Sep 262017
 
 September 26, 2017  Posted by at 8:33 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Paul Cézanne Curtains 1885

 

Lenders Loosen Mortgage Standards as Demand Falls (WS)
Levered Loan Volumes Soar Past 2007 Levels As “Cov-Lite” Deals Surge (ZH)
China’s Crackdown Brings Developers Crashing Back to Earth (BBG)
The Next Crisis Will Start in Silicon Valley (BBG)
King Cash May Reign For Weeks In Storm-Ravaged Puerto Rico (BBG)
The White House as Donald Trump’s New Casino (Nomi Prins)
Large Parts Of America Are Being Left Behind (ZH)
‘A Lot Of People Feel Left Behind’ – Why Far Right Won In Germany (G.)
Macron Presses Ahead With His Vision for Europe As Merkel Calls For Calm (BBG)
EU Presidency Calls For Massive Internet Filtering (EDRi)
EU Officially Ends Excessive Deficit Procedure Against Greece (R.)
ECB May Frontload 2018 Bank Stress Tests With View To Greece – Draghi (R.)
French Government Declares War On Pesticides (AFP)
Our Food Crops Face Mass Extinction Too (G.)
Sixth Mass Extinction Of Wildlife Also Threatens Global Food Supplies (G.)

 

 

The last step before the fall.

Lenders Loosen Mortgage Standards as Demand Falls (WS)

The toxic combination of “competition from other lenders” and slowing mortgage demand is cited by senior executives of mortgage lenders as the source of all kinds of headaches for the mortgage lending industry. Primarily due to this competition amid declining of demand for mortgages, the profit margin outlook has deteriorated for the fourth quarter in a row, according to Fannie Mae’s Q3 Mortgage Lender Sentiment Survey. And the share of lenders that blamed this competition as the key reason for deteriorating profits “rose to a new survey high.” Demand is down for all three types or mortgages: • Mortgages eligible for guarantees by Government Sponsored Enterprises, such as Fannie Mae and Freddie Mac (“GSE Eligible”), indirectly backed by taxpayers. • Mortgages not eligible for GSE guarantees (“Non-GSE Eligible”), not backed by taxpayers. • Mortgages guaranteed by Government agencies, such as Ginnie Mae, directly backed by taxpayers.

And how are lenders combating this lack of demand and the deteriorating profit margins that are being pressured by competition? They’re loosening lending standards. Fannie Mae’s report: Lenders further eased home mortgage credit standards during the third quarter, continuing a trend that started in late 2016. In particular, both the net share of lenders reporting easing on GSE-eligible loans for the prior three months and the share expecting to ease standards on those loans over the next three months increased to survey highs. Lenders’ comments suggest that competitive pressure and more favorable guidelines for GSE loans have helped to bring about more easing of underwriting standards for those loans. This chart shows the net share of lenders reporting loosening their lending standards for each type of loan (= the share of lenders reporting loosening credit standards minus those reporting tightening standards):

In many urban markets home prices have soared far beyond their peaks during the prior crazy housing bubble. That bubble ended with such spectacular results, in part because lending standards had been loosened so that more people could be stuffed into more homes, and more expensive homes that they couldn’t afford, and whose prices then plunged when the scheme fell apart. This time around, home prices, according to the national Case-Shiller Home Price Index, are now about 5% above the prior crazy bubble peak that imploded with such fanfare:

Read more …

Everything’s a casino now.

Levered Loan Volumes Soar Past 2007 Levels As “Cov-Lite” Deals Surge (ZH)

If a surge in covenant-lite levered loans is any indication that debt and equity markets are nearing the final stages of their bubbly ascent, then perhaps now is a good time for investors to take their profits and run. As the Wall Street Journal points out this morning, levered loans volumes in the U.S. are once again surging, eclipsing even 2007 levels, despite the complete implosion of bricks-and-mortar retailers and continued warnings that “the market is getting frothy.” Volume for these leveraged loans is up 53% this year in the U.S., putting it on pace to surpass the 2007 record of $534 billion, according to S&P Global Market Intelligence’s LCD unit. n Europe, recent loans offer fewer investor safeguards than in the past. This year, 70% of the region’s new leveraged loans are known as covenant-lite, according to LCD, more than triple the number four years ago.

Covenants are the terms in a loan’s contract that offer investor protections, such as provisions on borrowers’ ability to take on more debt or invest in projects. “If feels like the market is getting frothy,” said Henrik Johnsson at Deutsche Bank. “We’re overdue a correction.” Meanwhile, volumes are surging even as traditional lender protections have become basically nonexistent. As S&P LCD points out, over 70% of levered loans issued so far in 2017 are considered “covenant-lite” versus only 30% of those issued in 2007. Before the financial crisis, the boom in leveraged loans was one of the signs of markets overheating. As the crisis intensified in 2008, investors in U.S. leveraged loans lost nearly 30%, according to the S&P/LSTA Leveraged Loan Index.

Regulators are taking note. In its last quarterly report, the Bank for International Settlements noted the growth of covenant-lite loans and pointed out that U.S. companies are more leveraged than at any time since the beginning of the millennium. That could harm the economy in the event of a downturn or a rise in interest rates, said the BIS consortium of central banks.

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Not quite yet. But they will.

China’s Crackdown Brings Developers Crashing Back to Earth (BBG)

The world’s most extreme stock rally is getting a reality check. After share price gains at Chinese property developers accelerated at a breathtaking pace in the past month, led by an 87% surge in Sunac, the momentum has started to turn as authorities have taken a harder line on reining in financial risks. Six of the 10 best performers on the MSCI All-Country World Index in the one month through Sept. 21 were Chinese real estate firms. Chinese developers had their biggest slump in six years on Monday, before some rebounded on Tuesday. Record home sales and buoyant earnings helped spur an unprecedented rally this year for Chinese developers, especially large firms positioned to wrest market share through debt-fueled acquisitions.

Top of that list are the nation’s two most indebted developers – China Evergrande Group and Sunac – whose shares swelled 459% and 391% respectively. Some investors were starting to question how long the astonishing share gains could last, even before a raft of housing curbs over the weekend. “The drop of property stocks today brings a reality check,” Andy Wong at Pictet Asset Management said in a briefing Monday. “In the past few months investors have been focusing purely on growth. But it’s never wise to totally ignore the risk of leverage.” Sunac shares have plunged almost 16% from a Sept. 19 high, amid the general pall over the sector and news that a financial firm is scrutinizing its loans to Sunac, China’s most leveraged developer.

Evergrande shares have tumbled more than 12% in the past three trading sessions, matching the decline in a Bloomberg index of 22 mainland developers. Even with the recent selloff, Chinese developers remain among the world’s best-performing stocks this year. Evergrande and Sunac two top stocks in the MSCI All-Country World Index this year. Part of that rally was stoked by a housing market boom that buoyed developers’ earnings in the first half, sending sales soaring and boosting profit margins to the highest levels in three years, according to calculations based on earnings reports.

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It’s where the excess cash has gone.

The Next Crisis Will Start in Silicon Valley (BBG)

Since 2007, a tremendous wave of innovation has swept across the financial sector, affecting almost every aspect of finance. New robo-adviser startups like Betterment and Wealthfront have begun dispensing financial advice based on algorithmic calculations, with little to no human input. Crowdfunding firms like Kickstarter and Lending Club have created new ways for companies and individuals to raise money from dispersed networks of individuals. New virtual currencies such as Bitcoin and Ethereum have radically changed our understanding of how money can and should work. These financial technology (or “fintech”) markets are populated by small startup companies, the exact opposite of the large, concentrated Wall Street banks that have for so long dominated finance.

And they have brought great benefits for investors and consumers. By automating decision-making and reducing the costs of transactions, fintech has greased the wheels of finance, making it faster and more efficient. It has also broadened access to capital to new and underserved groups, making finance more democratic than it has ever been. But revolutions often end in destruction. And the fintech revolution has created an environment ripe for instability and disruption. It does so in three ways. First, fintech companies are more vulnerable to rapid, adverse shocks than typical Wall Street banks. Because they’re small and undiversified, they can easily go under when they hit a blip in the market. Consider the case of Tokyo-based Mt. Gox, which was the world’s biggest bitcoin exchange until an apparent security breach took it down in 2014, precipitating losses that would be worth more than $3.5 billion in today’s prices.

Second, fintech companies are more difficult to monitor than conventional financial firms. Because they rely on complex computer algorithms for many of their essential functions, it’s hard for outsiders to get a clear picture of the risks and rewards. And because many of their technologies are so new and innovative, they may fall outside the reach of old and outdated regulatory structures. The recent proliferation of “initial coin offerings,” for example, has left regulators around the world scrambling to figure out how to respond. Third, fintech has not developed the set of unwritten norms and expectations that guide more traditional financial institutions.

In 2008, when Lehman Brothers was teetering on the brink of bankruptcy, the heads of the largest Wall Street investment banks gathered in New York to coordinate their actions and prevent further panic. It’s hard to imagine something like that happening in the fintech world. The industry is so new, and the players so diverse, that companies have little incentive to cooperate for the greater good. Instead, they prioritize aggressive growth and reckless behavior.

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If this is not a wake-up call for you…

King Cash May Reign For Weeks In Storm-Ravaged Puerto Rico (BBG)

In post-hurricane San Juan on Monday, commerce picked up ever so slightly. With a little effort, you could get the basics and sometimes more: diapers, medicine, or even a gourmet hamburger smothered in fried onions and Gorgonzola cheese. But almost impossible to find was a place that accepted credit cards. “Cash only,” said Abraham Lebron, the store manager standing guard at Supermax, a supermarket in San Juan’s Plaza de las Armas. He was in a well-policed area, but admitted feeling like a sitting duck with so many bills on hand. “The system is down, so we can’t process the cards. It’s tough, but one finds a way to make it work.” The cash economy has reigned in Puerto Rico since Hurricane Maria decimated much of the U.S. commonwealth last week, leveling the power grid and wireless towers and transporting the island to a time before plastic existed.

The state of affairs could carry on for weeks or longer in some remote parts of the commonwealth, and that means it could be impossible to trace revenue and enforce tax rules. The situation further frustrates one of the many challenges already facing a government that has sought a form of bankruptcy protection after its debts swelled past $70 billion: boosting revenue by collecting money that slips through the cracks. In fact, the power blackout only exacerbates a situation that has always been, to a degree, a fact of life in Puerto Rico. Outside the island’s tourist hubs, many small businesses simply never took credit cards, with some openly expressing contempt for tax collectors and others claiming it was just a question of not wanting to deal with the technology.

But those were generally vendors of bootleg DVDs, fruit stands, barbers — not major supermarkets. Now, the better part of the economy is in the same boat. Cash was in short supply. Many Puerto Ricans were still living off what money they thought to withdraw ahead of the storm. Most ATMs on the island still weren’t working because of the power outage or because no one had refilled them. In Fajardo, a hard-hit coastal area, the paper printouts taped to sheet metal storm shutters read: “Cash only, thank you.”

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Washington has been a casino for decades.

The White House as Donald Trump’s New Casino (Nomi Prins)

During the 2016 election campaign, Donald Trump repeatedly emphasized that our country was run terribly and needed a businessman at its helm. Upon winning the White House, he insisted that the problem had been solved, adding, “In theory, I could run my business perfectly and then run the country perfectly. There’s never been a case like this.” Sure enough, while Hillary Clinton spent her time excoriating her opponent for not releasing his tax returns, Americans ultimately embraced the candidate who had proudly and openly dodged their exposure. And why not? It’s in the American ethos to disdain “the man” – especially the taxman. In an election turned reality TV show, who could resist watching a larger-than-life conman who had taken money from the government?

Now, give him credit. As president, The Donald has done just what he promised the American people he would do: run the country like he ran his businesses. At one point, he even displayed confusion about distinguishing between them when he said of the United States: “We’re a very powerful company – country.” Of course, as Hillary Clinton rarely bothered to point out, he ran many of them using excess debt, deception, and distraction, while a number of the ones he guided personally (as opposed to just licensing them the use of his name) – including his five Atlantic City casinos, his airline, and a mortgage company – he ran into the ground and then ditched. He escaped relatively unscathed financially, while his investors and countless workers and small businesses to whom he owed money were left holding the bag.

We may never fully know what lurks deep within those tax returns of his, but we already know that they were “creative” in nature. As he likes to put it, not paying taxes “makes me smart.” To complete the analogy Trump made during the election campaign, he’s running the country on the very same instincts he used with those businesses and undoubtedly with just the same sense of self-protectiveness. Take the corporate tax policy he advocates that’s being promoted by his bank-raider turned Treasury secretary, Steve Mnuchin. It’s focused on lowering the tax rate for multinational corporations from 35% to 15%, further aiding the profitability of companies that already routinely squirrel away profits and hide losses in the crevices of tax havens far removed from public disclosure.

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People are being left behind everywhere.

Large Parts Of America Are Being Left Behind (ZH)

Economic prosperity is concentrated in America’s elite zip codes, but in an interesting report on Distressed Communities, from The Economic Innovation Group, it is increasingly clear that economic stability outside of those communities is rapidly deteriorating. As Axios noted, this isn’t a Republican or Democratic problem. At every level of government, both parties represent distressed areas. But the economic fortunes of the haves and have-nots have only helped to widen the political chasm between them, and it has yet to be addressed by substantial policy proposals on either side of the aisle.

Economic Prosperity Quintiles

As MishTalk.com’s Mike Shedlock writes below, the study notes: “America’s elite zip codes are home to a spectacular degree of growth and prosperity. However, millions of Americans are stuck in places where what little economic stability exists is quickly eroding beneath their feet.” Distress is based on an evaluation of seven metrics.
• No high school diploma
• Housing vacancy rate
• Adults not working
• Poverty rate
• Median income ratio
• Change in employment
• Change in business establishments

Change in Distress Quintiles

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Merkel acts like an empress.

‘A Lot Of People Feel Left Behind’ – Why Far Right Won In Germany (G.)

Despite gains made by the far-right Alternative für Deutschland (AfD), the breaking up of the ‘grand coalition’ could mark a positive step for Germany, according to voters who responded to our online callout. Here voters in Germany tell us why they think the AfD made gains, and what hopes they have for the future of the country’s politics.

‘A lot of people feel left behind’ – Sarah, 37, teacher, Bonn My second vote was a tactical one. I gave it to the Linke. I knew that we’ll need a very strong voice against the AfD. I am pleased though, that the SPD decided to go into opposition to redefine themselves. A lot of people feel left behind. They are looking for scapegoats. It is the easy way to deal with problems. The AFD makes use of this feeling. With the grand coalition, there was no real debating culture left. The CDU went too much into the middle, leaving the right out. Just like the SPD under Schröder left the left-wing out.

The impact of the newly arrived is big. Some people are scared. Some that have been living in Germany for a long time feel disadvantaged. We can live together and be united in our diversity. I see this in school every day. If we treat each other with respect, then we do not need to fear. It is a long and strenuous way. But it is also very rewarding and fun to walk down that lane. At dinner I really had to get hold of myself to not cry in front of my children. I physically felt sick. A Nazi party being the third biggest party in Germany! I am still devastated.

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More Europe is dead.

Macron Presses Ahead With His Vision for Europe As Merkel Calls For Calm (BBG)

German Chancellor Angela Merkel already faces complex coalition negotiations with at least three other parties. Now French President Emmanuel Macron wants in on the act. In a speech at the Sorbonne in Paris on Tuesday, Macron will make proposals for re-shaping Europe that he acknowledges will require Merkel’s support to push through. While he isn’t seeking to interfere in German domestic politics, it makes sense to air the ideas before a coalition is formed rather than after, an official in his office told reporters. Macron needs Germany’s backing for planned overhauls of areas ranging from defense and immigration to the economy. Yet with Merkel weakened in Germany’s vote and her potential Free Democratic coalition partner even more hostile to aspects of euro-area integration than her own party, the prospect of radical change in Europe looks to have diminished.

“There was this expectation that the election would strengthen the German-French alliance, all kinds of reforms would be tackled and then we’re on the road to fiscal union,” Oliver Adler, head of economic research at Credit Suisse in Zurich, said in an interview. “This now seems politically very unlikely.” Macron will press ahead with his vision of remaking European institutions anyway, seeking to set the direction of debate. While a key element of his reform package is intended to reinforce the euro against future shocks, his speech won’t be all about the single currency area. Macron will propose as many as 10 projects in his speech, including a European agency for innovation and a system to improve start-up funding, a larger Erasmus student-exchange project, increased anti-terrorism cooperation, and a “digital plan” that includes a joint effort to push the EU Commission for a plan to tax Internet giants such as Apple and Google.

The goal is to have a roadmap in place by the summer of 2018 that will equip the EU for its next decade, according to the French official. Macron intends to discuss his plans with fellow EU leaders at a summit in the Estonian capital Tallinn at the end of this week. He may struggle to engage Merkel after Martin Schulz, her Social Democratic election challenger, upset her own plans by announcing his intention not to renew their respective parties’ coalition of the past four years.

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Politicians don’t understand technology.

EU Presidency Calls For Massive Internet Filtering (EDRi)

A Council of the European Union document leaked by Statewatch on 30 August reveals that during the summer months, that Estonia (current EU Presidency) has been pushing the other Member States to strengthen indiscriminate internet surveillance, and to follow in the footsteps of China regarding online censorship. Standing firmly behind its belief that filtering the uploads is the way to go, the Presidency has worked hard in order to make the proposal for the new copyright Directive even more harmful than the Commission’s original proposal, and pushing it further into the realms of illegality. According to the leaked document, the text suggests two options for each of the two most controversial proposals: the so-called “link tax” or ancillary copyright and the upload filter. Regarding the upload filter, the text offers two alternatives:

Option A maintains the Commission’s original proposal of having in place an upload filter which will be under the control of platforms and other companies that are hosting online content. Although it removes mentions to “content recognition technologies”, in reality, there is no way to “prevent the availability” (another expression which remains in the text) of certain content without scanning all the content first. Option B is, at best, a more extreme version of Option A. In fact, it seems so extreme that it almost makes the first option look like a reasonable compromise. This may, of course, be the “diplomatic” strategy. In this extreme option, the text attacks again the liability regime of the e-commerce Directive – which, bizarrely, would not be repealed, leaving us with two contradictory pieces of EU law but adds a “clarification” of what constitutes a “communication to the public”.

This clarification establishes that platforms (and its users) would be liable for the copyright infringing content uploaded by its users. The proposals in this leak highlight a very dangerous roadmap for the EU Member States, if they were to follow the Presidency’s lead. The consequences of these flawed proposals can only be prevented if civil society and EU citizens firmly raise their voices against having a censorship machine in the EU. We will be turning on our call tool at savethememe.net before each of the key votes in the European Parliament. Make use of the tool, and call your representatives to stop the #censorshipmachine!

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Oh, get real: “a recognition of the tremendous efforts and sacrifices the Greek people have made to restore stability to their country’s public finances.”

EU Officially Ends Excessive Deficit Procedure Against Greece (R.)

European Union states decided on Monday to close disciplinary procedures against Greece over its excessive deficit after improvements in Greece’s fiscal position, confirming the country’s recovery is on the right track. The move, although largely symbolic, sends a new signal that Greece’s public finances are again under control, facilitating the country’s plans to tap markets after a successful issue of bonds in July which ended a three-year exile. EU fiscal rules oblige member states to keep their budget deficits below 3% of their economic output or face sanctions that could entail hefty fines, although so far no country has received a financial penalty.

Greece had a 0.7% budget surplus in 2016, and is projected to maintain its fiscal position within EU rules’ limits this year. “In the light of this, the Council (of EU states) found that Greece fulfils the conditions for closing the excessive deficit procedure,” the EU said in a note. “After many years of severe difficulties, Greece’s finances are in much better shape. Today’s decision is therefore welcome”, Estonia’s finance minister Toomas Toniste said. The EU states’ decision confirmed a proposal by the EU executive commission in July to end the disciplinary procedure for Greece. The economics commissioner Pierre Moscovici said the decision was “a recognition of the tremendous efforts and sacrifices the Greek people have made to restore stability to their country’s public finances.”

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Good cop bad cop. Rinse and repeat.

ECB May Frontload 2018 Bank Stress Tests With View To Greece – Draghi (R.)

The ECB may ‘frontload’ its bank stress test next year, ECB President Mario Draghi said on Monday, when asked if supervisors plan any early checks on the health of Greek lenders. The IMF has been pushing for a fresh asset quality review at Greek banks, possibly as part of an bailout review that is slated to start soon. The ECB has rejected the call, saying that the next check is the regular 2018 stress test, but Draghi’s words suggest that ECB may be somewhat flexible with its timeline. “The SSM (Single Supervisory Mechanism) will take its decision with full independence,” Draghi told members of the European Parliament. “And what the SSM plans to do next year is to have a stress test, possibly frontloading the stress test, and basically the SSM sent a letter to the IMF concerning exactly this expected line of action,” Draghi said.

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Maybe Macron can do some good too.

French Government Declares War On Pesticides (AFP)

France is planning to cut back on use of all pesticides, the government said Monday, though it rowed back on an announcement of an outright ban on controversial chemical glyphosate. Government spokesman Christophe Castaner had said earlier Monday that France – Europe’s biggest food producer a- intended to phase out glyphosate completely by 2022 over fears that it may cause cancer. But he later reversed his comments, saying that by the end of President Emmanuel Macron’s five-year term “the government is committed to seeing significant progress on all pesticides”. Glyphosate is the active ingredient in one of the world’s most widely used weedkillers, Roundup, produced by the US agro-chemicals giant Monsanto. The European Commission has proposed extending the licence for the use of the chemical for 10 years, which France has said it will vote against and try to block.

France’s biggest farming union, the FNSEA, said Monday that it was “out of the question” for the country to go it alone, worrying that a French ban could put them at a disadvantage against European competitors. “A sudden ban, no — a path for reducing it and finding solutions, if the solutions are good economically and technically, we can see it happening,” said FNSEA chief Christiane Lambert. Europe limited use of glyphosate last year pending further research. The EU’s chemical agency said glyphosate should be not be classified as cancer-causing. But this is challenged by scientists and environmentalists who point to a finding by the International Agency for Research on Cancer that glyphosate is “probably carcinogenic”. Some 1.3 million people have signed an online petition calling for a ban on the chemical.

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Can mankind rid the earth of its presence? Stay tuned.

Our Food Crops Face Mass Extinction Too (G.)

A “sixth mass extinction” is already under way, scientists are now warning us. Species such as the Bengal tiger and blue whale are vanishing at an alarming rate, and mournful eulogies are being written on how those born in 20 years’ time may never see an African elephant. But who is writing the eulogy for our food? Huge proportions of the plant and animal species that form the foundation of our food supply -known as agrobiodiversity- are just as endangered and are getting almost no attention. Take some consumer favourites: chips, chocolate and coffee. Up to 22% of wild potato species are predicted to become extinct by 2055 due to climate change. In Ghana and Ivory Coast, where the raw ingredient for 70% of our chocolate is grown, cacao trees will not be able to survive as temperatures rise by two degrees over the next 40 years. Coffee yields in Tanzania have dropped 50% since 1960.

These crops are the tip of the iceberg. Across the world, 940 cultivated species are threatened. Agrobiodiversity is a precious resource that we are losing, and yet it can also help solve or mitigate many challenges the world is facing. It has a critical yet overlooked role in helping us improve global nutrition, reduce our impact on the environment and adapt to climate change. According to the World Health Organisation, poor diet is the biggest cause of early death and disability. Globally, 2 billion people are undernourished, while 2 billion are obese and at risk of contracting diabetes, heart disease and cancer. Focusing on large-scale intensive production of starchy crops for calories rather than nutritious diets has led to serious levels of obesity around the world, from the US to Kenya. Our agrobiodiversity base can be a source of affordable, nutritious food – provided we don’t let it disappear.

[..] About 33% of the world’s farmland is estimated to be degraded, lacking the nutrients essential for growing crops. Agrobiodiversity once again has a solution. Planting cold-tolerant legumes and forages throughout winter has helped farmers in France naturally reduce weed infestation as well as increasing soil’s nutrient content and capacity to hold water. Natural remedies such as this can enhance the sustainability of farms worldwide, reducing the sector’s impact on the environment.

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“Three-quarters of the world’s food today comes from just 12 crops and five animal species”. In India, there used to be 100,000 varieties of rice. Today, there’s a big struggle going on to preserve a few dozen. There are many different banana species, but we all eat just one, the Cavendish. Which is under severe threat from a global fungus and could be gone in 5-10 years.

Sixth Mass Extinction Of Wildlife Also Threatens Global Food Supplies (G.)

The sixth mass extinction of global wildlife already under way is seriously threatening the world’s food supplies, according to experts. “Huge proportions of the plant and animal species that form the foundation of our food supply are just as endangered [as wildlife] and are getting almost no attention,” said Ann Tutwiler, director general of Bioversity International, a research group that published a new report on Tuesday. “If there is one thing we cannot allow to become extinct, it is the species that provide the food that sustains each and every one of the seven billion people on our planet,” she said in an article for the Guardian. “This ‘agrobiodiversity’ is a precious resource that we are losing, and yet it can also help solve or mitigate many challenges the world is facing. It has a critical yet overlooked role in helping us improve global nutrition, reduce our impact on the environment and adapt to climate change.”

Three-quarters of the world’s food today comes from just 12 crops and five animal species and this leaves supplies very vulnerable to disease and pests that can sweep through large areas of monocultures, as happened in the Irish potato famine when a million people starved to death. Reliance on only a few strains also means the world’s fast changing climate will cut yields just as the demand from a growing global population is rising. There are tens of thousands of wild or rarely cultivated species that could provide a richly varied range of nutritious foods, resistant to disease and tolerant of the changing environment. But the destruction of wild areas, pollution and overhunting has started a mass extinction of species on Earth.

The focus to date has been on wild animals – half of which have been lost in the last 40 years – but the new report reveals that the same pressures are endangering humanity’s food supply, with at least 1,000 cultivated species already endangered. Tutwiler said saving the world’s agrobiodiversity is also vital in tackling the number one cause of human death and disability in the world – poor diet, which includes both too much and too little food. “We are not winning the battle against obesity and undernutrition,” she said. “Poor diets are in large part because we have very unified diets based on a narrow set of commodities and we are not consuming enough diversity.”

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Sep 212017
 
 September 21, 2017  Posted by at 8:57 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Pablo Picasso Jacqueline in Turkish costume 1955

 

Yellen Brushes Aside Inflation ‘Mystery’ While Fed Eyes Rate Hike (BBG)
Federal Reserve Will Continue Cutting Economic Life Support (Smith)
What Shiller Says Is Preventing A 1929-Like Stock Market Crash (CNBC)
Stock Market Bubbles in Perspective (Ma)
We’re Officially In The 2nd-Largest Bull Market Since World War II (BI)
Who’s Pulling The Strings? (Ren.)
144 Years Ago A Panic Shut Down The Stock Market For The First Time (Cashin)
China’s Dangerous House Price Boom Is Spreading (BBG)
Japan’s “Deflationary Mindset” Grows (ZH)
Greece Considers Bond Swap As It Looks To Bailout Exit (R.)
Abbas Says Trump May Have Mideast ‘On the Verge’ of Peace Deal
4-6 Months To Restore Puerto Rico Electricity After Hurricane Maria (NBC)
Global Mass Extinction Set To Begin By 2100 (Ind.)

 

 

Inflation is arguably the Fed’s no. 1 concern left. Yellen admits they don’t know what it is or does, though. Still, decisions concerning billions and trillions are taken. No direction home.

Yellen Brushes Aside Inflation ‘Mystery’ While Fed Eyes Rate Hike (BBG)

Federal Reserve Chair Janet Yellen acknowledged that the fall in inflation this year was a bit of a “mystery” but suggested that the central bank was on course to raise interest rates again in 2017 nonetheless. She told reporters on Wednesday that the economy was robust enough to withstand further rate increases and an imminent reduction in the Fed’s $4.5 trillion balance sheet, as it exits from a crisis-era policy a decade after the onset of the Great Recession.“We continue to expect that the ongoing strength of the economy will warrant gradual increases” in rates, she told a press conference after the Federal Open Market Committee announced that it will slowly begin to pare its bond holdings next month. As expected, the target range for the federal funds rate was held at 1% to 1.25%. The central bank’s intention to press ahead with another rate hike this year and three more in 2018 caught investors by surprise, sending bond yields and the dollar higher.

The strategy represents a bit of a gamble because it risks cementing inflation permanently below the Fed’s 2% target. As measured by the personal consumption expenditures price index, inflation has ebbed this year even as the economy and the labor market have continued to improve. After briefly poking above 2% earlier this year, it fell to 1.4% in June and July. “I will not say that the committee clearly understands what the causes are of that,” Yellen, 71, said. While transitory forces such as a one-time cut in mobile-phone service charges were part of the story, they did not fully explain the shortfall, she said. The Fed chief though argued that the ongoing strength of the economy and the labor market would ultimately help lift inflation, while she kept open the possibility the central bank would alter course if that proved not to be the case.

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The Fed doesn’t serve the people. Never forget.

Federal Reserve Will Continue Cutting Economic Life Support (Smith)

First, let’s be clear, historically the Fed’s predictable behavior has been to skip major policy actions in September and then startle markets with renewed and aggressive actions in December. People placing bets on a Fed rate hike in September would look at this pattern and say “no way.” However, the narrative I see building in Fed rhetoric and in the mainstream media is that stock markets have become “unruly children” and that the Fed must become a “stern parent,” reigning them in before they are crushed under the weight of their own naive enthusiasm. In my view, the Fed will continue to do what it says it is going to do — raise interest rates and reduce and remove stimulus, and that the mainstream narrative will soon be adjusted to suggest that this is “necessary;” that stock markets need a bit of tough love.

If the Fed means to follow through with its stated plans for “financial stability” in markets, then the only measure that would be effective in shell-shocking stocks back to reality would be a surprise hike, a surprise announcement of balance sheet reduction or both at the same time If the Fed intends to continue cutting off life support to equities and bonds in preparation for a controlled demolition of the U.S. economy, then there is a high probability at the very least of a balance sheet reduction announcement this week with strong language indicating another rate hike in December. I also would not completely rule out a surprise rate hike even though September is usually a no-action month for central banks. This would fit the trend of central banks around the globe strategically distancing themselves from artificial support for the financial structure.

Last week, the Bank of England surprised investors with an open indication that they may begin raising interest rates “in the coming months.” The Bank Of Canada surprised some economists with yet another rate hike this month and mentions of “more to come.” The European Central Bank has paved the way for a tapering of stimulus measures according to comments made during its latest meeting early this month. And, the Bank of Japan initiated taper measures in July. Even Forbes is admitting that there appears to be a “coordinated tightening of monetary policy” coming far sooner than the mainstream expects. If you understand how the Bank for International Settlements controls policy initiatives of national central bank members, then you should not be surprised that central banks all over the world are pursuing the same actions and the same rhetoric. The only difference between any of them is the pace they have chosen in taking the punch bowl away from the party.

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Psychology and obesity. Gee, thanks Bob! Feel much more confident now.

What Shiller Says Is Preventing A 1929-Like Stock Market Crash (CNBC)

It’s a comparison no one wants to hear — that this stock market bears striking similarities to that of 1929. The observation is coming from Nobel Prize-winning economist Robert Shiller, who’s been arguing valuations are extremely expensive. But instead of predicting an epic stock market crash, he’s finding reasons to be optimistic. “The market is about as highly priced as it was in 1929,” said Shiller on Tuesday’s “Trading Nation.” “In 1929 from the peak to the bottom, it was 80% down. And the market really wasn’t much higher than it is now in terms of my CAPE [cyclically adjusted price-to-earnings] ratio. So, you give pause when you notice that.” In his first interview since penning an op-ed on Sept. 15 in The New York Times, the Yale University economics professor reiterated to CNBC that there’s one vital characteristic protecting investors from losing their nest eggs: Market psychology.

“It’s not just a matter of low interest rates, it’s something about the American atmosphere. It’s partly the Trump atmosphere. Investors love this. I can’t exactly explain – maybe it has something to do with prospective tax cuts. But I don’t think it’s just that. It’s something deeper, and it’s pushing the American market up,” he added. Unlike 1929, Shiller points out there’s not much talk about people borrowing exorbitant amounts of money to buy stocks. Plus, he notes there’s now more regulation. But don’t mistake the Yale University economics professor for a bull. “I don’t want to encourage people too much to put a lot into the most expensive market in the world,” said Shiller. “The U.S. has the highest CAPE ratio of 26 countries. We are number one.”

[..] Shiller may see red flags, but he isn’t ruling out a market that continues to churn out fresh records for months, if not years. “I wouldn’t call it healthy, I’d call it obese. But you know, some of these obese people live to be 100 years, so you never know,” said Shiller.

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Still feeling good, Shiller?

Stock Market Bubbles in Perspective (Ma)

A better type of average would be the median. It literally represents the middle of a sequence of ranked numbers. In most cases, it is not influenced by outliers. By using median (instead of mean) earnings, I refer to this valuation approach as the CAPME ratio. It currently shows the S&P Composite is not the second or third most expensive stock market cycle. This finding supports those who criticize the traditional CAPE ratio of overstating the valuation of the S&P Composite Index. The problem for critics though is using the CAPME ratio still shows the U.S. stock market is very expensive right now. In fact, it is the fourth most expensive, behind the stock market cycle that occurred during the Subprime Mortgage Bubble. Based on the data Professor Shiller uses, you can see this in the graph below that looks back 135 years.

You will notice in the graph above that the past 5 stock market bubbles were all valued at one point at more than 20-times median, annual, inflation-adjusted earnings. The valuation range of those peaks is wide though given the Tech Bubble was valued at more than 40-times at its peak. This makes the Tech Bubble potentially an outlier. Furthermore, all 5 stock market bubbles did not last long. They were fleeting. To put this all into perspective, consider these valuations by their percentile ranks. You can see this from the orange lines in the graph below. [It] shows the aforementioned 5 stock market cycles turned into bubbles when their CAPME valuation ratios reached a very high level of roughly the 90th percentile (red dotted line). In other words, these bubbles formed when their valuations were near or at the most expensive decile.

Investors beware: the valuation of the S&P Composite Index is currently ranked at the 94th percentile. This puts the U.S. stock market smack-dab at the heart of bubble territory. It has been argued lots that the high stock market valuation is justified by low interest rates. This argument does not work for me. Let me tell you why. Yields on 10-year U.S. treasury bonds in early-1941 were lower than they are now. Despite lower interest rates in early-1941, the stock market CAPME valuation ratio was quite low at that time ranking at around the 30th percentile. Furthermore, the amount of debt provided by stock brokers used to fuel the current stock market cycle is at a record level. This could prove problematic given bubbles driven by financial leverage are particularly dangerous.

The aforementioned 5 stock market cycles turned into bubbles when their CAPME valuation ratios reached the 90th percentile. The U.S. stock market is back there again. Its valuation is squarely in the middle of that very expensive decile looking back 135 years. The 5 previous instances of stock market bubbles suggest this will not end well. Bubbles never do, particularly ones driven by financial leverage.

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Whcih goes to show how easily markets are manipulated.

We’re Officially In The 2nd-Largest Bull Market Since World War II (BI)

We’re officially in the second-largest bull market since World War II. A week ago Monday, the S&P 500 index’s bull market became the second-best performing in the modern economic era. Stocks have climbed by about 270% from their March 2009 low over the past eight years, according to data from LPL Financial. Today’s bull market has eclipsed the 267% gain seen from June 1949 to August 1956. But the bull market from October 1990 to March 2000 remains in the top spot. “The logical question we continue to receive is: how much further can it go? We have an old bull market and an old expansion. When will the music stop?” Ryan Detrick, the senior market strategist for LPL Financial, wrote in commentary. “The current bull market is officially 101 months old, which might sound old (and it is), but remember that bull markets don’t die of old age, they die of excesses.”

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“The central bankers of the world have dumped $30 trillion into the global economy over the last eight years and we’ve got 2% growth and change..”

Who’s Pulling The Strings? (Ren.)

Feierstein cited the Resolution Trust debacle as an example of what should have happened. The Trust was declared insolvent as a consequence of the 1980s Savings and Loans Crisis and up to 300 bankers were jailed. “This is what should have happened this time around, instead of taking hundreds of trillions of dollars taxpayer’s money and placing the taxpayer at incredible peril and just added liquidity to the markets,” he said. “Giving more money to an insolvent institution is not the solution. You cannot pay your way out of debt with borrowed money. It’s not going to cure the underlying problem of insolvency.” This is why Feierstein refers to the entire global economy as a Ponzi scheme. “The amount of debt in the global financial system is a Ponzi scheme because the United States government has over $240 trillion in debt which is more than three times global GDP.

That’s the sum of all goods and services produced with zero consumption for three years. We’ll never pay out the debt that’s owed.” Feierstein says the government has tried to replace consumer demand with debt and printed money and consumers haven’t come back into the market. “That’s why we’ve got a huge government that thinks they can control everything and price action manipulating volatility to unrealistically low levels,” he said. “They think the consumer will eventually come back but they won’t because the jobs have disappeared and the unemployment rate which we’ve spoken about before is a lie. It’s not 4.3%, it’s closer to 20% because you’ve got people who aren’t participating in the workforce. And that’s probably over 100 million people in America.” Financial times journalist, Rana Foroohar says consumers are all tapped out.

“Credit is what we do to sort of keep middle class voters happy,” she said. “We’re tapped out.” The good news and the bad news is that when the next financial crisis comes the US government will not have as much firepower to throw at it. “The central bankers of the world have dumped $30 trillion into the global economy over the last eight years and we’ve got 2% growth and change,” she said. “It’s pathetic.” Feierstein said it is important to highlight how derivative products have contributed massively to this problem. “When I say there is too much leverage, basically derivative products allows financial institutions and investors to create 100 to 1 leverage. You put up $1 to control $100, or $500 dollars in assets. Think about that on a big scale. If you take $1 million you can control something worth $100 million, or even $500 million depending upon how you gear the leverage ratio.

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Art Cashin tells a story.

144 Years Ago A Panic Shut Down The Stock Market For The First Time (Cashin)

“[O]n Saturday, September 20, 1873, for the first time in its history, the NYSE closed in response to a panic. (The word circuit breaker had not been invented yet….er…..neither had circuits.) A week or more before, one of the most renowned firms in American finance and especially U.S. Treasury auctions came under a cloud of suspicion. The firm was Jay Cooke & Company. And, on most continents, it was seen as a key player. After all, its aggressive style had made it the key underwriter for the billions of Treasury bonds issued during and after the Civil War. (Contemporary competitors had shied back fearing that deficit spending had gotten out of control.) Anyway, the concern about in this key brokerage firm only confused the market at first. But as this day approached, there were hints that the problems would spread to other brokers. On the 18th, liquidation of equities showed up at the ‘first call.’

For most of its first century of existence, the NYSE was a ‘call market.’ The chairman, or other senior officer, would call out the name of one of the listed issues. Brokers who had an interest in that ‘issue’ would arise from their ‘seats’ and begin to bargain with any other brokers arisen from their ‘seats’. When transactions ended in that issue (assuming they were not all buyers), brokers returned to their ‘seats’ and the chairman called the next issue on the roll. When the last issue was called, the session officially ended. There were two sessions each day. […] So, here they were. Rumors surfaced that, perhaps some other brokers were involved and the first call on the 18th turned soft. The second call turned soggy. Prices were down and with no on-going after market; all you could do (as the banks did) is await the next call.

The morning call on the 19th was messy and the afternoon call was just a disaster. Outside, in a heavy rain, crowds gathered on Wall Street to withdraw securities and money from brokers. By the morning of the 20th anyone who was in the phone book (if there had been one at the time) was rumored to have been impacted by the problem. So, naturally the morning call on Saturday the 20th was a disaster. So much so that the Exchange opted to close until the crisis calmed (skipping the P.M. call). Close they did and for a lot more than one ‘call.’ But, but perhaps because banks and investors naturally needed some means of evaluating holdings, they reopened about ten days later. However, the rumors would not go away and liquidations and defaults continued. The history books call it the Panic of 1873. And, it put the American economy in a tailspin for years. (Nearly 10,000 businesses failed.)”

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Until recently, Chinese hardly borrowed at all. Now, debt is the only way to keep up.

China’s Dangerous House Price Boom Is Spreading (BBG)

Hefty mortgages have pushed up Chinese household debt, reducing their room for maneuver should income growth stall, according to recent research by Gene Ma, chief China economist at the Institute of International Finance in Washington. In general, it’s debt that’s the warning sign. As developers and households become more leveraged, the risk is that a price downturn doesn’t remain contained within the property market. “The high leverage will amplify the damage to the economy if a property bust happens,” said Bloomberg Intelligence economist Fielding Chen. “The shock wave will be passed onto the entire financial system, and losses will be greater,” he said. Once home prices tumble, about 40% of Chinese banks will be hit hard, according to a recent research note from Ping An Securities.

Analysts have argued that the debt load in the Chinese property market is far from a carbon copy of the situation in Japan’s bubble era before its bust in the 1990s, nor is it similar to the sub-prime crisis in the U.S. a decade ago. With down payment requirements of at least 20% for first purchases and as much as 70% for second homes, China’s household mortgages still stand at relatively safe levels, said Wang Qiufeng, an analyst at China Chengxin International in Beijing. Ping An Securities also argues that the odds of a property crash happening in the near term are very small. But as household debt-to-income ratios have risen almost to levels seen in advanced economies, the potential impact on the economy of a popping bubble would be considerable.

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Abenomics is (was) an attempt to force people into spending. That scares them into not spending. It doesn’t come any simpler.

Japan’s “Deflationary Mindset” Grows (ZH)

After being force-fed more stimulus than John Belushi, and endless rounds of buying any and every asset that dares to expose any cracks in the potemkin village of fiat folly, Japan remains stuck firmly in what Abe feared so many years ago – a “deflationary mindset.” As Bloomberg reports, cash and deposits held by Japanese households rose for 42nd straight quarter at the end of June as the nation’s consumers continued to favor saving over spending. The “deflationary mindset” that the Bank of Japan is battling to overcome was also evident in the money laying idle in corporate coffers, which stayed near an all-time high, according to quarterly flow of funds data released by the BOJ on Wednesday. Still, as Bloomberg optimistically notes, with the economy expanding much faster than its potential growth rate, greater inflationary pressures could be on the way, which may prompt a shift in behavior by consumers and companies… or not!

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Musical chairs.

Greece Considers Bond Swap As It Looks To Bailout Exit (R.)

Greece is considering swapping 20 small bond issues for four or five new ones, government sources said, as it prepares to exit its international bailout and resume normal financing operations. The country has been surviving on rescue funds since 2010 and is anxious to draw a line under its bailout phase next year. The government is considering a swap that would consolidate the secondary market into a few benchmark issues, replacing 20 separate bonds with a face value of around 32 billion euros, said officials familiar with the proposal. “We are planning to proceed with some debt management actions … to improve liquidity and tradeability,” one senior government official said. Officials said the move was still under discussion and did not say when it might happen, adding that bondholders had yet to be sounded out.

The 20 bonds were issued in 2012 in a voluntary scheme whereby private bondholders took a 53.5% haircut on their investments. It was the world’s biggest debt restructuring involving bonds with a total face value of 206 billion euros. Major holders included banks and pensions funds in Greece and abroad. Two years later in 2014, Greece made two forays as part of a plan to regain full bond market access. This time the plan is more modest but would represent a major step toward for bigger debt issues. Greece issued a five-year bond in July, and investors that bought the new bond are already making a profit of about 1.5% since the beginning of the year. Greece’s borrowing costs have fallen sharply this year back to pre-crisis levels, as investors see the prospect further bailouts diminishing as well as signs of economic improvement.

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Wouldn’t that be something.

Abbas Says Trump May Have Mideast ‘On the Verge’ of Peace Deal

Palestinian Authority President Mahmoud Abbas said Wednesday that President Donald Trump’s diplomatic efforts in the Mideast give him confidence that the region is “on the verge” of peace. Abbas said his government has met with U.S. diplomats more than 20 times since Trump took office in January. “If this is an indication of anything, it indicates how serious you are about peace in the Middle East,” Abbas said through a translator at a meeting with the U.S. president during the United Nations General Assembly in New York. “I think we have a pretty good shot, maybe the best shot ever,” Trump said. “I certainly will devote everything within my heart and within my soul to get that deal made.” “Who knows, stranger things have happened,” he added. “No promises, obviously.”

Trump met with Abbas two days after a similar meeting with Israeli Prime Minister Benjamin Netanyahu, where the U.S. president said he was hopeful Israelis and Palestinians would be able to come to a peace agreement during his presidency. The president recently dispatched his son-in-law and senior adviser, Jared Kushner, to the region in a bid to restart peace talks. Kushner was joined by Jason Greenblatt, the president’s envoy for Israeli-Palestinian peace, and deputy national security adviser Dina Powell. The White House is trying to take advantage of a period of relative calm following violent clashes earlier this summer over Israeli security arrangements at the Jerusalem shrine known to Jews as Temple Mount and to Muslims as Haram al-Sharif, said a senior administration official who requested anonymity to discuss the negotiations.

Trump has said he’s hopeful Kushner can help restart a peace process that has made little headway over the past 25 years. He made addressing the Israeli-Palestinian conflict an early priority, hosting both Abbas and Netanyahu at the White House during the opening months of his presidency and visiting Israel during his first international trip as president. The last round of U.S.-led talks, a pet project of former Secretary of State John Kerry, broke down three years ago amid mutual recriminations.

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How does a country, state, territory survive without power for half a year?

4-6 Months To Restore Puerto Rico Electricity After Hurricane Maria (NBC)

Hurricane Maria is likely to have “destroyed” Puerto Rico, the island’s emergency director said Wednesday after the monster storm smashed ripped roofs off buildings and flooded homes across the economically strained U.S. territory. Intense flooding was reported across the territory, particularly in San Juan, the capital, where many residential streets looked like rivers. The National Weather Service issued a flash flood warning for the entire island shortly after 12:30 a.m. ET. Yennifer Álvarez Jaimes, Gov. Ricardo Rosselló’s press secretary, told NBC News that all power across the island was knocked out. “Once we’re able to go outside, we’re going to find our island destroyed,” Emergency Management Director Abner Gómez Cortés said at a news briefing. [..] Maria, the strongest storm to hit Puerto Rico since 1928, had maximum sustained winds of 155 mph when it made landfall as a Category 4 storm near the town of Yabucoa just after 6 a.m. ET.

But it “appears to have taken quite a hit from the high mountains of the island,” and at 11 p.m. ET, it had weakened significantly to a Category 2 storm, moving away from Puerto Rico with maximum sustained winds of 110 mph, the agency said. [..] “Extreme rainfall flooding may prompt numerous evacuations and rescues,” the agency said. “Rivers and tributaries may overwhelmingly overflow their banks in many places with deep moving water.” San Juan San Juan Mayor Carmen Yulín Cruz told MSNBC that the devastation in the capital was unlike any she had ever seen. “The San Juan that we knew yesterday is no longer there,” Yulín said, adding: “We’re looking at four to six months without electricity” in Puerto Rico, home to nearly 3.5 million people. “I’m just concerned that we may not get to everybody in time, and that is a great weight on my shoulders,” she said.

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Nice math, but many questions.

Global Mass Extinction Set To Begin By 2100 (Ind.)

Planet Earth appears to be on course for the start of a sixth mass extinction of life by about 2100 because of the amount of carbon being pumped into the atmosphere, according to a mathematical study of the five previous events in the last 540 million years. Professor Daniel Rothman, co-director of MIT’s Lorenz Centre, theorised that disturbances in the natural cycle of carbon through the atmosphere, oceans, plant and animal life played a role in mass die-offs of animals and plants. So he studied 31 times when there had been such changes and found four out of the five previous mass extinctions took place when the disruption crossed a “threshold of catastrophic change”. The worst mass extinction of all – the so-called Great Dying some 248 million years ago when 96 per cent of species died out – breached one of these thresholds by the greatest margin.

Based on his analysis of these mass extinctions, Professor Rothman developed a mathematical formula to help predict how much extra carbon could be added to the oceans – which absorb vast amounts from the atmosphere – before triggering a sixth one. The answer was alarming. For the figure of 310 gigatons is just 10 gigatons above the figure expected to be emitted by 2100 under the best-case scenario forecast by the IPCC. The worst-case scenario would result in more than 500 gigatons. Some scientists argue that the sixth mass extinction has already effectively begun. While the total number of species that have disappeared from the planet comes nowhere near the most apocalyptic events of the past, the rate of species loss is comparable. Professor Rothman stressed that mass extinctions did not necessarily involve dramatic changes to the carbon cycle – as shown by the absence of this during the Late Devonian extinction more than 360 million years ago.

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Aug 272017
 
 August 27, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Elliott Erwitt Downtown Hat Shop Window, Pittsburgh 1950

 

Phillips Curve Doesn’t Help Forecast Inflation, Fed Study Finds (BBG)
Where Do Consumers Spend The Most Money? (Mish)
Should California Spend $3 Billion To Help People Buy Electric Cars? (LAT)
Tesla: A Canary in the Wall Street Coal Mine (Barron’s)
UK Labour Party Makes Dramatic Shift On Brexit And Single Market (G.)
Controlled Demolition (Jim Kunstler)
The War That Time Forgot (CP)
It’s Time To Accept Carbon Capture Has Failed (Conv.)
Industrial Farming Is Driving The Sixth Mass Extinction Of Life On Earth (Ind.)

 

 

The incompetence is deafening. Trillions have been washed away on the theory.

Phillips Curve Doesn’t Help Forecast Inflation, Fed Study Finds (BBG)

A fundamental relationship of mainstream economic theory at the heart of the Federal Reserve’s strategy for setting interest rates has been a poor guide for policy makers for at least three decades, according to a study by the Philadelphia Fed’s top-ranking economist. The paper, co-authored by Philadelphia Fed Director of Research Michael Dotsey, shows that forecasting models based on the so-called Phillips curve, which asserts a link between unemployment and inflation, don’t actually help predict inflation. “Our results indicate that monetary policymakers should at best be very cautious in their reliance on the Phillips curve when gauging inflationary pressures,” Dotsey and Philadelphia Fed economists Shigeru Fujita and Tom Stark wrote.

Their study is timely. Fed officials have been surprised by a deceleration in U.S. inflation over the past several months despite a continued decline in unemployment, the opposite of what the Phillips curve relationship would predict. Minutes of the last meeting of the central bank’s rate-setting Federal Open Market Committee in July revealed that “a few participants cited evidence suggesting that this framework was not particularly useful in forecasting inflation,” while “most participants thought that the framework remained valid.” If the majority view on the FOMC is that the Phillips curve framework is still valid, it implies that central bankers should continue raising interest rates with unemployment at a 16-year low, because they expect inflation will rise in the medium term even though prices pressures have been disappointingly soft.

Kansas City Fed President Esther George, who has been more forceful than many of her colleagues in recent years about the need to raise rates, lent support to that view on the sidelines of this week’s annual gathering of central bankers from around the world in Jackson Hole, Wyoming. “There may in fact be something wrong with the models, I don’t know, I think that continues to be a question that many economists are asking,” George said during a TV interview with Bloomberg’s Michael McKee that aired Thursday. Even so, she favors another rate increase this year.

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Cars + gasoline account for almost 30% of all spending. Crazy.

Where Do Consumers Spend The Most Money? (Mish)

In Dealers “Wildly Overweight” SUVs as Sales Slow, I commented “Vehicles account for 20% of retail spending. A crash or even a significant slowdown will impact retail sales and thus GDP.” A reader asked me how I calculated that. Let’s take a look. My number came from the latest Census Department Advance Retail Sales Report. Here are some charts I created from 7-month totals (January-July) 2017.

Key Points
• Motor vehicles and parts account for 21.18% of retail sales. Gasoline stations account for 7.94%. Together that adds up to 29.12%.
• Food and beverage stores (grocery and liquor stores) account for 12.62 percent of retail sales. Food services and drinking places (restaurants and bars) account for 12.14. The food and drink total is 24.76%.
• Nonstore retailers (think Amazon) account 10.39% of retail sales.

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Yeah, let’s subsidize the car culture.

Should California Spend $3 Billion To Help People Buy Electric Cars? (LAT)

Over seven years, the state of California has spent $449 million on consumer rebates to boost sales of zero-emission vehicles. So far, the subsidies haven’t moved the needle much. In 2016, of the just over 2 million cars sold in the state, only 75,000 were pure-electric and plug-in hybrid cars. To date, out of 26 million cars and light trucks registered in California, just 315,000 are electric or plug-in hybrids. The California Legislature is pushing forward a bill that would double down on the rebate program. Sextuple down, in fact. If $449 million can’t do it, the thinking goes, maybe $3 billion will. That’s the essence of the plan that could lift state rebates from $2,500 to $10,000 or more for a compact electric car, making, for example, a Chevrolet Bolt EV electric car cost the same as a gasoline-driven Honda Civic.

Already approved by several Senate and Assembly committees, the bill will go to Gov. Jerry Brown for his approval or veto if the full Legislature approves it by the end of its current session on Sept. 15. California aims to reduce greenhouse gas emissions by 2030 to a level 40% below what they were in 1990. “If we want to hit our goals, we’re going to have to do something about transportation,” said Assemblyman Phil Ting (D-San Francisco), sponsor of Assembly Bill 1184. Without a dramatic boost in subsidies, Ting said, the state risks falling short of Gov. Brown’s goal of 1.5 million zero-emission vehicles on California highways by 2025, and the California Air Resources Board’s goal of 4 million such cars by 2030. The bill is opposed by Republicans averse to taxpayer subsidies and even the Legislature’s own analysts have called it “duplicative,” “unclear” and “problematic.”

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“Once again, history and reality are replaced by dreams with little substance.”

Tesla: A Canary in the Wall Street Coal Mine (Barron’s)

Those who think today’s stock market is unlike that of 2000, when baseless enthusiasm pushed stocks up to wild valuations, only to collapse in subsequent years, should take another look. Do they remember counting eyeballs as a basis for value? Once again, history and reality are replaced by dreams with little substance. Tesla, in which I have a short position, is becoming the loudest canary in Wall Street’s coal mine. Tesla requires repetitive capital raises to fund persistent operating losses. This requires bullish analysts and holders to keep the stock aloft with projections of imagined earnings from future products, while they overlook existing businesses, which continue to lose vast sums of money. Morgan Stanley, one of Tesla’s major underwriters, has an analyst covering Tesla named Adam Jonas. Astonishingly, he raised his price target for the stock, despite recognizing the need to slash his earnings forecast.

In May, Jonas had estimated per-share losses (excluding stock-option expense) of $3.53 in 2017 and $1.14 in 2018, and a profit of $2.43 in 2019. His latest estimates: losses of $7.60 and $3.66, and a 2019 profit of $2.01. Raising the target price while more than doubling the company’s projected loss indicates the craziness of the times. Price targets are fantasies, discounting distant earnings estimates by analysts who show little accuracy in estimating only a year ahead. For most companies, profit is the major objective. Tesla is different because its founder is different. Elon Musk is driven by a mission to replace fossil fuels with renewable energy. Unlike companies seeking profit maximization by using patents to establish exclusive rights to products, Musk encourages competitors and has made virtually all of his patents available. Almost all auto companies have imminent plans to compete.

Tesla has been first-to-market in electric cars, but this in no way guarantees success, as competition and technological change are major challenges. Remember Atari, Blackberry, AOL, Napster, Netscape, and Palm? Musk is smart and imaginative, but none of his major companies are profitable. Tesla has been around for 14 years and has cumulatively lost more than $3.7 billion, despite the massive subsidies that it and its customers have received. SolarCity, also a beneficiary of alternative-energy subsidies, lost hundreds of millions of dollars before being bailed out by Tesla. As subsidies diminish, and competition emerges, profits will be even more elusive. Tesla tries to convey the illusion of inexhaustible demand for its cars, yet sales of the Model S and Model X have been flat for four quarters. Tesla’s rising inventory and shrinking deposits suggest declining demand.

Tesla claims to have more than 400,000 deposits for the Model 3, but these aren’t orders. They reflect a decision by potential buyers to get in line for a $7,500 tax credit at virtually no cost. Shifting $1,000 from a savings account into a refundable Tesla deposit costs only about $1 per year in lost interest. Fewer than 100,000 of these depositors will actually get full tax credits before Tesla consumes its allowable allotment of them. Its competitors will be able to offer such credits to prospective buyers, just as Tesla’s expire.

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Jockeying for votes?

UK Labour Party Makes Dramatic Shift On Brexit And Single Market (G.)

Labour is to announce a dramatic policy shift by backing continued membership of the EU single market beyond March 2019, when Britain leaves the EU, establishing a clear dividing line with the Tories on Brexit for the first time. In a move that positions it decisively as the party of “soft Brexit”, Labour will support full participation in the single market and customs union during a lengthy “transitional period” that it believes could last between two and four years after the day of departure, it is to announce on Sunday. This will mean that under a Labour government the UK would continue to abide by the EU’s free movement rules, accept the jurisdiction of the European court of justice on trade and economic issues, and pay into the EU budget for a period of years after Brexit, in the hope of lessening the shock of leaving to the UK economy.

In a further move that will delight many pro-EU Labour backers, Jeremy Corbyn’s party will also leave open the option of the UK remaining a member of the customs union and single market for good, beyond the end of the transitional period. Permanent long-term membership would only be considered if a Labour government could by then have persuaded the rest of the EU to agree to a special deal on immigration and changes to freedom of movement rules. The announcement, revealed in the Observer by the shadow Brexit secretary, Keir Starmer, means voters will have a clear choice between the two main parties on the UK’s future relations with the EU after a year in which Labour’s approach has been criticised for lacking definition and appeared at times hard to distinguish from that of the Tories.

The decision to stay inside the single market and abide by all EU rules during the transitional period, and possibly beyond, was agreed after a week of intense discussion at the top of the party. It was signed off by the leadership and key members of the shadow cabinet on Thursday, according to Starmer’s office.

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“..to reassure the masses that effective spells for favor of the Gods have been cast — except that in our civilization money is God.”

Controlled Demolition (Jim Kunstler)

This is the week-of-weeks when the official grand viziers of finance gather at Jackson Hole, Wyoming, to confab and interpret the lay of animal neck-bones and other auguries scattered in the sand, with the hope of steering the awesome powers of the universe this was or that as they affect the operations of money. The exercise is hardly different in function from the sort of rude ceremonials that took place on top of Sumerian ziggurats and Aztec temples — to reassure the masses that effective spells for favor of the Gods have been cast — except that in our civilization money is God. Or “money,” we should say, because the old definitions don’t fit so well anymore. It used to have a straightforward relationship with the work required to produce actual things of value, but those days are gone.

“Money” nowadays is a byproduct of wishful analytics and computer legerdemain seasoned with generous measures of fraud and larceny. This is a big problem when everything is measured in money and it becomes quite impossible to state with assurance what the value of money actually is. Obviously, you end up not knowing the value of anything. That’s the perilous situation the world faces. And since the USA is the straw the stirs the world’s drink — at least for now — the utterances emanating from Jackson Hole may determine which way that situation turns. We should suppose that the officers of the Federal Reserve are upright, well-intentioned, patriotic people. No doubt they think they are. But the perilous situation is largely one of their own making, and seems to be veering out of their control, and reputations are at stake.

Their task at this year’s Jackson Hole confab is to maintain the appearance of confidence in their own rituals. But with a kicker. That kicker is named T-r-u-m-p. This modern Balaam, riding the ass of the Deep State into wickedness, must be stopped, perhaps at all costs. On his way to the oval office last fall, Trump prophesied that the stock markets represented “one big, fat, ugly bubble.” That was an offense to the grand viziers, for whom the elevated stock market valuations stood as the main testament to their power and wisdom. In fact, it was the only testament, and a rather flimsy one. More recently, though, the wicked Trump changed his tune and declared that the tower of stock market exaltation was his own doing, setting himself up for the revenge of the grand viziers.

Since nothing else has worked so far to dislodge Trump from the White House, a tumbling tower of stocks might seal his fate. The tower has to fall anyway, lest the moiling masses of flyover America think about besetting Wall Street with pitchforks and torches. A controlled demolition might be just the thing to appease these suffering holders of three part-time jobs (if they are so lucky) who have stood by in wonder and nausea while a tiny fraction of the elite gather unto themselves all the dwindling riches of the realm — at least in paper securities denominated in US dollars — while the wicked Trump will be left to the jackals of the Deep State, to be torn apart with the 25th Amenedment.

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Elizabeth War(ren).

The War That Time Forgot (CP)

If it’s Independence Day, then you can count on John McCain to be bunkered down in a remote outpost of the Empire growling for the Pentagon to unleash airstrikes on some unruly nation, tribe or gang. This July the Fourth found McCain making a return engagement to Kabul, an arrival that must have prompted many Afghans to scramble for the nearest air raid shelter. From the press room at NATO command, McCain announced that “none of us could say we are on a course to success here in Afghanistan.” The senator should have paused for a reflective moment and then called for an end to the war. Instead, McCain demanded that Trump send more US troops, more bombers and more drones to terrorize a population that has been riven by near constant war since the late 1970s.

McCain’s martial drool is now as familiar as the opening notes to the “Law & Order” theme song. What may surprise some, however, is the composition of the delegation that signed up to travel on his frequent flier program, notably the presence of two Democratic Senators with soaring profiles: Sheldon Whitehouse and Elizabeth Warren. Whitehouse, the former prosecutor (aren’t they all?) from Rhode Island, has lately taken a star turn in the role of chief inquisitor of suspected Russian witches in the Senate intelligence committee hearings. Perhaps he finally located one selling AK-47s to the Taliban to replace the guns they’d gotten from the CIA. (We now know that it’s the Saudis–not the Russians–who have been covertly funneling money to the Taliban, though don’t expect the Trump to impose any sanctions on the Kingdom of the Head-choppers.)

For her part, Warren largely echoed McCain’s bellicose banter that Trump needs to double down militarily to finish off the Taliban, the impossible dream. No real surprise here. To the extent that she’s advanced any foreign policy positions during her stint in the senate, Warren has been a dutiful supplicant to the demands of AIPAC and the Council on Foreign Relations, rarely diverging from the neocon playbook for the global war on Islam. Warren’s Afghan junket is a sure sign of her swelling presidential ambitions. These days “national security” experience is measured almost exclusively by how much blood you are willing to spill in countries you know almost nothing about. It didn’t take long for Warren to matriculate to the company position.

[..] Nothing better illustrates the eclipse of US global power than the fact that Afghanistan refuses to be subjugated or even managed, despite 16 years of hard-core carnage. Since the first US airstrikes hit Kandahar in October 2001, more than 150,000 Afghan civilians have been killed. Still Afghanistan resists imperial dictates. Even after Obama’s shameful troop surge in 2010, an escalation that went almost unopposed by the US antiwar movement, the Taliban now retains almost as much control of the country as it did in 2001. And for that Afghanistan must be punished. Eternally, it seems.

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There’s always a new theory. Don’t let’s stop using as much of the stuff as we can.

It’s Time To Accept Carbon Capture Has Failed (Conv.)

For years, optimists have talked up carbon capture and storage (CCS) as an essential part of taking emissions out of electricity generation. Yes, build wind and solar farms, they have said, but they can t be relied on to produce enough power all the time. So we ll still need our fleet of fossil-fuel-burning power stations; we just need to stop them pumping carbon dioxide (CO2) into the atmosphere. Most of their emphasis has been on post-combustion capture. This involves removing CO2 from power station flue gases by absorbing them into an aqueous solution containing chemicals known as amines. You then extract the CO2 , compress it into a liquid and pump it into a storage facility the vision in the UK being to use depleted offshore oil and gas fields. One of the big attractions with such a system is it could be retrofitted to existing power stations.

But ten years after the UK government first announced a £1 billion competition to design CCS, we re not much further forward. The reason is summed up by the geologist Lord Oxburgh in his contribution to the government-commissioned report on CCS published last year: “There is no serious commercial incentive and it will stay that way unless the state demonstrates there is a business there.” The problem is that the process is costly and energy intensive. For a gas-fired power station, you typically have to burn 16% more gas to provide the capture power. Not only this, you end up with a 16% increase in emissions of other serious air pollutants like sulphur dioxide, nitrogen oxides and particulate matter. Concerns have also been expressed about the potential health effects of the amine solvent used in the carbon capture.

You then have to contend with the extra emissions from processing and transporting 16% more gas. And all this before you factor in the pipeline costs of the CO2 storage and the uncertainties around whether it might escape once you ve got it in the ground. Around the world, the only places CCS looks viable are where there are heavy state subsidies or substantial additional revenue streams, such as from enhanced oil recovery from oilfields where the COC is being pumped in. Well, say the carbon capture advocates, maybe another technology is the answer. They point to oxy-combustion, a system which is close to reaching fruition at a plant in Texas.

First proposed many years ago by British engineer Rodney Allam, this involves separating oxygen from air, burning the oxygen with the fossil fuel, and using the combustion products -water and CO2- to drive a high-pressure turbine and produce electricity. The hot CO2 is pressurised and recycled back into the burners, which improves thermal efficiency. It has the additional advantage that CO12 is also available at pressures suitable for pipeline transportation.

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Small is beautiful.

Industrial Farming Is Driving The Sixth Mass Extinction Of Life On Earth (Ind.)

Industrial agriculture is bringing about the mass extinction of life on Earth, according to a leading academic. Professor Raj Patel said mass deforestation to clear the ground for single crops like palm oil and soy, the creation of vast dead zones in the sea by fertiliser and other chemicals, and the pillaging of fishing grounds to make feed for livestock show giant corporations can not be trusted to produce food for the world. The author of bestselling book The Value of Nothing: How to Reshape Market Society and Redefine Democracy will be one of the keynote speakers at the Extinction and Livestock Conference in London in October. Organised by campaign groups Compassion in World Farming and WWF, it is being held amid rising concern that the rapid rate of species loss could ultimately result in the sixth mass extinction of life.

This is just one reason why geologists are considering declaring a new epoch of the Earth, called the Anthropocene, as the fossils of soon-to-be extinct animals will form a line in the rocks of the future. The last mass extinction, which finished off the dinosaurs and more than three-quarters of all life about 65 million years ago, was caused by an asteroid strike that sent clouds of smoke all around the world, blocking out the sun for about 18 months. Prof Patel, of the University of Texas at Austin, said: “The footprint of global agriculture is vast. Industrial agriculture is absolutely responsible for driving deforestation, absolutely responsible for pushing industrial monoculture, and that means it is responsible for species loss. “We’re losing species we have never heard of, those we’ve yet to put a name to and industrial agriculture is very much at the spear-tip of that.”

Speaking to The Independent, he pointed to a “dead zone” – an area of water where there is too little oxygen for most marine life – in the Gulf of Mexico that has grown to the same size as Wales because of vast amounts of fertiliser that has washed from farms in mainland US, into the Mississippi River and then into the ocean. “That dead zone isn’t an accident. It’s a requirement of industrial agriculture to get rid of the sh*t and the run-off elsewhere because you cannot make industrial agriculture workable unless you kick the costs somewhere else,” he said. “The story of industrial agriculture is all about externalising costs and exploiting nature.” “Extinction is about the elimination of diversity. What happens in Brazil and other places is you get green deserts — monocultures of soy and nothing else. “Various kinds of chemistry is deployed to make sure it is only soy that’s grown on these mega-farms. “That’s what extinction looks like. If you ever go to a soy plantation, animal life is incredibly rare. It’s only soy, there’s nothing there for anything to feed on.”

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Aug 112017
 
 August 11, 2017  Posted by at 8:36 am Finance Tagged with: , , , , , , , ,  7 Responses »
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Jackson Pollock Reflection of the Big Dipper 1947

 

It’s Hard to Price an ‘Extinction Event’ Like a North Korea War (BBG)
In Debt We Trust for US Consumers With $12.7 Trillion Burden (BBG)
Tesla Cars Aren’t As Carbon (And Taxpayer) Friendly As You Think (FMS)
Uber Gets Run Over by its Own Subprime Auto Leases (WS)
Amazon Online Grocery Boom? Not So Fast… (WS)
Amazon Paid Just £15 Million In Tax On European Revenues Of £19.5 Billion (G.)
Airbnb Faces EU Clampdown For Not Paying ‘Fair Share’ Of Tax (G.)
Trump Will Soon Declare State Of Emergency Over Opioid Crisis (G.)
Why Saudi Arabia And Israel Have United Against Al-Jazeera (FIsk)
‘Subprime Is Contained’ -They Really Don’t Know What They Are Doing (Snider)
What Went Wrong With the 21st Century? (Bonner)
Black Swan At Bavarian Palace Seeks Partner (DW)

 

 

There are many voices saying crazy things in this North Korea thing, and I’m not even watching CNN. But this is the craziest thing of all: how to make money off a nuclear attack. These people are mentally blind.

It’s Hard to Price an ‘Extinction Event’ Like a North Korea War (BBG)

Financial markets haven’t really reacted much to the escalation in tensions between the U.S. and North Korea, and some observers explain that it’s largely because in the worst-case scenario it’s impossible to guess the appropriate price for things like stocks and bonds. “It’s hard to price a potentially extinction event (at least for much of the Korean peninsula),” is how Timothy Ash, a senior strategist at Bluebay Asset Management in London, puts it. It’s a point also made by Mark Mobius, the Templeton Emerging Markets Group executive chairman and apostle for emerging-market investing. He said in a May interview about the prospect of a North Korean nuclear conflict: “there’s nothing you can do about it – if something breaks out, we’re all finished anyway.” Maybe that’s why the worst day this year for the Kospi index of South Korean stocks was July 28, which was all about a global tech-stock retreat and nothing to do with geopolitics.

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“This increase in leverage has sapped our ability to spend,” Roberts said. “I think we’re stuck.”

In Debt We Trust for US Consumers With $12.7 Trillion Burden (BBG)

After deleveraging in the aftermath of the last U.S. recession, Americans have once again taken on record debt loads that risk holding back the world’s largest economy. Household debt outstanding – everything from mortgages to credit cards to car loans – reached $12.7 trillion in the first quarter, surpassing the previous peak in 2008 before the effects of the housing market collapse took its toll, Federal Reserve Bank of New York data show. To put the borrowing in perspective, it’s more than the size of China’s economy or almost four times that of Germany’s. People are borrowing more not necessarily because they’re confident about their financial prospects. They’re doing it for necessities like education or transportation and, in many cases, just to get by.

On the surface, liabilities at an all-time high aren’t alarming when the assets side of ledger is taken into account. Household net worth stands at a record $94.8 trillion, thanks to rebounding home values and soaring stock portfolios. But that increase has primarily benefited the nation’s wealthiest, said Lance Roberts, chief investment strategist at Clarity Financial in Houston and editor of the Real Investment Advice newsletter. “When you look at net worth, it’s heavily skewed by the top 10%,” Roberts said. “The average family of four is living paycheck to paycheck.” For most Americans, whose median household income, adjusted for inflation, is lower than it was at its peak in 1999, borrowing has been the answer to maintaining their standard of living. The increase in debt helps explain why the economy’s main source of fuel is providing less of boost than in the past.

Personal spending growth has averaged 2.4% since the recession ended in 2009, less than the 3% of the previous expansion and 4.3% from 1982-90. A look at worker pay presents a more dire backdrop for discretionary spending for those without a lot of assets. While the difference between income from wages and household debt has improved since the last recession, it’s been leveling off and remains at a depressed level. The improvement also reflects less mortgage debt because of increased home foreclosures, rather than a pickup in earnings. “This increase in leverage has sapped our ability to spend,” Roberts said. “I think we’re stuck.”

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A series of articles on today’s new marvels, Tesla, Uber, Amazon, Airbnb. They all fall to bits, one by one.

Tesla is a highly destructive company. All it takes is a basic understanding of thermodynamics. Strip-mining, cutting down forests, throwing the Congo into even deeper misery, just so you can fool yourself into thinking you’re clean.

Tesla Cars Aren’t As Carbon (And Taxpayer) Friendly As You Think (FMS)

Tesla proponents love to remind people how their vehicles are “carbon free” (in spite of Tesla CEO Elon Musk’s own carbon profligate lifestyle): Fact: the Tesla Model S is an environmentally friendly, zero emissions electric vehicle that won’t pollute the air like gas-powered cars. Carbon emissions from a gas car’s tailpipe has a dangerous impact on global warming…. In addition, Tesla CEO Elon Musk explains that, “combustion cars emit toxic gases. According to an MIT study, there are 53,000 deaths per year in the U.S. alone from auto emissions.” But in reminding people about how they don’t burn fossil fuels, they make sure to omit and/or obfuscate all the other emissions-laden factors that go into production of Tesla automobiles, including the oft-unspoken costs of the vehicles to the taxpayer and to other auto manufacturers.

Start with the power source for the Tesla; their electric power plant uses lithium-ion batteries to store the electricity required to run the car. And while a good amount of lithium is produced at salt lake brines that use chemical processes to extract the requisite lithium… …a large (and growing) amount of lithium is sourced from hard-rock mining, which is also referred to as strip mining: This type of mining involves not just all the carbon used to extract the lithium from mines, it “strips” the land of its forests, which is far more environmentally (and carbon) detrimental. And while it is likely impossible to know exactly where Tesla sources its materials from, a closer examination on Tesla’s impact on the mining industry should paint a crystal clear picture:

Should the concept capture the imagination of Americans who are increasingly conscious of reducing their carbon footprint demand for these crucial elements could skyrocket in addition to the already robust global demand for lithium, nickel and copper. Major mining companies are already “future proofing” their businesses for climate change by focusing more investment into commodities that will be required by the renewable energy industry. You can’t make this stuff up – Tesla and other renewable energy industries are going to save the world by mining its natural resources to excess, without regard for the environmental impact and carbon emissions generated in the process. You shouldn’t be surprised to seldom hear this mentioned by Elon Musk, or the liberal crowd that champions electric vehicles.

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This is too insane to be labelled a ‘business model’.

Uber Gets Run Over by its Own Subprime Auto Leases (WS)

Uber, which has lost $3 billion last year and has gotten itself into a thicket of intractable issues and scandals that cost founder and CEO Travis Kalanick his job, is now facing a subprime auto-leasing crisis. Two years ago when these folks launched the subprime auto leasing program to put their badly paid drivers into new vehicles they couldn’t otherwise afford, they apparently didn’t do the math. In July 2015, when the “Xchange Leasing” program was announced, the company gushed: “We’re excited about how these new solutions meet drivers’ unique needs, and offer more and better choices and greater flexibility than ever before.” The leasing program would be “administered by an Uber subsidiary and designed to fit with the flexibility that drivers value most,” it said. This is how it would work:

Unlike most multi-year leases that have high fees for early termination, drivers who participate in Xchange for at least 30 days will be able to return the car with only two weeks notice, and limited additional costs. The program allows for unlimited mileage and the option to lease a used car, with routine maintenance also included. It wasn’t supposed to be a money maker – nothing at Uber is. But hey. And the company invested $600 million in the business, “people familiar with the matter” told the Wall Street Journal. This type of lease was offered to drivers with subprime credit ratings or no credit ratings who barely earned enough money to get by and make the payments, if they stuck around long enough. It allowed drivers to drive new cars. When it didn’t work out for them, they could return the cars after 30 days with two weeks’ notice.

The only penalty for the early return is that Uber keeps the $250 deposit. And these leases came with “unlimited miles.” No one in the car business would ever conceive of such a thing. But Uber is different. It defies the laws of economics. Or so it thought at the time. Now, the 14-member executive committee that is running the show looked at the math and was horrified. “According to people familiar with the matter,” cited by The Journal, executives had briefed the committee in July: “The Xchange Leasing division had been estimating modest losses of around $500 per auto on average, these people said. But managers recently informed Uber executives that the losses were actually about $9,000 per car — about half the sticker price of a typical leased vehicle.”

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So your ass can shoot roots into your couch. Yeah, that’s a valid business model.

Amazon Online Grocery Boom? Not So Fast… (WS)

Maybe Amazon has figured out that you’re not the only one who isn’t buying groceries online. Maybe it has figured out, despite all the money it has thrown at it, that selling groceries online is a very tough nut to crack. And no one has cracked it yet. Numerous companies have been trying. Safeway started an online store and delivery service during the dotcom bubble and has made practically no headway. A plethora of startups, brick-and-mortar retailers, and online retailers have tried it, including the biggest gorillas of all — Walmart, Amazon, and Google. Google is trying it in conjunction with Costco and others. It just isn’t catching on. And this has baffled many smart minds. Online sales in other products are skyrocketing and wiping out the businesses of brick-and-mortar retailers along the way. But groceries?

That’s one of the reasons Amazon is eager to shell out $14.7 billion to buy Whole Foods, its biggest acquisition ever, dwarfing its prior biggest acquisition, Zappos, an online shoe seller, for $850 million. Amazon cannot figure out either how to sell groceries online though it has tried for years. Now it’s looking for a new model — namely the old model in revised form? This is why everyone who’s online wants to get a piece of the grocery pie: The pie is big. Monthly sales at grocery stores in June seasonally adjusted were $53 billion. For the year 2016, sales amounted to $625 billion: But it’s going to be very tough for online retailers to muscle into this brick-and-mortar space, according to Gallup, based on its annual Consumption Habits survey, conducted in July. Consumers just aren’t doing it:

Only 9% of US households say they order groceries online at least once a month, either for pickup or delivery. Only 4% do so at least once a week. By contrast, someone in nearly all households (98%) goes to brick-and-mortar grocery stores at least once a month, and 83% go at least once a week. Gallup summarizes the quandary: At this point, online grocery shopping appears to be an adjunct to retail shopping rather than a replacement, as most shoppers whose families purchase groceries online once or twice a month or more say they still visit a store to buy groceries at least once a week. But there are some differences by age group – and maybe that’s where Amazon sees some distant hope: Of the 18-29 year olds, 15% shop for groceries on line at least once a month. For 30-49 year olds, this drops to 12%. For 50-64 year olds, it drops to 10%. For those 65 and older, it essentially fades out (2%).

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No profit, just working on a monopoly. Cut it down.

Amazon Paid Just £15 Million In Tax On European Revenues Of £19.5 Billion (G.)

Amazon paid just €16.5m (£15m) in tax on European revenues of €21.6bn (£19.5bn) reported through Luxembourg in 2016. The figures, published in Amazon’s latest annual accounts for its European online retail business, are likely to reignite the debate about US tech companies using complex crossborder arrangements to minimise the tax they pay across the continent. Separately, Amazon UK Services – the company’s warehouse and logistics operation that employs almost two-thirds of its 24,000 UK staff – more than halved its declared UK corporation tax bill from £15.8m to £7.4m year-on-year in 2016. The cut came despite turnover at the UK business, which handles the packing and delivery of parcels and functions such as customer service, rising from £946m to £1.46bn.

Ana Arendar, Oxfam’s head of inequality, said: “Despite some action by ministers and companies, widespread corporate tax avoidance continues to cost both rich and poor countries billions every year that could pay for schools and lifesaving healthcare. “We urgently need comprehensive public country-by-country reporting for multinationals to ensure they pay their fair share of tax – the UK government should implement this by the end of 2019 – unilaterally if necessary.” Amazon Europe, which is based in Luxembourg and aggregates the billions of pounds of sales the retailer makes from individual countries across the continent, reported a pre-tax profit of €59.6m last year. As a result the company, which clocked up €21.6bn in sales across Europe last year, had a tax bill of just €16.5m.

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This seems the easiest thing to contain. 90% of it is advertized online. Take average occupancy in a city, at average prices, and tax them on it.

Airbnb Faces EU Clampdown For Not Paying ‘Fair Share’ Of Tax (G.)

EU finance ministers will discuss how to force home-sharing platforms such as Airbnb to pay their fair share of taxes and in the right tax domains next month after the French minister for the economy described the current situation as “unacceptable”. The European commission announced on Thursday that a joint proposal from France and Germany would be discussed at a meeting in Tallinn, Estonia, on 16 September. Brussels will also advise on how best to deal with the so-called sharing economy, in which Airbnb is a major player. It was revealed this week that Airbnb paid less than €100,000 (£90,336) in French taxes last year, despite the country being the room-booking firm’s second-biggest market after the US.

In response, the French economy minister, Bruno Le Maire, informed the national assembly that the EU’s Franco-German axis would be proposing a pan-European clampdown. “These digital platforms make tens of millions of sales and the French treasury gets a few tens of thousands,” the minister said, adding that the current setup was “unacceptable”. Le Maire further claimed in parliament that an ongoing consultation being led by the commission and the OECD to address the tax question were “taking too much time, it’s all too complicated”. Many digital platforms operating in the EU have a base in Ireland, including Airbnb, where they can exploit a low corporation tax regime. Le Maire said: “Everybody has to pay a fair contribution.”

I[..] Paris city council has already voted to make it mandatory from 1 December to obtain a registration number from the town hall before posting an advertisement for a short-term rental on its website. The ruling potentially makes it harder for property owners using Airbnb to exceed the 120 days a year legal rental limit for a main residence, and easier for the authorities to collect local taxes. In Barcelona, where tensions have been rising for years over the surge in visitors, the impact of sites such as Airbnb on the local housing market has led to anti-tourist protests. In Mallorca and San Sebastián, an anti-tourism march is being planned for 17 August to coincide with Semana Grande, a major festival of Basque culture.

In Ibiza, the authorities are placing a cap on the number of beds for tourists. Owners will also be banned from renting their homes, or rooms within them, via websites such as Airbnb and Homeaway unless they obtain a licence. Owners face fines of up to €400,000 if they break the law. The websites face the same fine for letting people advertise without a valid licence number.

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Cut out the stupid pharma ads and you’re halfway there.

Trump Will Soon Declare State Of Emergency Over Opioid Crisis (G.)

Donald Trump signaled he could soon declare a state of emergency in an attempt to deal with America’s opioid overdose crisis. A commission reporting to the president said recently that declaring a state of emergency was its “first and most urgent recommendation”. But Trump, in his first remarks on the subject, appeared to set his face against treating the epidemic as a health emergency – calling instead for tougher prison sentences and “strong, strong law enforcement”. However, returning to the issue on Thursday, Trump seemed to have changed his tone. “We’re going to draw it up and we’re going to make it a national emergency,” he said, adding the administration is “drawing documents now to so attest”. “It is a serious problem the likes of which we have never had,” Trump said at his Bedminster, New Jersey, golf resort, where he is on a “working vacation”.

The president can declare a state of emergency two legal ways: he could use the Stafford Act, or the Public Health Service Act, which is specific to health emergencies and can be declared by the health secretary. “When I was growing up they had the LSD, and they had certain generations of drugs,” Trump said. “There’s never been anything like what’s happened to this country over the last four or five years. And I have to say this in all fairness, this is a worldwide problem, not just a United States problem. This is happening worldwide.” In fact, while drug overdoses happen all over the world, the US leads by a significant margin. Though the nation has just 4% of the world’s population, the US also has 27% of the world’s drug overdose deaths, according to the UN’s 2017 World Drug Report. For example, for every million Americans between 15 and 64 years old, 245 people per year die of drug overdoses. In Mexico, 4 people per million die of drug overdoses.

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Best friends.

Why Saudi Arabia And Israel Have United Against Al-Jazeera (FIsk)

Being an irrational optimist, there’s an innocent side of my scratched journalistic hide that still believes in education and wisdom and compassion. There are still honourable Israelis who demand a state for the Palestinians; there are well-educated Saudis who object to the crazed Wahhabism upon which their kingdom is founded; there are millions of Americans, from sea to shining sea, who do not believe that Iran is their enemy nor Saudi Arabia their friend. But the problem today in both East and West is that our governments are not our friends. They are our oppressors or masters, suppressors of the truth and allies of the unjust.

Netanyahu wants to close down Al Jazeera’s office in Jerusalem. Crown Prince Mohammad wants to close down Al Jazeera’s office in Qatar. Bush actually did bomb Al Jazeera’s offices in Kabul and Baghdad. Theresa May decided to hide a government report on funding “terrorism”, lest it upset the Saudis – which is precisely the same reason Blair closed down a UK police enquiry into alleged BAE-Saudi bribery 10 years earlier. And we wonder why we go to war in the Middle East. And we wonder why Sunni Isis exists, un-bombed by Israel, funded by Sunni Gulf Arabs, its fellow Sunni Salafists cosseted by our wretched presidents and prime ministers. I guess we better keep an eye on Al Jazeera – while it’s still around.

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And these guys are still seen as authorities. They may be dumb, but they’re not the dumbest.

‘Subprime Is Contained’ -They Really Don’t Know What They Are Doing (Snider)

Ben Bernanke, then Chairman of the Federal Reserve, told Congress in March 2007 that subprime was contained. He will rightfully be remembered in infamy for that, but that wasn’t the most egregious example of being wrong. Even putting it in those terms risks understating the problem and why it stubbornly lingers. Being really wrong is claiming that IOER will establish a floor for money market rates, and then finding out it actually doesn’t. No, what policymakers did especially in the early crisis period was altogether worse; they demonstrated conclusively that though they shared this world with the rest of us, they inhabited and continue to inhabit a totally different planet. Given the anniversary date and our human affinity for round numbers (ten years or a lost decade), there is a desire to revisit some of the worst of the list which happened just before August 9, 2007. My favorite has always been Bill Dudley, as I recounted last at the ninth anniversary of nothing being done:

As far as the issue of material nonpublic information that shows worse problems than are in the newspapers, I’m not sure exactly how to characterize that because I guess I wouldn’t know how to characterize how bad the newspapers think these problems are. [Laughter] We’ve done quite a bit of work trying to identify some of the funding questions surrounding Bear Stearns, Countrywide, and some of the commercial paper programs. There is some strain, but so far it looks as though nothing is really imminent in those areas.” [emphasis added]

He spoke those words, recorded for posterity, on August 7, 2007, at the regular FOMC policy meeting. As noted earlier today, both Countrywide and the whole commercial paper market would be decimated really within hours from his “inspiring” confidence. What really stands out is for Dudley to have been the one who said them, because as head of the Open Market Desk he had to be technically proficient in a way that the others could avoid (and why so often in its history policy discussions especially about these great things would often flow through whomever was the Open Market Desk chief at that moment in time). He proved still to be an empty suit like the rest, but he was always that much less of one. So if the best the Fed had to offer was so thoroughly unaware, is it any wonder what happened then and continues to happen now?

One day after Dudley’s private embarrassment, one Bank of England governor and future chief perhaps joined his level in the Hall of Fame of Famous Last Words. Meryn King remarked on August 8, 2007: “So far what we have seen is not a threat to the financial system. It’s not an international financial crisis.” He said these words at the behest of the ECB in front of the assembled press ostensibly to impart calm. Also noted earlier today, it was the European Central Bank that made the first crisis move the very next day in a record liquidity injection.

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“There’s nothing like it. Get on the wrong side of time, and you are out of luck.”

What Went Wrong With the 21st Century? (Bonner)

And it’s Time Time Time
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And it’s Time Time Time
That you love
And it’s Time Time Time

To bring readers fully up to speed, the 21st century has been a flaming dud. In practically every way. Despite more new technology than ever… more PhDs… more researchers… more patents… more earnest strivers than ever before sweating to move things ahead… and despite more “stimulus” from the Fed ($3.6 trillion) than ever in history…U.S. GDP growth rates are only half of those of the last century. And household incomes, after you factor in inflation, are flat. In fact, by some calculations – using non-fiddled measures of inflation – growth has been negative for the whole 21st century. Meanwhile, there are more people tending bar or waiting tables… and fewer people with full-time breadwinner jobs. And productivity and personal savings rates have collapsed.

And those are only the measurable trends. Political and social developments have been similarly dud-ish – including the longest, losingest war in U.S. history… the biggest government deficits… the most vulgar public life… the least personal freedom… and, in our hometown, Baltimore, a record murder rate. What went wrong? Herewith, a hypothesis. It suggests three “causes,” all three linked by a single shared element: time.

[..] Fake money causes people to waste time and money. And central bank policies discourage savings by lowering interest rates… even pushing them into negative territory. Instead of saving them for the future… resources are consumed today. These mistakes accumulate as debt… which then forces people to spend more time servicing the mistakes of the past. Meanwhile, the internet gives people a new way to waste time. At home. At work. On the high plains. Or in the lowlife back alleys. People spend their precious time on idle distractions and entertainments. That leaves fewer people doing the real work that progress requires – saving, investing, and working for the future. Time is always the ultimate constraint. You can substitute one resource for another. You can switch from oil to solar… or copper to aluminum. But there’s no swapping out time. There’s nothing like it. Get on the wrong side of time, and you are out of luck.

Read more …

Oh please, can I include this? Just so Nassim Taleb knows black swans get lonely?! Like they’re unqiue but they do come in pairs… Philosophical intrigue galore.

Black Swan At Bavarian Palace Seeks Partner (DW)

The Rosenau Palace in southern Germany has published a lonely hearts ad on behalf of its resident black swan. Ground keepers believe the bird’s former companion was eaten by a fox. The department that oversees state-owned palaces, gardens and lakes in the southern state of Bavaria sent out its rather unusual appeal to the public on Thursday. “The sex of the animal isn’t important,” a message on the department’s website read. “Ideally it should be more than three years old, but this isn’t an absolute must.” The department has been on the lookout for a match since May, when one of the two black swans that lived in the palace grounds disappeared. Palace gardeners later found bones and feathers in one of the park’s bushes. “He was probably eaten by a fox,” the department concluded.

Rosenau garden department head Steffen Schubert has been sending out enquiries every day to try and locate a candidate – without success. Finding a replacement isn’t just about sparing the surviving swan from loneliness, he says. “Swans have a special significance in the history of Rosenau Palace and park,” he said. Black swans were reportedly first introduced to the palace grounds by Britain’s Queen Victoria as a symbol of mourning following the premature death of her husband Prince Albert, who was born at Rosenau Palace in 1819. The royals visited the palace together in 1845, five years after they were married. In her memoirs, the queen wrote: “If I were not who I am, this would be my real home.” The palace, near the town of Coburg in northern Bavaria, is home to Swan Lake and Prince’s Pond.

In its statement, the department said the new swan would have a good life, with a 2-hectare lake and a newly built “swan house” at its disposal. In the chillier months, the birds also have winter quarters with water access and are fed every day. The department said it would go itself to pick up the bird if a member of the public was willing to donate a swan to the grounds. “We hope our swan does not have to be alone for too long,” a spokeswoman for the palace management told German news agency DPA.

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Feb 262017
 
 February 26, 2017  Posted by at 9:29 am Finance Tagged with: , , , , , , ,  6 Responses »
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DPC Elephants in Luna Park promenade, Coney Island 1905

 

President Trump: Replace The Dollar With Gold (F.)
Marine Le Pen’s Aides Meet With Bankers To Discuss Euro Exit (BBG)
Dutch Parliament Commissions Report On Future Of Euro (R.)
Dutch Voters Are About To Set The Stage For Europe’s Elections (G.)
Fannie, Freddie Investors Lose In Court (Econ.)
Underground Network Readies Homes To Hide Undocumented Immigrants (CNN)
Washington Governor Bans Employees From Aiding Trump Immigration Crackdown (I.)
Be Clear About What Happened To Keith Ellison (Bruenig)
Half of Germans Against Debt Relief For Greece (R.)
The Living Fabric Of The World Is Slipping Through Our Fingers (G.)

 

 

Using the Fed to go for gold?

President Trump: Replace The Dollar With Gold (F.)

What would be the outcome of Trump’s following his instincts and going for the gold? Prosperity, that’s what. Former Fed Chairman Alan Greenspan just provided a barely noticed Big Reveal. In an interview with the World Gold Council’s Gold Investor Chairman Greenspan, stating “I view gold as the primary global currency,” went on to explicitly reveal, for the first time to my knowledge, that “When I was Chair of the Federal Reserve I used to testify before US Congressman Ron Paul, who was a very strong advocate of gold. We had some interesting discussions. I told him that US monetary policy tried to follow signals that a gold standard would have created.”

The period of “following signals that a gold standard would have created,” called the Great Moderation under President Clinton, was one of the most equitably prosperous in modern American history. That era saw the creation of over 20 million jobs. Robust growth converted the federal deficit into a surplus. It was, if only virtually rather than institutionally, a golden age. After the Fed abandoned its Great Moderation America experienced almost no net job creation under President George W. Bush and very mediocre job creation under President Obama. Sad! I want the American Dream back. We all do, very much including President Trump. How might President Trump go about turning this around? He has a unique opening to forcefully pivot America toward epic prosperity.

As Paul-Martin Foss of the Menger Center astutely points out the Federal Reserve Board currently has three vacancies. If Trump were to fill those vacancies with three sophisticated gold standard advocates from the short list of Lewis E. Lehrman (whose eponymous Institute I formerly served), Dr. Judy Shelton (who served as an advisor on his presidential economic transition team), former presidential candidate Steve Forbes, and John Allison, former CEO of BB&T (preferably as vice chairman for regulation) the president would create a super “beachhead team” at the Fed to seriously restore equitable prosperity.

These appointments would be the safe and sure first steps out of economic stagnation for America. Couple these with a White House “Team B” to plan the enactment of the Jack Kemp Gold Standard Act and removal of the regulatory and tax barriers to using gold as currency. Then watch an American economic miracle take place. Mr. President: “No such thing as a global currency?” The dollar is the global currency. Want prosperity? Heed Chairman Greenspan and do not just view but restore “gold as the primary global currency.” President Trump: replace the dollar with gold as the global currency to make America great again. We have the gold.

Read more …

Not if but when.

Marine Le Pen’s Aides Meet With Bankers To Discuss Euro Exit (BBG)

Top advisers to French presidential candidate Marine Le Pen have met with strategists and analysts from BlackRock, Barclays and UBS, among other firms to explain their economic program and plans to withdraw France from the euro. While such meetings are common for campaign officials from mainstream parties in France and other European countries, this is the first time Le Pen’s National Front has been approached, the candidate’s chief economic adviser Bernard Monot and her business aide Mikael Sala said in interviews. In the last seven months, they have met with analysts from British and American financial institutions in Paris, Brussels and Strasbourg at the firms’ request.

The interest from financial markets underlines how seriously financial analysts take the possibility that Le Pen may win power in the euro zone’s second-largest economy. Polls have shown her holding a lead in the first round of voting for more than a year, though all surveys predict that she will also lose the run-off ballot on May 7. “These strategists see that Le Pen may be the next president of France and they are doing their due diligence,” Monot said. “They’re very much looking for a detailed account of our plans.” Monot and Sala, who head Le Pen’s business advisory council Croissance Bleu Marine, said they also met or spoke with representatives from the Medley Advisors and CheckRisk consultancies. Monot added that he met with U.S. pension funds without naming them.

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Every EU country should do this, and do it honestly.

Dutch Parliament Commissions Report On Future Of Euro (R.)

The Netherlands’ future relationship with the euro will be comprehensively debated by its parliament following elections in March, after lawmakers commissioned a report on the currency’s future. The motion approving the investigation by the Council of State, the government’s legal advisor, coincides with a rising tide of euroscepticism in Europe, which populist parties are hoping to tap into in a series of national elections this year also taking in euro zone powerhouses France and Germany. The probe will examine whether it would be possible for the Dutch to withdraw from the single currency, and if so how, said lawmaker Pieter Omtzigt. Omtzigt, of the opposition Christian Democrats, tabled the parliamentary motion calling for the investigation, which legislators passed unanimously late on Thursday.

It was prompted by concerns the ECB’s ultra-low interest rates are hurting Dutch savers, especially pensioners, and doubts as to whether its bond purchasing programmes are legal, he said. Its findings will be presented in several months, by which time the make-up of parliament will have changed dramatically. While most Dutch voters say they favour retaining the euro, the eurosceptic far-right party of Geert Wilders is expected to book large gains though it is unlikely to win enough votes to form a government. The most probable outcome of the March 15 vote is a new centrist coalition including some parties, such as Omtzigt’s Christian Democrats, that have been vocal in their opposition to current ECB policy. “The problems with the euro have not been solved,” Omtzigt said. “This is a way for us to look at ways forward with no taboos.” Thursday’s motion instructs the Council to look at “what political and institutional options are open for the euro,” and “what are the advantages and disadvantages of each.”

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“Whatever the outcome, it will only strengthen political dissatisfaction, creating more fragmentation and polarisation, leading to even less loyalty and even more voice.”

Dutch Voters Are About To Set The Stage For Europe’s Elections (G.)

Across Europe, we can see three trends in elections, which can be described in the famous terms of the German-American economist Albert Hirschman: exit, voice and loyalty. In two of these the Dutch lead the way, but one bucks the broader trend. To start with exit (non-voting), throughout Europe turnout in national and European elections has been dropping. Although the trend is not universal, the past 10 years has seen a sharp drop in several countries. Perhaps most shocking is the situation in Greece, a country that has compulsory voting, although it is not really enforced. In 1985 the abstention rate in national elections was “just” 16.2%, in 2004 it was 23.4%, and in the last elections, in September 2015, it was a staggering 44%. In other words, in a country with compulsory voting a modest majority of 56% turned out.

Compared with that, the decrease in turnout in Dutch national elections is modest: in 1986 turnout was 86% and in the last two elections it was still a commendable 75%. Expectations are that turnout might actually go up in this year’s elections. With regard to loyalty (the vote for established parties), the Netherlands is very much in line with the European trend. Most European countries have seen a sharp decline in electoral support for established parties. While this development is related to societal changes that date back to the 1960s and 1970s, such as secularisation and a shrinking working class, the decline of the established parties only became a broader issue in the 1990s, and has significantly increased during the great recession. The process has been particularly pronounced in the Netherlands.

Throughout the 1980s the three established parties – the Christian democratic CDA, the social democratic PvdA, and the conservative VVD – received around 80% of the vote. In 2002 that dropped to about 60% as a consequence of the rise of Fortuyn’s LPF, and it stayed like that until 2012 – although Rutte’s VVD is now bigger than the CDA and the PvdA. However, in the most recent polls the three parties only have some 40% of the vote, half of what they had in the 1980s. At the same time, voice (the support for populist parties) has increased significantly. In the 1980s populist parties barely got more than a few seats in parliament, whereas in 2002 the left populist SP and Fortuyn’s right populist LPF together gained more than 20%. In the latest polls Wilders’s PVV is the largest party, or at least running neck-and-neck with the Rutte’s VVD, while the SP is struggling a bit – and has become less populist. Together they are close to 30% of the vote, of which the PVV would get almost two-thirds.

[..] The two most likely outcomes of the Dutch elections are either a very broad coalition of four or five parties, with or without Wilders’s PVV, or a minority government, dependent upon temporary coalitions to get some policies through. Whatever the outcome, it will only strengthen political dissatisfaction, creating more fragmentation and polarisation, leading to even less loyalty and even more voice. That is the main European lesson of the Dutch elections.

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Wait till the new bubble pops too, and the hedge funds want to transfer their losses to the public.

Fannie, Freddie Investors Lose In Court (Econ.)

One unresolved issue from the financial crisis is the future of Fannie Mae and Freddie Mac, the two firms that stand behind much of America’s housing market. Fannie and Freddie purchase mortgages, bundle them into securities and sell them on to investors with a guarantee. When America’s housing market collapsed a decade ago, the government had to bail them out. Its treatment of the firms since then has created a titanic legal struggle. Shareholders have cried foul. On February 21st, a federal appeals court upheld a ruling in the government’s favour. At issue is the Obama administration’s decision in 2012 to hoover up all of Fannie and Freddie’s profits. Until then, it had received a fixed dividend on its investment. The timing of the shift was striking—just before a surge in the firms’ profitability. Since 2008 the Treasury has sucked in about $250bn from the firms, 30% more than the cost of the bail-out.

The change enraged hedge funds who had bought Fannie and Freddie’s shares and found themselves expropriated. The investors’ lawsuit held that the government overstepped its authority by seizing all profits. A federal court dismissed that claim in 2014; it has taken until now for an appeals court to uphold the most important parts of the decision. An odd aspect of the ruling is that it largely ignored the substantive arguments but concluded the court lacked the authority to curb the government’s actions. Its ruling sent shares in Fannie and Freddie tumbling (see chart). That reversed about half of the rally sparked by Donald Trump’s victory in the presidential election. Investors reckon that Mr Trump’s administration will be more favourable to Fannie and Freddie’s investors. Initially Steve Mnuchin, now treasury secretary, told a business-news network that Fannie and Freddie should be privatised again.

But in his confirmation hearing before the Senate in January, he seemed to roll back those remarks. The firms are hardly robust. The Treasury is running down their capital by $600m a year. By 2018 they will have none left. From then on, should the firms make a loss, they will need to draw on an emergency line of credit from the government. Doing so would be characterised by some as a second bail-out. That worrying prospect should provide some impetus to the search for an alternative solution. But it will be hard to find an ownership structure for Fannie and Freddie that satisfies everyone. The firms keep mortgages cheap by lumping taxpayers with a staggering amount of risk. (If the housing market collapsed, the cost to the Treasury could be 2-4% of GDP, according to an analysis by The Economist). Few will want investors to make profits on the back of such a taxpayer guarantee.

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Oh man, it’s WWII in Europe. The Underground Railroad in the US. And here we were thinking that was in the past.

Underground Network Readies Homes To Hide Undocumented Immigrants (CNN)

A hammer pounds away in the living room of a middle class home. A sanding machine smoothes the grain of the wood floor in the dining room. But this home Pastor Ada Valiente is showing off in Los Angeles, with its refurbished floors, is no ordinary home. “It would be three families we host here,” Valiente says. By “host,” she means provide refuge to people who may be sought by US Immigration and Customs Enforcement, known as ICE. The families staying here would be undocumented immigrants, fearing an ICE raid and possible deportation. The purchase of this home is part of a network formed by Los Angeles religious leaders across faiths in the wake of Donald Trump’s election. The intent is to shelter hundreds, possibly thousands of undocumented people in safe houses across Southern California. The goal is to offer another sanctuary beyond religious buildings or schools, ones that require federal authorities to obtain warrants before entering the homes.

“That’s what we need to do as a community to keep families together,” Valiente says. At another Los Angeles neighborhood miles away, a Jewish man shows off a sparsely decorated spare bedroom in his home. White sheets on the bed and the clean, adjacent full bathroom bear all the markers of an impending visit. The man, who asked not to be identified, pictures an undocumented woman and her children who may find refuge in his home someday. The man says he’s never been in trouble before and has difficulty picturing that moment. But he’s well educated and understands the Fourth Amendment, which gives people the right to be secure in their homes, against unreasonable searches and seizures. He’s pictured the moment if ICE were to knock on his door. “I definitely won’t let them in. That’s our legal right,” he says. “If they have a warrant, then they can come in. I can imagine that could be scary, but I feel the consequences of being passive in this moment is a little scary.”

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Great legal battles.

Washington Governor Bans Employees From Aiding Trump Immigration Crackdown (I.)

A state governor has banned his employees from cooperating with Donald Trump’s policies on immigration. Jay Inslee signed an executive order that bars the state of Washington’s agencies from denying services to people based on their citizenship or legal status and from helping detain immigrants for breaking civil rules. It came after memos were released by Homeland Security Secretary John Kelly showing his department planned to prioritise the removal of undocumented immigrants who “have been convicted of any criminal offence”, following directives from the President. This will include those who “have abused any programme related to receipt of public benefits”.

Governor Inslee said: “Washington will not be a willing participant in promoting or carrying out mean-spirited policies that break up families and compromise our national security and community safety. “Our officers are here to keep the public safe by enforcing the criminal laws, not to act as [Immigration and Customs Enforcement] officers or enforce civil violations.” He added that it reaffirmed “the state’s commitment to tolerance, diversity, and inclusiveness” and the order was “designed to ensure that all state agencies under my executive authority carry out only those duties and responsibilities prescribed to them in state and federal law.” He said: “In Washington state we know this: we do not discriminate based on someone’s race, religion, ethnicity or national origin. That remains true even as federal policies create such uncertain times.”

Washington agencies must comply to the extent to which they are permitted under federal law, he said. The agencies are ordered not to collect any more information about people than is necessary to perform their basic duties. Mr Inslee’s office said immigrants make up 17% of Washington’s workforce and contribute some $2.4bn in taxes. Mr Kelly has insisted there will be “no mass deportations” during the Trump administration’s immigration crackdown. He told reporters in Mexico City there would be “no use of military force for immigration operations” and said enforcing new policies would be done legally and with respect for human rights.

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The losers are still in charge.

Be Clear About What Happened To Keith Ellison (Bruenig)

On the Monday after the 2016 election, Keith Ellison announced that he intended to run for DNC chair. At the time of his announcement, Ellison had the support of prominent establishment Democrats (Harry Reid, Chuck Schumer) and prominent left-wing Democrats (Bernie Sanders, Raúl Grijalva). He was the clear frontrunner. His challengers were mostly insignificant or bygone figures that nobody thought posed a threat to his bid. Around a week after he announced, the New York Times reported that Obama’s people were not happy with Ellison and that they were scouring the benches for someone to beat him: But after steadily adding endorsements from leading Democrats in his bid to take over the party, Mr. Ellison is encountering resistance from a formidable corner: the White House.

In a sign of the discord gripping the party, President Obama’s loyalists, uneasy with the progressive Mr. Ellison, have begun casting about for an alternative, according to multiple Democratic officials close to the president. The Obama people did not rally around an existing candidate in the field that they thought was better. They went out and recruited someone. The point of this recruitment was to beat back the left faction that Ellison represented. They considered many potential avatars for this anti-Ellison effort and eventually settled on Tom Perez. On December 15, Tom Perez came into the DNC race. Around the same time, the establishment forces mounted a brutal smear campaign against Ellison, placing stories all over the place about how he was (or still is) an anti-semitic, Farrakhan-loving, Nation of Islam guy. This effort ultimately paid off with Perez narrowly winning the DNC chair election over Ellison.

During and after the DNC chair race, many moderate pundits and posters took the position that who wins the DNC chair does not really matter and also that infighting between left and right factions of the Democratic party is unhelpful in the times of Trump. But this, bizarrely enough, wasn’t self-criticism of the moderate establishment wing of the party. No, it was criticism that was and continues to be lobbed at the left-wing sorts who backed Ellison. Before this gets turned into another thing where the establishment Democrats posture as the reasonable adults victimized by the assaults of those left-wing baddies, let’s just be very clear about what happened here. It was the establishment wing that decided to recruit and then stand up a candidate in order to fight an internal battle against the left faction of the party. It was the establishment wing that then dumped massive piles of opposition research on one of their own party members. And it was the establishment wing that did all of this in the shadow of Trump, sowing disunity in order to contest a position whose leadership they insist does not really matter.

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What happens when nobody tells them the truth.

Half of Germans Against Debt Relief For Greece (R.)

Around half of Germans are against granting debt relief to Greece and around three in 10 want it to quit the eurozone, a survey showed on Friday. The INSA poll for the Bild newspaper showed 46.4% of people living in Germany, Europe’s paymaster, thought giving Greece debt relief would be unfair for other eurozone countries. That compared with around a fifth (18.4%) who did not share that view and 9.1% who said they did not care.

Athens and its creditors agreed on Monday to resume talks on a long-stalled review of Greece’s bailout, but only after Greece accepted examination of its reforms for 2019 onward. The head of the IMF, Christine Lagarde, said on Wednesday that Greece does not need a haircut on its debt at the moment but added that debt restructuring and interest rate cuts on bailout loans were necessary. The German government, preparing for an election on September 24, is against debt relief for Greece.

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Half of all species could be extinct by the end of the century. Or before.

The Living Fabric Of The World Is Slipping Through Our Fingers (G.)

One in five species on Earth now faces extinction, and that will rise to 50% by the end of the century unless urgent action is taken. That is the stark view of the world’s leading biologists, ecologists and economists who will gather on Monday to determine the social and economic changes needed to save the planet’s biosphere. “The living fabric of the world is slipping through our fingers without our showing much sign of caring,” say the organisers of the Biological Extinction conference held at the Vatican this week. Threatened creatures such as the tiger or rhino may make occasional headlines, but little attention is paid to the eradication of most other life forms, they argue. But as the conference will hear, these animals and plants provide us with our food and medicine.

They purify our water and air while also absorbing carbon emissions from our cars and factories, regenerating soil, and providing us with aesthetic inspiration. “Rich western countries are now siphoning up the planet’s resources and destroying its ecosystems at an unprecedented rate,” said biologist Paul Ehrlich, of Stanford University in California. “We want to build highways across the Serengeti to get more rare earth minerals for our cellphones. We grab all the fish from the sea, wreck the coral reefs and put carbon dioxide into the atmosphere. We have triggered a major extinction event. The question is: how do we stop it?”

Monday’s meeting is one of a series set up by the Vatican on ecological issues – which Pope Francis has deemed an urgent issue for the Catholic church. “We need to unravel the processes that led to the ills we are now facing,” said one of the conference’s organisers, the economist Sir Partha Dasgupta, of Cambridge University. “That is why the Vatican symposia involve natural and social scientists, as well as scholars from the humanities. That the symposia are being held at the Papal Academy is also symbolic. It shows that the ancient hostility between science and the church, at least on the issue of preserving Earth’s services, has been quelled.”

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Dec 082016
 
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Caters Extremely rare albino elephant, Kruger National Park in South Africa

 

Everything dies, baby, that’s a fact
But maybe everything that dies someday comes back …

Springsteen, Atlantic City

“Erwin Schrodinger (1945) has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment – that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatium as a physical description of our economic process. A corollary of this statement is that an organism cannot live in a medium of its own waste products.”
Herman Daly and Kenneth Townsend

 

What drives our economies is waste. Not need, or even demand. Waste. 2nd law of thermodynamics. It drives our lives, period.

First of all, don’t tell me you’re trying to stop the ongoing extinction of nature and wildlife on this planet, or the destruction of life in general. Don’t even tell me you’re trying. Don’t tell me it’s climate change that we should focus on (that’s just a small part of the story), and you’re driving an electric car and you’re separating your trash or things like that. That would only mean you’re attempting to willfully ignore your share of destruction, because if you do it, so will others, and the planet can’t take anymore of your behavior.

This is the big one. And the only ones amongst us who don’t think so are those who don’t want to. Who think it’s easier to argue that some problems are too big for them to tackle, that they should be left to others to solve. But why should we, why should anyone, worry about elections or even wars, when it becomes obvious we’re fast approaching a time when such things don’t matter much anymore?

The latest WWF Living Planet Report shows us that the planet is a whole lot less alive than it used to be. And that we killed that life. That we replaced it with metal, bricks, plastic and concrete. Mass consumption leads to mass extinction. And that is fully predictable, it always was; there’s nothing new there.

We killed 58% of all vertebrate wildlife just between 1970 and 2012, and at a rate of 2% per year we will have massacred close to 70% of it by 2020, just 4 years from now. So what does it matter who’s president of just one of the many countries we invented on this planet? Why don’t we address what’s really crucial to our very survival instead?

 

 

The latest report from the WWF should have us all abandon whatever it is we’re doing, and make acting to prevent further annihilation of our living world the key driver in our everyday lives, every hour of every day, every single one of us. Anything else is just not good enough, and anything else will see us, that self-nominated intelligent species, annihilated in the process.

Granted, there may be a few decrepit and probably halfway mutant specimens of our species left, living in conditions we couldn’t even begin, nor dare, to imagine, with what will be left of their intelligence wondering how our intelligence could have ever let this happen. You’d almost wish they’ll understand as little as we ever did; that some form of ignorance equal to ours will soften their pain.

It’s important to note that the report does not describe a stagnant situation, there’s no state of affairs, not something still, it describes an ongoing and deteriorating process. That is, we don’t get to choose to stop the ongoing wildlife annihilation at 70%; we are witnessing, and indeed we are actively involved in, raising that number by 2% every year that we ‘live’ (can we even call it that anymore, are you alive when you murder all life around you?) in this world.

This is our only home.

 

 

Without the natural world that we were born into, or rather that our species, our ancestors, were born into, we have zero chance of survival. Because it is the natural world that has allowed for, and created, the conditions that made it possible for mankind to emerge and develop in the first place. And we are nowhere near making an earth 2.0; the notion itself is preposterous. A few thousand years of man ‘understanding’ his world is no match for billions of years of evolution. That’s the worst insult to whatever intelligence it is that we do have.

Much has been made through the years of our ability to adapt to changing circumstances, and much of that is just as much hubris as so much of what we tell ourselves, but the big question should be WHY we would volunteer to find out to what extent we can adapt to a world that has sustained the losses we cause it to suffer. Even if we could to a degree adapt to that, why should we want to?

Two thirds of our world is gone, and it’s we who have murdered it, and what’s worse – judging from our lifestyles- we seem to have hardly noticed at all. If we don’t stop what we’ve been doing, this can lead to one outcome only: we will murder ourselves too. Our perhaps biggest problem (even if we have quite a few) in this regard is our ability and propensity to deny this, as we deny any and all -serious, consequential- wrongdoing.

 

 

There are allegedly serious and smart people working on, dreaming of, and getting billions in subsidies for, fantasies of human colonies on Mars. This is advertized as a sign of progress and intelligence. But that can only be true if we can acknowledge that our intelligence and our insanity are identical twins. Because it is insane to destroy the planet on which we depend one-on-one for everything that allows us to live, and at the same time dream of human life on another planet.

While I see no reason to address the likes of King of Subsidies Elon Musk, Stephen Hawking is different. Unfortunately, in Hawking’s case, with all his intelligence, it’s his philosophical capacity that goes missing.

Humanity Will Not Survive Another 1,000 Years If We Don’t Escape Our Planet

Professor Stephen Hawking has warned humanity will not survive another 1,000 years on Earth unless the human race finds another planet to live on. [..] Professor Hawking, 74, reflected on the understanding of the universe garnered from breakthroughs over the past five decades, describing 2016 as a “glorious time to be alive and doing research into theoretical physics”. “Our picture of the universe has changed a great deal in the last 50 years and I am happy if I have made a small contribution,“ he went on.

”The fact that we humans, who are ourselves mere fundamental particles of nature, have been able to come this close to understanding the laws that govern us and the universe is certainly a triumph.” Highlighting “ambitious” experiments that will give an even more precise picture of the universe, he continued: “We will map the position of millions of galaxies with the help of [super] computers like Cosmos. We will better understand our place in the universe.”

“But we must also continue to go into space for the future of humanity. I don’t think we will survive another 1,000 years without escaping beyond our fragile planet.”

The tragedy is that we may have gained some knowledge of natural laws and the universe, but we are completely clueless when it comes to keeping ourselves from destroying our world. Mars is an easy cop-out. But Mars doesn’t solve a thing. Because it’s -obviously- not the ‘fragile planet’ earth that is a threat to mankind, it’s mankind itself. How then can escaping to another planet solve its problems?

What exactly is wrong with saying that we will have to make it here on planet earth? Is it that we’ve already broken and murdered so much? And if that’s the reason, what does that say about us, and what does it say about what we would do to a next planet, even provided we could settle on it (we can’t) ? Doesn’t it say that we are our own worst enemies? And doesn’t the very idea of settling the ‘next planet’ imply that we had better settle things right here first? Like sort of a first condition before we go to Mars, if we ever do?

In order to survive, we don’t need to escape our planet, we need to escape ourselves. Not nearly as easy. Much harder than escaping to Mars. Which already is nothing but a pipedream to begin with.

Moreover, if we can accept that settling things here first before going to Mars is a prerequisite for going there in the first place, we wouldn’t need to go anymore, right?

 

 

We treat this entire extinction episode as if it’s something we’re watching from the outside in, as if it’s something we’re not really a part of. I’ve seen various undoubtedly very well-intentioned ‘green people’, ‘sustainable people’, react to the WWF report by pointing to signs that there is still hope, pointing to projects that reverse some of the decline, chinook salmon on the North American Pacific coast, Malawi farmers that no longer use chemical fertilizers, a giant sanctuary in the Antarctic etc.

That, too, is a form of insanity. Because it serves to lull people into a state of complacency that is entirely unwarranted. And that can therefore only serve to make things worse. There is no reversal, there is no turnaround. It’s like saying if a body doesn’t fall straight down in a continuous line, it doesn’t fall down at all.

The role that green, sustainability, conservationist groups play in our societies has shifted dramatically, and we have failed completely to see this change (as have they). These groups have become integral parts of our societies, instead of a force on the outside warning about what happens within.

Conservationist groups today serve as apologists for the havoc mankind unleashes on its world: all people have to do is donate money at Christmas, and conservation will be taken care of. Recycle a few bottles and plastic wrappings and you’re doing your part to save the planet. It is utterly insane. It’s as insane as the destruction itself. It’s denial writ large, and in the flesh.

It’s not advertized that way, but that doesn’t mean it’s not how it works. Saying that ‘it’s not too late’ is not a call to action as many people continue to believe. It’s just dirt poor psychology. It provides people with the impression, which rapidly turns into an excuse, that there is still time left. As almost 70% of all vertebrates, those animals that are closest to us, have disappeared. When would they say time is up? At 80%, 90%?

 

 

We do not understand why, or even that, we are such a tragically destructive species. And perhaps we can’t. Perhaps that is where our intelligence stops, at providing insight into ourselves. Even the most ‘aware’ amongst us will still tend to disparage their own roles in what goes on. Even they will make whatever it is they still do, and that they know is hurtful to the ecosystem, seem smaller than it is.

Even they will search for apologies for their own behavior, tell themselves they must do certain things in order to live in the society they were born in, drive kids to school, yada yada. We all do that. We soothe our consciences by telling ourselves we mean well, and then getting into our cars to go pick up a carton of milk. Or engage in an equally blind act. There’s too many to mention.

Every species that finds a large amount of free energy reacts the same way: proliferation. The unconscious drive is to use up the energy as fast as possible. If only we could understand that. But understanding it would get in the way of the principle itself. The only thing we can do to stop the extinction is for all of us to use a lot less energy. But because energy consumption provides wealth and -more importantly- political power, we will not do that. We instead tell ourselves all we need to do is use different forms of energy.

Our inbuilt talent for denying and lying (to ourselves and others) makes it impossible for us to see that we have an inbuilt talent for denying and lying in the first place. Or, put another way, seeing that we haven’t been able to stop ourselves from putting the planet into the dismal shape it is in now, why should we keep on believing that we will be able to stop ourselves in the future?

Thing is, an apology for our own behavior is also an apology for everyone else’s. As long as you keep buying things wrapped in plastic, you have no right, you lose your right, to blame the industry that produces the plastic.

 

 

We see ourselves as highly intelligent, and -as a consequence- we see ourselves as a species driven by reason. But we are not. Which can be easily demonstrated by a ‘reverse question’: why, if we are so smart, do we find ourselves in the predicament of having destroyed two thirds of our planet?

Do we have a rational argument to execute that destruction? Of course not, we’ll say. But then why do we do it if rationality drives us? This is a question that should forever cure us of the idea that we are driven by reason. But we’re not listening to the answer to that question. We’re denying, we’re even denying the question itself.

It’s the same question, and the same answer, by the way, that will NOT have us ‘abandon whatever it is we do’ when we read today that 70% of all wildlife will be gone by 2020, that 58% was gone by 2012 and we destroy it at a rate of 2% per year. We’re much more likely to worry much more about some report that says returns on our retirement plans will be much lower than we thought. Or about the economic growth that is too low (as if that is possible with 70% of wildlife gone).

After all, if destroying 70% of wildlife is not enough for a call to action, what would be? 80%? 90? 99%? I bet you that would be too late. And no, relying on conservationist groups to take care of it for us is not a viable route. Because that same 70% number spells out loud and clear what miserable failures these groups have turned out to be.

We ‘assume’ we’re intelligent, because that makes us feel good. Well, it doesn’t make the planet feel good. What drives us is not reason. What drives us is the part of our brains that we share in common with amoeba and bacteria and all other more ‘primitive forms of life, that gobbles up excess energy as fast as possible, in order to restore a balance. Our ‘rational’, human, brain serves one function, and one only: to find ‘rational’ excuses for what our primitive brain has just made us do.

We’re all intelligent enough to understand that driving a hybrid car or an electric car does nothing to halt the havoc we do to our world, but there are still millions of these things being sold. So perhaps we could say that we’re at the same time intelligent enough, and we’re not.

We can see ourselves destroying our world, but we can not stop ourselves from continuing the destruction. Here’s something I wrote 5 years ago:

Most. Tragic. Species. Ever.

We have done exactly the same that any primitive life form would do when faced with a surplus, of food, energy, and in our case credit, cheap money. We spent it all as fast as we can. Lest less abundant times arrive. It’s an instinct, it comes from our more primitive brain segments, not our more “rational” frontal cortex. It’s not that we’re in principle, or talent, more devious or malicious than more primitive life forms. It’s that we use our more advanced brains to help us execute the same devastation our primitive brain drives us to, but much much worse.

That’s what makes us the most tragic species imaginable. We’ll fight each other, even our children, over the last few scraps falling off the table, and kill off everything in our path to get there. And when we’re done, we’ll find a way to rationalize to ourselves why we were right to do so. We can be aware of watching ourselves do what we do, but we can’t help ourselves from doing it. Most. Tragic. Species. Ever.

The greatest miracle you will ever see, that you could ever hope to see, is so miraculous you can’t even recognize it for what it is. We don’t know what the word beautiful means anymore. Or the word valuable. We’ve lost all of that, and are well on our way, well over 70% of it, to losing the rest too.

 

 

 

PS Please note I could not gather all sources for all pictures here, but I’d be more than happy to add them. It’s not that I don’t recognize the effort that goes into them; it’s an emotional thing.

 

 

Dec 082016
 
 December 8, 2016  Posted by at 9:58 am Finance Tagged with: , , , , , , , , , ,  7 Responses »
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Jack Delano Cafe at truck drivers’ service station on U.S. 1, Washington DC 1940

Trump Bull Market Bounty Tops $1 Trillion (BBG)
Trump Win Set Off $2 Trillion Shock Rotation to Stocks From Debt (BBG)
Wall Street’s Calling the Sheep to the Slaughter – Again! (Stockman)
The Fed Shouldn’t Be Driving US Economy – Trump Advisor Judy Shelton (CNBC)
China’s Banks Are Hiding More Than $2 Trillion in Loans (WSJ)
China’s Foreign Reserves Down 25% Since 2014 (BBG)
China: World’s Top Oil Market Is Starting to Lose Its Sheen (BBG)
The Great ‘Living Within Our Means’ Con (Abc.au)
Australia Inexorably Marching Towards Recession (Mitchell)
Federal Judge Effectively Ends Recount In Michigan (BBG)
Boris Johnson: Saudi Arabia, Iran ‘Puppeteers’ In Middle East Proxy Wars (G.)
General Strike Shuts Down Greece on Thursday (R.)
EU To Set Greece Deadline For Forced Return Of Asylum Seekers (Pol.)
Greenland’s Ice-Free Past Exposes Sea Level Rise Danger (AFP)
Giraffes Face ‘Silent Extinction’ (BBC)

 

 

Don’t be fooled. It’s just keystrokes slushing around. Nobody produced anything.

Trump Bull Market Bounty Tops $1 Trillion (BBG)

Donald Trump is doing to U.S. equity bears what seven years of economic stimulus rarely could: shut them up. Two years of paralysis has for now ended in stocks, with more than $1 trillion added to shares values since Election Day and the DJIA looking bound for 20,000. Both the Dow and S&P 500 Index jumped to fresh records Wednesday, joined by transportation companies and small caps, while banks traded at eight-year highs. Wall Street stock forecasters, more pessimistic than any time since 2013 as recently as September, are suddenly falling over themselves to push up targets and explain a market where measures of anxiety are near five-year lows. The average call of bank prognosticators is for the S&P 500 to rally 3.4% next year, with strategists at JPMorgan and Bank of Montreal calling for even bigger gains.

For investors, the question is how much credence to put in analysts whose futility in sussing out Trump’s impact on share prices was rivaled only by the inaccuracy of political polls prior to his victory. Not only has he not been the disaster many of them warned about, the rally since he defeated Hillary Clinton is now the biggest for any new president since Ronald Reagan. “What we didn’t expect was the speed and the magnitude of the so-called ‘Trump Trade,’” Doug Ramsey at Leuthold Group wrote. “The consensus hope, which we share, is that tax reform and regulatory roll-back will extend and maybe enliven an economic recovery that’s already long in the tooth.” To be sure, pinpointing Trump’s role in the rally is an inexact science, and a case could be made that his election is coinciding with the consummation of the Fed’s efforts. Among other things, annualized GDP rose 3.2% in the third quarter, the most in two years, while unemployment hit a nine-year low in November.

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“..the great reflationary rotation trade..”

Trump Win Set Off $2 Trillion Shock Rotation to Stocks From Debt (BBG)

Donald Trump’s election win sent a $2 trillion shock wave through global markets over the past month. That’s how much equities’ global market value has jumped. And that’s about the size of the loss in worth of the Bloomberg Barclays Global Aggregate Index of bonds, over the worst month for global bonds in dollar terms on record. Other assets were roiled, too: the yen plunged the most in 21 years against the dollar. It all amounted to a complete reversal of the playbooks mapped out by a bevy of analysts and investors who had anticipated a Brexit-style rush for havens in the event of a surprise Republican presidential victory. Those projections did pan out – for about eight hours, when the yen and Treasuries advanced as the vote-count momentum favored Trump.

Then the great reflationary rotation trade started, as Carl Icahn started snapping up S&P 500 futures and other investors decided that the likely new U.S. leader’s promises to cut taxes, boost spending and slash regulation would revive inflation and economic growth. Oh, and potentially force more aggressive interest-rate increases from the Fed. How lasting a pattern the new market dynamics will be is an open question, with more than a month to go before Trump takes office and plenty of potential roadblocks to his fiscal and regulatory proposals in a fractious U.S. Congress. For now, eyes turn toward next week’s Fed meeting to set the tone for the outlook as far as monetary policy goes. “It’s astounding how big the move has been,” said James Audiss at Shaw and Partners. “It’s been incredible. Now it all hinges on the Fed and the pace of those rate hikes, but for now the markets are happy to be risk-on.”

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Stockman slams the whole thing. Not looking for (another) Washington job?

Wall Street’s Calling the Sheep to the Slaughter – Again! (Stockman)

I believe the shock of Donald Trump’s election will soon be vastly exceeded by an even more shocking shutdown of Washington governance within days of the inauguration. For the first time since the 1930s there will be a crash on Wall Street and a recession on main street, but the Imperial City will be powerless to remedy either. That’s because financial history is not circular; it’s cumulative and all the fiscal and monetary artifices, expedients and frauds that can be deployed by the state to maintain the illusion of prosperity and soaring financial asset prices will have finally been exhausted. With the Fed pitifully impaled on the zero bound for 96-months running, it has become evident to even the bubble vision cheerleaders that the massive monetary stimulus of the last two decades is over and done.

The only thing left in the Fed’s arsenal is sub-zero interest rates, and that option does not have even a remote prospect of getting off the ground. Donald Trump won the election against all odds, and that he did so on the back of a populist uprising that is unmitigated bad news for Wall Street. Brandishing whatever the present day equivalent of torches and pitchforks might be, the people will surely descend en masse on the Eccles Building if the Fed even hints at the possibility of imposing negative rates on savers and retirees. Nor can the market be rescued through the backdoor of some kind of antiseptic QE that showers gamblers with unspeakable windfalls and stir the populist political pot to a full boil. The obvious dead-end of monetary policy, in fact, is why there has been such frenzied rotation to the Trump reflation trade after the election.

The idea of a massive Trump stimulus was literally invented on the spot late on election night by Wall Street operators in order to attract gullible homegamers into the casino one last time. But the smart money will soon be done selling and the unvarnished Washington disaster looming dead ahead will come screaming back into view. Even if Donald Trump had a semi-coherent economic program, which he clearly doesn’t, there is not a chance that he could get it through the Congress.

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But it’s all that’s left! Shelton is another option for next Fed head.

The Fed Shouldn’t Be Driving US Economy – Trump Advisor Judy Shelton (CNBC)

The Federal Reserve shouldn’t be driving the United States economy because monetary stimulus is quite limited, Trump economic advisor Judy Shelton told CNBC on Wednesday. “What you want is productive growth and the kind of growth that is truly stimulated by tax reform, by regulatory reform, trade reform and important infrastructure projects to upgrade our ability to be more productive as a nation,” she said in an interview with CNBC’s “Closing Bell.” That’s what President-elect Donald Trump has pledged to do when he takes office, and the market apparently likes what it’s hearing. It has been rallying since Trump’s surprising win on Nov. 8, and on Wednesday the Dow Jones industrial average and S&P 500 hit all-time highs.

However, the Fed meets next week and it is widely believed it will hike interest rates. Shelton, though, doesn’t believe a small rate increase is going to derail the rally because it is already priced in. If there is turmoil, then “things are a lot more fragile than we thought,” she said. Shelton, co-director of the Sound Money Project at Atlas Network, is known to favor the gold standard and calls the U.S. monetary system an “anti-system.” She’s also been touted by some as a good candidate to fill empty Fed spots. Jim Grant, founder and editor of Grant’s Interest Rate Observer, told CNBC recently he likes Shelton as a replacement for Chair Janet Yellen when she retires in early 2018.

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It’s time someone takes a look at who’s behind the shadow banks.

China’s Banks Are Hiding More Than $2 Trillion in Loans (WSJ)

In 2014, the Chinese city of Haimen on the mouth of the Yangtze River set out to build a large apartment complex and turned to Bank of Nanjing for about $29 million in financing. The bank was happy to oblige but it didn’t call the money a loan, according to people familiar with the matter. It was added to Bank of Nanjing’s balance sheet as an “investment receivable,” a loosely regulated category of assets that allows bank officials to set aside little or nothing for potential losses. Bank officials aren’t shy about the accounting sleight of hand, which is rampant across China. The bank had about $39 billion in investment receivables in the third quarter, nearly as big as its loan portfolio, and profits have climbed by more than 20% a year.

As of June, 32 publicly traded Chinese banks had a total of $2 trillion in investment receivables as of June, up from $334 billion at the end of 2011, according to a tally by The Wall Street Journal of the latest available information from data provider Wind. The investments are equivalent to 20% of the same banks’ total loans in dollar terms, up from 6% at the end of 2011. The 32 banks have about 70% of all the banking assets in China. The surge shows how Chinese banks are trying to keep the credit spigot open to support the country’s slowing economy. Structuring financing deals as investments instead of loans frees up bank capital and makes it easier to extend loan deadlines or new credit to borrowers. The strategy has been especially popular at small and midsize banks, said executives and analysts.

The epidemic of investment receivables has created a parallel buildup of debt in addition to China’s rising official debt levels, now 2.5 times GDP. “The rapid growth in banks’ off-balance-sheet and investment activities, in essence, means hidden credit risks and could threaten financial safety,” said Shang Fulin, China’s top banking regulator, in an unusually blunt speech in September. Economists at Swiss bank UBS estimate as much as $2.4 trillion (16.5 trillion yuan) was “missing” from the broadest measurement of credit disclosed by China’s central bank last year, up from $712 billion (4.9 trillion yuan) in 2014. The discrepancy is largely because Chinese commercial banks use so-called shadow lenders to mask loans as investments, the economists said.

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That’s a lot.

China’s Foreign Reserves Down 25% Since 2014 (BBG)

China’s foreign currency reserves, the world’s largest, fell the most since January after the yuan declined to an eight-year low. • Reserves decreased $69.1 billion to $3.05 trillion in November, the People’s Bank of China said in a statement Wednesday • That compares with the median forecast of $3.06 trillion in a Bloomberg survey of economists • Decline was biggest since reserves tumbled $99.5 billion in January • The fifth-straight monthly decline brings the reduction in the stockpile to almost $1 trillion from a record $4 trillion in June 2014. While authorities have begun tightening capital controls, a $50,000 limit that Chinese citizens are allowed to convert from yuan annually will reset at the start of the new year, potentially adding depreciation pressure on the currency.

“Containing capital outflows is the key to keeping China’s systematic risk in check,” Harrison Hu, chief greater China economist at RBS in Singapore, wrote in a note. “Market turmoil one year earlier showed the strong feedback loop between capital flight and currency depreciation can destabilize China’s financial system and lead to escalating systemic risk.” “A combination of yuan weakness and a peak in the mainland property sector is conspiring to increase capital outflows,” Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report. “Another month of falling reserves does little to inspire confidence, especially as households await the renewal of their FX quota at the start of 2017. Even so, with the yuan steady so far in December and capital controls in place, there’s reason to hope China’s reserve buffer will end the year on a more stable note.”

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The teapots are full. Also, at some point capital flight and foreign reserves will become part of this.

China: World’s Top Oil Market Is Starting to Lose Its Sheen (BBG)

One of the biggest engines soaking up the world’s oil is starting to sputter. Growth in crude imports by China, the second largest consumer after the U.S., will probably slow by more than 60% in 2017, according to a Bloomberg survey of analysts including FGE and Energy Aspects. Private refiners that helped boost purchases to record levels are expected to be constrained by tighter licenses and increased scrutiny on their taxes. At the same time, the current space available for stockpiles may run out. While OPEC’s deal to curb output may help erode a glut and lift prices, Chinese imports remain key for any sustained recovery. It’s the biggest buyer in Asia, the world’s top oil market, and its insatiable appetite was a significant driver for crude’s climb to more than $100 a barrel in the past decade.

[..] Concern about teapots’ creditworthiness and lack of experience in international trade are challenges, while the implementation of higher fuel-quality standards could force some to shut. The Chinese government has signaled its intention to slow new quota approvals as it assesses whether the teapots made good on their pledges to close outdated refining units or build storage facilities, according to JPMorgan, which predicts the Asian nation’s oil imports may stop expanding in 2017. Stockpiling may also slow. In 2016, a lot of China’s imports went into oil storage, said Amy Sun, an analyst with ICIS-China. “Going into next year, due to the slow construction of new capacity and already full tanks in current facilities, there will be limited space for further growth.”

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“..the Government cannot run out of money, and at times like this — when it saves instead of spending — the only thing that can make the economy grow is if we do the borrowing. And, unlike the Government, we as individuals can — and will — run out of cash.”

The Great ‘Living Within Our Means’ Con (Abc.au)

The greatest lie ever sold is that the Australian Government can run out of Australian dollars. This is exactly the lie Treasurer Scott Morrison wants you to believe as he rolls out the same old deception — deficit bad, surplus good — ahead of next year’s budget. Social Services Minister Christian Porter is relying on this myth as he tries to sell more cuts to the dole and other welfare benefits: by giving voters the impression that welfare bludgers are sending the country broke and that they have to be made to suffer in the cause of “budget repair”. If you feel like there is a disconnect between your bank balance and what you see and hear on television, you are not taking crazy pills.

“Smashed avo” commentators like Bernard Salt paint everyone from Generation X through to “The Millennials” as ingrates who are incapable of saving, while the Government takes a victory lap claiming 25 years of “unprecedented economic growth”. In reality, Australia is experiencing its first quarter of negative economic growth in five years and the weakest wage growth since the last recession. Official figures released yesterday by the ABS showed a 0.5% contraction in seasonally-adjusted GDP growth for the September quarter, dragging the yearly growth number down to 1.8%. The figures fell well shy of market expectations, with Bloomberg having forecasted a 0.1% contraction over the third quarter down from its previous forecast of 0.2% growth. For its part, the RBA has kept the official cash rate on hold again this week.


The ratio of disposable income to debt for households (released November 2, 2016). (ABS, RBA)

Meanwhile, homes are less affordable, jobs are less secure, a growing number of people are forced into part-time work, and more and more people are struggling to pay their bills and must therefore cope with a greater burden of debt. “There are more than 15% of willing labourers not working in one form or another,” economist Professor Bill Mitchell said. Saying things like “we have to live within our means” is telling voters the Government — which issues the dollar — can run out of its own money. But this is literally impossible. Our means as a country are limited to what we can produce using our effort, our skills and our technology. The Government cannot spend without limit, or it will cause inflation. But the Government cannot run out of money, and at times like this — when it saves instead of spending — the only thing that can make the economy grow is if we do the borrowing. And, unlike the Government, we as individuals can — and will — run out of cash.

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Not enough space here to do Bill Mitchell justice. Thorough.

Australia Inexorably Marching Towards Recession (Mitchell)

The following graph shows the quarterly percentage growth in real GDP over the last five years to the September-quarter 2016 (blue columns) and the ABS trend series (red line) superimposed. Growth was negative in the September-quarter 2016 – minus 0.5% (annualised minus 2%). The annual growth figure of 1.8% is down from 3.1% in the June-quarter and shows how far the economy has slipped. It is now well below trend growth and well below the figure required to maintain stable unemployment (much less reduce it). The annualised growth from this quarter (if continued) means Australia will enter a deep and totally unnecessary recession that has been chosen by the Federal Government, which claims it is intent on pursuing a fiscal surplus.

The automatic stabilisers are already working against that and the ABS announced yesterday that Taxation revenue fell a further 15.3% in the September-quarter against a very small increase in spending. In the June-quarter, it was the large boost in public sector infrastructure spending that saved the economy from negative growth such was the overall weakness of non-government spending. As we will see soon, that contribution turned negative and so went the aggregate growth position. While exports continued to grow (with an uptick in the terms of trade), the external sector overall subtracted from growth. Add to that the fact that domestic wages growth is flat and household indebtedness is at record levels and you have a fairly sober outlook.

If the government sector persists in implementing its planned spending cuts then recession looms for the Australian economy. The graph clearly shows that the trend has been downwards for 4-quarters now and will hit zero by the time we learn about the current December-quarter data unless there is a dramatic shift in government policy. It must announce renewed stimulus or face recession.

The following graph presents quarterly growth rates in trend GDP and hours worked using the National Accounts data for the last five years to the September-quarter 2016. You can see the major dislocation between the two measures that appeared in the middle of 2011 persisted throughout 2013 and has reasserted itself in recent quarters. The GDP growth has driven by capital-intensive exports and more recently, capital infrastructure growth, which is one reason why labour productivity growth had been strong and employment growth weak. Just in case you think the labour force data is suspect, the hours worked computed from that data is very similar to that computed from the National Accounts.

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Hard to keep track of this circus.

Federal Judge Effectively Ends Recount In Michigan (BBG)

A recount of presidential election ballots in Michigan was effectively halted after a federal judge deferred to a state court finding that losing Green Party candidate Jill Stein wasn’t an “aggrieved person.” U.S. District Judge Mark A. Goldsmith in Detroit ruled Monday that the recount could proceed, then reversed himself Wednesday after Republican backers of President-elect Donald Trump persuaded a state appeals panel that Stein wasn’t qualified to initiate the process because she had no chance of winning the election. Stein’s lawsuit was based on claims of potential hacking of electronic voting machines and reports of foreign interference in the election, particularly by Russia.

Stein has “not presented evidence of tampering or mistake,” Goldsmith wrote in Wednesday’s ruling. Instead, she has made “speculative claims going to the vulnerability of the voting machinery – but not actual injury,” he said. Stein’s attorneys had argued the Michigan Court of Appeals misinterpreted state law when it accepted a claim by state Attorney General Bill Schuette, a Republican, that Stein couldn’t petition for a recount because she wasn’t an “aggrieved person.” Goldsmith wrote that he was obligated to follow Michigan law, which permits a recount to an “aggrieved” candidate who stands a reasonable chance of winning an election “but for mistake or fraud.”

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Someone has to say it.

Boris Johnson: Saudi Arabia, Iran ‘Puppeteers’ In Middle East Proxy Wars (G.)

Boris Johnson accused Saudi Arabia of abusing Islam and acting as a puppeteer in proxy wars throughout the Middle East, in remarks that flout a longstanding Foreign Office convention not to criticise the UK’s allies in public. The foreign secretary told a conference in Rome last week that the behaviour of Saudi Arabia, and also Iran, was a tragedy, adding that there was an absence of visionary leadership in the region that was willing to reach out across the Sunni-Shia divide. At the event, Johnson said: “There are politicians who are twisting and abusing religion and different strains of the same religion in order to further their own political objectives. That’s one of the biggest political problems in the whole region. And the tragedy for me – and that’s why you have these proxy wars being fought the whole time in that area – is that there is not strong enough leadership in the countries themselves.”

The foreign secretary then identified Saudi Arabia and Iran specifically, saying: “That’s why you’ve got the Saudis, Iran, everybody, moving in, and puppeteering and playing proxy wars.” Johnson’s criticism of Saudi Arabia came as Theresa May returned from a prestigious two-day visit to the Gulf in which she lauded both the Saudi royal family for its visionary leadership, and the value of the 100-year-old alliance with the UK. Foreign Office ministers, aware of Saudi sensitivity to criticism and the strategic importance of the Gulf relationship, usually soft-pedal and focus on their path to reform. [..] The British defence industry is also heavily dependent on arms contracts with the Gulf states, and the Royal Navy has established a major naval base in Manama, the capital of Bahrain. Johnson is due to visit the region this weekend, when he will have to explain why he thinks the Gulf states are abusing Islam for political ends.

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It just goes on. And then one day this will not end well.

General Strike Shuts Down Greece on Thursday (R.)

Greeks went on strike on Thursday to protest planned labor reforms and painful austerity cuts demanded by the country’s EU and IMF lenders as part of a crucial bailout review. Passenger ships remained docked at ports, city transport was disrupted and local administration offices shut down as workers joined the 24-hour nationwide walkout called by the country’s largest private and public sector unions, GSEE and ADEDY. “The burden we carry is already unbearable,” said GSEE in a statement, calling lenders’ demands “irrational”. “The downturn must finally end,” its rally poster read. Workers and pensioners will march in central Athens later in the day. Turnout in street protests has been low since Greece signed up to a third international bailout in July 2015 after tough negotiations that almost forced it out of the eurozone.

Eurozone finance ministers said on Monday that Athens and its lenders needed to speed up the review which has hit a snag on labour reforms, including liberalising mass layoffs and reviving collective bargaining between employers and unions. Energy reforms and measures to plug a projected fiscal gap in 2018, when Greece’s bailout program expires, are also among thorny issues in the review which may resume next week. Prime Minister Alexis Tsipras hopes a deal can be reached by the end of the year for the country’s bonds to be included in the ECB’s bond buying program by March 2017. [..] In parliament, lawmakers debated more tax hikes and spending cuts as part of next year’s budget, which projects the economy will grow by 2.7% and attain a 2% of GDP primary surplus – excluding debt servicing costs.

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The peaks of NIMBY.

EU To Set Greece Deadline For Forced Return Of Asylum Seekers (Pol.)

The European Commission will set Greece a deadline on Thursday to fix its migration system and resume taking in asylum seekers from March next year, which would put an end to its six year-long exemption from the EU’s “Dublin rules” on asylum. Under an agreement signed in the Irish capital in 1990, member countries which are the first point of entry for people seeking asylum in the EU have an obligation to process their application, and take them back if they have travelled on to other EU countries without authorization. Transfers from other EU countries to Greece were suspended in 2011, however, after the European Court of Justice and the European Court of Human Rights ruled that conditions in Greek facilities for asylum seekers were unacceptable.

A new 17-page proposal from the Commission, set to be adopted on Thursday and obtained by POLITICO, says: “It is recommended that the transfer of asylum applicants to Greece … should be resumed.” Forcing Greece to assume its responsibilities is part of a wider effort to reduce controls at many of the EU’s internal borders that were reintroduced in response to the refugee crisis, causing the temporary suspension of Schengen, the passport-free travel zone. Countries that reimposed border controls, such as Austria, Germany and Denmark, are likely to only remove them if they can send back asylum seekers to the country where they first set foot in the EU. The current state of the Dublin system will be on EU leaders’ agenda at their summit in Brussels next week.

Prior to that, their interior ministers meet on Friday to discuss arrangements for dealing with asylum seekers, as well as a controversial Commission proposal for a permanent relocation system in the event of unusually high levels of refugee arrivals. The Greek government has its work cut out if it is to respond to the Commission’s request for a report by mid-February on improvements in the standard of accommodation for asylum seekers and the management of the asylum process. “In terms of quality, many of the reception facilities in Greece still fall short of the requirements,” says the Commission document, adding that there are particular problems on the Aegean islands, where reception centers “are not only overcrowded but have substandard material conditions in terms of sanitation and hygiene.”

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Instability is the key word.

Greenland’s Ice-Free Past Exposes Sea Level Rise Danger (AFP)

The massive Greenland ice sheet has melted away at least once during the last 1.4 million years, according to a study published on Wednesday, raising fears that manmade climate change could provoke dangerous sea levels. Bedrock samples retrieved through more than three kilometres (two miles) of ice reveal for the first time that the island’s surface was exposed directly to the atmosphere in the not-so-distant past. It may have been a single period of up to 280,000 years, or several shorter ones, researchers reported in the journal Nature. But either way the evidence shows that the island was largely ice-free. “Unfortunately, this makes the Greenland ice sheet look highly unstable,” said lead author Joerg Schaefer, a palaeoclimatologist at Columbia University in New York.

Covering an area larger than France, Spain and Germany combined, the northern hemisphere’s largest ice block on land is kilometres thick and holds enough frozen water to lift the world’s oceans by more than seven metres (24 feet). Even a couple of metres would swamp cities that are home to hundreds of millions of people and planted with many of the crops that feed them. Hence the sense of urgency among climate scientists trying to figure out just how sensitive the ice sheet is to global warming, which has already pushed temperatures in the Arctic region 2ºC (3.6ºF) above pre-industrial era levels – twice the global average. The rate of Greenland’s ice loss has doubled since the 1990s. In the last four years alone, the ice sheet has shed more than a trillion tonnes of mass, according to earlier research.

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“..giraffes are war fodder, a large animal, extremely curious that can feed a lot of people..”

Giraffes Face ‘Silent Extinction’ (BBC)

A dramatic drop in giraffe populations over the past 30 years has seen the world’s tallest land mammal classified as vulnerable to extinction. Numbers have gone from around 155,000 in 1985 to 97,000 in 2015 according to the International Union for the Conservation of Nature (IUCN). The iconic animal has declined because of habitat loss, poaching and civil unrest in many parts of Africa. Some populations are growing, mainly in southern parts of the continent. Until now, the conservation status of giraffes was considered of “least concern” by the IUCN. However in their latest global Red List of threatened species, the ungainly animal is now said to be “vulnerable”, meaning that over three generations, the population has declined by more that 30%.

According to Dr Julian Fennessy, who co-chairs the IUCN giraffe specialist group, the creatures are undergoing a “silent extinction”. “If you go on a safari, giraffes are everywhere,” he told BBC News. “While there have been great concern about elephants and rhinos, giraffes have gone under the radar but, unfortunately, their numbers have been plummeting, and this is something that we were a little shocked about, that they have declined by so much in so little time.” The rapid growth of human populations has seen the expansion of farming and other forms of development that has resulted in the fragmentation of the giraffe’s range in many parts of Africa. But civil unrest in parts of the continent has also taken its toll. “In these war torn areas, in northern Kenya, Somalia, and Ethiopia in the border area with South Sudan, essentially the giraffes are war fodder, a large animal, extremely curious that can feed a lot of people,” said Dr Fennessy.

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Oct 192016
 
 October 19, 2016  Posted by at 9:16 am Finance Tagged with: , , , , , , , ,  6 Responses »
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NPC KKK parade on Pennsylvania Avenue, Washington DC 1925

The Curious Case Of China’s Remarkably Consistent Economic Growth (CNBC)
China Home Sales Value Rose 61% in September From Year Earlier (BBG)
Australians Ignore A Crisis Bigger Than Brexit: Chinese Debt (SMH)
America the Beautiful Bankrupt (MD White)
The Debt Trap Is Global (Mike Maloney)
France Burns Coal Like It’s 1984 as Prices Jump on Atomic Woes (BBG)
Legal Case for Brexit Is Surprisingly European (BBG)
UK Councils ‘Tell Homeless To Sleep On Streets So They Can Get Help’ (Ind.)
The Cycle of Civil Unrest & Martial Law (Martin Armstrong)
Half Of US Adults Are Recorded In Police Facial Recognition Databases (G.)
Hillary May Hand Control Over US Retirement Savings To Wall Street (IBT)
Vote-Rigging Felon Visits White House 340 Times During Obama Admin (ZH)
Adam Curtis – HyperNormalisation: Full BBC Documentary 2016
EU-Turkey Refugee Deal Dying in the Greek Islands (Spiegel)
World’s Mammals Are Being Eaten Into Extinction (G.)

 

 

Nice detail: China Jan-Sep home sales rose 43.2%.

The Curious Case Of China’s Remarkably Consistent Economic Growth (CNBC)

China’s economy has managed a curiously singular feat for any country: Growing a steady rate of 6.7% for the third quarter in a row. “It’s definitely unusual in an international context,” noted Julian Evans-Pritchard, a China economist at Capital Economics on Wednesday. “There are almost no countries that have such stable GDP growth rates.” The GDP trifecta is the first since at least 1992 when Reuters began compiling data. “It suggests quite significant smoothing of the data behind the scenes. Even by Chinese standards, this is quite rare,” Evans-Pritchard said. [..] “In China, these numbers don’t tend to bounce around a lot. They tend to be remarkably smooth,” said Louis Kuijs, head of Asia economics at Oxford Economics.

“The authorities feel so strongly about the GDP numbers that the whole government apparatus are always doing everything they can, especially in terms of policies and stimulating growth to make sure that the activity numbers, the economic growth numbers are pretty close to what it’s targeting.” Kuijs said he viewed the focus on meeting the 6.5-7.0% economic growth target as a setback. He noted that last year, high-level policymakers had indicated that it would be acceptable to miss growth targets, but then late in 2015, the government returned to a rigid interpretation. “Many economists find that unfortunate,” Kuijs said. “If you have organic growth in your economy of around 5.5% in a context of a pretty subdued global economy, if you continue to insist on 6.5% growth, that means you have to rely on rapid credit growth and other macro-economic stimulus to achieve it.”

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And when you look at ‘value’, the number gets even higher…

China Home Sales Value Rose 61% in September From Year Earlier (BBG)

The value of China’s new home sales rose 61% in September from a year earlier, defying policymakers’ moves earlier this year to cool the property market. The value of homes sold rose to 1.2 trillion yuan ($178 billion) last month from a year earlier, according to Bloomberg calculations based on data the National Bureau of Statistics released Wednesday. The increase compares with a 33% gain the previous month. Residential transactions surged in an extended real-estate bull market, prompting local authorities in late September to roll out tougher curbs in big cities. At least 21 cities have introduced purchase restrictions and toughened mortgage lending since late September, reversing two years of easing to support buyers. Property-development investment growth, which expanded at the slowest pace in 15 years in December, was running at 5.8% in the first three quarters of this year, up from 5.4% in the first eight months.

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If Australians are not scared, then who is?

Australians Ignore A Crisis Bigger Than Brexit: Chinese Debt (SMH)

When our buttoned-down economic guardians start using words like “disruptive adjustment” it’s a sign something’s amiss. Over the past few weeks both the Reserve Bank and the IMF have used that same ominous phrase with reference to Australia’s biggest trading partner, China. In essence, the problem is a corporate debt binge. Credit growth in China has accelerated and is growing at twice the pace of its economic growth rate. Debt levels have ballooned to 250% of GDP and alarm bells are ringing. So how worried should we be here in Australia? No one knows for sure, but probably a fair bit. Economists often resort to the term “uncharted waters” to describe unusual conditions but in this case the cliche is apt.

It is notoriously hard to predict how and when debt bubbles will unwind in the most transparent of democratic systems. In a huge one-party-state like China it’s even more mysterious. Few institutions have invested as much over recent years in understanding the Chinese economy as the Reserve Bank of Australia. In its regular review of financial stability, released on Friday, it described China as “a key locus of risk” given its increasing size in the global economy and the run-up in borrowing. “The potential for a disruptive adjustment in China remains pronounced, given the ongoing increase in debt,” it said. The sheer pace of lending growth makes it likely many loans are going to marginal borrowers or unprofitable projects.

China’s growth is slowing and that will make it harder for highly leveraged firms to service their debts, especially if loans have funded unviable projects. To make matters worse much of the rapid growth has been from China’s less regulated “shadow banking” sector. China’s financial system “has become increasingly large, opaque and interconnected,” the Reserve warned.

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Our old friend Michael David White has this: “Greece is a savvy tycoon sitting on piles of money compared to the United States. Detroit is a model of careful planning. Venezuela is smooth and efficient in its operation.”

America the Beautiful Bankrupt (MD White)

Every person in America can sell everything they own two times — every house, car, bicycle, tent, stock, bond, blanket and kitchen sink — send all the money to the federal government, and Medicare and social security will almost be in good standing. Americans have $90 trillion of personal wealth and $210 trillion of federal debt. We are a dead man. We rest peacefully, in a lead coffin, at the bottom of the sea. We are underwater and we can’t pay our bills. We are dead broke. Plan B is now our destiny. The federal government’s debt of $210 trillion is two times greater than all of the personal wealth of all Americans combined. The federal government’s debt is 11 times greater than the debt of a country in bankruptcy.

And the federal government’s debt is more than 20 times greater than the mortgage debt on every American home. The Democratic Party, led by the progressive Big Media, whose signature legislation is social security and Medicare, has bankrupted the wealthiest country in the history of the world. The “social justice” initiatives of President Roosevelt and Johnson will end with the greatest financial crisis ever. The Roosevelt-Johnson global depression will spread poverty misery and violence far and wide. Socialism bankrupts host countries. America is going to learn the hard way and the world will be forced to go with us for a very long ride. Big Media will bury the story until the cities are burning.

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“..this is going to be a global recession and it’s going to be bad..”

The Debt Trap Is Global (Mike Maloney)

Mike shows you how much the government controls the economy today. And why it will be very difficult to get out of this mind-boggling level of debt. You’ll see this is not just a problem in the Western world, it’s the entire world. As Mike says, “this is going to be a global recession and it’s going to be bad.”

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So they still have the capacity to burn all that coal depsite years of relying on nucler power? Did they see this coming?

France Burns Coal Like It’s 1984 as Prices Jump on Atomic Woes (BBG)

France produced the most power from fossil fuels for September in 32 years to help meet demand as nuclear generation dropped. Output from coal and gas plants more than doubled as Paris-based Electricite de France was forced to keep reactors offline for inspections. French month-ahead power prices have risen to near the highest since 2009. “The availability of French nuclear continues to alarm market participants,” said Bruno Brunetti, managing director of global power at Pira Energy Group in New York. “With the lack of French exports supporting thermal generation, we have revised upward forecasts of coal-fired dispatching by roughly 5 terawatt-hours through 2017 in western Europe.”

EDF’s reactors produced 26.6 terawatt-hours of electricity in September, the least since August 1998, prompting “heavy use” of stations burning coal and gas in a trend that has been increasing since April, according to a report by French grid operator Reseau de transport d’electricite. Thermal power generation was 4,132 gigawatt-hours, or 11% of the total. France has seven fewer reactors available than at the same time last year after EDF announced it needed more time to carry out inspections to rule out potential anomalies on steam generators at 18 of its 58 units ordered by the nation’s nuclear regulator.

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Building on the lack of a British written constitution, conflicting arguments can be made.

Legal Case for Brexit Is Surprisingly European (BBG)

The constitutional argument against Brexit is clever and powerful. It’s being made by David Pannick, a member of the House of Lords and a particularly skilled and brilliant barrister. As articulated before the court it runs like this: A well-recognized principle of the U.K. constitution is that one law enacted by Parliament may only be changed by another law. Parliament enacted the European Communities Act in 1972. That law, which opened the way for the U.K. to join the European Economic Community, says that European laws apply in the U.K. European law today includes lots of individual rights, including those found in the European Declaration of Human Rights. Once the U.K. leaves the EU, the rights will no longer apply to Britons. Hence, Pannick says, the U.K. can’t leave the EU without a law authorizing withdrawal. And a law requires an act of Parliament.

If accepted by the courts, Pannick’s argument would have the effect of blocking PM Theresa May’s government from invoking Article 50 of the EU treaty, which allows member states to withdraw. The government would need to go to Parliament, which would say no – and Brexit would be blocked. So is Pannick right? There’s a somewhat plausible technical response to his claims. It says essentially that since the 1972 law incorporates European law, and Article 50 of the EU treaty is European law, there’s no need for another act of Parliament, because the 1972 law isn’t really being revoked but simply relied upon to withdraw. This would be a pretty cheap way for courts to solve the deeper problem, and I suspect the judges won’t want to reject Pannick’s claim on a technicality – or at least they shouldn’t.

The better, more substantive answer to Pannick’s argument is that while Parliament hasn’t enacted a new law for EU withdrawal, there has been a public pronouncement on the topic: the Brexit referendum. True, a referendum isn’t a law. But it is the voice of the people, at least as expressed on the fateful day of the vote. Here’s where things get really interesting from a constitutional standpoint. If the U.K. had a written constitution, it would probably say whether a referendum should be treated the same as a legislative vote. But because it doesn’t, the courts will have to decide whether a referendum is just as good as a legislative vote, or better, or worse. And that judgment will require some serious thought about the true nature of democracy.

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“In the past five years, the number of people sleeping rough has more than doubled.”

UK Councils ‘Tell Homeless To Sleep On Streets So They Can Get Help’ (Ind.)

Homeless people are being told by councils to sleep rough so they can get help, research by a charity has found. People who turned to their local authority for help were often sent packing without support or instructed to sleep rough in order to access services, according to a report by St Mungo’s. The findings, based on interviews with 40 St Mungo’s clients, suggested that three-quarters of homeless people had slept rough the night after they asked a council for help because they had nowhere to stay. One of those interviewed by St Mungo’s said: “We decided to go to the local council and they told us that we had to sleep rough for three nights in a row before they could actually do anything to help us. We just felt complete despair.”

The charity is calling on the government to ensure that no one is sent away by local authorities when they have nowhere to go. St Mungo’s will take part in a mass lobby of Parliament on Wednesday in support of the Homelessness Reduction Bill. The research also found that 129 rough sleepers have died in London since 2010, while a quarter reported being physically assaulted when they were on the streets. One interviewee said: “I’ve been beaten up quite a few times sleeping in doorways, or even in cars, they smash the window in on top of you, spit on you, urinate on you, try and set you on fire. I’ve had all of those things happen to me.” In the past five years, the number of people sleeping rough has more than doubled – with a 30% increase in the past year alone.

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A very useful history lesson on US protests, rebellion, goverment and courts.

The Cycle of Civil Unrest & Martial Law (Martin Armstrong)

All agencies are quietly being armed just in case there may be civil unrest which arises by rigging the election to defeat Donald Trump. Even Ben Carson has come out and explained why Trump beat everyone in the Republican field: “the people themselves have just gotten disgusted with being manipulated and controlled”. There is no question that we have entered a new age post-2015.75 that is one of betrayal and deception. Many people assume that Obama would never declare martial law and that the proposition is simply a conspiracy theory. This is simply not true. Martial law in the United States has been declared several times, so it is by no means off the table. The martial law concept within the United States legally is very closely linked with the right of habeas corpus, which has been suspended and reduced in many cases over the years.

That is why they keep Guantanamo open for if they are not on US soil, they cannot file a habeas corpus. Effectively, the right to a hearing on “lawful” imprisonment is embodied in the essence of habeas corpus that is under the supervision of law enforcement by the judiciary, which of course has been stacked with pro-government judges. The constitutional ability to suspend habeas corpus is related to the imposition of martial law. Under the Constitution, Article 1, Section 9 states; “The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.” There you have the authority to suspend the law if there is a “rebellion” based upon civil unrest that is political in nature. Obama can also claim “public safety” is at stake if Trump supports riot.

Therefore, under United States law, martial law is very limited by several court decisions that were handed down between the American Civil War and World War II. Don’t forget the Japanese Internment camps during World War II. You were locked up just because of your heritage without any rioting or committing some threatening act. It was just “presumed” you “might” do something and that was as good as guilt.

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1984.

Half Of US Adults Are Recorded In Police Facial Recognition Databases (G.)

Half of all American adults are included in databases police use to identify citizens with facial recognition technology, according to new research that raises serious concerns about privacy violations and the widespread use of racially biased surveillance technology. A report from Georgetown Law’s Center on Privacy and Technology found that more than 117 million adults are captured in a “virtual, perpetual lineup”, which means law enforcement offices across the US can scan their photos and use unregulated software to track law-abiding citizens in government datasets. Numerous major police departments have “real-time face recognition” technology that allows surveillance cameras to scan the faces of pedestrians walking down the street, the report found.

In Maryland, police have been using software to identify faces in protest photos and match them to people with warrants, according to the American Civil Liberties Union (ACLU). The report’s findings, along with revelations from the ACLU on police monitoring in Baltimore, suggest that the technology may be violating the rights of millions of Americans and is disproportionately impacting communities of color, advocates said. “Face recognition, when it’s used most aggressively, can change the nature of public spaces,” said Alvaro Bedoya, executive director of Georgetown’s privacy and technology center. “It can change the basic freedom we have to go about our lives without people identifying us from afar and in secret.”

The center’s year-long investigation, based on more than 100 police records requests, has produced the most comprehensive survey of facial databases to date and raises numerous questions about the lack of transparency and privacy protections. Law enforcement biometric databases have traditionally captured DNA profiles related to criminal arrests or forensic investigations. What’s alarming about the FBI’s “face recognition unit”, according to the report, is that it is “overwhelmingly made up of non-criminal entries”.

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Smells like ‘doing God’s work’.

Hillary May Hand Control Over US Retirement Savings To Wall Street (IBT)

While Hillary Clinton has spent the presidential campaign saying as little as possible about her ties to Wall Street, the executive who some observers say could be her Treasury Secretary has been openly promoting a plan to give financial firms control of hundreds of billions of dollars in retirement savings. The executive is Tony James, president of the Blackstone Group. The investment colossus is most famous in politics for its Republican CEO likening an Obama tax plan to a Nazi invasion. James, though, is a longtime Democrat — and one of Clinton’s top fundraisers. The billionaire sculpted the retirement initiative with a prominent labor economist whose work is supported by another investment mogul who is a big Clinton donor. The proposal has received bipartisan praise from prominent economic thinkers, and James says that Clinton’s top aides are warming to the idea.

It is a plan that proponents say could help millions of Americans – but could also enrich another constituency: the hedge fund and private equity industries that Blackstone dominates and that have donated millions to support Clinton’s presidential bid. The proposal would require workers and employers to put a%age of payroll into individual retirement accounts “to be invested well in pooled plans run by professional investment managers,” as James put it. In other words, individual voluntary 401(k)s would be replaced by a single national system, and much of the mandated savings would flow to Wall Street, where companies like Blackstone could earn big fees off the assets. And because of a gap in federal anti-corruption rules, there would be little to prevent the biggest investment contracts from being awarded to the biggest presidential campaign donors.

[..] Recently, [..] regulators, pension trustees, investment experts and academics have questioned whether retiree savings should be invested with firms like Blackstone in the first place. Some pensions are pulling out their money. Other pension systems have been turned into 401(k)-style plans, which are difficult for the alternative investment industry to break into because of federal laws that discourage those plans from buying into riskier, illiquid investments. In the face of these challenges, James’ proposal could provide a government-mandated flow of money from workers’ paychecks into the high-fee alternative investment industry.

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Hillary can’t wait for November 8. Her team won’t be able to hold back the floods much longer.

Vote-Rigging Felon Visits White House 340 Times During Obama Admin (ZH)

Earlier today we wrote about a new Project Veritas undercover video that uncovered several democratic operatives openly discussing, in explicit detail, how to commit massive voter fraud. One of the operatives was a person by the name of Robert Creamer who is a co-founder of a democratic consulting firm called Democracy Partners. Within the video, an undercover journalist details a plan to register Hispanic voters illegally by having them work as contractors, to which Creamer can be heard offering support saying that “there are a couple of organizations that that’s their big trick”. Unfortunately, the embarrassing video caused Creamer to subsequently resign from consulting the Hillary campaign as he issued a statement saying that he was “stepping back from my responsibilities working the [Hillary] campaign” over fears that his continued assistance would be a distraction for the campaign.

But voter fraud isn’t Creamer’s only criminal specialty. A quick look at Wikipedia reveals that Creamer spent 5 months in federal prison back in 2006 for a “$2.3 million bank fraud in relation to his operation of public interest groups in the 1990s.” So, with that kind of history, you can imagine our surprise when we discovered that a Mr. Robert Creamer showed up on the White House visitor logs 340 times beginning in 2009 when Obama took office and culminating with his latest visit in June 2016. Moreover, in 45 of those instances, Creamer was scheduled to meet with POTUS himself. Perhaps this is just two old Chicago “community organizers” hanging out?

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The full new Adam Curtis doc has arrived on YouTube, so anyone outside Britain can now view it too.

Adam Curtis – HyperNormalisation: Full BBC Documentary 2016

We live in a time of great uncertainty and confusion. Events keep happening that seem inexplicable and out of control. Donald Trump, Brexit, the War in Syria, the endless migrant crisis, random bomb attacks. And those who are supposed to be in power are paralysed – they have no idea what to do. This film is the epic story of how we got to this strange place. It explains not only why these chaotic events are happening – but also why we, and our politicians, cannot understand them.

It shows that what has happened is that all of us in the West – not just the politicians and the journalists and the experts, but we ourselves – have retreated into a simplified, and often completely fake version of the world. But because it is all around us we accept it as normal. But there is another world outside. Forces that politicians tried to forget and bury forty years ago – that then festered and mutated – but which are now turning on us with a vengeful fury. Piercing though the wall of our fake world.

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“The Balkans would turn into a battleground for migrants, smugglers, border guards and soldiers..”

EU-Turkey Refugee Deal Dying in the Greek Islands (Spiegel)

Abdul Shakoor thought nothing could shock him anymore. He has, after all, survived an assassination attempt by Pakistani security agents, he claims, in addition to torture in a Lahore prison. “But I was wrong.” Thirty-three-year-old Shakoor is standing in the Moria refugee camp on the Greek island of Lesbos and pointing at the overcrowded plastic tents inside of which women, children and the ill are lying pushed up against one another, at the cement wall that surrounds the camp, and at the barbed wire. “I would have expected these kinds of conditions in Pakistan or Afghanistan,” he says. “But not in Greece.” As a result of the refugee influx, the infrastructure on Lesbos and other Greek islands is in danger of collapsing. Europe’s model is no longer working.

Although the number of migrants dropped after the EU-Turkey deal came into effect in March, the number of refugees heading for Greece has once again gone up, partially in response to the failed military coup in Turkey on June 15. In August and September, 6,527 refugees crossed the Aegean, twice as many as in May and June. The crisis in Turkey, it seems, isn’t just scaring many Turks, it is also driving refugees out of the country. Currently, there are at least 15,000 migrants on the Greek islands, with the camps available only able to handle half that many. And new boats arrive every day. Skirmishes between camp residents – and between refugees and locals – have become a frequent occurrence.

The Greek government is facing a dilemma, says political advisor Gerald Knaus, whose think tank, the European Stability Initiative, helped conceive the EU-Turkey deal. The Greeks, he says, can no longer ignore the chaos on the islands. If Prime Minister Alexis Tsipras carries through on his recent pledge to move large numbers of refugees onto the mainland, it would be a signal to the smugglers in Turkey that the Aegean Route has reopened. “If the EU doesn’t do anything quickly,” Knaus warns, “the refugee deal will be dead in a few months.” Knaus, whom many people describe as the creator of the refugee deal, warns that if the deal fails, chaos could result. Hundreds of thousands of refugees, he says, would arrive in Greece and try to break through the fences to the north. The Balkans would turn into a battleground for migrants, smugglers, border guards and soldiers, Knaus says. “That would be the end of European asylum policy.”

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We are blind to God.

World’s Mammals Are Being Eaten Into Extinction (G.)

Hundreds of mammal species – from chimpanzees to hippos to bats – are being eaten into extinction by people, according to the first global assessment of the impact of human hunting. Bushmeat has long been a traditional source of food for many rural people, but as roads have been driven into remote areas, large-scale commercial hunting is leaving forests and other habitats devoid of wildlife. The scientists behind the new analysis warned that, without action, the wiping out of these species could lead to the collapse of the food security of hundreds of millions of people reliant on bushmeat for survival.

The work comes against the backdrop of the natural world undergoing the greatest mass extinction since a giant meteorite strike wiped out the dinosaurs 65m years ago, with species vanishing far more rapidly than the long term rate, driven by the destruction and invasion of wild areas by humans and their livestock and hunting. The researchers, whose study is published in the journal Royal Society Open Science, used the International Union for Conservation of Nature’s (IUCN) red list to identify the endangered land mammals that are primarily at risk from hunting for food. They found 301 such species, representing 7% of all the land mammals assessed by IUCN and about a quarter of all endangered mammals.

Other mammals are threatened by habitat loss or hunting for other reasons, such as elephants which are poached for their ivory. The 301 species include 168 primates, such as the lowland gorilla and mandrill, 73 hoofed animals, such as the wild yak and bactrian camel, 27 bats, such as the golden-capped fruit bat and the black-bearded flying fox, and 12 carnivores, such as the clouded leopard and several bear species. There are also 26 marsupials threatened by meat hunting, including the grizzled tree kangaroo, and 21 rodent species, such as the Sulawesi giant squirrel and the alpine woolly rat.

Read more …

Mar 252016
 
 March 25, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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DPC Shoppers on Sixth Avenue, New York City 1903

Bubbles Spread Like a Zombie Virus (BBG)
Junk Territory: US Corporate Debt Ratings Near 15-Year Low (CNN)
Earnings Growth Based On Debt And Buybacks? Totally Unsustainable (SA)
Everyone Is Worried That A Third China Bubble Is About To Pop (BI)
Coming to the Oil Patch: Bad Loans to Outnumber the Good (WSJ)
Traders Are Betting Heavily That The Pound Will Drop To 1980s Lows (BBG)
Yuan Weakens For 6th Straight Day – Longest Losing Streak In 2 Years (ZH)
Sweden Cuts Maximum Mortgage Term To 105 Years -The Average Is 140 (Tel.)
Shenzhen is Home To The Planet’s Fastest Rising House Prices (Guardian)
Hedge Funds Control Greek NPLs Anyway (Kath.)
Who Will Speak For The American White Working Class? (Guardian)
China ‘Detains 20 Over Xi Resignation Letter’ (BBC)
Facing Life Sentence, Turkish Journalist Vows To Expose State Crimes (Reuters)
Mass Extinctions and Climate Change (C.)
Has James Hansen Foretold The ‘Loss Of All Coastal Cities’? (G.)
Greece Pledges To Provide Shelters For 50,000 Refugees Within 20 Days (Kath.)

Bubbles are so prevalent people tend not to see them anymore.

Bubbles Spread Like a Zombie Virus (BBG)

The leading academic theory of asset bubbles is that they don’t really exist. When asset prices skyrocket, say mainstream theorists, it might mean that some piece of news makes rational investors realize that fundamental values like corporate earnings are going to be a lot higher than anyone had expected. Or perhaps some condition in the economy might make investors suddenly become much more tolerant of risk. But according to mainstream theory, bubbles are not driven by speculative mania, greed, stupidity, herd behavior or any other sort of psychological or irrational phenomenon. Inflating asset values are the normal, healthy functioning of an efficient market. Naturally, this view has convinced many people in finance that mainstream theorists are quite out of their minds. The problem is, mainstream theory has proven devilishly hard to disprove.

We can’t really observe how investors in the financial markets form their beliefs. So we can’t tell if their views are right or wrong, or whether they’re investing based on expectations or because of changing risk tolerance. Basically, because we can usually only look at the overall market, we can’t get into the nuts and bolts of how people decide what prices to pay. But what about the housing market? Housing is different from stocks and bonds in at least two big ways. First, because house purchases are not anonymous, we can observe who buys what. Second, housing markets are local, so we can see what is happening around them, and thus have some sort of idea what information they are receiving. These unique features allow us to know much more about the decision-making process of each buyer than we know about investors in the anonymous national financial markets.

In a new paper, economists Patrick Bayer, Kyle Mangum and James Roberts make great use of these features to study the mid-2000s U.S. housing boom. Their landmark results ought to have a major effect on the debate over asset bubbles. Bayer et al. find that as the market overheated, the frenzy spread like a virus from block to block. They look at the greater Los Angeles area – a hotbed of bubble activity – from 1989 through 2012. Since they want to focus on people buying houses as investments (rather than to live in), the authors looked only at people who bought multiple properties, and they tried to exclude primary residences from the sample. They found, unsurprisingly, that the peak years of 2004-2006 saw a huge spike in the number of new investors entering the market. Here is the graph from their paper:

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It’s like when you start with a basket with a few bad apples: in the end, everything turns to junk.

Junk Territory: US Corporate Debt Ratings Near 15-Year Low (CNN)

Red flags are rising on Corporate America’s debt. The average rating on U.S. corporate debt has hit nearly a 15-year low, according to a new report by Standard & Poor’s. “We believe corporate default rates could increase over the next few years,” according to S&P credit analysts Jacob Crooks and David Tesher. The average rating on companies that issue debt has fallen to ‘BB,’ or junk status. That is even below the average S&P rating for U.S. corporate debt during and in the aftermath of the financial crisis in 2008 and 2009. There are already concerns about energy companies defaulting on loans due to low oil prices. But new tech firms like Solera and media companies like iHeart too have had their credit rating downgraded this year, according to S&P. Since 2012, there’s been a surge in low-rated companies seeking cash.

In the past four years, S&P has assigned a single-B rating to 75% of companies accessing the debt markets for the first time. That rating is just one notch up from triple-C, a rating given to companies with a high probability of default. Companies with a single-B rating include PF Chang’s, Toys R US and Men’s Wearhouse (MW). That doesn’t mean they’re going to default: They’re just dangerously close to the territory where companies tend to default. The “rapid rise” in companies with low credit ratings accessing the bond markets can be traced to the easy availability of cash in recent years. How did this happen?

Here are a few key dominoes.
1. The Fed created a super low interest rate environment when it put rates next to zero in 2008.
2. Investors looking for more yield move away from safe assets like U.S. Treasury bonds and into higher-risk assets like bonds issued by lower-rated companies.
3. That makes it easier for low-rated companies to get cash at low rates from the capital markets.
Now, however, the tables are turning. The Fed is slowly starting to increase rates and investors’ appetite – and the cash available – for low-rated companies is on the decline. Add to that the gloomy outlook for the global economy and low commodity prices, and some companies may struggle to pay back what they borrowed.

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History rhymes.

Earnings Growth Based On Debt And Buybacks? Totally Unsustainable (SA)

My grandfather was never rich. He did have some money in the 1920s, but he lost most of it at the tail end of the decade. Some of it disappeared in the stock market crash in October of 1929. The rest of his deposits fell victim to the collapse of New York’s Bank of the United States in December of 1931. I wish I could say that my grandfather recovered from the wrath of the stock market disaster and subsequent bank failures. For the most part, however, living above the poverty line was about the best that he could do financially, as he buckled down to raise two children in Queens. There was one financial feature of my grandfather’s life that provided him with greater self-worth. Specifically, he refused to take on significant debt because he remained skeptical of credit. And with good reason.

The siren’s song of “you-can-pay-me-Tuesday-for-a-hamburger-today” only created an illusion of wealth in the Roaring Twenties; in fact, unchecked access to favorable borrowing terms as well as speculative excess in the use of debt contributed mightily to the country’s eventual descent into the Great Depression. G-Pops wanted no part of the next debt-fueled crisis. Here’s something few people know about the past: Consumer debt more than doubled during the ten year-period of the Roaring 1920s (1/1/1920-12/31/1929). And while you may often hear the debt apologist explain how the only thing that matters about debt is the ability to service it, the reckless dismissal ignores the reality of virtually all financial catastrophes.

During the Asian Currency Crisis and the bailout of Long-Term Capital Management (1997-1998), fast-growing emerging economies (e.g., South Korea, Malaysia, Thailand, etc.) experienced extraordinary capital inflows. Most of the inflows? Speculative borrowed dollars. When those economies showed signs of strain, “hot money” quickly shifted to outflows, depreciating local currencies and leaving over-leveraged hedge funds on the wrong side of currency trades. The Fed-orchestrated bailout of Long-Term Capital coupled with rate cutting activity prevented the 19% S&P 500 declines and 35% NASDAQ depreciation from charting a full-fledged stock bear. Did we see similar debt-fueled excess leading into the 2000-2002 S&P 500 bear (50%-plus)? Absolutely. How long could margin debt extremes prosper in the so-called New-Economy?

How many dot-com day-traders would find themselves destitute toward the end of the tech bubble? Bring it forward to 2007-2009 when housing prices began to plummet in earnest. How many “no-doc” loans and “negative am” mortgages came with a promise of real estate riches? Instead, subprime credit abuse brought down the households that lied to get their loans, destroyed the financial institutions that had these “toxic assets” on their books, and overwhelmed the government’s ability to manage the inevitable reversal of fortune in stocks and the overall economy. Just like 1929-1932. Just like 1997-1998. Just like 2000-2002.

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Housing, stocks and now credit.

Everyone Is Worried That A Third China Bubble Is About To Pop (BI)

First, China’s property bubble popped. Then, China’s stock market bubble burst over the summer, and investors lost a ton of money before the government took control of the system. Now the concern floating around the world of markets is that the third in China’s “triple bubble” is about to burst. That bubble is credit, especially corporate bonds, which have absolutely exploded over the past year as refugees from the other bubble bursts searched for yield. This one is going to be for a very straightforward reason, too — supply. Simply put, there are about to be too many bonds in China, and that could ultimately harm the weakest part of the Chinese economy, the debt-loaded zombie companies that helped form the property bubble and are now unable to turn a healthy profit.

Here’s how all of this happened. When the Chinese stock market went careening downward last summer, a ton of the money that was invested in the market ran into the credit market, specifically corporate bonds. “In our view, China is in the midst of a triple bubble, with the third-biggest credit bubble of all time, the largest investment bubble (proxied by the investment share of GDP) and the second-biggest real-estate bubble,” Credit Suisse analyst Andrew Garthwaite wrote in a note back in July. This was great for China’s debt-laden corporates. They could keep running on easy credit because demand was so high. Corporate-bond issuance increased 21% from 2014 to 2015, and by the end of last year their total stock made up 21.6% of GDP, as opposed 18.4% the year before, according to Societe Generale.

Chinese Treasury-bond supply is set to increase too, from 936 billion yuan in 2015 to 1.4 trillion yuan in 2016. At the same time, the government has been getting a move on an important project it has been working on for some time — turning local-government debt from the country’s infrastructure boom into a real municipal-bond market. We’re talking a lot of money here. In March alone the government allowed 1 trillion yuan ($160 billion) of local-government debt to be converted into local-government bonds (LGB). In 2016 analysts expect the government to issue another 6 trillion yuan in LGBs. That’s a lot of bonds.

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Denial continues.

Coming to the Oil Patch: Bad Loans to Outnumber the Good (WSJ)

Bad loans are likely to outnumber good ones soon in the U.S. oil patch, an indication of the pressure on energy companies and their lenders from the crash in prices. The number of energy loans labeled as “classified,” or in danger of default, is on course to extend above 50% this year at several major banks, including Wells Fargo and Comerica, according to bankers and others in the industry. In response, several major banks are reducing their exposure to the energy sector by attempting to sell off souring loans, declining to renew them or clamping down on the ability of oil and gas companies to tap credit lines for cash, according to more than a dozen bankers, lawyers and others familiar with the plans.

The pullback is curtailing the flow of money to companies struggling to survive a prolonged stretch of low prices, likely quickening the path to bankruptcy for some firms. 51 North American oil-and-gas producers have already filed for bankruptcy since the start of 2015, cases totaling $17.4 billion in cumulative debt, according to law firm Haynes and Boone. That trails the number from September 2008 to December 2009 during the global financial crisis, when there were 62 filings, but is expected to grow: About 175 companies are at high risk of not being able to meet loan covenants, according to Deloitte. “This has the makings of a gigantic funding crisis” for energy companies, said William Snyder, head of Deloitte’s U.S. restructuring unit. If oil prices, which closed at $39.79 a barrel Wednesday, remain at around $40 a barrel this year, “that’s fairly catastrophic.”

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Against the USD is a safe bet if the term is long enough.

Traders Are Betting Heavily That The Pound Will Drop To 1980s Lows (BBG)

As Britain ponders its future in the EU, investors are betting an amount almost the size of Iceland’s economy on the pound falling to levels last seen in the 1980s. At least 11 billion pounds ($16 billion) has been wagered this year on options that would profit if sterling fell to or below $1.3502, a 4.5% drop from current levels, after the June 23 referendum. More than half of the positions were placed since the date of the vote was set on Feb. 20. The figures give an indication of what’s at stake as investors weigh the possibility of the U.K. quitting the world’s largest single market, which accounts for about half its imports and exports. Even with opinion polls showing no clear lead for either side, the prospect of a “Brexit” has seen the pound fall more than any other major currency versus the dollar this year.

“There is a risk premium in sterling, both in terms of the spot rate and in terms of the volatility market, but this is one of those events where you have no way of calibrating how big it should be,” said Paul Meggyesi at JPMorgan Chase in London. “Few investors believe that sterling has fallen to levels where the risk-reward favors buying.” While tumbling to $1.3502 would barely exceed the pound’s decline so far this year, it would take the U.K. currency to the lowest level since 1985. Traders assign 54% odds to sterling reaching that level by the day of the referendum, according to Bloomberg’s options calculator. Meggyesi sees the pound falling to $1.38 by mid-year, from $1.4145 as of 4:45 p.m. London time on Thursday. Even forecasts of a drop to these levels may be optimistic if the U.K. actually ends up leaving the EU.

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In the shadows, China keeps devaluing.

Yuan Weakens For 6th Straight Day – Longest Losing Streak In 2 Years (ZH)

PBOC fixed the Yuan at its weakest in 3 weeks, pushing the devaluation streak to its longest since early January. However, Offshore Yuan has now dropped over 1.1% against the USD, extending losses for the 6th straight day to 3-week lows. This is the longest streak of weakness in the offshore Yuan since April 2014.

 

It appears EUR and JPY took enough pain so the basket is reverting to the USD again…


What’s the opposite of passive-aggressive as a clear message is being sent to The Fed – tighten and we unleash the Yuan-weakness-driven turmoil…

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Now that’s a housing bubble.

Sweden Cuts Maximum Mortgage Term To 105 Years -The Average Is 140 (Tel.)

Think there’s a housing affordability crisis in Britain, with low mortgage rates likely to drive house prices even higher? Take a look at Sweden where lending policies have been more generous, and where house price inflation has been (at least recently) more extreme. A number of banks and analysts have warned that Sweden’s housing market is overheating, with HSBC in January saying: “The pace of acceleration in the housing market points to a bubble.” House prices across the country were up 18pc last year. This compares to Britain’s house price rises in 2015 of between 5pc and 10pc, depending on which index is used. Now Sweden is dealing with its overheated housing market by reining in mortgage availability.

Regulators introduced restrictions which will mean mortgage terms – the time homebuyers have to clear the debt – will be drastically reduced to just… 105 years. The move comes because historically there has been no time limit on mortgage duration. So as prices rose and affordability became tougher, Swedish banks’ response was to extend terms, as had been the case in other high-cost property markets including Japan in the Eighties. The average term is reported to be 140 years. This meant many people who inherited property but who could not afford to take on the mortgage debt had to sell up. Swedish banks were quoted in the local press as opposing the move.

“It isn’t good for the finances of households as it will make mortgages more expensive and the terms not as good. And it isn’t good for financial stability,” the head of Swedish Bankers’ Association was reported to say. In Britain, there has been a move by some lenders to increase mortgage terms but only for younger borrowers. Even then, the maximum term tends to be 35 years, although some lenders – including Halifax and Nationwide – go up to 40, brokers say. The Mortgage Market Review introduced by British regulators in 2013 made it difficult for lenders to arrange loans which went into borrowers’ likely retirement.

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And here’s another one. How desperate must Xi be to let this happen?!

Shenzhen is Home To The Planet’s Fastest Rising House Prices (Guardian)

House prices in Shenzhen, the city which is a hub for technology hardware and known as China’s Silicon Valley, soared by almost 50% last year – the fastest growth in residential property prices worldwide. A new survey puts two Chinese cities – Shenzhen and Shanghai – in the top five fastest-growing property markets despite the Chinese stock market tumbling in 2015. The research, by the estate agents Knight Frank (pdf), also shows the impact of last year’s debt crisis in Greece. House prices in the two biggest Greek cities – Thessaloniki and Athens – were both ranked among the worst six in the survey of 165 cities, falling 5.9% and 4.8% respectively. There were also significant drops in some Italian cities, including Rome, Trieste and Genoa. Nicosia and Larnaca in Cyprus were also among the worst performers.

The Global Residential Cities Index showed that house prices in cities worldwide went up 4.4%. Behind Shenzhen, Auckland was the second fastest growing market with rises of 25.4%, followed by Istanbul (25%) and Sydney (19.9%). Shenzhen has become a hub for the production of hardware used in electronics and has a permanent population of 10 million, rising to 15 million in the summer – autumn electronics season. Their average age is 30. The city bordering Hong Kong did not exist 30 years ago, sporting just a few fishing villages. In 1979, it was declared China’s first special economic zone and surrounded by an 85-mile long, barbed wire fence. Investment and migrant workers flooded the area and factories and housing were built from scratch. By the mid-90s, the population had climbed to 3 million.

In 2004, the first metro station opened and a decade later the network had grown to 131 stations. Two Turkish cities featured in the top 10 – Istanbul and Izmir – while Budapest recorded the biggest rise among European Union cities, with prices up 16.3%. Budapest is also the strongest performing capital city in the index, with demand fuelled by an investment immigration bond for Chinese nationals. Cities traditionally associated with high prices failed to feature prominently. London was ranked at 16 (11.4% growth) with New York at 89th (3.3%). The fast rising prices of Sydney, the fourth fastest rising market, has resulted in high rents and the same sort of concerns about the effects on the young population in the city as in London. In the US, Portland in Oregon and San Francisco were the highest risers, both with increases over the year of 10%. The fastest growing North American city was Vancouver, with prices up nearly 12% on an annual basis.

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Greece is ruled by the global finance squid.

Hedge Funds Control Greek NPLs Anyway (Kath.)

Despite all the government talk about the nonperforming loans secured by borrowers’ homes being protected from falling into the hands of hedge funds, the latest recapitalization process has resulted in the entire credit sector now being controlled by foreign investors – hedge funds no less. Those foreign firms, the majority of which control high-risk portfolios, hold stakes of more than 50% in all of Greece’s systemic lenders, and in some cases far above that. Therefore, by extension, they control a loan portfolio which exceeds 200 billion euros and includes performing loans amounting to some 100 billion and bad loans that also add up to around 100 billion, and there is currently a negotiations battle under way for them not to be sold on to others.

It makes no difference to borrowers who owns their loans; it is the general legal framework and the legal moves they can make in case they are unable to fulfill their obligations that matter. The banks’ planning does not provide for the sale of bad loans, and there are strong indications that the existing stock of NPLs includes many strategic defaulters who have taken advantage of the crisis to avoid fulfilling their obligations. The Bank of Greece estimates that they account for 20% of all bad loans.

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“..an economic version of the Hunger Games.”

Who Will Speak For The American White Working Class? (Guardian)

The National Review, a conservative magazine for the Republican elite, recently unleashed an attack on the “white working class”, who they see as the core of Trump’s support. The first essay, Father Führer, was written by the National Review’s Kevin Williamson, who used his past reporting from places such as Appalachia and the Rust Belt to dissect what he calls “downscale communities”. He describes them as filled with welfare dependency, drug and alcohol addiction, and family anarchy – and then proclaims: “Nothing happened to them. There wasn’t some awful disaster, There wasn’t a war or a famine or a plague or a foreign occupation. … The truth about these dysfunctional, downscale communities is that they deserve to die. Economically, they are negative assets. Morally, they are indefensible. The white American underclass is in thrall to a vicious, selfish culture whose main products are misery and used heroin needles.”

A few days later, another columnist, David French, added: “Simply put, [white working class] Americans are killing themselves and destroying their families at an alarming rate. No one is making them do it. The economy isn’t putting a bottle in their hand. Immigrants aren’t making them cheat on their wives or snort OxyContin.” Both suggested the answer to their problems is they need to move. “They need real opportunity, which means that they need real change, which means that they need U-Haul.” Downscale communities are everywhere in America, not just limited to Appalachia and the Rust Belt – it’s where I have spent much of the past five years documenting poverty and addiction. To say that “nothing happened to them” is stunningly wrong. Over the past 35 years the working class has been devalued, the result of an economic version of the Hunger Games.

It has pitted everyone against each other, regardless of where they started. Some contestants, such as business owners, were equipped with the fanciest weapons. The working class only had their hands. They lost and have been left to deal on their own. The consequences can be seen in nearly every town and rural county and aren’t confined to the industrial north or the hills of Kentucky either. My home town in Florida, a small town built around two orange juice factories, lost its first factory in 1985 and its last in 2005. [..] Over the past 35 years, except for the very wealthy, incomes have stagnated, with more people looking for fewer jobs. Jobs for those who work with their hands, manufacturing employment, has been the hardest hit, falling from 18m in the late 1980s to 12m now.

The economic devaluation has been made more painful by the fraying of the social safety net, and more visceral by the vast increase at the top. It is one thing to be spinning your wheels stuck in the mud, but it is even more demeaning to watch as others zoom by on well-paved roads, none offering help. It is not just about economic issues and jobs. Culturally, we are witnessing a tale of two Americas that are growing more distinct by the day.

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Crackdowns deflate economic confidence.

China ‘Detains 20 Over Xi Resignation Letter’ (BBC)

A total of 20 people have been detained in China following the publication of a letter calling on President Xi Jinping to resign, the BBC has learned. The letter was posted earlier this month on a state-backed website Wujie News. Although quickly deleted by the authorities, a cached version can still be found online. In most countries the contents of the letter would be run-of-the-mill political polemic. “Dear Comrade Xi Jinping, we are loyal Communist Party members,” it begins, and then cuts to the chase. “We write this letter asking you to resign from all party and state leadership positions.” But in China, of course, and in particular on a website with official links, this kind of thing is unheard of and there have already been signs of a stern response by the authorities. The detention of a prominent columnist, Jia Jia, was widely reported to be in connection with the letter.

Friends say he simply called the editor of Wujie to enquire about it after seeing it on line. But now the BBC has spoken to a staff member at Wujie who has asked to remain anonymous and who has told us that in addition to Jia Jia another 16 people have been “taken away”. The source said they included six colleagues who work directly for the website, including a senior manager and a senior editor, and another 10 people who work for a related technology company. And a well-know Chinese dissident living in the US said three members of his family, living in China’s Guangdong Province, had also been detained in connection with the letter. Wen Yunchao said he believed his parents and his brother had been detained because authorities were trying to pressure him to reveal information. But he told the BBC that he knew nothing about the letter.

The letter focuses its anger on what it says is President Xi’s “gathering of all power” in his own hands, and it accuses him of major economic and diplomatic miscalculations, as well as “stunning the country” by placing further restrictions on freedom of speech. The latter is a reference to Mr Xi’s high profile visit last month to state-run TV and newspaper offices, where he told journalists that their primary duty was to obey the Communist Party. The letter first appeared on an overseas-based Chinese language website, well outside the realm of Communist Party censors, but the big question is how it then made its way onto Wujie. The idea that any Chinese editor of sane mind would knowingly publish such a document seems so unlikely that there has been speculation amongst some Chinese journalists, in private, that Wujie was either hacked, or had perhaps been using some kind of automatic trawling and publishing software.

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The backdrop of the refugee deal. Yes, we have no decency.

Facing Life Sentence, Turkish Journalist Vows To Expose State Crimes (Reuters)

One of two prominent Turkish journalists facing life in prison on charges of espionage vowed to make the trial, which begins on Friday, a prosecution of official wrongdoing. Can Dundar, editor-in-chief of Cumhuriyet, told Reuters he would use his trial, which has drawn international condemnation, to refocus attention on the story that landed him in the dock. Dundar, 54, and Erdem Gul, 49, Cumhuriyet’s Ankara bureau chief, stand accused of trying to topple the government over the publication last May of video purporting to show Turkey’s state intelligence agency helping to truck weapons to Syria in 2014. “We are not defendants, we are witnesses,” Dundar said in an interview at his office, promising to show the footage in court despite a ban and at the risk that judges may order the hearings to be held behind closed doors.

“We will lay out all of the illegalities and make this a political prosecution … The state was caught in a criminal act, and it is doing all that it can to cover it up.” Dundar and Gul spent 92 days in jail, almost half of it in solitary confinement, before the constitutional court ruled last month that pre-trial detention was unfounded because the charges stemmed from their journalism. Both were subsequently released pending trial, although President Tayyip Erdogan said he did not respect the ruling. Erdogan has acknowledged that the trucks, which were stopped by gendarmerie and police officers en route to the Syrian border, belonged to the MIT intelligence agency and said they were carrying aid to Turkmens in Syria. Turkmen fighters are battling both President Bashar al-Assad’s forces and Islamic State.

Erdogan has said prosecutors had no authority to order the trucks be searched and that they acted as part of a plot to discredit the government, allegations the prosecutors denied. Erdogan has cast the newspaper’s coverage as part of an attempt to undermine Turkey’s global standing and has vowed Dundar would “pay a heavy price.” The trial comes as Turkey deflects criticism from the European Union and rights groups that it is bridling a once vibrant press. “We were arrested for two reasons: to punish us and to frighten others. And we see the intimidation has been effective. Fear dominates,” Dundar said.

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800,000 years and counting.

Mass Extinctions and Climate Change (C.)

We now know that greenhouse gases are rising faster than at any time since the demise of dinosaurs, and possibly even earlier. According to research published in Nature Geoscience this week, carbon dioxide (CO2 ) is being added to the atmosphere at least ten times faster than during a major warming event about 50 million years ago. We have emitted almost 600 billion tonnes of carbon since the beginning of the Industrial Revolution, and atmospheric COC concentrations are now increasing at a rate of 3 parts per million (ppm) per year. With increasing CO2 levels, temperatures and ocean acidification also rise, and it is an open question how ecosystems are going to cope under such rapid change. Coral reefs, our canary in the coal mine, suggest that the present rate of climate change is too fast for many species to adapt: the next widespread extinction event might have already started.

In the past, rapid increases in greenhouse gases have been associated with mass extinctions. It is therefore important to understand how unusual the current rate of atmospheric CO2 increase is with respect to past climate variability. There is no doubt that atmospheric COC concentrations and global temperatures have changed in the past. Ice sheets, for example, are reliable book-keepers of ancient climate and can give us an insight into climate conditions long before the thermometer was invented. By drilling holes into ice sheets we can retrieve ice cores and analyse the accumulation of ancient snow, layer upon layer. These ice cores not only record atmospheric temperatures through time, they also contain frozen bubbles that provide us with small samples of ancient air. Our longest ice core extends more than 800,000 years into the past.

During this time, the Earth oscillated between cold ice ages and warm interglacials . To move from an ice age to an interglacial, you need to increase COC by roughly 100 ppm. This increase repeatedly melted several kilometre-thick ice sheets that covered the locations of modern cities like Toronto, Boston, Chicago or Montreal. With increasing COC levels at the end of the last ice age, temperatures increased too. Some ecosystems could not keep up with the rate of change, resulting in several megafaunal extinctions, although human impacts were almost certainly part of the story. Nevertheless, the rate of change in COC over the past million years was tame when compared to today. The highest recorded rate of change before the Industrial Revolution is less than 0.15 ppm per year, just one-twentieth of what we are experiencing today.

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“All hell will break loose in the North Atlantic and neighbouring lands..”

Has James Hansen Foretold The ‘Loss Of All Coastal Cities’? (G.)

James Hansen’s name looms large over any history that will likely be written about climate change. Whether you look at the hard science, the perils of political interference or modern day activism, Dr Hansen is there as a central character. In a 1988 US Senate hearing, Hansen famously declared that the “greenhouse effect has been detected and is changing our climate now”. Towards the end of his time as the director of NASA’s Goddard Institute for Space Studies, Hansen described how government officials had on other occasions changed his testimony, filtered scientific findings and controlled what scientists could and couldn’t say to the media – all to underplay the impact of fossil fuel emissions on the climate. In recent years, the so-called “grandfather of climate science” has added to his CV the roles of author and twice-arrested climate activist and anti-coal campaigner. He still holds a position at Columbia University.

So when Hansen’s latest piece of blockbuster climate research was finalized and released earlier this week, there was understandable global interest, not least because it mapped a potential path to the “loss of all coastal cities” from rising sea levels and the onset of “super storms” previously unseen in the modern era. So what is Hansen claiming? Well, the first thing to understand is that Hansen’s paper, written with 18 other co-authors, many of them highly-reputable names in climate science in their own right, is far from conventional. Most scientific papers only take up four or five pages in a journal. Hansen’s paper – in the journal Atmospheric Chemistry and Physics – grabs 52 pages (although it’s hard to quibble over space when you’re laying out a possible path to widespread global disruption and the complete reshaping of coastlines).

Nor was the paper published in a conventional way. If you’re getting a faint sense of déjà vu about Hansen’s findings, then that could be down to how a draft version of the study was published and widely covered in July last year. The journal runs an unconventional interactive system of peer review where comments and criticisms from other scientists are published for everyone to see, as are the responses from Hansen and his colleagues. This is arguably a more transparent way of conducting the scientific process of peer review – something usually carried out privately and anonymously. None of this should really detract from Hansen and his co-author’s central claims. Firstly, Hansen says they may have uncovered a mechanism in the Earth’s climate system not previously understood that could point to a much more rapid rise in sea levels. When the Earth’s ice sheets melt, they place a freshwater lens over neighboring oceans.

This lens, argues Hansen, causes the ocean to retain extra heat, which then goes to melting the underside of large ice sheets that fringe the ocean, causing them to add more freshwater to the lens (this is what’s known as a “positive feedback” and is not to be confused with the sort of positive feedback you may have got at school for that cracking fifth grade science assignment). Secondly, according to the paper, all this added water could first slow and then shut down two key ocean currents – and Hansen points to two unusually cold blobs of ocean water off Greenland and off Antarctica as evidence that this process may already be starting. If these ocean conveyors were to be impacted, this could create much greater temperature differences between the tropics and the north Atlantic, driving “super storms stronger than any in modern times”, he argues. “All hell will break loose in the North Atlantic and neighbouring lands,” he says in a video summary.

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Europe is waiting for unrest in Greece to break out. Then it can send in it own police and military forces. or so it thinks.

Greece Pledges To Provide Shelters For 50,000 Refugees Within 20 Days (Kath.)

The government said Thursday it will fast-track procedures to create new centers to accommodate 30,000 people within the next 20 days as it finds itself in a race against time to meet an obligation to provide shelter to more than 50,000 asylum seekers stranded in the country, and to prevent an imminent humanitarian disaster. The current capacity of shelters is 38,000. The decision came after a meeting of the government’s council of ministers, chaired by Prime Minister Alexis Tsipras, amid a growing sense of urgency surrounding camps around the country and the increasing realization that the existing infrastructure simply cannot cope with the huge refugee numbers. It also follows the worsening toll on migrants’ health after the withdrawal on Wednesday of aid agencies from camps in Greece to protest the recent EU-Turkey deal – which was activated last Sunday – to stem refugee inflows to Europe, which, they say, contravenes international law.

At the same time, the spokesman of the coordinating committee for refugees, Giorgos Kyritsis, said legislation facilitating the implementation of the EU deal will be tabled in Parliament on Wednesday. The government also said it will further empower the Immigration Policy Ministry to deal with increased obligations implicit in the deal, while temporary staff will also be enlisted. Kyritsis also announced the creation of a monitoring mechanism under the general secretary of the Defense Ministry, Yiannis Tafyllis. The government’s immediate priority, Kyritsis said, will be to provide relief to the sprawling and overcrowded border camp of Idomeni in northern Greece. He added that transport means will be made available over the next few days to transfer refugees to other centers affording more humane conditions.

The mayor of the nearby town of Paionia, Christos Goudenoudis, is calling for the camp’s immediate evacuation as the local community, he said, is feeling increasingly insecure as crime in the area has proliferated. Meanwhile the latest figures suggest a marked decrease in refugee flows into the country over the last few days, while none arrived Thursday – for the first time since the deal between the European Union and Turkey was struck. Authorities, however, have attributed this mostly to bad weather. On Tuesday, inflows were limited to 260 – a significant decrease from the several thousand a couple of weeks ago.

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Nov 152015
 
 November 15, 2015  Posted by at 10:05 am Finance Tagged with: , , , , , , , ,  10 Responses »
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Jack Delano Atchison, Topeka & Santa Fe train at Emporia, Kansas 1943

Credit Bust In Rich Countries Caused Credit Boom In Emerging Markets (Economist)
Irish President: Unaccountable Forces Are Running EU (IT)
The Global Economy Slows Down. Is It Recession Or Protectionism? (Guardian)
Yuan’s Rise Means World Economy Takes Step To Greater Stability (Bloomberg)
Whistleblower At HBOS Bank Attacks ‘Ludicrously Bad’ City Regulation (Guardian)
More Tough Measures Loom As Greece Eyes Bailout Loans (Kath.)
ECB Demands Portugal’s Novo Banco Plug $1.5 Billion Capital Hole (Reuters)
The Streets of Paris Are as Familiar to Me as the Streets of Beirut (Joey Ayoub)
After Paris, Europe May Never Feel As Free Again (Guardian)
What’s Next for Migrants After Paris? (Atlantic)
Syrian Refugees In France Say Paris Terror Is The Terror They Fled (BuzzFeed)
There Is Only One Way to Defeat ISIS (Esquire)
Syrian Transition Plan Reached by US, Russia in Vienna (Bloomberg)
Poland to Shun Refugees After Paris Attack, Future Minister Says (Bloomberg)
After Mass Extinctions, The Meek (Fish) Inherit The Earth (WaPo)
Two Refugee Children Die In Greece In Separate Incidents (Kath.)

Recipe for mayhem.

Credit Bust In Rich Countries Caused Credit Boom In Emerging Markets (Economist)

The build-up of emerging-market credit began just as the rich world’s financial system started to creak in 2007. According to figures collated by JP Morgan, private-sector debt in emerging markets rose from 73% of GDP at the end of 2007 to 107% of GDP by the end of last year. These figures include loans made by banks and bonds issued by companies. Including the credit extended by non-bank financial institutions (so-called “shadow banks”) for the handful of emerging markets where such estimates are available gives a steeper rise and a higher total burden: 127% of GDP. The credit boom in emerging markets was in large part a response to the credit bust in the rich world. Fearing a depression in its richest export markets, the authorities in China brought about a massive increase in credit in 2009.


Meanwhile a flood of capital escaping the paltry yields on offer in developed economies pushed interest rates lower in developing ones. This search for yield by rich-world investors took them to ever more exotic places. A dollar-denominated government bond issued in 2012 by Zambia, a copper-rich country with an average GDP per person of $1,700 a year, offered just 5.4% interest; even so, it was 24 times oversubscribed as rich-world investors clamoured to buy. The following year a state-backed tuna-fishing venture in Mozambique, a country even poorer than Zambia, was able to raise $850m at an interest rate of 8.5%.

In contrast to the credit booms in America and Europe, where households were the main borrowers, three-quarters of the private debt burden in emerging markets is shouldered by businesses: corporate debt has ballooned from less than 50% of GDP in 2008 to almost 75% by 2014. Much of the lending was done in Asia, notably in China. But Turkey, Brazil and Chile also saw substantial increases in the ratio of company debt to GDP. Construction firms (notably in China and Latin America) increased their leverage a great deal. The oil and gas industry was a big player, too, according to the IMF’s latest Global Financial Stability Report.

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A point I’ve made 1000 times. “..a breakdown of trust between citizens and their institutions..”

Irish President: Unaccountable Forces Are Running EU (IT)

Unaccountable forces removed from democratic control are today in control in the European Union, President Michael D Higgins has declared in one of the most pointed speeches of his term in office. “The present institutional structure of the European Union can be seen as reflecting the distribution of political power in recent decades, decades that have seen the emergence of a new financialised global order, where unaccountable agencies and forces removed from democratic oversight or control are in the ascendancy,” he said. He made the speech as he opened the Royal Irish Academy’s Centre for the Study of the Moral Foundations of Economy and Society. The anti-austerity street protests in many EU states, he said, could be seen as “not just the mechanical result of deplorable levels of unemployment and deteriorating material circumstances”, but also a reflection of a “breakdown of trust between citizens and their institutions”.

Deep injury has been inflicted on people’s moral outlook in recent decades by an extraordinarily narrow version of economics which had cut ties with its ethical and philosophical roots, Mr Higgins said. European leaders must remain “attentive and open”, he added saying, “a social view of Europe demands that our fellow citizens should never be seen merely as ‘consumers’ of public policies, driven by a sense of their sectional interests.” He was confident, he said, that the new educational centre “will contribute in an important way, over the years to come, in tackling the deep injuries inflicted upon our moral imaginations by the extraordinary ascendancy in recent decades of what is an extraordinarily narrow version of economics”.

This connection “of economy, ecology and ethics” and “of policy, theory and method”, had been at the centre of his presidency, “because I believe that they are essential to reading and understanding the current situation in which we find ourselves”. Referring to upcoming commemorations in Ireland, he said: “One can legitimately wonder, for example, what shape would our economy and society have assumed, had our fellow citizens kept alive, during Ireland’s recent economic boom, the cultural, philosophical, political and moral motivations which underpinned the Irish national revival, or the spirit of other historical movements for social and political reform such as the co-operative movement. “We neglected the contribution of the co-operative instinct to our social cohesion,” he said.

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Every country will want to protect itself when times get worse.

The Global Economy Slows Down. Is It Recession Or Protectionism? (Guardian)

Goldman Sachs’s decision to close down its loss-making Bric fund was a symbolic reminder that the days are gone when the economic rise of Brazil, Russia, India and China (the four countries from which the fund drew its name) seemed guaranteed. Indeed, Brazil and Russia are both in recession. The US Federal Reserve’s plans to raise interest rates from near zero, which many experts now expect to happen next month, could deepen the agony of countries already struggling with plunging currencies and rising borrowing costs. The International Monetary Fund has warned of a flurry of bankruptcies in emerging economies as rates rise.

“A lot of these countries haven’t been helping themselves: Taiwan, Korea; they’ve all been cranking up their own credit growth,” says Russell Jones of Llewellyn Consulting, an economics advisory firm. But he too believes the world should escape a general slump. “I don’t think we’re on the cusp of a major downturn — probably more of the same.” Simon Evenett of St Gallen University in Switzerland, who collates detailed data for the thinktank Global Trade Alert, offers an alternative explanation for the recent slide in trade volumes. He calculates that about half of the fall, since exports peaked in September last year, has been caused by the commodity price rout; but the rest, rather than evidence of sickly global demand, has resulted from a creeping rise in protectionism.

His analysis suggests the declines have overwhelmingly taken place in just 28 categories of product. “That’s very concentrated; that makes me doubt that it’s a global downturn.” Eight of these categories are commodities; but the rest map closely on to areas where countries have taken protectionist measures. In the wake of the financial crisis, policymakers from the G20 countries pledged not to resort to the tit-for-tat protectionism that led to collapsing trade volumes in the wake of the Great Crash of 1929, and was ultimately seen as a contributor to the Great Depression. Since then, there has been little sign of anything with the scope of America’s Smoot-Hawley Act of 1930, which slapped import tariffs on more than 800 products.

But Evenett says there has been a flurry of more subtle manoeuvres: restricting public procurement to domestic firms, for example, or quietly tightening regulations to raise the bar against imports. “I think the China story is adding spice to it, but I think there’s more going on here,” he says. He is concerned that unless action is taken, politicians will continue to throw sand in the wheels of the international trading system. If he’s right, the downturn seen so far may not be sending a warning signal about global demand; instead, it would be best read as a measure of the fragility of globalisation.

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With China debt levels where they are, a curious idea.

Yuan’s Rise Means World Economy Takes Step To Greater Stability (Bloomberg)

With China’s yuan taking the biggest step yet toward joining the dollar and euro as a top-rank reserve currency, the global economy may be approaching an era of greater stability. So say economists who highlight the dollar’s role in the biggest financial crises in recent decades. Drawn to the liquidity and security of the unit of the world’s biggest economy, investors and governments relied on the dollar and produced dislocations including historically low borrowing costs in the 2000s even as the Federal Reserve raised interest rates. Rushes toward the safety of the dollar challenged global policy makers in 2008 as money markets seized up, prompting the Fed to open swap lines with counterparts that remain in place today.

China responded in 2009 with a call for reducing reliance on the dollar, with central bank Governor Zhou Xiaochuan floating the idea of a “super-sovereign” reserve currency. While the proposal fell flat, Zhou and his allies began a campaign to win inclusion for the yuan in the IMF’s special drawing rights unit. The SDR, as it’s called, is a kind of overdraft account for members of the IMF, convertible into dollars, euros, pounds and yen. The fund’s staff said Friday that the yuan has now met the qualification terms for inclusion in the SDR. “The current configuration of the global monetary-financial system that is centered and increasingly dominated by the dollar is not a stable or a sustainable one,” Stephen Jen of SLJ Macro Partners, a former IMF economist, wrote with colleague Joana Freire last week.

Some 87% of foreign-exchange trading involves the dollar, the most recent survey by the Bank for International Settlements showed. “The role of the U.S. dollar as the world’s dominant vehicle currency remains unchallenged,” the BIS said in 2013, noting that the euro had declined in the wake of the European debt crisis. With the world’s second-largest economy and as the number-one trading nation, China may offer the global system a currency that can complement the dollar. For now, restrictions on the ability to take money in and out of China, and on what foreign investors can buy, mean the yuan’s role will be limited.

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“..I hope and pray I’m not going to have to fight for the next five years.”

Whistleblower At HBOS Bank Attacks ‘Ludicrously Bad’ City Regulation (Guardian)

When the long-delayed official report into the near-collapse of HBOS is released on Thursday former bank bosses James Crosby, Andy Hornby and Lord Stevenson will be braced for a fresh round of condemnation. But if the report’s 500 pages are likely to revive painful criticism of their role in the demise of Britain’s biggest mortgage lender and savings institution, its publication also marks a crucial moment for a lesser known former executive at the bank: Paul Moore. Moore, 57, emerged some years ago as the whistleblower at HBOS. He said he was sacked as head of group regulatory risk at the end of 2004 – less than two years after joining – after warning that the then fast-growing bank was too strongly motivated by sales.

His views were first aired in public shortly after the bank had to be rescued by Lloyds in September 2008. The enlarged institution was later bailed out with £20bn of taxpayer money. On learning that the publication of the report by the Financial Conduct Authority and Bank of England – first promised in 2013 – has finally been scheduled for Thursday, Moore said: “I’m a bit nervous and a bit frightened and I hope and pray I’m not going to have to fight for the next five years.” His main fear now, he says, is that the report could turn out to be “a cover-up and a fudge”. If he was writing it, he says, he would refer the directors not just for banning orders but for criminal investigation, as well as demanding a proper judicial inquiry into the auditing of all the big banks and the conduct of the credit ratings agencies.

That is not all. “I would name and shame in the most rigorous detail the ludicrously bad regulators,” says Moore. Thursday’s report will be published alongside an analysis of the decision by the City regulator at the time of the collapse, the Financial Services Authority, to punish only one HBOS banker – Peter Cummings, who ran the bank’s commercial lending arm and has now been banned for life from the City and fined £500,000. Work on the official report only began after the enforcement action against Cummings, although in 2013 the parliamentary commission on banking standards, set up in the wake of the Libor-rigging scandal, published its own account of the collapse. It accused Crosby, Hornby and Stevenson of “colossal” management failures and questioned why it was only Cummings who had been censured by the City regulator.

Earlier evidence Moore had given to the Treasury select committee in 2009 had been so damning it led to a fresh examination of the role of Crosby, and forced his resignation as deputy chairman of the then City regulator, the Financial Services Authority. When Moore’s allegations were first aired at the select committee, Crosby had insisted there was no substance to them. A report – commissioned from the bank’s auditors, KPMG – concluded that he lost his job because of personality clashes inside the lender and not that Crosby sacked him because of warnings that HBOS was “going too fast”. Crosby has since handed back his knighthood and 30% of his pension, and keeps out of the public eye.

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The EU makes it impossible for Greece to leave its recession.

More Tough Measures Loom As Greece Eyes Bailout Loans (Kath.)

The government is hoping to clinch the release of €2 billion in loan funding, and another €10 billion for Greek banks, after a tough round of negotiations with representatives of the country’s international creditors which has focused mainly on the issue of nonperforming loans and foreclosures of primary residences. The money is linked to a series of additional measures that Greece must legislate next week before turning to a second set of prior actions including even more contentious reforms such as higher taxes on farmers and an overhaul of the pension system. Greece is already running behind schedule on reforms. But authorities are hoping the creditors will show some flexibility so the process of recapitalizing Greece’s banks is not derailed.

Talks are already under way within the key ministries on the next round of reforms. Labor and Social Security Minister Giorgos Katrougalos, whose ministry is overseeing the difficult task of pension reform, aims to reach a “comprehensive” agreement with creditors and approve it in Parliament by early next month, according to sources. The hope is that the creditors will reward an active effort by Greeks to make up for lost time by making some concessions in the pension overhaul. Already Greek authorities are seeking to soften the impact of the pension overhaul by exploring the possibility of increasing the social security contributions of employers and workers instead of further reducing monthly payouts.

Other politically contentious challenges the government faces in the coming weeks include raising taxes on Greek farmers, creating a new tax system, creating a task force that will manage a new fund for privatizing state assets and drafting new measures to meet fiscal targets for the next two years. SYRIZA officials have expressed concerns about the impact on social cohesion of the bailout program’s austerity measures, which has already struck the leftists’ popularity, according to opinion polls.

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Europe’s next powder keg…

ECB Demands Portugal’s Novo Banco Plug $1.5 Billion Capital Hole (Reuters)

The ECB has ordered Portugal’s Novo Banco to fill a €1.4 billion hole in its finances, possibly delaying its planned sale and hampering Lisbon’s efforts to draw a line under its biggest banking collapse. The request to repair Novo Banco, created from the failed Banco Espirito Santo (BES), presents a challenge for any anti-austerity, Socialist-led government that could come to power in coming weeks after a parliamentary vote this week. Of nine banks across the euro zone tested by the ECB as a follow-through on wider checks last year, only Novo Banco was found to be short of capital. It has two weeks to present a plan of action and nine months to plug the gap. The Bank of Portugal said in a statement that Novo Banco had already started working on a plan to raise capital through asset sales to meet the shortfall.

The plan will be presented in the coming weeks. The central bank failed to sell Novo Banco in September as the bids it received were seen as too low. The result of the ‘stress test’ means the sale can resume. “Preparation for the new phase of the sale process will be initiated immediately, now that one of the main factors of uncertainty hanging over the previous process is out of the way,” the Bank of Portugal said. The Bank of Portugal is in charge of the sale process under the terms of the €4.9 billion rescue plan for BES, which was carried out by a bank resolution fund that is formally the responsibility of Portugal’s other banks. The government lent part of the money to the fund used in the rescue and must be repaid.

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“The Human Body is not one. It sure feels that it should be by now. Maybe that in itself is an illusion.”

The Streets of Paris Are as Familiar to Me as the Streets of Beirut (Joey Ayoub)

I come from a privileged Francophone community in Lebanon. This has meant that I have always seen France as my second home. The streets of Paris are as familiar to me as the streets of Beirut. I was just in Paris a few days ago. These have been two horrible nights of violence. The first took the lives of over 40 in Beirut; the second took the lives of over 120 people and counting in Paris. It also seems clear to me that to the world, my people’s deaths in Beirut do not matter as much as my other people’s deaths in Paris. We do not get a “safe” button on Facebook. We do not get late night statements from the most powerful men and women alive and millions of online users. We do not change policies which will affect the lives of countless innocent refugees. This could not be clearer. I say this with no resentment whatsoever, just sadness.

It is a hard thing to realize that for all that was said, for all the progressive rhetoric we have managed to create as a seemingly united human voice, most of us members of this curious species are still excluded from the dominant concerns of the “world”. And I know that by “world”, I am myself excluding most of the world. Because that’s how power structures work. I do not matter. My “body” does not matter to the “world”. If I die, it will not make a difference. Again, I say this with no resentment. That statement is merely a fact. It is a political fact, true, but a fact nonetheless. Maybe I should have some resentment in me, but I am too tired. It is a heavy thing to realize. I know that I am fortunate enough that when I do die, I will be remembered by friends and loved ones.

Maybe my blog and an online presence might even gather some thoughts by people around the world. That is the beauty of the internet. And even that is out of reach to too many. Never so clearly as now have I understood what Ta-Nehisi Coates wrote about when he spoke of the Black Body in America. I think there is a story to be told of the Arab Body as well. The Native American Body. The Indigenous Body. The Latin American Body. The Indian Body. The Kurdish Body. The Pakistani Body. The Chinese Body. And so many other bodies. The Human Body is not one. It sure feels that it should be by now. Maybe that in itself is an illusion.

But maybe it is an illusion worth preserving because without even that vague aspiration towards oneness on the part of some part of the body, I am not sure what sort of world we would be living in now. Some bodies are global, but most bodies remain local, regional, “ethnic”. My thoughts are with all the victims of today’s and yesterday’s horrific attacks, and my thoughts are with all those who will suffer serious discrimination as a result of the actions of a few mass murderers and the general failure of humanity’s imagination to see itself as a unified entity. My only hope is that we can be strong enough to generate the opposite response to what these criminals intended. I want to be optimistic enough to say that we are getting there, wherever “there” might be. We need to talk about these things. We need to talk about Race. We just have to.

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Interesting point of view.

After Paris, Europe May Never Feel As Free Again (Guardian)

How long will it be before European liberalism cracks? The aftermath of a terrorist massacre is the worst time to make predictions. The extremity of the outrage pushes policy-makers and citizens to play with equally outraged responses. It is worth steadying yourself with the thought that until Friday night, Europe’s response to terrorism has not been extreme. Despite gruesome predictions to the contrary, European democracies have not turned themselves into police states. There have been no backlashes or pogroms against Muslims. EU countries, including Britain, have remained free and good societies overall; nations we can be proud of in our necessarily grudging way, for all the faults and abuses we must tackle.

People running from real terror know our true state better than we do. They flee to Europe, not from Europe. Callous though it may sound today to say it, the modest response to terrorism is the consequence of the modesty of the violence. Since al-Qaida’s assault on the World Trade Center and the Pentagon in 2001, the most striking feature of Islamist terrorism in Europe is how little of it there has been. You can give credit to police forces and intelligence agencies for arresting suspects before they strike. You can repeat the essential point that we are up against Islamism, not Islam, and most Muslims want nothing to do with totalitarian religion. Whatever the reason, the practical consequence remains that no one in power has felt the need to move towards anything resembling martial law.

Europe has “just” endured the attacks on Madrid and the 7/7 assault on London, and the actual and attempted murders of Jews, satirists, freethinkers in Paris, Brussels, Copenhagen and Marseille. Beyond that, there have been “lone wolf” killers of the type who did for poor Lee Rigby. I am not pretending that Europe has stayed the same. After Islamists sanctioned the murder of cartoonists who mocked Muhammad, a cowardly self-censorship spread across the arts and journalism, which was all the more cowardly for being unacknowledged. But it remains true that radical Islam has not forced a radical break with the past.

If you could travel in a time machine, you would see the continuities between our world and the Britain or France or Denmark of 20 years ago hugely outweigh the differences. I do not mean to minimise Islamist crimes when I say that Europe has been lucky. From Nigeria to Afghanistan, a clerical fascist doctrine that mandates mass murder and self-murder has pushed whole regions into civil war. Yet divinely sanctioned violence has failed to engulf our continent. Suspects are still innocent until proved guilty beyond reasonable doubt. The European convention on human rights remains in force. Terrorism is still subject to the rule of law, not martial law. In spite of all the provocations, we are what we once were.

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“What is clear is that there are 4 million people displaced by the crisis and, for them, a solution will need to be reached.”

What’s Next for Migrants After Paris? (Atlantic)

After a terrorist attack killed more than 120 people and injured hundreds more on Friday, France imposed border controls and authorities discovered a Syrian passport on one of the attackers. While it’s not clear whether any of the assailants were migrants themselves, the attack has nonetheless reignited the debate over Europe’s migrant crisis. As Quartz notes, the attacks attributed to ISIS are anything but good news for migrants in Europe. Marine Le Pen, the leader of the far-right National Front party in France, told reporters on Saturday that “urgent action is needed” to “annihilate” Islamic fundamentalism. Le Pen went on to advocate that France regain control of its borders and expel “illegal migrants.”

In Poland, incoming Minister of European Affairs Konrad Szymanski announced today that the country will not accept migrants without security guarantees. In September, Poland agreed to accept 4,500 refugees as part of a European Union quota system. In the U.S., the role the country should play in this refugee crisis is a subject of continued partisan debate. President Obama announced in September that at least 10,000 Syrian refugees will be resettled in the U.S. over the next year. While this number might seem small compared to the 4 million total refugees created by the war since 2011, it represents a marked jump from the fewer than 2,000 Syrian refugees accepted last year. But some GOP candidates argued against the administration’s policy by suggesting that ISIS militants could infiltrate the country by hiding among refugees.

According to Vox, Ben Carson, Ted Cruz, Mike Huckabee, and Rick Santorum quickly cited the Paris attacks to justify closing the borders to more Syrian refugees. On the Democratic side, Hillary Clinton, Martin O’Malley, and Bernie Sanders have remained mostly quiet on the subject so far. All three have publically expressed their condolences for the victims and their families, but no one has yet made the leap to policy. Meanwhile, to the north, Canada has its own ambitious refugee agenda to assess. Newly elected Canadian PM Justin Trudeau committed to resettling 25,000 Syrian refugees by the end of the year — a number deemed unrealistic by some observers. [..] the Toronto Star reported earlier today that the country remains steadfast in its plan despite the Paris attacks. Ultimately, how the recent events will affect the debate surrounding migration in Europe and beyond remains to be seen. What is clear is that there are 4 million people displaced by the crisis and, for them, a solution will need to be reached.

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As should be obvious. But is not at all.

Syrian Refugees In France Say Paris Terror Is The Terror They Fled (BuzzFeed)

Syrians who fled a brutal war and often undertook deadly sea journeys to settle in France reacted with horror to Friday’s terror attacks in Paris, and said they recognized the enemy all too well. “Syrians left Syria in dangerous ways to live in peace, but the killers followed them to Europe,” said Moaz Shaklab, a businessman from the Syrian city of Homs who settled in France two years ago as a refugee. The Paris attacks could spark new waves of Islamophobia in France and beyond — and with it fear of the refugees pouring into Europe from Syria and other countries. This is exactly what ISIS wants; the group has vowed to make it impossible for Muslims to exist peacefully in the West. Yet citizens in France share an ally against Islamic extremism in most refugees settling there.

Many newly arrived Syrians sought to escape the terror of ISIS and other jihadi groups, in addition to the brutal campaign being waged by Bashar al-Assad. Many worked against ISIS and other jihadi groups before leaving or have friends and family doing so now. “We’re united with the French people against terrorism,” Shaklab said. “And we don’t forget that they are united with us to get our freedom.” French police officials told the AP on Saturday that they had found a Syrian passport at the scene of an attack that they believed belonged to an assailant. But because of the refugee crisis, fake Syrian passports are now prevalent and easy to obtain.

Whether or not the passport is authentic, news of its discovery promised to help to fan refugee fears — which may have been the intent of the man who brought it to the scene. Sakher Edris, a journalist and political organizer who worked against both ISIS and the Syrian government before fleeing to France this summer, said he expected a backlash against refugees following the attacks. “We are really scared,” he said. “French people are kind, and it’s understandable to have some backlash, but we want them to know that we are with them against terror.”

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Stop our ‘friends’ from funding it.

There Is Only One Way to Defeat ISIS (Esquire)

It’s not like this is any kind of secret. In 2010, thanks to WikiLeaks, we learned that the State Department, under the direction of then-Secretary of State Hillary Rodham Clinton, knew full well where the money for foreign terrorism came from. It came from countries and not from a faith. It came from sovereign states and not from an organized religion. It came from politicians and dictators, not from clerics, at least not directly. It was paid to maintain a political and social order, not to promulgate a religious revival or to launch a religious war. Religion was the fuel, the ammonium nitrate and the diesel fuel. Authoritarian oligarchy built the bomb. As long as people are dying in Paris, nobody important is dying in Doha or Riyadh.

Saudi Arabia is the world’s largest source of funds for Islamist militant groups such as the Afghan Taliban and Lashkar-e-Taiba – but the Saudi government is reluctant to stem the flow of money, according to Hillary Clinton. “More needs to be done since Saudi Arabia remains a critical financial support base for al-Qaida, the Taliban, LeT and other terrorist groups,” says a secret December 2009 paper signed by the US secretary of state. Her memo urged US diplomats to redouble their efforts to stop Gulf money reaching extremists in Pakistan and Afghanistan.

“Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide,” she said. Three other Arab countries are listed as sources of militant money: Qatar, Kuwait and the United Arab Emirates. The cables highlight an often ignored factor in the Pakistani and Afghan conflicts: that the violence is partly bankrolled by rich, conservative donors across the Arabian Sea whose governments do little to stop them. The problem is particularly acute in Saudi Arabia, where militants soliciting funds slip into the country disguised as holy pilgrims, set up front companies to launder funds and receive money from government-sanctioned charities.

It’s time for this to stop. It’s time to be pitiless against the bankers and against the people who invest in murder to assure their own survival in power. Assets from these states should be frozen, all over the west. Money trails should be followed, wherever they lead. People should go to jail, in every country in the world. It should be done state-to-state. Stop funding the murder of our citizens and you can have your money back. Maybe. If we’re satisfied that you’ll stop doing it. And, it goes without saying, but we’ll say it anyway – not another bullet will be sold to you, let alone advanced warplanes, until this act gets cleaned up to our satisfaction. If that endangers your political position back home, that’s your problem, not ours. You are no longer trusted allies. Complain, and your diplomats will be going home.

Complain more loudly, and your diplomats will be investigated and, if necessary, detained. Retaliate, and you do not want to know what will happen, but it will done with cold, reasoned and, yes, pitiless calculation. It will not be a blind punch. You will not see it coming. It will not be an attack on your faith. It will be an attack on how you conduct your business as sovereign states in a world full of sovereign states… And the still, stately progress of the news from Paris continues. There are arrests today in Brussels, of alleged co-conspirators. The body count has stabilized. New information comes at its own pace, as if out of respect for the dead. In the stillness of the news itself, there is refuge and reason and a kind of wounded, ragged peace, as whatever rolled up from the depths of the sickness of the human heart rolls back again, like the tide and, like the tide, one day will return.

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Given the American desire for world dominance, what are the odds?

Syrian Transition Plan Reached by US, Russia in Vienna (Bloomberg)

Seventeen nations, spurred on by Friday’s deadly attacks in Paris, overcame their differences on how to end Syria’s civil war and adopted a timeline that will let opposition groups help draft a constitution and elect a new government by 2017. As a first step, the United Nations agreed to convene Syria’s government with opposition representatives by Jan. 1, U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov said Saturday at a joint press conference in Vienna. A cease-fire between the government in Damascus and recognized opposition groups should be in place within six months, according to their statement. The terrorist attacks in Paris galvanized the diplomats, who at previous talks had been unable to resolve the discord within their ranks.

While Russia and Iran had sided with Syrian President Bashar al-Assad, the U.S. and its regional allies had insisted upon his removal. With diplomats bogged down over the question of Assad, terrorist groups like Islamic State, also known as ISIS or ISIL, grew and become more powerful inside Syria. “It is time to deprive the terrorists of any single kilometer in which to hide,” Kerry said. “There can be no doubt that this crisis is not Syria’s alone to bear.” Assad has “cut his own deal” with Islamic State, buying oil from the group and failing to attack militants, Kerry said. Assad’s allies have conveyed that he’s prepared to be serious and engage in talks, but the “proof will be in the pudding,” he said. In a statement posted on Twitter, Islamic State said the Paris attacks that killed 129 people and injured 352 came in retribution for French involvement in the Syrian civil war.

The conflict has so far cost about 250,000 lives, sent millions fleeing the region, and triggered Europe’s worst refugee crisis since World War II. Diplomats meeting in the Austrian capital also decided to place Islamic State, along with the al-Qaeda affiliated Nusra Front terrorist group, on a list of those subject to military strikes even when a cease-fire is in place. The list, managed by the Kingdom of Jordan, may later be expanded to include other groups in Syria, Kerry and Lavrov said. The Paris attacks “show that it doesn’t matter if you’re for Assad or against him,” said Lavrov, “ISIS is your enemy.”

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Many more countries will follow the example.

Poland to Shun Refugees After Paris Attack, Future Minister Says (Bloomberg)

Poland’s new government won’t accept migrant quotas imposed by the European Union, as the terror attacks in France have exposed the weakness in the bloc, the nation’s future minister for European affairs said. “In the wake of the tragic events in Paris, Poland doesn’t see the political possibilities to implement a decision on the relocation of refugees,” Konrad Szymanski was quoted as saying on Wpolityce.pl website on Saturday. “The attacks mean there’s a need for an even deeper revision of the European policy regarding the migrant crisis.” Szymanski’s rejection of the EU quotas hours after Paris was rocked by terrorist attacks underscore the divide among governments in the bloc over the influx of Middle Eastern migrants.

His Law & Justice party will take power in Poland this week after winning last month’s general election on a campaign that tapped into concerns among the country’s conservative Catholic base that too many Muslims are arriving in Europe. Poland’s previous cabinet, led by the Civic Platform party, also opposed efforts led by German Chancellor Angela Merkel to force EU member states to take in more migrants. While incoming Foreign Minister Witold Waszczykowski said Poland will meet an commitment by the Civic Platform to shelter 7,000 refugees, prime minister designate Beata Szydlo referred to the deal as “blackmail.” She will be sworn in on Monday.

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Only the small make it through. It takes many millions of years for larger creatures to develop.

After Mass Extinctions, The Meek (Fish) Inherit The Earth (WaPo)

A new study suggests that being a little shrimpy might come in handy when the going gets tough. A mass extinction called the Hangenberg event, which took place some 359 million years ago, led to a reduction in vertebrate size for around 40 million years afterward. The research, published Thursday in Science, adds support to the so-called Lilliput Effect, which suggests that mass extinctions cause marked shrinkage in the animal population. To study how fish fared after this devastating extinction, the University of Pennsylvania’s Lauren Sallen (along with Andrew K. Galimberti at the University of Maine) studied 1,120 fish fossils dating back 419 to 323 million years ago. She found that the ancient fish had been increasing in size over time — which is to be expected — but that body size plummeted after 97% of species were wiped out.

“Some large species hung on, but most eventually died out,” Sallan said in a statement. Before the extinction, some fish had grown to be as big as school buses. But in the unstable ecosystem of a post-mass-extinction ocean, only small fish — ones that could reproduce quickly and survive on less food — could thrive. That means an ocean full of enormous sea monsters gave way to an ocean full of sardine-like critters. “[T]he end result is an ocean in which most sharks are less than a meter and most fishes and tetrapods are less than 10 centimeters, which is extremely tiny. Yet these are the ancestors of everything that dominates from then on, including humans,” Sallan said. There’s a very good reason to look into these devastating extinctions of the distant past: Many scientists believe that Earth is on the verge of a sixth mass extinction — one caused by human activity.

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What Europe stands for.

Two Refugee Children Die In Greece In Separate Incidents (Kath.)

Two refugee children died in Greece in two separate incidents on Saturday. A 3-year-old boy drowned off the coast of Chios, in the eastern Aegean, after an engine blast on a refugee boat that threw the passengers in the sea, coast guard officials said. Fifteen other people were rescued while officials arrested an 18-year-old Turk believed to be a trafficker. Meanwhile, a 5-year-old Syrian girl was killed by an oncoming train while she was walking on rail tracks near the town of Alexandroupoli, police said.

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