Dec 232018
 December 23, 2018  Posted by at 5:52 pm Primers Tagged with: , , , , , , , , , , , ,  10 Responses »

Diego Velázquez The Spinners 1655-60


Dirk Kurbjuweit, deputy editor-in-chief of Germany’s Der Spiegel magazine for the past 4 years, unwittingly put his foot a mile deep in his mouth this week when he reacted to a letter written by US Ambassador to Berlin Richard Grenell. His reaction presents perhaps the most perfect example of the downfall of news, journalism, the media in general, that we’ve seen so far. Most perfect among very stiff competition.

After Der Spiegel itself this week ‘outed’ its award-winning star reporter, Claas Relotius, as someone who had made up many of his lauded articles from scratch, Grenell suggested the magazine, and especially its editorial staff, shouldn’t think they can get away with putting all the blame on just this one guy. He tweeted:

We value policy criticism. We love a free press. But @Spiegel literally fabricated stories saying people (Americans) were racist & xenophobic. They made up events, details, & lies – and no editor checked the stories. Every real journalist should be outraged by this.

And he wrote a letter to Der Spiegel, albeit addressed at the ‘wrong’ editor, Steffen Klussman, who won’t be in the post until after Jan. 1:

The recent revelations of completely fabricated stories, completely fictional people and fraudulent details in Spiegel over the last seven years are very troubling to the US Embassy. These fake news stories largely focused on US policies and certain segments of the American people. It is clear we were targeted by institutional bias and we are troubled by the atmosphere that encouraged this recklessness.

While Spiegel’s anti-American narratives have expanded over the last years, the anti-American bias at the magazine has exploded since the election of President Trump. We are concerned that these narratives are pushed by Spiegel’s senior leadership and reporters are responding to what the leadership wants.

This is where Dirk Kurbjuweit’s foot enters his mouth, stage left, and starts its long journey down:

It is true that one of our reporters in large part fabricated articles, including reports from the United States. We apologize to all American citizens who were insulted or denigrated by these articles. We are very sorry. This never should have happened. In this case, our safeguarding and verification processes failed. We are working hard to clarify these issues and improve our procedures and standards.

I would, however, like to counter you on one point. When we criticize the American president, this does not amount to anti-American bias – it is criticism of the policies of the man currently in office in the White House. Anti-Americanism is deeply alien to me and I am absolutely aware of what Germany has the U.S to thank for: a whole lot. DER SPIEGEL harbors no institutional bias against the United States.

Of course, first of all, Grenell is right, if you let someone write fake stories for 7 years and your editors, which included Kurbjuweit himself, don’t catch one single lie, it looks like you’re letting the fabrications ‘slip through’ on purpose. As Grenell implies, it looks like the entire magazine is/was trying to fabricate the news, not report on it.

But that’s not where Kurbjuweit’s foot is in his mouth. That comes in the second paragraph . Where he effectively says that criticizing America and Americans, including through fully fabricated stories, does not constitute an anti-American bias. Instead, he says, Der Spiegel simply suffers from Trump Derangement Syndrome. In other words, not an anti-American bias, but an anti-Trump bias.

And that, in his view, is apparently fine. And though it is of course not, certainly for an editor of a magazine that has (make that had) a reputation to uphold, who can really blame him? In the American press, all he sees is Trump Derangement Syndrome all the time, in at least 90% of the media. So how can anyone blame a German editor for doing what the New York Times and CNN do 24/7?

The problem with all of this obviously is that all these news outlets are supposed to report the news, and none of them do anymore. They ‘report’ the opinions of their editors and ‘journalists’, and if these people don’t like whoever it is the American people elect as their president, it’s open season.

American media has made it acceptable for foreign media to write fake articles about the US president, which means ridicule of the Office of the President is fine too, and thereby the process by which he was elected. Re-read Kurbjuweit’s statement, that is what he says.

This is a sort of new normal that may well be the main legacy of 2018. It’s where the surge of social media and the internet in general have led us. In the process, they’ve swallowed the truth whole, and we may never see it again.

The truth is not a winning proposition. Fabricating stories and narratives and using them to string readers and viewers along like a modern version of the Pied Piper is a much bigger winner than the truth, and they’re all waking up to this new reality.


Der Spiegel’s response to being exposed as liars is to pretend to be open about it, but only by blaming one individual, while sparing the editors who let him roam free for 7 years.

The Guardian, which ran a fabricated story about meetings between Paul Manafort and Julian Assange in London’s Ecuadorian embassy a few weeks ago and was also exposed, has chosen a different approach: they attempt to smother the truth in silence. Both the writers of the story and editor-in-chief Kathy Viner, responsible for publishing blatant lies and fabrications are still on the payroll, there’s been no retraction and no apologies.

But there’s a flipside to this kind of thing. If you try to get away with murdering the truth the way Der Spiegel and the Guardian have done in these two instances, who’s going to read you next time around if they want to know what really happens, and take your words as true? No-one in their sound mind. So it’s necessarily a short term strategy.

Still, while it lasts, it’s profitable. And it’s mighty contagious too. If and when the foreign press no longer feels any qualms about admitting they suffer from Trump Derangement Syndrome, that is because US media have paved that road for them. Before the internet fueled its (dis-)information explosion, this would have been impossible.

It makes you wonder where this will go in 2019. What’s already evident is that you can’t believe your trusted news sources anymore. And it’s not a matter of some articles being true and some not; nothing published by Der Spiegel and the Guardian can be taken for granted as true from here on in, both are done as reliable news sources. Because they’ve been exposed as having lied on purpose, and only once is enough.

Same goes for many of the formerly trusted US MSM. And that should really, really make you wonder where this will take us in 2019. Truth is eroding faster than you can keep up with, and it’s your once trusted voices that lead the erosion. Where are you going to get your news? What and who can you trust?

Here’s a thought: follow the Automatic Earth. And good thing is, you don’t have to like Trump to not like where this is going. We don’t particularly like him either. We just dislike lies and fake news a whole lot more.



Nov 242016
 November 24, 2016  Posted by at 9:49 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »

Kennedy and Johnson Morning of Nov 22 1963

Another Election Year, Another Bunch Of Fake Growth Numbers (John Rubino)
China Vows To Defend Trade Rights In Face Of Trump Tariff Threats (R.)
IMF: Chinese Banks Disguise A Massive Amount Of Bad Debt (BI)
The ‘Ownership Society’ Came And Went – A Long Time Ago (MW)
How (Slightly) Higher Mortgage Rates Maul Housing Bubble 2 (WS)
‘Brexit Will Blow £59 Billion Hole In UK Public Finances’ (G.)
Pro-Brexit Lawmakers Attack Fiscal Watchdog’s Gloomy Outlook (BBG)
Capital Flight From Italy (Reinhart)
Jill Stein Raises Over $2 Million To Request US Election Recounts (G.)
Bernie Sanders Should Visit Trump Sooner Rather Than Later (NYDN)
Merkel Warns Against Fake News Driving Populist Gains (AFP)
Putin: EU Resolution Equating RT to ISIS A ‘Degradation Of Democracy’ (R.)
US Navy’s New $4 Billion Stealth Warship Breaks Down – Again (ZH)
Greece Wants To Conclude EU/IMF Review, Won’t Accept ‘Irrational’ Demands (R.)
Greek Businesses Move Abroad To Escape Austerity (R.)



“So why the approximately $1.8 trillion surge in government borrowing? Because a robustly-healthy economy was necessary to help the party in power stay in power.”

Another Election Year, Another Bunch Of Fake Growth Numbers (John Rubino)

Some pretty good economic reports have energized various parts of the financial markets lately. Consumer spending is up, GDP is exceeding expectations and even factory orders, that perennial downer, popped this morning. In response the dollar is soaring and interest rates are at breaking out of their multi-decade down-channel. The economy is clearly recovering, implying a return to normality. Right? Nah, it’s just the usual election year illusion. When the presidency is at stake the party in power always pumps up spending in an attempt to put people back to work and create the impression of a well-run country whose leaders deserve more time in the spotlight. After the election, spending returns to trend and the resulting bad news gets buried in “political honeymoon” media coverage.

How do we know this year is following the script? By looking at the federal debt. If the government is borrowing more than usual and (presumably) spending the proceeds, then it’s likely that the economy is getting a bit more than its typical diet of stimulus. So here you go: Note that after seven years of massive increases, the federal debt plateaued in 2015, which is what you’d expect in the late stages of a recovery. With full employment approaching and asset prices high, there should be plenty of tax revenues flowing in and relatively few people on public assistance, so the budget should be trending towards balance. Well, more people are working this year than last, and stock, bond and home prices all rose in the first half of the year. So why the approximately $1.8 trillion surge in government borrowing? Because a robustly-healthy economy was necessary to help the party in power stay in power.

This is a huge jump in government debt, even by recent standards. And its impact is commensurately large, accounting for a big part of the “growth” seen in recent months. But it’s also unsustainable. You don’t double a government’s debt in a single decade (from an already historically high level) and then keep on borrowing. At some point an extreme event or policy choice will put an end to the orgy. Either the markets impose discipline through a crisis of some sort, or the government adopts a policy of currency devaluation or debt forgiveness. And – in a nice ironic twist – the people who did the insanely-excessive borrowing are leaving town, to be replaced by folks who will inherit something unprecedented, with (apparently) no clear idea of what’s coming or what will be necessary in response.

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Protectionism and globalism in one.

China Vows To Defend Trade Rights In Face Of Trump Tariff Threats (R.)

China will defend its rights under WTO tariff rules if US president-elect Donald Trump moves toward executing his campaign threats to levy punitive duties on goods made in China, a senior trade official has said. Zhang Xiangchen, China’s deputy international trade representative, also told a news conference in Washington on Wednesday that a broad consensus of academics, business people and government officials have concluded that China is not manipulating its yuan currency to gain an unfair trade advantage, as Trump has charged. “I think after Mr Trump takes office, he will be reminded that the United States should honour its obligations as a member of the WTO,” Zhang said through an interpreter. “And as a member of the WTO, China also has the right to ensure its rights as a WTO member.”

Trump has said China is “killing us” on trade and that he would take steps to reduce the large US goods trade deficit with China, including labelling Beijing as a currency manipulator soon after he takes office and levying duties of up to 45% on Chinese goods to level the playing field for US manufacturers. Trump said on Monday he will formally exit the 12-country TPP trade deal in January. China is not a signatory to the TPP. Zhang, who spoke at the closing news conference for a two-day technical meeting of US and Chinese trade officials in Washington, was not specific on what steps China would take to protect its rights under WTO rules. The global trading body prohibits members from unilaterally raising tariffs above levels that they have committed to maintain.

China’s state-run Global Times newspaper last week warned that a 45% Trump tariff would paralyse US-China bilateral trade. “China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. US auto and [Apple] iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted,” the newspaper warned.

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Shadow securities. US redux.

IMF: Chinese Banks Disguise A Massive Amount Of Bad Debt (BI)

China’s banks are disguising bad debts by turning them into “securitized packages” rather than writing them down as non-performing loans, according to the IMF. The “untradeable debt” comes from China’s “shadow credit” world, which has generated a massive amount of credit that has the potential to become suddenly illiquid. The debts consist of interbank loans in “a structure potentially susceptible to rapid risk transmission and destabilizing liquidity events,” the IMF says. The amount of “shadow credit” grew 48% in 2015, to RMB 40 trillion ($580 billion), the IMF says, “equivalent to 40% of banks’ corporate loans and 58% of GDP.” If any of this sounds familiar, that’s because it is. It’s similar in principal to the way American banks disguised bad mortgages inside securitized packages before the Great Financial Crisis of 2007-2008.

Back then, US mortgage providers gave out too many loans to people who couldn’t repay them. On its own, that should not have been a problem. A mortgage default only hurts the bank that made the loan. But banks bundled together packages of those mortgages and sold them as “mortgage-backed securities” to other institutions. Bad mortgages were mixed in with good ones, making it impossible for investors to judge their quality. When it became obvious that some of these packages were toxic, no one wanted to buy any them. The market became suddenly illiquid. And the credit derivative hedges and leveraged bets layered upon them magnified the problem throughout the entire banking system, creating the financial collapse that plunged most of the world into recession.

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It was always just a fabricated dream.

The ‘Ownership Society’ Came And Went – A Long Time Ago (MW)

Of all the aftereffects of the housing bust and financial crisis, the steady decline in the homeownership rate might be among the most pernicious. Homeownership is traditionally one of the best means into the middle class, and it’s still popularly equated with the American Dream. But in a presentation last week, St. Louis Federal Reserve economist William Emmons demonstrated that homeownership has been losing ground for decades. What’s more, Emmons showed that higher ownership rates were likely coaxed along by government policies and national priorities appropriate for a certain moment in history and unsustainable beyond that. After the Depression, Emmons noted, New Deal policies “laid the foundation” for a huge increase in homeownership.

Those policies included the creation of a government financial system, such as the Federal Housing Administration, Fannie Mae, and the Federal Home Loan Banks. But just as important was the return of millions of service members from World War II, rising incomes and a prosperous economy, a national push for a country full of suburban single-family homes and highways to connect them all, as well as a national process of Americans “sorting themselves out” by race and class into the broad geographic outlines that would persist for decades. That meant the U.S. enjoyed robust growth – until it didn’t. Not only was there little room left to grow, but other changes began to influence ownership, Emmons said. Americans began to age, pushing off marriage, childbearing and home-buying until later.

The U.S. is also becoming more racially and ethnically diverse. Hispanics and African-Americans have traditionally had more limited opportunities to achieve homeownership – but as Emmons pointed out, citing research from the Harvard Joint Center for Housing Studies, “aspirations to own a home are higher among African-Americans and Latinos than among whites and Asians, despite homeownership rates that are 20 to 30 percentage points lower.” And while much of the impact of the 2008 crash has ebbed, it still continues to impact many people through diminished personal wealth, damaged credit scores, blighted neighborhoods, and some loss of trust in financial institutions.

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How ‘little things’ add up.

How (Slightly) Higher Mortgage Rates Maul Housing Bubble 2 (WS)

After the brutal beating following Election Day, US Treasuries took a breather early this week. But today, the beating resumed and will continue until the mood improves. Mid-day, the 10-year Treasury fell so hard that its yield, which moves in the opposite direction of price, spiked to 2.42%. By the end of the day, the 10-year yield was at 2.36%, up 4 basis points for the day, and up an entire percentage point from July this year: The market is 100% certain that the Fed will stop flip-flopping in mid-December and raise rates by moving the upper limit of the Fed funds target range to 0.75%. The markets see more rate hikes next year. A Fed funds rate with the first “1”-handle since 2008 would be a phenomenon a whole generation of Wall Street gurus has never seen in their professional lives.

Mortgage rates are chasing after Treasury rates. The Mortgage Bankers Association reported today that the 30-year fixed-rate conforming mortgage ($417,000 or less) reached 4.16%, its “highest weekly average since the beginning of 2016.” This caused a flurry of activity. Last week, amid the post-election interest rate spike, mortgage applications plunged. But homebuyers may be trying to lock in whatever rate they can get, before they go even higher, and mortgage applications surged. Ironically, from a historical point of view, nothing major has happened so far. That spike is still small compared to what came before, including the spike during the Taper Tantrum in the summer of 2013, when the Fed started musing about ending QE Infinity. Compared to prior years, rates are still very, very low, but home prices have since soared, and for home buyers even a minor uptick makes a world of difference.

From the peak of Housing Bubble 1, which in San Francisco occurred in 2007, to Q3 2016, the median house price soared 45%. But due to plunging mortgage rates, the monthly housing costs increased only 14%. Now with rates rising, that process is going to reverse. The household income needed to qualify for a 30-year fixed rate mortgage with 20% down on that median $1.3 million house in San Francisco was $251,000 before Election Day. Paragon observes: “By Friday, November 18, the income requirement increased by $13,000. And if the interest rate goes up to 5% (and again, we are not saying it will), an additional $35,000 in annual income would be required.”

Hence, at 5%, a minimum qualifying household income of $286,000 a year. In this scenario, even in less costly markets, there are two things that happen: One, many people have to step down to a lower-priced home, or they don’t buy at all. A market-wide shift of this type puts downward pressure on prices and volume. And two, as people stretch more to buy homes at higher interest rates and higher monthly costs, they have even less money to spend on other things. This creates a new drag on consumer spending. It’s how low mortgage rates not only subsidized the house price bubble but the entire economy by giving consumers more money to spend – not just the US economy but exporter nations around the world.

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Or will it?

‘Brexit Will Blow £59 Billion Hole In UK Public Finances’ (G.)

Philip Hammond conceded that Brexit will blow a £59bn black hole in the public finances over the next five years, as he outlined plans to boost investment in infrastructure and housing to equip the UK economy for life outside the EU. In his first fiscal statement, the chancellor, who had supported remain, sought to strike a cautiously upbeat tone about the country’s prospects, saying the economy had “confounded commentators at home and abroad with its strength and its resilience” since the referendum result last June. But the first official projections conducted after the vote of the likely impact of leaving the EU pointed to significantly weaker growth after Brexit. The Office for Budget Responsibility (OBR) announced that there would be a cumulative £122bn of extra borrowing over the next five years, with £59bn of that as a direct result of Brexit.

Other factors included weaker-than-expected tax revenues, and policy changes, including Hammond’s decision to spend more on infrastructure. George Osborne was expecting to achieve a surplus of £11bn on the public finances by 2020-21; instead, the OBR is now forecasting a £21bn deficit – and public debt is expected to peak at more than 90% of GDP. With little cash to spare, Hammond offered only modest handouts to the “just about managing” families (Jams) Theresa May’s government had said it wanted to help, although he repeatedly used the mantra of “building an economy that works for everyone”. The chancellor announced a renewed freeze in fuel duty, to help motorists – largely paid for with an increase in insurance premium tax from 10% to 12% – and a partial reversal of planned cuts to universal credit.

But Labour said there was no cash for either the NHS or social care, which are under increasing strain with winter approaching. Instead, the main thrust of Hammond’s first set-piece outing at the dispatch box was how to help Britain withstand the challenges of leaving the EU.

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Agree to disagree.

Pro-Brexit Lawmakers Attack Fiscal Watchdog’s Gloomy Outlook (BBG)

Conservative lawmakers attacked Britain’s fiscal watchdog after it warned that Brexit would cost £60 billion ($75 billion) in extra borrowing as the economy falters. The Office for Budget Responsibility’s forecast — the first official assessment of the costs related to leaving the bloc – also stated that exiting the EU would leave Britain with less potential for sustainable growth. Chancellor of the Exchequer Philip Hammond, who presented the forecasts alongside his Autumn Statement Wednesday, said the predictions showed there is an “urgent” need for Britain to tackle its long-term economic weaknesses. “We’ve had an endless slew of gloom and doom, and I just don’t buy it,” said Kwasi Kwarteng, a Tory lawmaker who backed the campaign to leave the EU. “They haven’t exactly had a brilliant track record. I’d take their predictions with a pinch of salt.”

Pro-Brexit lawmakers have been critical of both the OBR and the Treasury for overstating the negative consequences of Brexit. While Hammond made brief references to the opportunities that leaving may bring, his tone was one of caution, with few giveaways and a focus on creating a more productive economy that could weather future shocks. Responding to complaints from pro-Brexit politicians, Hammond told lawmakers that economic forecasting “is not a precise science.” He added: “The OBR very specifically says in its report that there is an unusually high degree of uncertainty in the forecasts it is making because of the unusual circumstances.”

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It’s high time for Italy to go its own separate ways. There’s nothing to gain from the EU anymore, but lots to lose.

Capital Flight From Italy (Reinhart)

Understandably, after the surprise victory in June of the “Leave” campaign in the United Kingdom’s Brexit referendum, and of Donald Trump in the United States’ presidential election, no one has much faith in polls in advance of the Italian vote. There is, however, a disquieting real-time poll of investors’ sentiment: capital flight from Italy has accelerated this year. There is a recent precedent for this. In the summer of 2015, Greece’s short-lived default on its IMF loan and the introduction of capital controls and deposit-withdrawal restrictions were at the center of the eurozone drama. Tensions between the Greek and German governments ran high, and speculation about whether Greece would remain in the eurozone escalated.

The stage has now shifted to the much larger Italian economy. In the current environment of uncertainty, yield spreads on Italian bonds have widened to about 200 basis points over German bunds. Economic and political conditions in the two debt-laden southern European economies differ in important respects; but there are also similarities. Economic growth in both countries has lagged far behind other advanced economies for more than a decade, but most markedly since the Global Financial crisis of 2008-2009. According to IMF estimates, real per capita income in Italy is about 12% below what it was in 2007, with only Greece faring worse. The problem of bank insolvency, endemic in Greece, where nonperforming loans account for more than one-third of bank assets, is not as generalized in Italy.

Still, the uncertain resolution of Italy’s third-largest bank, Monte dei Paschi, together with the Italian government’s limited resources to deal with weak banks, has fueled unease among depositors. Bankers also warn that the plan for Monte dei Paschi’s rescue may be jeopardized by the December referendum, which could trigger another round of decline in share prices. But, for all the talk of a looming banking crisis, the balance-of-payments crisis already underway in Italy since the first half of 2016 is the main factor driving the real-time poll of investors. Prior to the adoption of the euro, an unsustainable balance-of-payments position in Italy (as in other countries with their own currencies) would typically spur the central bank to raise interest rates, thereby making domestic financial assets more attractive to investors and stemming capital flight. With the ECB setting monetary policy for the eurozone as a whole, this is no longer an option for Banca d’Italia.

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Nostalgia for hanging chads.

Jill Stein Raises Over $2 Million To Request US Election Recounts (G.)

Jill Stein, the Green party’s presidential candidate, is prepared to request recounts of the election result in several key battleground states, her campaign said on Wednesday. Stein launched an online fundraising page seeking donations toward a a multimillion-dollar fund she said was needed to request reviews of the results in Michigan, Pennsylvania and Wisconsin. Before midnight EST on Wednesday, the drive had already raised more than the $2m necessary to file for a recount in Wisconsin, where the deadline to challenge is on Friday. Stein said she was acting due to “compelling evidence of voting anomalies” and that data analysis had indicated “significant discrepancies in vote totals” that were released by state authorities.

“These concerns need to be investigated before the 2016 presidential election is certified,” she said in a statement. “We deserve elections we can trust.” The fundraising page said it expected to need around $6m-7m to challenge the results in all three states. Stein’s move came amid growing calls for recounts or audits of the election results by groups of academics and activists concerned that foreign hackers may have interfered with election systems. The concerned groups have been urging Hillary Clinton, the defeated Democratic nominee, to join their cause.

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As I said yesterday in “Trump Moves as America Stands Still”.

Bernie Sanders Should Visit Trump Sooner Rather Than Later (NYDN)

Trump aside, evidently the most clairvoyant messenger of 2016 was Sanders, who got pitifully little support from the Democratic Party establishment — including a raw deal from the DNC, which tilted the scales against him in order to coronate Hillary. His brand of anti-Wall Street, anti-elite populism is ascendant. He is the tribune of the progressive youth, many of whom refused to back Hillary despite her repeated (and hollow) entreaties. So what should Sanders do now? Well, how about meeting with the new President-elect? It might seem incongruous. What would the nationalist, brash Trump have to gain from the aging socialist Sanders? Well, maybe quite a bit. Trump explicitly proclaimed during the campaign that he was going to take a page from Bernie’s playbook, much to the consternation of conservative pundits.

“I’m going to be taking a lot of the things Bernie said and using them,” Trump declared in April. And indeed, Trump followed through on the pledge: He made opposition to the Trans-Pacific Partnership a centerpiece of his campaign, thus emphasizing an area of agreement with Sanders. (Trump has since confirmed that the trade deal will be canceled.) He called for a reduced U.S. military presence abroad. And he even repeatedly defended Sanders before millions of people at the televised debates, pointing out that he’d been screwed over by the DNC and Clinton minions. Naturally, Trump and Sanders will never agree on everything, but where they do see eye-to-eye, why not take advantage?

Two days after the election, Sanders issued a statement noting Trump’s success at connecting with folks “sick and tired of establishment economics, establishment politics and the establishment media.” Sanders then offered to “work with” him on discrete initiatives. Trump has already announced that an infrastructure funding bill is one of his top priorities, so who better than Sanders to help steer the legislative process in the most fruitful possible direction? (Bernie this week characterized Trump’s plan as a “scam,” so why not register those concerns in person?)

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Sounds desperate.

Merkel Warns Against Fake News Driving Populist Gains (AFP)

German Chancellor Angela Merkel warned Wednesday against the power of fake news on social media to spur the rise of populists, after launching her campaign for a fourth term. Speaking in parliament for the first time since her announcement Sunday that she would seek re-election next year, Merkel cautioned that public opinion was being “manipulated” on the internet. “Something has changed – as globalisation has marched on, (political) debate is taking place in a completely new media environment. Opinions aren’t formed the way they were 25 years ago,” she said. “Today we have fake sites, bots, trolls – things that regenerate themselves, reinforcing opinions with certain algorithms and we have to learn to deal with them.”

Merkel, 62, said the challenge for democrats was to “reach and inspire people – we must confront this phenomenon and if necessary, regulate it.” She said she supported initiatives by her right-left coalition government to crack down on “hate speech” on social media in the face of what she said were “concerns about the stability of our familiar order”. “Populism and political extremes are growing in Western democracies,” she warned. Last week, Google and Facebook moved to cut off ad revenue to bogus news sites after a US election campaign in which the global misinformation industry may have influenced the outcome of the vote. But media watchers say more is needed to stamp out a powerful phenomenon seen by some experts as a threat to democracy itself.

Merkel’s conservative Christian Democrats are the odds-on favourites to win the German national election, expected in September or October 2017.

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Well, we already knew the EU has gone crazy.

Putin: EU Resolution Equating RT to ISIS A ‘Degradation Of Democracy’ (R.)

The European Parliament called on the EU and its states to do more to counter Russian “disinformation and propaganda warfare” on Wednesday, drawing an angry response from President Vladimir Putin. A motion endorsing a committee report, which also called for more effort against attempts by Islamic State to radicalize Europeans, passed by 304 votes to 179. Members on the far left and far right were opposed; many in the center-left abstained. “The European Parliament … expresses its strong criticism of Russian efforts to disrupt the EU integration process and deplores, in this respect, Russian backing of anti-EU forces in the EU with regard, in particular, to extreme-right parties, populist forces and movements that deny the basic values of liberal democracies,” the 59-point motion read.

With East-West relations in deep freeze since Moscow responded to an EU pact with Ukraine by annexing Crimea in 2014, the Parliament’s report accused the Kremlin of funding media outlets that spread falsehoods and of sponsoring eurosceptic movements in Western Europe which are growing in strength. Putin said that after lecturing Russia on democracy Europe was now trying to silence dissenting opinions. He told reporters in Moscow: “We are observing a certain, quite obvious, degradation … of how democracy is understood in Western society, in this particular case in the European Parliament.” In Strasbourg, center-left lawmakers said they could not endorse the report because Russia was not alone in posing such threats and they objected to the way it appeared to be given an equivalent status to the non-state militants of Islamic State.

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Not a bug but a feature. Given the multibillion ‘trouble’ with the JSF, what do you think the odds are the military-industrial complex makes broken equipemnt on purpose, for profit?

US Navy’s New $4 Billion Stealth Warship Breaks Down – Again (ZH)

For the second time in two months, The Navy’s new $4 billion stealth warship has broken down. As reports, the ripped-from-the-pages-of-a-sci-fi mag-looking USS Zumwalt is now in Panama for repairs after suffering a breakdown while passing through the Panama Canal on Monday evening.’s Hope Hodge Seck reports that a spokesman for U.S. 3rd Fleet, Cmdr. Ryan Perry, told that the commander of 3rd Fleet, Vice Adm. Nora Tyson, had instructed the USS Zumwalt, the first in a new class of stealthy destroyers, to remain at ex-Naval Station Rodman in Panama to address the engineering casualty. “The timeline for repairs is being determined now, in direct coordination with Naval Sea Systems and Naval Surface Forces,” he said in a statement.

“The schedule for the ship will remain flexible to enable testing and evaluation in order to ensure the ship’s safe transit to her new homeport in San Diego.” An official confirmed to that the ship had been transiting south through the canal en route to its new San Diego homeport when the incident occurred. The ship had to be towed to pier by the Panama Canal Authority, the official said. While details about what caused the breakdown were few, Navy Times – which first reported the incident – cited reports about problems with heat exchangers in the ship’s integrated power plant that had contributed to the mishap. [..]The ship also made headlines earlier this month when multiple outlets reported that the missiles fired from its 155mm Advanced Gun System, at $800,000 apiece, were too expensive for the Navy to buy in large quantities [..]

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But they’ve accepted tons of others already?!

Greece Wants To Conclude EU/IMF Review, Won’t Accept ‘Irrational’ Demands (R.)

Greece wants to conclude its bailout review but cannot accept what it sees as irrational demands on labor reform or for extra austerity, Prime Minister Alexis Tsipras said on Wednesday, in his first speech to lawmakers after a cabinet reshuffle. Negotiations between Greece and its official creditors – the EU and the IMF – hit a snag this week due to differences on fiscal targets, energy and labor reforms in the country, where one in four is unemployed. “The Greek government is fully consistent with what was agreed and has proven it has the political will to conclude the second bailout review without meaningless delays,” Tsipras told his Syriza party lawmakers. “But this does not mean we would discuss irrational demands.”

The mission chiefs overseeing Greece’s bailout program implementation left Athens on Tuesday. Government officials said talks would continue but the latest disagreements and a long-standing rift among the creditors on medium-term fiscal targets have clouded Greek hopes for a swift conclusion. Unpopular labor reforms, including collective bargaining, a mechanism to set the minimum wage and giving companies more freedom to lay off workers are the main sticking point in talks with lenders. Tsipras said differences could be bridged if there is political will on all sides, adding that an agreement could be reached by Dec. 5, when euro zone finance ministers will meet in Brussels.

“It is realistic but also absolutely necessary to conclude the talks soon to secure at the scheduled Dec. 5 … meeting the agreement needed on a political level in order to conclude the bailout review,” he said. Tsipras said this would pave the way for talks on debt relief measures, not only in the short term but also in the medium and long term, which would allow Greece to lower primary surplus targets beyond 2018, when its bailout program ends.

Read more …

The Troika forces Greece to strangle itself.

Greek Businesses Move Abroad To Escape Austerity (R.)

Greek businessman Prokopis Makris believes moving to Bulgaria three years ago was the best decision he ever made. The accountant shut his failing furniture company in Greece and opened a business helping other entrepreneurs move to Bulgaria to escape a 29% tax rate, which has jumped since Athens adopted austerity as part of an international bailout. “We are bombarded with taxes in Greece, businesses are being annihilated,” he says in his plush office overlooking the town square of Petritsi, a Bulgarian town about 12 km (seven miles) north of the border with Greece. The debt crises faced by Greece and several other European countries led to drastic spending cuts and tax increases to improve government finances.

But the higher taxes punished businesses forcing many to shut or move to lower tax jurisdictions such as Bulgaria or Cyprus, helping those economies but undermining the recovery needed to balance the books at home. The number of Greek owned businesses based in Bulgaria, where the corporate tax rate is only 10%, has risen to 17,000 from 2,000 in 2010, when Greece had its first bailout, according to Bulgarian authorities. The Greek government is concerned. It plans a series of tax audits in cooperation with Bulgaria to determine if these business defections are merely changes of address designed to avoid tax rather than a physical relocation of operations. [..] Six hundred kilometers north of Athens, the Greek-Bulgarian border is teeming with traffic. A ravine through mountains on the Greek side gives way to a sweeping valley where agriculture and vineyards are the mainstay of the local economy.

At two small industrial parks 5 km inside Bulgaria, Greek signs are everywhere, advertising storage and office space. “There are dozens of Greek businesses just in this area alone, from transport companies to textile businesses and construction materials,” said Yiorgos Kalaitzoglou who runs a logistics business out of one of the industrial parks where a sign reads, “Land of Opportunities”. Three years ago, his business was stuttering in Greece. He moved to Bulgaria, leaving his wife and family in Thessaloniki, Greece’s second largest city an hour’s drive away. “The taxman in Greece takes 70 to 90% of earnings, Greece simply doesn’t let you live,” the 50-year-old said as he walked through a warehouse stacked with ladders and paint tubs.

Read more …

Jun 052015
 June 5, 2015  Posted by at 12:49 pm Finance Tagged with: , , , , , , , , ,  1 Response »

Dorothea Lange Farm boy at main drugstore, Medford, Oregon 1939

Central bankers have promised ad nauseum to keep rates low for long periods of time. And they have delivered. Their claim is that this helps the economy recover, but that is just a silly idea.

What it does do is help create the illusion of a recovering economy. But that is mostly achieved by making price discovery impossible, not by increasing productivity or wages or innovation or anything like that. What we have is the financial system posing as the economy. And a vast majority of people falling for that sleight of hand.

Now the central bankers come face to face with Hyman Minsky’s credo that ‘Stability Breeds Instability’. Ultra low rates (ZIRP) are not a natural phenomenon, and that must of necessity mean that they distort economies in ways that are inherently unpredictable. For central bankers, investors, politicians, everyone.

That is the essence of what is being consistently denied, all the time. That is why QE policies, certainly in the theater they’re presently being executed in, will always fail. That is why they should never have been considered to begin with. The entire premise is false.

Ultra low rates are today starting to bite central bankers in the ass. The illusion of control is not the same as control. But Mario and Janet and Haruhiko, like their predecessors before them, are way past even contemplating the limits of their powers. They think pulling levers and and turning switches is enough to make economies do what they want.

Nobody talks anymore about how guys like Bernanke stated when the crisis truly hit that they were entering ‘uncharted territory’. That’s intriguing, if only because they’re way deeper into that territory now than they were back then. Presumably, that may have something to do with the perception that there actually is a recovery ongoing.

But the lack of scrutiny should still puzzle. How central bankers managed to pull off the move from admitting they had no idea what they were doing, to being seen as virtually unquestioned maestros, rulers of, if not the world, then surely the economy. Is that all that hard, though, if and when you can push trillions of dollars into an economy?

Isn’t that something your aunt Edna could do just as well? The main difference between your aunt and Janet Yellen may well be that Yellen knows who to hand all that money to: Wall Street. Aunt Edna might have some reservations about that. Other than that, how could we possibly tell them apart, other than from the language they use?

The entire thing is a charade based on perception and propaganda. Politicians, bankers, media, the lot of them have a vested interest in making you think things are improving, and will continue to do so. And they are the only ones who actually get through to you, other than a bunch of websites such as The Automatic Earth.

But for every single person who reads our point of view, there are at least 1000 who read or view or hear Maro Draghi or Janet Yellen’s. That in itself doesn’t make any of the two more true, but it does lend one more credibility.

Draghi this week warned of increasing volatility in the markets. He didn’t mention that he himself created this volatility with his latest QE scheme. Nor did anyone else.

And sure enough, bond markets all over the world started a sequence of violent moves. Many blame this on illiquidity. We would say, instead, that it’s a natural consequence of the infusion of fake zombie liquidity and ZIRP rates.

The longer you fake it, the more the perception will grow that you can’t keep up the illusion, that you’re going to be found out. Ultra low rates may be useful for a short period of time, but if they last for many years (fake stability) they will themselves create the instability Minsky talked about.

And since we’re very much still in uncharted territory even if no-one talks about it, that instability will take on forms that are uncharted too. And leave Draghi and Yellen caught like deer in the headlights with their pants down their ankles.

The best definition perhaps came from Jim Bianco, president of Bianco Research in Chicago, who told Bloomberg: “You want to shove rates down to zero, people are going to make big bets because they don’t think it can last; Every move becomes a massive short squeeze or an epic collapse – which is what we seem to be in the middle of right now.”

With long term ultra low rates, investors sense less volatility, which means they want to increase their holdings. As Tyler Durden put it: ‘investors who target a stable Value-at-Risk, which is the size of their positions times volatility, tend to take larger positions as volatility collapses. The same investors are forced to cut their positions when hit by a shock, triggering self- reinforcing volatility-induced selling. This is how QE increases the likelihood of VaR shocks.’

QE+ZIRP have many perverse consequences. That is inevitable, because they are all fake from beginning to end. They create a huge increase in inequality, which hampers a recovery instead of aiding it. They are deflationary.

They distort asset values, blowing up prices for stocks and bonds and houses, while crushing the disposable incomes in the real economy that are the no. 1 dead certain indispensable element of a recovery.

You would think that the central bankers look at global bond markets today, see the swings and think ‘I better tone this down before it explodes in my face’. But don’t count on it.

They see themselves as masters of the universe, and besides, their paymasters are still making off like bandits. They will first have to be hit by the full brunt of Minsky’s insight, and then it’ll be too late.

Dec 162014
 December 16, 2014  Posted by at 4:14 pm Finance Tagged with: , , , , , , , ,  6 Responses »

Arthur Rothstein “Bank that failed. Kansas” May 1936

Few may have noticed it to date, but it’s not like we still live in the same world, just with lower oil prices. We live in a different world altogether, with the changes between the new and old brought about by the (impending) disappearance of a lot of – virtual – money, or credit, give it a name, and the difference between oil at $110 and oil at $50.

And for the same reason Dorothy feels it necessary to point out to Toto where they find themselves, we have to tell people out there who may think they are indeed still in Kansas that no, they’re not. Or, if we play around with the metaphor a bit, they’re in Kansas, but a tornado has passed through and rendered the entire state unrecognizable.

A big problem is that for most people, Kansas is what the state tourist bureau (re: US media) says it is, all generously waving corn and sunshine, not the bleak reality they actually live in. It’s not easy to figure things out when so much rests on you being and remaining ignorant.

But whether we like it or not, and understand it or not, there’s a major reset underway as we speak. The fake impression, the false picture, of the economy, delivered by global central bank stimuli over the past years, is starting to unravel, as I talked about in Will Oil Kill The Zombies?. And the central banks are starting to figure out that doing more of the same may not work anymore to keep up keeping up appearances.

Very early today, WTI oil fell through $55, and Brent through $60. As I write this, they’re living dangerously just below the edge of $54 and $59, respectively. And again, this is not because the dollar is particularly strong; as a matter of fact, the greenback has a temporary weak spell vs the pound and the euro (1.5% in 2 weeks?!). Otherwise the damage to oil prices, counted in dollars, would be even greater, and substantially so.

When the United Arab Emirates energy minister over the weekend said OPEC won’t even cut production if prices reach $40 a barrel, he effectively set a new price (-goal). And let’s not forget that lots of oil already sells far below the WTI or Brent standards. It’s a buyers market out there, with plenty panicked producers/sellers. Because if inertia inherent in longer term delivery contracts, some of the shock will come only later, but it will come.

And oil prices will rise again at some point, but what will be left behind will resemble Kansas after a tornado. Besides, don’t expect a rebound anytime soon: I don’t believe for a moment that demand is not overreported (China,Europe, Japan, emerging markets) and production underreported (panicked producers). This baby has a ways to run yet.

But as I’ve discussed many times already, oil is just the spark that sets the world ablaze. The fuel is energy credit, junk bonds, leveraged loans, collateralized loan obligations. And it will spread to adjacent instruments, and then to just about everything, because shorts and losses will have to be covered with any asset that can be sold, loans called in, margin calls issued, etc. Many of these items will end up being valued at 20-30 cents on the dollar at best, and since the whole edifice was built on leveraged credit, those valuations will in many cases mean a death in the family.

The reason why is relatively easy to find if you just follow the – money – trail.

CNBC has an energy trader talking:

Oil Has Become The New Housing Bubble

The same thing that happened to the housing market in 2000 to 2006 has happened to the oil market from 2009 to 2014, contends well-known trader Rob Raymond of RCH Energy. And he believes that just as we witnessed the popping of the housing bubble, we are in the midst of the popping of the energy bubble. “It’s the outcome of a zero interest rate policy from the Federal Reserve. What’s happened from 2009 to 2014 is, the energy industry has outspent its cash flow by $350 billion to go drill all these wells, and create this supply ‘miracle,’ if you will, in the United States.”

“The issue with this has become, what were houses in Florida and Arizona in 2000 to 2006 became oil wells in North Dakota and Texas in 2009 to 2014, and most of that was funded in the high-yield market and by private equity.” [..] when it comes to the price of a barrel of oil itself, Raymond expects to see a rebound once U.S. production dries up. “We live in a $90 to $100 world,” he said. “We just don’t live in it today.”

Obviously, Rob Raymond expects to return to Kansas one day. The boys at Phoenix, via Tyler Durden, are not so sure, I don’t think. They make the good point that a dollar rally is oil negative, making my earlier point about the dollar’s – relative – weakness these days more poignant. “Oil is just the beginning ..”:

Oil’s Crash Is the Canary In the Coal Mine for a $9 Trillion Crisis

The Oil story is being misinterpreted by many investors. When it comes to Oil, OPEC matters, as does Oil Shale, production cuts, geopolitical risk, etc. However, the reality is that all of these are minor issues against the MAIN STORY: the $9 TRILLION US Dollar carry trade. Drilling for Oil, producing Oil, transporting Oil… all of these are extremely expensive processes. Which means… unless you have hundreds of millions (if not billions) of Dollars in cash lying around… you’re going to have to borrow money.

Borrowing US Dollars is the equivalent of shorting the US dollar. If the US Dollar rallies, then your debt becomes more and more expensive to finance on a relative basis. There is a lot of talk of the “Death of the Petrodollar,” but for now, Oil is priced in US Dollars. In this scheme, a US Dollar rally is Oil negative. Oil’s collapse is predicated by one major event: the explosion of the US Dollar carry trade. Worldwide, there is over $9 TRILLION in borrowed US Dollars that has been ploughed into risk assets.

Energy projects, particularly Oil Shale in the US, are one of the prime spots for this. But it is not the only one. Emerging markets are another. Just about everything will be hit as well. Most of the “recovery” of the last five years has been fueled by cheap borrowed Dollars. Now that the US Dollar has broken out of a multi-year range, you’re going to see more and more “risk assets” (read: projects or investments fueled by borrowed Dollars) blow up. Oil is just the beginning, not a standalone story.

If things really pick up steam, there’s over $9 TRILLION worth of potential explosions waiting in the wings. Imagine if the entire economies of both Germany and Japan exploded and you’ve got a decent idea of the size of the potential impact on the financial system. And that’s assuming NO increased leverage from derivative usage. The story here is not Oil; it’s about a massive bubble in risk assets fueled by borrowed Dollars blowing up.

The last time around it was a housing bubble. This time it’s an EVERYTHING bubble. And Oil is just the canary in the coalmine.

Yves Smith goes so far as to ponder a link to the disgraceful spending bill additions signed off on by Congress and Senate a few days ago. The first but is from Tom Adams via e-mail:

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge?

Why are the proponents pushing so hard, with respect to the Dodd-Frank provision on derivatives pushed out of insured banks, to get this done now? Why not just wait until Republicans have control of the House and Senate? Why is Jamie Dimon calling on members now, rather than just waiting? The timing is weird. Perhaps there are political reasons that give various parties cover they want and that’s all there is to it. On the other hand, I’ve been closely watching the blow up in the oil and energy markets and I wonder if there may be a link to the Cromnibus fight.

Much of the recent energy boom has been financed with junk debt and a good portion of that junk debt ended up in collateralized loan obligations. CLOs are also big users of credit default swaps, which was an important target of the Dodd Frank push-out. In addition, over the past 6 months banks were unable to unload a portion of the junk debt originated and so it remained on bank balance sheets. That debt is now substantially underwater.

To hedge, banks are using CDS. Hedge funds are actively shorting these junk debt financed energy companies using CDS (it’s unclear where the long side of those CDS have ended up – probably bank balance sheets and CLOs). Finally, junk financed energy companies have been trying to offset the falling price of oil by hedging via energy derivatives. As it turns out, energy derivatives are also part of the DF push-out battle.

Conditions in the junk and energy markets are pretty dire right now as a result of the collapse in oil, as you know. I suspect there are some very anxious bank executives looking at their balance sheets right now. Since the derivatives push-out rule of Dodd Frank was scheduled to go into affect in 2015, the potential change in managing their exposure may be causing a lot of volatility for banks now – they need to hedge in large numbers at the best rates possible.

Is it possible that bank concerns (especially Citi and JP Morgan) about the potential energy-related losses are why Dodd Frank has to be changed now?

Then Yves herself explains:

To unpack this for generalists, CLOs or collateralized loan obligations, are used to sell highly leveraged loans, which are typically created when private equity firms take companies private. In the last big takeover boom of 2006-2007, which was again led by private equity buyouts, banks were left with tons of unsold CLO inventory on their balance sheets. The games banks played to underreport losses (such as doing itty bitty trades with each other or friendly hedge funds to justify their valuations) and the magnitude of the damage didn’t get the attention they warranted because all eyes were on the bigger subprime/CDO implosion.

This CLO decay could eventually be more serious than the losses after the 2006-7 buyout boom. This time, the lending was less diversified by industry. Although it hard to get good data, by all account shale gas companies have been heavy junk bond issuers, and energy-related investments have also been disproportionately represented in recent acquisitions. The high representation of energy bonds in junk issuance means they are also the largest single industry exposure in junk bond ETFs, which were wobbly even before oil started taking its one-way wild ride.

Zero Hedge turns again to the high yield (junk bond) energy spread graph(s), and rightly so, because what’s visible here is how extreme the situation has already become. Already, because we’ve barely even left Kansas and started our adventure. There’s a long way to go yet, and there’s no way back. This will have to play out. (BTW, OAS is Option-Adjusted Spread)

Energy High-Yield Credit Spreads Blow Above 1000bps For First Time Ever

For the first time on record, HY Energy OAS has broken above 1000bps – signifying dramatic systemic business risk in that sector (despite a modest rebound today in crude prices). The energy sector is entirely frozen out of the credit markets at this point with desk chatter that there is no bid for this distressed debt at all and air-pockets appear everywhere as each new trade reprices the entire sector. The broad high-yield ‘yield’ and ‘spread’ markets are now under significant pressure – both pushing to the cycle’s worst levels. HY Energy weakness is propagating rapidly into the broad HY markets:

This suggests significant weakness to come for Energy stocks:

This cannot end well (unless the Fed decides monetizing crude in addition to TSYs and E-Minis is part of its wealth preservation, pardon “maximum employment, stable prices, and moderate long-term interest rates” mandate…)

The problem with that last bit, monetizing crude, is as I’ve said, and Zero Hedge quoted me on that a few days ago, that saving the US oil industry that way would also mean bailing out Putin and Maduro, which would seem a political no-go. There’s also the fact that the American people may not appreciate the Fed driving oil prices higher just as they get a chance to spend less on gas while they’re hurting. Another no-go.

I don’t see them do it. If they bail out anyone, it’ll be the banks again if these start bleeding too much from energy stocks, bonds, loans, derivatives and related losses. I’m thinking the oil industry will have to save itself through defaults, mergers and acquisitions. Let Shell buy BP, and let them buy up broke shale companies on the cheap and slowly kill off production. Looks like a plan. America should have gone for financial independence, not energy independence, come to think of it.

As for the American people, to play with the Kansas metaphor a little more, it’s going to feel like the Fed and the Treasury kicked them out of Kansas. Or North Dakota, if you must. And you may be thinking: who cares about living in Kansas, but it’s a metaphor. And Dorothy felt right at home, remember? It was paradise, or at least her comfort zone. In other words, the real question is how you are going to feel about being kicked out cold and hard of your comfort zone. Because that is what this low oil price ‘adventure’ will end up doing to a lot of people.

But do let’s put it in perspective: it doesn’t stand on itself, neither the oil prices nor the financial losses they will engender. We’re watching, in real time, the end of the fake reality created by the central banks.

Jun 102014
 June 10, 2014  Posted by at 6:30 pm Finance Tagged with: , ,  3 Responses »

Arthur Rothstein Drought refugees from Glendive, MT, leaving for WA July 1936

It’s common knowledge at this point, even if there’s never a shortage of voices who will insist on denying it, that many of the numbers we see allegedly describing our economic realities, are not real at all. Unemployment, GDP, the issue is familiar. And if the US government, or any government for that matter, thinks it’s such a great idea to “massage” their numbers, then to quite an extent those of us who pay attention can shrug them off as largely irrelevant, even if they greatly distort many people’s views of where we find ourselves. The nonsense comes in so fast and furious we need to realize we can’t win ’em all. But we should never be tempted into thinking much of what we read are anything else than fake, virtual zombie numbers. Still, it’s when fake numbers get real life consequences that we need to raise our voices, even if that’s for the umpteenth time. A report issued yesterday by the Boston Consulting Group (BCG) makes for such a moment. Here’s what the BBC had to say:

Global Private Wealth Rises To $152 Trillion

The amount of private wealth held by households globally surged more than 14% to $152 trillion last year, boosted mainly by rising stock markets. Asia-Pacific, excluding Japan, led the surge with a 31% jump to $37 trillion, a report by Boston Consulting Group says. [..] The report takes into account cash, deposits, shares and other assets held by households. But businesses, real estate and luxury goods are excluded. [..]

The amount of wealth held in equities globally grew by 28% during the year [..] Economies in Asia have been key drivers of global growth in the recent years. China has been the biggest driver – with private wealth in the country surging more than 49% in 2013. The wealth held in the region is expected to rise further, to nearly $61 trillion by the end of 2018.

And since the BBC missed some numbers that Bloomberg caught, and vice versa, here’s the latter as well:

China Riches Fuel Asia as World Wealth Tops $150 Trillion

China leapfrogged Germany and Japan in the past five years to trail only the U.S. in a ranking of countries by private financial wealth. China’s $22 trillion is expected to increase more than 80% to $40 trillion by 2018, while the U.S. may grow to $54 trillion from $46 trillion over the same period, BCG said. Globally, stock-market gains averaged 21% in 2013, providing the primary driver of growth in private wealth, especially in North America, Europe and Japan [..] North America wealth gained 16% to $50.3 trillion.

India, which may more than double private wealth assets to $5 trillion by 2018, and Russia, where wealth may advance more than 80% to $4 trillion. BCG expects rich households to have almost $200 trillion worldwide by 2018, with the Asia-Pacific region contributing about half of global growth.

I guess the crucial question here is: how is this wealth? What is wealth to begin with? And how did these huge surges come about in the first place? We know that central banks and governments, who typically these days are as independent from each other as your run of the mill Siamese twin can be, have a role. The Chinese communist party – what’s in a name? – has pumped an estimated $25 trillion into its economy since 2008, and let the shadow banks add another, let’s take a wild guess, $5-$10 trillion or so?! The Qingdao copper, aluminum, timber, peanut oil and what have we scheme seems to indicate a widespread and accepted practice of rehypothecating assets, whether they actually exist or not. The scheme is far too profitable to have remained some small scale thingy. I saw John Mauldin today put the total damage (or is that profit?) at $1.3 billion, but we might as well add a few zeroes.

The US added many more trillions in stimulus. I’d say $15 trillion, easily. The ECB has been a bit more cautious – which is why everyone wants them to do more -, but when you add it all up, 28 separate countries, governments and central banks and all that, put them at $10 trillion minimum. And Japan is, well, Japan, they were at it much sooner, early 1990s, and Abenomics is the everything-on-red move; I can’t see that being less than $15 trillion. And that’s just the 4 biggest economies; you think the rest didn’t chime in? This is where you’re inclined to say that before you know it you’re talking real money. But it’s not. That’s exactly what it’s not. The entire thing has been made up out of thin air, and to make matters much worse, it’s been borrowed too.

Creating credit out of thin air equals borrowing from the future. Even though we – prefer to – see that as hardly relevant. Which is a deception all by itself, insult and injury. Everything about our so called recoveries appears to be true only because of stimulus measures. We buy ourselves a feel-good time today at the expense of those who come after us. Well, unless we achieve this magical ‘escape velocity’, but how can we expect to do that when all gains since 2008, dollar for dollar when you look at the ‘stimulating’ numbers, appear to be originating in central bank inputs? Without them, we’re standing still, at best.

But the Chinese, who have issues in their housing industry, and their growth numbers, and their exports, yada yada, saw their private wealth rise by close to 50% in just one year, 2013. Now, I didn’t read the full Boston Consulting Group report, but I know for a fact that neither the BBC nor Bloomberg even hinted at a possible connection between that number and the $25+ trillion Beijing poured into China’s economy. But here’s the clincher: The Chinese can make up as much ‘money’ out of nothing as they want, and the rest of the world will accept it as currency, because they all do the same, albeit on a somewhat smaller scale. So all the zombie Middle Kingdom money gets to buy up half of Africa, the best beaches in Greece, entire streets in London and New York, and no-one in charge is batting an eye because if they doth protest, they’d have to reveal their own out of thin air deception that props up the FTSE and the S&P.

Yeah, sure, but the (not so) funny zombie yuan displaces Greeks and Londoners and New Yorkers and Africans, who if they had access to similar fake funny cash could have just stayed where they are and outbid the Chinese for their tribes’ and parents’ own properties. Now they have to leave because there’s a game or contest going on of who can out-nothing the other.

The world’s private wealth didn’t increase one bit. The entire world borrowing from their children’s future did. And that’s a recipe for zombie disaster. Only not today. Which is what is keeping us fooled, but we do we like it that way? Are we not smart enough, or don’t we want to be? That increase in wealth the BCG ‘study’ reports is a big loud bad red-flashing warning sign, but our once reliable media talk about it as if somehow it’s a good thing. And we gobble that up as gospel because we can’t face the truth about our own lives.

We’d rather have the most audacious zombie printers – both domestic and abroad – take our land and our homes and the chairs we sit in away from under our behinds than fess up that we ourselves screwed up royally. If we observe our place in the world from that angle, how can we possibly claim we do not get what we deserve? Mind you, though, that’s the only thing we’re going to get. But it gets both better and worse: the payload isn’t going to hit us most, but our kids. And I’m wondering: do you find that comforting?

What a report on zombie wealth like this tells us is not that things are getting better, it’s telling us they’re getting worse at a fast clip. The more fake numbers, the further we slip and slide away from having functioning societies. It’s not our wealth that increases, but our debt.

Global Private Wealth Rises To $152 Trillion (BBC)

The amount of private wealth held by households globally surged more than 14% to $152 trillion (£90tn) last year, boosted mainly by rising stock markets. Asia-Pacific, excluding Japan, led the surge with a 31% jump to $37tn, a report by Boston Consulting Group says. The number of millionaire households also rose sharply. The report takes into account cash, deposits, shares and other assets held by households. But businesses, real estate and luxury goods are excluded. “In nearly all countries, the growth of private wealth was driven by the strong rebound in equity markets that began in the second half of 2012,” the firm said in its report. “This performance was spurred by relative economic stability in Europe and the US and signs of recovery in some European countries, such as Ireland, Spain and Portugal.” The amount of wealth held in equities globally grew by 28% during the year, Boston Consulting Group (BCG) said.

Economies in Asia have been key drivers of global growth in the recent years. And households in the region have benefitted from this growth. Within the region, China has been the biggest driver – with private wealth in the country surging more than 49% in 2013. High saving rates in countries such as China and India has also been a key contributing factor to this surge. The wealth held in the region is expected to rise further, to nearly $61tn by the end of 2018. “At this pace, the region is expected to overtake Western Europe as the second-wealthiest region in 2014, and North America as the wealthiest in 2018,” BCG said. The pace of wealth creation in China was also evident in the growth in the number of millionaire households – in US dollar terms – in the country, rising to 2.4 million in 2013, from 1.5 million a year ago. Overall, the total number of millionaire households in the world rose to 16.3 million in 2013, from 13.7 million in 2012.

Read more …


How Europe’s Amazing Bond Rally Could End In New Crisis (The Tell)

Take a good look at the chart above. It’s a picture of investors going crazy for Spanish government bonds in a low-interest rate, loose monetary-policy environment in Europe. But buyer beware — analysts warn that the rally in peripheral Europe’s sovereign bonds could come to an abrupt end if the region’s sluggish growth rates and worringly low inflation levels don’t pick up. For the first time since April 2010, the yield on 10-year Spanish bonds on Monday fell below the borrowing costs of 10-year U.S. notes as part of a wider rally for European assets. Spain’s 10-year yield slipped to 2.556%, inching below the 2.623% recorded for the U.S. counterpart, according to Tradeweb data.

Not only is this a major improvement from Spain’s plus-7% yields from the height of the euro-zone crisis in 2012, but the current trading level is also a fresh multi-century all-time low, according to Deutsche Bank. And Spain isn’t the only euro-zone nation to see its borrowing costs comfortably decline. Irish 10-year borrowing costs fell to a record low of 2.39% on Monday as well, while Italy’s yield on 10-year bonds are around the lowest level since 1945, according to Deutsche Bank.

“If anyone is in any doubt how extraordinary this period is in economic history then please take a look,” said Deutsche Bank’s Jim Reid in a note on Monday morning.

Read more …

Answer: More theft.

The ECB & The Fed: After 5-Years Of Coordinated Theft, What Next? (Alhambra)

With Japan providing no competition for global bond assets (their 10 year yields a paltry 0.6%), the hands down winner in the global developed bond market rate competition would appear to be the US Treasury. That assumes, of course, that currency values are determined by interest rate differentials, something that is widely believed but hard to square with the available historical data. Rates do matter at some point, but one would probably be better advised to buy currencies based on expectations of economic growth. If the ECB s monetary easing is successful in raising the growth prospects of Europe, stocks there seem likely to attract a bid (not that they ve been lacking for buyers; European stocks are up 160% from the lows). That might derail Draghi’s plans for a lower Euro if the demand for European stocks outstrips the demand for bonds.

It might also depend on the effectiveness of the newly announced policies, something that is far from assured. Like the US, Europe s growth problems are mostly structural and potentially impervious to more monetary easing. And certainly, Japan s experience with unconventional monetary policy would not seem to provide any reason for optimism about its ultimate effectiveness. They’ve been trying for over two decades to escape the malaise of poor demographics, high taxation and a coddled corporate culture through monetary pumping only to find themselves deeper in debt and still searching for consistent growth. Notably, the lack of growth and the lowest interest rates in the world hasn’t been conducive to a cheaper yen (until recently) and Draghi may find himself facing the same conundrum.

Indeed, there has been a plethora of research released over the recent past suggesting that too easy monetary policy is itself causing the very deflationary tendency it is designed to combat. The Minneapolis Fed chief, Narayana Kocherlakota first mentioned the possibility way back in 2011 but quickly backed off. The St. Louis Federal Reserve s Stephen Williamson published a paper last November arguing that the Fed s purchase of so many Treasuries was actually pulling down inflation rates. Last but not least the Bank for International Settlements (the central banks central banker), taking a longer term view, said recently that the world s addiction to monetary stimulus may be expansionary in the short term but contractionary over the long term as it just steals growth from the future.

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Where the money is these days.

Currency Carry Trades Rise in ECB’s Negative-Rate World (Bloomberg)

Mario Draghi is becoming one of currency traders’ only friends. With the $5.3 trillion-a-day foreign-exchange market poised to deliver its worst first-half returns on record, the carry trade is about the only way traders are making money by exploiting differences in global borrowing costs as volatility tumbles. That strategy became more profitable after the European Central Bank president cut interest rates on June 5. “The ECB has signaled risk is on again,” Eric Busay, a Sacramento-based money manager at the California Public Employees’ Retirement System, the largest U.S. public pension fund with $294 billion in assets, said in a June 6 phone interview. “People are concerned when to exit the trade and they understand the rush to exit could be crowded. But at the same time, you have to be in it to win it.”

A Deutsche Bank AG index that measures returns from a trade that buys the world’s five highest-yielding currencies, including South Africa’s rand and the New Zealand dollar, has jumped 1.3% since Draghi’s announcement, bringing its advance to 4.4% this year. Deutsche Bank’s Currency Valuation Excess Return index that makes investments based on relative purchasing power was little changed since Draghi cut rates, while the Currency Momentum Excess Return gauge, which buys assets that are rising the fastest, declined 0.6%. The indexes gained 0.7% and lost 4.6% this year. Draghi’s announcement of rate cuts and hints of further measures to come gave markets the confidence that global central banks aren’t finished with the policies that are suppressing volatility and allowing carry trades to thrive.

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A dumb-ass assessment from Mo. Get a life …

What If the Fed Has Created a Bubble? (El-Erian)

Investors might be surprised to learn that they have a lot riding on something that they pay very little attention to: macro-prudential regulation, or what central banks and other government agencies do to reduce the risk of systemic financial disasters. The aim of such regulation is to lower both the probability and potential costs of financial accidents. It does so by enhancing the resilience of the system, establishing circuit breakers to prevent problems in one area from contaminating others and, at the extreme, containing the detrimental impact on the broader economy when failures occur.

Macro-prudential regulation has been significantly enhanced in the aftermath of the global financial crisis. Authorities around the world have imposed higher and more intelligent capital requirements, required financial institutions to value their assets more conservatively and to hold more easy-to-sell assets, placed constraints on allowable risk-taking, insisted on more stable funding, and demanded greater provisions against bad loans. The impact of the revamped regulation has gone far beyond the targeted banks and other financial companies. It has allowed central banks to be bolder in maintaining and evolving exceptional monetary and credit stimulus, which in turn has significantly bolstered the prices of stocks, bonds and other assets as a means of stimulating the economy.

The more confident central bankers are in their macro-prudential approach, the greater their willingness to persist with stimulus policies today that could involve a bigger risk of financial instability down the road — a trade-off that has been noted recently by Minneapolis Fed President Narayana Kocherlakota, Boston Fed President Eric Rosengren and former Fed Governor Jeremy Stein. Essentially, the Fed has been pushing stock and bond prices up to “bubblish” levels, in the expectation that they will inspire the kind of consumer spending, physical investments and hiring required to subsequently justify them. The hope is that the convergence will occur in the context of full employment and inflation near the Federal Reserve’s target of 2%. So far, though, the wedge between asset prices and economic reality remains large, as last week’s juxtaposition of new stock-market highs and still-anemic wage-inflation data demonstrated.

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Farrell thinks the climate will carry Hillary to the White House in a throne. What has she done lately?

The 1 Big Reason GOP Will Lose The Presidency In 2016 (Paul B. Farrell)

Warning to GOP: A new poll says you can kiss the presidency goodbye for 10 more long years: Why? “Voters have little tolerance for a presidential candidate in 2016 who doesn’t believe that climate change is caused by human activity.” More on that below. But that means the GOP is destined to be on the outside of the White House for 10 more years, playing by the same total-defense playbook that didn’t work the last two presidential elections. Why? You can’t blame the tea party. Nor voter suppression and self-defeating immigration policies. Not minimum wages, debt, taxes, abortion, gun laws, pipelines nor same-sex marriage. Not health care, inequality nor the weak recovery. Not even rapidly shifting demographics. Yes, these trends will increase your handicap, radically changing the GOP’s next-generation base. But that’s not why the GOP won’t win back the presidency.

And what about taking back the Senate? Don’t cheer too loudly. That advantage won’t last long. More defensive battles fighting an incumbent president with veto power. Bad for the image. And then, in 2016, not only the presidency is up from grabs, 23 GOP senators and only 10 Dems are up for re-election. It gets worse: From now till the 2014 elections, the GOP will double down with the same hard-right strategy that plays well to a conservative base. But then from 2014 to 2016 you must shift to a center-left strategy to appeal to the emerging new American voter if you want to win over a national fan base for 2016. But that doubling-down also puts the GOP in a double-bind: By 2016, any left-leaning candidate will anger the hard-right base that wins back the Senate in 2014. A huge dilemma.

GOP’S biggest problem 2014-2024? The one and only … Big Oil Yes, Big Oil will be the GOP’s biggest problem for years. And the big reason the GOP can kiss the presidency goodbye. Why? Big Oil won’t change. For one, they’ll fight any carbon tax. But to win the presidency, the GOP must change. A classic double bind. That’s why no Republican will occupy the White House likely till 2024. One reason: Big Oil, ExxonMobil, Shell, BP, ConocoPhillips, Chevron, and, of course, the Koch billionaires. Yes, the GOP’s in love with Big Oil. The money keeps them in Washington. They’re mutually dependent, addict-and-supplier, obsessed-and-object, master-and-servant, trapped in a symbiotic dance of death. So blindly dependent they can’t see, cannot break free of their dependency.

One has the money and power, needs to manipulate the law. The other craves money, status and an illusion of power. A classic dependency syndrome. Both hold tight, won’t wake up, till it’s too late after they bottom-out, trigger a collapse, like 2000 and 2008, that takes down the economy, forces them to create a new business model, new political game strategy. Unfortunately, the collapse will be traumatic, painful, not only for Big Oil, the GOP, also a million car owners, and the world economy. So for years to come, the so-called “Party of Big Business” will keep losing the presidency because their Big Oil suppliers control the GOP votes, dictate how to vote, and when the GOP gets its fix. But for now, Big Oil’s game plan is profitable: A pittance to politicians yields billions in tax breaks, favorable regulations, a fabulous return on investment for Big Oil.

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I have a fourth: QE.

3 Reasons The Dow Doesn’t Deserve To Be At 17,000 (MarketWatch)

We’re straddling 17,000 on the Dow Jones Industrial Average. But it just doesn’t feel right. It has to be the most unenthusiastic rally in a generation — maybe more. It’s not that there isn’t reason to be buying stocks. We are now five years into an economic recovery that began in mid-2009, according to the National Bureau of Economic Research. It’s been a slow slog. It’s been paced. Those are actually good reasons to be buying stocks. A rapidly growing economy, which coincided with the dot-com boom and the housing bubbles, usually go belly up as quickly as they rise.

And the stock market always leads the economy. Investors tend to buy cheap and ride the wave of ever-increasing earnings and premiums added to their holdings. But a 155% rise in the Dow since the 2009 nadir of the financial crisis? A 31% rise in the past 18 months? Yes, the gains look that more striking because of the lows we hit in the Great Recession. Still, that’s a fantastic run considering that last week we finally recovered the jobs lost since the financial and housing crises hit. At that point the Dow was 18% lower than it is today. There are many reasons this rally feels empty. But here are the biggest, most obvious reasons:

No one is really buying. Stock prices are edging higher, but it’s not retail investors driving the trend. Lipper reported that investors last week actually pulled $921 million from U.S. stock mutual funds in the week ended June 4, and $451 million the previous week.

Corporate earnings are flat. You’d think that as the market reaches this milestone, corporate profits would be churning, or a least growing. They aren’t. The Bureau of Economic Analysis reports that its measure of corporate profits declined 9.8% in the first quarter. It was the largest drop since the fourth quarter of 2008, and during the past four quarters, corporate profits have fallen 3%. Market analyst and adviser Doug Short noted last week that the market SPX is overvalued in the range of 51% to 85% when measured by price-to-earnings ratios and the lesser known Q ratio (total price of the market divided by replacement cost).

There are no alternative investments. Rather than higher prices for goods and services and a devalued currency, the real consequence of the Federal Reserve’s efforts to stimulate the economy through lower interest rates, bond buying and easy credit seems to be inflation in the stock market.

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Not that hard a guess to make.

Goldman Explains How The China Commodity Unwind Will Happen (Zero Hedge)

Over a year ago we were the first to bring the topic of China’s shadow banking system’s problematic rehypothecation issues to the general trading public. In “The Bronze Swan Arrives: Is The End Of Copper Financing China’s “Lehman Event”?” we explained how the Chinese commodity financing deals (CCFDs) worked and how they would inevitably be a systemic event for the nation so dependent on the shadow banking system for its credit (and its “growth”). The day has arrived when the Bronze Swan is landing (and it’s unlikely to be soft). As we have discussed recently, the probe into ‘missing’ collateral (or multiple-used collateral) at China’s Qingdao warehouse is a major problem… and now Goldman confirms, the Qingdao situation likely to continue ongoing CCFD unwind and has the potential to leave foreign banks with undercollateralized loans and/or losses. Via Goldman Sachs:

Qingdao situation and the copper market outlook – According to reports, an onshore trading company is being investigated for allegedly pledging commodities (aluminium and copper) multiple times with different banks in order to gain access to cheap FX funding (specifically via repurchase agreements, or “repo” business). This has the potential to leave foreign banks with undercollateralized loans and/or losses. Given this, a number of foreign banks may suspend their repo business in China, as well as shrink their commodity financing positions in China in general. The Qingdao issue could be a catalyst for further CCFD unwinding In our view the developments in Qingdao are likely to continue the significant scaling back of FX inflows from foreign banks into China via commodity financing business.

This would disincentivize the physical holding of commodities in bonded warehouses, increasing ‘visible’ inventories and placing more downward pressure on physical (cash prices) than upward pressure on futures prices. As foreign banks reduce their exposure to Chinese commodity financing deals (CCFDs), the profitability of these could be reduced meaningfully (via an increase of US rates and/or a lower FX loan quota to CCFD participants), more physical metal previously tied up in financing deals would be freed up for the physical market, helping ease the current temporary regional tightness. With respect to copper in particular, we expect more copper will either flow back to China or LME, depending on which market is relatively stronger. Indeed, there are signs of unwinding in near-dated tightness in the market recently, as indicated by the significant easing of both Shanghai premia and LME time spreads (Exhibits 2).

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We don’t know the half of it.

Lean Retirement Faces U.S. Generation X as Wealth Trails (Bloomberg)

Good timing is not the age group’s forte. Many took out mortgages just before prices plunged, making them the most disadvantaged by the housing crisis, while the 2008 stock-market slump dealt them a further setback. Only one-third of Generation X households had more wealth than their parents held at the same age, even though most earn more, The Pew Charitable Trusts found. When their working years end, Gen-Xers might have to live on just half of their pre-retirement income, compared with 60% for the Baby Boom generation, Pew said last year. “Generation X is at this really critical historical spot,” said Diana Elliott, a research officer in financial security and mobility at Pew, a non-profit global research and public policy organization in Washington. “They are not doing well relative to the last generation. It should give us concern as a country.” [..]

Gen-Xers lost about half of their wealth between 2007 and 2010, according to a Pew Economic Mobility analysis last year. Even before the housing collapse, they were having trouble keeping up with their parents in building assets, according to Pew, which defines Generation X as people born between 1966 and 1975. “Gen-Xers are the least financially secure and the most likely to experience downward mobility in retirement,” the Pew analysis found last year. The bursting of the dot-com bubble, which culminated in a 67% drop in the Nasdaq from 2000 to 2002, was a particularly severe blow to Gen-Xers just starting their careers. While most didn’t directly own stocks, the economy slipped into recession and unemployment for 25- to 34-year-olds in 2003 hit its highest level in almost a decade.

Student loans also slowed asset-building, said Signe-Mary McKernan, an economist at the Washington-based Urban Institute. “Under the impact of successive booms and busts, many Xers have struggled to afford a family or keep their home, much less do better than their parents,” Neil Howe, co-author with William Strauss of books on generations in American history, said at a May 8 research symposium in St. Louis. “Then came the Great Recession, which hit Xers much harder.” The median income for 35- to 44-year-olds dropped 9.1% in the three years ended in 2010, according to the Federal Reserve’s Survey of Consumer Finances. Incomes of those age 35 or less, including the youngest Gen-Xers and Millennials, fell 10.5%. While incomes of 35- to 44-year-olds deteriorated less than those of younger Americans, their net worth slumped by 54%, the most for any age group, as the value of stock holdings and properties declined. The median net worth of those younger than 35 declined 25%.

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Jobs Friday: What The Bubblevision Revelers Missed (David Stockman)

Yes, the nonfarm payroll clocked in at 138.5 million jobs and thereby retraced for the first time the point at which it stood 77 months ago in December 2007. This predictably elicited another milestone of progress squeal from the mainstream media. So you have to wonder. Did these people skip history class? Do they understand the vital idea of context ? Are they so mesmerized by paint-by-the-numbers agit prop from Wall Street and Washington that they have come to mindlessly embrace the notion that any number that is better than the last print is all that it takes regardless of composition, quality or longer-term trend? Thus, consider the ancient days of the Reagan era. Back then there were actually 15.0 million new jobs by the time that 77 months had elapsed after the June 1982 bottom.

And these were honest-to-goodness new jobs that had never before existed, not born again jobs of the type that CNBC has made a jobs Friday fetish out of ever since the Great Recession was officially declared over in June 2009. So if you want to try a little context absurdity recall this. So far we have created a trifling 100k new jobs since the last cyclical peak. During the equivalent 77 months in the Reagan era the US economy actually generated 150 times more jobs! And, no, that wasn t due to a demographic windfall of new employable bodies. During that 77 month period the civilian population age 16 and over increased by 8% or 13.3 million. This means that 113% of the growth in the pool of employable adults was converted into job-holders.= This time around, the pool of working age adults grew by quite respectable 14.4 million; and that amounted to a not shabby gain of 6% from December 2007.

But self-evidently, during the 77 months since then virtually zero percent of the labor pool growth was converted into job holders. So the yawning difference between the Reagan era and now is not a surfeit of demography, but a dearth of job creation. And this has nothing to do with Ronald Reagan hagiography since the jobs gains of the 1980s were purchased in part with grotesque peacetime deficits of a magnitude never seen previously. Nor would they be seen again until the Bush-Obama era showed what real fiscal profligacy looks like. But the larger point is that each cycle since the 1980s has generated net new jobs, albeit at a steadily declining rate. The truth of the matter is that we have now reached the point where no new payroll jobs have appeared for 77 months which is to say, over the entire span of a historically ordinary peak-to-peak business cycle. Rather than a cause for celebration, therefore, the Friday jobs print ought to stand out as a wake-up call.

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And even that …

Britain Readies ‘Last Resort’ Measures To Keep The Lights On (Telegraph)

Britain may be forced to use “last resort” measures to avert blackouts in coming winters, Ed Davey, the energy secretary, will say on Tuesday. Factories will be paid to switch off at times of peak demand in order to keep households’ lights on, if Britain’s dwindling power plants are unable to provide enough electricity, under the backstop measures from National Grid. The Grid is expected to announce that it will begin recruiting businesses that will be paid tens of thousands of pounds each simply to agree to take part in its scheme. They will receive further payments if they are called upon to stop drawing power from the grid. It is also expected to press ahead with plans to pay mothballed gas power plants to ready themselves to be fired up when needed. “Both the new demand and supply balancing services will be used only as a last resort – and are a safety net to protect households in difficult circumstances, such as a hard winter or very high surges in demand,” Mr Davey will say.

Critics have suggested the measures, which were first mooted last summer, would represent a return to 1970s-style power rationing. But Mr Davey will refute this, saying: “It is entirely voluntary. Nobody will get cut off. No economic activity will be curtailed.” Mr Davey is on Tuesday also expected to publish a new gas “risk assessment” in response to the Ukraine crisis. He said this would show Britain could “comfortably” withstand extreme cold weather or the loss of key supplies. Energy regulator Ofgem warned last summer that Britain’s spare power capacity margin – the difference between peak demand and supply – could fall as low as 2pc in winter 2015-16 as old power plants close and new ones are not yet built. The risk of blackouts could be as high as one in four unless consumers cut demand, it said.

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Your world.

Thousands Of Irish Orphans Were Used As ‘Drug Guinea Pigs’ (RT)

Over 2,000 care-home kids were secretly vaccinated against diphtheria in the 1930s in medical trials undertaken by international drugs giant Burroughs Wellcome, Irish media reveal. Among the testing sites was a recently discovered mass grave. The medical records cited by the Irish Daily Mail show that some 2,051 children and babies across several Irish care homes may have been subjected to the practice. Michael Dwyer, of Cork University’s School of History, found the data after foraging through tens of thousands of archive files and old medical journals. What he did not find is whether any consent was gained for these alleged illegal drug trials or any records of the effects on the infants involved.

Dwyer discovered that the tests were carried out shortly before the drugs were made readily available in the UK. The homes involved included Bessborough, County Cork, and Sean Ross Abbey in Roscrea, County Tipperary. “What I have found is just the tip of a very large and submerged iceberg,” Dwyer told the paper. “The fact that reports of these trials were published in the most prestigious medical journals suggests that this type of human experimentation was largely accepted by medical practitioners and facilitated by authorities in charge of children’s residential institutions.” The Newstalk Breakfast on Monday show also found out that nearly 300 children living in care homes in the 1960s and 70s were used as guinea pigs in medical trials. Ireland had no laws pertaining to medical testing until 1987.

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