’s crisis. The eurozone is unique among currency areas: Its central bank lacks a state to support its decisions, while its member states lack a central bank to support them in difficult times. Europe’s leaders have tried to fill this institutional lacuna with complex, non-credible rules that often fail to bind, and that, despite this failure, end up suffocating member states in need.

One such rule is the Maastricht Treaty’s cap on member states’ public debt at 60% of GDP. Another is the treaty’s “no bailout” clause. Most member states, including Germany, have violated the first rule, surreptitiously or not, while for several the second rule has been overwhelmed by expensive financing packages. The problem with debt restructuring in the eurozone is that it is essential and, at the same time, inconsistent with the implicit constitution underpinning the monetary union. When economics clashes with an institution’s rules, policymakers must either find creative ways to amend the rules or watch their creation collapse.

Here, then, is an idea (part of A Modest Proposal for Resolving the Euro Crisis, co-authored by Stuart Holland, and James K. Galbraith) aimed at re-calibrating the rules, enhancing their spirit, and addressing the underlying economic problem. In brief, the ECB could announce tomorrow morning that, henceforth, it will undertake a debt-conversion program for any member state that wishes to participate. The ECB will service (as opposed to purchase) a portion of every maturing government bond corresponding to the percentage of the member state’s public debt that is allowed by the Maastricht rules. Thus, in the case of member states with debt-to-GDP ratios of, say, 120% and 90%, the ECB would service, respectively, 50% and 66.7% of every maturing government bond.

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He’s not done yet by any means.

Yanis Varoufakis: Bailout Deal Allows Greek Oligarchs To Maintain Grip (Guardian)

Greece’s former finance minister Yanis Varoufakis has accused European leaders of allowing oligarchs to maintain their stranglehold on Greek society while punishing ordinary people in a line-by-line critique of the country’s €86bn bailout deal. Varoufakis said the Greek parliament had pushed through an agreement with international creditors that would allow oligarchs, who dominate sections of the economy, to generate huge profits and continue to avoid paying taxes. The outspoken economist published an annotated version of the deal memorandum on his website on Monday, arguing throughout the 62-page document that most of the measures imposed on Greece would make the country’s dire economic situation worse.

His first insertion makes clear his dismay at the dramatic events of last month, when the Greek prime minister, Alexis Tsipras, was forced to accept stringent terms for a new bailout amid calls from Germany for Greece’s temporary exit from the eurozone. Varoufakis, who resigned from his post in June, said: “This MoU [memorandum of understanding] was prepared to reflect the Greek government’s humiliating capitulation of 12 July, under threat of Grexit put to Tsipras by the Euro summit.” Folllowing the July summit, Athens agreed a three-year memorandum of understanding last week that will release €86bn of funds, much of it to repay debts related to two previous rescue deals. In exchange, Athens will implement wide-ranging reforms including changes to the state pension system and selling off government assets.

But Varoufakis said a reform programme overseen by the troika of lenders would only enslave ordinary workers and families by imposing tough welfare cuts while letting foreign companies grab domestic assets cheaply through privatisations. He said billionaire business owners in Greece would also escape scrutiny. In the memorandum it says: “Fiscal constraints have imposed hard choices, and it is therefore important that the burden of adjustment is borne by all parts of society and taking into account the ability to pay. Priority has been placed on actions to tackle tax evasion.” In answer, Varoufakis said: “As long as it is not committed by the oligarchs in full support of the troika through their multifarious activities.”

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Reforming the EU is a dead end street.

The Future of Europe (James Galbraith)

On June 8th, I had the honor of accompanying then-Greek finance minister, Yanis Varoufakis, to a private meeting in Berlin with the German finance minister, Wolfgang Schäuble. The meeting began with good-humored gesture, as Herr Schäuble presented to his colleague a handful of chocolate Euros, “for your nerves.” Yanis shared these around, and two weeks later I had a second honor, which was to give my coin to a third (ex-)finance minister, Professor Giuseppe Guarino, dean of constitutional scholars and the author of a striking small book (called The Truth about Europe and the Euro: An Essay, available here) on the European treaties and the Euro. Professor Guarino’s thesis is the following:

“On 1st January 1999 a coup d’état was carried out against the EU member states, their citizens, and the European Union itself. The ‘coup’ was not exercised by force but by cunning fraud… by means of Regulation 1466/97… The role assigned to the growth objective by the Treaty (Articles 102A, 103 and 104c), to be obtained by the political activity of the member states… is eliminated and replaced by an outcome, namely budgetary balance in the medium term.” As a direct consequence: “The democratic institutions envisaged by the constitutional order of each country no longer serve any purpose. Political parties can exert no influence whatever. Strikes and lockouts have no effect. Violent demonstrations cause additional damage but leave the predetermined policy directives unscathed.”

These words were written in 2013. Can there be any doubt, today, of their accuracy and of their exact application to the Greek case? It is true that Greek governments in power before 2010 governed badly, entered into the euro under false premises and then misrepresented the country’s deficit and debt. No one disputes this. But consider that when austerity came, the IMF and the European creditors imposed on Greece a program dictated by the doctrines of budget balance and debt reduction, including (a) deep cuts in public sector jobs and wages; (b) a large reduction in pensions; (c) a reduction in the minimum wage and the elimination of basic labor rights; (d) large regressive tax increases and (e) fire-sale privatization of state assets.

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Pretty brutal assessment.

Brutish, Nasty And Not Even Short: The Ominous Future Of The Eurozone (Streeck)

Now the dust has temporarily settled over the ruins of Greece’s economy, it is worth asking if there wasn’t a brief moment when the actors had found a way to cut the eurozone crisis’s Gordian knot. At some point in July German finance minister, Wolfgang Schäuble, appeared to have realised that his dream of a “core Europe” with a Franco-German avant-garde would vanish into thin air if Greece was allowed to remain in the economic and monetary union. Rewriting the rules of the union to accommodate the Greeks, Schäuble realised, would pull the euro southwards, and France, Italy and Spain with it – forever breaking up the European core.

His Greek equivalent Yanis Varoufakis, for his part, may have learned from his encounters of the third kind with the Eurogroup that the only role there was for Greece in the Europe of monetary union was that of an underfed and overregulated welfare recipient. Not only was this incompatible with Greek national pride; more importantly, what the governors of Europe would be willing to offer the Greeks by way of “European solidarity” would, at best, be too little to live on. The deal Schäuble offered in the last hour of July’s battle of the euro might have been worth exploring: a voluntary exit (an involuntary one not being possible under the current treaties) that gave Greece the freedom to devalue its currency and return to an independent monetary and fiscal policy, plus emergency assistance and some restructuring of the national debt, outside of the monetary union to avoid softening its rules by creating a precedent.

A generous golden handshake might have also been an idea, protecting Germany from being blamed for having plunged the Greeks into misery or driven them into the arms of Vladimir Putin. Politics can make strange bedfellows, but sometimes just for a one-night stand. In the end Varoufakis was overruled by Alexis Tsipras and Schäuble was overruled by Angela Merkel. The latter, displaying truly breathtaking political skills, managed within a day or two to redefine the resounding no of the Greek people to their creditors’ demands into a yes to “the European idea”, defined as a common currency – allowing him to sign on to even harsher conditions than had been rejected in the referendum (called, it seems, at the suggestion of Varoufakis, who was sacked on the very evening the results were in).

Afraid of the unimaginable economic disaster publicly imagined by fear-mongering euro supporters, and perhaps encouraged by informal promises by Brussels functionaries of future injections of other peoples’ money, Tsipras was ready to split his party and govern with those who had for decades let Greece rot in clientelism and corruption, offering the parties of Samaras and Papandreou an opportunity to regain legitimacy as pro-European supporters of “reform”.

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Little people from little countries get to have their say in the press. And they get off on that.

Greece To Trouble Eurozone For Decades, Says Finland’s Soini (Reuters)


Greece will be a headache for the eurozone for decades, Finland’s eurosceptic foreign minister said, and called for the IMF to participate in the Greece’s new bailout package. “Unfortunately, this problem will be in front of us for decades, I would say, if the eurozone stays together,” foreign minister Timo Soini said in an interview with public broadcaster YLE on Monday. IMF’s participation in the new bailout is uncertain because the fund demands debt reliefs to ease the burden on Greece. “An absolute debt cut, I think, is out of question, Germany too is against it … On other issues (maturities, interest rates) we must negotiate,” Soini said.

“IMF’s participation would also strengthen the expertise in the package, so that the programs will actually be carried out by Greece.” The Finnish parliament’s grand coalition last week approved the bailout deal. Soini’s nationalist the Finns party is known for opposing eurozone bailouts but had to support the new Greek deal to be able to keep a seat in the coalition government which it joined in May for the first time. “I still think bailout policy is bad policy … But in politics, one must make unpleasant decisions,” he said.

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If governments and regulatirs won’t do it…

Banks Braced For Billions In Civil Claims Over Forex Rate Rigging (FT)

Global banks are facing billions of pounds-worth of civil claims in London and Asia over the rigging of currency markets, following a landmark legal settlement in New York. Barclays, Goldman Sachs, HSBC and Royal Bank of Scotland were among nine banks revealed last Friday to have agreed a $2bn settlement with thousands of investors affected by rate-rigging in a New York court case. Lawyers warned the victory opens the floodgates for an even greater number of claims in London, the largest foreign exchange trading hub in the world, in a sign that the currency manipulation scandal is far from over. Banks could be hit as early as the autumn with claims in London’s High Court from corporates, fund managers and local authorities, according to lawyers working on the cases.

In addition, investors are expected to bring cases in Hong Kong and Singapore, which are also home to large foreign exchange markets. The US settlement comes just months after a record $5.6bn fine was slapped on six banks by regulators for manipulating the $5.3tn-a-day foreign exchange markets. “There will be more claims in London than in New York because it’s a bigger forex market,” said David McIlroy, a barrister at Forum Chambers. A settlement in London could amount to “tens of billions of pounds”, he said. Analysts said it would be extremely difficult to assess the financial impact on banks at this stage. “We’ve put in some element of civil fines for all the banks we cover, but it’s difficult to be specific because there aren’t that many clear precedents,” said one analyst.

“We looked at this one last week with interest, but the range of outcomes [from civil suits] is still quite wide.” Lawyers at US firm Hausfeld who worked on the class action said the recent settlement was “just the beginning”. Anthony Maton, a managing partner at Hausfeld, said: “There is no doubt that anyone who traded FX in or through the London or Asian markets — which transact trillions of dollars of business every day — will have suffered significant loss as a result of the actions of the banks. “Compensation for these losses will require concerted action in London.”

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Make that more.

US Graft Probes May Cost Petrobras Record $1.6 Billion Or More (Reuters)

Brazil’s Petrobras may need to pay record penalties of $1.6 billion or more to settle U.S. criminal and civil probes into its role in a corruption scandal, a person recently briefed by the company’s legal advisors told Reuters. State-run Petroleo Brasileiro, as the company is formally known, expects to face the largest penalties ever levied by U.S. authorities in a corporate corruption investigation, according to the person, who has direct knowledge of the company’s thinking. The settlement process could take two-to-three years, this person said. To date, the largest settlement of corporate corruption charges with the U.S. Department of Justice and the U.S. Securities and Exchange Commission was a 2008 agreement with Siemens, the German industrial giant.

It agreed to pay the U.S. $800 million to settle charges related to its role in a bribery scheme, and paid about the same amount to German authorities. The person told Reuters the legal advisors said they believed Petrobras faced fines that could be as large as, or more than, the $1.6 billion in combined U.S. and German penalties that Siemens faced. Two other sources with direct knowledge of Petrobras’ plans also said that any settlement, while several years away, would likely be “large,” but declined to give a specific estimate. All three sources requested anonymity, and cautioned that any estimates for the size of possible fines are very preliminary. Petrobras has not yet begun settlement talks with U.S. authorities, whose investigations are believed to be in an early phase, they said.

In November, the SEC sent a subpoena to Petrobras requesting information about the widening corruption investigations that have ensnared top company executives, major private contractors and senior politicians in Brazil. According to people familiar with the matter, the DOJ, which can bring criminal charges, is also investigating the company.

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“They’re terrified of 1937..” Hmm. Don’t forget that certain people made a killing post-1937.

Ron Paul: Fed May Not Hike Because ‘Everything Is Vulnerable’ (CNBC)

China’s move to devalue its currency roiled the markets last week, and stoked new fears about the health of the world’s third largest economy. However, according to former Rep. Ron Paul, the move may have given Federal Reserve Chair Janet Yellen the cover she needs to not raise rates later this year, as many market participants expect. “She’s going to be more hesitant to raise rates because she sees how fragile the global economy is,” Paul told CNBC’s “Futures Now” on Thursday. “She’s under the gun,” he added. “I could be wrong, but I don’t think they are going to raise interest rates.” According to the former Republican presidential candidate, a rapidly slowing Chinese economy adds just another headwind for an already struggling U.S. economy.

“I think there’s going to be enough problems existing, whether it’s the Chinese precipitating some crisis, or whether it’s our economy breaking down,” he said. Currently, markets expect the Fed will begin tightening monetary policy at its meeting in September. Gauges like closely watched fed fund futures contracts are pricing in a 45% chance of a September rate hike, while other analysts see the odds as higher. Yet institutions like the IMF have warned that a rate hike might imperil a fragile global recovery. In June, the IMF’s deputy director warned about potential risks of a Fed tightening. By Paul’s reasoning, the Fed is too scared to raise interest rates in the middle of an already weak recovery and risk sending the U.S. economy back into recession, or worse.

“They’re terrified of 1937,” said Paul, who has long called for a “day of reckoning” that will lead to the collapse of both the fixed income and equity markets. The Fed chief “does not want to be responsible for the depression that I think we’ve been in the midst of all along,” Paul added.

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The entire oil industry will try to keep smiling all the way to bankruptcy.

Junk-Rated Offshore Drillers Headed into Bankruptcy (WolfStreet)

After fracking, offshore drilling. At the leading edge is rig-contractor Hercules Offshore. In March 2014, before the oil price collapsed, it had the temerity to sell for 100 cents on the dollar $300 million in junk bonds. Since then, its shares have collapsed to near zero. Its bonds have collapsed too. And on Thursday last week, it and a whole gaggle of related companies filed for Chapter 11 bankruptcy. It won’t be the only junk-rated offshore driller with that fate, according to Fitch Ratings. Investors are going to get their pockets cleaned. “This is the lowest level of demand we have seen since the early days of the offshore industry,” Hercules CEO John Rynd had told investors in a quarterly conference call on April 29.

Hercules had already cut its global workforce – about 1,800 employees at the end of 2014 – by nearly 40%, he said. Offshore drillers have been buffeted from two directions: the collapse of drilling activity and the collapse in the daily rates they can charge for their offshore drilling rigs. So fewer rigs, and less money for each of the fewer rigs: Hercules’ revenues in the second quarter plunged 67% from a year ago! And junk-rated companies like Hercules that need new money to stay afloat and service their debts are finding out that their burned investors have shut off the spigot. “A leading indicator of further bankruptcies among other challenged high yield (HY) offshore drillers,” is what Fitch Ratings calls Hercules.

In the prepackaged bankruptcy, Hercules swaps four senior bond issues totaling $1.2 billion for 96.9% of the company’s equity. So how do these bondholders fare? The recovery rate for senior noteholders would be 41%, the company said in its disclosure statement. According to S&P Capital IQ LCD’s highyieldbond.com, “the range of reorganized equity value implies a recovery rate of 32-47.8%.” Meanwhile, the notes are quoted in the “low” 30-cents-on-the-dollar range. So for now, nearly a 70% haircut. Stockholders get the remaining 3.1% of the equity, plus warrants. Mere crumbs. To finish construction of the Hercules Highlander rig and to stay afloat a while longer, the company will also get $450 million in new money for 4.5 years, at LIBOR +9.5% per year, with a 1% floor. No more cheap money, even after bankruptcy, though it dramatically deleveraged the balance sheet at the expense of investors.

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The poor are expendable here too.

How Money, Race and Religion Determine the Fate of Europe-Bound Migrants (WSJ)

As Europe grapples with the biggest wave of migration since World War II, the fates of those crossing the Mediterranean are increasingly being determined by class systems based on money, ethnicity and religion. On these transnational trails, migrants tell of a fast-developing market for human cargo, where cash or creed can ensure a safer trip, more resources and better treatment. The discrimination starts at the beginning of migrants’ journeys at the hands of smugglers looking to maximize profits, and it ends with European authorities scrambling to handle the overwhelming numbers of people arriving and prioritizing them by nationality. In Greece this weekend, authorities deployed a 3,000-capacity passenger ferry to the island of Kos to host Syrian refugees arriving in record numbers.

Thousands of other asylum seekers on the island from Iraq and Afghanistan have been left without shelter, and with only sporadic access to food and a much longer wait to get their documents processed. Syrians are prioritized because the United Nations High Commissioner for Refugees has advised governments that they are so-called prima facie refugees, meaning they should be granted instant humanitarian protection because they are fleeing a war zone. EU countries recently agreed to resettle some 32,000 refugees from Greece and Italy, but said they would only do that for Syrian and Eritrean nationals, both designated as prima facie refugees by the U.N.

First reception procedures should be the same for everyone, said Barbara Molinario, a spokeswoman for the U.N. agency. Syrians are considered prima facie refugees, but “people from other countries might also have valid refugee claims, and generalizations should be avoided,” she said. On Kos, many locals view Syrians—who are almost neighbors across the Aegean Sea—as culturally similar to them. “Syrians are more civilized and they show more respect,” said Lefteris Kefalianos, a Kos resident who sells construction materials.

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Jul 292015
 
 July 29, 2015  Posted by at 9:34 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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DPC Near Lewiston, Minnesota – The Pulpit. 1899


Varoufakis Faces Criminal Prosecution Over ‘Plan B’ Currency Plot (Telegraph)
Greek Supreme Court Prosecutor Takes Action Over Varoufakis Affair (Kath.)
One Veteran FX Trader: ‘Greece Is Playing It Correctly’ (Zero Hedge)
Why Greece’s Lenders Need to Suffer (NYT Magazine)
Something Is Rotten In The Eurozone Kingdom (Yanis Varoufakis)
Fed Expected To Push Ahead With Rate Hike Plan (Reuters)
“Fed Rate Hike Would ‘Crush’ US Housing” (CNBC)
How Long Can China’s ‘Rescue Squad’ Keep Intervening? (CNBC)
Explainer: Key Factors Behind China’s Investment Rout (FT)
Greek Creditors Seek Third Wave Of Reforms Before Loan (Reuters)
Greek Doctors and Nurses Looking for Jobs Abroad (GR)
Denials Fly In War Of Nerves Over Greek Debt Talks (Reuters)
Greece Isn’t a Morality Tale (Buchanan)
When A Threat Becomes A Possibility (Kostis Fafoutis)
Corbyn, Tsipras, Maggie And TINA (Andreou)
Madrid’s Podemos-Backed Mayor Saves 70 Families From Eviction (TeleSur)
British Prosperity Will Drive Ireland’s Recovery (David McWilliams)
Imposing Losses On Hypo Bond Holders Illegal, Says Austrian Court (FT)
The Costly, Deadly Dangers of Traffic Stops in America’s Police State (Whitehead)
1 Dead After 1,500 Migrants Storm Eurotunnel In France For 2nd Night (RT)
Northern White Rhino Closer to Extinction With Czech Zoo Death (Bloomberg)

Is the mood changing? This just in from a Greek friend: “Varoufakis has to shut up, now, not at some point; it turned out that he is a narcissist and an idiot as well”

Varoufakis Faces Criminal Prosecution Over ‘Plan B’ Currency Plot (Telegraph)

Greece’s state prosecutors have set their sights on former finance minister Yanis Varoufakis who faces possible criminal charges over plans to set up a parallel payments system inside the monetary union. The Greek parliament received two sets of legal complaints about the economist’s “surreptitious” blueprint to introduce a euro-denominated alternative currency as a precursor to an exit from the eurozone. The cases were bought to the parliament by the Supreme Court following complaints from a Greek lawyer and mayor, and separately by a group of opposition conservative parliamentarians. As an MP, Mr Varoufakis has immunity over criminal prosecution. But this could now be overturned by the Greek parliament which is set to review the allegations.

The self-styled “erratic Marxist” convened a five-man team to oversee clandestine plans to introduce “parallel liquidity” in Greece in order ease the credit strangulation imposed by the ECB. Mr Varoufakis’ team included respected US economist James K. Galbraith, and touted the use of smartphone apps to allow the state to continue making its domestic obligations to suppliers and collecting tax revenues. Mr Galbraith could also be facing a criminal trial over his involvement. Controversy centres over whether or not the finance minister ordered a childhood friend and now professor at Columbia University to “hack” into government computer systems to gain access to sensitive taxpayer information and duplicate files for use under the parallel system.

In a recorded phone conversation to private investors, the finance minister is heard saying his team “decided to hack into my minister’s own software programme” to make the copies of taxpayer files and pin codes. Mr Varoufakis has since said the nascent plans were all carried out within “the laws of the land, and at keeping the country in the eurozone”. Following the news, Mr Varoufakis told The Telegraph he feared being hung up on charges of “treason” by political forces in the country. “It is all part of an attempt to annul the first five months of this government and put it in the dustbin of history,” he said on Sunday. The former minister said he was tasked with the responsibility to devise the contingency plan by prime minister Alexis Tsipras as early as December.

He maintains the “Plan B” was fully disclosed to finance ministry officials and journalists when he resigned from office earlier this month. Nevertheless, the airing of a private audio recording has caused a fresh political storm in the country. Brussels has been forced to deny accusations it controls of Greece’s public revenues body, the equivalent of Britain’s Inland Revenue. During the conversation held by the Official Monetary and Financial Institutions Forum and co-hosted by former Tory chancellor Norman Lamont, Mr Varoufakis said the Troika was “fully and directly” in charge of the country’s Secretariat of Public Revenues, forcing him to devise a way to access its computer network. But the European Commission denied the allegations as “false and unfounded”.

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I’m curious to see how far they think they can take this.

Greek Supreme Court Prosecutor Takes Action Over Varoufakis Affair (Kath.)

Supreme Court prosecutor Efterpi Koutzamani on Tuesday took two initiatives in the wake of revelations by former Finance Minister Yanis Varoufakis that he had planned a parallel banking system: she forwarded to Parliament two suits filed against the former minister last week by private citizens and she appointed a colleague to determine whether any non-political figures should face criminal charges in connection with the affair. The legal suits were filed last week by Apostolos Gletsos, the mayor of Stylida in central Greece and head of the Teleia party, and Panayiotis Giannopoulos, a lawyer. Giannopoulos is suing Varoufakis for treason over his handling of talks with Greece’s creditors. Gletsos, for his part, accuses Varoufakis of exposing the Greek state to the risk of reprisals.

As there is a law protecting ministers, the judiciary cannot move directly against Varoufakis. It is up to Parliament to decide whether his immunity should be lifted so he can stand trial. The first step would be to set up an investigative committee. A third suit was expected to go to Parliament after a group of five lawyers said they were seeking an investigation into whether any non-political figures should face criminal charges in connection with the Varoufakis affair. The charges would involve violation of privacy data, breach of duty, violation of currency laws and belonging to a criminal organization. It was the lawyers’ move that prompted Koutzamani to order an investigation.

In a telephone call with investors, during which Varoufakis detailed his plan for a parallel banking system, he said he recruited a childhood friend, a professor at Columbia University, to hack into the ministry’s online tax system. Varoufakis did not name the head of the General Secretariat for Information Systems, Michalis Hatzitheodorou, but the description of his role at the ministry and his background suggested he was referring to him. In a statement on Tuesday, Hatzitheodorou rebuffed as “absolutely false” reports regarding any type of intervention in the ministry’s information systems. The GSIS, and the current general secratary, have not planned much less attempted any type of intervention in its systems, the statement said.

It added that the GSIS has enacted procedures with strict specifications which guarantee the security of personal data and make such interventions by anyone impossible. In a related development, European Commission spokeswoman Mina Andreeva on Tuesday described as “false and unfounded” Varoufakis’s claims that Greece’s General Secretariat for Public Revenues is controlled by the country’s creditors.

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“Greece is playing it correctly. Agree to everything. Give Germany no excuse to do what they want. Get the money.”

One Veteran FX Trader: ‘Greece Is Playing It Correctly’ (Zero Hedge)

Some interesting, and contrarian, observations from former FX trader and fund manager, and current Bloomberg commentator, Richard Breslow on Greece – which for all the bashing, may be doing just what it is supposed to be doing. From Breslow:

Greece Has More Friends Than You Think

As frustrating as trading the EUR has been over the last four months, traders in fact are the lucky ones. We can play the range. We can stop out, improve our average, buy options protection or change our minds. We can go trade something that is easier at the moment and decide to come back to the EUR later. Most of Europe has no such luxury. They are stuck in the trade. They are stuck with unemployment rates that are destroying their social fabric. They are stuck with aggregated euro-zone numbers that hide a recession in Finland or a depression in Greece. Every time the EUR rallies, true economic recovery remains merely a projection on an economist’s drawing board. The only way to save the EUR is to devalue it. Everyone is trying in their own way to tell the Germans this reality. So far with little effect.

Economist after Nobel-winning economist apoplectically argue that the conditions being imposed on Greece are unrealistic (how’s that for being diplomatic.) What is playing out is a charade. Most Europeans and the IMF know this as well. Marek Belka in the Sunday Telegraph offered the politician’s solution of dealing with debt relief, “I would call it a debt reprofiling, rather than debt relief which is the same but sounds better and politically more acceptable.” He did go on to agree that “Either way, I think at one point sooner or later Greece needs it.” Greece is playing it correctly. Agree to everything. Give Germany no excuse to do what they want. Get the money.

This is why France, among others, want this all agreed as quickly as possible, because they know this deal is not how it will end, but an end that keeps the EUR together must be found. The Germans know it too. They also know that they have been had and it is their own fault. Too many times in post French Revolution European history, they have opted for injustice over what they perceived as disorder. But Greece is no revolution, yet. It is a long series of mistakes by many actors across the continent and the viable solution won’t be found here without an admission of mutual culpability.

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They bet on Germany paying Greek debt.

Why Greece’s Lenders Need to Suffer (NYT Magazine)

There is definitive proof, for anyone willing to look, that Greece is not solely or even primarily responsible for its own financial crisis. The proof is not especially exciting: It is a single bond, with the identification code GR0133004177. But a consideration of this bond should end, permanently, any discussion of Greece’s crisis as a moral failing on the part of the Greeks. GR0133004177 is the technical name for a bond the Greek government sold on Nov. 10, 2009, in a public auction. Every business day, governments and companies hold auctions like this; it is how they borrow money. Bond auctions, though, are not at all like the auctions we’re used to seeing in movies, with the fast talkers and the loud hammers. They happen silently, electronically.

Investors all over the world type a number on their keyboards and submit it as their bid: the amount of interest they would insist on receiving in exchange for the loan. Just as with mortgages and credit cards, the riskier a loan is, the higher the rate would need to be, compensating the lender for the chance that the borrower in question will fail to pay it back. [..] On that day in 2009 when GR0133004177 was issued, investors had every reason to assume that this was an especially risky loan. The Greek government wanted 7 billion euros, or $10.5 billion, which would not be paid back in full until 2026. These were all sophisticated investors, who were expected to think very carefully about the number they typed, because that number had to reflect their belief in the Greek government’s ability to continually pay its debts for the next 17 years.

I was shocked, looking back, to see the winning number: 5.3%. That is a very low interest rate, only a couple of percentage points above the rate at which Germany, Europe’s most creditworthy nation, was borrowing money. This was a rate that expressed a near certainty that Greece would never miss a payment. In hindsight, of course, we know that the investors should not have lent Greece anything at all, or, if they did, should have demanded something like 100% interest. But this is not a case of retrospective genius. At the time, investors had all the information they needed to make a smarter decision. Greece, then as now, was a small, poor, largely agrarian economy, with a spotty track record for adhering to globally recognized financial controls. Just three weeks earlier, a newly elected Greek prime minister revealed that the previous government had scrupulously hidden billions of dollars in debt from the rest of the world. In fact, the new leader revealed, Greece owed considerably more money than the size of its entire annual economy.

Within a month of the bond sale, faced with essentially the same information the investors had, Moody’s and the other ratings agencies downgraded the country’s credit rating. In less than six months, Greece was negotiating a bailout package from the IMF. The original sin of the Greek crisis did not happen in Athens. It happened on those computer terminals, in Frankfurt and London and Shanghai and New York. Yes, the Greeks took the money. But if I offered you €7 billion at 5.3% interest, you would probably take the money, too. I would be the one who looked nuts. And if I didn’t even own that money – if I was just watching over it for someone else, as most large investors do – I might even go to jail.

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“..our simple idea was to allow the multilateral cancellation of arrears between the state and the private sector using the tax office’s existing payments platform.”

Something Is Rotten In The Eurozone Kingdom (Yanis Varoufakis)

A paradox lurks in the foundations of the eurozone. Governments in the monetary union lack a central bank that has their back, while the central bank lacks a government to support it.\ This paradox cannot be eliminated without fundamental institutional changes. But there are steps member states can take to ameliorate some of its negative effects. One such step that we contemplated during my tenure at the Greek ministry of finance focused on the chronic liquidity shortage of a stressed public sector and its impact on the long-suffering private sector. In Greece, where the central bank is unable to support the state’s endeavours, government arrears to the private sector — both companies and individuals — have been a drag on the economy, adding to deflationary pressures since as far back as 2008.

Such arrears consistently exceeded 3%t of GDP for five years. The phenomenon is both the cause and consequence of delayed tax payments to the state, reinforcing the cycle of generalised illiquidity. To address this problem, our simple idea was to allow the multilateral cancellation of arrears between the state and the private sector using the tax office’s existing payments platform. Taxpayers, whether individuals or organisations, would be able to create reserve accounts that would be credited with arrears owed to them by the state. They would then be able to transfer credits from their reserve account either to the state (in lieu of tax payments) or to any other reserve account. Suppose, for example, Company A is owed €1m by the state; and it owes €30,000 to an employee — plus another €500,000 to Company B, which provided it with goods and services.

The employee and Company B also owe, respectively, €10,000 and €200,000 in taxes to the state. In this case the proposed system would allow for the immediate cancellation of at least €210,000 in arrears. Suddenly, an economy such as Greece’s would acquire important degrees of freedom within the existing European monetary union. In a second phase of development, which we did not have time to consider properly, the system would be made accessible through smartphone apps and identity cards, guaranteeing that it would be widely adopted. The envisaged payments system could be developed to create a substitute for fully functioning public debt markets, especially during a credit crunch such as the one that has afflicted Greece since 2010.

Organisations or individuals could buy credits from the tax office online using their normal bank accounts, and add them to their reserve account. These credits could be used after, say, a year to pay future taxes at a discount (for example, 10%). As long as the total level of tax credits was capped, and fully transparent, the result would be a fiscally responsible increase in government liquidity and a quicker path back to the money markets. Handing over the reins of the finance ministry to my friend, Euclid Tsakalotos, on July 6, I presented a full account of the ministry’s projects, priorities and achievements during my five months in office. The new payments system outlined here was part of that presentation. No member of the press took any notice.

But when a subsequent telephone discussion with a large number of international investors, organised by my friend Norman Lamont, and David Marsh of the London-based Official Monetary and Financial Institutions Forum, was leaked — despite the Chatham House rule we agreed with listeners, under which speakers are not identified — the press had a field day. Committed to unlimited openness and full transparency, I granted OMFIF permission to release the tapes. While I understand press excitement about elements of that exchange, such as having to consider unorthodox means of gaining access to my own ministry’s systems, only one matter is of significance from a public interest perspective. There is a hideous restriction of national sovereignty imposed by the “troika” of lenders on Greek ministers, who are denied access to departments of their ministries pivotal in implementing innovative policies. When a loss of sovereignty, arising from unsustainable official debt, yields suboptimal policies in already stressed nations, one knows that there is something rotten in the euro’s kingdom.

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You can find as many different opinions on this as you like.

Fed Expected To Push Ahead With Rate Hike Plan (Reuters)

The Federal Reserve is expected on Wednesday to point to a growing U.S. economy and stronger job market as it sets the stage for a possible interest rate hike in September. The U.S. central bank is scheduled to issue its latest policy statement at 2 p.m. EDT following a two-day meeting, spelling out how policymakers feel the economy has progressed since they last met in June. Earlier this year the Fed embraced a meeting-by-meeting approach on the timing of what will be its first rate hike since June 2006, making such a decision solely dependent on incoming economic data. With a slew of employment, inflation and GDP reports to come before its September meeting, the Fed is unlikely to hint too strongly about its plans, Barclays economists Michael Gapen and Rob Martin wrote in a preview of this week’s meeting.

But simply hewing to the language of the June policy statement, when the Fed said the economy was expanding moderately, or even strengthening the outlook a bit, “leaves the door wide open for September,” they wrote. Despite a dovish reputation, Fed Chair Janet Yellen has been among those pulling on the door handle in recent public statements, saying she felt a rate hike would be appropriate sometime this year absent a negative shock to the economy. Although another collapse in energy prices and growing economic uncertainty in China is clouding the global economic outlook, the Fed has largely looked beyond recent turmoil overseas. Instead, it has focused on the steady growth in the U.S. job market and on policymakers’ expectations that inflation will eventually rise to the central bank’s medium-term objective of 2%.

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It would lead to widespread chaos.

“Fed Rate Hike Would ‘Crush’ US Housing” (CNBC)

Demand for U.S. housing in the second half of 2015 looks so weak that the Federal Reserve will not be comfortable starting its interest rate tightening cycle, independent real estate analyst Mark Hanson said Tuesday. “Having rates at zero hasn’t done much if you take a look at the numbers, but having rates 200 basis points higher or 100 basis points higher would crush housing. I don’t think they can take that chance,” the founder of M Hanson Advisors told CNBC’s “Squawk on the Street.” Hanson said last week’s new home sales data from the Commerce Department was a sign of a lingering stimulus hangover and a “huge miss.”

The Commerce Department reported new home sales fell 6.8% to a seasonally adjusted annual rate of 482,000 units. Analysts had expected a 0.7% increase to 550,000 units. With respect to homebuilder’s pricing power, he said new home prices have been down for the last seven months. The picture in 2015 looks worse when compared with 2013, he added, noting that comparisons with 2014 data are misleading because an interest rate plunge and the stimulus cycle boosted demand that year. “When you do that, you’ll see new home sales are only up 4.65% and prices are relatively flat,” he said.

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Better question: how many Chinese investors still believe in stock markets, and in governemt control over them?

How Long Can China’s ‘Rescue Squad’ Keep Intervening? (CNBC)

One month after mainland equities started their sharp selloff, Chinese investors continue to look to the government to help stabilize markets—but just how long can officials maintain their support? Volatility in Shanghai and Shenzhen stocks subsided on Wednesday after a rough start to the week. Tuesday saw markets swing wildly between gains and losses following a precipitous 8% drop on Monday. This week’s declines has been put down to local media reports that the government may withdraw the market support measures it announced in the last bout of seesaw trading in June. But fresh confirmation that officials would remain accommodative has calmed investors down.

The China Securities Regulatory Commission announced late on Monday that local governments will increase stock purchases while the central bank injected $8 billion into money markets on Tuesday and hinted at further monetary easing. “Confidence in China’s Rescue Squad was quick to rise this time around because market-boosting measures were already in place, compared to last month when it took a while for markets to believe in the government’s defense,” said Bernard Aw, IG’s market strategist, during a phone interview. Aw expects the official support program to last for another few months at least, thanks to Beijing’s substantial war chest. Capital outflows have been on the rise with June foreign exchange reserves $299 billion lower than last year but that’s still a drop in the water of Beijing’s total $3.7 trillion reserves.

He believes Beijing is willing to tolerate a modest correction but certainly not the extent of 8% crashes. But for others, the government’s program has no end in sight. “The government entered the market when it was at high levels, around 30 times price-earnings ratio. There is no exit strategy for them; I think they’ve become long-term shareholders,” Francis Cheung, head of China and Hong Kong strategy at CLSA, told CNBC. Unless Beijing allows the market to correct to fundamentally supported levels or wait until earnings grow enough to support valuation, the government cannot stop, he warned. “Until then, we expect the market will trade between the government prescribed range of 3,400 to 4,500, the level that they intervened at the low end and the level brokers are allowed to sell stock at the high-end.”

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“.. the magnitude of China’s investment slump this year is likely to have been much greater than official figures show. ”

Explainer: Key Factors Behind China’s Investment Rout (FT)

Much of the economic weakness rippling through emerging markets is “made in China”. A slump in Chinese investment growth has hammered global demand for commodities and some manufactured products, triggering a chain reaction that is depressing EM exports, deepening deflationary pressures and even sapping consumer demand. The key questions, therefore, are: what lies behind the Chinese investment rout and how long is it likely to last? First, the magnitude of China’s investment slump this year is likely to have been much greater than official figures show. Beijing’s official monthly data series tracks “fixed asset investment” (FAI), which grew by 11.4% year on year in June — not the sort of figure that might be expected to elicit alarm.

But FAI readings are inflated by several elements – such as sales of land and other assets — that do not add to the country’s productive capital stock. A cleaner measure of how much companies are investing in boosting their productive capacities – and therefore in their futures – is gross fixed capital formation (GFCF), which strips out extraneous items to capture capital goods deployment. By this yardstick, investment is tanking. Annual real growth in gross capital formation hit 6.6% in 2014, down from 10.2% in 2013 and a peak of 25% in 2009. Thomas Gatley, China corporate analyst at Gavekal Dragonomics, a research firm, estimates that so far this year GFCF may be running at around 4 to 5%. On a net basis, stripping out depreciation costs, “it is very likely that so far in 2015 net capital formation growth is at or below zero”, Mr Gatley said.

When viewed from this perspective, China’s slumping demand for iron ore, copper, alumina and other commodity imports from Latin America, Africa and elsewhere is easier to comprehend. But what are the main causes of China’s investment slump? Investment demand derives from three key sources — the property sector (25%), infrastructure (22%) and manufacturing (33%), with the remaining 20% made up of various smaller items, according to research by China Everbright Securities. Property investments have been subdued. New residential property investment rose 2.8% in the first half of this year, down from 5.9% in the first quarter, revealing a flagging momentum.

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“The genie of euro zone exit has escaped in the Greek crisis and won’t easily get back in the bottle..”

Greek Creditors Seek Third Wave Of Reforms Before Loan (Reuters)

EU officials played down the latest outbreak of logistical and security issues that have dogged talks between the creditors and Greece since Tsipras’s government took office in January, promising to free Greeks from humiliation and imposed austerity. An EU official said access for the negotiators to ministries and all relevant government bodies had been agreed. An ECB aide said some talks would take place at the Athens Hilton Hotel. The talks will mostly cover a reform programme Greece must implement to receive phased disbursements of loans, money it needs to meet its debt service obligations and help recapitalise the banks. However, an ECB policymaker said they would also cover debt relief for Athens.

ECB Executive Board member Benoit Coeure told French daily le Monde that the euro zone no longer questioned whether to restructure Greece’s debt but rather how best to go about it. “That’s why it’s important to make this restructuring, whatever form it takes, conditional on the application of measures that reinforce the economy and ensure the sustainability of Greek public finances,” he said. Coeure said five months of wrangling had caused huge economic and financial costs for Greece, and exposed how deeply flawed the euro zone’s decision-making was. He called for more integration in order to take tough decisions effectively. Germany’s Schaeuble proposed at the height of the crisis that Greece take a five-year “time out” from the currency bloc if it could not meet the conditions. “The genie of euro zone exit has escaped in the Greek crisis and won’t easily get back in the bottle,” Coeure said.

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All part of the intentional gutting of an entire society.

Greek Doctors and Nurses Looking for Jobs Abroad (GR)

The Athens Medical Association (ISA) warned about major shortages in medical staff over the next years, since an increasing number of Greek doctors, especially those working in highly specialized fields, and nurses are looking for jobs abroad and leaving the country. According to the association’s figures, more than 7,500 doctors have migrated to other countries since 2010. It was reported that in the first six months of 2015, ISA issued 790 certificates of competence, an official document required for medical sector employees who wish to work abroad. However, the report also noted that up until 2009, on average, 550 doctor were taking jobs abroad each year.

“One of the biggest losses in the crisis has been that of great minds,” ISA chief Giorgos Patoulis stated to Greek newspaper Kathimerini. “In a short time, the national healthcare system will have an aged personnel and will be unable to staff services.” Furthermore, the data showed that a total of 8,000 unemployed Greeks have been forced to look for job opportunities abroad. The Greek Nurses Union announced that it issued 349 certificates just last year, 357 in 2012 and 74 certificates in 2010.

Read more …

How Reuters would like you to see the world: “former finance minister Yanis Varoufakis, who continues to heap abuse on the creditors in his blog..”

Denials Fly In War Of Nerves Over Greek Debt Talks (Reuters)

Conflicting statements and denials flew between Athens and Brussels on Tuesday in a war of nerves highlighting the depth of mutual mistrust over a new round of negotiations on an €86 billion bailout that started this week. Any hope of a fresh start in fraught relations between Greece’s leftist government, purged of its most radical members, and the institutions representing its creditors, appeared to be dashed by the flurry of assertions and rebuttals. Differences included the pace and conduct of bailout talks, whether or not Greece needs to enact further laws before a deal, the reopening of the Athens stock exchange, and the activities of former finance minister Yanis Varoufakis, who continues to heap abuse on the creditors in his blog. [..]

Greek officials were at pains to play down what they see as the humiliating and intrusive aspects of the talks – access to ministries, the right to examine accounts and question civil servants, and the visible presence of the negotiators in Athens. The Finance Ministry official said there had been no organizational issues and all discussions were taking place at the institutions’ residence. When required, creditors’ representatives had met with Greek officials at the Bank of Greece and the State General Accounting Office. EU officials said security and logistical issues had delayed the start of the talks, originally planned for last Friday.

Also hanging over the talks is the growing disarray within Prime Minister Alexis Tsipras’s Syriza party, whose policy-setting central committee will meet on Thursday to decide whether to hold an emergency congress in September to overhaul the party or hold a referendum on the way forward. In a sign of the deepening rift within the party, three far-left members of the 11 officials on Syriza’s political committee that met on Tuesday demanded the government break off negotiations with EU/IMF creditors and return to its anti-bailout roots. Panagiotis Lafazanis, the leader of the far-left Left Platform wing of Syriza, also stepped up his attack against the pro-bailout Greek establishment, saying they were trying to “criminalize” any alternative to the bailout.

A day earlier, Lafazanis pledged in a defiant public speech that those who voted “No” to the bailout in a referendum this month would not be forgotten. On the negotiations front, the Greek official said suggestions that Greece needed to pass further reform legislation before a bailout deal were not justified by the euro summit statement or subsequent exchanges. However, euro zone officials made clear that Athens must enact measures to curb early retirement and close tax loopholes for farmers before any new aid is disbursed. Greece needs more finance by Aug. 20, when it owes a €3.5 billion payment to the ECB.

Read more …

“Why, they wondered, do some things like education, medical care and live musical performances get more expensive with time, while so many other things, like manufactured goods, get cheaper?”

Greece Isn’t a Morality Tale (Buchanan)

One of the more troubling elements of the recent drama over Greece’s debt was the urge by many to see a deficiency of national character, rather than euro-zone economics, as the problem. Right-leaning opinion, not only in Germany but around the world, put the trouble down to Greek corruption and, worse, laziness: The bad people of Greece retire too early and produce less per capita than the European average, despite working longer hours. We shouldn’t conclude much of anything from such comparisons. It’s a complete myth that economic productivity somehow reflects the average ability of people to work hard. It has far more to do with the nature of industries in different nations, and how technology has changed their productivity over time.

Nearly 20% of Greek economic output comes from tourism, which is natural enough, given the nation’s surpassing beauty. Aside from the Internet making it easier to book and advertise trips, however, tourism remains a labor-intensive activity not that different from 30 years ago. People take planes and taxis, stay in hotels, eat meals, listen to music and take excursions on boats. All of that requires a large number of people to cook and serve, entertain, clean rooms and drive taxis for long hours. The amount of these things that can be produced per hour and per person hasn’t changed a lot with time. Compare that with, say, the German automobile industry.

According to Eurostat data, the total output of the European motor-vehicle industry – German companies account for about half of it – grew in the decade before the financial crisis by about 4.4% a year. That corresponds to a doubling of output in 15 years. Much of this increase came from gains in manufacturing productivity – value created per hour of work – which in Germany, according to OECD numbers, grew by 40% over the same period. In other words, rapid economic growth in Germany and other fast-growing, developed nations has come mostly from improvements in industrial efficiency, not from some morally superior character of the workers in those nations. All this links up with a notion that economists call Baumol’s cost disease, originally proposed by William Baumol and William Bowen in the 1960s.

Why, they wondered, do some things like education, medical care and live musical performances get more expensive with time, while so many other things, like manufactured goods, get cheaper? The answer is simply that productivity improves faster in some industries than in others. As auto manufacturers make ever more and better cars – faster and with fewer workers – they can sell them more cheaply and still afford to raise wages. In contrast, a live orchestral performance today takes as long and demands as much skilled labor as it did two centuries ago. Getting good musicians requires wages that rise as fast as elsewhere in the economy, and so prices in “stagnant” sectors of this sort go up relative to others.

Read more …

“..almost six years after the crisis began, the country’s European acquis is no longer a given and the European accomplishments of the last 35 years are being challenged.”

When A Threat Becomes A Possibility (Kostis Fafoutis)

“The memorandum, whether we like it or not, is the only political text which set out specific targets, which were binding to the Greek state as a whole,” noted Yannis Stournaras in October 11, 2013, during his tenure as finance minister. Currently Bank of Greece Governor, Stournaras is still systematically taunted by those obsessed with a Greek rift with the eurozone, people whose behavior and actions, nevertheless, reaffirm his evaluation. Back in 2009, the country’s entry in the European Stability Mechanism and its guardianship was caused by the sensational collapse of Greece’s entire economic and social model developed after the fall of the military dictatorship in 1974.

The system was based on the idea of a partisan state, clientelism, under-the-table transactions and choices guided by the desire to impress or benefit certain closed, special interest groups. The structure survived either by transferring the weight onto the next generation or by taking advantage of conscientious taxpayers – salaried employees and pensioners – through a system based on tolerating and rewarding tax evasion. This was rooted in a kind of parallel economy which existed within the framework of a strange perception of democracy, where everyone enjoyed sacred rights but very few had obligations. The memorandum – for all its mistakes and weaknesses – forced the Greek state to adopt obvious changes.

These should have been implemented years ago but the political leadership did not have the willpower or strength to carry them out. Unfortunately, the memorandum was essentially decided by the lenders, and all those who had to implement it presented it as an onus imposed by the “evil” partners. Not only did they fail to present a plan of their own to exit the crisis but they never spoke of the country’s obligation – given that Greece had willingly decided to take part in a supranational organization such as the European Union and the monetary union – to undertake the cost implied by this choice. They never spoke about the fact that we have to decide whether or not we wish to become a modern western European state – which in a globalized world must constantly strive to strengthen in terms of competitiveness – or remain a democracy of cronies.

As a result, almost six years after the crisis began, the country’s European acquis is no longer a given and the European accomplishments of the last 35 years are being challenged. What’s more, a return to the drachma is no longer a threat but an openly supported possibility weighted with ideological tension, populism and the idea that it can be subverted. This position is adopted SYRIZA’s radical left wing, the extraparliamentary left and Golden Dawn. It remains to be seen whether or not it will develop into a new dividing line which will replace the equally handy, but highly confusing, memorandum-anti-memorandum dipole.

Read more …

British politics has been pre-empted by an elite.

Corbyn, Tsipras, Maggie And TINA (Andreou)

It is not a coincidence that Corbyn has been likened to Alexis Tsipras and the Syriza movement, by friend and foe alike. It is not a coincidence that Syriza has already expressed its support for him, or that he was the only one of the leadership candidates to voice his disgust at the treatment of Greece in the hands of the EU. A network is forming. Last week Tsipras, according to some commentators, was a class traitor for not pushing the nuclear button of Grexit. Now, in some cases the very same people, are suggesting Corbyn is far too radical. It confirms my instinctive conclusion: Most of the left want revolution. Most of the left would like it to happen somewhere else first, please, thanks.

Some friends, fairly, ask: How can you excuse Tsipras for signing an agreement, for compromising his principles and election promises, and at the same time criticise the other Labour candidates for proposing the same in order to get elected? I have wrestled with this issue. It makes a big difference, on the one hand, going into an election with the right ideals and motives and having to compromise, faced with powerful opposing forces and realpolitik, and on the other, selling out before you even try, because all that matters to you is getting your claws on the throne. Actually, it makes all the difference. Be careful, warns former leadership hopeful Tristram Hunt: “Britain is not Greece or Spain”.

Strange; for years, all those wishing to strengthen the notion that There Is No Alternative to neoliberal austerity, have been telling us ad nauseam that we are just like Greece and Spain. Or at least we will be, unless we happily accept the shrinking of the welfare state, the demise of free health and education, the lowering of salaries, the cruelty to migrants, the disintegration of social cohesion. And shaking this TINA narrative is precisely the point. Neoliberal austerity has become impenetrable dogma, evangelical in its fervour. All that is left to those of us who oppose it, is political guerrilla warfare; seeing the opportunity to hijack processes, like leadership elections, and make unexpected choices, like Corbyn. Greece has shown that such courses of action are the only ones that surprise elites and cause them to reveal themselves and make panicked choices.

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What politics in Europe SHOULD look like, if the EU is to survive: people first.

Madrid’s Podemos-Backed Mayor Saves 70 Families From Eviction (TeleSur)

Madrid’s recently elected left-wing mayor announced Tuesday she had annuled eviction orders for 70 families living in social housing, while preserving over 2,000 similar rental contracts. Manuela Carmena was elected earlier in May under the banner of a local coalition Ahora Madrid, which included anti-austerity party Podemos, with a program focused on protecting housing, as the aftermath of the 2008 financial crisis in Spain led to tens of thousands of families evicted from their homes. The ruling conservative Popular Party (PP) had been governing the capital for the past 24 years. “There were 70 processes under way, but today those families have recovered their homes. Nobody is going to be thrown out on the street,” said Carmena.

The evictions followed a 2012 deal made by the Madrid social housing body EMVS to sell five blocks of public housing to the Spanish real estate developer Renta Corporación for about US$24 million. RELATED: Interview with Podemos Founder: Spain’s 2-Party System Is Dying The deal eventually fell apart, although tenants claimed they were asked by EMVS to sign new contracts including a sell-by date on their subsidized terms in the event of a sale, in order to make the flats more attractive to sell to investment funds. The city council confirmed the mayor’s decision in a statement: “The EMVS will no longer pressure the 220 families that live in five blocks owned by them in the center to leave, and it will stop the eviction processes for the 70 homes.”

It said a further 2,086 similar social rental contracts around the city would be safeguarded. Alberto Romeral, a pensioner who benefited from the measure and leader of the “Yo no me voy” (“I’m not going”) group told Reuters: “We are grateful that [Carmena] looks out for the people of the city and their problems and does not want to crush them.”

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“We are the only eurozone country that actually does more trade outside the eurozone than within it…”

British Prosperity Will Drive Ireland’s Recovery (David McWilliams)

I am on Shaftesbury Avenue in London, quite shocked. I have just put my card into an ATM to get £200 and realise that it has cost me nearly €300. I was aware that the British currency was rocketing, but this exchange rate difference is extraordinary and is brilliant news for Irish exporters. We should do a deal with the British, fix the exchange rate here and simply transport Britain’s industrial base to Ireland and hit the restart button. Of course, I am joking, but there is a startling divergence between the British economy, our biggest trading partner, and the eurozone economy that Official Ireland pretends is our biggest trading partner. Employment in Britain is growing for a start. As George Osborne claimed in his recent budget, Yorkshire has created more jobs than France.

Thankfully, the Irish economy is not a European economy in any meaningful sense. We are an Anglo-American economy with a Franco-German currency grafted onto us. Despite politicians and senior civil servants going over and back to Brussels all the time, we are actually part of the Anglosphere which maps a giant global arch from Dublin to London, across the Atlantic through North America and down to Australia and New Zealand. This is our world. This is where we trade, where our investments come from, where our people live. It is an interlinked web of culture, language and family. Granted, there are some significant differences, but if we are honest, these differences are dwarfed by commonalities. Economically, when the Anglosphere does well, we do well. Period.

In the past five years, Ireland’s economy has been dragged upwards by Britain and the US. Ireland’s youth have sought opportunities in booming Australia, Britain, Canada and the US. We head to Boston or Birmingham, not Brussels to look for work. These are the facts. We are the only eurozone country that actually does more trade outside the eurozone than within it. But this type of anomaly describes much of Irish economic policy – it’s an economic policy made up without much reference to the actual economy. However, thankfully for us, our major trading partners – Britain and the US – are motoring and they have dragged Ireland out of the mire and put us on the road to recovery.

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Government sounds like amateurs.

Imposing Losses On Hypo Bond Holders Illegal, Says Austrian Court (FT)

An attempt by Austria to slash the cost to taxpayers of Hypo Alpe Adria bank, a high-profile European casualty of the financial crisis, by imposing losses on some bondholders has been thrown out by the country’s top judges. In a ruling that came as relief for investors who feared a precedent would be set for other European bank failures, Austria’s constitutional court on Tuesday declared illegal a law that would have “bailed in” €890m in subordinated debt. The act would have breached the constitution by reversing guarantees given to bondholders by the province of Carinthia as well as treating investors unfairly, the court ruled. The law would be “repealed in its entirety”, the judges said in a statement.

Introduced last year by Michael Spindelegger, then finance minister, the law created alarm in Austria and elsewhere in Europe amid fears investors would question the value of guarantees given by other regional governments – for instance in Germany. However, investors’ relief could prove shortlived as Austria’s authorities press ahead with plans to wind up the bank under recently introduced national legislation, which has become a trial run for as-yet untested EU rules that set out who should foot the bill when banks go bust. Hypo Alpe Adria was nationalised in 2009 after ambitious international expansion plans went badly wrong. When in March it was revealed that Heta, the “bad bank” created to dispose of non-performing parts, would need a further €7.6bn in state aid, the government in Vienna refused to provide additional funding.

The bank was put into resolution, and Heta suspended bond payments. The Austrian law highlighted the pressures on European politicians to limit the impact of bank failures on stretched government finances. Mr Spindelegger “needed something to show the electorate he would prevent taxpayers bearing the cost”, said Josef Christl at Macro-Consult, a Vienna-based financial consultancy. “It was a political decision, not economically or legally based.” Tuesday’s constitutional court reversal was “a good decision for bondholders but it’s embarrassing for the government. This was not a law you would have expected from Austria and a lot of PR damage has been done,” added Franz Schellhorn, director of the Agenda Austria think-tank.

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Think this insanity can last much longer?

The Costly, Deadly Dangers of Traffic Stops in America’s Police State (Whitehead)

Incredibly, a federal appeals court actually ruled unanimously in 2014 that acne scars and driving with a stiff upright posture are reasonable grounds for being pulled over. More recently, the Fifth Circuit Court of Appeals ruled that driving a vehicle that has a couple air fresheners, rosaries and pro-police bumper stickers at 2 MPH over the speed limit is suspicious, meriting a traffic stop. Unfortunately for drivers, not only have traffic stops become potentially deadly encounters, they have also turned into a profitable form of highway robbery for the police departments involved. As The Washington Post reports, “traffic stops for minor infractions such as speeding or equipment violations are increasingly used as a pretext for officers to seize cash from drivers.”

Relying on federal and state asset forfeiture laws, police set up “stings” on public roads that enable them to stop drivers for a variety of so-called “suspicious” behavior, search their vehicles and seize anything of value that could be suspected of being connected to criminal activity. Since 2001, police have seized $2.5 billion from people who were not charged with a crime and without a warrant being issued. “In case after case,” notes The Washington Post, “highway interdictors appeared to follow a similar script. Police set up what amounted to rolling checkpoints on busy highways and pulled over motorists for minor violations, such as following too closely or improper signaling. They quickly issued warnings or tickets.

They studied drivers for signs of nervousness, including pulsing carotid arteries, clenched jaws and perspiration. They also looked for supposed ‘indicators’ of criminal activity, which can include such things as trash on the floor of a vehicle, abundant energy drinks or air fresheners hanging from rearview mirrors.” If you’re starting to feel somewhat overwhelmed, intimidated and fearful for your life and your property, you should be. Never before have “we the people” been so seemingly defenseless in the face of police misconduct, lacking advocates in the courts and in the legislatures. So how do you survive a police encounter with your life and wallet intact? The courts have already given police the green light to pull anyone over for a variety of reasons.

In an 8-1 ruling in Heien v. North Carolina, the U.S. Supreme Court affirmed that police officers can pull someone over based on a “reasonable” but mistaken belief about the law. Of course, what’s reasonable to agents of the police state may be completely unreasonable to the populace. Nevertheless, the moment those lights start flashing and that siren goes off, we’re all in the same boat: we must pull over. However, it’s what happens after you’ve been pulled over that’s critical. Survival is the key.

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No, Greece is not even Europe’s biggest -moral- failure.

1 Dead After 1,500 Migrants Storm Eurotunnel In France For 2nd Night (RT)

At least one migrant has died when he tried to enter Eurotunnel’s French terminal near Calais on Tuesday night as about 1,500 refugees attempted to break through fences in a bid to reach UK for a second straight night. “Our teams have found a body this morning and firefighters have confirmed the person’s death,” a spokesman for Eurotunnel told France Info. BMFTV reported that the migrant of was Sudanese origin. The man was run over by a truck from the UK, Francetvinfo website reported. A police spokesman told BFMTV that they were “completely clueless” about the situation, adding that 60 officers are currently working at the scene of the incident.

According to police sources cited by Francetvinfo, migrants were attempting to break into Eurotunnel “at least three times” on Tuesday night. On Monday night about 2,000 migrants tried to breach the fences of the Calais terminal trying to get into UK. A Eurotunnel spokesman, who described the situation as “the biggest incursion effort in the past month and a half.” This is not the first migrant death in recent months. July 7 a man reportedly of Eritrean origin attempting to reach the UK from Calais was found dead on a freight shuttle, Channel Tunnel operator Eurotunnel has said. Overall, with the latest fatality, the number of deaths in Eurotunnel stands at nine, according to French media.

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And we call ourselves a successful species?! (I don’t even want to go into Cecil the lion’s death)…

Northern White Rhino Closer to Extinction With Czech Zoo Death (Bloomberg)

One of the world’s most endangered animals, the northern white rhinoceros, edged closer to extinction when one of the last five of its kind known to exist died in a Czech zoo. The 31-year-old female Nabire, who lived her life at the Dvur Kralove zoo, about 140 kilometers northeast of Prague, died on Monday of a ruptured cyst, the zoo said on its website Tuesday. Nabire’s death “brought another species closer to complete extinction,” zoo director Premysl Rabas said. He blamed the plight of the northern white rhinoceros on “meaningless human greed.” Northern white rhinos were last seen in the wild in central Africa in 2007. Their disappearance stemmed from demand for their horns, which are used for medical and cultural purposes in some parts of Asia and the Arab world. The last surviving male lives in Kenya with two females, and the other female lives in San Diego, according to the Czech zoo.

Read more …

Jul 272015
 
 July 27, 2015  Posted by at 7:06 am Finance Tagged with: , , , , , ,  7 Responses »
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LoC Old Patent Office model room, Washington DC 1865

There’s always a great irony in anyone at all coming under pressure for doing exactly what they should be doing. Still, it happens a lot. The irony gets that much greater when the party in question is a government, and a much maligned one at that.

Of course Syriza had to look into options, possibilities, eventualities if ever the moment might come that Greece had to (were forced to) move beyond the euro. They would have been entirely in fault, and entirely remiss, if not outright criminally negligent, if they had never looked into this.

And of course this had to be done in secret. There is no other way. The proof is in the pudding: just look at the reactions to Varoufakis’ explanation to a group of investors of how he went about Tsipras’ pre-election-victory green light for exploring ‘beyond euro’ scenarios.

Just imagine what political opponents and international media would have made of it all had they known back in December. There are simply far too many ill-informed and/or sensationalist and/or political-gains-hungry voices out there to not do these things in secret.

These are the very same voices that now seek to use that very same secrecy to try and lay blame on Tsipras and Varoufakis. In a world where openness and honesty have been put out by the curb with so many other human and moral values, this is inevitable. But that cannot mean the research should never have been done.

Tsipras could not possibly have avoided -and remember this took place at least a month before his election victory, which was by no means assured- having the research done. And he could not possibly have avoided having it done in secret.

So what do all these people want now? Varoufakis implies he’s prepared for treason charges. That would be rich. It would mean treason charges for Tsipras too. And for anyone in Brussels or Berlin who’s ever had any ideas about Greece moving beyond the euro. Try Schäuble.

Hey, maybe we can indict the entire eurozone structure for not having studied, in depth, the consequences of a eurozone nation moving beyond the currency. Isn’t that precisely the kind of negligence that is the foundation of much that is going wrong vis-à-vis Greece?!

Many aspects of this latest drama should make clear not where Syriza went wrong, but where the entire eurozone structure is an abject failure for everyone involved. Let’s have an independent commission look into how on earth it is possible that a cabal of unelected movers and shakers gets full control over the entire financial structure of a democratically elected eurozone member government. By all means, let’s see the legal arguments for this.

What this episode shows us is not Tsipras et al bending the law, it shows us to what extent Brussels and Frankfurt have moved into de facto entirely lawless territory. Or rather, to what extent they have jockeyed themselves into a position where they can make up the laws as they go along.

Still, none of this means that Tsipras and Varoufakis ever wished to do things in secret, or that they ever coveted some secret revolutionary scheme that would have gone beyond the wishes of their voters.

They simply did the homework required of a party that could expect to perhaps come to power, and do so on a controversial mandate of halting the austerity seemingly inherent in the eurozone model, while not leaving the eurozone. That homework also, necessarily, meant looking at what to do with the central bank, the Mint, everything involved in the financial system.

The fact that these things were taken into consideration doesn’t mean Syriza was planning a coup of any kind at any moment in time (as is being loudly suggested), it just means they were thorough. If you want a coup, look instead at the Troika having wrestled control over Greek domestic finances. That’s a coup if you ever saw one.

There were always a number of possible outcomes, and being forced to move beyond the euro was always one of them (just as the present third bailout at gunpoint was). The Syriza team are not at fault for having explored this, they would have been at fault if they had NOT done it.

As for the details, they may look a bit on the edge, but since it’s always been clear from the outset that replacing an entire currency system with another, especially when that means a move away from a common currency, would be extremely time-consuming (perhaps a year or so), researching one form or another of an electronic or digital currency to help fill the gap makes far too much sense for the other side to try and exploit it to deride Syriza.

In the end, that’s just dumb.

We don’t know who leaked the tapes and/or transcripts to Kathimerini, and it doesn’t matter much either. It’s infinitely more important that what Varoufakis and his very small team of confidants sought to explore, A) had to be done in such stifling secrecy, and B) has not already been done -at least not out in the open- by the much larger teams available in Brussels, Frankfurt and Washington. Over the past 20 years or so, that is (talk about negligence).

That Varoufakis’ handful of confidants had to hack their own computer system in order to do what the Syriza government HAD to do, beyond any doubt, that is: try to avoid utter chaos if or when the ECB would shut down the Greek banking system, is an indictment of the entire eurozone, and the legal ‘liberties’ it has voted itself; it is by no means an indictment of Varoufakis, or Tsipras, or anyone in Syriza.

Nevertheless, that is exactly what you’re going to be reading and hearing in days to come. Greek opposition politicians, Greek media, as well as international media, will seek to grab this opportunity to hold the world upside down before your very eyes, and then convince you that what you see is the world as it really is, as it’s supposed to be.

That way, everyone involved think they can hide their own deficiencies and half-truths and (semi-)illegal acts behind the very, very rare, and very few people who do not wish to engage in any such acts. That is the world on its head.

For background, see:

Varoufakis Claims He Had Approval To Plan Parallel Banking System (Kathimerini)

Greece Rocked By Alleged Secret Plan To Raid Banks For Drachma Return (Guardian)

Varoufakis Reveals Cloak And Dagger Greece ‘Plan B’, Awaits Treason Charges (AEP)

Jul 142015
 
 July 14, 2015  Posted by at 11:14 am Finance Tagged with: , , , , , , , , ,  12 Responses »
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F.A. Loumis, Independence (Bastille?!) Day 1906


40 Ways China Is Propping Up Its Stock Market (MarketWatch)
China May Tip World Into Recession: Morgan Stanley (Bloomberg)
Yanis Varoufakis Opens Up About His Five Month Battle To Save Greece (NS)
On the Euro Summit’s Statement on Greece: First Thoughts (Varoufakis)
Greek Bailout Rests on Asset Sale Plan That’s Already Failed (Bloomberg)
Greece Is Being Treated Like A Hostile Occupied State (AEP)
Greek Deal Poisons Europe As Backlash Mounts vs ‘Neo-Colonial Servitude’ (AEP)
Greek PM Tsipras Faces Party Revolt Over Bailout Deal (Reuters)
Europe’s Insane Deal With Greece (Bloomberg)
Greece Put Its Faith In Democracy But Europe Has Vetoed The Result (Paul Mason)
The Berlin Bulldozer and the Sack of Athens (Philippe Legrain)
“The Genie Is Out Of The Bottle” – The Moment The Euro Became Reversible (ZH)
Golden Dawn Will Be Strengthened By More Austerity, Varoufakis Warns (Guardian)
Greece’s Brutal Creditors Have Demolished The Eurozone Project (Münchau)
Greece Is A Pawn In The Fight Between France And Germany (MarketWatch)
Greece Misses New Payment To IMF (AFP)
Tormenting Greece Is About Sending A Message That We Are In A New EU (ITimes)
Britain Rules Out Financing Greece Bailout (Reuters)
Saudis Pump Record Oil as OPEC Sees Stronger Demand in 2016 (Bloomberg)
Shale Oil Output Heads for Record Drop After U.S. Drilling Swoon (Bloomberg)
Large Hadron Collider Discovers New Pentaquark Particle (BBC)

“All told, in a span of two weeks, regulators announced at least 40 measures aimed at supporting the market..”

40 Ways China Is Propping Up Its Stock Market (MarketWatch)

From postponing initial public offerings to relaxing trading rules, Chinese authorities aggressively intervened to stabilize the stock market after panic sales shaved more than $3 trillion from the Shanghai Composite Index’s market cap in a month. For now, the effort has paid off with the stock market regaining some of its composure, but analysts warned that the stabilization is likely to be a temporary victory, and that the worst may be yet to come. “This is not the time to enter the market, it would be like catching a falling knife,” said David O’Malley, CEO of Penn Mutual. When the market began its downward spiral in the middle of June, Chinese officials took a wait-and-see approach and refrained from heavy-handed action.

But as the meltdown in the stock market threatened to spill over into other assets, namely the currency market, Beijing moved quickly to stem the fallout. All told, in a span of two weeks, regulators announced at least 40 measures aimed at supporting the market, starting with the central People’s Bank of China cutting the benchmark interest rate by 25 basis points on June 27. This was followed by a proposal on June 29 to allow the national pension fund to invest in equities, which could potentially equate to an injection of 1 trillion yuan ($161 billion) if approved. Indeed, between July 4 to July 9, not a single day went by without the Chinese government stepping into the market, according to Barclays.

The tactic succeeded in neutralizing the stock market’s rout and the Shanghai Composite rose for a third session in a row on Monday. Nonetheless, it could be premature to believe all is well again in the world’s sixth largest stock market with about 300 companies still halted on the Shanghai market and more than 800 halted on the Shenzhen bourse. The true litmus test of investor confidence will come when these shares resume trading, but experts are already betting that the market will face further turmoil when these stocks lift their self-imposed trading bans.

Read more …

Clairvoyant.

China May Tip World Into Recession: Morgan Stanley (Bloomberg)

Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession. That is the prediction from Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2%, a threshold he views as equivalent to a world recession. It would be the first global slump over the past 50 years without the U.S. contracting. “The next global recession will be made by China,” Sharma, who manages more than $25 billion, said in an interview at Bloomberg’s headquarters in New York. “Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy.”

While China’s growth is slowing, the country’s influence has increased as it became the world’s second-largest economy. China accounted for 38% of the global growth last year, up from 23% in 2010, according to Morgan Stanley. It’s the world’s largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa. The IMF last week cut its forecast for global growth this year to 3.3%, down from an estimate of 3.5% in April, citing weakness in the U.S. While the Washington-based lender left its projection on China unchanged at 6.8%, the slowest since 1990, it said “greater difficulties” in the country’s transition to a new growth model poses a risk to the global recovery.

China’s economy will continue slowing as the country struggles to reduce its debt, Sharma said. An additional 2 percentage-point slowdown would be enough to tip the world into a recession, he said. The global expansion, measured by market exchange rates, has slipped below 2% during five different periods over the past 50 years, most recently in 2008-09. All the previous world recessions have coincided with contractions in the U.S. economy.

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“..My interpretation is that when you want to talk about everything, you don’t want to talk about anything.”

Yanis Varoufakis Opens Up About His Five Month Battle To Save Greece (NS)

Greece has finally reached an agreement with its creditors. The specifics have not yet been published, but it is clear that the deal signed is more punitive and demanding than the one that its government has spent the past five months desperately trying to resist. The accord follows 48 hours in which Germany demanded control of Greece’s finances or its withdrawal from the euro. Many observers across Europe were stunned by the move. Yanis Varoufakis was not. When I spoke with Greece’s former finance minister last week, I asked him whether any deal struck in the days ahead would be good for his country. “If anything it will be worse,” he said. “I trust and hope that our government will insist on debt restructuring, but I can’t see how the German finance minister [Wolfgang Schäuble] is ever going to sign up to this. If he does, it will be a miracle.”

It’s a miracle the Greek people are likely to be waiting for a long time for. On Friday night, when Greece’s parliament agreed to an austerity programme that voters had overwhelmingly rejected in a referendum five days earlier, a deal seemed imminent. A partial write-off of its debt owed to the so-called “Troika” – the IMF, the European Central bank and the European Commission – was unlikely but possible. Now, despite its government’s capitulation, Greece has no debt relief and may yet be thrown out of the Eurozone. Varoufakis, who resigned a week ago, has been criticised for not signing an agreement sooner, but he said the deal that Greece was offered was not made in good faith – or even one that the Troika wanted completed.

In an hour-long telephone interview with the New Statesman, he called the creditors’ proposals – those agreed to by the Athens government on Friday night, which now seem somehow generous – “absolutely impossible, totally non-viable and toxic …[they were] the kind of proposals you present to another side when you don’t want an agreement.” Varoufakis added: “This country must stop extending and pretending, we must stop taking on new loans pretending that we’ve solved the problem, when we haven’t; when we have made our debt even less sustainable on condition of further austerity that even further shrinks the economy; and shifts the burden further onto the have-nots, creating a humanitarian crisis.”

In Varoufakis’s account, the Troika never genuinely negotiated during his five months as finance minister. He argued that Alexis Tsipras’s Syriza government was elected to renegotiate an austerity programme that had clearly failed; over the past five years it has put a quarter of Greeks out of work, and created the worst depression anywhere in the developed world since the 1930s. But he thinks that Greece’s creditors simply led him on. A short-term deal could, Varoufakis said, have been struck soon after Syriza came to power in late January. “Three or four reforms” could have been agreed, and restrictions on liquidity eased by the ECB in return. Instead, “The other side insisted on a ‘comprehensive agreement’, which meant they wanted to talk about everything. My interpretation is that when you want to talk about everything, you don’t want to talk about anything.” But a comprehensive agreement was impossible. “There were absolutely no [new] positions put forward on anything by them.”

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Yains gets better with more freedom of speech.

On the Euro Summit’s Statement on Greece: First Thoughts (Varoufakis)

In the next hours and days, I shall be sitting in Parliament to assess the legislation that is part of the recent Euro Summit agreement on Greece. I am also looking forward to hearing in person from my comrades, Alexis Tsipras and Euclid Tsakalotos, who have been through so much over the past few days. Till then, I shall reserve judgment regarding the legislation before us. Meanwhile, here are some first, impressionistic thoughts stirred up by the Euro Summit’s Statement.

• A New Versailles Treaty is haunting Europe – I used that expression back in the Spring of 2010 to describe the first Greek ‘bailout’ that was being prepared at that time. If that allegory was pertinent then it is, sadly, all too germane now.

• Never before has the European Union made a decision that undermines so fundamentally the project of European Integration. Europe’s leaders, in treating Alexis Tsipras and our government the way they did, dealt a decisive blow against the European project.

• The project of European integration has, indeed, been fatally wounded over the past few days. And as Paul Krugman rightly says, whatever you think of Syriza, or Greece, it wasn’t the Greeks or Syriza who killed off the dream of a democratic, united Europe.

• Back in 1971 Nick Kaldor, the noted Cambridge economist, had warned that forging monetary union before a political union was possible would lead not only to a failed monetary union but also to the deconstruction of the European political project. Later on, in 1999, German-British sociologist Ralf Dahrendorf also warned that economic and monetary union would split rather than unite Europe. All these years I hoped that they were wrong. Now, the powers that be in Brussels, in Berlin and in Frankfurt have conspired to prove them right.

• The Euro Summit statement of yesterday morning reads like a document committing to paper Greece’s Terms of Surrender. It is meant as a statement confirming that Greece acquiesces to becoming a vassal of the Eurogroup.

• The Euro Summit statement of yesterday morning has nothing to do with economics, nor with any concern for the type of reform agenda capable of lifting Greece out of its mire. It is purely and simply a manifestation of the politics of humiliation in action. Even if one loathes our government one must see that the Eurogroup’s list of demands represents a major departure from decency and reason.

• The Euro Summit statement of yesterday morning signalled a complete annulment of national sovereignty, without putting in its place a supra-national, pan-European, sovereign body politic. Europeans, even those who give not a damn for Greece, ought to beware.

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This deal is far from done.

Greek Bailout Rests on Asset Sale Plan That’s Already Failed (Bloomberg)

Greece’s last-ditch bailout requires the country to sell €50 billion of assets, an ambition it hasn’t come close to achieving under previous restructuring plans. The government of then-Prime Minister George Papandreou in 2011 set the same financial goal, which it sought to achieve by hawking airports, seaports, and beachside real estate. Since then, such deals have yielded 3.5 billion euros, according to the state privatization authority. Making the asset-sale math work as the economy contracts will be difficult for Greek Prime Minister Alexis Tsipras, who on Monday bowed to demands from European creditors in exchange for a bailout of as much as 86 billion euros that will keep the country in the euro zone.

Half the money from asset disposals is already earmarked for the country’s teetering banks. They need the money to rebuild their capital buffers and, without it, may no longer be able to operate. “Fifty billion euros is a very unrealistic target,” said Diego Iscaro, an economist at research firm IHS Inc. “Asset prices have been badly hit by the economic depression and we do not expect them to significantly recover any time soon.” The current target would see Greece attempting to find buyers for the equivalent of just over a fifth of the country’s annual gross domestic product. Since its debt crisis began in earnest in 2010, Greece’s attempts to raise cash from state property have been fraught with difficulty.

A €915 million deal to sell the seaside site of the former Athens airport, a plot three times the size of Monaco, has stalled and no money has yet changed hands. Tsipras’s government had said it wanted to halt the transaction on environmental grounds. His Coalition of the Radical Left, or Syriza, had also expressed skepticism about selling the Piraeus seaport just outside the capital. A concession to Fraport AG to operate 14 provincial airports for €1.2 billion hasn’t closed. All told, €7.7 billion in sales have been agreed, with less than half that actually being paid so far, figures from the Hellenic Republic Asset Development Fund show.

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“As the IMF acknowledged in its famous mea culpa, if you misjudge the fiscal multiplier and force austerity beyond the therapeutic dose, you make matters worse.”

Greece Is Being Treated Like A Hostile Occupied State (AEP)

Like the Neapolitan Bourbons – benign by comparison – the leaders of the eurozone have learned nothing, and forgotten nothing. The cruel capitulation forced upon Greece after 31 hours on the diplomatic rack offers no conceivable way out the country’s perpetual crisis. The terms are harsher by a full order of magnitude than those rejected by Greek voters in a landslide referendum a week ago, and therefore can never command democratic assent. They must be carried through by a Greek parliament still dominated by MPs from Left and Right who loathe every line of the summit statement, the infamous SN 4070/15, and have only agreed – if they have agreed – with a knife to their throats. EMU inspectors can veto legislation. The emasculation of the Greek parliament has been slipped into the text. All that is missing is a unit of EMU gendarmes.

Such terms are unenforceable. The creditors have sought to nail down the new memorandum by transferring €50bn of Greek assets to “an independent fund that will monetise the assets through privatisations and other means”. It will be used in part to pay off debts. This fund will be under EU “supervision”. The cosmetic niceties of sovereignty will be preserved by letting the Greek authorities manage its day to day affairs. Nobody is fooled. In other words, they are seizing Greece’s few remaining jewels at source. This is not really different from the International Committee for Greek Debt Management in 1898 imposed on Greece after the country went bankrupt following a disastrous Balkan war.

A six-power league of bondholders, led by British bankers, impounded customs duties in the Port of Piraeus, and seized revenues from stamp duty, tobacco, salt, kerosene, all the way down to playing cards. But at least there was no humbug about solidarity and helping Greece on that occasion. “It is the Versailles Treaty for the present age,” said Mr Varoufakis this morning, talking to me from from his island home in Aegina. Under the new terms, Greece must tighten fiscal policy by roughly 2pc of GDP by next year, pushing the country further into a debt-deflation spiral and into the next downwards leg of its six-year depression. This will cause the government to miss the budget targets yet again – probably by a large margin – in an exact repeat of the self-defeating policy that caused Greek debt dynamics to spin out of control in the last two Troika loan packages.

As the IMF acknowledged in its famous mea culpa, if you misjudge the fiscal multiplier and force austerity beyond the therapeutic dose, you make matters worse. The debt to GDP ratio rises despite the cuts. EMU leaders have an answer to this. Like Canute’s courtiers, they will simply command the waves to retreat. The text states that on top of pension cuts and tax increases there should be “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets”,. In other words, they will be forced to implement pro-cyclical contractionary policies. The fiscal slippage that acted as a slight cushion over the last five years will be not be tolerated this time. And let us not forget that these primary surpluses never made any sense in the first place. They were not drawn up on the basis of macro-economic analysis. They were written into prior agreements because that is what would be needed – ceteris paribus – to pretend that debt is sustainable, and therefore that the IMF could sign off on the accords. What a charade.

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“I am afraid there is going to be a real fight about this. There is a groundswell of anger and it is now perfectly clear to a lot of people that the only way out of neo-colonial servitude is to break free of monetary union..”

Greek Deal Poisons Europe As Backlash Mounts vs ‘Neo-Colonial Servitude’ (AEP)

Greek premier Alexis Tsipras faced a furious backlash from own Syriza party on Monday night after yielding to draconian demands from Europe’s creditor powers, and agreeing to let foreign surpervisors to take control of his country. The bitter climb-down clears the way towards an €86bn rescue package and the renewal of emergency liquidity for the Greek banking system, once Greece’s parliament has voted for pension cuts, tax rises and a raft of other measures by Wednesday. This is the first of a series of deadlines as the country is kept on a tight leash. The terms imposed after marathon talks through the night on Sunday are far harsher than those rejected by Greek voters in a landslide referendum a week ago, and risks shattering democratic consent in Greece.

It has left Europe bitterly divided along North-South lines of cleavage, severely testing the political cohesion of monetary union. “Greece has been devastated and humiliated. Europe has showed itself Pharisaical, incapable of leadership and solidarity,” said Romano Prodi, the former Italian prime minister. An independent fund will take control of €50bn of Greek state assets, collateral to prevent Syriza reneging on the deal at a later date. Three-quarters of this will be sued to recapitalise the Greek banks and repay debt. International inspectors will have the power to veto legislation. The radical-Left Syriza government will be forced to repeal a raft of laws passed since it took power in January, stripping away the last fig leaf of sovereignty.

“It is unconditional surrender. We get serious austerity with no debt relief. We will have foreign supervisors crawling over everything,” said Costas Lapavitsas, a Syriza MP and one of 40 or so rebels who plan to abstain or vote against the deal, mostly from the Left Platform. “They are telling us that from now on, they are going to govern the country. I am afraid there is going to be a real fight about this. There is a groundswell of anger and it is now perfectly clear to a lot of people that the only way out of neo-colonial servitude is to break free of monetary union,” he said. The Independent Greeks party (ANEL) in the ruling coalition called the deal a “German coup” and said it would not have anything to do with it. The government is close to collapse.

Mr Tsipras gave in after being locked in all-night talks with German Chancellor Angela Merkel and French president Francois Hollande, an ordeal described by one EU official as psychological “water-boarding”. He was left with a grim choice as Greek banks ran out of cash and after two weeks of capital controls had brought industry to a halt. Food companies warned that the country will start to run out of beef and other imported meats within days and could face serious food shortages by the end of the month unless the banking system is reopened, and firms can pay foreign suppliers once again. The ECB has yet to lift its freeze on emergency liquidity for the Greek financial system. The banks will remain shut through Wednesday. Yanis Varoufakis, the former finance minister, said Greece had been forced to accept a latter day “Versailles Treaty” that will leave the country languishing in perma-slump for years to come.

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Could it be that’s what he’s aiming for?

Greek PM Tsipras Faces Party Revolt Over Bailout Deal (Reuters)

Greece’s leftwing Prime Minister Alexis Tsipras faces a showdown with rebels in his own party on Tuesday furious at his capitulation to German demands for one of the most sweeping austerity packages ever demanded of a euro zone government. Just hours after a deal that saw Greece surrender much of its sovereignty to outside supervision in return for agreeing to talks on an €86 billion bailout, doubts were already emerging about whether Tsipras would be able to hold his government together. The terms imposed by international lenders led by Germany in all-night talks at an emergency summit obliged Tsipras to abandon promises of ending austerity. Instead he must pass legislation to cut pensions, increase value added tax, clamp down on collective bargaining agreements and put in place quasi-automatic spending constraints.

In addition, he must set €50 billion of public sector assets aside to be sold off under the supervision of foreign lenders and get the whole package through parliament by Wednesday. Tsipras himself, elected five months ago to end five years of suffocating austerity, said he had “fought a tough battle” and “averted the plan for financial strangulation”. But to get the accord through parliament by Wednesday’s deadline, he will have to rely on votes from pro-European opposition parties, raising big questions over the future of his government and opening the prospect of snap elections. Leftwing rebels in the ruling Syriza party, and his junior coalition partner, the right-wing Independent Greeks party, indicated they would not tear up election pledges that brought them to power in January.

“We cannot agree to that,” Independent Greeks leader Panos Kammenos told reporters after meeting Tsipras. “In a parliamentary democracy, there are rules and we uphold them.” A meeting of the Syriza parliamentary group on Tuesday morning could see Energy Minister Panagiotis Lafazanis and Deputy Labor Minister Dimistris Stratoulis sacked over their opposition to the bailout. There may also be a battle over parliament speaker Zoe Constantinopoulou, an uncompromising leftwinger who also defied Tsipras over the bailout and who could create serious procedural obstacles for the package. If the summit on Greece’s third bailout had failed, Athens would have been staring into an economic abyss with its banks on the brink of collapse and the prospect of having to print a parallel currency and exit the euro.

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“..by necessity currency unions are transfer unions..”

Europe’s Insane Deal With Greece (Bloomberg)

If the definition of insanity is doing the same thing over and over and expecting a different result, the leaders of Europe and Greece are insane. After a 17-hour summit, Europe’s leaders have reached a deal. If the Greek parliament passes a package of reforms by Wednesday night, the country’s creditors will move forward with a third bailout on terms that are much stricter than previous proposals. If the deal proceeds, it will avert the immediate chaos that Greece’s uncontrolled exit from the euro area would entail, and enable European leaders to talk about something else for a while. Unfortunately, it does nothing to address the fundamental issues that have repeatedly landed Europe in crisis since 2009.

Former German Economic Minister Karl-Theodor zu Guttenberg quipped that Europe hasn’t been kicking the can down the road, it’s been kicking it up a hill and wondering why it keeps rolling back on its foot. The core issue: Although the EU can handle economies of widely varying types and levels of development, the euro area cannot. Greece’s gross domestic product per person was about half of Germany’s when it joined the euro in 2001. Since then, Greece’s competitiveness relative to Germany’s has slid by about 40%. For a currency union to handle widely divergent economies, they must be deeply integrated across multiple dimensions. In the U.S., the average citizen of Mississippi makes just $20,618 a year, compared with $37,892 in Connecticut – almost as big a gap as between Greece and Germany.

Yet the U.S. doesn’t worry about a “Missexit,” because the country has various mechanisms for smoothing over differences among its states. The recent problems of Puerto Rico show the danger of being locked to a currency without such buffers. The mechanisms include large fiscal transfers- by necessity currency unions are transfer unions. Last year, 28 U.S. states sent the equivalent of 2.3% of their gross domestic product through the federal budget to the other 22 states. The biggest donor, Delaware, gave 21%. The biggest recipient, North Dakota, got 90%. By contrast, in 2011 Germany made a net contribution of 0.2% of its GDP to the EU budget, while Greece received 0.2%. Would German voters really support a tenfold jump in their contributions from €210 to €2,100 per person?

Large-scale fiscal transfers are not the only mechanism needed. Mississippi has probably run the equivalent of a current account deficit with New York ever since the Civil War. Every April, the banks in the Federal Reserve system reallocate assets and smooth over such regional imbalances. By contrast, when Greece runs a deficit with Germany – for example, due to trade with Germany or capital flight from Greece – its central bank accumulates debts to the Bundesbank indefinitely. The Bundesbank currently holds more than 500 billion euros in credits against other euro zone central banks. Again, would German taxpayers be willing to see the Bundesbank regularly write off some portion of those liabilities?

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“You cannot get 70-80% of people in the working-class suburbs of Athens turning out – in the face of a rightwing media bombardment – on far-left anti-Euro sentiment alone.”

Greece Put Its Faith In Democracy But Europe Has Vetoed The Result (Paul Mason)

The only thing certain about the aftermath of Sunday’s Euro summit is the disgrace of the political leaderships. The EU’s main powers tried to ritually humiliate the Greek government, but ruthlessness of intent was matched by incompetence when it came to execution. The German finance minister, Wolfgang Schäuble, threw on to the table a suggestion for Greece to leave the single currency for five years. Senior MPs from his coalition partner, the socialist SPD, screamed from the sidelines that they had not agreed to this – yet enough of Germany’s partners did agree to get the proposal into the final ultimatum. The Greeks were negotiating under threat of their banking system being allowed to collapse, a threat made by the very regulator supposed to maintain financial stability.

For the Greek leadership, it has also been a week of miscalculation. Armed, they thought, with a mandate for less austerity, they listened once again to the French, whose technocrats actually helped design the Greek offer going into the Brussels summit, only to see that offer ripped apart and replaced with a demand for the reversal of every measure against austerity the government has ever taken. But the real problem is not the politicians. It is the eurozone’s inability to contain the democratic wishes of 19 electorates. When the Finnish government threatened to collapse the talks, it was only expressing the wishes of the 38% of voters who backed the nationalist rightwingers of Finns Party. Likewise, when Schäuble sprang his temporary Grexit plan, he was expressing the demand of 52% of German voters, who want Greece to leave.

As for the Greeks, having tramped the streets of Athens alongside them for the best part of two months, I am certain that the “Oxi” movement was essentially a demand to stay in the Euro on different terms. You cannot get 70-80% of people in the working-class suburbs of Athens turning out – in the face of a rightwing media bombardment – on far-left anti-Euro sentiment alone. Now it seems that both sides of the Greek referendum were voting for an illusion. One of the most touching aspects of Greek life is people’s obsessional respect for parliamentary democracy. Syriza itself is the embodiment of a leftism that always believed you could achieve more in parliament than on the streets. For the leftwing half of Greek society, though, the result is people continually voting for things more radical than they are prepared to fight for.

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“..it is a monstrous, undemocratic creditors’ racket.”

The Berlin Bulldozer and the Sack of Athens (Philippe Legrain)

When finalizing my book European Spring last year, I hesitated before describing the Eurozone as a “glorified debtors’ prison.” After this weekend’s brutal, vindictive, and short-sighted exercise of German power against Greece, backed up by the Frankfurt-based European Central Bank’s (ECB) illegal threat to pull the plug on the entire Greek banking system, I take it back. There is nothing glorious about the Eurozone: it is a monstrous, undemocratic creditors’ racket. Greece’s submission to the conditions that Germany demanded, merely to start negotiations about further funding to refinance its unsustainable debts, may stave off the prospect of imminent bank collapse and Greece’s exit from the Eurozone.

But far from solving the Greek problem, doubling down on the creditors’ disastrous strategy of the past five years will only further depress the economy, increase the unbearable debt burden, and trample on democracy. Even Deutsche Bank, one of the German banks bailed out by European taxpayers’ forced loans to the Greek government in 2010, says Greece is now tantamount to a vassal state. But this is much bigger than Greece. It is clearer than ever that Europe’s dysfunctional monetary union has a German problem, too. As creditor-in-chief in a monetary union bereft of common political institutions, Germany is proving to be a calamitous hegemon. Paris may have tempered Berlin’s petulant threat to force Greece out of the euro, but German Chancellor Angela Merkel undoubtedly calls the shots.

The deal that Greek Prime Minister Alexis Tsipras capitulated to mirrored German demands, not the proposals he drafted with French help last week. By pointing out the futility of resistance if Greece wished to remain in the euro, Paris has, in a sense, acted as Berlin’s agent in securing Athens’ acquiescence. Yes, small countries such as Slovakia and Finland agreed with Germany. But their voices are hardly decisive. From Berlin’s perspective, they are the useful idiots who provide cover for its narrow interests. Remember that, through their loans to Greece, Finns and Slovaks bailed out German banks, not Finnish and Slovak ones. It is naïve to think that Berlin wouldn’t bulldoze them if they stood in its way.

Let’s be clear. What Berlin and Frankfurt have done to Greece, they can – and will – do to others. In 2010, they blackmailed the Irish government into imposing €64 billion in bank debt on Irish taxpayers. In 2011, they forced out the elected prime minister of Italy, Silvio Berlusconi. They would surely hammer a future Portuguese government, itself flirting with insolvency. And yes, they’d bully Slovakia and the others currently cheering them on.

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And don’t you forget it.

“The Genie Is Out Of The Bottle” – The Moment The Euro Became Reversible (ZH)

Some are calling the “deal”, which is in reality just a framework for further discussions, that Greece achieved over the weekend a “Pyrrhic defeat.” That is certainly one way of looking at things, however an even more accurate assessment of events in the past 48 hours is that this is the moment the “genie was out of the bottle” and the Euro was finally seen as reversible, what ultimately happens to Greece and its soon to be 200%+ debt/GDP notwithstanding. Here is Sky News’ Ed Conway with one of the more accurate summaries of this weekend’s epic fiasco:

However this story ends (and we have no idea what the next few hours will bring), Sunday 12 July will go down as a landmark moment in European history—alongside Rome in 1957, Maastricht in 1992 and Cannes in 2011. For the first time, the leaders of the 19-member euro area officially discussed plans for the departure of one of their members. According to the draft proposals handed by the eurogroup (the finance ministers) to their leaders for their overnight meeting, among the clauses to be debated was one worded as follows:

In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring.

It is difficult to overstate the significance of this. For its entire life, the euro was conceived as a currency from which there could be no exit. This was not accidental: the disasters that befell the Exchange Rate Mechanism in the early 1990s convinced European leaders that the only way to create a lasting single currency was never, ever, to countenance anyone leaving it. The euro was “irreversible”, to use the word Mario Draghi has frequently used. Except, tonight in Brussels it transpired that it is far from irreversible. That euro finance ministers are now actively discussing giving Greece a “time-out” from the currency. Now, one should insert a major note of caution at this stage. The clause quoted above was not agreed by all the euro members here in Brussels.

It was put into square brackets, meaning it is yet to be agreed by all member states. It may well be excised by the time the leaders have honed the draft document away to produce their final statement. Nonetheless, it was on the table. And that means that to some extent, the genie is now out of the bottle. Brussels is officially discussing how to engineer Greece’s departure. The euro is not irreversible. Clearly, they will not do “whatever it takes” to keep it together.

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Nothing would make the Troika happier than inciting riots in Athens.

Golden Dawn Will Be Strengthened By More Austerity, Varoufakis Warns (Guardian)

Austerity measures demanded of Greece by its European creditors will strengthen the far right, the country’s former finance minister Yanis Varoufakis has said. Varoufakis also dubbed the bailout agreement reached in Brussels this week as a new Treaty of Versaille, and a coup d’état which used banks instead of tanks. The Greek government has found itself in a dire political situation after it was forced to accept draconian austerity measures as part of a bailout offer even harsher than the one a national referendum voted no to last week. The outspoken former minister, who resigned from his role after the national referendum, despite it returning the result he was calling for, told the ABC the far-right Golden Dawn party could “inherit the mantle of the anti-austerity drive, tragically”.

“If our party Syriza, that has cultivated so much hope in Greece – to the extent that we managed to score 61.5% in the recent referendum – if we betray this hope and if we bow our heads to this new form of postmodern occupation, then I cannot see any other possible outcome than the further strengthening of Golden Dawn,” Varoufakis said. Speaking to Radio National’s Phillip Adams in his first post-resignation interview, Varoufakis also said he “jumped more than he was pushed” when he resigned from the ministry. Prime minister Alexis Tsipras “didn’t have what it took, sentimentally, emotionally, at that moment, to carry that no vote to Europe and use it as a weapon,” said Varoufakis. “So I … decided to give him the leeway that he needs to go back to Brussels and strike what he knows to be an impossible deal. A deal that is simply not viable.”

Varoufakis said he stood back to allow his successor, Euclid Tsakolotos, and the Greek negotiating team work in Brussels. “I know very well what it feels like to walk inside those neon-lit, heartless rooms, full of apparatchiks and bureaucrats who have absolutely no interest in the human cost of decision-making, and to have to struggle against them and come up with something palatable.” Greece was “set up” by eurozone leaders in dealings to address the economic crisis, Varoufakis later told the New Statesman, adding Germany was responsible for the view of the Eurogroup. “Oh completely and utterly,” he said. “Not attitudes – the finance minister of Germany. It is all like a very well-tuned orchestra and he is the director.”

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Münchau’s editor(s) at FT made a mess of this article.

Greece’s Brutal Creditors Have Demolished The Eurozone Project (Münchau)

A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece’s creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. They have destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union. mIn doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order.

The best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change. [..] nor even the total capitulation of Greece. The material shift is that Germany has formally proposed an exit mechanism. On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit — a “timeout” as he called it. I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: not only regime change in Greece, but also regime change in the eurozone. The fact that a formal Grexit may have been avoided for the moment is immaterial.

Grexit will be back on the table when you have the slightest political accident — and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in future might challenge German economic orthodoxy will face similar problems. This brings us back to a more toxic version of the old exchange-rate mechanism of the 1990s that left countries trapped in a system run primarily for the benefit of Germany, which led to the exit of the British pound and the temporary departure of the Italian lira. What was left was a coalition of countries willing to adjust their economies to Germany’s. Britain had to leave because it was not.

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Guinea PIIGS.

Greece Is A Pawn In The Fight Between France And Germany (MarketWatch)

There are two factors that must be remembered to make sense of the long-running eurozone debt crisis. The first, and better known, is that the euro is a very flawed currency. As has been noted repeatedly since before the first euro note ever rolled off a printer, it is very hard to share a currency without also sharing fiscal policy. The second is that the shared currency was always first and foremost a political, rather than an economic, project. It was part of the dream held by postwar European politicians, including giants like former French President François Mitterand and Germany’s Helmut Kohl, who viewed an evermore united Europe as the best way to inoculate the continent against another devastating war. But despite a genuine desire for a peaceful and integrated postwar Europe, political and economic rivalries didn’t disappear.

At the risk of oversimplification, Germany and France have long been jealous of one another. While the countries both recovered rapidly from World War II, Germany’s economic miracle was a source of envy for France. In particular, French officials resented the primacy of the Bundesbank, Germany’s central bank, which served to dictate monetary policy across much of Western Europe. At the same time, many German politicians resented playing what seemed like second fiddle to Paris when it came to European affairs and global diplomacy. While Germany remains somewhat ambivalent about what it is role should be in the world, some Germans saw the euro as a way to co-opt France’s political primacy in Europe. In other words, Germany thought it was putting one over on France, and vice versa.

It was a troubling scenario, as was noted by economist Martin Feldstein back in 1997: “What is clear is that a French aspiration for equality and a German expectation of hegemony are not consistent. Both visions drive their countrymen to support the pursuit of EMU, and both would lead to disagreements and conflicts when they could not be fulfilled.” There were bitter fights between France and Germany in the run-up to the launch of the euro. Germany’s desire to limit the euro to a small club consisting of itself, France and some like-minded fiscally austere allies, such as the Netherlands, conflicted with France’s desire for a broader euro. France, seeking to end the ability of Spain and Italy to competitively devalue at the expense of French exporters, wanted those southern European countries inside the euro.

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But did pay off samurai bonds.

Greece Misses New Payment To IMF (AFP)

Greece missed the second debt payment to the IMF in two weeks on Monday, despite having reached agreement with official creditors on a new bailout program earlier in the day. Athens was supposed to remit about €456 million to the crisis lender by 2200 GMT, but it had not been expected to make the payment after missing a €1.5 billion debt payment to the Fund on June 30. Greece’s arrears to the IMF now total about €2.0 billion, said spokesman Gerry Rice in a statement confirming the missed payment. When it first defaulted at the end of June, the IMF froze Greece’s access to its resources, including the Fund’s ongoing financing program for the country. Athens asked the IMF for a rare extension of the repayment period, which was not ruled on at the time. “The request by the Greek authorities for an extension of the repayment obligation due on June 30th is expected to be discussed by the Executive Board in the coming weeks,” said Rice.

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Morals need not apply.

Tormenting Greece Is About Sending A Message That We Are In A New EU (ITimes)

What’s the difference between the Mafia and the current European leadership? The Mafia makes you an offer you can’t refuse. The leaders of the European Union offer you a deal you can neither refuse nor accept without destroying yourself. The EU as we have known it ended over the weekend. That EU project was all about the gradual convergence of equal nations into an “ever closer union”. That’s finished now. The whole notion was underpinned by three conditions. One was that the process of European integration was consensual – each member state would pool more and more of its sovereignty because it freely chose to do so. The second was that these incremental steps were, to use the terms applied to monetary union in the Maastricht treaty, “irreversible” and “irrevocable” – once they were taken, there could be no going back.

The third, unspoken but completely understood, was that Germany would restrain itself, accepting, in return for the immense gift of a new beginning that its fellow European countries had given it, that it must refrain from ever trying to be top dog again. Each of these fundamental conditions was torched over the weekend. Firstly, Greece’s sovereignty is no longer pooled – it has been surrendered after what EU officials gleefully called “mental waterboarding”. By closing the Greek banks, threatening Greek voters and countering the Greek government’s surrender with terms designed to be utterly humiliating, the EU and euro zone leadership finished off the notion of consent. All the waffle about solidarity and respect has been exploded and we are left with an EU based on six little letters: or else.

A new idea has been shoved into the foundations of the EU – the idea that a member state can and will be brought to heel. And brought to heel, not quietly or subtly, but openly and ritually in a Theatre of Cruelty designed for that sole purpose. The whole idea of making flagrantly provocative demands – the initial insistence that €50 billion of Greek public assets be placed in a fund in Luxembourg being the most spectacular – was to demonstrate, not just to Greece but to all member states, that the EU is now a coercive institution.
And as a coercive institution it has moved into a state of profound division. There is no deeper divide than that between those who are punished and those who do the punishing, between those who are brought to heel and those who shout “Heel!”

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Cameron has to do the vote, no turning back. And who in Britain would vote for more Europe after the Brussels debacle?

Britain Rules Out Financing Greece Bailout (Reuters)

British finance minister George Osborne has ruled out any financial involvement in a fresh bailout for Greece after suggestions that a mechanism backed by the whole European Union could provide bridge financing for Athens. Osborne spoke to some eurozone finance ministers on Monday as they set about exploring ways to provide Greece with an interim loan while it thrashes out a third bailout deal to avert bankruptcy. His intervention was designed to quash the idea, one of several under consideration in Brussels, of using the European Financial Stabilization Mechanism — a bailout fund created in 2010. The EFSM issues bonds backed by all 28 European Union members and was used to help Ireland and Portugal.

“Our eurozone colleagues have received the message loud and clear that it would not be acceptable for this issue of British support for eurozone bailouts to be revisited,” a British finance ministry source told Reuters. “The idea that British taxpayers money is going to be on the line in this latest Greek deal is a non-starter,” said the source. One EU official said this EFSM option “was very unlikely to gain ground” and would likely not be discussed at Tuesday’s meeting of all 28 EU finance ministers. In 2011, Britain refused to allow the use of the EFSM to bail out Greece for a second time. London could be outvoted on the issue, because the use of the EFSM can be decided by a qualified majority of EU states. That is 15 countries representing 65% of the EU’s population. But EU institutions will be wary of angering British voters ahead of a referendum on Britain’s EU membership by 2017.

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This is how one creates a narrative. Demand growth my donkey. Saudis just pump like mad because they need revenue.

Saudis Pump Record Oil as OPEC Sees Stronger Demand in 2016 (Bloomberg)

Saudi Arabia told OPEC it raised oil production to a record as the organization forecast stronger demand for its members’ crude in 2016. The world’s biggest oil exporter pumped 10.564 million barrels a day in June, exceeding a previous record set in 1980, according to data the kingdom submitted to the OPEC. The group sees “a more balanced market” in 2016 as demand for its crude strengths and supply elsewhere falters. OPEC said it expects expanding oil consumption to outpace diminished output growth from rival producers such as U.S. shale drillers, whittling away a supply glut. The strategy is taking time to have an impact, with crude prices remaining 46% below year-ago levels and annual U.S. production forecast to reach a 45-year high.

“Saudi Arabia is still pursuing a market-share strategy,” Torbjoern Kjus, an analyst at DNB ASA in Oslo, said by phone. “They need more oil domestically for air conditioning in the summer, so they could choose to either produce more or reduce exports. Clearly they choose to produce more.” “Momentum in the global economy, especially in the emerging markets, would contribute further to oil demand growth in the coming year,” OPEC’s Vienna-based research department said Monday in its monthly market report. Demand for the group’s crude will climb in 2016 by 900,000 barrels a day to average 30.1 million a day, according to the report. That’s still about 1.2 million less than the group estimated it pumped in June.

“Momentum in the global economy, especially in the emerging markets, would contribute further to oil demand growth in the coming year” OPEC’s 12 members raised production by 283,200 barrels a day to a three-year high of 31.378 million a day last month, according to external estimates of output cited by the report. This data included a lower figure for Saudi production of 10.235 million barrels a day. There was no total available for data submitted directly by OPEC members, because of omissions by Algeria, Libya and Venezuela. Global oil demand will accelerate next year to 1.34 million barrels a day compared with 1.28 million in 2015, led by rising consumption in emerging economies, according to the report. Supply growth outside OPEC will slow to 300,000 barrels a day in 2016 from 860,000 a day this year with the gain concentrated in the U.S.

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Shale is broke.

Shale Oil Output Heads for Record Drop After U.S. Drilling Swoon (Bloomberg)

Shale fields that powered the U.S. energy renaissance will suffer the biggest drop in output since the boom began after companies pulled more than half their drilling rigs. Production from the prolific tight-rock formations such as the Eagle Ford in southern Texas will decline 91,000 barrels a day in August to 5.36 million, the Energy Information Administration said Monday. It’s the fourth month in a row production is expected to slide, after more than tripling from 2007. Output is slipping after producers from ConocoPhillips to EOG reduced the number of drilling rigs in order to cut costs following a 50% drop in the price of oil. About 645 rigs were drilling for oil last week, down from 1,609 in October, according to oil-field service company Baker Hughes.

“The market is largely anticipating oil production to keep declining this year and snap back to a certain extent in 2016,” Andrew Cosgrove, a Princeton-based energy analyst for Bloomberg Intelligence, said by phone Monday. Second-half declines this year will be muted, due to high-grading and efficiency gains, he said. West Texas Intermediate crude for August delivery fell 54 cents to settle at $52.20 a barrel Monday on the New York Mercantile Exchange. It’s down 51% from the 2014 peak of $107.26. “We need to see oil prices above $60 and more toward $65 to spur a recovery in the rig count,” Cosgrove said. “The longer it stays below $60, the harder it’s going to be for U.S. production to ramp back up.”

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A new form of matter…

Large Hadron Collider Discovers New Pentaquark Particle (BBC)

Scientists at the Large Hadron Collider have announced the discovery of a new particle called the pentaquark. It was first predicted to exist in the 1960s but, much like the Higgs boson particle before it, the pentaquark eluded science for decades until its detection at the LHC. The discovery, which amounts to a new form of matter, was made by the Hadron Collider’s LHCb experiment. The findings have been submitted to the journal Physical Review Letters. In 1964, two physicists – Murray Gell Mann and George Zweig – independently proposed the existence of the subatomic particles known as quarks. They theorised that key properties of the particles known as baryons and mesons were best explained if they were in turn made up of other constituent particles.

Zweig coined the term “aces” for the three new hypothesised building blocks, but it was Gell-Mann’s name “quark” that stuck. This model also allowed for other quark states, such as the pentaquark. This purely theoretical particle was composed of four quarks and an antiquark (the anti-matter equivalent of an ordinary quark). During the mid-2000s, several teams claimed to have detected pentaquarks, but their discoveries were subsequently undermined by other experiments. “There is quite a history with pentaquarks, which is also why we were very careful in putting this paper forward,” Patrick Koppenburg, physics co-ordinator for LHCb at Cern, told BBC News.

“It’s just the word ‘pentaquark’ which seems to be cursed somehow because there have been many discoveries that were then superseded by new results that showed that previous ones were actually fluctuations and not real signals.” Physicists studied the way a sub-atomic particle called Lambda b decayed – or transformed – into three other particles inside LHCb. The analysis revealed that intermediate states were sometimes involved in the production of the three particles. These intermediate states have been named Pc(4450)+ and Pc(4380)+. “We have examined all possibilities for these signals, and conclude that they can only be explained by pentaquark states,” said LHCb physicist Tomasz Skwarnicki of Syracuse University, US.

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Jun 202015
 
 June 20, 2015  Posted by at 10:32 am Finance Tagged with: , , , , , , , , , ,  8 Responses »
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DPC Elks Temple (Eureka Club), Rochester, NY 1908


Greek Debt Crisis Is The Iraq War Of Finance (AEP)
A Pressing Question For Ireland Before Monday’s Meeting On Greece (Varoufakis)
Varoufakis Says Greek Proposal Not Discussed At Eurogroup (Reuters)
The Truth About Greece Is In The Collateral Backstopping Derivatives (Phoenix)
Greece Says ECB Won’t Let Its Banks Collapse (Reuters)
Greek Pensions Have Been Cut Sharply, But Creditors Want More (WSJ)
SYRIZA MP Files Complaint Against Bank Of Greece Governor (KTG)
Greece Faces A Eurozone Design Problem (City AM)
Tsipras Reaches Out To Putin For Help In Financial Crisis (Guardian)
The Eurozone’s Cover-Up over Greece (Simon Wren-Lewis)
Does Greece Need More Austerity? (Paul Krugman)
‘I Don’t Understand Tsipras,’ Juncker Tells German Weekly (AFP)
In EU vs Greece, It Seems Democracy Itself is on Trial (John Redwood MP)
Greece Is Another Victim Of Washington’s Empire (Paul Craig Roberts)
NATO Sees Greek Exit From Euro As Security Risk (Bloomberg)
Ron Paul: Stock Market ‘Day Of Reckoning’ Is Near (CNBC)
The Latest Critic of Too-Big-To-Fail: Pope Francis (Moneybeat)
Europe’s Banks Head to Asia Amid $1 Trillion Capital Shortfall (Bloomberg)
Max Keiser: JP Morgan’s Blythe Masters Is The Devil Incarnate (IBTimes)
Putin Straight Talk vs Obama Double Talk (Stephen Lendman)
The Shale Industry Could Be Swallowed Whole By Its Own Debt (Bloomberg)

Ambrose has come totally on board. Not bad for the right wing.

Greek Debt Crisis Is The Iraq War Of Finance (AEP)

Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world. The spectacle is astonishing. The ECB, the EMU bail-out fund, and the IMF, among others, are lashing out in fury against an elected government that refuses to do what it is told. They entirely duck their own responsibility for five years of policy blunders that have led to this impasse. They want to see these rebel Klephts hanged from the columns of the Parthenon – or impaled as Ottoman forces preferred, deeming them bandits – even if they degrade their own institutions in the process. If we want to date the moment when the Atlantic liberal order lost its authority – and when the European Project ceased to be a motivating historic force – this may well be it.

In a sense, the Greek crisis is the financial equivalent of the Iraq War, totemic for the Left, and for Souverainistes on the Right, and replete with its own “sexed up” dossiers. Does anybody dispute that the ECB – via the Bank of Greece – is actively inciting a bank run in a country where it is also the banking regulator by issuing this report on Wednesday? It warned of an “uncontrollable crisis” if there is no creditor deal, followed by soaring inflation, “an exponential rise in unemployment”, and a “collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership”. The guardian of financial stability is consciously and deliberately accelerating a financial crisis in an EMU member state – with possible risks of pan-EMU and broader global contagion – as a negotiating tactic to force Greece to the table.

I leave it to lawyers to decide whether this is a prima facie violation of the ECB’s primary duty under the EU treaties. It is certainly unusual. The ECB has just had to increase emergency liquidity to the Greek banks by €1.8bn (enough to last to Monday night) to offset the damage. It did so days after premier Alexis Tsipras accused the creditors of “laying traps” in the negotiations and acting with a political motive. He more or less accused them of trying to destroy an elected government and bring about regime change by financial coercion. In its report, the Bank of Greece claimed that failure to meet creditor demands would “most likely” lead to the country’s ejection from the European Union. Let us be clear about the meaning of this. It is not the expression of an opinion. It is tantamount to a threat by the ECB to throw the Greeks out of the EU if they resist.

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Stunning: “as our German counterpart was later to confirm, any written submission to a finance minister by either Greece or the institutions was “unacceptable”, as he would then need to table it at the Bundestag, thus negating its utility as a negotiating bid.”

A Pressing Question For Ireland Before Monday’s Meeting On Greece (Varoufakis)

Last Thursday’s eurogroup meeting went down in history as a lost opportunity to produce an already belated agreement between Greece and its creditors. Perhaps the most telling remark by any finance minister in that meeting came from Michael Noonan. He protested that ministers had not been made privy to the institutions’ proposal to my government before being asked to participate in the discussion. To his protest, I wish to add my own: I was not allowed to share with Mr Noonan, or indeed with any other finance minister, our written proposals. In fact, as our German counterpart was later to confirm, any written submission to a finance minister by either Greece or the institutions was “unacceptable”, as he would then need to table it at the Bundestag, thus negating its utility as a negotiating bid.

The eurozone moves in a mysterious way. Momentous decisions are rubber- stamped by finance ministers who remain in the dark on the details, while unelected officials of mighty institutions are locked into one-sided negotiations with a solitary government-in-distress.
It is as if Europe has determined that elected finance ministers are not up to the task of mastering the technical details; a task best left to “experts” representing not voters but the institutions. One can only wonder to what extent such an arrangement is efficient, let alone remotely democratic. Irish readers need no reminder of the indignity that befalls a people forced to forfeit their sovereignty in the midst of an economic depression.

They may, however, be justified to look at the never-ending Greek crisis and allow themselves a feeling of mild superiority, on the basis that the Irish suffered quietly, swallowed the bitter pill of austerity and are now getting out of the woods. The Greeks, in contrast, protested loudly for years, resisted the troika fiercely, elected my radical left-wing party last January and remain in the doldrums of recession. While such a feeling is understandable, permit me, dear reader, to argue that it is unhelpful in at least three ways. First, it does not promote understanding of the current Greek drama. Second, it fails to inform properly the debate on how the eurozone, and the EU more generally, should evolve. Third, it sows unnecessary discord between peoples that have in common more than they appreciate.

Greece’s drama is often misunderstood in northern climes because past profligacy has overshadowed the exceptional adjustment of the past five years. Since 2009 the Greek state’s deficit has been reduced, in cyclically adjusted terms, by a whopping 20%, turning a large deficit into a large structural primary surplus. Wages contracted by 37%, pensions by up to 48%, state employment by 30%, consumer spending by 33% and even the current account deficit by 16%. Alas, the adjustment was so drastic that economic activity was choked, total income fell by 27%, unemployment skyrocketed to 27%, undeclared labour scaled 34%, public debt rose to 180% of the nation’s rapidly dwindling GDP, investment and credit evaporated and young Greeks, just as their Irish counterparts, left for distant shores, taking with them huge quantities of human capital that the Greek state had invested in them.

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And now we know why.

Varoufakis Says Greek Proposal Not Discussed At Eurogroup (Reuters)

Greek Finance Minister Yanis Varoufakis said on Friday that there had been no discussion of a Greek proposal for a cash-for-reforms deal to the euro zone group of finance ministers, and said Europe’s leaders had a duty to come up with a deal. Greeks pulled more than €1 billion out of their banks in a single day on Thursday, banking sources said, as the country edged closer to the brink of default despite upbeat remarks from Prime Minister Alexis Tsipras. “In yesterday’s Eurogroup the Greek authorities presented a wide-ranging, comprehensive and credible proposal that can be the foundation of an agreement that not only concludes the current program but also, importantly, addresses decisively, and permanently, Greece’s future funding needs,” Varoufakis said in a statement. “Regrettably, no discussion of our proposal took place within the Eurogroup.”

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Think leverage. An ocean of it.

The Truth About Greece Is In The Collateral Backstopping Derivatives (Phoenix)

The situation in Greece has very little to do with politics or economics. Instead it is entirely focused on just one thing. That issue is collateral. What is collateral? Collateral is an underlying asset that is pledged when a party enters into a financial arrangement. It is essentially a promise that should things go awry, you have some “thing” that is of value, which the other party can get access to in order to compensate them for their losses. For large European banks, EU nation sovereign debt (such as Greece) is the collateral backstopping hundreds of trillions of Euros worth of derivative trades. This story has been completely ignored in the media. But if you read between the lines, you will begin to understand what really happened during the Greek bailouts.

Remember:
1) Before the second Greek bailout, the ECB swapped out all of its Greek sovereign bonds for new bonds that would not take a haircut.
2) Some 80% of the bailout money went to EU banks that were Greek bondholders, not the Greek economy.

Regarding #1, going into the second Greek bailout, the ECB had been allowing European nations and banks to dump sovereign bonds onto its balance sheet in exchange for cash. This occurred via two schemes called LTRO 1 and LTRO 2 which happened in December 2011 and February 2012 respectively. Collectively, these moves resulted in EU financial entities and nations dumping over €1 trillion in sovereign bonds onto the ECB’s balance sheet. Quite a bit of this was Greek debt as everyone in Europe knew that Greece was totally bankrupt. So, when the ECB swapped out its Greek bonds for new bonds that would not take a haircut during the second Greek bailout, the ECB was making sure that the Greek bonds on its balance sheet remained untouchable and as a result could still stand as high grade collateral for the banks that had lent them to the ECB.

So the ECB effectively allowed those banks that had dumped Greek sovereign bonds onto its balance sheet to avoid taking a loss… and not have to put up new collateral on their trade portfolios. Which brings us to the other issue surrounding the second Greek bailout: the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy. Here again, the issue was about giving money to the banks that were using Greek bonds as collateral, to insure that they had enough capital on hand. Piecing this together, it’s clear that the Greek situation actually had nothing to do with helping Greece. Forget about Greece’s debt issues, or protests, or even the political decisions… the real story was that the bailouts were all about insuring that the EU banks that were using Greek bonds as collateral were kept whole by any means possible.

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Flabouraris calls it a domino effect. We call it derivatives.

Greece Says ECB Won’t Let Its Banks Collapse (Reuters)

The European Central Bank will not allow Greek lenders to collapse as this would create a domino effect and topple banks in other parts of Europe, a Greek state minister said on Saturday. As Greece moves perilously close to default and a possible exit from the euro zone, the ECB expanded emergency funding to keep Greek banks afloat, as nervous savers withdrew billions of euros from local lenders in recent days. “The ECB cannot let banks collapse,” State Minister Alekos Flabouraris told Greek Mega television. “They know that if Greece’s banking system collapses, there will be a domino effect.”

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Good point: “the 25% collapse in Greek GDP over the last five years has made Greece’s pension burden look exceptionally big.”

Greek Pensions Have Been Cut Sharply, But Creditors Want More (WSJ)

Greece’s pension system has become the main obstacle to a deal with its creditors. The leftist government in Athens is flatly refusing to cut pensions more. The eurozone and the International Monetary Fund say pensions for poorer Greeks should be protected, but they argue Greece can’t afford its overall system. Without a compromise on pensions, there’s no deal, no money for Greece, default, capital controls, and return of the drachma. Real Time Brussels has already looked at some basic facts about Greece’s pension system, but only with data from 2012. Eurostat has a different dataset on government finances, with a category for spending on “old age.” That’s mainly pensions (the rest is Metamucil (jk)). This dataset goes up to 2013.

First thing to note is Greece’s pension spending fell a cumulative 13% in 2012 and 2013 because of cuts pushed by the troik – uh – Greece’s creditor. As the eurozone and the IMF are fond of noting, the Greek government’s pensions spending is the highest in the eurozone as a percentage of GDP. But that’s largely the result of two factors. First, the 25% collapse in Greek GDP over the last five years has made Greece’s pension burden look exceptionally big. And Greece has a relatively old population: Here’s the 2013 figures, adjusted for the number of people over age 65 in each country:

Side note: wow, it’s great to be old in Luxembourg. How much time do you have to spend in the Grand Duchy to qualify for a pension? So what exactly do Greece’s creditors want changed about the pension system? They haven’t gone into specifics in public. Olivier Blanchard, chief economist of the IMF, said in a blog post on Sunday that Greece needs to cut pension spending by 1% of GDP. Is that it? Would Greece’s creditors be satisfied if Athens hit that target by raising the denominator (GDP) rather than cutting the numerator?

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It’s good to deal with this in court, where people are under oath.

SYRIZA MP Files Complaint Against Bank Of Greece Governor (KTG)

SYRIZA MP Rachil Makri took legal action against Bank of Greece Governor Yannis Stournaras, accusing the banking chief of “possible malice” as regards his monetary policy report on Wednesday. In the Monetary Policy report 2014-2015, the Bank of Greece warned of a likely Greek exit from the eurozone and even from the European Union in the event that the government fails to reach a deal with the country’s creditors. Makri, who lodged her legal suit with Supreme Court prosecutor Efterpi Koutzamani on Thursday, blamed the spike in withdrawals from Greek banks on Stournaras’s statements and suggested that he should resign.

She noted that previous central bank governors had expressed concerns to political party leaders in the past but in private, noting that Stournaras’s public warning came at a “critical point in the negotiations” between Greece and its lenders, while the BoG reports are been traditionally published either in October or in February. Speaking to reporters, Rachil Makri complained that the Bank of Greece report triggered insecurity among the citizens and stressed that “many horrified citizens call me and ask me what they should do with their money.” Before being appointed to the Bank of Greece, Yannis Stournaras had served as Finance Minister (July 2012 – June 2014) under New Democracy-PASOK government. He is considered a pro-austerity hardliner and he has been under frequent attack by the Greek left-wing – nationalist coalition government.

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“Keen quips that “the only people who should have joined the euro are the Germans.”

Greece Faces A Eurozone Design Problem (City AM)

Greece’s economy is a shadow of its former self. It once had thriving investment banks which attracted cash from all over the world and invested it predominantly in the Balkans, helping countries there to thrive after the collapse of the Soviet Union. These operations are no longer. Its economy produces 30% less than it did it 2009 and is failing to grow. Every second person between the ages of 16 and 24 is out of a job, and the prospects for adults are not much better, with unemployment at 25%. Its government is close to bankruptcy, but to get more money its bailout monitors are pushing for further cuts to its minimum wage and pension reforms – anathema to the communist Syriza party’s values.

The Greeks also argue they have cut enough already. In 2012 they slashed monthly minimum wage from €877 to €684, a measly €8,200 a year. Many workers who work in the so-called black economy, where business is kept off the books, earn even less than that. Yet they acknowledge more work needs to be done. Reforms to inefficient public administration, oligopolistic product markets and the justice system areas are essential for success in other areas and should therefore be considered the top priority, according to researchers at London Business School. The Greek government has said it is prepared to do just that. But its biggest problem is its government debt. Nearly every economist agrees that Greece will be unable to repay, with interest, the huge debts that amount to 177% of GDP, more than double the UK’s.

Its finance minister, Yanis Varoufakis, has suggested linking the interest rates on its debt to growth, to ease the burden on Greece and ensure creditors get paid. His suggestion is relatively moderate. Debt restructuring is opposed by several Eurozone finance ministers. Steve Keen, a professor at London’s Kingston University and an old friend of Varoufakis, accuses the other ministers of ignoring economic reason and focusing on morality. He has a case. Greece has been accused of spending years covering up its level of debt, and would probably not have been allowed to join the Eurozone otherwise. But some argue that the price Greece has paid has been disproportionate compared with its crimes, due to the poor design of the currency bloc itself.

The Eurozone was not designed to handle banking crises, says Tim Congdon from the Institute for International Monetary Research. The complex system of a European Central Bank with national central banks lacked clarity on important roles such as who would be lender-of-last-resort. The lack of a robust crisis plan left European banks in a fragile state come 2012. For this reason, the Eurozone was only able to undertake a half-hearted attempt at restructuring Greece’s debt. Any restructure that would have truly benefited Greece would have been too costly to the fragile European banks that held its debt. Unable to properly restructure its debt, Greece had to face austerity, or look for transfers of cash from the rest of the Eurozone.

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He’s not given a choice.

Tsipras Reaches Out To Putin For Help In Financial Crisis (Guardian)

Alexis Tsipras, the Greek prime minister, has made a broad overture to Russia as he seeks a way out of his country’s debt and currency impasse, telling Vladimir Putin that Greece wants new partners to help it out of the crisis. In a speech delivered in front of Putin in Russia, Tsipras said Moscow was one of Greece’s most important partners, and dismissed critics who wondered why he was in St Petersburg and not in Brussels trying to secure an urgent deal with European creditors. “As all of you are fully aware, we are at the moment at the centre of a storm, of a whirlpool, but we live near the sea so we’re not scared of storms. We are ready to go to new seas to reach new safe ports,” he added, in a subtle nod to his hosts.

Tsipras said the world’s economic centre of gravity had shifted and that there are “new emerging forces” such as the Bric countries and Putin’s new Eurasian union that are playing a more important economic role. “Russia is one of the most important partners for us,” said the Greek prime minister, ahead of formal talks with Putin. [..] “The EU should go back to its initial principles of solidarity, justice and social justice. Ensuring strict economic measures will lead us nowhere,” Tsipras said. “The so-called problem of Greece is the problem of the whole European Union.” “The question is whether the EU can once again be a social solidarity hub or it will continue to pursue the path that will lead to a dead-end,” he added.

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“The key point is that the European authorities and the IMF were wrong.” The key question then is: was that on purpose?

The Eurozone’s Cover-Up over Greece (Simon Wren-Lewis)

It is pretty clear why the European authorities were so generous to Greece’s creditors. They were worried about contagion. The IMF agreed to this programme with only partial default, even though their staff were unable to vouch that the remaining Greek public debt was sustainable with high probability (IMF 2013, para 14). The key point is that the European authorities and the IMF were wrong. Contagion happened anyway, and was only brought to an end when the ECB agreed to implement OMT (i.e. to become a sovereign lender of last resort).This was a major error by policymakers – they ‘wasted’ huge amounts of money trying to stop something that happened anyway. If Eurozone governments had needlessly spent money on that scale elsewhere, their electorates would have questioned their competence.

This has not happened, because it has been so easy to cover-up this mistake. Politicians and the media repeat endlessly that the money has gone to bail out Greece, not Greece’s creditors. If the money is not coming back, it becomes the fault of Greek governments, or the Greek people. That various Greek governments, at least until recently, agreed to participate in this deception is lamentable, although they might respond that they were given little choice in the matter. (Some of a more cynical disposition might have wondered how many of the creditors were rich Greeks.)

The deception has now developed its own momentum. What should in essence be a cooperative venture to get Greece back on its feet as soon as possible has become a confrontation saga. If the story is that all this money has gone to Greece and they still need more, harsh conditions including further austerity must be imposed to justify further ‘generosity’. Among the Troika, hard liners can play to the gallery by appearing tough, perhaps believing that in the end they will be overruled by more sensible voices. The problem with this saga is similar to the problem with imposing further austerity – you harm the economy you are supposed to be helping. (Some see a more sinister explanation for what is currently going on, which is an attempt at regime change in Greece.)

That this is happening is perhaps not too surprising: politicians act like politicians often act. The really sad thing is that playing to the gallery seems to work: politicians using the nationalist card can deflect criticism that should be directed at them for their earlier mistakes. It happens all the time of course: see Putin and the Ukraine, or Scotland and the 2015 UK election. I wonder whether there will ever come a time when this cover-up strategy fails. Futile though it might be, I just ask those who might see this as an ungrateful nation always demanding more to realise they are being played.

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Nope. geez, have to agree with Krugman. What’s the world coming to?

Does Greece Need More Austerity? (Paul Krugman)

As many of us have noted, it’s hugely unfair when people claim that Greece has done nothing to adjust. On the contrary, it has imposed incredibly harsh austerity and substantial reforms on other fronts. Yet you might be tempted to argue that the results show that Greece hasn’t done enough — after all, last year it was running only a tiny primary budget surplus (that is, not counting interest), and this year it has slipped back into primary deficit. So more adjustment is needed, right? Well, step back for a minute and imagine that we weren’t talking about Greece but about the U.S. or the UK.

When we look at our budgets, we normally focus not on the headline budget balance but on the cyclically adjusted balance — an estimate of what it would be at more or less full employment. This helps avoid pressure to pursue procyclical policies that make the economy unstable, and also gives a better idea of the long-run sustainability of the position. And while cyclical adjustment can be controversial, there are standard estimates from third parties like the IMF and the OECD. So here’s a picture you probably haven’t seen: the IMF’s estimates of the cyclically adjusted primary balances of eurozone countries in 2014:

Greece is, by this measure, the most fiscally responsible, indeed crazily austere, nation in Europe. So why is it in fiscal crisis? Because the economy is deeply depressed. Suppose that there were a way to end this depression. Then Greece’s fiscal problems would melt away, with no need for further cuts. But is there any way to do that? The answer is, not as long as Greece remains in the euro. It can pursue reforms that might make it more competitive, but anyone promising dramatic, quick results has no idea what he is talking about.

On the other hand, Grexit would produce a rapid improvement in competitiveness, at the cost of possible financial chaos.This is not a route anyone has been willing to go down, but one does have to say that as the crisis worsens it becomes a more plausible outcome. The thing to understand, in any case, is that if Grexit does come, fiscal issues will immediately cease to be central to the story. Instead, it will all be about handling bank panic, managing the transition to a new currency, and possibly removing structural obstacles to increased exports (which would very much include tourism). In truth, this has never been a fiscal crisis at its root; it has always been a balance of payments crisis that manifests itself in part in budget problems, which have then been pushed onto the center of the stage by ideology.

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A bunch of nonsense from the man best known for saying ‘when things get serious, you have to lie’. At least he lives up to his word.

‘I Don’t Understand Tsipras,’ Juncker Tells German Weekly (AFP)

European Commission chief Jean-Claude Juncker voiced frustration with Greek Prime Minister Alexis Tsipras in a media report Friday amid the deepening debt crisis. “I don’t understand Tsipras,” Juncker told German news weekly Der Spiegel after he and Tsipras recently fell out a number of times. “The trust I placed in him has not always been reciprocated in kind.” Juncker said that instead of complaining about the Commission, Tsipras should tell the Greek voters that the EU executive body had offered the country an investment programme worth 35 billion euros ($39 billion) for the years 2015-20. “If I were the Greek prime minister I would claim that as a success,” Juncker told Spiegel according to an excerpt of an article to be published Saturday. “But I’m hearing nothing about it.”

Given the hardening positions, Juncker reportedly said he could no longer rule out a ‘Grexit’ – Greece leaving the eurozone. He said Athens had obviously misunderstood his role in seeking a compromise as “someone who can pull a rabbit out of the hat”, Juncker said. “But that is not the case. I repeatedly warned Mr Tsipras that he cannot rely on me to prevent a collapse of talks.” Greeces radical left Syriza government has rejected reforms demanded in exchange for the final tranche of its international bailout, which expires on June 30, the same day that a huge payment is due to the IMF. Former Luxembourg premier Juncker has been acting as a bridge to leftist leader Tsipras during the five-month crisis, but the pair have fallen out spectacularly on a number of occasions recently.

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A right wing UK MP who wonders what’s going on.

In EU vs Greece, It Seems Democracy Itself is on Trial (John Redwood MP)

I am not a natural Syriza voter, but the words and deeds of the EU towards Greece are enough to provoke me to sympathise with the Greek people and their government over austerity. Greece has lost a quarter of its national income and output since 2007. That means, on average, a Greek citizen who was earning €10,000 in 2007 is today, after wage cuts, on €7,500. This is a crude average, so in practice many have suffered larger cuts as they have lost their jobs, or were on higher public sector pay, which has been cut more. The joint approach of the EU and the IMF is to cut public spending, reduce public sector wages and pensions, and cut the public sector workforce.

These IMF programmes to slim overgrown public sectors in problem countries are usually balanced by a devaluation of the currency to make private sector exporters more competitive and capable of winning extra work, and with a programme of suitable money relaxation to foster a general private sector-led recovery. Trapped in the euro, Greece can neither devalue nor increase the money in circulation. As the public sector sheds jobs and cuts pay, there is no offsetting increase in private sector jobs for people to move to. Greece has ended up with a quarter of its workforce out of work, and with more than half its young people unable to find a job. No wonder the Greek people elected a new party to government and swept away the traditional parties of centre-left and centre-right that had engineered this economic disaster with the EU.

I feel passionately that if an economic policy creates mass unemployment and crushes living standards it should be changed. I tried to get big changes to the UK’s banking policy prior to and during the crash of 2007-08 for that reason. I ask myself where are the voices from the left condemning Greek austerity, when this severe austerity offends my sense of justice and hope for the future? Why are so many on the left mesmerised by the EU that they think austerity in its name is fine? Worse still, where are the voices on the left who share my outrage that Greek democracy is overridden or ignored by the EU authorities? What part of the Greek condemnation of austerity policies did the EU not understand?

(John Redwood is the Conservative MP for Wokingham)

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PCR doesn’t pull any punches or mince any words. His view will not win any popularity contests. This is his address to the Conference on the European/Russian Crisis, held in Delphi, Greece, June 20-21, 2015

Greece Is Another Victim Of Washington’s Empire (Paul Craig Roberts)

Is the left-wing more effective in Europe? Not that I can see. Look at Greece for example. The Greek people are driven into the ground by the EU, the IMF, the German and Dutch banks and the New York hedge funds. Yet, when presented with candidates who promise to resist the looting of Greece, the Greek voters give the candidates a mere 36% of the vote, enough to form a government, but not enough to have any clout with creditors. Having hamstrung their government with such low electoral support, the Greek people further impose impotence on their government by demanding to remain in the EU. If leaving the EU is not a realistic threat, the Greek government has no negotiating power.

Obviously, the Greek population is so throughly brainwashed about the necessity of being part of the EU that the population is willing to be economically dispossessed rather than to leave the EU. Thus Greeks have forfeited their sovereignty and independence. A country without its own money is not, and cannot be, an independent country. Once European intellectuals signed off on the EU, they committed nations to vassalage, both to the EU bureaucrats and to Washington. Consequently, European nations are not independent and cannot exercise an independent foreign policy. Their impotence means that Washington can drive them to war.

To fully understand the impotence of Europe look at France. The only leader in Europe worthy of the name is Marine Le Pen. Having said this, I am immediately denounced by the European left as a fascist, a racist, and so forth. This only shows the knee-jerk response of the European left. It is not I who shares Le Pen’s views on immigration. It is the French people. Le Pen’s party won the recent EU elections. What Le Pen stands for is French independence from the EU. The majority of French see themselves as French and want to remain French with their own laws and customs. Only Le Pen among European politicians has stated the obvious: “The Americans are taking us to war!”

Despite the French desire for independence, the French will elect Le Pen’s party to the EU but will not give it the vote to be the government of France. The French deny themselves their independence, because they are heavily conditioned by brainwashing, much coming from the left, and are ashamed to be racists, fascists, and whatever epithets have been assigned to Le Pen’s political party, a party that stands for the independence of France.

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IMF, EU, NATO: the dark side of the earth.

NATO Sees Greek Exit From Euro As Security Risk (Bloomberg)

NATO is worried that a Greek exit from the euro area could pose a security risk to the alliance, deputy Secretary General Alexander Vershbow said. Russia, which is locked in a dispute with the North Atlantic Treaty Organization over the conflict in Ukraine, has made overtures to Greece as it wrangles over its future in the common currency with its international creditors. Russia boosted ties with Greece on Friday with a preliminary deal to build natural-gas pipelines through the Mediterranean state. “It does indeed have repercussions for” NATO, Vershbow told a security conference in Bratislava, the Slovak capital. “So we are worried about it.”

Russian President Vladimir Putin is wooing Greece and its neighbor Turkey with pledges to make them energy centers for southern Europe if it builds the proposed Black Sea gas link. Other countries Russia has approached include European Union candidate Serbia and aspirant Former Yugoslav Republic of Macedonia (FYROM), where Russian Foreign Minister Sergei Lavrov said “outside forces” are trying to stoke ethnic tension to derail the project. NATO and EU leaders have accused Russia of undoing years of stability by redrawing Europe’s borders with its annexation of Crimea from Ukraine last year. They also accuse it of funneling troops, cash and weapons to support the separatist war in that country’s eastern regions, where more than 6,400 people have died. Russia denies involvement.

The Greek crisis could ignite greater instability in the Balkans, less than two decades after the wars that ravaged the region following the disintegration of Yugoslavia in the 1990s, according to Wolfgang Ischinger, a former German ambassador to the U.S. who now heads the annual security conference that takes place in Munich. “If Greece leaves, I’ll bet you that in Moscow, this will be seen as confirmation of the Russian theory that the European Union is in decline and about to fall apart,” he said. “The Balkans are still not a stable and peaceful place. We need the stabilizing capacity of the European Union from all sides. If Greece falls out of that it’d be terrible.”

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“..”the fallacy of economic planning”..”

Ron Paul: Stock Market ‘Day Of Reckoning’ Is Near (CNBC)

Despite record highs in the market, former Rep. Ron Paul says the Fed’s easy money policies have left stocks and bonds are on the verge of a massive collapse. “I am utterly amazed at how the Federal Reserve can play havoc with the market,” Paul said on CNBC’s “Futures Now” referring to Thursday’s surge in stocks. The S&P 500 closed less than 1% off its all-time high. “I look at it as being very unstable.” In Paul’s eyes, “the fallacy of economic planning” has created such a “horrendous bubble” in the bond market that it’s only a matter of time before the bottom falls out. And when it does, it will lead to “stock market chaos.”

As far as when the bubble will burst, the former Republican presidential candidate said, “I don’t think there’s any way to know what the [timeline] is, but after 35 years of a gigantic bull market in bonds, [the Fed] cannot reverse history and they cannot print money forever.” Of course, Paul has been known to make similar calls in the past, but even as stocks continue to make new highs, he remains just as convicted as ever that there “will be a day of reckoning” that will lead to a collapse in both the fixed income and equity markets. “I think [the crash] is going to be much greater [than 10%] and it will probably go a lot lower than people say it should,” said Paul. “I don’t think it’s going to be just a correction.” Paul added, eventually investors will “lose confidence” in the Fed, and when they do, the market could witness a “very big crash.”

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If you want to be effective on climate, better take this hurdle first.

The Latest Critic of Too-Big-To-Fail: Pope Francis (Moneybeat)

Move over, Sen. Elizabeth Warren—there’s a new high-profile critic of the world’s largest banks, and he has over a billion followers. Pope Francis dedicated a few lines of his 183-page encyclical on the environment on Thursday to the topic of the failures of banks and markets. In the Holy Father’s view, “[t]he lessons of the global financial crisis have not been assimilated” and the governments’ response to the crisis have only set up the financial system for a future panic:

Saving banks at any cost, making the public pay the price, foregoing a firm commitment to reviewing and reforming the entire system, only reaffirms the absolute power of a financial system, a power which has no future and will only give rise to new crises after a slow, costly and only apparent recovery. The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world.

While praising business as a “noble vocation, directed to producing wealth and improving our world,” His Holiness called out the financial sector for having outsized influence over the political process and endorsed limiting its reach:

[E]conomic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain, which fail to take the context into account, let alone the effects on human dignity and the natural environment… To ensure economic freedom from which all can effectively benefit, restraints occasionally have to be imposed on those possessing greater resources and financial power.

The pope’s views may be backed by some recent research: On Wednesday the Organization for Economic Cooperation and Development said that curbing certain kinds of bank lending could ameliorate income inequality around the world and increase economic growth.

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Even with $60 billion a month QE, there’s no funding?!

Europe’s Banks Head to Asia Amid $1 Trillion Capital Shortfall (Bloomberg)

European banks are heading to Asia for capital as new rules at home demand they sell more than $1 trillion of equity and subordinated debt to increase loss buffers. French and German lenders have sold the equivalent of $1.8 billion in notes that act as a cushion in case of insolvency this year, in denominations from the Chinese yuan to the Japanese yen. Before this year, they’d issued none. Dutch and Italian banks that began issuing in the region in 2012 have also stepped up activity. Financial institutions are turning to Asia, where there’s ample cash to buy large amounts of securities and pricing is attractive, after money managers in Europe gorged on about $266 billion of subordinated debt in either dollars or euros since 2008. The move East is poised to accelerate as banks still need to issue about four times that amount.

“In anticipation of higher capital issuance requirements it makes sense to diversify funding sources,” Alexandra MacMahon at Citigroup in London said. There’s much more of a focus on expanding the investor base, “something we hadn’t seen so strongly in a number of years,” she said. European banks have $447.2 billion of subordinated notes that will stop counting toward their capital buffers in coming years, according to Bloomberg-compiled data. Those securities may have to be replaced by new ones that comply with Basel III rules, which, in addition to other requirements under discussion, could bring the total amount to be issued to $1 trillion..

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“..she should just retire to the glue factory now and stop harassing people with her psychotic derivatives.”

Max Keiser: JP Morgan’s Blythe Masters Is The Devil Incarnate (IBTimes)

Max Keiser, founder of VC fund Bitcoin Capital, seeding currency startcoin, and the presenter of the Keiser Report, does not mince his words. Bitcoin completely challenged the banking world leaving banks and card issuers to play catch up, and this has led to a divide in the community: some think that banks are going to basically end up controlling the space and others believe that they will not. Keiser told IBTimes UK in no uncertain terms that the most prominent force attempting to wrestle back a proprietary fiefdom for banks is the former global head of commodities at JP Morgan, Blythe Masters. Masters joined blockchain-focussed company Digital Asset Holdings in March of this year. She is by far the biggest fish from Wall Street to enter the space – something which mainstream media sources generally reported as a huge vote of confidence for cryptocurrencies.

Keiser sees it differently: “Yes, I can tell you the evil cult leader is Blythe Masters. Jamie Dimon has moved her running the credit default swap desk in London – something she invented, the credit default swap.” Masters designed an elegant way of providing credit protection bundled into packages and offered to the market. It was a derivative born out of necessity following the Exxon Valdez oil spill (JPM offered Exxon a generous line in credit). Unfortunately, the modern credit default swap which she devised, rotted the financial system from within and caused its total collapse. Interestingly, her former husband Daniel Masters also moved into bitcoin trading, launching “the first fully regulated bitcoin hedgefund” in the off-shore haven of Jersey, called Global Advisors Bitcoin Investment Fund—or GABI for short.

Since 2008, Blythe Masters has spoken of her personal commitment to making markets safer. Working in the bitcoin space could be seen as a chance to achieve this goal and alter her legacy. But Keiser doesn’t see it this way: “They are there to try and figure out bitcoin – as Jamie Dimon said, ‘it could eat our lunch’ – so he put his top lieutenant Blythe Masters in charge of finding out what this is all about, now they are frantically trying to figure out what to do with this challenger. “Jamie Dimon made a billion dollars because of Blythe Masters skimming the global economy a penny at a time for 20 years. Now she has moved over to the crypto space. “The woman is the devil incarnate,” said Keiser.

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On our daily menu.

Putin Straight Talk vs Obama Double Talk (Stephen Lendman)

“Russia does not claim some sort of hegemony. Russia does not claim some kind of ephemeral superpower status. We want relations based on equality with all members of the international community.”

Russia will go all-out to defend its interests, Putin explained. It’s not about to roll over and obey US diktats – nor should it or any other nation. After the Soviet Union’s dissolution, Washington began aggressively expanding east using enlarged NATO as a dagger targeting Russia’s heartland. “I’m completely convinced that after the so-called bipolar system ceased to exist, after the Soviet Union disappeared off the political map, several of our partners in the West, including the United States first and foremost, fell into euphoria and instead of setting up good neighborly and partner relations, they began grabbing geopolitical space as they saw fit,” said Putin. Confrontation substituted for normalized relations. Nothing in prospect suggests change.

“We are not the root cause of crisis in Ukraine,” Putin explained. Europe “shouldn’t have supported Washington’s anti-state and anti-constitutional coup, the armed seizure of power that eventually ignited a tough confrontation and de facto civil war in that country.” Multi-world polarity is the new way of things Putin stresses often. Instead of accepting it and building good relations, US-dominated NATO expanded east in violation of what Washington pledged not to do. “Quite possibly, some of our partners might have gotten an illusion that a global center like the Soviet Union had existed in the postwar world order and now that it was gone, vacuum appeared and it was to be filled urgently,” Putin said. “I actually think that’s an erroneous approach to the solution of the problem.”

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Old news.

The Shale Industry Could Be Swallowed Whole By Its Own Debt (Bloomberg)

The debt that fueled the U.S. shale boom now threatens to be its undoing. Drillers are devoting more revenue than ever to interest payments. In one example, Continental Resources Inc., the company credited with making North Dakota’s Bakken Shale one of the biggest oil-producing regions in the world, spent almost as much as Exxon Mobil, a company 20 times its size. The burden is becoming heavier after oil prices fell 43% in the past year. Interest payments are eating up more than 10% of revenue for 27 of the 62 drillers in the Bloomberg Intelligence North America Independent Exploration and Production Index, up from a dozen a year ago. Drillers’ debt ballooned to $235 billion at the end of the first quarter, a 16% increase in the past year, even as revenue shrank.

“The question is, how long do they have that they can get away with this,” said Thomas Watters, an oil and gas credit analyst at Standard & Poor’s in New York. The companies with the lowest credit ratings “are in survival mode,” he said. The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years. “There’s a liquidity issue, and you start looking at the cash burn,” Watters said.

Continental borrows at cheaper rates than many of its smaller peers because its debt is investment grade. S&P assigns speculative, or junk, ratings to 45 out of the 62 companies in the Bloomberg index. “Our cash flow easily covers interest costs, and we expect to continue maintaining our investment-grade credit rating as commodity prices recover,” said Warren Henry, a spokesman for Oklahoma City-based Continental. Almost $20 billion in bonds issued by the 62 companies are trading at distressed levels, with yields more than 10%age points above U.S. Treasuries, as investors demand much higher rates to compensate for the risk that obligations won’t be repaid, data compiled by Bloomberg show. “Credit markets have played a big role in keeping the entire sector alive,” said Amrita Sen at Energy Aspects in London.

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