May 312015
 
 May 31, 2015  Posted by at 10:44 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle May 31 2015


Jack Allison “Utopia Children’s House, Harlem, New York.” 1938

There’s A Currency War Going On And The Fed Can’t Play (CNBC)
When Betting on QE Suddenly Goes Wrong (WolfStreet)
For The Fed, It’s The Rebound That Matters (MarketWatch)
What Bubble Vision Doesn’t Get About Q1’s Punk GDP Numbers (Stockman)
Why the Bank of Japan Can’t Stop a Sudden Collapse of the Yen (WolfStreet)
China Central Bank: We Want ‘Healthy’ Stock Market (Reuters)
What Do Falling Corporate Profits Mean With Stocks Near Their Highs? (Lyons)
Elon Musk’s Growing Empire Is Fueled By Government Subsidies (LA Times)
Economic Theory: Science Or Scam? (Hanauer)
New Arrests Coming in FIFA Corruption Probe, Says Investigator (Bloomberg)
Seymour Hersh And The Dangers Of Corporate Muckraking (Mark Ames)
Stephen Hawking: No Funding For Students With My Kind Of Condition (Guardian)
European Union Anger at Russian Travel Blacklist (BBC)
The Rebel of St. Peter’s Square (Spiegel)
‘Wanted Criminal’ Saakashvili Attempts a Napoleon as Governor of Odessa (RT)
Over 4,200 Migrants Rescued In Mediterranean In 1 Day As Crisis Grows (Reuters)
Kos Shows There Is No Escape From The Migrant Crisis (Guardian)
The Most Polluted City In The World?! (NY Times)

Emerging economies face the biggest threat from this.

There’s A Currency War Going On And The Fed Can’t Play (CNBC)

There is a currency war going on—one in which the Federal Reserve is the least able to play, said David Woo, head of global interest rates and currencies research at Bank of America Merrill Lynch, on Friday. The ECB statement during a dinner last week regarding the purchase of more bonds is a strong signal it doesn’t want the euro to go back over $1.15, said Woo during an interview with CNBC’s “Squawk on the Street.” “You could argue that the U.S. got back on the street playing that game,” explained Woo. “Now, the U.S. cannot tell others they cannot play this game.” With inflation picking up and better performance from U.S. companies, the Fed has less of a reason to get engaged in this war at the moment, said Woo.

As the deadline for a debt payment by Greece draws closer, the volatility of currencies has increased. The country is supposed to pay about €300 million to the IMF on June 5, but creditors have been worried about Greece’s ability to make the payment. Woo added that the latest data show €5.6 billion leaving the Greek banking system for elsewhere—double the March figure. He added that this might force a showdown into the end of June.

Meanwhile, Wells Fargo’s Scott Wren, also on “Squawk on the Street,” said that the volatility was creating more of a chance to buy stocks. “Volatility is going to hopefully cause more buying opportunities. Even in a worst-case scenario for Greece, which I don’t think is going to happen, they are going to Band-Aid this thing and kick it down the road,” said Wren. Woo said that his biggest worry is Asia, especially China. With the Chinese yuan one of the strongest currencies and Germany’s exposure to China, there might be some problems for the euro. “I think the euro will have an issue,” said Woo. “German exposure is more than U.S exposure to China.”

Read more …

One day, they’ll find themselves pushing on a string.

When Betting on QE Suddenly Goes Wrong (WolfStreet)

The ECB rode to the rescue. This sort of turmoil went against everything it had tried to accomplish. So it announced that it would frontload some of its bond-buying spree ahead of the summer, under the pretext that this would avoid having to buy so much debt at a time when European market players would be on vacation and nothing could get done. As far as the markets were concerned, the announcement meant an additional short-term mini-QE. It stopped the bleeding. Bonds recovered some, and yields settled down. By now, the German 10-year yield, after spiking from 0.05% to 0.77% during the weeks of turmoil, has dropped to 0.50%.

All this even though the ECB’s QE has barely begun. But it shows how these bouts of QE around the globe have perverted asset pricing mechanisms. The markets front-run QE as rumors and suggestions of QE run wild, and they’re driving up bonds and stocks in the hope of QE, as they have done in Europe, and when QE finally arrives as it did in March, stocks and bonds begin to sink. German stocks, for example, are down 7.4% from their peak in early April, after having shot up nearly 50% since October. And so central bank jawboning, rumors of QE, suggestions of QE, promises of QE, and finally QE itself work in driving up markets – until someday, they don’t. And that’s when “unexpected” turmoil sets in.

Read more …

Brilliant obfuscation: the lower the Q1 data are, the bigger the rebound can be. Even reality is just in the eye of the beholder.

For The Fed, It’s The Rebound That Matters (MarketWatch)

The Federal Reserve has already indicated that it isn’t too bothered by the weak first quarter. The key factor for the U.S. central bank going forward is the strength of the bounce back. “It’s the extent of the rebound that will be critical in determining the timing of the Fed’s first move on interest rates,” said Chris Williamson, chief economist at Markit, in a note to clients. New data from the government Friday showed that the economy got off to a weak start in 2015, shrinking at an 0.7% annual rate in the first quarter, down from the prior estimate of a tepid 0.2% increase. Bricklin Dwyer, economist at BNP Paribas, said the first quarter GDP report should give the Fed confidence that the soft patch was likely driven by temporary disruptions. What matters for the Fed is the second-quarter data.

St. Louis Fed President James Bullard on Thursday said he wanted to hike rates this year but needed “confirmation” of his hunch that the first quarter weakness wouldn’t last. Barclays said Friday its Q2 GDP tracking estimate was 2.5%. This is down from expectations earlier in the year, of second quarter growth over 3%. The Chicago PMI report also injected some concern that the economy may be struggling to move beyond the first quarter soft-patch, said Millan Mulraine at TD Securities. The index dipped back into contractionary territory, falling to 46.2 from 52.3 the month before. Fed officials will gather on June 16-17 to set policy for the next six weeks. While Fed officials have taken pains not to take a rate hike off the table at that meeting, economists don’t think policymakers will have enough data to justify a rate hike.

Read more …

“..you would think that after a recessionary plunge that was in a league all by itself that some account of that would be taken in assessing the recovery.”

What Bubble Vision Doesn’t Get About Q1’s Punk GDP Numbers (Stockman)

Promptly upon release of today’s GDP update, Steve Liesman and his Wall Street economist pals spent 10 minutes bloviating about why the negative print should be completely ignored. Herein is an essay on why it is they who should be given the heave-ho. According to Liesman & Co the GDP shrinkage reported by the BEA for Q1 was all a mistake due to winter, strikes and unseasonal seasonals. So don’t sweat the small stuff, they brayed to what remains of the CNBC audience, the US economy actually continues bounding along at a 2.5% growth rate, as it has for the entire recovery. Well, hold it right there. I am all for ignoring the quarterly jerks and flops embedded in the GDP data, too. But if you want to talk trend and context – let’s do exactly that.

And first and foremost there is no such trend as 2.5% growth. After all, Liesman and his Wall Street cronies have been cheerleaders for the Fed’s insane 80 months of ZIRP and massive QE on the grounds that extraordinary measures were needed to combat the deep economic plunge known as the Great Recession. In fact, measured from peak to trough, the latter was the worst downturn since 1950. Real GDP shrank by 4.2% compared to an average of 1.7% during the previous nine recessions, and handily topped the 2.6% decline in 1981-1982 and the 3.0% decline in 1973-1975. So you would think that after a recessionary plunge that was in a league all by itself that some account of that would be taken in assessing the recovery.

Indeed, that’s particularly pertinent in the present instance because the depth of the Great Recession was exacerbated by a violent inventory liquidation in the fall and winter quarters right after the Wall Street meltdown in September-October 2008. In fact, fully one-third of the $636 billion (2009 dollars) real GDP decline from peak to trough was accounted for by inventory liquidation; real final sales dropped by a far more modest 2.8%. Accordingly, the appropriate way to measure the trend is to remove the violent inventory swings from the numbers, and then to look at the path of real final sales after the peak – averaging in the down quarters and the subsequent rebound.

Read more …

Rate hike. “It will be the mother of all currency debasements.”

Why the Bank of Japan Can’t Stop a Sudden Collapse of the Yen (WolfStreet)

On Friday morning in Tokyo, the Nikkei stock index was up again, at 20,600, highest in 15 years. Since “Abenomics” has become a common word in December 2012, the Nikkei has soared 128% on a crummy economy, terrible government deficits, and an insurmountable mountain of government debt. This 10-day run of straight gains, or 11-day run if Friday plays out, is the longest glory streak since February 1988 when Japan was in one of the craziest bubbles the world had ever seen. The subsequent series of crashes had the net effect that the Bank of Japan became engaged in propping up the stock market not only by pushing interest rates to zero and dousing the market with money via waves of QE, but also by buying equity ETFs and J-REITs.

Prime Minister Shinzo Abe has made asset-price inflation his top priority. Under pressure from the BOJ and the government, state-controlled entities – such as the Government Pension Investment Fund with ¥137 trillion in assets – are dumping Japanese Government Bonds into the lap of the BOJ and are buying stocks with the proceeds. Foreign hedge funds have jumped into the fray, which is the hot money that can evaporate overnight. But fear not, every time the Nikkei drops 100 points or so, the BOJ starts buying, or creates the perception that it’s buying, and within minutes, stocks shoot back up. It’s part of the BOJ’s relentlessly communicated policy to inflate asset prices come hell or high water. And hell or high water may now be on the way. [..]

To keep the nation from descending to where Greece is, the BOJ will keep its iron fist on the government bond market. It will keep interest rates near zero. It will keep JGB prices inflated. And it will keep the government funded. It will do so by buying JGBs and handing out yen, no matter what. The rest is secondary – the yen and the stock market, both. So when the yen begins to crash past all jawboning, there might not be much of a floor underneath it. If Japan is lucky, there won’t be a sudden ruble-like 60% crash in the yen, on top of the 35% swoon it already experienced. Or it may come years down the road when another government is in place and when a different crew runs the BOJ. That’s the plan for those folks today. After us the deluge. But if something nevertheless triggers it in an untimely manner, or if it starts coming unglued on its own, it will get ugly. It will be the mother of all currency debasements.

Read more …

If only bloated would count as healthy.

China Central Bank: We Want ‘Healthy’ Stock Market (Reuters)

China’s central bank said on Friday it wants to see a “healthy” stock market, a day after surging Chinese shares slumped 6% in record trading volume as investors fled tighter borrowing rules. In its 2015 financial stability report, the People’s Bank of China (PBOC) warned of a slowing economy and rising debt levels, but repeated its vow to deepen China’s nascent financial market through reforms. The PBOC said in the report released online it was monitoring widely-recognised financial risks in the world’s second-biggest economy, including heavily-indebted local governments and a slowing real estate market. It did not address the dangers of China’s soaring shares, saying only that it wishes to promote a “stable” bourse. Chinese stocks have zoomed up 140% in the last 12 months.

“We will promote stable and healthy development of the stock market, and continue to expand the main board and the small-and medium boards,” the PBOC said, adding that there are plans to set up a new board on the Shanghai stock exchange. Chinese stocks, which ended flat on Friday after a volatile session, skidded earlier this week as more brokers tightened margin trading requirements and as the central bank drained cash from the money market. There are worries that China’s buoyant stock market is being powered by its looser monetary policy, at the expense of small businesses which are grappling with high real interest rates and a shortage in loans.

Even though the PBOC has cut interest rates three times in six months to stoke growth in China’s stuttering economy from a six-year low, real interest rates in China are still over 3%, Morgan Stanley said in a report this month. That is well above real rates in Japan, Europe and the United States, where borrowing costs are negative, the investment bank said. The PBOC acknowledged the problem of high borrowing cost in China, saying it would lower interest rates in a “targeted” fashion, but did not elaborate. “Downward pressure on the economy is increasing,” it said. “Some economic risks are showing up, and the overall debt level is still climbing.”

Read more …

That ticking sound.

What Do Falling Corporate Profits Mean With Stocks Near Their Highs? (Lyons)

If you’ve followed our commentary for awhile, you may have noticed that we don’t cover fundamental or economic data too often. That is for a good reason: we don’t use it, at all. Occasionally, however, a data point will cross the radar that piques our interest for whatever reason. So it is with the current state of U.S. Corporate Profits. The U.S. Bureau of Economic Analysis released the latest data today revealing that Corporate Profits (after Tax with Inventory Valuation Adjustment and Capital Consumption Adjustment) were down 9% for the 1st quarter and are now down 16% from their peak in the 3rd quarter of 2013. Perhaps we don’t run in the right circles but we haven’t heard much regarding the significance of this trend on the stock market, which continues to trade near its all-time highs.

Perhaps that’s a good thing considering we’ve found scant profitable uses for fundamental data in our investment approach (which is why we don’t use it). So we decided to take a look at it ourselves to see what effect similar historical precedents, assuming there were any, may have had on the stock market. This is what we looked for: Quarters when Corporate Profits were down at least 12% from their 2-year high, and the S&P 500 made a 2-year high at some point within the same quarter. As it turns out, there have been 21 quarters meeting that criteria since 1960.

Many of the occurrences came in clusters in 1980, 1986-1987 and 1998-2000. There were also single occurrences in 1961, 2007, 2011 and the 1st quarter of last year. Without going into great depth of analysis, one can tell by the inauspicious dates that these circumstances have not worked out well in the past. The stock market may not have rolled over immediately in every occasion (e.g., 1986, 1998, 2014), but it usually ended up paying the piper. Specifically, the average drawdown over the 2 years following these quarters was -18.6%. This compares with an average 2-year drawdown of -7.3% following all quarters since 1960.

We don’t follow economic and fundamental data too often since we’ve never found it very helpful in our investment decision-making process. At times, however, a certain data series will garner our attention. Often times, as is the case with Corporate Profits presently, it grabs our attention because it is receiving very little attention elsewhere. From just a cursory look at the current trend of falling Corporate Profits, however, it would appear to be a potential negative influence on the stock market that is trading near its all-time highs – if not immediately, then eventually.

Read more …

Pop.

Elon Musk’s Growing Empire Is Fueled By Government Subsidies (LA Times)

Los Angeles entrepreneur Elon Musk has built a multibillion-dollar fortune running companies that make electric cars, sell solar panels and launch rockets into space. And he’s built those companies with the help of billions in government subsidies. Tesla Motors, SolarCity and Space Exploration Technologies, known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups. “He definitely goes where there is government money,” said Dan Dolev, an analyst at Jefferies Equity Research. “That’s a great strategy, but the government will cut you off one day.”

The figure compiled by The Times comprises a variety of government incentives, including grants, tax breaks, factory construction, discounted loans and environmental credits that Tesla can sell. It also includes tax credits and rebates to buyers of solar panels and electric cars. A looming question is whether the companies are moving toward self-sufficiency — as Dolev believes — and whether they can slash development costs before the public largesse ends. Tesla and SolarCity continue to report net losses after a decade in business, but the stocks of both companies have soared on their potential; Musk’s stake in the firms alone is worth about $10 billion. (SpaceX, a private company, does not publicly report financial performance.)

Musk and his companies’ investors enjoy most of the financial upside of the government support, while taxpayers shoulder the cost. The payoff for the public would come in the form of major pollution reductions, but only if solar panels and electric cars break through as viable mass-market products. For now, both remain niche products for mostly well-heeled customers. The subsidies have generally been disclosed in public records and company filings. But the full scope of the public assistance hasn’t been tallied because it has been granted over time from different levels of government. New York state is spending $750 million to build a solar panel factory in Buffalo for SolarCity.

The company will lease the plant for $1 a year. It will not pay property taxes for a decade, which would otherwise total an estimated $260 million. The federal government also provides grants or tax credits to cover 30% of the cost of solar installations. SolarCity reported receiving $497.5 million in direct grants from the Treasury Department. That figure, however, doesn’t capture the full value of the government’s support. Since 2006, SolarCity has installed systems for 217,595 customers, according to a corporate filing. If each paid the current average price for a residential system — about $23,000, according to the Union of Concerned Scientists — the cost to the government would total about $1.5 billion, which would include the Treasury grants paid to SolarCity.

Read more …

“..if paying workers more resulted in higher unemployment, we would have no restaurants in Seattle.”

Economic Theory: Science Or Scam? (Hanauer)

Noah Smith, a smart financial writer with a very good blog, wrote an article on the $15 minimum wage at Bloomberg earlier this week. The piece celebrated the fact that, finally, we’ll have some data on how the $15 minimum wage would affect jobs. Smith said he considered it a test because in theory “a higher minimum wage should cause increased unemployment.” The more I thought about it, the less sense this premise made. Noah’s article underscored two big things for me: first, the degree to which people see the evidence they want to see, and also how silly the idea of “economic theory” can be. Smith claims that we don’t know what the result of a $15 minimum wage will be. Will it kill jobs or not? But the truth is, there’s abundant and overwhelming evidence that this theory is wrong, and that higher minimum wages don’t hurt employment.

The evidence is there; you just have to choose to see it. Let’s just look in my own back yard for an example of that evidence. Washington State has had the highest minimum wage in the nation for several years—at $9.47, it’s a full 30% more than the federal minimum of $7.25. Washington’s unemployment rate of 5.5% isn’t the best in the country, but it’s not the worst, either. In fact, it perfectly matches the national rate. But Seattle was until recently the fastest growing big city in the country. And speaking of evidence, the first part of the $15 minimum wage rollout was successfully implemented in April, and unemployment in our county promptly plummeted to 3.3%.

An even more dramatic example of the goofiness of this so-called “economic theory” is the impact of the wages of tipped workers on the restaurant industry. In Washington, these workers earn at least $9.47 plus tips, a whopping 440% more than the federal tipped minimum of $2.13 plus tips. Despite the predictions of “economic theory,” and despite the warnings from the National Restaurant Association that eliminating the tip credit would cause food armageddon, Seattle has one of the most robust restaurant scenes in the USA. Why? Because when restaurants pay restaurant workers enough so that even they can afford to eat in restaurants, it’s really good for the restaurant business. If economic “theory” were correct, if paying workers more resulted in higher unemployment, we would have no restaurants in Seattle.

Read more …

Hornets nest.

New Arrests Coming in FIFA Corruption Probe, Says Investigator (Bloomberg)

The U.S. investigation of corruption in soccer’s governing body is moving to a new phase that will bring criminal charges against more people, the Internal Revenue Service’s chief investigator said in an interview. How the case develops hinges in part on the fate of nine FIFA officials and five sports marketing executives charged in a racketeering and bribery indictment unsealed May 27, said Richard Weber, chief of the IRS Criminal Investigation Division. The prosecution, which has garnered worldwide attention, came two days before FIFA re-elected its embattled president, Sepp Blatter, 79, for another four-year term. “It’s probably hard to say who is on the list for the next phase and the timing of that,” Weber said. “I’m confident in saying that an active case is ongoing, and we anticipate additional arrests, indictments and/or pleas.”

The IRS joined the Federal Bureau of Investigation and U.S. prosecutors in Brooklyn, New York, in building a case alleging sports-marketing executives paid more than $150 million in bribes and kickbacks over 24 years for media and marketing rights to soccer tournaments. Prosecutors charged Jeffrey Webb and Jack Warner, the current and former presidents of soccer’s governing body for North America, Central America and the Caribbean. They secured guilty pleas from Charles Blazer, 70, the group’s former general secretary; Jose Hawilla, a Brazilian sports marketing executive, who agreed to forfeit $151 million; and Warner’s two sons, Daryll and Daryan. “A lot depends on how the case unfolds from this point forward, depending on if other defendants decide to cooperate, whether or not other witnesses come forward based upon the allegations in the indictment,” Weber said.

“There are a lot of factors beyond our control, so it’s hard to put a specific timeframe on it,” he said. “But we do have evidence that we’re already developing and working on. It depends on how other pieces of the puzzle come together.” The IRS entered the case in 2011 when a Los Angeles-based agent, Steven Berryman, began a tax investigation of Blazer, Weber said. Blazer lived in a Trump Tower apartment, flew on private jets, dined at the world’s finest restaurants and hobnobbed with celebrities and world leaders. His blog, “Travels with Chuck Blazer and his Friends,” featured pictures of Blazer with Hillary Clinton, Nelson Mandela and Prince William, among others. Blazer, now fighting cancer, drew the IRS into FIFA, Weber said. In late 2011, the IRS joined the FBI, which was separately probing FIFA.

Read more …

Gulf and Western and Mario Puzo.

Seymour Hersh And The Dangers Of Corporate Muckraking (Mark Ames)

[..] it’s a wonder that Hersh and his collaborator on the Korshak articles, Jeff Gerth (now at ProPublica), didn’t find themselves in the obit pages shortly afterwards, their careers tragically cut short in mysterious car crashes or suicide overdoses. . . . Instead, Hersh smelled blood: the Korshak articles opened his eyes to a company that was, in the 1970s, the symbol of aggressive, shady corporate power: Gulf & Western. Most people have probably forgotten Gulf & Western, once considered the most aggressively acquisitive conglomerate in the US, so aggressive that even Wall Street nicknamed the company “Engulf & Devour” (immortalized as the evil corporation in Mel Brooks’ “Silent Movie”).

G&W’s best known subsidiary was Paramount Pictures, which Gulf & Western bought in the mid-1960s during its massive acquisition spree, underwritten by easy money from banking giants Chase Manhattan and Manufacturers Hanover. Under Gulf & Western, Paramount made some classic films including Chinatown, The Godfather, Airplane!, and Three Days of the Condor. G&W also made the career of future media tycoon Barry Diller, who was named Paramount’s CEO and chairman in 1974 and served there for a decade. Mob attorney Korshak was so integral to Gulf & Western’s Paramount subsidiary, he was known as the film company’s “consigliere,” and rumored to be the model for Robert Duvall’s consigliere character in Paramount’s “The Godfather.”

Two years after acquiring Paramount in 1968, G&W pulled off a mind-boggling transaction with notorious Sicilian mafia financier Michele Sindona, who oversaw the mafia’s global heroin money laundering operations, managed the Vatican’s global portfolio (earning the nickname “God’s banker”), and helped the CIA move money around the globe. Somehow, Gulf & Western managed to exchange reams of worthless commercial paper in a broke subsidiary, Commonwealth United, at a vastly inflated price in exchange for a 10.5% stake in Sindona’s investment empire, Societa General Immobilaire — which was followed by another shady transaction giving half of Paramount Studio’s movie lot to Sindona’s mafia bank.

Read more …

What did the people pay for their education who now cut funding for the next generation?

Stephen Hawking: No Funding For Students With My Kind Of Condition (Guardian)

World-renowned physicist and author Stephen Hawking has spoken of fears that a gifted academic with a condition as serious as his own would not be able to flourish in today’s tough economic times. The 73-year-old, Britain’s highest-profile scientist who found fame with a new audience following the release of award-winning film The Theory Of Everything, expressed the concerns at an event to celebrate his 50th year as a fellow at the University of Cambridge’s Gonville and Caius college. He praised the college for supporting him throughout the progression of motor neurone disease, allowing him to focus on his groundbreaking work. But, speaking before an invited audience at the college, he added: “I wonder whether a young ambitious academic, with my kind of severe condition now, would find the same generosity and support in much of higher education. “Even with the best goodwill, would the money still be there? I fear not.”

Although Hawking did not elaborate on his comments, he has previously raised concerns about cuts to government funding for research budgets. Seven years ago he warned that £80m of grant cuts threatened Britain’s international standing in the scientific community, saying: “These grants are the lifeblood of our research effort; cutting them will hurt young researchers and cause enormous damage both to British science and to our international reputation.” His comments come at a time when universities continue to lobby for sufficient resources. Speaking earlier this month, Wendy Platt, director general of the Russell Group, which represents the leading research universities, said: “The new government must ensure our universities have sufficient funding to carry out cutting-edge research and provide excellent teaching to students.”

Read more …

Because we can ban Russians, but they can’t ban us.

European Union Anger at Russian Travel Blacklist (BBC)

The European Union has responded angrily to Russia’s entry ban against 89 European politicians, officials and military leaders. Those banned are believed to include general secretary of the EU council Uwe Corsepius, and former British deputy prime minister Nick Clegg. Russia shared the list after several requests by diplomats, the EU said. The EU called the ban “totally arbitrary and unjustified” and said no explanation had been provided. Many of those on the list are outspoken critics of the Kremlin, and some have been turned away from Russia in recent months. The EU said that it had asked repeatedly for the list of those banned, but nothing had been provided until now. “The list with 89 names has now been shared by the Russian authorities.

We don’t have any other information on legal basis, criteria and process of this decision,” an EU spokesman said on Saturday. “We consider this measure as totally arbitrary and unjustified, especially in the absence of any further clarification and transparency,” he added. Swedish Foreign Minister Margot Wallstrom said the move did not “contribute to increasing the trust of Russian actions” The list of those barred from Russia has not been officially released, although what appears to be a leaked version (in German) is online. A Russian foreign ministry official would not confirm the names of those barred, but said that the ban was a result of EU sanctions against Russia.

“Why it was precisely these people who entered into the list… is simple – it was done in answer to the sanctions campaign which has been waged in relation to Russia by several states of the European Union,” the official, who was not named, told Russian news agency Tass. The official said Moscow had previously recommended that all diplomats from countries that imposed sanctions on Russia should check with Russian consular offices before travelling to see if they were banned. “Just one thing remains unclear: did our European co-workers want these lists to minimise inconveniences for potential ‘denied persons’ or to stage another political show?” he said.

Read more …

Long article about the frictions Francis allegedly causes.

The Rebel of St. Peter’s Square (Spiegel)

When Pope Francis, otherwise known as Jorge Mario Bergoglio, entered St. Peter’s Basilica at 10 a.m. on Pentecost Sunday for the Holy Mass, he had been in office for 797 days. Seven-hundred-ninety-seven days in which he has divided the Catholic rank-and-file into admirers and critics. At time during which more and more people have begun to wonder if he can live up to what he seems to have promised: renewal, reform and a more contemporary Catholic Church. Francis has had showers for homeless people erected near St. Peter’s Square, but has at the same time also spent millions on international consultants. He brought the Vatican Bank’s finances into order, but created confusion in the Curia. He has negotiated between Cuba and the United States, but also scared the Israelis by calling Palestinian President Mahmoud Abbas an “angel of peace.”

This pope is much more enigmatic than his predecessor – and that is becoming a problem. Right up to this day, many people have been trying to determine Francis’ true intentions. If you ask cardinals and bishops, or the pope’s advisors and colleagues, or veteran Vatican observers about his possible strategy these days – the Pope’s overarching plan – they seem to agree on one point: The man who sits on the Chair of St. Peter is a notorious troublemaker. Like a billiard player who nudges the balls and calmly studies the collisions during training, Francis is getting things rolling in the Vatican. His interest in experimentation may stem from his past as a chemical engineer. He makes decisions like Jesuit leaders – after thorough consultation, but ultimately on his own.

The Francis principle has a workshop character to it, with processes more important than positions. Traditional Catholics see things exactly the other way around from Bergoglio, the Jesuit, and this is creating confusion right up to the highest circles of the Vatican. People want to know where the pope is heading.

Read more …

Saakashvili had been ‘hiding’ in New York before being handed a Ukrainian passport. WIth Georgia on his mind.

‘Wanted Criminal’ Saakashvili Attempts a Napoleon as Governor of Odessa (RT)

Petro Poroshenko’s decision to appoint Georgia’s disgraced former President as Governor of the Odessa region just might be his most bizarre move yet. Mikhail Saakashvili is a wanted criminal suspect in his homeland. When the pro-Euromaidan activist Maxim Eristavi tweeted on Friday that Mikhail Saakashvili was to become Odessa’s new Governor, the Twittersphere didn’t seem to know whether shock or amusement was the most appropriate reaction. However, on closer inspection, the move isn’t such a surprise after all. There are myriad reasons why Saakhasvili would find Odessa’s top job attractive and equally as many why Poroshenko is most likely delighted to send him there.

It’s common knowledge that Ukraine is a tragically divided land, but Odessa is split like no other city in the country. 150 years ago, Odessa was one of Europe’s most vibrant destinations, at a time when it was a multi-ethnic smorgasbord of Russians, Jews, Greeks, Italians and Albanians. In fact, it even had two French governors – Duc De Richelieu and Count Andrault De Langeron. So famed was Odessa that in 1869, the legendary American writer, Mark Twain, predicted that it would become “one of the great cities of the old world.” Russia’s national poet Alexander Pushkin wrote of the Black Sea Pearl: “the air is filled with all Europe, French is spoken and there are European papers and magazines to read.” By 1897, 37%% of the city’s population was Jewish.

Post World War II, the Russian (largely to Moscow and Leningrad) and Jewish (mainly to Israel and the USA) elite moved out and the Soviets moved in Ukrainian villagers to replace them. The glory days have long since passed. Riddled with corruption, in the 21st century, Odessa is an extremely melancholic and economically moribund city better known for mafia activity and sex tourism (Odessa Dreams by the Guardian’s Shaun Walker is a useful read on the latter subject), than high culture. Despite its rich history, and striking Italianate architecture, any right-thinking visitor would find the place rather mournful.

Read more …

There are thousands a day now. When will Europe start shooting them?

Over 4,200 Migrants Rescued In Mediterranean In 1 Day As Crisis Grows (Reuters)

More than 4,200 migrants trying to reach Europe have been rescued from boats in the Mediterranean in last 24 hours, the Italian coastguard said on Saturday. In some of the most intense Mediterranean migrant traffic of the year, a total of 4,243 people have been saved from fishing boats and rubber dinghies in 22 operations involving ships from nations including Italy, Ireland, Germany, Belgium and Britain. On Friday the Italian navy said 17 dead bodies had been found on one of the boats off Libya. Details of the nationalities of the victims and how they died have not yet been released. The bodies and more than 200 survivors will be brought to the port of Augusta in eastern Sicily aboard the Italian navy corvette Fenice later on Saturday, the coastguard said.

Migrants escaping war and poverty in Africa and the Middle East this year have been pouring into Italy, which has been bearing the brunt of Mediterranean rescue operations. Most depart from the coast of Libya, which has descended into anarchy since Western powers backed a 2011 revolt that ousted Muammar Gaddafi. Calm seas are increasingly favoring departures as warm spring weather sets in. Last month around 800 migrants drowned off Libya in the Mediterranean’s most deadly shipwreck in living memory when their 20-metre long fishing boat capsized and sank. That spurred the European Union to agree on a naval mission to target gangs smuggling migrants from Libya, but a broader plan to deal with the influx is in doubt due to a dispute over national quotas for housing asylum seekers.

The EU plan to disperse 40,000 migrants from Italy and Greece to other countries met with resistance this week, with Britain saying it would not participate and some eastern countries calling for a voluntary scheme. Around 35,500 migrants arrived in Italy from the beginning of the year up to the first week of May, the UN refugee agency estimated, a number which has swelled considerably since. About 1,800 are either dead or missing. Most of those rescued on Friday and Saturday are expected to reach ports around southern Italy during the weekend. The British naval vessel HMS Bulwark offloaded more than 740 early on Saturday at the southeastern Italian port of Taranto. More than 200 migrants arrived at the Calabrian port of Crotone in south-west Italy on board the Belgian navy ship Godetia.

Read more …

They will keep coming. Move over and get used to it.

Kos Shows There Is No Escape From The Migrant Crisis (Guardian)

In the face of characteristic warnings (“misguided sentimentalism”) from the Daily Mail of 1938, some thousands of refugees were none the less allowed into Britain before the second world war, with 15,000 Jewish children arriving on the Kindertransport trains orchestrated by Sir Nicholas Winton. As well as finding foster parents, he had to raise £50 per head to pay for their eventual departure. The former prime minister, Stanley Baldwin, launched another fund to help refugees who needed “a hiding place from the wind, a covert from the tempest”. Margaret Thatcher’s family was among those who took in a refugee. “The honour of our country is challenged,” Baldwin said, in the years before Britons became so agitated, as in Kos, about correct refugee appearance.

But as much as they deserve international ridicule and disgust, the tales of holidaymakers’ “nightmares”, and pictures of studiously averted faces, are no more shame-inducing than Britain’s official approach to the migrant crisis, which they could not more vividly encapsulate. Our new government also averts its eyes from the hordes of displaced, regardless of their various origins and claims, and clearly has no truck with the sort of idealistic bilge once emitted by Winton and Baldwin. Nor with the principles that later made room – in an unenthusiastic Britain – for 28,000 Ugandan Asians and 19,000 Vietnamese boat people.

Rather, when the country’s honour is challenged, Cameron’s response appears to be modelled on the lines of the Sun columnist who described all the Mediterranean migrants – half of whom, says the UNHCR, are fleeing war and persecution – as “cockroaches”. After 46,000 Mediterranean migrants arrived in the first four months of this year, and more than 1,750 died or went missing, one of Cameron’s first acts, as prime minister, was to opt out of an EU proposal to allocate refugees evenly among member states. To date, Britain has formally resettled 187 refugees from Syria, a number that might be just, fractionally less inexcusable if it were accompanied by any inclination to discover and rescue eligible asylum seekers before thousands more are abused, cheated and drowned by smugglers.

Read more …

If this is not scary enough for you…

The Most Polluted City In The World?! (NY Times)

When I became a South Asia correspondent for The New York Times three years ago, my wife and I were both excited and prepared for difficulties – insistent beggars, endemic dengue and summertime temperatures that reach 120 degrees. But we had little inkling just how dangerous this city would be for our boys. We gradually learned that Delhi’s true menace came from its air, water, food and flies. These perils sicken, disable and kill millions in India annually, making for one of the worst public health disasters in the world. Delhi, we discovered, is quietly suffering from a dire pediatric respiratory crisis, with a recent study showing that nearly half of the city’s 4.4 million schoolchildren have irreversible lung damage from the poisonous air.

For most Indians, these are inescapable horrors. But there are thousands of others who have chosen to live here, including some trying to save the world, others hoping to describe it and still others intent on getting their own small piece of it. It is an eclectic community of expatriates and millionaires, including car executives from Detroit, tech geeks from the Bay Area, cancer researchers from Maryland and diplomats from Dublin. Over the last year, often over chai and samosas at local dhabas or whiskey and chicken tikka at glittering embassy parties, we have obsessively discussed whether we are pursuing our careers at our children’s expense.

Foreigners have lived in Delhi for centuries, of course, but the air and the mounting research into its effects have become so frightening that some feel it is unethical for those who have a choice to willingly raise children here. Similar discussions are doubtless underway in Beijing and other Asian megacities, but it is in Delhi – among the most populous, polluted, unsanitary and bacterially unsafe cities on earth – where the new calculus seems most urgent. The city’s air is more than twice as polluted as Beijing’s, according to the World Health Organization. (India, in fact, has 13 of the world’s 25 most polluted cities, while Lanzhou is the only Chinese city among the worst 50; Beijing ranks 79th.)

Read more …

May 302015
 
 May 30, 2015  Posted by at 10:48 am Finance Tagged with: , , , , , , , , , , ,  


Arnold Genthe San Francisco, “Grant Avenue at Sacramento Street.” 1930

Big Banks Run Everything: Austerity, The IMF (Salon)
Investors Helpless Against Wall Street’s Secret Brainwashing Machine (Farrell)
US Economy Shrank 0.7% in First Quarter as Trade Gap Jumped (Bloomberg)
Margin Debt Breaks Out: Hits New Record 50% Higher Than Last Bubble Peak (ZH)
No Recovery Has Seen This Many Dips Since The 1950s (MarketWatch)
The Desperate Plight of a Declining Superpower (Michael T. Klare)
The Curious Optimism Of The Godfather Of Inequality (Independent)
If You Ain’t Cheating, You Ain’t Trying – How Forex Has Changed (EconIntersect)
Greece Open To Compromise To Seal Deal This Week: Interior Minister (Reuters)
Greece Might Sidestep June 5 IMF Payment Deadline (Reuters)
Varoufakis’s Great Game (Hans-Werner SInn)
Chinese Stock Market’s Wile E. Coyote Moment (Pesek)
Stop Calling China a Currency Manipulator (Pesek)
French Far-Right Calls For In/Out EU Referendum (EUObserver)
Italy Rescues 3,300 Migrants In Mediterranean In One Day (BBC)
Germany Passes Japan To Have World’s Lowest Birth Rate (BBC)
More Charges Expected In FIFA Case (NY Times)

Very, very, good by Patrick Smith. Please read the whole thing.

Big Banks Run Everything: Austerity, The IMF (Salon)

Fascinating to watch the IMF as it fronts for the U.S. Treasury and international lenders in the Greek and Ukrainian debt crises. In the former, the fund pins the Syriza government to the wall because it dares to represent its electorate. In the latter, it stands by the Poroshenko government because it has no intention of representing anybody other than banks, corporations and the global strategy set. “Fascinating” is one word for this and it holds. “Greed in action” is three but they do a better job. Coincidentally enough, both the Greek and Ukrainian cases now near their respective denouements. Miss this and you miss a singularly plain display of power, the way it works and what it works for in the early 21st century.

Athens has debt payments of €1.6 billion due in June and must make them if it is to receive a further tranche of European and IMF funding. This is essential if Greece is to recover—not from the 2008 financial crash and its economic fallout, which was long ago absorbed, but from the recovery program the fund and the EU imposed in 2012. That is textbook neoliberalism, naturally, and the results are before us. PM Alexis Tsipras calls it “a humanitarian crisis,” and I have heard no one dare counter him on the point. The Kiev government owes international bondholders $35 billion, and $23 billion of it is also due in June. Slightly different situation here: Ukraine, too, needs to shake loose I.M.F. and European funds to revive an economy even worse than Greece’s, but this is not about ameliorating any kind of social crisis.

It is about inducing one, in effect, so the neoliberalization process can be completed and working people in Ukraine are made properly, structurally desperate. It is highly unlikely you will read about these two crises in the same news report—this would be asking too much of media committed to conveying disembodied data without context so that readers and viewers cannot understand what they are (not) being told. Let us, then, treat Greece and Ukraine together. It is where the fascination comes in.

Read more …

Behavioral economics.

Investors Helpless Against Wall Street’s Secret Brainwashing Machine (Farrell)

Yes, the new behavioral economics is Wall Street’s secret mind-control brainwashing machine. Call it behavioral economics, psychology of investing, the new science of irrationality, it is Wall Street’s most powerful weapon because you can’t see it. They even try to make you think they’re helping you. Bull. Behavioral economists used to be guardians of America’s 95 million Main Street investors, with an aura of integrity, professionals with a fiduciary responsibility. No more. They’re the investors’ enemy, working for Wall Street banks, for Washington politicians, operating in the shadows, like the NSA, developing tools and technologies to secretly control data, manipulate the brains of savers, voters, taxpayers and investors.

Don’t believe me? At first, I couldn’t believe the con game. Back in 2002 when Princeton psychologist Daniel Kahneman won the Nobel Prize in Economic Sciences we were hopeful. He disproved Wall Street’s oldest fraud, the myth of the “rational investor.” We cheered. Kahneman’s research that proved investors were never rational .. are in fact irrational .. always have been irrational .. and we always will be irrational. At first we assumed humans can change – we can still educate ourselves to be more rational. We even assumed Wall Street’s behavioral economists would help us become “less irrational.”

Fat chance. Since then, behavioral economists have been capitalizing on their newfound power to get personally richer: Getting research grants, speaking fees, university professorships and, of course, consulting contracts with Wall Street banks, Corporate America and Washington politicians. What did we get? In recent years many of their books resemble high school level self-help “Psych 101” books with cute titles like “Freakonomics,” “Nudge,” “Sway,” “Animal Spirits,” “Blink,” “Blunder,” “Beyond Greed & Fear,” “Predictable Irrational,” all cleverly packaged for mass-market consumption, all with implied promise that their book will make you less irrational, ready to beat the Wall Street casino.

Read more …

And they all just go and claim Q2 will be grand. But wasn’t this supposed to be a recovery? Yeah, yeah, snow, I know.

US Economy Shrank 0.7% in First Quarter as Trade Gap Jumped (Bloomberg)

The world’s largest economy hit a bigger ditch in the first quarter than initially estimated, held back by harsh winter weather, a strong dollar and delays at ports. GDP in the U.S. shrank at a 0.7% annualized rate, revised from a previously reported 0.2% gain, according to Commerce Department figures issued Friday in Washington. The median forecast of 84 economists surveyed by Bloomberg called for a 0.9% drop. By contrast, the report also showed incomes climbed, fueling the debate on whether GDP is being underestimated. A swelling trade gap subtracted the most from growth in 30 years as the appreciating dollar caused exports to slump while imports rose following the resolution of labor disputes at West Coast ports.

Federal Reserve officials are among those who believe the setback in growth will be temporary, helping explain why they are considering raising interest rates this year. “The numbers show the economy literally collapsed last quarter, but we know there were a lot of special factors,” Jim O’Sullivan at High Frequency Economics said before the report. O’Sullivan was the top forecaster of GDP in the past two years, according to Bloomberg data. “There’s a good chance we’ll see a second-quarter bounce back.” Economists’ forecasts ranged from a decline of 1.2% to an increase of 0.2%. The GDP estimate is the second of three for the quarter, with the third release scheduled for June, when more information becomes available. The economy grew at a 2.2% pace from October through December.

Read more …

And the rise of margin debt in China must be worse and bigger.

Margin Debt Breaks Out: Hits New Record 50% Higher Than Last Bubble Peak (ZH)

For a few months in mid/late 2014 there was some concern among those who still don’t get that in this New Paranormal market the only real buyers are central banks, that while the stock market kept on rising, and rising, NYSE margin debt was flat, and in fact the total amount of purchases on margin at the end of 2014 was nearly the same to those in January. Meanwhile the S&P 500 had soared to recorder highs. A few things here: first, as we explained one year ago, in a world in which levered purchases take place via such shadow banking conduits as repo and primary broker arrangements, margin debt has become an anachronism from a bygone generation in which there wasn’t $2.5 trillion in Fed reserves supporting the market, and is now almost entirely meaningless.

But for those who still cling on to margin debt as indicative of anything, the latest NYSE report should provide some comfort: finally the long-awaited breakout in participation has arrived, and after stagnating for over a year, investors – mostly retail – are once again scrambling to buy stocks on margin, i.e., using debt, and as of April 30, the amount of margin debt just hit a new all time high of $507 billion, $30 billion more than the month before, and nearly 50% higher than the last bubble peak reached in October 2007.

It’s not just margin debt that hit a record high. Investor net worth, which is the inverse, or investor cash and credit balances less total margin debt, just dropped to ($227 ) billion, a new record low, meaning not only is the amount of investors leverage at an all time high, but investor net worth is also at an all time low.

Read more …

Because this is not a revovery.

No Recovery Has Seen This Many Dips Since The 1950s (MarketWatch)

The U.S. economy has fallen into negative territory three times since the current recovery began in mid-2009, a dubious feat that last occurred more than a half a century ago. What’s to blame for the most up-and-down recovery since the mid-1950s? Serious flaws in how GDPis calculated is one prime suspect. The government’s GDP report appears to have underestimated growth in the first quarter for decades, a problem that has become even more acute. At the same time GDP probably has overstated growth in the second and third quarters, so the underlying U.S. growth rate is probably the same. “The evidence of a seasonal quirk in the first-quarter GDP growth figures is pretty overwhelming,” said Paul Ashworth at Capital Economics. The second culprit – and evident ring leader – is the U.S. economy itself.

Bad policy, back luck or whatever you call it, the economy is no longer growing as fast as it used to. So any time there’s a temporary dip in economic activity because of poor weather, spiking oil prices or some other major event, it’s no surprise that GDP might show a contraction. The U.S. has grown at a mediocre 2.2% annual pace since the first full year of recovery in 2010. That’s just two-thirds as fast as the economy has grown since the government began keeping track in early 1930s. The less the economy grows, the easier it is for quarterly GDP to slip into the red from time to time, especially if some sort of “shock” occurs. The first-quarter suffered from several of them: unusually harsh weather, a dockworker’s strike, a soaring dollar that undercut U.S. exports and a drop in business investment tied to plunging oil prices.

Of course, such shocks are nothing new, and the economy in the past has shown more resistance to them. The U.S. did not experience a single negative quarter, for example, during the last three major economic expansions: the early 2000s, the 1990s and the 1980s. You have to go a lot further back to the weak 1973-75 expansion to find another episode of a quarterly contraction in a recovery phase. Another one occurred in the short-lived 1958-1960 recovery. The last U.S. recovery to include three negative quarters like the current one was from 1954 to 1957. Yet there is one big difference compared to today: the economy back then expanded by leaps and bounds. The U.S. grew at a 3.8% rate during the “Eisenhower recovery” following the end of the Korean War. And the fastest quarter of growth nearly reached 12% — more than twice as strong as the best quarter in the latest recovery.

Read more …

Only little children and psychopaths dream of superpower.

The Desperate Plight of a Declining Superpower (Michael T. Klare)

Take a look around the world and it’s hard not to conclude that the United States is a superpower in decline. Whether in Europe, Asia, or the Middle East, aspiring powers are flexing their muscles, ignoring Washington’s dictates, or actively combating them. Russia refuses to curtail its support for armed separatists in Ukraine; China refuses to abandon its base-building endeavors in the South China Sea; Saudi Arabia refuses to endorse the U.S.-brokered nuclear deal with Iran; the Islamic State movement (ISIS) refuses to capitulate in the face of U.S. airpower. What is a declining superpower supposed to do in the face of such defiance?

This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, “We have to put a shingle outside our door saying, ‘Superpower Lives Here,’ no matter what the Soviets do, even if they evacuate from Eastern Europe.”

Strategically, in the Cold War years, Washington’s power brokers assumed that there would always be two superpowers perpetually battling for world dominance. In the wake of the utterly unexpected Soviet collapse, American strategists began to envision a world of just one, of a “sole superpower” (aka Rome on the Potomac). In line with this new outlook, the administration of George H.W. Bush soon adopted a long-range plan intended to preserve that status indefinitely. Known as the Defense Planning Guidance for Fiscal Years 1994-99, it declared: “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union.”

H.W.’s son, then the governor of Texas, articulated a similar vision of a globally encompassing Pax Americana when campaigning for president in 1999. If elected, he told military cadets at the Citadel in Charleston, his top goal would be “to take advantage of a tremendous opportunity – given few nations in history – to extend the current peace into the far realm of the future. A chance to project America’s peaceful influence not just across the world, but across the years.”

Read more …

A simple moral question.

The Curious Optimism Of The Godfather Of Inequality (Independent)

Before Piketty, there was Atkinson. The subject of inequality is now, perhaps indelibly, associated with the young French economist who burst into the public arena last year and became an unlikely bestselling author across the Anglophone world. But Thomas Piketty himself drew heavily on the work of a British economist – a debt the Frenchman readily admits. “Tony Atkinson is the godfather of historical studies of income and wealth,” he enthused last year. It’s no exaggeration. Sir Anthony Atkinson has been researching inequality since the 1960s and published his first major book on the subject in 1978, when Mr Piketty was still at primary school. The Atkinson index of inequality is named after him. Some scholars expect him to be awarded the Nobel economics prize at some stage.

And now the 70-year-old London School of Economics professor has produced another tome on the subject, Inequality: What can be done?. Yet for all the book’s scholarly virtues and for all the esteem in which Sir Anthony is held within the profession, it seems unlikely it will sell as many copies as Mr Piketty’s blockbuster Capital in the 21st Century. Lightning, after all, rarely strikes twice in the same spot. When I meet Sir Anthony to discuss his latest work, I ask whether it rankles to see another, much more junior colleague become the celebrated face of the subject. Sitting in his rather spartan office just off Lincoln Inn’s Fields, he smiles at the suggestion: “Not at all. He [Piketty] is an amazing character. He’s very inventive. I think he’s managed to present the issue in a way that’s attracted a lot of attention.”

Nevertheless, Sir Anthony stresses that, much as he shares Mr Piketty’s concerns about the level of income inequality across much of the developed world, his own book has a different emphasis. “I think what I would have done differently is discuss more what we can do about it [inequality],” he says. He certainly doesn’t duck the challenge of coming up with constructive policy ideas. The final chapter of his book is overflowing with ideas on how to reduce inequality back to where it stood before what he calls the great “inequality turn” of the early 1980s, when Margaret Thatcher’s government entered office.

Read more …

“..the foreign exchange market seems to be designed to create opportunities for bad behaviour.”

If You Ain’t Cheating, You Ain’t Trying – How Forex Has Changed (EconIntersect)

“If you ain’t cheating, you ain’t trying” were the words of one trader working in the foreign exchange market. They belie an attitude that was widespread among traders in this market between 2009 and 2013. Cheating was simply a normal part of a trader’s day job. In fact, not cheating would be to shirk your duties. Widespread cheating in the foreign exchange market has turned out to be very costly indeed. In the past six months, six large banks around the world have paid out US$10 billion in fines over the manipulation of the global foreign exchange market. There have also been fines levied against banks for manipulating other over-the-counter markets such as LIBOR, the ISDAfix and the gold market.

In addition there have been fines for other bad behaviour by banks like money laundering, their role in the sub-prime mortgage crisis, violating sanctions, manipulation of the electricity market, assisting tax evasion, and mis-selling payment protection insurance. This brings the total amount of fines which banks have paid since 2008 to over US$160 billion. To put this in context, this is more than what the UK government spent on education last year. As the cost of misbehaviour mounts, banks are under increasing pressure to clean up their act. Despite widespread public cynicism, much has already changed within the banking sector. Banks have beefed up their risk function and increased oversight of traders.

They have also changed the “tone from the top”. Senior managers of the boom years who promoted a hard-driving, risk-taking culture have largely been replaced by bankers who talk more about ethics, careful risk management and serving the customer. A new legal regime has been put in place to hold senior bank employees personally responsible for wrong-doings on their watch. Banks are required to hold more equity on their balance sheets. There have been new laws which change the way bankers are paid, to emphasise long-term performance rather than short-term risk taking. Riskier trading and investment banking operations are being ring fenced from their more staid retail banks.

All these changes might be making bankers safer, but will they do anything to make the markets which they operate within any less likely to reward bad behaviour? We usually assume a market like foreign exchange emerges from millions of individual decisions. Changing this might sound impossible. But each of these decisions are made within a particular set of constraints. These constraints are the product of deliberate policy design choices. Changing behaviour in a market like foreign exchange involves looking carefully at the design of the market and asking whether this actually does the job it is supposed to do. As it currently stands, the foreign exchange market seems to be designed to create opportunities for bad behaviour..

Read more …

Depends what the other side demands…

Greece Open To Compromise To Seal Deal This Week: Interior Minister (Reuters)

Greece’s government is confident of reaching a deal with its creditors this week and is open to pushing back parts of its anti-austerity program to make that happen, the country’s interior minister said Saturday. Greece and its EU/IMF creditors have been locked in talks for months on a cash-for-reforms deal and pressure is growing for a deal, since Athens risks default without aid from a bailout program that expires on June 30. “We believe that we can and we must have a solution and a deal within the week,” Interior Minister Nikos Voutsis, who is not involved in Greece’s talks with the lenders, told Skai television. “Some parts of our program could be pushed back by six months or maybe by a year, so that there is some balance,” he said.

He did not elaborate on what parts of the ruling Syriza party’s anti-austerity program could be pushed back, but the comments suggested a greater willingness to compromise on pre-election pledges. Prime Minister Alexis Tsipras stormed to power in January on promises to cancel austerity, including restoring the minimum wage level and collective bargaining rights. The government earlier this week said it hoped for a deal by Sunday, though international lenders have been less optimistic, citing Greece’s resistance to labor and pension reforms that are conditions for more aid. Voutsis said Athens and its partners agreed on some issues, such as achieving low primary budget surpluses in the first two years.

But they still disagreed on a sales tax, with Greece pushing so any VAT hikes will not burden lower incomes. “A powerful majority in the political negotiations has showed respect for the fact that there can’t be further austerity strategies for the Greek issue, the Greek problem and the Greek people,” he said. [..] In an interview with Realnews newspaper published on Saturday, Economy Minister George Stathakis said Athens had no alternative plan. “The idea of a Plan B doesn’t exist. Our country needs to stay in the eurozone but on a better organized aid program,” he said. Stathakis was confident a deal will be reached. “Otherwise, mainly Greece but the European Union as well will step into unchartered waters and no-one wants that.”

Read more …

Or it may not. Keep ’em guessing.

Greece Might Sidestep June 5 IMF Payment Deadline (Reuters)

Cash-strapped Greece could avoid paying back the IMF on June 5 and win more time to negotiate a funding deal without defaulting if it lumps together all IMF repayments due in June and pays them at the end of the month, officials said on Tuesday. Greece has to repay the IMF €300 million on June 5, the first of four instalments due in June that total €1.6 billion. Cut off from markets, Athens has said it will not be able to make the June 5 payment without new loans from the euro zone, which insists it can only lend Greece more if the country agrees to reforms that would make its debt sustainable. “There is the possibility of putting together several payments that Greece would need to make to the IMF in the course of June and then just make one payment,” a senior euro zone official close to the talks with Athens said.

A second official close to the talks also acknowledged that possibility. “That’s basically a technical treasury exercise and they could tell the IMF that this is how they want to do it and the IMF would probably have to be OK with that,” the first official said. But the officials noted that Greece could only use such a trick if there was a credible prospect of a funding deal that could be communicated to markets and its citizens. Otherwise, the missed payment could trigger market panic and a bank run in Greece. “So they would get a few extra weeks. But unless there is some perspective how they would deal with this full payment, it would be a risky thing for the Greeks to do. And the consequences would be unpredictable,” said the first official. “People could want to withdraw their savings and who knows what Greece would have to do.”

Read more …

Target2 steps into the spotlight.

Varoufakis’s Great Game (Hans-Werner SInn)

Game theorists know that a Plan A is never enough. One must also develop and put forward a credible Plan B – the implied threat that drives forward negotiations on Plan A. Greece’s finance minister, Yanis Varoufakis, knows this very well. As the Greek government’s anointed “heavy,” he is working Plan B (a potential exit from the eurozone), while PM Alexis Tsipras makes himself available for Plan A (an extension on Greece’s loan agreement, and a renegotiation of the terms of its bailout). In a sense, they are playing the classic game of “good cop/bad cop” – and, so far, to great effect. Plan B comprises two key elements.

First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors. Greece’s citizens must believe that they are escaping grave injustice if they are to continue to trust their government during the difficult period that would follow an exit from the eurozone. Second, the Greek government is driving up the costs of Plan B for the other side, by allowing capital flight by its citizens. If it so chose, the government could contain this trend with a more conciliatory approach, or stop it outright with the introduction of capital controls. But doing so would weaken its negotiating position, and that is not an option. Capital flight does not mean that capital is moving abroad in net terms, but rather that private capital is being turned into public capital.

Basically, Greek citizens take out loans from local banks, funded largely by the Greek central bank, which acquires funds through the European Central Bank’s emergency liquidity assistance (ELA) scheme. They then transfer the money to other countries to purchase foreign assets (or redeem their debts), draining liquidity from their country’s banks. Other eurozone central banks are thus forced to create new money to fulfill the payment orders for the Greek citizens, effectively giving the Greek central bank an overdraft credit, as measured by the so-called TARGET liabilities. In January and February, Greece’s TARGET debts increased by almost €1 billion per day, owing to capital flight by Greek citizens and foreign investors.

At the end of April, those debts amounted to €99 billion. A Greek exit would not damage the accounts that its citizens have set up in other eurozone countries – let alone cause Greeks to lose the assets they have purchased with those accounts. But it would leave those countries’ central banks stuck with Greek citizens’ euro-denominated TARGET claims vis-à-vis Greece’s central bank, which would have assets denominated only in a restored drachma. Given the new currency’s inevitable devaluation, together with the fact that the Greek government does not have to backstop its central bank’s debt, a default depriving the other central banks of their claims would be all but certain.

Read more …

The pinnacle question: “How do you deflate a giant bubble without enraging the masses or losing control of the economy?”

Chinese Stock Market’s Wile E. Coyote Moment (Pesek)

Shanghai’s stock market just experienced a Wile E. Coyote moment. For weeks, investors had been chasing higher and higher returns. On Wednesday, however, they suddenly looked down to find their road had disappeared. The realization came courtesy of China’s central bank, which had decided to drain cash from the financial system, and jittery brokerages, which had just tightened lending restrictions. That one-two punch didn’t just send Chinese stocks down 6.5%, the most in four months. It also raised existential questions about one of modern history’s greatest asset bubbles. And it is a bubble. The 127% gain in the Shanghai Composite Index over the past year defies financial gravity.

It’s been driven not by optimism about China’s economic fundamentals or corporate earnings, but record growth in margin debt. Such lending — fueled by speculation that the People’s Bank of China will soon cut interest rates and reduce lenders’ reserve requirements — exceeded $322 billion as of May 27, five times the level of a year earlier. And that’s just the official tally: China’s shadow banking system is estimated to have created $20 trillion of credit since Lehman Brothers went bankrupt in 2008. What makes China’s bubble unique is the government’s direct role in creating it, feeding it and now managing it. Last August, for example, as the Chinese stock market threatened to sag, state-run media started prodding the Chinese public to pile their life savings into shares.

During a single week in August 2014, Xinhua News Agency put out eight features espousing the wisdom and patriotism of owning equities. Beijing also reduced trading fees and allowed individuals to open as many as 20 accounts. The implicit message was that the Communist Party could and would protect stock investments, if need be. The plan succeeded beyond Beijing’s wildest expectations, leaving it with an epic challenge: How do you deflate a giant bubble without enraging the masses or losing control of the economy?

Read more …

“Convertible or not, the yuan is too big to ignore.”

Stop Calling China a Currency Manipulator (Pesek)

Christine Lagarde’s people say China’s currency is no longer undervalued. Jacob Lew’s argue it still is. There’s a lot at stake in the debate: The yuan can’t gain status as a global currency reserve if China is thought to be manipulating its value. So who should we believe, the head of the IMF or the U.S. Treasury Secretary? It’s worth asking Ben Bernanke. Now that the former Fed chairman is in the private sector, he can say what he really thinks — and, as he pointed out in a recent speech in Seoul, it’s not wise to ignore political factors when managing the rise of the Chinese economy. Bernanke argued that if Washington had heeded IMF requests to allow China to play a larger role in global institutions, Beijing wouldn’t now be creating the $100 billion Asian Infrastructure Investment Bank, which threatens to undermine the existing global financial system.

It’s worth extending Bernanke’s point to the yuan debate. Japan’s yen is down 30% since late 2012 (hitting a 12-year low this week) while the yuan has risen during the same period. So the IMF has good reason to contradict America’s assessment and bolster China’s case for reserve currency status. But there are two further reasons why the IMF must stand firm, no matter what U.S. officials and lawmakers say. First, China might go it alone. As Bernanke points out, the West is playing hardball with Beijing at its own risk. The AIIB is already diminishing the relevance of the World Bank and Asian Development Bank. What’s to keep Beijing, flush with $3.7 trillion of reserves, from now opening its own bailout fund for governments facing balance-of-payments shortfalls? China proposed a similar idea during the region’s 1997 economic crisis.

Although the idea died a quick death at that time amid fears the IMF and U.S. Treasury would lose influence, it might attract more interest now – especially if China promises to demand less austerity from needy countries like Greece. “If the IMF were to sidestep the explicitly stated desire of China’s government,” says Eswar Prasad of Cornell University in Ithaca, New York, “it would create more bad blood in an already contentious relationship regarding currency matters.” He worries it would “crystallize emerging market policymakers’ concerns that the IMF remains an institution run by and for the benefit of advanced economies.” That would encourage nations to rally around Beijing’s alternative lending institutions, and could deal a fatal blow to the post-World War II global financial architecture.

Second, Chinese economic reform is accelerating. Bernanke is right that the yuan has a ways to go before it can become a major reserve player. But a new Swift study shows the yuan is Asia’s most-active currency for payments to China and Hong Kong and number five globally. Convertible or not, the yuan is too big to ignore. In that sense, its inclusion in the IMF’s special drawing rights system – along with the dollar, euro, yen and pound – is a matter of when, not if.

Read more …

France steps out, it’s over.

French Far-Right Calls For In/Out EU Referendum (EUObserver)

France’s far-right National Front party has called for an in/out referendum on the EU at the same time as the UK holds its vote. Florian Philippot, an MEP and the party’s deputy head, wrote on Thursday (28 May) that president Francois Hollande should “follow the British example” and “follow the calendar outlined by our neighbours across The Channel”. “The time has come to ask everybody in Europe Yes or No – if they want sovereignty to decide on their own future”. He added that British PM David Cameron, who is currently on a tour of European capitals to sound out feeling on a renegotiation of EU powers, “with this referendum … has put himself in a powerful position to demand real reforms”.

He also said that if Hollande declines to do it, the National Front will put an in/out EU vote “at the heart” of its 2017 presidential election campaign. Speaking on BFM-TV earlier in the week, Philippot noted that his party wants a “referendum republic”, in which average people can trigger a popular vote on any subject if they file more than 500,000 signatures. He cited Switzerland as a model and listed French membership in Nato, in the Schengen passport-free area, and the EU-US free trade treaty as other potential votes. For its part, French daily Le Figaro, in an Ifop poll published on Friday, said 62% of French people would vote No to the EU constitution again if they were asked the same question as 10 years ago.

Read more …

“It represents an almost 30-fold increase on the same period last year..” How dare Europe still not have a comprehensive answer to this?

Italy Rescues 3,300 Migrants In Mediterranean In One Day (BBC)

Italy helped rescue a total of more than 3,300 migrants trying to cross the Mediterranean on Friday, the country’s coastguard has said. In one operation, 17 bodies were found on three boats. Another 217 people who were on board were rescued.
The coastguard said distress calls were made from 17 different boats on Friday. The International Organization for Migration (IOM) says at least 1,826 people have died trying to cross the Mediterranean so far in 2015. It represents an almost 30-fold increase on the same period last year, the IOM says. The Corriere della Serra newspaper said (in Italian) that most of the rescues on Friday took place close to the Libyan coast.

Irish, German and Belgian ships took part in the rescue, the newspaper said. The UN estimates that at least 40,000 people tried to cross the Mediterranean between the start of the year and late April. The rise has been attributed to chaos in Libya – the staging post for most crossings – as well as milder weather. Many migrants are trying to escape conflict or poverty in countries such as Syria, Eritrea, Nigeria and Somalia. On Thursday, the charity Medecins sans Frontieres reported that a 98-year-old Syrian man had been rescued from a boat, having travelled by sea from Egypt for 13 days. He was taken to Augusta in Sicily.

Read more …

Fear? Fear of what?

Germany Passes Japan To Have World’s Lowest Birth Rate (BBC)

A study says Germany’s birth rate has slumped to the lowest in the world, prompting fears labour market shortages will damage the economy. Germany has dropped below Japan to have not just the lowest birth rate across Europe but also globally, according to the report by Germany-based analysts. Its authors warned of the effects of a shrinking working-age population. They said women’s participation in the workforce would be key to the country’s economic future. In Germany, an average of 8.2 children were born per 1,000 inhabitants over the past five years, according to the study by German auditing firm BDO with the Hamburg Institute of International Economics (HWWI). It said Japan saw 8.4 children born per 1,000 inhabitants over the same time period.

In Europe, Portugal and Italy came in second and third with an average of 9.0 and 9.3 children, respectively. France and the UK both had an average of 12.7 births per 1,000 inhabitants. Meanwhile, the highest birth rates were in Africa, with Niger at the top of the list with 50 births per 1,000 people. Germany’s falling birth rate means the percentage of people of working age in the country – between 20 and 65 – would drop from 61% to 54% by 2030, Henning Voepel, director of the HWWI, said in a statement (in German). Arno Probst, a BDO board member, said employers in Germany faced higher wage costs as a result. “Without strong labour markets, Germany cannot maintain its economic edge in the long run,” he added. Experts disagree over the reasons for Germany’s low birth rate, as well as the ways to tackle the situation.

Read more …

Just the first round.

More Charges Expected In FIFA Case (NY Times)

Chuck Blazer was a powerful figure in international soccer, and he enjoyed the trappings that came with the role: two apartments at Trump Tower in Manhattan, expensive cars, luxury properties in Miami and the Bahamas. But for all of Mr. Blazer’s lavish living, he did not file personal income tax returns. And in August 2011, Steve Berryman, an IRS agent in Los Angeles, opened a criminal investigation. Thousands of miles away in New York, two FBI agents, Jared Randall and John Penza, were working on an investigation of their own, one that had spun off an unrelated Russian organized-crime case in December 2010. The agents on opposite sides of the country were looking at some of the same people.

In December 2011, news reports revealed that the FBI was asking questions about FIFA, global soccer’s governing body, and the California investigators called New York. The two agencies joined forces, setting in motion the sprawling international case that led to the arrests of top soccer officials this week. The investigation, which involved coordination with police agencies and diplomats in 33 countries, was described by law enforcement officials as one of the most complicated international white-collar cases in recent memory. Fourteen people have been indicted in bribery and kickback schemes linked to corruption in the highest echelons of FIFA. And United States authorities say more charges are all but certain.

“I’m fairly confident that we will have another round of indictments,” said Richard Weber, the chief of the I.R.S. unit in charge of criminal investigations. The American government’s aggressive move shocked the soccer world and led to questions about whether the United States had set out on a mission to topple the leadership of FIFA, which has long been troubled by allegations of corruption. But officials at the Justice Department, the F.B.I. and the I.R.S. said the impetus was criminal activity and organized crime that just happened to occur in the soccer world. “I don’t think there was ever a decision or a declaration that we would go after soccer,” Mr. Weber said. “We were going after corruption.” He added, “One thing led to another, led to another and another.”

Still, investigators quickly realized the potential scope of their case. By the time the F.B.I. and the I.R.S. teamed up, an undercover sting operation by the British newspaper The Sunday Times had revealed corruption in FIFA’s highest ranks. Reporters around the globe followed with articles about whether soccer’s top officials could be bought. “We always knew it was going to be a very large case,” Attorney General Loretta E. Lynch said.

Read more …

May 292015
 
 May 29, 2015  Posted by at 10:25 am Finance Tagged with: , , , , , , , , ,  


Walker Evans “Sidewalk scene in Selma, Alabama.” 1935

ECB Fears ‘Abrupt Reversal’ For Global Assets On Fed Tightening (AEP)
US And China Can Avoid Collision Course – If US Gives Up Its Empire (Guardian)
The Economist Who Realized How Crazy We Are (Michael Lewis)
Euro-Sclerosis (Alasdair Macleod)
This Time It Is Different (Martin Armstrong)
Austerity and Balanced Budgets Doomed To Fail (Rochon)
John Nash’s Game Theory Doesn’t Bode Well For Greece (El-Erian)
Stiglitz Tells EU to Admit Mistakes and Ease Up on Greece (Bloomberg)
‘Pots of Money’ to Be Found for Greece to Pay IMF, Roubini Says (Bloomberg)
Greek Commerce Chief Slams Troika Over Bailouts (Kathimerini)
Greece Owes Drugmakers $1.2 Billion – And Counting (Reuters)
As Greece Leads The News, Italy’s Problems Mount On Eve Of Elections (CNBC)
Everyone Is Fleeing Oil’s Biggest Fund (Bloomberg)
British Women Disproportionately Affected By Austerity (Guardian)
Borrowing to Replenish Depleted Pensions (NY Times)
Wall Street Banks Are Being Drawn Into The FIFA Bribery Probe (MarketWatch)
The Tar Sands Sell-Out (Guardian)
African Migrants Risk All In Sahara To Reach Europe (Reuters)
New Zealand, the Land of Disappearing Sheep (Bloomberg)

That’s precisely the risk.

ECB Fears ‘Abrupt Reversal’ For Global Assets On Fed Tightening (AEP)

The global asset boom is an accident waiting to happen as the US prepares to tighten monetary policy and the Greek crisis escalates, the ECB has warned. The ECB’s financial stability report described a “fragile equilibrium” in world markets, with a host of underlying risks and the looming threat of an “abrupt reversal” if anything goes wrong. Europe’s shadow banking nexus has grown by leaps and bounds since the Lehman crisis and has begun to generate a whole new set of dangers, many of them beyond the oversight of regulators. While tougher rules have forced the banks to retrench, shadow banking has picked up the baton. Hedge funds have ballooned by 150pc since early 2008.

Investment funds have grown by 120pc to €9.4 trillion with a pervasive “liquidity mismatch”, investing in sticky assets across the globe while allowing clients to withdraw their money at short notice. This is a recipe for trouble in bouts of stress. “Large-scale outflows cannot be ruled out,” it said. The ECB warned that a rush for crowded exits could set off a wave of forced selling and quickly spin out of control. “Initial asset price adjustments would be amplified, triggering further redemptions and margin calls, thereby fueling such negative liquidity spirals,” it said. Adding to the toxic mix, the shadow banks are taking on large amounts of “implicit leverage” through swaps and derivatives contracts that are hard to track. The issuance of high-risk “leveraged loans” reached €200bn last year, nearing the extremes seen just the before the Lehman crisis.

Half of all issues this year had a debt/EBITDA ratio of five or higher, implying extreme leverage. The number of junk bonds sold reached a record pace of €60bn in the first quarter. “A deterioration in underwriting standards is evident in the increasing proportion of highly indebted issuers, below-average coverage ratios and growth in the covenant-lite segment,” the report said, warning that this nexus of debt is primed for trouble if there is an interest rate shock. While banks are in better shape than five years ago, their rate of return on equity has dropped to 3pc, far lower than their cost of equity. They remain damaged. The immediate trigger for any market rout is the nerve-racking crisis in Greece, with just a week left until the Greek authorities must repay the IMF €300m.

Vitor Constancio, the ECB’s vice-president, said it is impossible to rule out a default since Greek officials themselves have openly threatened to do so, and this in turn could set off bond market contagion across southern Europe. The ECB’s report said the former crisis states still have extremely high levels of public and private debt and have yet to clean up government finances. “Fiscal positions remain precarious in some countries,” it said. “Financial market reactions to the developments in Greece have been muted to date, but in the absence of a quick agreement, the risk of an upward adjustment of the risk premia on vulnerable euro area sovereigns could materialise,” it said.

Read more …

Not going to happen.

US And China Can Avoid Collision Course – If US Gives Up Its Empire (Guardian)

To avoid a violent militaristic clash with China, or another cold war rivalry, the United States should pursue a simple solution: give up its empire. Americans fear that China’s rapid economic growth will slowly translate into a more expansive and assertive foreign policy that will inevitably result in a war with the US. Harvard Professor Graham Allison has found: “in 12 of 16 cases in the past 500 years when a rising power challenged a ruling power, the outcome was war.” Chicago University scholar John Mearsheimer has bluntly argued: “China cannot rise peacefully.” But the apparently looming conflict between the US and China is not because of China’s rise per se, but rather because the US insists on maintaining military and economic dominance among China’s neighbors.

Although Americans like to think of their massive overseas military presence as a benign force that’s inherently stabilizing, Beijing certainly doesn’t see it that way. According to political scientists Andrew Nathan and Andrew Scobell, Beijing sees America as “the most intrusive outside actor in China’s internal affairs, the guarantor of the status quo in Taiwan, the largest naval presence in the East China and South China seas, [and] the formal or informal military ally of many of China’s neighbors.” (All of which is true.) They think that the US “seeks to curtail China’s political influence and harm China’s interests” with a “militaristic, offense-minded, expansionist, and selfish” foreign policy.

China’s regional ambitions are not uniquely pernicious or aggressive, but they do overlap with America’s ambition to be the dominant power in its own region, and in every region of the world. Leaving aside caricatured debates about which nation should get to wave the big “Number 1” foam finger, it’s worth asking whether having 50,000 US troops permanently stationed in Japan actually serves US interests and what benefits we derive from keeping almost 30,000 US troops in South Korea and whether Americans will be any safer if the Obama administration manages to reestablish a US military presence in the Philippines to counter China’s maritime territorial claims in the South China Sea.

Read more …

People are not rational creatures. “To an economist, these findings are somewhere between puzzling and preposterous.”

The Economist Who Realized How Crazy We Are (Michael Lewis)

For a surprisingly long time behavioral economics wasn’t much more than a bunch of weird observations made by Richard Thaler, more or less to himself. What he calls his “first heretical thoughts” occurred in graduate school, while writing his thesis. He’d set out to determine how to value a human life – so that, say, the government might decide how much to spend on some life-saving highway improvement. It sounds like a question without a clear answer but, as Thaler points out, people answer it clearly, if implicitly, every day, when they accept money for a greater chance of dying on the job. “Suppose I could get data on the death rates of various occupations, including dangerous ones like mining, logging and skyscraper window washing, and safer ones like farming, shop keeping and low rise window washing,” recalls Thaler.

“The risky jobs should pay more than the less risky ones: otherwise why would anyone do them?” Using wage data, and an actuarial table of mortality rates in those jobs, he was able to work out what people needed to be paid to risk their life. (The current implied value of an American life is $7 million.) Only he didn’t stop there. He got distracted by a funny idea. This willingness to allow oneself to be distracted from one’s assigned task would later turn out to be a chief characteristic of behavioral economists, along with a bunch of other traits not normally found in economists, though often found in children: a sense of wonder, a tendency to ask embarrassing questions, and a mistrust of grown-ups’ ideas about what’s worth spending time thinking about and what is not.

They’re the sort of people whose day is made when they discover that health club members are most likely to hit the gym the day after they have received their monthly bill, or that race track gamblers are a lot more likely to bet on the longshot the last race of the day than the first. At any rate, in addition to calculating the market’s price for a human life, Thaler got distracted by how much fun he might have if he asked actual human beings how much they needed to be paid to run the risk of dying. He began with his own students, telling them to imagine that by attending his lecture, they had exposed themselves to a rare fatal disease. There was a 1 in 1,000 chance they had caught it. There was a single dose of the antidote: How much would they be willing to pay for it?

Then he asked them the same question, in a different way: How much would they demand to be paid to attend a lecture in which there is a 1 in 1,000 chance of contracting a rare fatal disease, for which there was no antidote? The questions were practically identical, but the answers people gave to them were – and are – wildly different. People would say they would pay two grand for the antidote, for instance, but would need to be paid half a million dollars to expose themselves to the virus. “Economic theory is not alone in saying that the answers should be identical,” writes Thaler. “Logical consistency demands it. … To an economist, these findings are somewhere between puzzling and preposterous.”

Read more …

To what extent are EU and ECB blind to the euro’s inherent weakness?

Euro-Sclerosis (Alasdair Macleod)

if Greece defaults we would at least expect the validity of this relatively new euro to be challenged in the foreign exchange markets. Even if the ECB decided to rescue what it could from a Greek default by rearranging the order of bank creditors in its favour through a bail-in, it would still have to make substantial provisions from its own inadequate capital base. For this reason, rather than risk exposing the ECB as undercapitalised, it seems likely that Greece will be permitted to win its game of chicken against the Eurozone, forcing the other Eurozone states to come up with enough money to pay off maturing debt and cover public sector wages. So will that save the euro?

Perhaps it will, but if so maybe not for long. If the Eurozone’s finance ministers give in to Greece, it will be harder for other profligate nations to impose continuing austerity. Anti-austerity parties, such as Podemas in Spain, are increasingly likely to form tomorrow’s governments, and Spain faces a general election later this year. Prime Minister Renzi and President Hollande in Italy and France respectively are keen to do away with austerity and increase government spending as their route to economic salvation. Unfortunately for both the undercapitalised ECB and its young currency, they are increasingly likely to be caught in the crossfire between the Northern creditors and the profligate borrowers in the South.

Even if Greece is to be saved from default, the ECB will need to strengthen the Greek banks. This is likely to be done in two ways: firstly by forcing them to recapitalise with or without bail-ins, and secondly to restrict money outflows through capital controls and harsh limits on depositor withdrawals if need be. Essentially it is back to the Cyprus solution. Whichever way Greece is played, Eurozone residents will see themselves having a currency that is becoming increasingly questionable. The bail-in debacle that was Cyprus is still etched in depositors’ minds. Cyprus certainly has not been forgotten in Greece, where ordinary people are now resorting to buying mobile capital goods that can be easily sold, such as German automobiles, with the bank balances that cannot be withdrawn in cash and are otherwise at risk from a Cyprus-style bail-in.

Greek depositors have realised that euro balances held in the banks are not reliably money. Folding cash is still money, but that is all, and furthermore the folding stuff is rationed. The next blow for the euro could come from the exchange rate. If the euro continues to lose purchasing power on the foreign exchanges, it is likely to undermine confidence on the ground. And when that happens it will be increasingly difficult for the ECB to retrieve the situation and maintain the euro’s credibility as money. It just doesn’t seem sensible to take such enormous risks with a currency that has existed for only thirteen years.

Read more …

“They may have no intention of defaulting, but very few government have ever paid off their debts in the end.”

This Time It Is Different (Martin Armstrong)

For years, I have warned that we will face our worst nightmare – the collapse of socialism. In the death throes of this abomination that even the Ten Commandments listed as a serious sin, equal to “thou shalt not kill”, government will become the ugly beast that will devour society to retain power. Of course, they will never see themselves that way, but they will justify in their minds that stripping us of our freedom, rights, privileges, and immunities, is necessary to maintain socialism for the good of the people. Karl Marx, who sought to change society by sheer force, set all this in motion. What has taken place is really scary, for indeed they have altered society far more than anyone dares to ponder.

Why is this Sovereign Debt Crisis collapse different from 1931? When the governments of the world defaulted on their debts in 1931, there were no pension funds. Government has exempted itself from all prudent reason for you take the state operated pension funds, like Social Security in the USA, where 100% of the money is in government bonds. They may have no intention of defaulting, but very few government have ever paid off their debts in the end. Then there are states who regulate pension funds requiring more than 80% to be in government bonds. A Sovereign Debt Default this time around will wipe out socialism, yet the bulk of the people are clueless not merely about the risk, but the ramifications.

Younger generations do not save to support their parents for that was government’s job post-Great Depression. Socialism has altered thousands of years of family structure following the ranting of Karl Marx. This has been one giant lab experiment that ended badly in China and Russia and is coming to a local government near you. So this time it is SUBSTANTIALLY DIFFERENT. Government is now on the hook, which is part of the reason why they are moving to eliminate cash to prevent bank runs and to force society to comply with their demands.

This time it is very different. They have wiped out society placing the entire scheme of socialism as a terrible nightmare that will end badly, and they have ruined the social family structure disarming people that for thousands of years was our very means of self-sufficient survival. These clown have set the tone for wiping out the dreams they sold the elderly, all while hunting taxes and causing job creation to implode as the youth has been converted into the lost generation. All this with pretend good intentions. Can you imagine the damage to society if they had actually intended this mess? They have lied to themselves and to the people. We have to crash and burn – that part is inevitable. Only when the economy turns down will we then argue over solutions.

Read more …

“It is a deliberate policy that aims to take away from the poor and give to the rich.”

Austerity and Balanced Budgets Doomed To Fail (Rochon)

In its April budget, the federal government announced it had succeeded in balancing the budget. Such an achievement, however, will prove to be at best a Pyrrhic victory. History shows austerity and balanced budgets never work and only doom our economies to more misery. The Austerians, as American economist Rob Parenteau calls them, are clearly winning the policy war. In Canada, as in many other places around the world, governments are turning once again to austerity policies in order to reign in public spending believed to be out of control. These cuts, however, are usually done in vital social programs, such as health care, education, social housing and unemployment benefits. As is the case with other policies, austerity has both winners and losers.

The victims of austerian economics are often the disenfranchised and the unemployed, whereas those who benefit from austerity invariably tend to be wealthier Canadians, through reduced tax rates and, in Canada specifically, through a panoply of boutique tax policies such as the recent doubling of tax-free savings accounts and income splitting. In this sense, austerity is not a haphazard policy but a well-crafted approach to rewriting the Canadian social contract. It is a deliberate policy that aims to take away from the poor and give to the rich. Those who disagree with the statement have the burden to show how austerity is a success, but they will have great difficulty proving it. Academic research has come down against austerity. In fact, austerity has zero empirical support, and it has been completely discredited and proven to be the result of questionable research.

The most famous case was a landmark 2010 paper written by Carmen Reinhart and Kenneth Rogoff (both from Harvard University, no less), which argued debt-GDP ratios over 90% would result in considerable damage to national economies, notably a marked decline in economic growth. Their paper had a huge impact on policy and accounted in many respects for the great policy U-Turn of 2010 when countries reversed their previous Keynesian spending policies and reverted to austerity. This was a policy fiasco, with the inevitable result that our economies stalled and have remained in this zombie state ever since.

Yet, the paper was completely discredited. Nobel Laureate Paul Krugman went even further and stated unequivocally, “All of the economic research that allegedly supported the austerity push has been discredited. Widely touted statistical results were, it turned out, based on highly dubious assumptions and procedures – plus a few outright mistakes – and evaporated under closer scrutiny. It is rare, in the history of economic thought, for debates to get resolved this decisively.” Bucknell University economist Matias Vernengo has publicly called for the paper to be officially retracted or “unpublished.”

Read more …

Uncooperative games.

John Nash’s Game Theory Doesn’t Bode Well For Greece (El-Erian)

Economics and finance suffered two tragedies in the past week: the death of the Nobel laureate John Nash and his wife in a horrible car accident, and more delays from Greece and its creditors in reaching an agreement on a path out of the costly and protracted crisis. At first sight there seem to be little to link the two tragedies. Yet the game theory insights that John Nash pioneered – including the concept of a “cooperative game” – shed important light on what is happening in Greece, and help explain why the drama is unlikely to have a happy ending anytime soon. In a cooperative game, players coordinate to achieve better outcomes than the ones that would likely prevail in the absence of such coordination. If the game is played uncooperatively, however, the result is unfortunate for all players.

There are at least four ways to transform uncooperative games into cooperative ones. Unfortunately, these approaches would be ineffective in the case of Greece. One involves using two-sided and mutually supportive conditionality as the transformation agent: for example, by rewarding the implementation of economic reforms with the ready availability of external financing. This has been tried in Greece, but the results have fallen short, which has diminished the effectiveness of this tool. Specifically, Greece’s record on making good on its policy-reform promises has been far from perfect; and its creditors have been too hesitant in providing the extent of debt relief and cash the country needs.

A second way involves a decisive external impetus. In the case of Greece and its creditors, this role has been played by fear, particularly the fear that the Greek economy would implode, which would force it out of the euro zone. This has stoked the additional fear that such an outcome would destabilize other euro zone economies, threaten the integrity of the single currency group and disrupt the global economy. And fear is an inconsistent transformation agent because its impact is hard to sustain. As soon as it dissipates, all sides revert to uncooperative behavior. And this is what has happened in this case since at least 2010.

A third alternative involves the entry of new players that are willing and able to put aside uncooperative legacies. In today’s Europe, however, the political reality is that new players tend to be even more skeptical than their predecessors. The electoral victory of Syriza in Greece is a case in point. Finally, mutually beneficial developments could convince both sides to work together more closely. Regrettably, this hasn’t been the case of Greece and its European partners, given the limited progress on the ground. Assessing the Greek drama through the lens of game theory explains why the crisis – and the question of Greece’s continued euro-zone membership – are no closer to being resolved.

Applying Nash’s theory shows that the best we can realistically expect is yet another attempt to postpone painful decisions. But even this inadequate outcome is proving increasingly difficult to deliver, and if it materializes, the resulting delay will lead to an even more difficult situation, unless the players decide to stop their uncooperative game very soon.

Read more …

Finally, some wise words. “When you make a mistake of this depth, the worst thing in the world is not to admit it and not to change it.”

Stiglitz Tells EU to Admit Mistakes and Ease Up on Greece (Bloomberg)

Nobel laureate Joseph Stiglitz said the European Union should admit the mistake it made imposing austerity on Greece and soften its stance or bear the consequences if the country exits the euro area. “For the wellbeing of Europe and for the betterment of the world, I think the European Commission should soften,” Stiglitz said Tuesday in an interview in Split, Croatia. “Greece has done an enormous amount of work.” Stiglitz’s comments echo calls from economists including fellow Nobel laureate Paul Krugman for EU leaders to compromise to avoid a messy Greek exit from the euro that could send shock waves deeper through the currency bloc. “Europe bears a lot of responsibility as there were fundamental flaws in the design of the euro zone,” Stiglitz said.

“They created a system of divergence, not convergence, and when you combine that with austerity, that’s a recipe for the disaster we’ve seen.” The EU “should help Greece,” Stiglitz said, by starting “fundamental reforms” in the euro zone, shifting policy from austerity to promoting growth and allowing governments to temporarily assist struggling companies. As growth begins to be restored, governments should take actions to improve the efficiency of the public sector, he said. “Europe should admit that it made a mistake,” said Stiglitz, who was in the Croatian Adriatic resort town to receive an honorary degree from the University of Split. Croatia, which joined the European Union in 2013, “shouldn’t rush to the euro,” Stiglitz said.

While the country is set to exit a six-year recession this year, it’s under pressure from the EU to narrow its budget deficit and lower public debt now at 85% of output. “It doesn’t make sense to focus on the deficit when you are in recession,” Stiglitz said. Another option would be to devalue its currency, which is tied to the euro in a managed float, Stiglitz said. And while President Kolinda Grabar-Kitarovic said in an April interview that Croatia may join the euro zone by 2020, Stiglitz said the currency’s troubles had undermined the entire project. “If European voters 20 years ago were told what the consequences of the euro would be, would anybody have voted for it?” he asked. “I think the answer would be, knowing what they know now, that nobody would have voted for it.”

Read more …

I agree. Plus, Greece can bundle its June IMF payments. It has just won an entire extra month.

‘Pots of Money’ to Be Found for Greece to Pay IMF, Roubini Says (Bloomberg)

Economist Nouriel Roubini said he expects “pots of money” to be found to allow Greece to meet its payment commitments to the IMF. “Radical decisions like capital controls, like deposit freezes, like IOUs that have a lot of collateral damage, not just financially but also economic, can be prevented,” Roubini, chairman of Roubini Global Economics, said in an interview in Dresden, Germany, where he’s attending a meeting of G-7 finance chiefs.

Greece is scheduled on June 5 to make the first of about €1.6 billion in IMF payments coming due in the next three weeks. Talks between Greek officials and the country’s international creditors over unlocking aid remain stalled. If Greece fails to meet its payments, “everybody realizes that’s the beginning of a Greek accident that has lots of other collateral damage, not just for Greece but potentially contagion also in financial markets,” Roubini said in the Bloomberg Television interview on Thursday.

Read more …

“Korkidis told MPs taking part in the inquiry that IMF official Poul Thomsen had argued that Greeks should earn around €300 per month.”

Greek Commerce Chief Slams Troika Over Bailouts (Kathimerini)

The head of the National Confederation of Commerce (ESEE), Vassilis Korkidis said on Thursday to a parliamentary committee investigating Greece’s bailouts that representatives of the troika had only spoken to the organization once since Athens signed its first bailout in 2010 and that during the discussion visiting officials suggested that Greek wages needed to drop to levels similar to other Balkan countries. Korkidis told MPs taking part in the inquiry that IMF official Poul Thomsen had argued that Greeks should earn around €300 per month. Korkidis was also critical of how previous governments handled the bailouts. “Some people rushed to get us involved in this ordeal, while others were in a rush to get us out,” he said.

Read more …

“..the effect could be dramatic if it left the euro and prices in euro terms fell sharply.”

Greece Owes Drugmakers $1.2 Billion – And Counting (Reuters)

Cash-strapped Greece has racked up mounting debts with international drugmakers and now owes the industry more than €1.1 billion, a leading industry official said on Wednesday. The rising unpaid bill reflects the growing struggle by the nearly bankrupt country to muster cash, and creates a dilemma for companies under moral pressure not to cut off supplies of life-saving medicines. Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations, told Reuters his members had not been paid by Greece since December 2014. They are owed money by both hospitals and state-run health insurer EOPYY.

Drugmakers and EU officials are now discussing options in the event Greece defaults on its debt or leaves the euro zone, disrupting imports of vital goods, including medicines. “We have started a conversation in Brussels with the European Commission,” Bergstrom said. “We want the Commission to know that our companies are in this for the long run and are committed to Greece.” There is a precedent for the pharmaceutical industry to agree exceptional supply measures during a financial crisis. It happened in Argentina in 2002, when some firms agreed to continue to supply drugs for a period without payment. But the situation is complicated in Europe, given EU competition rules. They mean the Commission would need to take the initiative in approving any special scheme.

Drugmakers want any emergency program to include steps to mitigate spillover effects on other markets, including curbs on re-exports of drugs and a block on other governments referencing Greek prices when setting their own drug prices. Although Greece represents less than 1% of world drugs sales, it can have a bigger impact because of such reference pricing – and the effect could be dramatic if it left the euro and prices in euro terms fell sharply. Some drugs imported into Greece are already re-exported to other European countries under EU free-trade rules. The drugs industry has been here before. Greece also ran up large debts for its medicines in 2010-12, although they have since been repaid, with some companies receiving payment in government bonds that were subsequently written down in value.

Read more …

Beppe time.

As Greece Leads The News, Italy’s Problems Mount On Eve Of Elections (CNBC)

While Greece has been hitting the headlines recently, Matteo Renzi has quietly had a tough few months. The Italian prime minister has had to tackle difficulties both abroad and at home – including a slow economic recovery. All this presents a difficult backdrop for Renzi as he faces 22 million voters with elections in 7 regions and over 1,000 municipalities this weekend. On the domestic front, we’ve seen protests over education reform and a court ruling that pension cuts were unconstitutional, a decision that will require €13 billion in repayments. On top of that, there are accusations of political corruption and organised crime links within Renzi’s Democratic Party (PD). When I spoke to Renzi earlier this year, he said he was declaring war on corruption.

That war hasn’t stopped criticism of how contracts were awarded at the Milan Expo, never mind the backlash over mounting costs and delayed completion. On the international scene, Renzi’s much-touted plan to deal with the EU migrant crisis suffered as several governments refused to participate. Awkward. Having said that, let’s not ignore the positives. Early efforts with labor and bank reform show progress and Italy’s economy is showing signs of life, expanding 0.3 percent in the first quarter – the first uptick since the third quarter of 2013 – as a weaker euro and lower oil prices help push the country out of its longest recession on record. The economic figures tie with recent business confidence data and yet unemployment is still ticking higher – hitting 13% in March. As one Italian worker told me in Milan: “If recovery is happening, it isn’t happening fast enough.”

Read more …

Oil poised to take a big step down again. US production at record levels, OPEC to increase exports.

Everyone Is Fleeing Oil’s Biggest Fund (Bloomberg)

The biggest U.S. exchange-traded fund that tracks oil is heading for the largest two-month outflow in six years, raising concern that crude’s 30% rally may stall. Holders of the United States Oil Fund, known as USO, have withdrawn almost $1 billion so far in April and May, according to data compiled by Bloomberg. Crude dropped about $12 a barrel after a $1.4 billion exodus from the fund in the two months ended June 2009. Oil has rebounded from a six-year low in mid-March on speculation that the falling number of drilling rigs will reduce output. U.S. crude stockpiles near the highest level in 85 years and OPEC’s refusal to cut production will continue to weigh on prices, according to Goldman Sachs, Deutsche Bank and Citigroup.

“The oil rebound has run out of gas and now you are seeing nervous investors with itchy trigger fingers bailing out of USO,” Eric Balchunas, a Bloomberg Intelligence analyst, said May 27. “They don’t want to get burned by another drop in oil.” Futures rallied 25% in April, the biggest monthly gain since May 2009, and have fallen 2.4% so far in May. Crude’s recovery has slowed this month. U.S. production climbed to 9.57 million barrels a day last week, the most in Energy Information Administration data going back to 1983.

Inventories were 479.4 million, 86 million above the previous year’s level. OPEC, which supplies about 40% of the world’s oil, meets June 5 in Vienna to discuss output policy. The group will maintain its production target, Mohammad Oun, Libya’s deputy vice prime minister for energy, said Thursday, joining Kuwait in predicting no policy change. “We do not think that the bulls have enough supporting fundamental factors to make a case for a higher oil price,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said Thursday. The supply surplus will push oil down to “$55 and then possibly lower,” he said.

Read more …

Austerity is designed to target the weak.

British Women Disproportionately Affected By Austerity (Guardian)

The UK risks widening gender inequality because of austerity policies that disproportionately affect women, a coalition of charities has warned. Cuts to social security, the public sector and legal aid will only worsen women’s position in British society, the charities say, while proposals for a five-year lock on tax raises will benefit men over women. Those factors in combination mean that women will bear the brunt of measures to pay off the deficit, they argue. The warning comes from A Fair Deal for Women, an umbrella group of 11 women’s rights charities, including Women’s Aid, the Fawcett Society, the Women’s Resource Centre, and Rape Crisis . They point out that last year Britain fell to 26th place on the World Economic Forum’s Gender Gap Index – lower than almost all its European neighbours.

“Without swift action to address women’s inequality in all areas, we could see the UK falling even lower,” said Florence Burton, a spokeswoman for the group. A Fair Deal for Women raised the alarm after Wednesday’s Queen’s speech launched the first stage of the Tories’ austerity agenda. Caroline Lucas, Green MP for Brighton Pavilion, said: “What we are increasingly seeing is that austerity perpetuates gender inequality. We ought to be tackling inequality head-on to build a strong, fair and successful economy; indeed equality and economic policy should go hand in hand. “Nobody who advocates the kinds of public-spending cuts we’ve been served up, with their disproportionately negative impact on women in particular, can justifiably claim to be an advocate of equal rights for men and women or of an economy that works for all.”

Money-saving proposals in the Queen’s speech included reducing the household benefits cap to £23,000 a year, freezing most benefits and tax credits for two years, and removing housing support from 18-to-21-year-olds. The government sweetened the pill with a five-year lock on tax rises including VAT, income tax and national insurance, as well as the extension of right to buy to housing association tenants. But Burton said the government had put forward economic policies that don’t work for women. “Putting a five-year lock on raising taxes is a policy that benefits men over women, whilst further austerity measures – like cutting benefits – are detrimental to women and their children, placing them in high risk of poverty,” she said.

Read more …

Predictable. And stupid.

Borrowing to Replenish Depleted Pensions (NY Times)

Facing a shortfall of more than $50 billion in his state’s pensions, and with no simple solution at hand, Gov. Tom Wolf of Pennsylvania is proposing to issue $3 billion in bonds, despite the role that such bonds have already played in the fiscal woes of other places. And he is not alone. Several states and municipalities are considering similar action as they struggle with ballooning pension costs. Interest in so-called pension obligation bonds is expected to intensify in the wake of a recent Illinois Supreme Court decision that rejected the state’s attempt to overhaul its severely depleted pension system. The court ruled unanimously that Illinois could not legally cut its public workers’ retirement benefits to lower costs, forcing lawmakers to scramble for the billions of dollars it will take to keep the system intact.

While the Illinois ruling is not binding on other states, analysts think it may influence lawmakers elsewhere to look to alternatives to cutting public pensions. The Illinois justices offered a list of all the times since 1917 that state lawmakers had ignored expert warnings and diverted pension money to other projects. They said, in effect, that the lawmakers had to restore the money. Pennsylvania and other states and cities fear similar restrictions. “My reaction was, ‘Yeah, that’s going to play here,’ “ said John D. McGinnis, a lawmaker in Pennsylvania, which has also been diverting money from its pension system, setting the stage for a crisis as more and more public workers retire. The state has no explicit constitutional mandate to protect public pensions, as Illinois does, but that is irrelevant, said Mr. McGinnis, a Republican and former finance professor at Pennsylvania State University.

“The judiciary in Pennsylvania has been solidly of the belief that there are ‘implicit contracts,’ and you can’t deviate from them,” he said. If lawmakers in Harrisburg were to unilaterally cut pensions now, he said, they could be taken to court and be dealt a stinging rebuke, like their counterparts in Illinois. Against that backdrop, pension obligation bonds may appear tempting, even though such deals have contributed to financial crises in Detroit, Puerto Rico, Illinois and other places. The deals are generally pitched to state and local officials as an arbitrage play: The government will issue the bonds; the pension system will invest the proceeds; and the investments will earn more, on average, than the interest rate on the bonds. The projected spread between the two rates makes it look as if the government has refinanced its pension shortfall at a lower interest rate, saving vast sums of money.

Read more …

They fit the model. In fact, they probably are the model.

Wall Street Banks Are Being Drawn Into The FIFA Bribery Probe (MarketWatch)

Major global banks — including Wall Street giants Citigroup and J.P. Morgan — could be drawn into the sweeping probe into alleged racketeering, wire fraud and corruption in the soccer world, as investigators trawl through evidence tied to the FIFA bribery scandal. A raft of banks have been named in the 164-page indictment that the U.S. Department of Justice released Wednesday, alleging that nine soccer officials from the sport’s top governing body, FIFA, and five sports executives were part of a 24-year corruption scheme involving more than $150 million in bribes. Among major financial institutions allegedly used to facilitate payments and wire transfers are J.P. Morgan, Citigroup, Bank of America, HSBC, UBS, and Julius Baer, according to indictment.

“Part of our investigation will look at the conduct of the financial institutions to see whether they were cognizant of the fact they were helping launder these bribe payments,” Kelly T. Currie, acting U.S. attorney for the Eastern District of New York, said. “It’s too early to say whether there’s any problematic behavior, but it will be part of our investigation.” None of the banks has been accused of wrongdoing. According to the FIFA indictment, the U.S. banking sector played a central role in the alleged bribery scheme. As early as the 1990s, but increasingly in the 2000s and 2010s, “the defendants and their co-conspirators relied heavily on the United States financial system,” the charges state. “This reliance was significant and sustained and was one of the central methods and means through which they promoted and concealed their schemes.”

Many of the transactions involved millions of dollars that would pass through U.S. bank accounts before allegedly being redirected to personal accounts. In one example, transactions totaling $10 million were alleged to have been wired from a FIFA account in Switzerland to a Bank of America account in New York to be credited to accounts held by the Caribbean Football Union (CFU) and CONCACAF, the continental confederation under FIFA headquartered in the United States.

Read more …

Devastation on a planetary sclae.

The Tar Sands Sell-Out (Guardian)

Amid the strip mines and steam plants sprawled across the northern Alberta wilderness, Fort McKay is just a tiny dot on the map. It is also one of the single biggest source sites of the carbon pollution that is choking the planet. This tiny First Nations community grew rich on oil, and was wrecked by oil. Local Cece Fitzpatrick grabbed what she saw as a last chance for Fort McKay and decided to run for chief, promising to stand up to the industry which came here 50 years ago. Within a 25-mile radius of Fort McKay, 21 projects with a capacity of up to 3.3m barrels a day have been approved or are in production. Another 20 with a combined capacity of about 1.6m barrels a day are in the planning stage, according to Fort McKay First Nation.

Locals can hear, smell, feel and taste the evidence of extraction, even inside their homes. On bad days, it smells like cat piss, according to Cece Fitzpatrick. The tar sands here are one of the single biggest source sites of the carbon pollution that is choking the planet. Mine out all the thick black petroleum, as the Canadian government proposes, ship it out by proposed pipelines such as the Keystone XL and oil trains, and abandon all hope of avoiding a climate catastrophe. Even with the drop in oil prices, Canadian crude exports hit an all-time high this year, and the government expects a significant increase in tar sands production.

While oil made some people here rich, it is also poisoning the waters of the Athabasca River. Researchers last year confirmed high rates of cervical cancers and a rare bile duct cancer among First Nations communities who fish from the Athabasca and hunt off the land. Which was why Cece decided to run for chief, challenging a leader in power almost continuously since 1986, and who long ago gave up trying to keep the industry out. The worst thing is my grandkids, Cece said. Enough is enough. When do we stop and say: ‘Let’s look at the future of our kids?’ Because really I don’t want people to have kids any more because our future here is so bleak. We don’t want to live here anymore.

Read more …

As many die in the Sahara as do in the Mediterranean.

African Migrants Risk All In Sahara To Reach Europe (Reuters)

Some 2,000 migrant deaths in Mediterranean waters between the Libyan and Italian coasts this year have prompted alarmed European governments to tighten maritime patrols to stem an influx of migrants in boats from Libya, which has been in widespread chaos since rebels toppled Muammar Gaddafi in 2011. Yet the International Organization for Migration (IOM) warns that at least as many migrants may die during the long desert crossing from Niger, the main staging post for West Africans seeking to cross the Mediterranean. Despite Niger’s passage of a tough new law against people trafficking, some 100,000 migrants fleeing desperate poverty at home in hopes of a better life in Europe are expected to cross the West African state’s borders this year. Many will pass through smugglers compounds known as “ghettos”.

“It’s a bit frightening but I have to deal with it because in life you have to be brave,” said migrant Fousseni Ismael, 16, wearing a blue headscarf to protect him from the sun as he waits to board a truck. As night falls, the pickup rolls out of the metal gates of the compound and snakes through the sandy backstreets of Agadez, passing groups of Muslim men knelt in the evening prayer. It drives unhindered past a police checkpoint on the outskirts of town and into the blackness of the vast desert. The risks are high. Mohamed, a driver, said he was attacked last week by Touareg bandits wielding AK-47 assault rifles who opened fire on his pickup when he refused to stop, wounding a migrant in the leg.

For protection, scores of trucks follow a military convoy that heads north each Monday toward the oasis town of Dirkou. The death of 92 migrants from thirst – mostly women and children – when their vehicle broke down en route to Algeria, to Libya’s west, in 2013 prompted Nigerien authorities to briefly crack down on the corridor — but the lucrative trade quietly returned. “The desert has always been a cemetery for immigrants, in silence and complete indifference. Travelers tell us they often find bodies – skeletons ravaged by the sands,” said Agadez Mayor Rhissa Feltou.

Read more …

Cattle country.

New Zealand, the Land of Disappearing Sheep (Bloomberg)

Once upon a time there were 20 sheep to every Kiwi. Now it’s more like seven to every New Zealander. Blame cows, which are now bringing home the bacon. Huge tracts of flatland once used for sheep farming were converted to dairy pastures as the global price for butter and cheese increased, while demand for sheep meat and wool waned, said Susan Kilsby, a dairy analyst at AgriHQ in Wellington. “Returns for dairy have been substantially better than for a traditional sheep and beef farming operation,” she said. There were other factors at play, too. The removal of subsidies for sheep farming in the mid-1980s exposed ranchers to market forces, explained Adrienne Egger, an agriculture analyst at Beef and Lamb New Zealand, an organization representing farmers.

New irrigation projects also made dairy farming possible for the first time in many parts of the country, AgriHQ’s Kilsby said (cows raised to produce milk are real water guzzlers). In the camp horror classic `Black Sheep’ a flock runs amok after some genetic engineering. The tagline read: “There are 40 million sheep in New Zealand and they’re PISSED OFF!” Fact is, there are far fewer sheep than that. What is true is that thanks to some genetic improvements, productivity has improved. For ranchers who stayed the course, it’s paying off.
Lamb prices at the farm-gate rose 85% in real terms and mutton prices more than doubled from 25 year ago. China, once a market for low-value cuts, has rapidly emerged as a major importer of Made in New Zealand — moving up from eighth place to second between 2008 and 2013. “In 2014, China was the largest single country market by volume of lamb,” Eggers said.

Read more …

May 282015
 
 May 28, 2015  Posted by at 11:15 am Finance Tagged with: , , , , , , , , , , , , ,  


Walker Evans Vicksburg, Mississippi. “Vicksburg Negroes and shop fronts” 1936

US Firms Spend More on Buybacks Than Factories (WSJ)
You’ve Met Hillarynomics. Now Meet Left-of-Hillarynomics. (Vox)
40% of American Workers Now Have ‘Contingent’ Jobs (Forbes)
Fossil Industry Faces A Perfect Political And Technological Storm (AEP)
The Tanker Market Is Sending a Big Warning to Oil Bulls (Bloomberg)
China Stocks Plunge 6.5%, Worst Selloff In 4 Months (CNBC)
Yen Drops to 12-Year Low as Yellen Builds Case for Fed Rate Rise (Bloomberg)
US To Urge Greece, Creditors To End Brinkmanship At G7 Meeting (Guardian)
Greek Bank Losses Show Predicament Amid Record Deposit Outflows (Bloomberg)
Athens, Creditors Offer Conflicting Views On Negotiations (Kathimerini)
Romantic Notions Meet Reality (Alexis Papachelas)
Grexit and the Morning After (Krugman)
Australia Property Boom Is On Borrowed Time (Business Spectator)
US Treats FIFA Like the Mafia (Bloomberg)
You’ll Be Sorry When The Robot McJournalists Take Over (Irish Times)
Julian Assange: TPP Isn’t About Trade, But Corporate Control (Democracy Now)
The Cheapest Way To Help the Homeless: Give Them Homes (Mother Jones)
US Droughts Set To Be Worst In 1000 Years (OnEarth)
Fossil Fuel Burning Nearly Wiped Out Life On Earth 250m Years Ago (Monbiot)
A 19th Century Shipwreck Could Give Canada Control of the Arctic (Bloomberg)
The Tiny House Powered Only by Wind and Sun (Atlantic)

Behold: an economy broken to the bone. No investement in manufacturing capacity equals no confidence in the future.

US Firms Spend More on Buybacks Than Factories (WSJ)

U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital. Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development. Activist investors have been pushing for such changes, but it isn’t just their target companies that are shifting gears. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.

As the trend picks up steam, so too has debate about whether activist investors—who take sizable stakes in companies, then agitate for changes they think will boost share prices—have caused companies to tilt too far toward short-term rewards. Laurence Fink, chief executive of BlackRock, the world’s largest money manager, argued as much in a March 31 letter to S&P 500 CEOs. “More and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.”

An analysis conducted for The Wall Street Journal by S&P Capital IQ shows that companies in the S&P 500 index sharply increased their spending on dividends and buybacks to a median 36% of operating cash flow in 2013, from 18% in 2003. Over that same decade, those companies cut spending on plants and equipment to 29% of operating cash flow, from 33% in 2003. At S&P 500 companies targeted by activists, the spending cuts were more dramatic. Targeted companies reduced capital expenditures in the five years after activists bought their shares to 29% of operating cash flow, from 42% the year before, the Capital IQ analysis shows. Those companies boosted spending on dividends and buybacks to 37% of operating cash flow in the first year after being approached, from 22% in the year before.

Read more …

Rent seeking.

You’ve Met Hillarynomics. Now Meet Left-of-Hillarynomics. (Vox)

Conventional thinking holds that wealth should be invested and, through investment, put to productive use, with those investments creating job opportunities and higher wages. Alternatively, if few productive investment opportunities are available, the return on invested wealth should start falling. It ought to be a self-correcting cycle in which wealth cannot outpace incomes for long. But the return from capital remains high, and wages are stagnating. Something’s gone wrong. The problem, Stiglitz and his co-authors write, is that the rise in wealth isn’t coming from productive investments. It’s coming from what economists call rents — a metaphorical extension of the 18th-century practice of small farmers paying rent to landlords for the right to use the total inert asset of land.

Stiglitz and his co-authors extend the idea to include a wider and more modern array of rents. A patent or a copyright, for example, can be a valuable financial commodity to own, even without being productive in the way a factory or tractor is. To see the distinction, imagine you have $300 million and can either invest it in a startup or use it to buy the rights to the Beatles’ songs. In the former case, you’re providing money that a company can then use to hire people, produce goods, and generally create wealth in the world. In the latter, you’re producing nothing; you’re just grabbing something that someone else produced and claiming the proceeds from it. “Rent-seeking,” as economists call it, is generally viewed as economically counterproductive. It’s especially counterproductive when it becomes so lucrative as to provide a more attractive outlet for people’s money than real investments.

The report’s authors argue that’s exactly what’s happening with Wall Street. Its growth has fueled a big rise in credit — credit that tends to go to those who already have wealth, often in the form of rents, exacerbating existing rent-based problems. Financiers have also identified novel ways to rent-seek. “Too big to fail” status, for example, can count as a rent. It increases the value of firms like Goldman Sachs or JPMorgan Chase not by making them more productive, but by providing an implicit government subsidy. Trading mortgage-backed securities for profit, similarly, does little to actually increase wealth but a lot to redirect it. That makes it attractive as a business activity for banks and hedge funds, redirecting their energies from profitable activities that create wealth.

Many of these rents are explicitly created by government policies. “Too big to fail” is an obvious example, but financial deregulation more broadly has made speculation vastly more profitable in recent decades, encouraging rent-seeking on the part of financial firms. Stiglitz and his co-authors also finger tax cuts for the wealthy as a culprit. [..] countries that slashed their top marginal tax rates the most in recent decades also saw the biggest increases in inequality before taxes. That might make sense if the tax cuts boosted growth, but that wasn’t really what happened. [..] the tax cuts gave top earners bigger incentive to extract rents for themselves, to bargain hard to increase their share of the company’s wages. In the 1950s, when the top marginal tax rate in the US was 91%, getting an extra $1 in income through rents only yielded $0.09 after taxes. Today, it means getting $0.60. That’s a sixfold increase — a huge increase in the incentive to find rents for oneself.

Read more …

All the job protection our (grand-)parents fought for are gone.

40% of American Workers Now Have ‘Contingent’ Jobs (Forbes)

Tucked away in the pages of a new report by the U.S. General Accounting Office is a startling statistic: 40.4% of the U.S. workforce is now made up of contingent workers—that is, people who don’t have what we traditionally consider secure jobs. There is currently a lot of debate about how contingent workers should be defined. To arrive at the 40.4 %, which the workforce reached in 2010, the report counts the following types of workers as having the alternative work arrangements considered contingent. (The government did some rounding to arrive at its final number, so the numbers below add up to 40.2%).

Agency temps: (1.3%); On-call workers (people called to work when needed): (3.5%); Contract company workers (3.0%); Independent contractors who provide a product or service and find their own customers (12.9%); Self-employed workers such as shop and restaurant owners, etc. (3.3%); Standard part-time workers (16.2%). In contrast, in 2005, 30.6% of workers were contingent. The biggest growth has been among people with part time jobs. They made up just 11.9% of the labor force in 2005. That means there was a 36% increase in just five years. The report uses data from the Bureau of Labor Statistics. It begs an important question: Are traditional jobs—the foundation of our consumer economy–running their course and going the way of the typewriter and eight-track tape? And if so, what do we do about it?

This report is important because it’s the first time since the Great Recession that the U.S. government has taken stock of how many people are working without the protections that come with traditional, full-time W-2 jobs. It reinforces estimates of the independent workforce that have come from observers ranging from the Freelancers Union to Faith Popcorn and are in a similar ballpark. Many people in this workforce are struggling economically. In a note issued with the report, Senators Patty Murray (D-WA) and Kirsten Gillibrand (D-NY) write, “Because contingent work can be unstable, or may afford fewer protections depending on a worker’s particular employment arrangement, it tends to lead to lower earnings, fewer benefits, and a greater reliance on public assistance than standard work.”

Read more …

Sorry, technodreamers, but we will never power anything like our present economy on renewables. Ambrose has no clue.

Fossil Industry Faces A Perfect Political And Technological Storm (AEP)

The political noose is tightening on the global fossil fuel industry. It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero. The IMF has let off the first thunder-clap. An astonishing report – blandly titled “How Large Are Global Energy Subsidies” – alleges that the fossil nexus enjoys hidden support worth 6.5pc of world GDP. This will amount to $5.7 trillion in 2015, mostly due to environmental costs and damage to health, and mostly stemming from coal. The World Health Organisation – also on cue – has sharply revised up its estimates of early deaths from fine particulates and sulphur dioxide from coal plants.

The killer point is that this architecture of subsidy is a “drag on economic growth” as well as being a transfer from poor to rich. It pushes up tax rates and crowds out more productive investment. The world would be richer – and more dynamic – if the burning of fossils was priced properly. This is a deeply-threatening line of attack for those accustomed to arguing that solar or wind are a prohibitive luxury, while coal, oil, and gas remain the only realistic way to power the world economy. The annual subsidy bill for renewables is just $77bn, trivial by comparison. The British electricity group SSE is already adapting to the new mood. It will close its Ferrybridge coal-powered plant next year, citing the emerging political consensus that coal “has a limited role in the future”.

The IMF bases its analysis on the work Arthur Pigou, the early 20th Century economist who advocated taxes to ensure to stop investors keeping all the profit while dumping bad side-effects on the rest of society. The Fund has set off a storm of protest. Subsidies are not quite the same as costs. Oil veterans retort that they have been paying punitive taxes into the common welfare pool for a long time. But whether or not you agree with the IMF’s forensic accounting the publication of such claims by the world’s premier financial body is itself a striking fact. The IMF is political to its fingertips. It rarely deviates far from the thinking of the US Treasury.

It is becoming clearer last year’s sweeping deal on climate change between the US and China was an historical inflexion point, the beginning of the end for a century of fossil dominance. At a single stroke it defused the ‘North-South’ conflict that has bedevilled climate policy and that caused the collapse of the Copenhagen talks in 2009. Todd Stern, the chief US climate negotiator, said the chemistry is radically different today as sherpas prepare for the COPS 21 summit in Paris this December. “The two 800-pound gorillas are working together,” he said.

Read more …

Glut.

The Tanker Market Is Sending a Big Warning to Oil Bulls (Bloomberg)

Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat. A sudden surge in demand for supertankers drove benchmark charter rates 57% higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate. OPEC is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced.

The world is producing about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs “Supply of oil continues to build,” said Paddy Rodgers of Euronav, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,” he wrote in an e-mail May 19. Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange in London. While rates since retreated to $69,594, they’re still the highest for this time of year since at least 2008.

OPEC’s 12 members have will have 485 million barrels of oil in transit to buyers in the four weeks to June 6, the most since November, Roy Mason, founder of Oil Movements, monitoring the flows, said by e-mail Wednesday. Iraq, the group’s second-largest producer, plans to boost exports to a record 3.75 million barrels a day next month, according to shipping programs. Spare tanker capacity in the Middle East has seldom been tighter. The combined excess of ships competing for the region’s exports stood at 6% last week, the lowest for the time of year in Bloomberg surveys of shipbrokers that started in 2009. While that expanded to 12% this week, the monthly average was still the lowest on record for May.

Read more …

Expect many, and bigger, swings.

China Stocks Plunge 6.5%, Worst Selloff In 4 Months (CNBC)

It was a sea of red in China, with the key Shanghai Composite ending down 6.5% at a near one-week low, marking its biggest one-day loss since January 19 and breaking an eight-session winning streak. The CSI 300 index of the largest listed companies in Shanghai and Shenzhen tumbled 6.7%, while the start-up board ChiNext sank 5.4%. News that more Chinese brokerages are tightening margin lending rules seem to be the main cause of concern among retail investors, experts say. According to IG market strategist Bernard Aw, Guosen Securities increased the margin requirement for 908 counters while Southwest Securities reduced the amount of margin financing that traders can receive using collateral.

Separately, the Shanghai Securities News also reported that regulators have recently urged banks to submit data regarding money flows into the stock market, according to Reuters. Meanwhile, Hong Kong shares tracked their mainland peers to recede more than 2%, hitting a two-week low. Shares of Hong Kong-listed Evergrande Real Estate Group inched up 0.1% after announcing plans to raise around $600 million in a Hong Kong share offering. Sunac China Holdings plunged nearly 6% following news that it is terminating a takeover deal for troubled Chinese developer Kaisa.

Read more …

“Once it’s government policy, you better pay attention.”

Yen Drops to 12-Year Low as Yellen Builds Case for Fed Rate Rise (Bloomberg)

The yen fell to a 12-year low versus the dollar as the Federal Reserve prepares to raise interest rates, sharpening the contrast with the Bank of Japan’s unprecedented monetary stimulus. Japan’s currency led declines among 16 major peers this week as signs of U.S. economy strengthening revived the greenback’s rally. The yen’s 30% drop since 2012 is driving record profits at Japan’s biggest companies, helping the nation’s stocks toward their longest rally since 1988. BOJ Governor Haruhiko Kuroda repeated this week that he’ll adjust monetary policy if needed to meet his inflation target.

“The dollar will appreciate relative to the yen because Japanese government policy is to depreciate the yen,” Daniel Fuss at Loomis Sayles said in an interview in Tokyo Wednesday. “Once it’s government policy, you better pay attention.” The Japanese currency has depreciated by 2.1% versus the greenback since May 21, the day before Fed Chair Janet Yellen said she expects to raise interest rates this year for the first time since 2006. Until last week, the yen had been trading in a range of just two yen around 120 per dollar this quarter. The yen’s weakness came as the BOJ pursued policies including unprecedented debt purchases, seeking to revive an economy that spent more than a decade battling deflation.

Read more …

The fine print: the original Guardian headline is: “US to urge Greece to end brinkmanship with creditors at G7 meeting”, accusing Greece of brinkmanship. But that’s not what Lew said, even in the article.

US To Urge Greece, Creditors To End Brinkmanship At G7 Meeting (Guardian)

The US Treasury secretary has said he will use the G7 finance ministers’ meeting to press Greece and its European creditors to end their brinkmanship and forge a rescue deal. With the Syriza-led coalition scrambling to secure an agreement, which will release the final €7.2bn (£5.1bn) tranche of bailout cash and prevent it defaulting on a looming payment to the International Monetary Fund (IMF), Jack Lew urged both sides in the ongoing Greek debt crisis to “treat every deadline as the last”. Washington has looked on with varying degrees of frustration and alarm throughout the long-running saga, which has seen Greece bailed out twice by a total of €240bn.

On a day when share prices soared on rumours of a breakthrough in the debt talks, before German officials scotched talk of “progress”, Lew warned both sides against complacency. Speaking to students at the London School of Economics before flying to Dresden for the G7 summit, which will take place on Thursday and Friday, he said: “No one should have a false sense of confidence that they know what the result of a crisis in Greece would be.” He stressed that he believed all parties were negotiating in good faith, with neither deliberately aiming at a Greek default. However, Lew said he feared an “accident”, with the high-stakes negotiations ending in crisis. “It is profoundly in the interests of the US and European economies for the accident to be avoided,” Lew said, speaking to students at the London School of Economics. “Brinksmanship is a dangerous thing”.

Read more …

Dangerous. The troika could stop this, but won’t.

Greek Bank Losses Show Predicament Amid Record Deposit Outflows (Bloomberg)

Greek banks, forced into a central bank liquidity lifeline, are poised to report sustained losses as they grapple with record deposit outflows and an economy that plunged into double-dip recession. National Bank of Greece, the country’s biggest lender by assets, and Alpha Bank report first-quarter earnings Thursday. Piraeus Bank on Wednesday said its first-quarter loss was €69 million, as deposits shrank by 15% to €46.5 billion, with a further €1.9 billion of private deposit outflows through mid-May. “We expect the Greek banks to remain loss-making this quarter” on more expensive funding from the ECB and higher provisions for souring loans, Euroxx Securities analyst Maria Kanellopoulou said.

The prolonged uncertainty on Greece’s support program “will inevitably weigh on banks’ asset quality, with a fresh rise in new non-performing loans.” Greek lenders have lost access to capital markets and the ECB’s normal financing operations amid a standoff between the country’s anti-austerity coalition and its creditors over the terms of the current bailout. Lenders rely on more than €80 billion of Emergency Liquidity Assistance extended by the Bank of Greece to stay afloat, a more expensive source of funding, while they are forced to participate in liquidity-draining auctions of government treasury bills rather than let the country default.

Read more …

“Tsipras added that there is “absolutely no risk to salaries and pensions, nor to bank deposits.”

Athens, Creditors Offer Conflicting Views On Negotiations (Kathimerini)

Prime Minister Alexis Tsipras said Wednesday that a deal with creditors was “close” and government officials said an agreement was being drafted but representatives of the country’s creditors made it quite clear that they do not share such optimism. In comments after a meeting at the Finance Ministry, Tsipras said a deal with creditors was “close” and that “very soon we will be able to present more details.” He stressed the need for “calm and determination,” noting that Greece would come under additional pressure in the final stretch of negotiations. He also referred to “conflicting views between institutions” and to “countries with different approaches.” Tsipras added that there is “absolutely no risk to salaries and pensions, nor to bank deposits.”

According to sources, Tsipras was advised to make the statement by aides fearing that jitters were creeping back into the markets and could prompt a new wave of deposit outflows. Tsipras chose to make the statement flanked by Finance Minister Yanis Varoufakis to underline the government’s backing for the latter, who has come under fire over his confusing statements about the content of a potential deal. Earlier in the day, the ECB decided not to raise the ceiling on emergency liquidity to Greece. A Greek government official commented that the Bank of Greece had not requested an increase to emergency liquidity as the current ceiling of €80.2 billion is regarded as adequate “following a stabilization of deposit outflows.”

In an interview with Die Zeit on Wednesday, German Finance Minister Wolfgang Schaeuble said it was down to Greece to decide on whether to introduce capital controls. He defended the decision by Greece’s creditors to link loans to further reforms, despite the country’s tightening liquidity problems. “That is the philosophy of the rescue program. The new government is saying: we want to keep the euro but we don’t want the program any more. That doesn’t fit together,” he said. Earlier, on a stopover in London on his way to a meeting of Group of Seven finance ministers in Dresden, US Treasury Secretary Jack Lew called on Greece’s creditors “show enough flexibility so if the Greeks are prepared to take the kind of steps they need to take, they find a pathway to resolving this without there being an unnecessary crisis.”

Read more …

It’s easy to forget that all Syriza has been able and allowed to do so far is to negotiate with creditors, and that everything else has been forced onto the backburner.

Romantic Notions Meet Reality (Alexis Papachelas)

Before the elections, there was a considerable number of people who totally disagreed with the ideas and program put forward by SYRIZA, but they expected that the leftist party would, at least, provide a breath of fresh air as it climbed to power. They believed that SYRIZA would do away with the highly partisan tactics of its socialist and conservative predecessors and move on to adopt more meritocratic practices. They expected that SYRIZA would install young, independent people in key government posts, making use of the best talents that the country has to offer. They hoped that SYRIZA officials would man the state apparatus after poring over the CVs of thousands of job-seekers in the private sector. And they anticipated a growth-oriented strategy that would enable people to try their luck without running into unnecessary or artificial obstacles, and without having to pay bribes here and there.

It was only natural that a large section of voters would expect all that. Because, regretably, and despite the crisis, the old political system failed to change the way things work in this country. Unfortunately, the expectations of all those voters with romantic notions of what to expect have not been fulfilled. The state mechanism has mostly been manned by friends and political cronies of the ruling party. Key posts have been entrusted to well-connected representatives of the good old system. The way SYRIZA has dealt with the so-called oligarchs seems very selective. It does not seem to have allowed the domestic institutions to carry out their work in a fair and transparent manner. In fact, it smacks of an attempt to install a new oligarchy – only, this time, one that is pro-SYRIZA.

So, no breath of fresh air. The question, of course, is why? The answer is that SYRIZA has strong ties with groups that depend exclusively on the state for their survival. The healthy private sector which does not rely on the generosity of the state for its well-being has no political representation in Alexis Tsipras’s party. The truth is, even the country’s conservative parties have failed in that respect. It’s hard to say how long SYRIZA will manage to stay in power. Any prediction would be risky these days. That said, those who looked forward to some creative big bang, as it were, spawned by SYRIZA’s victory are beginning to feel disappointed. That does not mean to say that the party will not be able to consolidate itself as the dominant political player. It does mean, however, that the dreamers will have to wait. Or move to a more cynical, same-old view of things.

Read more …

A moment of clarity from Ye Olde Paul.

Grexit and the Morning After (Krugman)

We just had another electoral earthquake in the euro area: Podemos-backed candidates have won local elections in Madrid and Barcelona. And I hope that the IFKAT — the institutions formerly known as the troika — are paying attention. The essence of the Greek situation is that the actual parameters of a short-run deal are clear and unavoidable: Greece can’t run a primary budget deficit, because nobody will lend it new money, and it won’t (and basically can’t) run a large primary surplus, because you can’t squeeze even more blood from that stone. So you would think that an agreement for Greece to run a modest primary surplus over the next few years would be easy to reach — that is what will happen, so why not make it official?

But now the IMF is playing bad cop, declaring that it cannot release funds until Syriza toes the line on pensions and labor market reform. The latter is dubious economics — the IMF’s own research doesn’t support enthusiasm about structural reforms, especially in the labor market. The former probably recognizes a real problem — Greece probably can’t deliver what it has promised pensioners — but why should this be an issue over and above the general question of the primary surplus. What I would urge everyone to do is ask what happens if Greece is in fact pushed out of the euro. (Yes, Grexit — ugly word, but we’re stuck with it.) It would surely be ugly in Greece, at least at first.

Right now the core euro countries believe that the rest of the euro area can handle it, which might be true. Bear in mind, however, that the supposed firewall of ECB support has never actually been tested. If markets lose faith and the time for ECB purchases of Spanish or Italian bonds arises, will it really happen? But the bigger question is what happens a year or two after Grexit, where the real risk to the euro is not that Greece will fail but that it will succeed. Suppose that a greatly devalued new drachma brings a flood of British beer-drinkers to the Ionian Sea, and Greece starts to recover. This would greatly encourage challengers to austerity and internal devaluation elsewhere.

Think about it. Just the other day the Very Serious Europeans were hailing Spain as a great success story, a vindication of the whole program. Evidently the Spanish people don’t agree. And if the anti-establishment forces have a recovering Greece to point to, the discrediting of the establishment will accelerate. One conclusion, I guess, is that Germany should try to sabotage Greece post-exit. But I hope that will be considered unacceptable. So think about it, IFKATs: are you really sure you want to start going down this road?

Read more …

Has been for years. The plunge will be historic.

Australia Property Boom Is On Borrowed Time (Business Spectator)

The stage is set for Australian property to finally feel the pain so evident across other sectors of the economy. A series of headwinds – combined with tighter lending standards – ensures that the investor property boom is now on borrowed time. Yesterday, Westpac decided to cut the lucrative interest rate discounts offered to new housing investors – following similar action from its major rivals last week – as regulatory pressure from the Australian Prudential Regulation Authority begins to take effect. The implication of this shift in regulatory policy will be modest at first but could soon snowball into a much weaker period for Australian property. Rarely can a housing downturn be so easily identified.

Nevertheless, right now, prices continue to rise at a rapid pace in Sydney and to a lesser extent Melbourne. By comparison, conditions in the other capitals remain more modest. Real dwelling prices – that is prices adjusted for inflation – have increased by 30% since the beginning of 2013 in Sydney and by 15% in Melbourne. In the other capitals, price growth has better reflected income growth. But the tide is clearly turning and the outlook for the property sector needs to be viewed against the broader economic backdrop. The Reserve Bank, for example, was recently forced to cut their economic outlook for the fourth time in the past five quarters. We are currently stuck in the middle of an ‘income recession’ due to the sharp fall in commodity prices.

In the next few years, higher taxes will hit the market at the very top – since high income earners obviously purchase expensive housing – but also towards the bottom – since investors often favour cheap rental properties. Alternatively, higher taxes could make negative gearing more attractive. Meanwhile, the Federal Government has taken clear and decisive steps to reign in foreign investment in established property, while maintaining the existing arrangements for new construction. We also cannot ignore the possibility that the Western Australia economic bust has significant spill over effects for the broader economy and financial system.

Read more …

But will it stick? Does RICO apply to FIFA?

US Treats FIFA Like the Mafia (Bloomberg)

It wasn’t exactly extraordinary rendition. But when Swiss police arrested seven officials of FIFA, the international football federation, for extradition to the U.S., there were some echoes of the secret terrorism arrests. Soccer is a global game, and it matters more to almost everyone than to Americans. So why is the U.S. acting as the international sheriff and grabbing up non-U.S. citizens to try them domestically for corrupting the sport worldwide? And more to the point, why is this legal? It turns out the legal basis for the FIFA prosecutions isn’t all that simple or straightforward – and therein lies a tale of politics and sports. The prosecutions are being brought under RICO, the Racketeer Influenced and Corrupt Organizations Act of 1970, which was designed to prosecute crime syndicates that had taken over otherwise lawful organizations.

Roughly speaking, the law works by allowing the government to prove that a defendant participated in a criminal organization and also committed at least two criminal acts under other specified laws, including bribery and wire fraud. If the government can prove that, the defendant is guilty of racketeering, and qualifies for stiff sentences, the seizure of assets and potential civil-liability lawsuits. The first and most obvious problem raised by the FIFA arrests is whether the RICO law applies outside the U.S., or “extraterritorially” as lawyers like to say. Generally, as the Supreme Court has recently emphasized, laws passed by Congress don’t apply outside the U.S. unless Congress affirmatively says so. RICO on its face says nothing about applying beyond U.S. borders. So you’d think that RICO can’t reach conduct that occurred abroad, and much of the alleged FIFA criminal conduct appears to have done so.

But in 2014, the U.S. Court of Appeals for the Second Circuit held that RICO could apply extraterritorially – if and only if the separate criminal acts required by the law, known as “predicate acts,” violated statutes that themselves apply outside U.S. borders. The court gave as an example the law that criminalizes killing an American national outside the U.S. That law clearly applies abroad, the court pointed out. And it may function to define one of the predicate offenses under RICO. Thus, RICO can apply abroad. To convict the FIFA defendants, therefore, the Department of Justice will have to prove either that they committed crimes within the U.S. or that they committed predicate crimes covered by RICO that reach beyond U.S. borders.

Read more …

Bet you didn’t know.

You’ll Be Sorry When The Robot McJournalists Take Over (Irish Times)

If you consume much of your daily news diet online, you’re probably already acquainted with the work of “robot journalists”, you just don’t know it yet. We’re not talking here about Wall-E running around with a reporter’s notebook chasing stories on Amal Clooney (well, not yet), but about the algorithms used by organisations such as Forbes, AP and Fortune to produce millions of stories AP relies on a content generation package called Wordsmith to produce some of its quarterly-earnings business stories and will soon be using it for sports coverage too. You’ve never heard of Wordsmith but you’re probably familiar with its work: it produced 300 million stories last year and is aiming for one billion this year. A rival company, Narrative Science, provides content to Forbes, Fortune and others.

“We sort of flip the traditional content creation model on its head,” Robbie Allen, creator of Wordsmith told the New York Times. “Instead of one story with a million page views, we’ll have a million stories with one page view each.” The cheerleaders for this new technology – who includes some journalists (New York magazine declared that “the stories that today’s robots can write are, frankly, the kinds of stories that humans hate writing anyway”) – claim that it will free journalists up to do more meaningful pieces, while algorithms churn out rewrites of press releases, mine longer texts for insights, or produce entirely personalised packages of content tailored for individuals. That’s nonsense. As always, “freeing people up” invariably means “liberating them of their jobs”.

But leaving aside the prospect of fewer people in employment, the notion that algorithms may end up taking over even the quotidian aspects of content production is depressing, and not just for journalists. [..] it’s you, the reader, who will suffer. Algorithms may be good at crunching numbers and putting them in some kind of context, but journalists are good at noticing things no one else has. They’re good at asking annoying questions. They’re nosy and persistent and willing to challenge authority to dig out a story. They’re good at provoking irritation, devastation, laughter or controversy. Wildly efficient robot journalists may offer hope to an industry beset by falling advertising rates and disappearing readers. The world will have fewer human journalists as a result, which may not be altogether a bad thing. But the question is: does it really need a billion more pieces of McJournalism?

Read more …

Go to site to watch video.

Julian Assange: TPP Isn’t About Trade, But Corporate Control (Democracy Now)

As negotiations continue, WikiLeaks has published leaked chapters of the secret Trans-Pacific Partnership — a global trade deal between the United States and 11 other countries. The TPP would cover 40% of the global economy, but details have been concealed from the public. A recently disclosed “Investment Chapter” highlights the intent of U.S.-led negotiators to create a tribunal where corporations can sue governments if their laws interfere with a company’s claimed future profits. WikiLeaks founder Julian Assange warns the plan could chill the adoption of health and environmental regulations.

Julian Assange: ..it’s the largest-ever international economic treaty that has ever been negotiated, very considerably larger than NAFTA. It is mostly not about trade. Only five of the 29 chapters are about traditional trade. The others are about regulating the Internet and what Internet—Internet service providers have to collect information. They have to hand it over to companies under certain circumstances. It’s about regulating labor, what labor conditions can be applied, regulating, whether you can favor local industry, regulating the hospital healthcare system, privatization of hospitals. So, essentially, every aspect of the modern economy, even banking services, are in the TPP.

And so, that is erecting and embedding new, ultramodern neoliberal structure in U.S. law and in the laws of the other countries that are participating, and is putting it in a treaty form. And by putting it in a treaty form, that means—with 14 countries involved, means it’s very, very hard to overturn. So if there’s a desire, democratic desire, in the United States to go down a different path—for example, to introduce more public transport—then you can’t easily change the TPP treaty, because you have to go back and get agreement of the other nations involved. Now, looking at that example, what if the government or a state government decides it wants to build a hospital somewhere, and there’s a private hospital, has been erected nearby?

Well, the TPP gives the constructor of the private hospital the right to sue the government over the expected—the loss in expected future profits. This is expected future profits. This is not an actual loss that has been sustained, where there’s desire to be compensated; this is a claim about the future. And we know from similar instruments where governments can be sued over free trade treaties that that is used to construct a chilling effect on environmental and health regulation law. For example, Togo, Australia, Uruguay are all being sued by tobacco companies, Philip Morris the leading one, to prevent them from introducing health warnings on the cigarette packets.

Read more …

But that’s against our life philosophy?!

The Cheapest Way To Help the Homeless: Give Them Homes (Mother Jones)

Santa Clara County is perhaps best known as the home of Silicon Valley. It also has one of the country’s highest rates of homelessness and its third largest chronically homeless population. An extensive new study of the county’s homelessness crisis, published yesterday, finds that the most cost-effective way to address the problem is to provide people with homes. Those findings echo a similar approach that’s been successfully adopted in Utah, the subject of Mother Jones’ April/May cover story. The study was conducted by county officials who teamed up with Economic Roundtable, a nonprofit public policy research organization, and Destination: Home, an agency that works to house the homeless.

Researchers dug into 25 million records to create a detailed picture of the demographics and needs of the more than 104,000 people who were homeless in the county between 2007 and 2012. They found that much of the public costs of homelessness stemmed from a small segment of this population who were persistently homeless, around 2,800 people. Close to half of all county expenditures were spent on just five% of the homeless population, who came into frequent contact with police, hospitals, and other service agencies, racking up an average of $100,000 in costs per person annually. Those costs quickly add up—overall, Santa Clara communities spend $520 million in homeless services every year.

The study also highlights solutions. The researchers examined Destination: Home’s program, which has housed more than 800 people in the past five years. The study looked at more than 400 of these housing recipients, a fifth of whom were part of the most expensive cohort. Before receiving housing, they each averaged nearly $62,500 in public costs annually. Housing them cost less than $20,000 per person—an annual savings of more than $42,000.

Read more …

Fifty shades of dry.

US Droughts Set To Be Worst In 1000 Years (OnEarth)

The National Oceanic and Atmospheric Administration’s seasonal outlook is out, and this summer is going to be a dry one. The massive drought consuming the West will likely continue and even intensify in most places (sorry Nevada, that forecast covers the entire Silver State.) But it won’t be alone: The upper Midwest and Northeast will be parched, too. As for the lower Midwest, a few states could get some relief, but…I wouldn’t let those green lawns go to your head. Scientific models predict that as the climate warms, we’ll see more droughts, and according to the video below, they’ll also last longer than in the past. So Americans, start swinging your partner round and round, shaking your moneymaker, or electric-sliding (if you must)—because we may need to come up with a national rain dance.

Read more …

History revised: no asteroid.

Fossil Fuel Burning Nearly Wiped Out Life On Earth 250m Years Ago (Monbiot)

In the media, if not scientific literature, global catastrophes have long been associated with asteroid strikes. But as the dating of rocks has improved, the links have vanished. Even the famous meteorite impact at Chicxulub in Mexico, widely blamed for the destruction of the dinosaurs, was out of sync by more than 100,000 years. The story that emerges repeatedly from the fossil record is mass extinction caused by three deadly impacts, occurring simultaneously: global warming, the acidification of the oceans and the loss of oxygen from seawater. All these effects are caused by large amounts of carbon dioxide entering the atmosphere. When seawater absorbs CO2, its acidity increases. As temperatures rise, circulation in the oceans stalls, preventing oxygen from reaching the depths.

The great outgassings of the past were caused by volcanic activity that were orders of magnitude greater than the eruptions we sometimes witness today. The dinosaurs appear to have been wiped out by the formation of the Deccan Traps in India: an outpouring on such a scale that one river of lava flowed for 1,500km. But that event was dwarfed by a far greater one, 190m years earlier, that wiped out 96% of marine life as well as most of the species on land. What was the cause? It now appears that it might have been the burning of fossil fuel. Before I explainthis extraordinary contention, it’s worth taking a moment to consider what mass extinction means.

This catastrophe, at the end of the Permian period about 252m years ago, wiped out not just species within the world’s ecosystems but the ecosystems themselves. Forests and coral reefs vanished from the fossil record for some 10 million years. When, eventually, they were reconstituted, it was with a different collection of species which evolved to fill the ecological vacuum. Much of the world’s surface was reduced to bare rubble. Were such an extinction to take place today, it would be likely to eliminate almost all the living systems that sustain us. When plants are stripped from the land, the soil soon follows.

Read more …

Blackberry founder decides Artic ownership?

A 19th Century Shipwreck Could Give Canada Control of the Arctic (Bloomberg)

Jim Balsillie, the former co-CEO of Research In Motion, the company behind the BlackBerry, believes rituals are scenes we perform so our lives might take the shape we need them to take. It’s a symbolic act, and symbols matter to him. Directly beneath the hole in the ice, visible on the seafloor, is the biggest symbol of all: the HMS Erebus, one of two British navy ships lost during Sir John Franklin’s doomed 1845 quest to find the Northwest Passage through the Arctic. The whereabouts of the Erebus frustrated hundreds of searchers for more than 150 years, costing several their lives. Balsillie helped finance and coordinate the successful hunt for the ship, rediscovered in September 2014.

On a personal level, the search for the Erebus was a way for him to take more control over his life after his unceremonious exit from RIM, which left him angry, drained, and disoriented. But it’s much more than an archeological artifact. It represents an opportunity for Canada to take more control of the Arctic. Exploring the Erebus, Balsillie hopes, will draw the collective attention of Canadians northward to a neglected region with billions in potential resources. And by conducting a complex operation in the waters, Canadian military and civilian officials say they are demonstrating their sovereignty over the Northwest Passage. The Queen Maud Gulf, where the Erebus sits, is part of the southern branch of the Northwest Passage.

The route is a fabled link between the Atlantic and Pacific that for centuries proved a dangerous magnet for seekers of knowledge, fortune, and glory. Since 2007, as a result of climate change, the passage has become navigable by smaller ships for a couple of months during most summers. An open route can cut thousands of miles off of trips between the west coast of the Americas and Europe. The two alternative routes are the Panama Canal and the Northern Sea Route, which runs from the Bering Strait and over the Russian Arctic. In 2013 the MS Nordic Orion, a Norwegian freighter, made the first cargo transit of the Northwest Passage. That trip, which carried coal from Vancouver to Norway, hasn’t been repeated. But it raised an unanswered question in maritime law: Who really controls the waters of the route and the rest of Canada’s Arctic archipelago, which consists of more than 30,000 islands?

Read more …

She’s a beauty.

The Tiny House Powered Only by Wind and Sun (Atlantic)

In theory, I support the tiny-house lifestyle. I would enjoy the opportunity to live on a lonesome plain somewhere, with only the stars and many insects for company. I’m sure I could find a way to de-clutter my life such that the floor of my room/house was not always covered by 100 pairs of yoga pants. I would emerge from the experience a stronger, more reflective person who, if tiny house documentaries are to be believed, is also an expert in knitting and roof repair. The problem would lie in the construction of said house. If I were in charge of hooking up my own water lines, for example, I would be dead of dysentery by now.

Enter the Ecocapsule, a new kind of micro-house powered entirely by solar and wind energy. The capsule, made by a Slovakian company called Nice Architects, comes pre-made and ready to house two adults. Its kitchenette spouts running water, the toilet flushes, and the shower flows hot. It is 14.6 feet long and 7.4 feet wide. Nice Architects will start taking pre-orders in the fall of this year, and it expects to start delivering the first units in the beginning of 2016. They’re unveiling the Ecocapsule publicly for the first time this week at the Pioneers festival in Vienna. The company suggest the Ecocapsule can be used as a portable hotel, a research station, or even a charging hub for electric vehicles.

The designers, for whom English is not a first language, also write in the release that the “capsule can be used as a urban dwelling for singles in the high-rent, high-income areas like NY or Silicone valley. It can be placed on the rooftop or vacant parking lot.” (Hear that, Google employees? Enjoy dealing with your new, pod-dwelling roof squatters!) Okay, so maybe that last one is wishful thinking. But if it works as described, the capsule might just be the perfect tiny house for those who yearn to live on the edge of an ethereal cliff but don’t want to learn how to build a composting toilet.

Read more …

May 272015
 
 May 27, 2015  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , , ,  


Walker Evans Shoeshine stand, Southeastern US 1936

China Blows Its Debt Bubble Bigger (Pesek)
Bernanke: No Risk Of Hard Landing In China (Reuters)
Greece May Delay IMF Payments Till The End Of June (Guardian)
Greece’s Creditors Must ‘Get Their Act Together’, Says Varoufakis (AFP)
Steve Keen: Varoufakis Battles ‘Divorce Lawyer’ Style Austerity Talks (CNBC)
Juncker Questions Varoufakis, Tsipras (Kathimerini)
Greek Default, European Bankruptcy (Jacques Sapir)
A Parallel Currency For Greece: Part I (VoxEU)
Half Of Greeks Cover Their Needs From Their Deposits (Kathimerini)
EU Funds At Risk Due To Project Payment Freeze By Athens (Kathimerini)
Target Of Greek Scorn Shapes Nation’s Fate As IMF’s Storm Chaser (Bloomberg)
Landlords Enjoy £14 Billion Tax Breaks In UK Buy-To-Let Expansion (Guardian)
Corruptionomics in Italy (Alessio Terzi)
Robert Mundell, Evil Genius Of The Euro (Greg Palast, 2012)
In EU, Reform Means Different Things To Member Countries (Guardian)
Big Oil Bosses’ Bonuses Linked To $1 Trillion Spending on Drilling (Guardian)
Why Finance Is Too Much Of A Good Thing (Martin Wolf)
Canada’s Economy Out Of The Woods? Think Again (CNBC)
FIFA Officials Arrested on Corruption Charges; Face Extradition to US (NY Times)
Can Organic Farming Counteract Carbon Emissions? (WSJ)

“Even among China’s many questionable credit vehicles, local-government financing vehicles are a standout.”

China Blows Its Debt Bubble Bigger (Pesek)

There are plenty of reasons one could argue China isn’t on the verge of a debt crisis: The country has $3.7 trillion in currency reserves, a closed financial system and ambitious leaders who claim to be on the case. And doesn’t the biggest rally in Chinese stocks since 2008 count for anything? But like Japan and other highly-indebted countries that have struggled to deleverage, China isn’t showing the requisite tolerance for pain. A case in point was the government’s May 15 decision to order banks to prop up the same local-government financing vehicles, or LGFVs, that it claimed to be reining in. Then the People’s Bank of China decided this week to guide the three-month Shanghai Interbank Offered Rate to its lowest level since 2008.

By manipulating “shibor” in this way, the People’s Bank of China is helping regional leaders accelerate their unsustainable borrowing. Neither of these steps will help China avoid a Japan-like crisis. Rather, they are likely to ensure a belated financial reckoning in the years ahead with the potential to shake the global economy. The encouragement of local government borrowing is especially alarming. Even among China’s many questionable credit vehicles, LGFVs are a standout. They allow provincial governments to use state-owned resources and assets, like land, to borrow from banks. LGFVs have become a potent symbol of the country’s post-2008 overindulgence in debt, with local government obligations now exceeding the entire German economy.

The Chinese government has also been urging banks to increase lending to borrowers with liquidity troubles, relaxing rules for companies to conduct off-balance-sheet borrowing and prodding the PBOC to do whatever it takes to cap local-government bond yields. Meanwhile, by allowing local government to shift their LGFV debt to fresh bonds, the Chinese government has eliminated any remaining semblance of transparency in those markets. Entrepreneurial government officials who want to raise some cash to fund dubious projects now have a license to do so without leaving a paper trail.

Read more …

Meet the expert.

Bernanke: No Risk Of Hard Landing In China (Reuters)

Former Federal Reserve Chairman Ben Bernanke said that China’s economic slowdown should not worry markets as there was no risk of a hard landing, and emphasized that a move to raise U.S. rates should be viewed as a positive sign for the world’s largest economy. Bernanke, who participated in an open interview at a private-sector forum in Seoul on Wednesday, said the expected U.S. rate hike would be “anticlimactic” when it happens and that there would only be minor negative impact on South Korea. “There may be some volatility. Countries like Korea are very well placed because it has very good policy, good institutions. It’s not weak or underdeveloped and doesn’t know how to handle capital flows.”

A Fed rate hike, expected by markets before the end of this year, would be something to cheer about, said Bernanke, who now works at the Brookings Institution, bond giant Pimco and hedge fund Citadel. “I don’t know when (the rate hike will come), but when that begins, that’s good news, not bad news because it means the U.S. economy is strong enough.” Bernanke also said the economic slowdown in China is necessary as it needs to change its growth model to be more sustainable in the long term. “China was growing 10% a year. And it was doing that through heavy capital investment, steel plants and so on. Very export oriented,” he said. “As the country gets more rich and sophisticated that kind of growth is no longer successful.”

Read more …

First move in a while? Promptly denied in Athens.

Greece May Delay IMF Payments Till The End Of June (Guardian)

Greece could secure vital weeks to negotiate a rescue deal with its creditors if Athens is able to delay repayments worth €1.6bn to the IMF, as critical deadlines approach. The proposal to combine four IMF repayments due in June and delay payment until the end of the month would win more time for vital debt talks that resumed on Tuesday. Greece must repay €300m on 5 June, the first of four instalments due next month. The IMF, its biggest creditor after the European Union, often waits a month before receiving funds from debtor countries. A senior eurozone official close to the talks with Athens told Reuters: “There is the possibility of putting together several payments that Greece would need to make to the IMF in the course of June and then just make one payment.”

The news agency said a second official close to the talks also acknowledged that a payment delay was a possibility. The first official said: “That’s basically a technical treasury exercise and they could tell the IMF that this is how they want to do it and the IMF would probably have to be OK with that.” Shut out of international markets, Athens has conceded that it will miss the 5 June payment without new loans from the EU, which is demanding reforms that will make the country’s debt sustainable. Last week, the interior minister, Nikos Voutsis, a longstanding ally of the prime minister, Alexis Tsipras, said the country needed to strike a deal with its European partners within the next couple of weeks or it would default on its IMF repayments. In remarks that heightened the possibility of a default, he said: “This money will not be given and is not there to be given.”

Read more …

“It’s about time the institutions, in particular the IMF, get their act together..”

Greece’s Creditors Must ‘Get Their Act Together’, Says Varoufakis (AFP)

Greece’s creditors must “get their act together” and help produce a new loan deal for the cash-strapped country, Finance Minister Yanis Varoufakis said Tuesday. “It’s about time the institutions, in particular the IMF, get their act together, and come to an agreement with us,” the outspoken Varoufakis told CNN. Greece’s radical left government in recent days has sent conflicting messages on its finances as the state is gradually running out of money. The cash crunch has been caused by the government’s inability to agree with its international creditors on reforms that would unlock some €7.2 billion in promised bailout cash.

Over the weekend, a cabinet minister said Greece had “no money” to make a series of repayments to the IMF from June 5. “The instalments for the IMF in June are (overall) €1.6 billion. This money will not be given. There isn’t any to be given. This is a known fact,” Interior Minister Nikos Voutsis said on Sunday. A day later, a government spokesman insisted the country would keep up with its payments for as long as it could. “To the extent that we are able to pay, we will keep on repaying these obligations,” government spokesman Gabriel Sakellaridis told reporters. Varoufakis on Tuesday denied that Greece is about to run out of money. “Our state, as a result of huge sacrifices by the Greek people, has managed to live within its means,” he said.

“We will make the payment because I have no doubt that we will have an agreement,” he added. Talks in Brussels over the Greek reform list are to resume on Tuesday. According to Athens, the two sides are still apart on tax issues, social insurance, labour rights and the size of Greece’s budget surplus. The government hopes to secure an agreement by early June at the latest.

Read more …

“Mainly his frustration, the fact that the one thing that he can’t discuss with the finance ministers of Europe is economics..”

Steve Keen: Varoufakis Battles ‘Divorce Lawyer’ Style Austerity Talks (CNBC)

Greece’s controversial finance minister, Yanis Varoufakis, has blamed the euro zone’s insistence on greater austerity measures as the real reason why talks with lenders are stalling, and not any lack of willingness on Greece’s part to implement reforms. In a blog post published Monday, Varoufakis said the Greek government’s negotiations with its creditors have been entirely misrepresented as “unwilling” by the world’s media when Athens is actually very keen to put economic reforms in place. “The problem is simple: Greece’s creditors insist on even greater austerity for this year and beyond – an approach that would impede recovery, obstruct growth, worsen the debt-deflationary cycle, and, in the end, erode Greeks’ willingness and ability to see through the reform agenda that the country so desperately needs,” Varoufakis said in a Project Syndicate blog post, published on Monday.

“Our government cannot – and will not – accept a cure that has proven itself over five long years to be worse than the disease,” he added. At the same time, former colleague, fellow economist and close friend of Varoufakis, Steve Keen said the finance minister was frustrated with the progress of Greece’s talks with the euro zone, adding Varoufakis had compared the talks to dealing with “divorce lawyers”. Keen, chief economist of the Institute of Dynamic Economic Analysis (IDEA) who is credited with forecasting the economic crisis from as early as 2005, said the finance ministers of Europe refused to discuss certain euro policies, according to Varoufakis.

Keen, who also heads up the school of economics, history and politics at Kingston University in London, first met Varoufakis when they both worked as lecturers at Sydney University in the late 1980s. When asked what they mainly discuss at the moment, Keen said, “Mainly his frustration, the fact that the one thing that he can’t discuss with the finance ministers of Europe is economics,” he told CNBC. “He goes inside, he is expected to be discussing what the economic impact of the policies of the euro are and how to get a better set of policies, living within the confines of the euro and the entire European Union system, and he said they simply won’t discuss it. He said it is like walking into a bunch of divorce lawyers, it is not anything like what you think finance ministers should be talking about,” Keen said, adding that he thought current austerity reforms being suggested by the euro zone were a “fantasy”.

Read more …

Way beyond his mandate. Still wondering how that became so accepted in Europe.

Juncker Questions Varoufakis, Tsipras (Kathimerini)

As Greece’s negotiations with its creditors enter the most critical phase, the country’s finance minister created fresh confusion on Tuesday with statements regarding possible tax reforms which were almost immediately revoked. Meanwhile, fuelling speculation about how much longer Varoufakis can stay in the crucial post of finance minister, European Commission President Jean-Claude Juncker declared that he was “not helping the process.” “Mr Varoufakis is the finance minister of a country that has to confront huge problems and he doesn’t give the feeling that he knows that,” Juncker told the MNI news agency. Asked by the MNI reporter whether he trusted Prime Minister Alexis Tsipras, Juncker took 14 seconds to answer “yes” but said Tsipras was becoming “increasingly responsible.”

In the interview Juncker also presented his opinions on what concessions should be made from each side in the tough negotiations while saying it was imperative to achieve a deal that includes the International Monetary Fund, which is awaiting a €300 million repayment from Greece next week. Referring to proposed changes to the Greek value-added tax system that are under discussion, Juncker said these reforms must yield €1.8 billion, or 1% of gross domestic product, in order to narrow a fiscal gap. He said pension reform was also crucial, pointing to the large proportion of early retirements in Greece in particular, while suggesting that labor reforms – another sticking point – could be postponed until the fall.

The Brussels Group negotiations resume on Wednesday with a Euro Working Group teleconference expected to take place on Thursday. In Athens, government sources said they expected a deal by the weekend so an emergency Eurogroup can be held next Tuesday. But confusion about the details such a deal would entail was deepened by Varoufakis. The minister told a press conference the government was considering introducing a “small” levy on ATM withdrawals. Two hours after the statement, his ministry said that the idea of taxing bank transactions had been proposed during negotiations but was withdrawn following “objections by the Finance Ministry.”

Read more …

“..one can see a preference emerging for an austerity which sweeps everything away wherever it passes.”

Greek Default, European Bankruptcy (Jacques Sapir)

The negotiations with Greece have been lead against any good sense or, more exactly, against any democratic good sense (which we are forced to agree is not quite the same thing). There have been attempts to discredit, to threaten, even to corrupt the Greek negotiators. These negotiations are actually being held in the greatest of obscurity. We do not have at disposal the minutes of the declarations of the participants, and one leaves it over to the press the produce “leaks“ the content of which is uncontrollable, precisely because of the lack of minutes. Yannis Varoufakis has expressed this quite well on his blog, admitting that he taped the negotiations so that one day we will know what to make out of the behavior of all parties involved.

“And maybe that we should question the European institutions, where decisions of fundamental importance are being taken, in the name of the European citizens, but minutes of which are neither taken down nor published. Secrecy and a credulous press are not good harbingers for European democracy.” Considering that Varoufakis is in reality a defender of the European project, one must understand, and measure the amplitude and the reach of his criticism. In effect, it is European democracy, not so much as a principle (already badly harmed since the 2005 refusal to take into account the referendums in France and in the Netherlands) but as a system of operational rules, with the purpose of ensuring the responsibility of actors for their acts, which is absent today. We know quite well that without responsibility there is democracy no longer.

What Varoufakis is saying, is that the European Union is no longer, in its day to day functioning, a democratic system. But the failure also concerns the aims of the European Union. In the case of Greece, one pretends officially wanting to keep the country in the Eurozone. But, in fact, and for various reasons, one can see a preference emerging for an austerity which sweeps everything away wherever it passes. Greece’s position has received the support of many economists and even the IMF has considered that on a number of points, the Greek government was right. But, nothing doing. It is all happening as if the German government, it must be said with the help of the French government which is behaving – alas – in this instance as the most eager of vassal, as the lowest of lackeys, were seeking to impose at any price upon ALL the countries of the Eurozone the death-bringing austerity which is its policy.

And one can understand that concessions to Greece would immediately entail demands emanating from Spain. In this latter country, Podemos, the party coming out of the movement of the indignés has carried away on this Sunday, May 24, a few beautiful victories which are rendering the position of the Spanish Prime Minister, Rajoy, ever more fragile. But this is true also of Portugal and Italy. Concessions to Greece would signal the beginning of a wholesale putting into question of austerity, something the German government doesn’t want to happen under any pretext. For ideological reasons, but also for some very material ones.

What is profiling itself on the horizon is not a Greek default, or more exactly, not only a Greek default. We are witnessing the bankruptcy of the Europeist ideology, and of the European Union as well. Through the Greek default, we will be witnessing a defaulting of the politics of the European Union, taken hostage by Germany. So that this default will be a European default, as it will signal the end of a certain idea of the European Union and will open a deep and durable crisis within Europe. European institutions will be affected in their legitimacy. This default will be the basis of the coming revolution.

Read more …

A useful overview that includes Cochrane, Parenteau and Varoufakis’ ideas.

A Parallel Currency For Greece: Part I (VoxEU)

Absent a deal with creditors, very soon, short of cash, the Greek government might default on its debt. To prevent this from happening, and to avoid taking new extra doses of useless and painful austerity, Athens could be bound to resort to the introduction of some kind of new domestic currency – in parallel to the euro – for the government to be able to make payments to public employees and pensioners while freeing up the euros needed to pay out its creditors. The ECB has not denied this possibility. Recently, ECB sources have unofficially discussed the issue with the media in some detail (albeit anonymously), and executive board member Yves Mersch has referred to a parallel currency for Greece as one of “the exceptional tools that any government can consider if it has no other options,” noting that all these tools bear high costs.

Is this really so? Is it really the case that a parallel currency would be worse than the current medicine Greece is taking (and is set to be taking for an indefinite future)? A parallel currency per se would neither prevent the risk of Greece’s disorderly default nor automatically help it out of depression. But not all parallel currencies are born equal, and there are various ways to design a parallel currency, each bearing significantly different implications. Below we compare the proposals currently on the table and discuss how a parallel (quasi) currency could be designed to promote Greece’s economic recovery. The issue is relevant for all countries suffering a weak economic activity, with no autonomous monetary policy, and limited fiscal space.

John Cochrane (2015) considers the possibility that the Greek government issues small cuts, zero-coupon bonds as promises to repay the bearer an equivalent amount of euros at some future date (IOUs). These IOUs could take the form of paper securities or electronic book entries in bank accounts, and the government could roll them over every year, just as for any type of debt obligation. The IOUs could be used to pay public salaries, pensions, and social transfers as well as to recapitalise or lend to banks. The IOUs would trade at a discount, but if the government accepted them at face value for tax payments, the discount might not be large. Mostly, the discount would reflect the risk that Greece either reneges on its commitment to accept its own debt for tax payments or suspends the roll over, thereby defaulting on the new debt. As Cochrane notices, introducing the IOUs would amount to creating a separate or dual currency that would allow Greece not to leave the Eurozone.

Read more …

The other half doesn’t have any…

Half Of Greeks Cover Their Needs From Their Deposits (Kathimerini)

Greek salaried workers cannot buy what they want but, rather, have to limit themselves to what they can afford on their reduced disposable income, a survey by the Labor Institute of the General Confederation of Greek Labor (GSEE) and the Association of Working Consumers of Greece (EEKE) showed on Tuesday. Crucially, 47% of consumers surveyed said they have relied on their savings to cover their needs in the past few months, while 16% were forced to borrow to spend, as the reduction of incomes continued in 2015 for more than half of Greece’s wage-earners (53%), the survey conducted in mid-February revealed – though this is markedly better than the 70% rate recorded last September.

In terms of expectations for the current quarter, consumers (who responded just three or four weeks after the change in government) said that things could not get much worse: Three in four (75%) said incomes would remain stable (from 57% in September), 16% expected a decline (from 40% five months earlier) and 9% even expected to see their incomes rise.

Read more …

To be filed under ‘irony’?!

EU Funds At Risk Due To Project Payment Freeze By Athens (Kathimerini)

Greece runs the immediate risk of missing out on €1 billion worth of EU subsidies this year from the previous support framework, which expires on December 31, as a payment freeze by the state has blocked the proper implementation of projects that will have to finish by the end of the year. Although the subsidy absorption rate had improved considerably in recent years, reaching a level of 85%, failure to stick to that rate this year – the last of the extended 2007-2013 program – would hamper Greece’s capacity to utilize the EU funds. At greater risk are not only the highway and environmental projects but also investment plans that are being implemented by the private sector. Economic uncertainty has suspended any resolve for investing, resulting in an extensive inability to absorb the funds Brussels has set aside for Greece.

Read more …

Hit man.

Target Of Greek Scorn Shapes Nation’s Fate As IMF’s Storm Chaser (Bloomberg)

When the IMF’s point man on Greece, Poul Thomsen, rebuffed the nation’s proposal in December to unlock more bailout funding, he wound up making his job even tougher. The Greek government’s failure then to secure an agreement with its creditors helped pave the way for its defeat in January by the anti-austerity Syriza party. Instead of negotiating with Greece’s establishment, Thomsen finds himself facing a novice group whose leaders have likened the lenders’ conditions to “fiscal waterboarding.” Now the 60-year-old Danish economist is holding his ground against Syriza economic plans that fail to meet IMF criteria for putting Greece’s debt on a sustainable path.

And this time, the nation’s membership in the euro and the IMF’s credibility hang in the balance as Greece runs low on cash and European leaders look to the fund’s blessing before disbursing more bailout money. The situation has Thomsen, whose thesis adviser was an architect of the euro, in the role of helping decide the currency’s fate. Thomsen has been closely involved with the Greek bailout since its inception in 2010, and often represents the fund at meetings of euro-area finance ministers, where officials from the European Commission and ECB also typically attend. Those two institutions and the IMF form the so-called troika of Greek creditors.

“That deal in December was a hugely missed opportunity,” said Martin Edwards, an international-relations professor at Seton Hall University in South Orange, New Jersey, who has researched IMF lending programs. “They moved from having a moderately cooperative government to one that wasn’t going to be in their corner. This is a problem of their own devising.”

Read more …

“A fraction of this amount would go a long way towards fixing our housing shortage, and giving millions of priced-out families and young people the chance of a stable home.”

Landlords Enjoy £14 Billion Tax Breaks In UK Buy-To-Let Expansion (Guardian)

Landlords enjoyed a record £14bn in tax breaks in 2013, according to figures revealing the expansion of the UK’s buy-to-let market in the aftermath of the financial crisis. Some £6.3bn was declared against the cost of mortgage interest alone in the 2012-13 financial year, according to information obtained by the Guardian from HMRC through a freedom of information request. The figures also reveal that the number of landlords has increased by more than one-third over the past six years. In the 2012-13 financial year, 2.1 million taxpayers declared income from property, up from 1.5 million in 2007-08.

The anti-homelessness charity Shelter has called for the government to conduct an urgent review of the tax treatment of landlords, who can also deduct the cost of insurance, maintenance and repairs, utility bills, legal fees and other expenses from their income. Owner-occupiers are not entitled to the same privileges. In response to the figures, Campbell Robb, Shelter’s chief executive, said: “In the context of looming welfare cuts and a dramatic shortage of homes, all those struggling to keep up with sky-high housing costs will be shocked to hear that a massive £14bn has been given in tax breaks for landlords in just a year.

“A fraction of this amount would go a long way towards fixing our housing shortage, and giving millions of priced-out families and young people the chance of a stable home. “In the Queen’s speech the new government must start to set out a comprehensive plan that will finally build the homes this country desperately needs, and an urgent review of these huge tax breaks must be part of this.”

Read more …

Masters of corruption.

Corruptionomics in Italy (Alessio Terzi)

In line with its National Reform Programme for the period 2015-16, Matteo Renzi’s government obtained parliament’s approval on a new anti-corruption law on May 21. We document the sheer size of corruption in Italy and argue that tackling it is not only a matter of fairness, but also crucial to boost the country’s potential output after three years of recession and almost two decades of stagnation. Experience from past success cases suggests that only forceful and comprehensive actions will succeed in bringing corruption under control.

The problem of corruption in Italy is real and large. Transparency International’s Corruption Perception Index, the most widely used indicator of corruption, shows how Italy occupies the last place in Europe and 69th in the world, on par with Romania, Bulgaria, and Greece. This picture is confirmed by other organisations. The World Bank’s indicator for Control of Corruption ranks Italy 95th out of 215 countries, again neck and neck with Greece, Romania, and Bulgaria. The WEF ranks Italy 102nd out of 144 countries on indicators related to ethics and corruption.

The economic consequences of corruption can be dissected in two classes: static and dynamic. Statically, corruption leads to the creation of deadweight losses, as it drives prices above their marginal cost of production. This implies a loss for both the public (e.g. in the form of investment projects being more expensive) and the private sector (e.g. in a bureaucratic procedure costing more to execute). The Italian Court of Auditors estimates these direct costs of corruption to be in the order of magnitude of €60bn per year, equivalent to roughly 4% of the country’s GDP.

Read more …

A timely reminder: “..when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.”

Robert Mundell, Evil Genius Of The Euro (Greg Palast, 2012)

The idea that the euro has “failed” is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. That progenitor is former University of Chicago economist Robert Mundell. The architect of “supply-side economics” is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell’s research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency. Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

“They won’t even let me have a toilet. They’ve got rules that tell me I can’t have a toilet in this room! Can you imagine?” As it happens, I can’t. But I don’t have an Italian villa, so I can’t imagine the frustrations of bylaws governing commode placement. But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.) “It’s very hard to fire workers in Europe,” he complained. His answer: the euro. The euro would really do its work when crises hit, Mundell explained. Removing a government’s control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

“It puts monetary policy out of the reach of politicians,” he said. “[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing. [..] The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, “voodoo economics”: the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher. Mundell explained to me that, in fact, the euro is of a piece with Reaganomics: “Monetary discipline forces fiscal discipline on the politicians as well.” And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

Read more …

Which is why the EU has no future.

In EU, Reform Means Different Things To Member Countries (Guardian)

The most over-used word in Brussels is “reform”. There is not a leader in the EU who does not urge reform of the union. The trouble is they all mean different things when they declaim the r-word. A German leader urges reform and means belt-tightening, structural change, balanced budgets in the push for global competitiveness. If you’re a French or Italian leader, reform means less austerity, more public spending, policies geared to growth not contraction, to jobs and not more unemployment. And David Cameron, who couches his referendum campaign in the need to reform the EU, of course, means a new deal for Britain.

Reform means concessions to UK exceptionalism in the EU, with 27 countries recognising and adjusting to Britain’s uniqueness in Europe. In the arguments about the looming renegotiation of Britain’s position in the EU, the emphasis until now has been on form rather than substance, the shape that a deal might take rather than what it might bring. This has focused on the calls for reopening the EU treaties, changing the terms of British EU membership, conferring a new legal order on that status. It is still not clear what might happen because Cameron has been deliberately vague about what he wants, exploring what the others – by the other 27 leaders, Cameron usually means Angela Merkel – might be prepared to give.

Cameron’s argument is that treaty change is necessary because of the impact of the euro crisis, that the eurozone needs a radical shift towards greater political and fiscal integration to shore up the single currency. Of course, Cameron speaks with a forked tongue because his argument is aimed at exploiting that renegotiation to rewrite the terms of British membership. Treaty change in any major way will not happen. It is too difficult. It will take too long. And eurozone leaders are also intensely irritated by the lecturing from Cameron and George Osborne, the chancellor, about how to put their house in order.

Read more …

Ain’t we smart?

Big Oil Bosses’ Bonuses Linked To $1 Trillion Spending on Drilling (Guardian)

Bosses at the world’s big five oil companies have been showered with bonus payouts linked to a $1tn crescendo of spending on fossil fuel exploration and extraction over nine years, according to Guardian analysis of company reports. The unprecedented push to bring untapped reserves into production, and to exploit new and undiscovered fields, involves some of the most complex feats of engineering ever attempted. It also reflects how confident Exxon Mobil, Shell, Chevron, Total and BP are that demand will remain high for decades to come.

The big oil groups are pressing ahead with investments despite the International Energy Agency (IEA) estimating that two-thirds of proven fossil fuel reserves will need to remain in the ground to prevent the earth from warming 2C above pre-industrial levels – a proposed temperature limit beyond which scientists warn of spiralling and irreversible climate change. Multi-billion-dollar capital projects amount to huge, long-term bets by the big five that exorbitant costs associated with unlocking hydrocarbon reserves in some of the most inaccessible locations on the planet can eventually be recouped and converted into profits. Bonuses for chief executives at all five firms are tied to the achievement of delivery milestones in the construction and deployment of such projects.

Shell’s Ben van Beurden, for example, last year received a pay deal worth $32.2m, including bonuses linked to delivering “a high proportion of flagship projects on time and on budget”. These are thought to include four platforms floating 1,000 metres or more above deepwater wells in the Gulf of Mexico, Gulf of Guinea and South China Sea. Similarly, BP’s Bob Dudley was awarded a pay deal worth $15.3m, with bonuses linked to seven “major projects”, thought to include Sunrise, a tar sands joint venture in Canada, as well as projects in Angola, Azerbaijan, the Gulf of Mexico and the North Sea.

Read more …

“The first is direct damage: an unsustainable credit-fuelled boom, say. Another is indirect damage that results from a breakdown in trust in a financial arrangements..”

Why Finance Is Too Much Of A Good Thing (Martin Wolf)

An organised society offers two ways of becoming rich. The normal way has been to exercise monopoly power. Historically, monopoly control over land, usually seized by force, has been the main route to wealth. A competitive market economy offers a socially more desirable alternative: invention and production of goods and services. Alas, it is also possible to extract rents in markets. The financial sector with its complexity and implicit subsidies is in an excellent position to do so. But such practices do not only shift money from a large number of poorer people to a smaller number of richer ones. It may also gravely damage the economy.

This is the argument of Luigi Zingales of Chicago Booth School, a strong believer in free markets, in his presidential address to the American Finance Association. The harm takes two forms. The first is direct damage: an unsustainable credit-fuelled boom, say. Another is indirect damage that results from a breakdown in trust in a financial arrangements, due to crises, pervasive “duping”, or both. Prof Zingales emphasises the indirect costs. He argues that a vicious circle may emerge between public outrage, rent extraction and back to yet more outrage. When outrage is high, it is difficult to maintain prompt and unbiased settlement of contracts. Without public support, financiers must seek political protection. But only those who enjoy large rents can afford the lobbying.

Thus, in the face of public resentment, only rent-extracting finance – above all, the mightiest banks – survive. Inevitably, this further fuels the outrage. None of this is to deny that finance is essential to any civilised and prosperous society. On the contrary, it is the very importance of finance that makes the abuses so dangerous. Indeed, there is substantial evidence that a rise in credit relative to gross domestic product initially raises economic growth. But this relationship appears to reverse once credit exceeds about 100% of GDP. Other researchers have shown that rapid credit growth is a significant predictor of a crisis.

Read more …

Beware housedold debt, hiding behind the housing bubble.

Canada’s Economy Out Of The Woods? Think Again (CNBC)

The state of Canada’s finances is back in focus this week with economists questioning whether the country has managed to combat a worrying rise in private debt. An independent policy think tank, called the Fraser Institute, made headlines last Wednesday when it described concerns as “overblown,” adding that there was little evidence that Canadian households were irresponsibly borrowing too much. However, that argument is now being challenged by David Madani, an economist focused on the north American nation at Capital Economics. He called the research “misleading” as it only showed the payments on debt interest, not the principal repayments which reduce the original loan amount.

“Principal repayments often represent a large portion of debt obligations, especially when it comes to housing mortgage debt,” he said in a note released on Monday. “Should market interest rates rise over the next several years, as we anticipate, household debt obligations will become much more onerous.” Canada’s economy has seen house prices and debt levels continue to climb despite the global financial crash of 2008. Former governor of the Bank of Canada, Mark Carney, warned of elevated household debt levels on several occasions during his tenure.

New statistics in March showed that Canadian households held roughly C$1.63 ($1.32) of credit market debt for every dollar of disposable income in the fourth quarter of 2014 – a record high, according to Statistics Canada who published the data. The country has also had to deal with a dramatic fall in the price of oil with its economy very much reliant on the commodity. The central bank delivered a rate cut in January and market participants are gearing up for another policy meeting this week. The current governor of the Bank of Canada, Stephen Poloz, said last week that this policy was “working” and that the cut would benefit households with a mortgage.

Read more …

Question: how did the NY times know where and when the arrests were going to take place?

FIFA Officials Arrested on Corruption Charges; Face Extradition to US (NY Times)

Swiss authorities conducted an extraordinary early-morning operation here Wednesday to arrest several top soccer officials and extradite them to the United States on federal corruption charges. As leaders of FIFA, soccer’s global governing body, gathered for their annual meeting, more than a dozen plain-clothed Swiss law enforcement officials arrived unannounced at the Baur au Lac hotel, an elegant five-star property with views of the Alps and Lake Zurich. They went to the front desk to get keys and proceeded upstairs to the rooms. The arrests were carried out peacefully, with at least two men being ushered out of the hotel without handcuffs. One FIFA official, Eduardo Li of Costa Rica, was led by the authorities from his room to a side-door exit of the hotel. He was allowed to bring his luggage, which was adorned with FIFA logos.

The charges allege widespread corruption in FIFA over the past two decades, involving bids for World Cups as well as marketing and broadcast deals, according to three law enforcement officials with direct knowledge of the case. The charges include wire fraud, racketeering and money laundering, and officials said they targeted members of FIFA’s powerful executive committee, which wields enormous power and does its business largely in secret. The arrests were a startling blow to FIFA, a multibillion-dollar organization that governs the world’s most popular sport but has been plagued by accusations of bribery for decades.

The inquiry is also a major threat to Sepp Blatter, FIFA’s longtime president who is generally recognized as the most powerful person in sports, though he was not charged. An election, seemingly pre-ordained to give him a fifth term as president, is scheduled for Friday. Prosecutors planned to unseal an indictment against more than 10 officials, not all of whom are in Zurich, law enforcement officials said. Among them are Jeffrey Webb of the Cayman Islands, a vice president of the executive committee; Eugenio Figueredo of Uruguay, who is also an executive committee vice president and until recently was the president of South America’s soccer association; and Jack Warner of Trinidad and Tobago, a former member of the executive committee who has been accused of numerous ethical violations.

Read more …

It can produce enough food for everyone, while at the same time cutting CO2 and toxicity in our food. It can not generate gigantic profits fro Big Ag and the chemical industry, though.

Can Organic Farming Counteract Carbon Emissions? (WSJ)

Organic practices could counteract the world’s yearly carbon dioxide output while producing the same amount of food as conventional farming, a new study suggests. The white paper by the Rodale Institute, a nonprofit that advocates for the use of organic practices, says that using “regenerative organic agriculture,” such as low or no-tillage, cover crops and crop rotation, will keep photosynthesized carbon dioxide in the soil instead of returning it to the atmosphere. Citing 75 studies from peer-reviewed journals, including its own 33-year Farm Systems Trial, Rodale Institute concluded that if all cropland were converted to the regenerative model it would sequester 40% of annual CO2 emissions; changing global pastures to that model would add another 71%, effectively overcompensating for the world’s yearly carbon dioxide emissions.

Michel Cavigelli, a research soil scientist at the USDA’s Agricultural Research Service, which has a slightly different 19-year side-by side study, says his research also shows that organic soil has higher carbon content than conventional but warns that the devil is in the details. For example, the USDA study tills the organic plot and that might cause the manure’s carbon to stay deeper in the soil. But the question organic farming always comes back to is whether farming without synthetic pesticides and genetically modified organisms is really a viable way to feed the planet. Rodale Institute believes it can do that and better. In the longest-running study of its kind, Rodale’s Farming Systems Trial compares organic farming with conventional farming, by farming neighboring plots just as organic farmers and traditional farmers would.

That means its organic farming plot utilizes techniques like crop rotation and cover crops while the conventional plot uses common synthetic pesticides and genetically modified organisms. Both organic and conventional fields were divided into tilled and no-till areas to reflect that farmers use both practices. The findings show that organic farming yields are lower than conventional in the first few years, while conventional crops do better in the first years than they do later on. Over time the production equals out and with organic outperforming conventional farming production in years of drought (organic corn yields 31% more than conventional corn during drought).

Read more …