Aug 202014
 
 August 20, 2014  Posted by at 9:42 pm Finance Tagged with: , , , , , ,  


Dorothea Lange Salvation Army, Minna Street, San Francisco, California. Apr 1939

When I think about what an American president should do, and should be, the first thing that pops into my mind is (s)he should be a peacemaker. It would seem to be the no. 1 requirement for someone who’s the leader of the most powerful nation on the planet, and therefore the leader of the free world.

If that person is not a peacemaker, if (s)he is not focused on diffusing trouble and violence when and where they rear their ugly heads, how could the entire world possibly not be in a state of perpetual warfare? But here we are, there’s no such American leader in sight, and the prospects of one appearing anytime soon are zero.

Despite what anyone might say or claim, and many will do just that, today America makes war, not peace. A lot of people tell a lot of stories of how and why the American Empire is winding down, but they’re usually talking about the US dollar or energy resources or the rise of China.

For me, it’s the failure of the strongest power in the hood to maintain peace and calm, that tells the story in the clearest terms. If the leader doesn’t just not keep the peace, but actively ignites battles, all the rest are doomed to fight amongst each other until either the end of time, or the end of the leader’s prominence, whichever comes first.

Today, as we look at what goes on in Ukraine, Iraq, Syria, the Gaza Strip, there’s no way we can say the US hasn’t had a stoke-the-fire role in each of these conflicts, and in most cases has even been the main instigator. If you’re the biggest bully on the block, and you keep on bullying people, your days are numbered. It’s the law of the jungle.

Once you’re on top, expectations and responsibilities change. You just went from conquering the fort to holding the fort. And that change is very hard to make. Then again, it’s not as if no-one in 20th century American history ever had an idea of how it works. Robert Kennedy. Ron Paul.

But today American policy is made in the headquarters of Big Oil, the military-industrial complex and Wall Street. All of whom stand to profit hugely from chaos and bloodshed in foreign countries, and won’t shy away, never have, from putting American boots on the ground if they feel that will boost their profits. Boots worn by kids who know the army is their only chance at ever getting a real education, but never make it back home.

This was inevitable from the moment money was allowed to enter US politics, and it inevitably got stronger over time, until it culminated in the recent Supreme Court decision that there should be no effective limits to how much influence the rich can purchase themselves in Washington.

And if you’ve got the cash to buy yourselves the best writers and spin doctors in the world, you can maintain the illusion of democracy, of one man one vote, for a very long time. We all witness that principle on a daily basis. It can be done. People can be made to believe they live in a democracy, that they live in a nation and a political system where their voice counts and has real meaning, for long after they stopped having any voice at all.

It takes those same spin doctors, it takes control over all relevant media (and you decide what’s relevant), and it takes the best speech writers, but since money is no object, why worry, you can always buy better spinners and media and writers than anyone else.

You can’t lose. You have complete control. You can buy the government, the media, and what’s more, through the advertizing industry, you can buy the picture people have of them, and of you.

No matter what harm bankers and oil drillers and gunmakers engage in, they can make sure the public sees them in a favorable light. It may not seem that way at first blush, but remember, the banking/oil/military complex doesn’t need you to love them, only to not hate them, to not demand their downfall. And they’re very successful in that.

Who calls for Exxon to be swept from the face of the earth, or JPMorgan, or Boeing? Nobody. That’s all these firms need, given what’s left of the democracy we once aspired to be. As long as they have that, they can continue to manipulate prices for oil and gold and American homes and jobs as much as they want, for their own benefit and at the cost of everyone else.

America’s role as instigator in theaters like Ukraine – which can be blamed on Putin -, in Iraq – plenty of potential bad guys there – remains hidden thanks to the usual suspects, NY Times, WSJ, Bloomberg etc, let alone CNN and Fox, all of which claim independence, and all were long since purchased hook, line, sinker and fishing pond.

Even inside America, how are things different exactly? The first black president prefers Martha’s Vineyard to a visit to the first serious racial riots since he got the job. Not exactly hands on, to say the least. Or a peacemaker. More like just another neighborhood bully, or a ‘representative’ of that bully. Even worse.

Obama should have been in Ferguson at least a week ago. The fact that he didn’t go has me worried about all those places just like Ferguson, where jobs and conditions and prospects have gotten much worse for so many young black – and white – people, and where “authorities” seem only too eager to show of their power and their new federal government issued toys, which scream ‘overkill’ from all angles, and were purchased with borrowed money.

I wish I could say this is not going anywhere. It is going somewhere though. Just not anywhere you or I should want to go. But we have been pre-empted, what we think or feel no longer matters. The system decides, fully independent from what we as participants in this democracy are legally entitled to, and are supposed to do: guide our nations’ policies towards what we want, not what a handful of corporate interests want.

We lost that. We no longer have any influence on what Obama decides, or Congress, or the next president. It’s gone.

Uh-oh: Stock Buybacks Are On The Decline (MarketWatch)

Everyone knows the stock market has skyrocketed in the past few years, but far too few understand why. No, it hasn’t been magic. It hasn’t been levitation. It hasn’t been the natural state of affairs. It’s been supply and demand. U.S. corporations have been spending hundreds of billions of dollars a year buying in their own stock, simultaneously increasing the demand for the stock and reducing the supply. And this matters right now because…er…they just stopped. The amount spent on share buybacks plunged by more than 20% last quarter, strategists at SG Securities calculate. Even though stock prices in the Standard & Poor’s 500 were on average 25% higher than they were a year ago, the amount spent on share buybacks actually fell. As SG notes, “US corporates (have) been the major net buyer of US equity in recent years, purchasing over $500 billion of stock last year alone.” But, notes the bank, this happy trend may be drawing to a close.

There are two reasons. The first is that the federal deficit is falling. Without getting too technical, economists note that there is an historical and mathematical connection between federal deficits and corporate profits. The booming deficits around the financial crisis were followed by booming corporate profits. And corporations used a lot of that money to buy up stock. As deficits decline as a share of the economy, so, it is likely, will corporate profits. The second reason has to do with the winding down of the Federal Reserve’s “quantitative easing” policy. From 2009 through 2013, the Fed effectively printed money and used it to buy up long-term government bonds. Bonds work like seesaws: When the price rises, the yield falls. The Fed’s actions drove up the price of Treasury bonds, and drove down the yield — or interest rate. As the interest rate on Treasury bonds fell, the interest rate that investors demanded on long-term corporate bonds also fell. It became cheaper and cheaper for corporations to borrow money.

The average yield on Moody’s-rated BAA corporate bonds — meaning those at the bottom rung of investment grade — is now below 5%, levels not seen for any length of time since before the Vietnam War. Drop hamburger on the kitchen floor and your golden retriever will eat it. Drop free money on the bond market and corporations will behave about the same. And so they have.

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How sad would you like it? How much can you bear?

A True Picture of What’s Dragging on the American Economy (WolfStreet)

The Bureau of Labor Statistics released a study to confirm what has become the biggest economic problem in the US: those at the lower-income levels, those who’ve gotten ripped off by inflation and wages, have become terrible consumers in an economy dependent on consumer spending. The report found that the average income of households in the top 20% grew by $8,358 per year from 2008 through 2012. But the lowest 20% saw their already minimal incomes get whittled down by $275 per year. The earnings of the second and third quintiles increased only $143 and $69 per year. So for the bottom 60% combined, there really wasn’t any improvement. And their spending patterns? The lowest quintile cut their spending by $150 per year in total. They cut where they could: in seven categories, totaling $490 per year, mostly on apparel, entertainment, housing, and personal care.

And they increased spending where they had to: in seven other categories totaling $340, topped by “cash contributions” such as alimony, “miscellaneous,” and healthcare. This principle of cutting back where they can and spending more where they have to, in order to make their shrinking ends meet, has been dissected by Gallup, which found that consumers are “straining against rising prices on daily essentials” and are cutting back on things they want to buy. But not everyone has this problem. The top two quintiles raised their expenditures by $1,348 and $2,365 respectively. And that’s where the entire increase in consumer spending since 2008 has come from. But over the long run – and that’s now – the math just doesn’t work out. This is the picture of that distortion, the one that is dragging down the American economy:

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Twouble in the house!

BOE Split On Interest Rates Reopens Prospect Of A Rise In 2014 (Guardian)

The first increase in interest rates from the Bank of England since 2007 has moved a decisive step closer after two members of Threadneedle Street’s key policy committee broke ranks and voted for dearer borrowing. Minutes of the meeting of the Bank’s monetary policy committee meeting show that two of the nine members – Martin Weale and Ian McCafferty – called for rates to be pushed up by a quarter point to 0.75%. Although the other seven members of the MPC said weak earnings growth, below-target inflation, and the fragile finances of some households warranted keeping rates unchanged, the August meeting was the first time since 2011 that the MPC has not voted unanimously on rates.

The City had been expecting another 9-0 vote in favour of keeping borrowing costs at 0.5% and the pound rose by half a cent against the dollar shortly after the minutes were published, as dealers anticipated more MPC members joining Weale and McCafferty over the coming months. According to the minutes, the two dissenting MPC members said the state of the economy justified an immediate rise in the bank rate. “These members noted that the continuing rapid fall in unemployment alongside survey evidence of tightening in the labour market created a prospect that wage growth would pick up. They noted that it was possible that wages were lagging developments in the labour market to some extent. If that were true, wages might not start to rise until spare capacity in the labour market were fully used up. Since monetary policy, too, could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them.”

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Simple, to the point.

How Your Pension Fund Became a Casino (Yves Smith/Bloomberg)

In September 1974, Congress passed a law aimed at ensuring that U.S. companies could fulfill the vast pension promises they had made to millions of employees. Forty years later, that law is greatly in need of reinterpretation. Known as the Employee Retirement Income Security Act, the law has been widely hailed as a success. It created standards for managing private pension funds that professionalized their operations — and that public pension funds, which invest on behalf of government employees, have also chosen to adopt. In 1978, though, the Labor Department made an adjustment that has had vast consequences. Responding to political pressure and influenced by new academic thinking on portfolio theory, it reinterpreted the so-called prudent-man rule of fiduciary duty. Fund managers would be judged not on the risk of their individual investments, but on the risk profile of their investment portfolio as a whole.

The result was that the pension funds, which had long been limited to safe assets such as corporate bonds and Treasury securities, could put some money into riskier investments such as stocks and venture capital — on the assumption that diversification, both by asset class and within each asset class, would reduce risk in the broader portfolio. Unfortunately, over-reliance on the power of diversification has led fund managers to be less attentive to the hazards of particular investments. Consider two examples: private-label mortgage securities, which are issued without government guarantees, and private-equity partnerships, which acquire public companies with the aim of restructuring them and selling at a profit. Seduced by AAA ratings, fund managers often ignored the extraordinary complexity of mortgage securitizations, which typically involve hundreds of pages of documents defining the circumstances under which different investors get paid or suffer losses. As a result, they failed to notice some significant pitfalls.

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Fannie Mae Sledgehammers Housing Forecasts To Smithereens (WolfStreet)

The National Association of Home Builders just released its Housing Market Index [..] Home builders have become an optimistic bunch in 2012. As housing starts were ticking up a smidgen, builder optimism as measured by the HMI began to surge, and except for a couple of dives, including during the harsh winter this year, has continued to surge. The HMI has soared even as the puny growth in housings starts petered out in 2013. And they remain mired down at about one-third of the level where they’d been during the bouts of peak optimism. But the NAHB’s electronic ink wasn’t even dry, so to speak, when the ever optimistic Fannie Mae, the bailed-out government mortgage giant, came out with its August 2014 forecast, in which it took a sledgehammer to its prior forecasts. Home sales have been plunging for months, after post-crisis optimism peaked mid last year. And Fannie Mae is adjusting to an ugly reality.

It slashed its 2014 forecast for construction starts for single-family homes to 642,000 units, down 8% from its July forecast of 696,000. But it has been slashing its forecasts all along: in January, it had still seen 768,000 single-family housing starts in 2014. And in August last year, it had forecast 876,000 starts. It has now chopped 27% off that forecast. Same thing with home sales. Fannie Mae cut its forecast for new single-family home sales to 431,000 units, down 11% from last month, down 21% from its forecast in January. August last year, it still believed that 588,000 new single-family homes could be sold in 2014. Now it has axed that by a brutal 36%. The current forecast is about flat with the 429,000 units actually sold last year. But this is only August. There are four more months to go, and at the current rate of slashing forecasts to bring them in line with reality, it doesn’t look good for the year.

Fannie Mae then took its sledgehammer to its forecast of existing home sales. Only 4.91 million units will change hands this year, it said, down from 4.97 million in July, down from 5.18 million in January, and down from 5.26 million in August last year. The current forecast is already 3.5% below actual sales last year. And total home sales? Fannie cut its forecast for 2014 to 5.34 million units, from 5.45 million last month, from 5.70 million in January. The forecast is now down 9% from the 5.85 million it forecast in August 2013, and it’s 3.4% below last year’s actual sales.

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Germany never had a housing boom. Now they do.

Germany Sees Dizzying Rise In Housing Prices (CNBC)

As soon as someone mutters the words London property, the word “bubble” is never far away. London house prices displayed a jaw-dropping 20% growth year-on-year in July– even though last week’s RICS indicator showed that the housing market is pausing for breath. Bank of England (BoE) Governor Mark Carney has sounded a warning on tougher mortgage rates and the expectation of higher rates. But London isn’t the only place which is seeing a dizzying increase in property prices. Look no further than across the channel – to the euro zone’s economic powerhouse – Germany. Major cities like Frankfurt, the financial capital, Munich with its famous beer gardens and proximity to the Alps and Stuttgart, the home of Mercedes and Porsche, are becoming increasingly attractive as a place to live and work. Germans from rural settings and immigrants are flocking to the cities.

But like in London, an equally potent driver of the property market in Germany is the good old “search for yield”. “Near zero interest rates in the euro zone make sense for the region but not for Germany. The economy has been relatively strong and the interest rate policy is disjointed from economic reality,” Patrick Armstrong from Plurimi Global Macro Fund told CNBC. “With 10-year Bund yields at 1%, free money will have to flow towards property at some point. Rental yields of 4-5% are attractive with current interest rates, and German property is the least expensive per square meter in Western Europe.” Rolf Buch, CEO of Deutsche Annington, Germany’s largest private-sector residential real estate company, echoed these comments when he told CNBC the German housing market is in a “sweet spot” because of stable incomes and the benefit from low interest rates.

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Dodges US court order. Pariah?

Argentina To Bring Defaulted Debt Under National Law (Reuters)

President Cristina Fernandez said on Tuesday her government will move to service its defaulted debt in Argentina or allow bondholders to swap their bonds for new bonds governed by national law in order to get around a U.S. court order. Argentina slid into default last month after a New York court blocked an interest payment owed to holders of debt that was restructured after the country’s record 2002 default. The judge said Argentina could not pay that debt until it had also settled with a group of funds that had rejected the restructuring deal and were demanding full payment.

Fernandez’s announcement killed hopes that Argentina might soon reach a deal with holdouts, enabling it to exit default. In a televised speech, Fernandez said her government would send a bill to Congress to remove Bank of New York Mellon as the exchange bondholders’ trustee and replace it with Argentina’s Banco Nacion. Banco Nacion would open up an account at the country’s central bank to enable Argentina to service its exchange debt there. Under the proposal, holders of bonds resulting from the 2005 and 2010 debt restructurings could also choose to swap their bonds for notes with “identical terms and financial conditions, and with equal nominal value” under Argentine law.

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Ha!

Bank of China Doubles Money for Bad Loans as Growth Slows (Bloomberg)

Bank of China Ltd. more than doubled its money set aside for bad loans as profit growth cooled to the slowest pace in five quarters on weakness in the economy. Provisions for potential soured debt climbed to 12.7 billion yuan ($2.1 billion) in the second quarter, up 116% from a year earlier, based on half-year figures released by the Beijing-based company yesterday. Net income rose 8.5% to 44.4 billion yuan, the earnings statement showed. The nonperforming loans of China’s fourth-largest bank surged to 85.9 billion yuan, the highest in more than five years, as companies struggled with repayments in an economy at risk of the weakest full-year growth since 1990.

The nation’s lenders are already trading at the cheapest price-to-earnings valuations of global banks. “The biggest concern for Bank of China is their asset quality,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research, said by phone. “The trend is very obvious. We expect nonperforming loans to continue rising in the next two quarters.” The bank’s net income compared with the 44.9 billion-yuan median of 10 estimates in a Bloomberg News survey. Its net interest margin, a measure of lending profitability.

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Sanity.

Latvia Evokes 1914, Urges End To ‘War Of Sanctions’ Before Economies Ruined (RT)

The “right steps” politicians in the West and Russia are now taking against each other are very similar to what was happening before World War I, Latvian MEP Andrejs Mamikinsh warned EC President Jose Manuel Barroso in a letter Tuesday. It’s crucial to stop reciprocal sanctions before they throw people into poverty and ruin the economies altogether, the European Parliament member wrote. “In 2014 exactly 100 years have passed since the beginning of World War I that killed millions of people and left Europe in ruins. On the eve of that war similar processes occurred when countries took “the right” steps against each other and eventually were not able to stop. It is doubtful that in the end of that war anyone remembered for what good intentions it had started,” Mamikinsh wrote in his letter.

These would be ordinary people, not politicians, who’ll be hit first and hardest by a so called “risky poker” played by politicians in the West and Russia, the Latvian MEP, added. Latvia is expected to suffer the most from the tit for tat sanctions imposed by the West and Russia, Mamikinsh said. Further escalation of a “sanctions war” would erode about 10% of Latvian GDP, which means thousands of people could be left out of work with shrinking living standards.

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Everyone seems to want Ukraine to fail. It’s a power game.

Ukrainian Steel, Coal Producers Facing Shutdown as Result of Conflict (MM)

We have viewed the unfolding violence in eastern Ukraine on our TV screens as a humanitarian disaster in the making. An estimated three quarters of a million Ukrainians have fled across the border into Russia, many living in tents in 95 temporary refugee camps. A further 175,000 are said to be displaced westward into Ukraine. Economically, the damage to Ukraine will take much longer to evaluate. For the steel and coal industries, the situation is deteriorating as the conflict intensifies. This week Reuters reported that after months of fighting, extensive damage has been sustained to the infrastructure of Ukraine’s industrial heartland and considerable disruption to supply networks, leading to a 12% year-on-year fall in industrial output in July.

Last week, it emerged that around half of the 115 coalmines in Ukraine, Europe’s second-largest coal producer, had halted production entirely. Shelling of power stations and transmission lines has halted production at Avdiivka coke plant, which produces 40% of Ukraine’s coke. The same loss of power has led to the full shut down of production at Yenakiieve Steel, a leading producer of steel billet. Enakievskiy Koksohimprom and Khartsyzsk Pipe is one of Europe’s largest large-diameter pipe mills according to the owners Metinvest. Metinvest controls about 50% of Ukraine’s steel market and steel makes up about 15% of the Ukrainian economy, which last year was the fifth-largest exporter in the world, according to a separate Reuters report. Tensions in eastern Ukraine have led to outright production disruptions as the year has gone on resulting in a 7% fall in output in the first half of 2014.

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How many black people on the jury?

Ferguson Police Shooting Grand Jury Probe Starts Today (Bloomberg)

A grand jury will begin hearing evidence tomorrow in the police shooting death of Ferguson, Missouri, teenager Michael Brown, as violent clashes continued in the St. Louis suburb. Witnesses are scheduled to appear before the grand jury, Ed Magee, a spokesman for St. Louis County Prosecuting Attorney Bob McCulloch, said in a telephone interview today. The shooting sparked more than a week of violent protests in Ferguson. The state grand-jury probe comes as federal officials are starting a civil-rights’ investigation into the death of the unarmed black teenager. President Barack Obama has ordered U.S. Attorney General Eric Holder to go to Ferguson and meet with FBI agents and Justice Department lawyers handling the probe into the circumstances of Brown’s death. Police fired tear gas at protesters and 31 people were arrested in Ferguson last night after demonstrators refused to leave a section of the city that has been the epicenter of protests.

Brown, 18, was killed Aug. 9 by Darren Wilson, a white Ferguson police officer, after being stopped on a city street, Police Chief Thomas Jackson said earlier. Wilson has the right to testify before the grand jury, Magee said. It’s not clear how long the proceedings will take or how many witnesses will be called, he said. Greg Kloeppel, Wilson’s lawyer, declined in a telephone interview to comment on the grand jury. Kloeppel is chief legal counsel for a local chapter of the Missouri Fraternal Order of Police. Evidence is still being collected and the probe is “far from being finished,” so there’s no timeline for the case, Magee said yesterday. The grand jury must decide whether Wilson violated the law by shooting the teenager and whether he should face charges ranging from manslaughter to murder, said Gordon Ankney, a former assistant county prosecutor who now does criminal defense work in St. Louis.

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That’s what I said yesterday.

Go to Ferguson, Mr. President (Bloomberg Ed.)

Once upon a time, there was a man who gave moving and important speeches about race. He was careful to respect history, to call out injustice, to acknowledge competing anxieties — and, crucially, to elucidate a path forward. His speeches touched Americans of every color and background and gave them hope that it is possible to make progress in their great national project of creating a more just and equal society. That man was Barack Obama. As a little-known Senate candidate a decade ago, he offered a grand vision of a united America; four years later, as the Democrats’ leading presidential candidate, he offered a more personal reflection. Obama’s unique ability to both articulate and embody the equal-opportunity ideal of America helped him become the country’s first biracial president. Since he has taken office, however, this Obama has mostly gone missing. It has never been more manifest, or painful, than these past weeks in Ferguson, Missouri.

As local and state authorities bumble their way through the crisis that erupted over the police shooting of 18-year-old Michael Brown, Obama has said little of note. Yesterday he held a news conference in which he checked all the necessary boxes: He condemned violence and looting, endorsed the rights of protesters, acknowledged racial grievances with the criminal justice system, and suggested that Americans “use this moment to seek out our shared humanity.” Then he hopped on Air Force One to resume his vacation. Obama was right to recognize the magnitude of this moment. But he seems not to realize that he himself has to be the one to seize it. It is his job as president, of course, and it also happens to be a task that almost perfectly matches his talents and demeanor. Attorney General Eric Holder will be in Ferguson [today]. But the president should go, too – if not tomorrow then in the days or weeks ahead.

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Yikes!

Under What Conditions Can The US Army Engage Citizens (Zero Hedge)

With events in Ferguson deteriorating from day to day, despite the arrival of the Missouri National Guard, some have asked what further escalation steps are possible.

As a reminder, the reason Missouri governor Jay Nixon resorted to the aid of the National Guard is due to the limitations imposed by the Posse Comitatus Act which, broadly, seeks to limit the powers of Federal government in using federal military personnel, i.e., the Armed Forces of the United States, to enforce state laws. The Act does not apply to the National Guard, nor to the US Coast Guard, although the former will likely not see much practical use in Missouri.

However, as usually happens, there are loopholes and the best place to uncover these is in a 132-page primer conveniently released by none other than the US Army back on April 21, known simply as ATP 3-39.33 “Civil Disturbances.” The primer begins with the umbrella statement:

Civil unrest may range from simple, nonviolent protests that address specific issues, to events that turn into full-scale riots. Gathering in protest may be a recognized right of any person or group, regardless of where U.S. forces may be operating. In the United States, this fundamental right is protected under the Constitution of the United States…

“Protected” it may be, but as usual, the interpretation of the Constitution is in the eye of the beholder, or more appropriately, gun holder. Because shortly thereafter we further read the following:

The Constitution of the United States, laws, regulations, policies, and other legal issues limit the use of federal military personnel in domestic support operations. Any Army involvement in civil disturbance operations involves many legal issues requiring comprehensive legal reviews. However, federal forces are authorized for use in civil disturbance operations under certain circumstances.

What circumstances? For the answer we turn to section, 2-8, whose provisions may soon become applicable to Ferguson and/or other municipal regions, should the rioting in the St. Louis suburb escalate further.

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US Spends Millions To Blow Up Its Own War Machines (Reuters)

Last week was a weird one for American military hardware. In the United States, Mine-Resistant Ambush Protected vehicles (MRAPs), AR-15s and camouflage body armor all made an appearance on the streets of a suburb in the heartland, helping to give a tense situation the push needed to turn into a week of riots. American citizens in Ferguson, Missouri, feeling they were being occupied by a foreign army, rather than their friendly neighborhood cop on the beat. Riot police stand guard as demonstrators protest the shooting death of teenager Michael Brown in Ferguson, Missouri.

MRAPs didn’t get a better rap overseas, either. In what’s still being called Iraq — at least for the sake of convenience — the U.S. Air Force has resumed bombing missions in the northern part of the “country.” The aim of the missions is stated as being the defense of a minority group known as the Yazidis, who practice a religion unique to themselves and are under threat by the Islamic State, a jihadi group that controls a large chunk of territory in Syria and Iraq. The extremist cadre Islamic State — which has declared itself to be the new caliphate, representing God’s will on earth — has had an incredible string of military successes over the last few months. They’ve taken a lot of territory. They’ve slaughtered a lot of people, including civilians. They’ve imposed what they say is Islamic law — though many Islamic scholars would beg to disagree. And Islamic State’s captured an enormous amount of U.S. weaponry, originally intended for the rebuilt Iraqi Army.

You know — the one that collapsed in terror in front of the Islamic State, back when they were just ISIL? The ones who dropped their uniforms, and rifles and ran away? They left behind the bigger equipment, too, including M1 Abrams tanks (about $6 million each), 52 M198 Howitzer cannons ($527,337), and MRAPs (about $1 million) similar to the ones in use in Ferguson. Now, U.S. warplanes are flying sorties, at a cost somewhere between $22,000 to 30,000 per hour for the F-16s, to drop bombs that cost at least $20,000 each, to destroy this captured equipment. That means if an F-16 were to take off from Incirclik Air Force Base in Turkey and fly two hours to Erbil, Iraq, and successfully drop both of its bombs on one target each, it costs the United States somewhere between $84,000 to $104,000 for the sortie and destroys a minimum of $1 million and a maximum of $12 million in U.S.-made equipment.

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Why do we do it?

Earth Overshoot Day: We Already Used Up A Whole Year’s Resources (Guardian)

Humans have used up the natural resources the world can supply in a year in less than eight months, campaigners have warned. The world has now reached “Earth overshoot day”, the point in the year when humans have exhausted supplies such as land, trees and fish and outstripped the planet’s annual capacity to absorb waste products including carbon dioxide. The problem is worsening, with the planet sliding into “ecological debt” earlier and earlier, so that the day on which the world has used up all the natural resources available for the year has shifted from early October in 2000 to August 19 in 2014.

In 1961, humans used only around three-quarters of the capacity Earth has for generating food, timber, fish and absorbing greenhouse gases, with most countries having more resources than they consumed. But now 86% of the world’s population lives in countries where the demands made on nature – the nation’s “ecological footprint” – outstrip what that country’s resources can cope with. The Global Footprint Network, which calculates earth overshoot day, said it would currently take 1.5 Earths to produce the renewable natural resources needed to support human requirements. The network warned that governments that ignore resource limits in decision-making are putting long-term economic security at risk.

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repaet of what I’ve said often.

The Powerful ‘Group Think’ on Ukraine (Robert Parry)

When even smart people like economist Paul Krugman buy into the false narrative about the Ukraine crisis, it’s hard to decide whether to despair over the impossibility of America ever understanding the world’s problems or to marvel at the power of the U.S. political/media propaganda machine to manufacture its own reality. On Monday, Krugman’s New York Times column accepts the storyline that Russia’s President Vladimir Putin instigated the Ukraine crisis and extrapolates from that “fact” the conclusion that perhaps the nefarious Putin did so to engineer a cheap land grab or to distract Russians from their economic problems.

“Delusions of easy winnings still happen,” Krugman wrote. “It’s only a guess, but it seems likely that Vladimir Putin thought that he could overthrow Ukraine’s government, or at least seize a large chunk of its territory, on the cheap — a bit of deniable aid to the rebels, and it would fall into his lap. … “Recently Justin Fox of the Harvard Business Review suggested that the roots of the Ukraine crisis may lie in the faltering performance of the Russian economy. As he noted, Mr. Putin’s hold on power partly reflects a long run of rapid economic growth. But Russian growth has been sputtering — and you could argue that the Putin regime needed a distraction.”

Or you could look at the actual facts of how the Ukraine crisis began and realize that it was the West, not Russia, that instigated this crisis. Putin’s response has been reactive to what he perceives as threats posed by the violent overthrow of elected President Viktor Yanukovych and the imposition of a new Western-oriented regime hostile to Moscow and Ukraine’s ethnic Russians. Last year, it was the European Union that was pushing an economic association agreement with Ukraine, which included the International Monetary Fund’s demands for imposing harsh austerity on Ukraine’s already suffering population. Political and propaganda support for the EU plan was financed, in part, by the U.S. government through such agencies as the National Endowment for Democracy. When Yanukovych recoiled at the IMF’s terms and opted for a more generous $15 billion aid package from Putin, the U.S. government ratcheted up its support for mass demonstrations aimed at overthrowing Yanukovych and replacing him with a new regime that would sign the EU agreement and accept the IMF’s demands.

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Sad.

A Time To Cull? The Battle Over Australia’s Wild Horses (Guardian)

The last mare in Dead Horse Gap lies dying on a pure-white bed of snow. Her ears twitch as we approach, but she’s too weak to lift her head. Her rib bones are a scaffold now for her chocolate brown coat. About her, her fellow mob lie in various stages of decay, food for fat, shiny foxes. Crows line the pretty snow gums above. This mare, like her mates, has starved here in Australia’s alpine winter landscape for the unhappy chance of being in the wrong place at the wrong time. She was caught in a mountain pass when the late snow arrived, and nothing can save her now. And by her eye, she knows it. This scene is, as the poet Tennyson put it, “nature, red in tooth and claw”. In another life, a mare like her could have been petted and cosseted and dressed in a pink rug by a teenage girl who would have whispered love-torn secrets into that twitching ear. In this story, the foxes will have it.

It’s a bad year for Australia’s wild horses caught in the upper reaches of the Australian Alps. This mountain pass between New South Wales and Victoria is not called Dead Horse Gap for nothing. But it could get worse for the wild horses as national parks in Victoria and NSW decide how to manage brumby numbers, which they describe as out of control. Both states are considering “wild horse management plans” for the next five years. Both will address how to cull brumbies with all methods on the table, in an effort to protect Australian habitats and species. They may be dying up top, but down the mountain, on the open plains of the now-deserted gold mining village of Kiandra, a mob of 24 fat and shiny brumbies tramps through the appropriately named Racecourse creek. The creek forms part of the Eucumbene catchment, delivering water to 2.1 million people downstream.

These animals are magnificent as they run through the snow against a pink evening sky. When we follow their tracks, they run along a watercourse, leaving deep prints in a spongy, unstable wetland, before escaping from us to higher ground. As we follow, the scene resembles a Lord of the Rings landscape of soft grassland studded by pools fringed with the “super moss”, sphagnum. Problem is, this swampy stuff is heritage-listed. Sphagnum is highly prized for holding a lot of water and carbon. It is the breeding ground for the endangered corroboree frog, a black and fluoro smudge that would fit on the end of a teaspoon. The surrounding environment is habitat for other endangered species such as the pygmy possum, the broad-toothed rat, the mountain she-oak skink and the guthega skink.

Read more …

Sad.

Lions Hunted to Preserve Rhinos in South African Circle of Life (Bloomberg)

When U.S. television host Melissa Bachman posted a photo on Facebook of herself smiling and holding a rifle above the head of a lion she had shot, the response was instant. Users of the social network vilified Bachman, 30, who also killed a Nyala antelope last year on a trip to South Africa, as “evil,” a “low-life” and a “disgusting excuse for a human being.” The hunting trip was part of South Africa’s 12 billion rand ($1.1 billion) per year game ranching industry, which is growing at 10% annually, according to Barclays Africa Group. The industry also responsible for boosting the country’s large mammal population, a measure that excludes animals such as rodents, to 24 million, the most since the 19th century, and up from 575,000 in the early 1960s, Wouter van Hoven, an emeritus professor at the University of Pretoria, said in an interview last month. By contrast animal numbers in Kenya, which bans hunting, have plunged.

“We’re made out to be the bad guys,” said Peter Oberem, 60, a veterinarian turned game rancher, as he pointed to three adolescent rhinos being raised on his farm in northern South Africa, funded by hunting. “We put everything we earn back into conservation. Hunters pay us to save the rhino and repopulate Africa with native species.” Game ranching, the private-ownership of wildlife for hunting, tourism and meat production that’s been allowed by law since 1991, has split conservation groups. Some, such as London-based Save the Rhino, say the money raised from hunting is vital in the fight against poaching. The Massachusetts-based International Fund for Animal Welfare, says it’s hypocritical to conserve animals by killing them, and that turning wildlife into a commodity is bad for natural ecosystems.

Kenya, which focuses on eco-tourism, has lost 80% of its wildlife since it banned hunting almost 30 years ago, said Mike Norton-Griffiths, an academic writing for London’s Institute of Economic Affairs, a social policy research group. The country’s elephant population has dropped 76% since the 1970s while rhinos are down 95%, said Stephen Manegene, Director Wildlife Conservation in Kenya’s Department of Environment and Natural Resources. Foreign hunters, about 60% of whom came from the U.S., spent $118.1 million on licenses to hunt in South Africa in 2012, figures from the Pretoria-based Professional Hunters’ Association of South Africa, known as PHASA, show. Hunters target animals ranging from the Big Five — rhino, lion, leopard, elephant and buffalo — to plains game, a term for antelopes. The hunting of endangered animal species, such as the black rhino, is subject to quotas.

Read more …

Aug 182014
 
 August 18, 2014  Posted by at 8:48 pm Finance Tagged with: , , ,  


Marjory Collins Gasoline rationing in Mechanicsville, Maryland Jul 1942

When first we practise to deceive!

The upper echelons in and behind various governments have had on their radar far longer than the media that serve them, and I also realize that Washington wants a leading role in that battle, but even then I still don’t really get what is going on these days.

I think perhaps that’s because I tend to give the American political machine too much credit when it comes to intelligence and insight and other qualities its managerial staff doesn’t exactly seem to be drowning in. But still. I get the idea that most of what Washington does is based on what someone I read today calls ‘solution selling’, and what I know as ‘the completion backward principle’.

Both marketing terms mean you create a problem – a.k.a. a market – first, and then sell your products into the hole you just created. Perhaps that comes closest to what I see America doing these days, and if I’m right in that assessment, I can guarantee massive failure. Or maybe I should say massive warfare, which for me would be a failure, but not necessarily for the Pennsylvania Avenue apparatchiks.

The result is that stock markets keep rising, and oil prices keep falling, while the US actively involves itself in various hornets nests directly linked to various energy resources, involvements it doesn’t exactly have a stellar record in over the past 25 years- if not much longer -. Stocks are up only on central bank largesse, and oil is down only because people have faith in US military might. The latter is a big mistake all by itself, but both are for sure hugely risky notions, which tells me when a blow comes many investors will be taken off guard.

But let’s some other people talk. First, Ron Paul, that very rare sound voice:

What Have We Accomplished in Iraq?

We have been at war with Iraq for 24 years. Shortly after Iraq’s invasion of Kuwait that year, the propaganda machine began agitating for a US attack on Iraq. We all remember the appearance before Congress of a young Kuwaiti woman claiming that the Iraqis were ripping Kuwaiti babies from incubators. The woman turned out to be the daughter of the Kuwaiti ambassador to the US and the story was false [..]

The second Iraq war in 2003 cost the US some $2 trillion. According to estimates, more than one million deaths have occurred as a result of that war. What have we accomplished? Where are we now, 24 years later? We are back where we started, at war in Iraq!

The US overthrew Saddam Hussein in the second Iraq war and put into place a puppet, Nouri al-Maliki. But after eight years, last week the US engineered a coup against Maliki to put in place yet another puppet. [..] … what really irritated the US government was his 2011 refusal to grant immunity to thousands of US troops …

Hm. Perhaps what really really irritated the US government was that al-Maliki demanded better deals for Iraq in negotiations with western oil companies operating in the country.

Early this year, a radical Islamist group, ISIS, began taking over territory in Iraq. The organization had been operating in Syria, strengthened by US support for the overthrow of the Syrian government. ISIS obtained a broad array of sophisticated US weapons in Syria, very often capturing them from other US-approved opposition groups. Some claim that lax screening criteria allowed some ISIS fighters to even participate in secret CIA training camps in Jordan and Turkey.

This month, ISIS became the target of a new US bombing campaign in Iraq. The pretext for the latest US attack was the plight of a religious minority in the Kurdish region currently under ISIS attack. The US government and media warned that up to 100,000 from this group, including some 40,000 stranded on a mountain, could be slaughtered if the US did not intervene at once.

US bombs began to fall. Last week, however, it was determined that only about 2,000 were on the mountain and many of them had been living there for years! They didn’t want to be rescued!

The humanitarian situation was cynically manipulated by the Obama administration – and echoed by the US media – to provide a reason for the president to attack Iraq again. This time it was about yet another regime change, breaking Kurdistan away from Iraq and protection of the rich oil reserves there, and acceptance of a new US military presence on the ground in the country.

President Obama has started another war in Iraq and Congress is completely silent. No declaration, no authorization, not even a debate. After 24 years we are back where we started.

Then, Eric Draitser:

‘Islamist State A Pretext For US-Sponsored Regime Change In Iraq’

The ousting of Iraqi Prime Minister Nouri al-Maliki is part of a broader US plan for Iraq and the Middle East as a whole. Against the backdrop of the war against the Islamic State, Washington has managed to kill two birds with one stone. Not only has the US removed a political leader who had proven to be problematic due to his opposition to US military presence in Iraq, as well as his staunch support for Syria and President Assad, they have also created the conditions for the dismemberment of the Iraqi state.

The US and its allies are supporting de facto ‘independence’ for the Kurdish region in the north of the country, using the IS as a convenient pretext for openly arming and supporting Kurdish forces. Naturally, one should not look for altruism in Washington’s motives. Rather, this strategy is to benefit western oil companies with dollar signs in their eyes, licking their lips in anticipation of being able to deal directly with Kurdish President Barzani. Additionally, Maliki’s ouster deprives Syrian President Assad of a key ally, thereby emboldening the IS and the other militants waging war against Syria. It provides further evidence, as if more were needed, that the political future is bleak for any Iraqi leader who dares to break from the script written for him by Washington.

Perhaps most importantly, it allows the US and its allies to be the leading force politically in the war against the IS, an organization created by US policy and covert operations in the region. In the sales and marketing industry, there is a term known as ‘solution selling’ whereby the salesperson either creates or exaggerates a problem, then presents his or her product as the invaluable solution.

[..] [Al-Maliki] also challenged Western oil companies looking to make massive profits off of Iraq’s vast energy deposits. Perhaps the best-known instance occurred in 2012 when ExxonMobil signed an oil exploration deal with the semi-autonomous Kurdistan region in northern Iraq. Maliki rejected the validity of the deal, noting that any oil contracts must be negotiated with the central government in Baghdad, rather than Barzani’s US-aligned government in Arbil. Maliki’s spokesman noted at the time that:

“Maliki views these deals as representing a very dangerous initiative that may lead to the outbreak of wars… [and] breaking up the unity of Iraq…Maliki is prepared to go to the highest levels for the sake of preserving the national wealth and the necessary transparency in investing the wealth of the Iraqis, especially oil… [He] sent a message to American President Barak [sic] Obama last week urging him to intervene to prevent ExxonMobil from going in this direction.”

It is no secret that Maliki’s strong-willed resistance to this deal, in addition to his refusal to pay ExxonMobil upwards of $50 million to improve production at one major southern oilfield led directly to the oil company pulling out of the lucrative West Qurna-1 project. Essentially then, Maliki took on the very powerful oil corporations (BP is no friend of Maliki either), seeking to get a better deal for Iraq.

The US should, and could, have taken care of business in Iraq at any point since 1990. It didn’t. And it’s hard for me to accept that it never wanted to. It’s much more likely that hubris got in the way, that there was the idea all along that it never had to know all the ins and outs of the territory to be invaded. That having the biggest guns is always enough in the end. And now it’s clear that that didn’t work the last few times around, and what do you think the ‘new approach’ is? Right, more of the same.

There are scores of groups and militias and private armies and factions and fractions the US supported with billions in cash and training and guns and talks in Iraq alone, and it looks like more often than not it ends up fighting its own arms. The Kurds are the latest fad, but don’t underestimate their hatred of Turkey, which also happens to be a US ally. Who to choose when they restart their feud?

A very similar story, just on a smaller scale, is playing out with regards to American meddling in Ukraine. Really, what are they thinking? And what is Europe thinking? This could throw it back 50 years in time, before you know it someone start building a wall. RT:

Far-Right Right Sector Threatens Armed March On Kiev

The far-right Ukrainian group Right Sector has threatened its armed forces will raid Kiev unless authorities release all its members and end all criminal investigations against them. They accused the police of being “anti-Ukrainian.” Right Sector also accused the Interior Ministry of “unlawful detentions, arrests, beatings, confiscation of arms taken in battle” in moves targeting dozens of fighters of Right Sector’s volunteer battalion, which was formed with the stated goal of fighting armed militias in the east of the country.

The far-right group called on President Petro Poroshenko to fire Yevdokimov and his men from the service and investigate them for “their criminal activities.” As for detained members of Right Sector, all of them should be released and criminal cases launched against them must be closed, Yarosh demanded. “Unless our demands are met within 48 hours, we will be forced to call off all our units on the front line, start a general mobilization of reserve battalions and launch a march on Kiev to enact a ‘swift reform’ of the Interior Ministry. The columns of the Right Sector will march in full gear.”

A handful of billionaires with private armies who pay all sorts of people on the side who happen to want what they want, and wave swastika banners. That’s the western side of this conflict. That’s us.

‘West Has More Influence Than Kiev On Private Armies In Ukraine’

Moscow believes the West has more influence on various paramilitary forces in Ukraine – sponsored by local oligarchs – than Kiev does, the Russian FM said citing the latest bickering between Right Sector and the Interior Ministry. “The authorities in Kiev are not in control of the numerous paramilitary forces, including Right Sector, which, we estimate, comprises a large portion of the National Guard.

The march of Right Sector towards the Ukrainian Interior Minister speaks for itself,” Sergey Lavrov said, adding that the existence of armed groups sponsored by Ukrainian oligarchs, such as the Azov and Dnepr battalions, poses a great security threat. “We work with our Western partners in Europe and the United States who can really influence those paramilitary units that don’t answer to the central government in Kiev. We know the West has such influence,” he added.

Lavrov was referring to the weekend ultimatum of the far-right group, which threatened to pull out its troops from eastern Ukraine and march on Kiev unless President Petro Poroshenko fires several police officials, including a deputy interior minister. The group later reduced its demands, saying that the release of its activists previously arrested by the police was sufficient. [..]

Lavrov cited the latest claim by Kiev on Friday, when the Ukrainian military said it had destroyed a column of Russian armor after an incursion into Ukraine.“What really happened was a Ukrainian column moved in the Lugansk Region, obviously to intercept the rout of a potential humanitarian aid delivery. That column was destroyed by the militia,”he said. “If such episodes are presented as glorious successes of the Ukrainian army, then please don’t accuse us of anything.”

And then, what is the US doing at home? According to multiple media reports, there were all of 200 protesters on the streets of Ferguson last night. Police were firing teargas and rubber bullets into that ‘crowd’ even before the curfew. And it looked like the army had invaded. Armored personnel carriers and all.

And even that was not enough against 200 people who were simply pissed off because a cop emptied his gun, 6 bullets were found in the body alone, into an unarmed kid. 200 people, most of whom only wanted to protest. That there are a few dozen among them who are armed and/or looking for trouble is to be expected. So you pick them out of the crowd and cool things down. Right?

Does nobody in the States know anything about crowd control anymore? Or is this an attempt to make a small incident grow into something much bigger, so Americans get used to seeing the National Guard in their streets? I don’t know, but I look at all these things, and I wonder what’s going on.

As I said yesterday, you could be forgiven for thinking that America went looking for trouble.

What Have We Accomplished in Iraq? (Ron Paul)

We have been at war with Iraq for 24 years, starting with Operations Desert Shield and Storm in 1990. Shortly after Iraq’s invasion of Kuwait that year, the propaganda machine began agitating for a US attack on Iraq. We all remember the appearance before Congress of a young Kuwaiti woman claiming that the Iraqis were ripping Kuwaiti babies from incubators. The woman turned out to be the daughter of the Kuwaiti ambassador to the US and the story was false, but it was enough to turn US opposition in favor of an attack. This month, yet another US president – the fourth in a row – began bombing Iraq. He is also placing US troops on the ground despite promising not to do so. The second Iraq war in 2003 cost the US some two trillion dollars. According to estimates, more than one million deaths have occurred as a result of that war. Millions of tons of US bombs have fallen in Iraq almost steadily since 1991. What have we accomplished? Where are we now, 24 years later? We are back where we started, at war in Iraq!

The US overthrew Saddam Hussein in the second Iraq war and put into place a puppet, Nouri al-Maliki. But after eight years, last week the US engineered a coup against Maliki to put in place yet another puppet. The US accused Maliki of misrule and divisiveness, but what really irritated the US government was his 2011 refusal to grant immunity to the thousands of US troops that Obama wanted to keep in the country. Early this year, a radical Islamist group, ISIS, began taking over territory in Iraq, starting with Fallujah. The organization had been operating in Syria, strengthened by US support for the overthrow of the Syrian government. ISIS obtained a broad array of sophisticated US weapons in Syria, very often capturing them from other US-approved opposition groups. Some claim that lax screening criteria allowed some ISIS fighters to even participate in secret CIA training camps in Jordan and Turkey.

This month, ISIS became the target of a new US bombing campaign in Iraq. The pretext for the latest US attack was the plight of a religious minority in the Kurdish region currently under ISIS attack. The US government and media warned that up to 100,000 from this group, including some 40,000 stranded on a mountain, could be slaughtered if the US did not intervene at once. Americans unfortunately once again fell for this propaganda and US bombs began to fall. Last week, however, it was determined that only about 2,000 were on the mountain and many of them had been living there for years! They didn’t want to be rescued!

Read more …

‘Islamist State A Pretext For US-Sponsored Regime Change In Iraq’ (RT)

The ousting of Iraqi Prime Minister Nouri al-Maliki is part of a broader US plan for Iraq and the Middle East as a whole. Against the backdrop of the war against the Islamic State (IS, formerly ISIS/ISIL), Washington has managed to kill two birds with one stone, as the saying goes. Not only has the US removed a political leader who had proven to be problematic due to his opposition to US military presence in Iraq, as well as his staunch support for Syria and President Assad, they have also created the conditions for the dismemberment of the Iraqi state. The US and its allies are supporting de facto ‘independence’ for the Kurdish region in the north of the country, using the IS as a convenient pretext for openly arming and supporting Kurdish forces. Naturally, one should not look for altruism in Washington’s motives. Rather, this strategy is to benefit western oil companies with dollar signs in their eyes, licking their lips in anticipation of being able to deal directly with Kurdish President Barzani.

Additionally, Maliki’s ouster deprives Syrian President Assad of a key ally, thereby emboldening the IS and the other militants waging war against Syria. It provides further evidence, as if more were needed, that the political future is bleak for any Iraqi leader who dares to break from the script written for him by Washington. Perhaps most importantly, it allows the US and its allies to be the leading force politically in the war against the IS, an organization created by US policy and covert operations in the region. In the sales and marketing industry, there is a term known as ‘solution selling’ whereby the salesperson either creates or exaggerates a problem, then presents his or her product as the invaluable solution. Indeed, this sort of sales strategy is precisely the approach Washington has taken in the region, and specifically in Iraq.

The IS has only very recently become an internationally recognized epidemic of militant Islamist extremism that must be eradicated at all costs. That international recognition came only when the organization began taking control of territory in Iraq, threatening Western oil and gas interests. While the IS was waging its brutal and vicious war against the Syrian people and government however, the IS was merely an afterthought, simply a group of extremists fighting the ‘brutal dictator’ Assad. It seems then that the danger of ISIS and the necessity to eradicate it is directly correlative to US interests. Put another way, the IS is a useful tool in Syria and southern Lebanon where it creates chaos to the detriment of Assad and Hezbollah respectively, while in Iraq, the IS is dangerous where it threatens the US client regime in Kurdistan and Western oil interests. But of course, the detail consistently left out of most analysis of the IS problem is the simple fact that it is a creation of US intelligence and its covert war on Syria.

Read more …

Far-Right Right Sector Threatens Armed March On Kiev (RT)

The far-right Ukrainian group Right Sector has threatened its armed forces will raid Kiev unless authorities release all its members and end all criminal investigations against them. They accused the police of being “anti-Ukrainian.” In a statement published on Right Sector’s website, the group’s leader, Dmitro Yarosh, and the commander of the its volunteer battalion, Andrey Stempitsky, accused Deputy Interior Minister General Vladimir Yevdokimov of heading “a criminal police group of separatist stooges and a Moscow puppet.” Right Sector also accused the Interior Ministry of “unlawful detentions, arrests, beatings, confiscation of arms taken in battle” in moves targeting dozens of fighters of Right Sector’s volunteer battalion, which was formed with the stated goal of fighting armed militias in the east of the country.

The far-right group called on President Petro Poroshenko to fire Yevdokimov and his men from the service and investigate them for “their criminal activities.” As for detained members of Right Sector, all of them should be released and criminal cases launched against them must be closed, Yarosh demanded. “Unless our demands are met within 48 hours, we will be forced to call off all our units on the front line, start a general mobilization of reserve battalions and launch a march on Kiev to enact a ‘swift reform’ of the Interior Ministry. The columns of the Right Sector will march in full gear,” the statement said.

Read more …

‘West Has More Influence Than Kiev On Private Armies In Ukraine’ (RT)

Moscow believes the West has more influence on various paramilitary forces in Ukraine – sponsored by local oligarchs – than Kiev does, Russian FM said citing the latest bickering between Right Sector and the Interior Ministry. “The authorities in Kiev are not in control of the numerous paramilitary forces, including Right Sector, which, we estimate, comprises a large portion of the National Guard. The demarche of Right Sector towards the Ukrainian Interior Minister speaks for itself,” Sergey Lavrov said, adding that existence of armed groups sponsored by Ukrainian oligarchs, such as the Azov and Dnepr battalions, poses a great security threat. “We work with our Western partners in Europe and the United States who can really influence those paramilitary units that don’t answer to the central government in Kiev. We know the West has such influence,” he added.

Lavrov was referring to the weekend ultimatum of the far-right group, which threatened to pull out its troops from eastern Ukraine and march on Kiev unless President Petro Poroshenko fires several police officials, including a deputy interior minister. The group later reduced its demands, saying that the release of its activists previously arrested by the police was sufficient. The comments from the top Russian diplomat came as he reported on the progress achieved during the Sunday meeting with his counterparts from Ukraine, Germany and France. The roundtable produced no concrete agreements, but the parties involved said some progress was made on the issues of humanitarian aid and border control. Speaking to journalists on Monday, Lavrov said Moscow would welcome the observer mission of the Organization for Security and Cooperation in Europe (OSCE) deploying drones to control the Russian-Ukrainian border from the Ukrainian side.

Lavrov said Russia is working with the OSCE on giving more transparency in the border region, which is important, considering how often Kiev voices false reports on alleged violation of the border from the Russian side. He cited the latest claim by Kiev on Friday, when the Ukrainian military said it had destroyed a column of Russian armor after an incursion into Ukraine.“What really happened was a Ukrainian column moved in the Lugansk Region, obviously to intercept the rout of a potential humanitarian aid delivery. That column was destroyed by the militia,”he said. “If such episodes are presented as glorious successes of the Ukrainian army, then please don’t accuse us of anything.”

Read more …

Autopsy Finds Unarmed Teen Killed By Police Shot At Least 6 Times (Reuters)

A preliminary private autopsy report found that Michael Brown, the black teen killed by a police officer in the suburban St. Louis city of Ferguson, was shot at least six times, the New York Times reported on Sunday night. Citing Dr. Michael M. Baden, former chief medical examiner for the City of New York who was asked to perform the autopsy by Brown’s family, the newspaper reported that Brown, 18, was shot twice in the head, and that the bullets that hit him did not appear to have been fired from very close range. Four shots hit Brown in his right arm and one entered the top of his skull, the Times said, citing findings by Baden, who it said flew to Missouri on Sunday at the family’s behest and waived his usual fee in view of the extraordinary circumstances. The bullets, some of which left as many as five wounds, did not appear to have been fired from very close range, the Times reported, because no gunpowder was detected on his body. That conclusion could change, however, if gunshot residue is found on Brown’s clothing, the newspaper said.

[..] “People have been asking: How many times was he shot? This information could have been released on Day 1,” Baden told the Times in an interview after performing the autopsy. “They don’t do that, even as feelings built up among the citizenry that there was a cover-up. We are hoping to alleviate that,” the newspaper quoted him as saying. Baden said his autopsy was not intended to determine whether the shooting was justified. “In my capacity as the forensic examiner for the New York State Police, I would say, ‘You’re not supposed to shoot so many times’,” he told the Times. “Right now there is too little information to forensically reconstruct the shooting.”

Read more …

Russia Widens Ruble Basket to Complete Free Float by End of Year (Bloomberg)

Russia is making its currency more flexible by widening the range in which it trades freely and reducing the amount of foreign exchange bought and sold by the central bank. Russia widened the band in which the ruble trades against the target basket of dollars and euros to 9 rubles from 7 rubles previously, the central bank in Moscow said in a website statement. The regulator also abandoned all interventions while the ruble is trading in the band. It used to buy or sell $200 million per day at certain levels. The changes are intended to help complete the switch to a freely floating ruble from the current managed rate by the end of this year, which is needed to shift to inflation targeting, the central bank said. Policy makers are loosening their hold on the ruble even as volatility rises and inflation risks increase because of Ukraine-related sanctions. “This decision will not have a significant impact on current ruble fluctuations,” because the currency is trading in the neutral zone, the central bank said in the statement.

Read more …

The Biggest Economic Risk? You May Be Living In It (CNBC)

As a spate of housing data are released in the coming week, Wall Street will attempt to answer a burning question: Is the housing market becoming a big drag on economic growth? “We are laser-focused on this housing data coming out, because we have seen that the backbone of the recovery was housing. Now it’s faltering slightly. So if we see another mishap here, maybe that adds to the slowing global growth—especially domestically,” said Jeff Kilburg, chief executive of KKM Financial. The data start to emerge on Monday morning, when the National Association of Home Builders releases the latest reading on its housing market sentiment index. That widely watched gauge of the housing market rose to a six-month high in July, but is still down on the year. On Tuesday, the all-important housing starts number will reveal how many residential buildings began construction in July. The July number will follow a big disappointment from June, when 893,000 homes were started on a seasonally adjusted annualized basis—a nine-month low.

Thursday’s existing home sales data will round out the week. Recent indicators have not squelched concerns about housing. On Wednesday, the Mortgage Bankers Association reported applications to buy a house fell to a six-month low in the week prior. Still, there are some reasons for optimism. According to Freddie Mac, 30-year mortgage rates have fallen to just 4.12%, which brings it back to its lowest levels on the year. Given the decline in interest rates, as well as this year’s impressive employment growth, “I would have expected more out of housing,” said Stuart Hoffman, chief economist at PNC Financial Services. The weak housing market “is a disappointment, and somewhat of a downside risk to the economy. But with mortgage rates coming down and credit standards loosening, I would expect housing to have a better second half of the year.”

Read more …

London Home Asking Prices Plunge Most in More Than Six Years (Bloomberg)

London home sellers cut asking prices by the most in more than six years this month, adding to signs that the property market in the U.K. capital is coming off the boil. London values fell 5.9% from the previous month to an average £552,783 ($922,300), the biggest drop since December 2007, property website Rightmove Plc said today. Nationally, prices declined 2.9%, a record for an August. While property demand usually weakens during the summer, Rightmove said the slump this year was steeper than it expected. Tougher new mortgage rules introduced by Bank of England Governor Mark Carney, as well as anticipation of higher interest rates, are putting pressure on the market after a surge in values raised concerns that a bubble may develop. “Buyers and sellers are becoming increasingly aware about personal finances, given that the cost of mortgages are going up and regulators are trying to bring availability down,” said Miles Shipside, a director at Rightmove. “This limits what buyers are willing or able to pay, and helps moderate sellers’ price expectations.”

Some of the biggest price declines in London were recorded in affluent boroughs including Kensington and Chelsea, Camden, Hammersmith and Fulham, according to the report. Among the “million-pound plus” districts, Kensington saw asking prices drop 7% on the month to an average £2.2 million, while Camden fell 7.2%. From a year earlier, values in Kensington were down 1.4%, the only borough recording an annual decline. The average London price is up 10.3% in that period. “Top-end sellers are very much discretionary ones, so can delay marketing till a more active time of year,” Shipside said. “That tends to depress property prices more in the higher-priced boroughs.” Nationally, the annual pace of growth in prices slowed to 5.3% in August from 6.5% in July. The average asking price was £262,401. Rightmove said the drop in monthly prices is a “lead indicator of a slower market in the second half.”

Read more …

US Mortgage Market Continues To Falter: Q2 Originations Down 59% (Alhambra)

The Mortgage Bankers Association’s refi index is at a level not seen in a very long time, far lower than anything of this “recovery” period. There has been a clear disassociation of refi activity and interest rates, which is itself a clear break from the close correlation of the prior paradigm (before taper threats). That is a woeful sign for consumerism, as even though the trickle of refis likely had a relatively muted impact on the monetary goal of spending, it will now be completely reversed going forward – regardless of interest rates it appears. In terms of real estate and new home construction or home sales, purchasing activity has been far less provoked by all of this but no less in terms of direction.

Mortgage applications for home purchases are running nearly 15% below year ago levels, and this despite that favorable direction in mortgage rates. At the three largest mortgage providers, there was some increase in originations and volume in the second quarter over the first, but nothing that would indicate a sharp reversal on the horizon. Where total mortgage lending volume at these three banks was off by two-thirds Y/Y in Q1, in Q2 the decimation was only 59%. We will have to see about how that plays out in Q3, though mortgage pipelines entering the quarter were still way down vs. last year’s levels (about 65% on average). The current view of applications doesn’t bode well for it.

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Yellen Dashboard Warning Light Glows as Millions Work Part Time (Bloomberg)

Federal Reserve Chair Janet Yellen has a stubborn warning light blinking on her labor market dashboard: A group of Americans larger than Washington state’s population can find only part-time work. As Yellen heads to this week’s Fed symposium in Jackson Hole, Wyoming, where the focus will be on the labor market, those 7.5 million part-time workers who want full-time jobs are inflating the broad measure of underemployment she watches to gauge job market health. Involuntary part-time workers have gained by 325,000 from February’s five-year low. With employment and inflation nearing Fed goals, Yellen has consistently cautioned some labor market measures still show enough slack to warrant keeping interest rates low.

In the shadow of the Teton Range of the Rocky Mountains, she’ll have a chance to highlight soft spots such as the crowded pool of part-timers as investors try to decipher the timing of the Fed’s first rate increase-rate increase since 2006. “We still have quite a long ways to go,” said Aneta Markowska, chief U.S. economist at Societe Generale SA in New York. In the discussion of monetary policy, “I’d be surprised if the message is anything other than dovish.” Yellen, 68, is delivering a speech titled “Labor Markets” at the Jackson Hole symposium Aug. 22 at 10 a.m. New York time. The three-day meeting of central bankers and economists begins Aug. 21 with a topic of “Re-evaluating Labor Market Dynamics.”

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China’s July Home Sales Fall 28% as Easing Yet to Boost Demand (Bloomberg)

China’s home sales fell 28% in July, the biggest monthly decline this year, as tight mortgage lending outweighed efforts by local governments to ease property curbs as prices and demand weakened. The value of homes sold fell to 424.2 billion yuan ($69 billion) last month from 591.2 billion yuan in June, according to the difference between the National Statistics Bureau’s data for the first seven months and the first half of the year. The value of sales in the first seven months fell 10.5% to 2.99 trillion yuan from a year earlier, the data showed. “Today’s data will hurt sentiment as the property market has no fundamental recovery yet as investors imagined,” Edison Bian, a Hong Kong-based property analyst at UOB Kay Hian Ltd., said in a phone interview today. “Developers are still very cautious even as local governments are easing policies. Mortgages should ease further, so that reluctant developers will supply more homes.”

Chinese cities began relaxing local property restrictions in June amid sluggish sales and as an oversupply in second- and third-tier cities drove prices lower. Thirty-six Chinese cities eased their policies as of the end of last week, Centaline Property Agency Ltd., China’s biggest real estate broker, said in a report. While more cities are set to follow, buyers remain hesitant as the central bank maintains mortgage restrictions, according to Centaline. In Beijing and Shanghai, first-home mortgage rates were the same as the benchmark rate in July, while in the southern business hub of Guangzhou they were 5% to 10% higher than the benchmark rate, Centaline said.

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China Home Prices Fall in Majority of Cities on Weak Demand (Bloomberg)

China’s new-home prices fell in July in almost all cities that the government tracks as tight mortgage lending deterred buyers even as local governments eased property curbs. Prices fell in 64 of the 70 cities last month from June, the National Bureau of Statistics said today, the most since January 2011 when the government changed the way it compiles the data. Beijing prices fell 1% from June, posting the first monthly decline since April 2012. “The falling trend of China’s property market has no sign of improving,” Shen Jian-guang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd., said in a phone interview today. “The key issue is the mortgages, despite all types of local government easings. The high rate is damping sentiment of owner occupiers.”

China’s property market has become a drag on the world’s second-biggest economy, prompting cities to start easing local curbs in June. Thirty-six cities had loosened measures as of the end of last week, according to Centaline Property Agency Ltd., while developers have cut prices since March to lure buyers. The International Monetary Fund has urged China to target slower expansion in 2015, saying the economy faces a “web of vulnerabilities” from rising debt and financial institutions’ exposure to real estate. [..] Worse times for China’s real estate sector are still ahead, wrote Standard Chartered Plc economists led by Lan Shen in an Aug. 6 report, after surveying managers of 30 Chinese developers in six cities. Developers are offering “moderate discounts,” while buyers are still very cautious regardless of how much developers cut prices, Standard Chartered found.

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Blow To Global Banks’ Living Wills Over Fed’s Lending Window (FT)

Global banks can no longer assume continuing access to the Federal Reserve’s discount lending window as an element of their living wills, people familiar with the process have warned. US regulators set out the specific guidance in confidential letters on August 5 detailing why they recently rejected the living wills of the world’s largest banks. Hundreds of banks took advantage of the discount lending window on multiple occasions during the 2008 credit crunch. Critics say that instead of creating an environment for an orderly resolution that would avoid the kind of panic that ensued after the failure of Lehman Brothers, regulators are creating more risk by making a bank’s failure theoretically inevitable. They added that the prohibition defeats the purpose of the discount window and the role of the Fed as the lender of last resort.

“How are you supposed to write these living wills if the assumptions regulators are making are false and inaccurate?” asked one UScommentator. “They are disconnected from what would happen in the real world.” But the Fed and the Federal Deposit Insurance Corporation, which are under pressure to avoid government bailouts in any future crisis, want to force the banks to come up with emergency plans that do not involve any government aid, even when it comes to the discount window, which is available only to banks that are in trouble rather than failing. For the 2013 living wills, 11 banks ranging from Citigroup to Barclays were told they made unrealistic assumptions about how customers, counterparties and investors would behave in a crisis. In addition, they were informed that they failed to make or identify the kinds of structural changes that would be needed to ensure an orderly resolution.

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US Banks Plan Ahead For UK Exit From EU (FT)

Wall Street banks are drawing up preliminary plans to move some London-based activities to Ireland to address concerns that the UK is drifting apart from the EU People familiar with Bank of America, Citigroup and Morgan Stanley told the Financial Times that they considered Ireland a favorable location for some of their European business if they needed to move them out of the UK. One said he was already planning to move some activities to Ireland. The people said their plans were in most cases still at very early stages. But they said the US banks had started preparing for the euro zone’s impending banking union that threatens to isolate Britain and, ultimately, for a possible UK exit from the EU. “I’m frankly looking at moving some activities to Ireland,” said one senior UK-based manager at a Wall Street bank. “I think the Irish central bank and government would welcome this. It is not so much Brexit, more about legal entity optimization.”

Most US and Asian banks have chosen to base their main European operations in the UK, giving them an automatic passport to carry out their services across all 28 countries in the EU. But senior US banking executives said the UK was unlikely to be granted the same “passporting” rights if it left the EU – the so-called “Brexit” scenario. Prime Minister David Cameron has promised to hold a referendum on a renegotiated EU membership if his Conservative party wins next May’s election. Executives at American banks in Europe are reluctant to speak publicly about the issue for fear of upsetting the UK regulators. One said: “I don’t think people are making enough of it – a lot of passported activities that cannot take place in London will not exist here any more.” As the European Central Bank prepares to take charge of the biggest banks in the euro zone later this year, there are fears among some executives at US banks that this will drive a wedge between the UK and the rest of Europe’s financial system.

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Great teachers!

EU Trains for Bank Closures With US Agency That Shuttered 500 (Bloomberg)

When a bank fails, regulators need two qualities above all: Speed and agility. That’s the message U.S. Federal Deposit Insurance Corp. officials are sending to their colleagues in Brussels working out how the European Union will shut down insolvent lenders. Regulators need to move fast enough to limit disruption to the financial system, while staying nimble so they can pull back at the last minute if another solution emerges, Pamela Farwig, deputy director of the FDIC’s resolution and receivership division, said in a phone interview this month. “If you had to tell them to stand down, you must be able to do that in very, very short order,” said Farwig, one of four U.S. officials who spoke at private workshop on bank closures with EU officials in June.

The FDIC’s practical tips and advice for Europe are borne of hard-won experience: it handled more than 500 bank closures during the financial crisis. Its seminar, part of a trans-Atlantic exchange, tackled issues like how to market a failing bank, and how to sneak up and close it on a Friday night. “They were surprised at some of the things that can happen at the very last minute,” she said. “They just have not had that experience yet.” When a lender is on the brink, the FDIC needs to fly under the radar to avoid roiling the markets or alarming depositors. Officials will try to line up a buyer in advance and then they even book hotel rooms and rental cars without mentioning the agency’s name. “You have a team going into a very small town where everyone knows everyone — when they see those different cars you have to be very careful,” Farwig said. “The last thing you want is a marquee that says ‘Welcome FDIC.’”

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Australia Misery Index Rises to Highest Level Since 2008 (Bloomberg)

A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens. Australia’s misery index – the sum of unemployment and inflation rates – is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings Inc. froze credit markets around the world and triggered the deepest recession in the U.S. since the Great Depression.

While policy makers from the U.S. Federal Reserve to the European Central Bank are still pumping stimulus into their economies at least in part to address job-market slack, Australia’s price pressures limit that option for the RBA. The upshot for the nation’s businesses and consumers: little prospect of lower borrowing costs from Stevens. “The hurdle to cut further is high,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “The RBA is likely to remain reluctant in the absence of an external driver, and the case to cut from an already historical low will need to be compelling.”

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Credit Suisse Caught Up in Espírito Santo Mess (WSJ)

Credit Suisse helped sell billions of dollars of securities that ultimately played a role in toppling Portugal’s second-largest bank. The Swiss bank was responsible for putting together securities that were issued by offshore investment vehicles and then sold to retail customers of Portugal’s Banco Espírito Santo SA. Many customers didn’t realize that these vehicles were loaded with debt issued by various Espírito Santo companies and apparently served as a mechanism to finance the family-controlled empire, according to corporate filings and people familiar with Portugal’s investigation into the Espírito Santo affair. It is unclear what, if any, direct role Credit Suisse had in selling the securities to bank customers. Now those investment products are at the center of an unfolding scandal. Banco Espírito Santo was bailed out and broken up this month. Other parts of the Espírito Santo group have filed for bankruptcy amid alleged fraud and accounting problems. In addition to sinking the Portuguese stock market, the episode has undermined confidence in the European banking sector, analysts say.

Portuguese regulators investigating the Espírito Santo mess have identified at least four offshore investment vehicles whose securities, mostly preferred shares, were sold with the help of Credit Suisse to Banco Espírito Santo customers. Portuguese regulators, who received complaints about the products from customers who didn’t understand what they were buying, are now making the bank buy back the securities. That caused crippling losses for the bank. The offshore vehicles used at least some of the proceeds from selling the securities to buy more Espírito Santo debt, according to corporate filings. Regulators suspect the sales were part of an effort to prop up the bank and other Espírito Santo companies, the people say. Three of the vehicles are based in Jersey, an island tax haven off France’s northern coast. Credit Suisse served as “arranger and dealer” for those three vehicles, a role that included not just underwriting securities but also handling administrative and financial needs, according to corporate records filed with the Jersey Financial Services Commission.

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China’s First Bond Default in Focus as Debtholders Meet (Bloomberg)

Holders of China’s first corporate bond to default onshore plan to meet today in Shanghai, as investors look for clues on how the government will balance market liberalization with steps to maintain stability. Investors in notes of Shanghai Chaori will gather this afternoon as they seek repayment, Vice President Liu Tielong said by phone. Shanghai marked a milestone in corporate bankruptcy in June when a court accepted a restructuring application for the solar-panel maker. While Premier Li Keqiang said defaults may be unavoidable in some cases after Chaori failed to make a full coupon payment on March 7, the country has averted similar cases since. Widespread bond nonpayments would cause financial market turbulence, which can’t be allowed when the economy faces “relatively heavy” downward pressure, according to a front-page commentary in a central bank publication today. Chaori only paid 4 million yuan ($650,755) of an 89.8 million yuan coupon due in March on its 2017 bonds, becoming the first company to default on a yuan note onshore.

The Shanghai No. 1 Intermediate People’s Court accepted the restructuring application from Chaori’s supplier, Shanghai Yihua Metal Materials Ltd., because the solar-panel maker can’t repay overdue debt, according to a statement posted on the court’s website on June 27. As of March, Chaori’s liabilities were more than 700 million yuan greater than its assets, according to the statement. The Shanghai court appointed local branches of law firm King & Wood Mallesons and accounting firm KPMG Huazhen as the administrators, according to a July 10 statement. A meeting of Chaori’s noteholders set for March was delayed after the underwriter of the securities couldn’t find enough bondholders to attend for resolutions to be effective. China’s broadest measure of new credit plunged last month to the lowest since the global financial crisis, adding risks to growth as the government grapples with a property slump.

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US Losing Its Interest In Buying Chinese Companies (MarketWatch)

U.S. companies, and really companies all around the world, are losing interest in buying up their Chinese counterparts, according to a Dealogic report out Friday. Even as U.S. mergers and acquisitions volume abroad is up 47% year-to-date, American purchases of Chinese companies seem to have fallen off a cliff, dropping to just $611 million so far in 2014, down from $2.3 billion at this time last year, and marking the lowest level in 12 years, Dealogic said. Part of the problem involves a lack of big ($500 million or more) deals. The report showed no transactions of that size so far this year, while last year, there were already two such deals worth a combined $1.3 billion.

But it’s not just a U.S. issue: China’s total inbound M&A volume year-to-date is 10% less than it was at this time in 2013. And on a “deal activity” basis, the situation is even more stark: There have been just 271 agreements to buy Chinese companies this year, making Chinese M&A from abroad the weakest it’s been since 2003, Dealogic reported. The drop-off in U.S. merger interest in the world’s No. 2 economy could cap a decade of thirst for Chinese targets, with M&A volume by this point in the year coming in below the $2 billion mark only once (2012) in the 2004-2013 period. Although Dealogic didn’t offer a reason for the sudden chill in U.S. acquisitions into China, it did note that deals for Chinese health-care firms plunged from last year — $30 million year-to-date compared to $1.1 billion at this point in 2013.

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China Finds Mercedes-Benz Guilty Of Price Manipulation (Reuters)

German car maker Daimler AG’s luxury brand division Mercedes-Benz has been found guilty of manipulating prices for after-sales services in China, the official Xinhua news agency reported, citing authorities in Jiangsu province. An array of industries, from milk powder makers to tech firms, have been coming under the spotlight in recent years as China intensifies its efforts to bring companies into compliance with a 2008 anti-monopoly law. That legislation allows the country’s anti-trust regulator, the National Development and Reform Commission, to impose fines of up to 10% of a company’s Chinese revenues for the previous year. The auto industry has been under particular scrutiny, with a wave of investigations in the world’s biggest auto market prompting carmakers such as Mercedes-Benz, Volkswagen AG’s Audi, and BMW to slash prices on spare parts in recent weeks.

The Jiangsu Province Price Bureau, which launched its investigation last month, found evidence of anti-competitive practices after raiding Mercedes-Benz dealerships in the eastern coastal province as well as an office in neighboring Shanghai, Xinhua said in its report on Sunday. On Aug. 5, Mercedes-Benz said it was assisting the authorities in their investigation. A spokesman for the German brand was not immediately available to comment on the Xinhua report. “It is a typical case of a vertical monopoly in which the carmaker uses its leading position to control the prices of its spare parts, repair and maintenance services in downstream markets,” Zhou Gao, chief of the anti-trust investigation at the Jiangsu bureau, told Xinhua.

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Aug 172014
 
 August 17, 2014  Posted by at 3:37 pm Finance Tagged with: , , , ,  


Leslie Jones The Hindenburg over Boston Common 1936

If Americans were less prone to self-deceit, they would have long since realized that the American Dream is over, for good, and that continuing to chase it is the worst of the few remaining options they get to choose between.

They could then look at themselves in the mirror and see their future.

As things are, however, the future is creeping up on them in small, slow and silent steps, until one day it will simply be there, no longer deniable or avoidable, and it will find them woefully unprepared.

This is not true only for Americans, the entire formerly rich world will undergo the same transformation. But it will be very pronounced stateside.

It’s impossible to follow events in Ferguson, Missouri and not recognize that there are thousands of – potential – Fergusons in-waiting spread across the USA. You don’t have to be particularly clever to recognize the patterns.

Segregation by race – a.k.a. racism – has never left the country, even though the courage of true American heroes like Martin Luther King and Muhammad Ali changed many things for the better.

Segregation by race has always remained inevitably linked to segregation by wealth and income. As a hugely disproportionate number of black kids continue to be incarcerated under a prison system that locks away more citizens than in any other country.

You could be forgiven for thinking that America went looking for trouble. And is now finding it. Like so many things, that trouble doesn’t stand out or float to the top in times of plenty. But when those times are over, trouble is the only thing remaining.

As long as the illusion of the American Dream, and the illusion of economic growth, can be kept alive, people will be inclined to take a lot of things for granted. When their eyes open and these illusions are shattered, matters can turn on a dime.

Bloomberg provides some of the background to Ferguson and all those other American communities. What’s happening in Ferguson shouldn’t come as a surprise, what’s surprising is that it’s not much more widespread yet.

Ferguson Unrest Shows Poverty Grows Fastest in Suburbs

• “We’ve passed this tipping point and there are now more poor people in the suburbs than the cities,” said Elizabeth Kneebone, author of [a July 31 Brookings Institution report]. “In those communities, we see things like poorer health outcomes, failing schools and higher crime rates.”

• [..] the city – which has lost more than 40% of its white population since 2000 – [has] a mostly white city council and police force. [..] The St. Louis metropolitan area ranks as one of the most segregated in the U.S. Ferguson, once a majority white community that’s now about two-thirds black, highlights that dynamic.

• Coinciding with the decline in white population is a rapid rise in poverty since 2000 [..]

• “Looking at the neighborhood poverty rates, it’s striking how much has changed over a decade,” Kneebone said. “In Ferguson in 2000, none of the neighborhoods had hit that 20% poverty rate. By the end of the 2000s, almost every census tract met or exceeded that poverty rate.

• The poverty rate in Ferguson was 22% in 2012, the most recent available, up from 10.2% in 2000. Suburban locales from the outskirts of Atlanta to Colorado Springs have seen similar trends. The number of poor people living in impoverished U.S. suburbs has more than doubled since 2000, comparing to a 50% rise in cities. More than half of the 46 million Americans in poverty now live in suburbs ..

• “The median income is so low in Ferguson that people are really struggling, living from check to check, and they’re even behind checks,” state Senator Maria Chappelle-Nadal said.

• “For much of the latter half of the 20th century, it was a pattern of segregation by race, and that’s been displaced somewhat by a segregation by income, which is growing starker and starker in cities like St. Louis.”

While Americans have been – and still are – waiting for the recovery to come that the government and the media promise, their world is not standing still; it’s deteriorating at a fast pace. It just takes them a long time to notice, focused as they are on the illusions.

That is a dangerous dynamic in a country so loaded to the hilt with firearms. Something that the government, at all levels, has been acutely aware of for many years. The calls, in the wake of Ferguson, to de-militarize police forces, look somewhat less than timely or honest or genuine in that light.

The militarization of American police forces has been a very conscious choice by those who long since sensed a threat to their positions, their way of life, and their powers. Not everyone feels they can afford to stare blindly into illusions.

Another aspect of the demise of America as we once knew it, and one very much connected to Ferguson, because it’s economics that drives the whole machinery, is pensions. An amazing graph posted by Tyler Durden, along with some apt comments, explain.

Why The Fed Can’t, And Won’t, Let The Stock Market Crash

… it is not the 1% that would suffer the most should the S&P have a post-Lehman like 50%+ wipe out, which also means that the Federal Reserve’s only mandate of pushing asset prices to ever higher levels while pretending it does so to boost employment and keep inflation at 2% is no longer for the benefit of the uber-wealthy.

So why can’t, or rather won’t, the Fed let the bubble market collapse once again? Simple – as the following chart shows, the illusion of wealth is now most critical when preserving the myth of the welfare state: some 50% of all US pension fund assets are invested in stocks and only 20% in Treasurys.

This compares to less than 10% for Japan which also explains why for Abe, the only lifeline left is pushing pension funds out of their existing asset allocation sweet spot and forcing them to buy stocks.

What is known is that in a country like Germany between 2005 and 2012 the Pension funds asset rotation out of stocks and into bonds has been truly unprecedented, with stocks plummeting from 30%+ of total exposure to less than 5%! It also explains why Germany was, is and always will be leery of allowing the ECB to pursue asset bubble-inflating policies which would barely benefit pension funds on the equity side …

But back to the US: while the 1%’s paper fungible, market-driven wealth has been long converted into other hard asset formats, it is the paper gains for the future retirees that are on the chopping block should the S&P 500 “get it.”

As such, it is the fate of future retirement funds, and in fact, the very core of the US welfare state that is at stake should there be a massive market crash. In which case what happened in Ferguson will be a polite stroll in the park compared to the chaos that would ensue should another generation of Americans wake up with half or more of their paper wealth wiped out overnight.

… will the Fed be able to avoid a market crash? The answer of course is no. But we will give the podium to Fred Hickey, aka the High-Tech Strategist, who gives a very poetic summary of what the Fed’s endgame will look like:

The Fed hasn’t made the world a better place with its interventions. It has created moral hazard, encouraged the formation of asset bubbles that eventually pop (leaving economic messes), widened the wealth inequality gap to record levels, discouraged savings and investment, severely penalized retirees on fixed incomes, encouraged spending, funded massive government deficit spending by monetizing the debts, lengthened the recession and likely reduced the number of jobs that would have been created if the economy had been allowed to take its normal course.

What Durden forgets to mention is that, given the incredibly outsized exposure US pensions funds have built up to stocks, it’s no wonder the S&P 500 has been setting records.

Another issue he omits is while one may claim the Fed can’t let the stock market crash, it has no such control, if only since because of that same outsized exposure pension funds have to the S&P, they are set and certain to cause their own demise by moving out of stocks and back into bonds.

Recent developments in geopolitics are not a one-off incident. They are merely a first step in the real battle for oil and gas, equals energy, equals power. It’s not going to stop if Ukraine and Russia sign some deal, or if Shi’ites beat Sunnis or the other way around. Every party that sees an opening to increase their share of oil and gas will do so, and increasingly with blunt force. That’s the geopolitics which will be a part of the global – and financial – landscape for the rest of our lives.

That necessarily means that the Fed controlled quiet boom in stocks is over. Volatility is back to stay. And volatility doesn’t rhyme with pension funds. Risk and potential losses are too great to even consider. So the funds will have to move back into Treasurys. A move that will hurt both stocks AND bonds. And cause more volatility. Rinse and repeat.

It would be suicide for pension funds to stay where they are. It will also be suicidal to move. They’re hugely overexposed to a market that’s only seemingly under control. They purchased themselves into a bind.

Just like America developed itself into a bind. By building an infrastructure around its city cores that is increasingly, and rapidly, becoming an expansive layer of cemeteries for the hopes and dreams of large numbers of its citizens, where millions of poorly constructed and insulated overpaid homes play the part of so many underwater mausoleums.

There is still time to take another look in the mirror. To see what is actually there in your reflection, not what you would like there to be. And make your decisions based on what you see when you do. But that time is not measured in decades, perhaps not even years.

Why The Fed Can’t, And Won’t, Let The Stock Market Crash (Zero Hedge)

When it comes to the stock market, while the biggest, and according to many only, beneficiary of the Fed’s ZIRP/QE policies of the past 6 years has been the wealthiest 1%, the reality is that said top crust of US society no longer needs the S&P to continue its relentless, manipulated and centrally-planned levitation. Between a third Hamptons residence, a 5th Ferrari, and a 7th French villa, not to mention a few tons of gold, the super wealthy have long since booked their paper profits, and transferred their “wealth” out of the intangible and into actual, physical assets. Therefore it is not the 1% that would suffer the most should the S&P have a post-Lehman like 50%+ wipe out, which also means that the Federal Reserve’s only mandate of pushing asset prices to ever higher levels while pretending it does so to boost employment and keep inflation at 2% is no longer for the benefit of the uber-wealthy.

So why can’t, or rather won’t, the Fed let the bubble market collapse once again? Simple – as the following chart shows, the illusion of wealth is now most critical when preserving the myth of the welfare state: some 50% of all US pension fund assets are invested in stocks and only 20% in Treasurys. This compares to less than 10% for Japan which also explains why for Abe, the only lifeline left is pushing pension funds out of their existing asset allocation sweet spot and forcing them to buy stocks. Whether this gambit will work is unknown.

What, however, is known is that in a country like Germany between 2005 and 2012 the Pension funds asset rotation out of stocks and into bonds has been truly unprecedented, with stocks plummeting from 30%+ of total exposure to less than 5%! It also explains why Germany was, is and always will be leery of allowing the ECB to pursue asset bubble-inflating policies which would barely benefit pension funds on the equity side, while any rising inflation would crush the mark-to-market value of bond holdings. But back to the US: while the 1%’s paper fungible, market-driven wealth has been long converted into other hard asset formats, it is the paper gains for the future retirees that are on the chopping block should the S&P 500 “get it.” As such, it is the fate of future retirement funds, and in fact, the very core of the US welfare state that is at stake should there be a massive market crash.

Read more …

Ferguson Unrest Shows Poverty Grows Fastest in Suburbs (Bloomberg)

A week of violence and protests in a town outside St. Louis is highlighting how poverty is growing most quickly on the outskirts of America’s cities, as suburbs have become home to a majority of the nation’s poor. In Ferguson, Missouri, a community of 21,000 where the poverty rate doubled since 2000, the dynamic has bred animosity over racial segregation and economic inequality. Protests over the police killing of an unarmed black teenager on Aug. 9 have drawn international attention to the St. Louis suburb’s growing underclass. Such challenges aren’t unique to Ferguson, according to a Brookings Institution report July 31 that found the poor population growing twice as fast in U.S. suburbs as in city centers. From Miami to Denver, resurgent downtowns have blossomed even as their recession-weary outskirts struggle with soaring poverty in what amounts to a paradigm shift. “We’ve passed this tipping point and there are now more poor people in the suburbs than the cities,” said Elizabeth Kneebone, author of the report and a fellow at the Brookings Metropolitan Policy Program.

“In those communities, we see things like poorer health outcomes, failing schools and higher crime rates.” In predominantly black Ferguson, residents protesting the shooting death of 18-year-old Michael Brown also complain about the lack of jobs and a city government that doesn’t reflect the community’s diversity. Inhabitants of the city – which has lost more than 40% of its white population since 2000 – said they’ve long felt disenfranchised by a mostly white city council and police force. Missouri Governor Jay Nixon told reporters that Brown’s death was like “an old wound that had been hit again,” exposing underlying challenges. The St. Louis metropolitan area ranked as one of the most segregated in the U.S. in a 2011 study by Brown University. Ferguson, once a majority white community that’s now about two-thirds black, highlights that dynamic. Coinciding with the decline in white population is a rapid rise in poverty since 2000, a period that includes the 18-month recession that ended in June 2009.

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The 10.8 Trillion Failures Of The Federal Reserve (MarketWatch)

The conventional wisdom says the Federal Reserve is keeping interest rates so low that it doesn’t pay to play it safe, and that it’s encouraging investors to do all sorts of crazy things to earn a higher yield. Supposedly, the central bank is forcing investors pump up stocks, junk bonds, farm land and all the other bubbles you’ve been reading about. It’s a nice story, but the data show that U.S. investors are still conservative about where they put their money. Just how conservative are they? Data from the little-noticed financial accounts report show the American people have $10.8 trillion parked in cash, bank accounts and money-market funds that pay little or no interest. At the end of the first quarter, low-yielding assets totaled 84.5% of annual disposable personal income, the highest share in 23 years. Sure, people need to keep some money handy to pay their bills and some folks might have a few hundred or a few thousand in a rainy-day fund, but no one needs immediate access to the equivalent of 11 months of income.

In essence, there’s $10.8 trillion stuffed into mattresses. That $10.8 trillion hoard represents a failure of Fed policy. Since the Fed began quantitative easing in September 2012, U.S. households have socked away $1.17 trillion in their low-yield accounts. That means that 95% of the Fed’s $1.24 trillion QE3 ended up not in bubbly markets but in a safe and boring bank account. Since the recession began more than six years ago, the Fed has been trying to encourage people to put their money to work in the economy. That’s why the Fed has kept interest rates low and has been buying up trillions of dollars worth of relatively safe securities, hoping to push us to take on a little more risk. After all, an economy can’t really grow if no one’s willing to gamble on the future. But many of us don’t want to. We are still afraid, so we prefer to put a large part of our savings in assets that are guaranteed, like FDIC-insured bank accounts, or into money-market funds whose sponsor guarantees the return of the principle.

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Instability is dead certain. Fear makes no difference.

Fears of Renewed Instability as Fed Ends Stimulus (NY Times)

After a nearly uninterrupted five-year rally in stocks and bonds, some investors seem to be getting nervous. On July 31, the Dow Jones industrial average dropped 317 points, wiping out the year’s gains. Last week, junk bond funds experienced record withdrawals and junk bond interest rates spiked. Such gyrations may be healthy, a reminder that there are risks and that markets go down as well as up. But they could also be the harbinger of something more worrisome, which would be renewed financial instability as the Federal Reserve brings to an end its extraordinary easy money policy. The Federal Reserve has said it expects to raise interest rates in 2015 for the first time since the financial crisis. “There’s no real precedent for ending anything of this magnitude,” said Jeremy Stein, who left the Fed’s Board of Governors at the end of May to return to Harvard’s economics department, where I caught up with him last month on the day of the Dow’s big drop.

As the Fed feels its way, he said, investors may have to prepare for greater volatility. While at the Fed, Mr. Stein was viewed as the chief advocate for financial stability on the seven-member board, where he pondered the possible unintended consequences of the Fed’s stimulus policies. Mr. Stein said his differences with his fellow board members, and especially the chairwoman, Janet Yellen, had been exaggerated and were more a matter of nuance. “I certainly felt we were courting some risks” with the Fed’s last round of quantitative easing, he acknowledged. “But then again, given the level of the unemployment rate at the time, some risk-taking was warranted.” In April, in his last speech as a Fed board member, Mr. Stein warned that monetary policy should be “less aggressive” when credit risk premiums were extremely low, as they were then, and they’ve gotten even lower since.

“To be clear, we are not necessarily talking about once-in-a-generation financial crises here, with major financial institutions teetering on the brink of failure,” he said in a speech to the International Monetary Fund. “Nevertheless, the evidence suggests that even more modest capital market disruptions may have consequences that are large enough to warrant consideration when formulating monetary policy.”

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No spending=deflation.

The Depleted American Consumer Has Spoken: No “Escape Velocity” (Alhambra)

With retail sales this week bringing an “unexpected” shock to those forecasting a robust economic rebound (outside of inventory, anyway) in the US, further confirmation has been offered pretty much everywhere else. WalMart’s quarterly report was as it has been since the end of 2012 with continuing slow erosion. US same store comparables were flat, which is something of an achievement considering that overall environment. Despite yearly proclamations of recovery, hard dollar figures continue to demonstrate otherwise.

In other words, the actual results of the companies that are closest to American consumers confirm the bleak picture provided by the government estimates of retail sales. Beyond WalMart, Macy’s reported a “shocking” miss on both Q2 results and further guidance.

The earnings miss Wednesday by highly regarded Macy’s raised a red flag about what’s to come from the slew of retailers set to report profits. “As one of the top-performing and best-executing retailers in the industry, Macy’s second-quarter earnings miss is an ominous early marker for retail that could portend further disappointing results over the coming weeks,” said Ken Perkins, president of Retail Metrics. Macy’s earlier cut its full-year same-store sales forecast, saying a 3.3% rise in second-quarter sales would not make up for weakness in the first quarter, when harsh winter weather kept shoppers away.

That seems to be the theme developing everywhere outside of heavily revised headline GDP (but not the prior estimates of that measure nor its internals). The “bounce” in the second quarter was more of simply “less bad” than anything remotely resembling the narrative provided by most commentary derived from “economists.” It has been a universal theme in the retail industry that “second-quarter sales would not make up for weakness in the first quarter”, which all sounds suspiciously like something far worse than just an aberration of snow or GDP figuring. It is very striking as to how much this sentiment has shifted just in the past few weeks. After the GDP revisions and second quarter preliminary release, most commentary focused on the “surge” in activity and how that completely erased the lingering doubts after the shocking and unexpectedly wintry winter quarter. Such optimism has been encoded by previously unshakable beliefs in monetary command, to the point of oftentimes incongruent and incoherent analysis.

Included in this disappointment over the second quarter’s results is an almost earnest bitterness about the failure of promises to become realized. I can’t tell yet if it is a reawakening of some overdue skepticism and actual doubts about the efficacy of everything that has been guaranteed and offered by central planning intrusion, but reactions are far more subdued, the tone clearly shifted. While retailers still bank on back-to-school sales for a bit of a bounce, many had also hoped the spring and early summer would bring positive news after an extremely difficult winter. But so far, retail results for the quarter have generally been muted. Walmart executives said Thursday that American customers continued to be cautious, concerned about the cost of living and the country’s employment landscape.

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Has been for ages.

The GDP “Growth” Story Is Getting Tired (Alhambra)

There is little for me to say about the GDP figures from Europe, released this week to much shock and discomfort, as I am frankly tired of GDP and eagerly await the unhonored end of its continued mainstream “significance.” The largest problem with it is that its correlation with actual economic results has clearly broken down from whatever it had to begin with. It was designed as a measure of Keynesian understanding of economic function (governments add to the economy?), but for the most part during the post-war period there was at least stronger ties to the general ideas of economy. We are, however, in a new paradigm that has changed, structurally, almost every facet of economic function.

Yet, a positive number on a GDP report is still taken as a definitive sign that all is well, and any system with it is on the road to recovery and eventually true growth. Some of that is the embedded tendency (desire) for econometrics to extrapolate in a straight line, but it is equally if not more so the deficiency of trying to put a dollar (or euro) figure on the assumed value of everything produced and traded as if that were the ultimate aim of an economic system. In that case, what are we really measuring, the economy or the dollar (or euro)? From the Wall Street Journal:

Germany’s economy, long Europe’s growth engine, shrank for the first time in more than a year, a development economists largely attributed to a mild winter that boosted activity in the first quarter at the expense of the second. The bigger concerns, they say, are France and Italy, where respectable rates of growth aren’t even in sight. “The euro-zone recovery never really got going, and now it appears to be petering out,” said Simon Tilford, deputy director of the Centre for European Reform, a nonpartisan London think tank.

Setting aside how “at the expense of the second” might actually make sense in an economic context, the reason “it appears to be petering out” is simply that it was never there to begin with. Sure, some central bank centrally planned to redistribute some piece of finance from another piece, and believed that would create positive numbers for measuring the euro-value of traded entities, but no wealth has been created and it is quite likely the fact that such redistribution actually eroded further existing wealth. The persistence of such corrosion is the continually sinking of economic function, with generalized interruptions in that downward course mistaken for “recovery.”

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Perhaps.

QE Will Come To The Eurozone – And It Will Be A Failure (Schlichter)

The data was not really surprising and neither was the response from the commentariat. After a run of weak reports from Germany over recent months, last week’s release of GDP data for the eurozone confirmed that the economy had been flatlining in the second quarter. Predictably, this led to new calls for ECB action. “Europe now needs full-blown QE” diagnosed the leader writer of the Financial Times, and in its main report on page one the paper quoted Richard Barwell, European economist at Royal Bank of Scotland with “It’s time the ECB took control and we got the real deal, instead of the weaker measure unveiled in June.” I wonder if calls for more ‘stimulus’ are now simply knee-jerk reactions, mere Pavlovian reflexes imbued by five years of near relentless policy easing. Do these economists and leader writers still really think about their suggestions? If so, what do they think Europe’s ills are that easy money and cheap credit are going to cure them?

Is pumping ever more freshly printed money into the banking system really the answer to every economic problem? And has QE been a success where it has been pursued? The fact is that money has hardly been tight in years – at least not at the central bank level, at the core of the system. Granted, banks have not been falling over one another to extend new loans but that is surely not surprising given that they still lick their wounds from 2008. The ongoing “asset quality review” and tighter regulation are doing their bit, too, and if these are needed to make finance safer, as their proponents claim, then abandoning them for the sake of a quick – and ultimately short-lived – GDP rebound doesn’t seem advisable. The simple fact is that lenders are reluctant to lend and borrowers reluctant to borrow, and both may have good reasons for their reluctance.

Do we really think that Italian, French, and German companies have drawers full of exciting investment projects that would instantly be put to work if only rates were lower? I think it is a fairly safe bet that whatever investment project Siemens, BMW, Total and Fiat can be cajoled into via the lure of easy money will by now have been realized. The easy-money drug has a rapidly diminishing marginal return.

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And 3% is still an historic abberation.

Interest Rate Rises To 3% Might Be More Than UK Economy Can Bear (Observer)

All the anguish over interest rates – when they will rise and by how much – illustrates both the power and impotence of our central banks. They have power when governments fence themselves in with austerity, limiting the ability of ministers to aid the recovery and leaving central bankers the only ones able to get money flowing into the economy. But their spending does little more than offset austerity and the continuing failure of commercial banks to lend to households and businesses for anything other than the purchase of a prized property asset. As soon as they try to influence the economy in the other direction – say by raising rates – they are forced to back down. Bank of England governor Mark Carney says he is watching and waiting for the right time to raise rates. Why does he think they should go up? Central bankers worry that without a charge for borrowing, lenders cannot reward saving. They also fear that savers, in search of a higher return, will fall prey to the City’s snake-oil salesmen and invest in high-risk assets, causing another financial crash.

It may be laudable to reward saving and provide a decent return on safe assets, thereby discouraging risky behaviour, but the UK’s huge level of household indebtedness effectively rules out much higher base rates: at least not the postwar norm of 4%-5%. Carney agrees and has in so many words put a 3% ceiling on base rates, most likely for the rest of the decade, which must be a reasonable assumption when taking into account low wage growth, no-better-than-moderate business investment and stumbling exports alongside a predicted rise in household debt to 165% of GDP (from 140% in 2013) over the next five years. At least, 3% is a reasonable assumption until the recent experiences of smaller, supposedly less beleaguered, central banks are taken into account. Both Sweden and Norway have tried to rise rates to more “normal” levels only to find it killed high street spending and sent economic growth into reverse. Australia tried it too. Importantly for these central banks, which, like most, have a mandate to maintain inflation at or around 2%, price increases dropped near to zero.

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Soros shakes people’s nerves these days. WHat does he know that they don’t?

George Soros Loads Up On Bearish Market Bet (CNBC)

Soros Fund Management, the large family office that manages assets for billionaire George Soros, raised its protection against a U.S. stock market drop dramatically, sparking concerns that the powerful investment firm is expecting a big fall in equities. During the course of the second quarter, which ended June 30, Soros Fund Management’s position in puts—the right to sell at a certain price at an appointed time in the future—in a popular exchange-traded fund tracking the S&P 500 rose to 11.29 million shares, which appears to be a multiyear high for the investment manager. (During the first quarter, the size of that position was just 1.6 million puts, meaning that the second quarter marked a 606% increase.)

Based on some simple math, and assuming Soros still held the puts and that they were in the money (meaning they would generate gains if they were exercised today), the notional value of the bearish position is roughly $2.2 billion. Soros Fund Management also held calls—the rights to buy S&P ETF shares at an appointed time in the future—as well as outright shares of the ETF, but in much smaller amounts. A Soros spokesman could not immediately be reached for comment on the fund’s market outlook. But competing money managers said not to put too much weight into what is apparently a pessimistic view of U.S. stocks, given that Soros Fund Management may simply be looking for a hedge to counterbalance its many long stock positions.

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Japan’s Keynesian Demise: A Cautionary Tale For Our Times (Stockman)

I remember it well. That is, the fiscal rectitude of the old Japan. During early 1981 as the Reagan White House prepared its radical fiscal plan—-what Senate Majority Leader Howard Baker famously called a “riverboat gamble”—-we were visited by a high ranking delegation from the Japanese finance ministry (MOF). It is no overstatement to say that they were absolutely shocked by the administration’s plan to enact a sweeping 30% income tax cut and double the defense budget—while expecting that it would all balance out as a result of surging economic growth immediately and large domestic spending cuts down the road. The MOF men feared the worst—politely noting the possibility that there would be insufficient economic growth and spending cuts to pay for the Administration’s monumental tax reductions and defense build-up. Then the US would experience an outbreak of massive fiscal deficits—an unprecedented peacetime development that could roil the entire global financial system.

In that apprehension the MOF men turned out to be dead right, and not because they were especially clairvoyant. Back in those benighted times, fiscal rectitude was a widely shared commitment among government financial officials including Congressional Republicans and their conservative counterparts abroad and especially in Japan. Economic policy officials did not have to be hectored about deficits and the fact that there is no such thing as a fiscal free lunch. Indeed, notwithstanding a government led 30-year drive to rebuild their economy from the complete devastation of WWII, Japan’s public debt was only 50% of GDP as of 1980.

That was then. Today Japan’s public debt is 5X greater relative to the size of its economy and tips the scales at 250% of GDP. That is off-the-charts relative to all other large developed economies and has no parallel in previous history. In the interim, of course, Japan succumbed to the Keynesian stimulus disease, betting that after its thundering financial meltdown during the early 1990s it could borrow and print its way back to the prosperity it had known during the period of its post-war economic miracle.

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Debt solves all our problems.

Detroit to Sell Millions in New Debt to Settle Bankruptcy (Bloomberg)

Detroit plans to sell about $975 million in bonds for retirement costs and some creditor settlements as part of its bankruptcy restructuring plan awaiting approval by a federal judge. The Detroit City Council approved four issues yesterday, including $632 million of tax-limited general obligations that would pay 4% interest for the first 20 years and 6% for another 10 years, according to city documents. Detroit, the former capital of the U.S. auto industry, filed a record $18 billion municipal bankruptcy last year after decades of population decline. Michigan’s largest city has been negotiating with many of its biggest creditors, including unions, pension plans and some bondholders.

The $632 million in bonds would finance $450 million for retiree health care through a voluntary employee beneficiary association, agreed to by retirees. Another $34 million would pay claims by the city’s Downtown Development Authority. A sale of $288 million of unlimited-tax general obligation bonds would finance settlements with the city’s unlimited-tax debtholders who agreed to receive 74 cents on the dollar. Those bonds would be issued by the Michigan Finance Authority and backed by state aid to the city. A $55 million issue would finance a settlement with holders of limited-tax debt, who would receive 34% of their claims. The council also approved refinancing for $5.5 billion of the city’s water and sewer debt. The water system, which serves about 40% of the state’s population, has issued a tender offer to buy back a portion of the bonds in hopes of reducing costs and raising money for improvements.

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Iraq’s Largest Dam New Focus of Expanding U.S. Airstrikes (Bloomberg)

The U.S. targeted Sunni militants’ positions near Iraq’s largest dam in a sign of the expanding reach of airstrikes designed to push back the Islamic State. After a week of strikes confined to Erbil and Mount Sinjar, U.S. fighter jets and armed drones struck yesterday near Mosul, Iraq’s second largest city, to help wrest control of the dam seized by Islamic State forces earlier this month. The combination of Navy F-18 and Air Force F-16 fighters, along with the drones, marked the largest deployment of U.S. aircraft since the strikes began on Aug. 8, according to a U.S. defense official who spoke on condition of anonymity.

The strikes are part of a U.S. effort that President Barack Obama announced to halt the advance of the Sunni insurgency. Militants calling themselves the Islamic State have rampaged through OPEC’s No. 2 oil producer, seizing border posts, beheading foes and targeting dams whose destruction could flood areas near Baghdad and Mosul. The dam near Mosul is the most important asset the group captured since taking Nineveh province in June. The Islamic State also controls several oil and gas fields in western Iraq and eastern Syria, generating millions of dollars in daily revenue to help fund the caliphate it announced and strengthen its grip on territory it has seized. Zuhair al-Chalabi, head of the National Reconciliation Committee in Mosul, said in a phone interview that towns near the dam would need to be captured before Kurdish forces known as the peshmerga could attempt to retake the dam.

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After all the mud they threw on it?

Ukraine Officially Recognizes Russian Aid Convoy As Humanitarian (RT)

Ukraine Minister of Social Policy Lyudmila Denisova has signed an order officially recognizing the Russian convoy stuck at the border as humanitarian aid cargo of the International Committee of the Red Cross. “In accordance with Articles 4 and 5 of the Law of Ukraine ‘On Humanitarian Aid’ considering the initiative of the President of Ukraine Petro Poroshenko on receiving humanitarian aid within the framework of international humanitarian missions under the auspices of the International Committee of the Red Cross (ICRC) to recognize the cargo as humanitarian aid,” the document reads. The Russian aid shipment consists of 12 types of goods weighting 1856.3 tons according to an official letter from the Red Cross received by the Ukrainian ministry on Saturday, which complies with the cargo declared by Russia. “The recipient of humanitarian aid is the mission of the International Committee of the Red Cross in Ukraine. The cargo will be moved into Ukraine by the ICRC through the ‘Donetsk’ checkpoint,” Kiev cited the ICRC letter.

Kiev granted Russian cargo humanitarian aid status after the Red Cross sent a petition to Kiev to allow the Russian humanitarian aid to enter eastern Ukraine, after the Russian cargo was held at the Ukrainian border since August 14. “There remains one, of course, major challenge: we absolutely need security guarantees from all parties concerned before we can start moving,” Red Cross official Pascal Cuttat told the media on Saturday. It is still unknown when the convoy will be allowed to enter Ukrainian territory as the procedures of the cargo clearing customs have reportedly not yet been completed. There has also been no word from Kiev about the security of the humanitarian mission following Friday’s statement from Russia’s Foreign Ministry that Kiev forces might attempt to block the agreed route and disrupt the aid delivery to Lugansk.

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Obama and Putin should both sit in on these meetings, and not be allowed to leave before a solution is found.

Ukraine-Russia Talks Seek to Ease Crisis Amid Aid Accord (Bloomberg)

Foreign ministers from Ukraine and Russia will meet today in Berlin after officials agreed on a plan that would allow the Red Cross to accompany a Russian aid convoy stuck near the two countries’ border. Ukraine’s Pavlo Klimkin and Russia’s Sergei Lavrov will hold talks with their German and French counterparts to ease tensions after Ukraine officials said Aug. 15 that their troops had destroyed part of an armored convoy from Russia. Today’s meeting may be a first step toward a new peace summit, French President Francois Hollande’s office said in a statement. European leaders are pushing to halt the conflict that has fractured Ukraine since Russia annexed the Crimean peninsula in March, touching off a wave off sanctions that have hurt trade and threatened to send President Vladimir Putin’s economy into recession.

Finnish President Sauli Niinistoe conferred with Ukrainian President Petro Poroshenko in Kiev yesterday, and said he carried with him a message from Putin, with whom he had met the day before. “A quick resolution of the crisis remains unlikely,” Otilia Dhand, an analyst at Teneo Intelligence in London who specializes in eastern Europe, said by e-mail. “The new round of talks in Berlin might at best bring a slight detente and potentially avert a further escalation over the next days.” In the accord reached yesterday, Ukrainian officials agreed to accept humanitarian aid from Russia that will be delivered to the nation’s southeastern region under the supervision of the International Committee of the Red Cross. That area has been controlled by pro-Russian separatists.

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Good man.

Pope Francis Urges Affluent To Hear ‘Cry Of The Poor’ (Reuters)

Pope Francis on Saturday celebrated a huge open-air Mass in the center of Seoul, where he denounced the growing gap between the haves and have-nots, urging people in affluent societies to listen to “the cry of the poor” among them. The pope made his remarks in the homily of a Mass where he beatified 124 Korean martyrs who were killed in the 18th and 19th centuries for refusing to renounce Christianity. Beatification is the last step before sainthood in the Roman Catholic Church. In his homily before a crowd of hundreds of thousands, many of whom had waited for hours on a steamy morning, Francis said the martyrs’ courage and charity and their rejection of the rigid social structures of their day should be an inspiration for people today.

“Their example has much to say to us who live in societies where, alongside immense wealth, dire poverty is silently growing; where the cry of the poor is seldom heeded and where Christ continues to call out to us, asking us to love and serve him by tending to our brothers and sisters in need,” he said. It was a theme the pope has been repeating since he arrived in South Korea on Thursday for his first trip to Asia since his election in March 2013, and has been a lynchpin of the papacy of the first non-European pontiff in 1,300 years. Last year, in the first major written work of his papacy, Francis attacked unfettered capitalism as “a new tyranny”, urging global leaders to fight poverty and growing inequality.

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That’s a really scary graph.

California’s Record Heat Is Like Nothing You’ve Ever Seen .. Yet (Bloomberg)

If hot thermometers actually exploded like they do in cartoons, there would be a lot of mercury to clean up in California right now. The California heat this year is like nothing ever seen, with records that go back to 1895. The chart below shows average year-to-date temperatures in the state from January through July for each year. The orange line shows the trend rising 0.2 degrees Fahrenheit per decade. The sharp spike on the far right of the chart is the unbearable heat of 2014. That’s not just a new record; it’s a chart-busting 1.4 degrees higher than the previous record. It’s an exclamation point at the end of a long declarative sentence. The high temperatures have contributed to one of the worst droughts in California’s history. The water reserves in the state’s topsoil and subsoil are nearly depleted, and 70% of the state’s pastures are rated “very poor to poor,” according to the USDA.

By one measure, which takes into account both rainfall and heat, this is the worst drought ever. While the temperatures are extreme, they’re not entirely unexpected. The orange trend line above is consistent with rising temperatures across the globe. Average surface temperatures on Earth have warmed roughly 1.4 degrees Fahrenheit since 1880, according to NASA. The eastern half of the U.S. has had an unusually cool 2014, but it’s a lone exception compared to the rest of the planet. The International Panel on Climate Change, which includes more than 1,300 scientists, forecasts temperatures to rise 2.5 to 10 degrees Fahrenheit over the next century. That puts California’s record heat well within the range of what’s to come, turning this “hot weather” into, simply, “weather.”

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Could take years as well. A whole group of patinets in isolation escaped their hospital today in Liberia.

Curbing Ebola Spread in West Africa Could Take Six Months (Bloomberg)

It will take months to curb an Ebola outbreak in West Africa that probably involves far more cases than the 2,100 officially recorded by governments there, global health leaders said. “We are not talking weeks; we’re talking about months to get an upper hand on the epidemic,” Joanne Liu, international president of Doctors Without Borders, said yesterday at a news conference in Geneva. Liu, whose organization has almost 700 health workers in West Africa, said a turnaround should take six months and called for more help by global health groups against the outbreak. She said others need to “step up to the plate” in aiding the four countries battling the virus.

“It needs to happen now if we want to contain this epidemic,” Liu said. She said more health-care workers are needed to follow up on cases and educate the public about what the disease and the outbreak entails. “Some of our staff, they are not accepted in their village anymore,” Liu said. The outbreak “will only improve if we improve understanding of the disease. Everyone is living with fear.” Liu’s comments followed by a day a statement from the World Health Organization that their staff members “at the outbreak sites see evidence that the number of reported cases and deaths vastly underestimate the magnitude of the outbreak.”

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Fun!

New Plant Language Discovered (DIscovery)

People tend to be fixated upon the question of whether talking to your plants stimulates them to grow, but scientists have known for several decades that various plant species talk among themselves — not with words, but by releasing chemical signals into the air that warn other trees about impending insect attacks. Most of the nearly 50 studies on the subject have found evidence of plant communication. Add to that proof a study in the Aug. 15 issue of the journal Science by a Virginia Tech researcher, who has discovered that different plant species can share genetic information at the molecular level. Jim Westwood, a professor of plant pathology, physiology, and weed science at the university, found evidence of this new communication mode by investigating the relationship between dodder, a parasitic plant that oddly looks like strands of spaghetti, and the flowering plant Arabidopsis and tomato plants to which it attaches and sucks out nutrients with an appendage called a haustorium.

Several past studies have indicated that dodder use chemical cues to find their host plants. But Westwood has uncovered a genetic means of communication as well — an exchange of RNA, a substance that translates information in the DNA forming an organism’s genetic blueprint. He reports that many thousands of mRNA molecules were being exchanged between the parasite and host, creating this open dialogue between the species that allows them to freely communicate. “The discovery of this novel form of inter-organism communication shows that this is happening a lot more than any one has previously realized,” the scientist said in a Virginia Tech press release. “Now that we have found that they are sharing all this information, the next question is, ‘What exactly are they telling each other?’” One possibility: Dodder may be telling the host to lower its defenses and allow it to drain nutrients.

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