Feb 052016
 
 February 5, 2016  Posted by at 10:08 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


Harris&Ewing “Congressional baseball game. President and Mrs. Wilson.” 1917

Dollar Tumbles As Fed Rescues China In The Nick Of Time (AEP)
SocGen: China Only Months Away From Depleting Its Currency Reserves (MW)
China Foreign Reserves Head for Record Drop on Yuan Defense (BBG)
Citi: ‘We Should All Fear Oilmageddon’ (BBG)
Just 0.1% Of Global Oil Output Has Been Halted By Low Prices (BBG)
US Running Out Of Space To Store Oil (CNN)
Obama Proposes $10-a-Barrel Oil Tax (MW)
IMF Honing Tools To Rescue EMs From China Spillover (Reuters)
BOJ Board Among Those Surprised By Negative Interest Rate Plan (Reuters)
US Banks Targeted By Activist Investors (Reuters)
Two Anonymous Whistleblowers Are Pounding on the SEC’s Door Again (Martens)
Europe’s Ports Vulnerable As Ships Sail Without Oversight (FT)
Portugal’s Anti-Austerity Budget Provokes Brussels Showdown (FT)
Saudis Say Cash Crunch Won’t Derail an Ambitious Foreign Agenda (BBG)
World Food Prices Tumble Near 7-Year Low (CNBC)
Julian Assange Should Be Freed, Entitled To Compensation: UN Panel (AP)

But that won’t last.

Dollar Tumbles As Fed Rescues China In The Nick Of Time (AEP)

The US dollar has suffered one of the sharpest drops in 20 years as the Federal Reserve signals a retreat from monetary tightening, igniting a powerful rally for commodities and easing a ferocious squeeze on dollar debtors in China and emerging markets. The closely-watched dollar index (DXY) has fallen 3pc this week to 96.44 and given up all its gains since late October. This has instant effects on the world’s inter-connected financial system, today more geared to the US exchange rate and Fed policy than at any time in modern history. David Bloom, from HSBC, said the blistering dollar rally of the past three years is largely over and may go into reverse as weak economic figures in the US force the Fed to pare back four rate rises loosely planned for this year.

A more dovish Fed and a weaker dollar is a bitter-sweet turn for the Bank of Japan and the ECB as they try to push down their currencies to stave off deflation. Their task has become even harder. The euro has rocketed by more than 3pc this week to $1.12 against the dollar. In trade-weighted terms the euro is 5pc higher than it was in March, when the ECB began quantitative easing, showing just how difficult it has become for authorities to drive down their exchange rates. Everybody is playing the same game. Yet a halt to the dollar rally is a huge relief for companies and banks around the world that have borrowed a record $9.8 trillion in US currency outside the US, up from $2 trillion barely more than a decade ago. These debtors have faced a double shock from the rising dollar and a jump in global borrowing costs.

RBS calculates that more than 80pc of the debt of Alibaba, CNOOC, Baidu and Tencent is in US dollars, with Gazprom, Vale, Lukoil and China Overseas close behind. China’s central bank (PBOC) can breathe easier as it burns through foreign reserves to defend the yuan against capital flight. Wei Yao, from Societe Generale, said China’s holdings have fallen by $800bn to an estimated $3.2 trillion and are just months away from the danger zone. She warned that markets are likely to become “transfixed” on the rate of decline once reserves near $2.8 trillion, testing the credibility of the PBOC and raising the risk that Beijing will be forced to let the currency slide – with drastic global consequences. If so, only a change of course by the Fed can buy time for China to get a grip and avert a drift into dangerous waters.

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Luckily it’s Lunar New year now.

SocGen: China Only Months Away From Depleting Its Currency Reserves (MW)

China is burning through its foreign-currency reserves at such a blistering pace that the country will run down its cushion in a few months, forcing the government to wave the white flag and float the yuan, says Société Générale global strategist Albert Edwards. “The market remains content that massive firepower remains to support the renminbi. It does not,” Edwards, a perma-bear with a propensity for doom-and gloom-prognoses, said in a report published Thursday. Société Générale, using the IMF’s rule of thumb on reserve adequacy, estimates that China’s foreign-currency reserves are at 118% of the recommended level. But that cushion is likely to evaporate soon on a combination of capital flight and the continuing effort by financial authorities to stem a dramatic drop in the currency.

China’s reserves totaled $3.33 trillion in December, according to official government data. Edwards estimated that China’s foreign-exchange reserves fell by about $120 billion in January, a trend that is likely to continue in the foreseeable future. “When foreign exchange reserves reach $2.8 trillion—which should only take a few more months at this rate—foreign exchange reserves will fall below the IMF’s recommended lower bound,” he said. That is likely to trigger a “tidal wave of speculative selling,” which in turn will force the People’s Bank of China to allow the yuan to freely float within six months. The yuan currently moves within a trading band set by the People’s Bank of China that the central bank can change at will.

“We estimate that if capital outflows maintain their current pace, the PBoC would be unable to defend the yuan for more than two to three quarters,” Wei Yao, Société Générale’s China economist, said in a report published earlier this month. “China’s reserves have already fallen by $663 billion from mid-2014, and a further decline of this scale would start to severely impair the Chinese authorities’ ability to control the currency and mitigate future balance of payments,” she said. Against this backdrop, Société Générale is projecting the yuan to sink to 7.5 against the U.S. dollar this year, significantly weaker than 7 yuan to the buck predicted by most economists. The dollar is currently at 6.56 yuan.

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Lowball du jour: “The economy itself cannot turn this around.”

China Foreign Reserves Head for Record Drop on Yuan Defense (BBG)

China’s foreign-exchange reserves, already at a three-year low, are poised to post a second consecutive record monthly drop as policy makers intervene to support the yuan. The central bank will say Sunday that the currency hoard fell by $118 billion to $3.2 trillion in January, according to economists’ estimates in a Bloomberg survey. That would exceed a record $108 billion decline in December, which brought last year’s total draw-down to more than half a trillion dollars and capped the first annual decrease in the reserves since 1992. Policy makers are burning through billions of dollars to hold up a weakening currency amid flagging growth and $1 trillion in capital outflows last year. The yuan sank to a five-year low last month as the People’s Bank of China set the reference rate at an unexpectedly weak level, a signal that it’s more tolerant of depreciation as growth slows.

“China is facing a significant capital outflow problem,” said Krishna Memani at Oppenheimer in New York. “It’s an astounding reduction in their capital account position. This is an issue they’ve been aware of, and they have to find a way of managing it. The economy itself cannot turn this around.” The draw-down has accelerated since the central bank’s surprise devaluation of the currency in August. Reserves tumbled $94 billion that month, a record at the time. Another cut to the yuan’s reference rate last month spurred a stock sell-off that has helped push the Shanghai Composite Index down 21 percent this year and into a bear market.

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The benefits of low prices…

Citi: ‘We Should All Fear Oilmageddon’ (BBG)

Markets are currently in a well-oiled “death spiral,” according to Citigroup analysts led by Jonathan Stubbs. “It appears that four inter-linked phenomena are driving a negative feedback loop in the global economy and across financial markets,” the analysts write, citing the resilient U.S. dollar, lower commodities prices, weaker trade and capital flows, and declining emerging market growth. “It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks,” the analysts add.

“Corporate profits and equity markets would also likely suffer further downside risk in this scenario of Oilmageddon.” Their case is bolstered by a collection of charts showing the linkages between the four factors cited above, including the importance of lofty oil prices to the ready supply of petrodollars circulating in the world economy and flowing to financial assets. Oil exporters have enjoyed more than $6 trillion flowing into their current accounts, according to Citi’s estimates, implying some $4 trillion of capital in sovereign wealth funds (SWFs).

“But, the collapse in oil/commodity prices and sharp fall in the pace of world trade means that these same economies will likely experience an aggregate current account deficit for the first time since 1998,” says Citi. “In turn, this is likely to put pressure on SWF and broader emerging market liquidity as governments and emerging market economies would need to ‘lean’ on reserves in order to maintain economic, political and social stability. This has clear feedback loops across emerging markets.” Accordingly, the impact of the feedback loop is being felt far and wide in financial markets, extending even to U.S. inflation expectations. Where once 10-year inflation breakevens had little relationship with the price of oil they have for the past two years moved in tandem.

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Pump and Jump.

Just 0.1% Of Global Oil Output Has Been Halted By Low Prices (BBG)

After a year of low oil prices, only 0.1% of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie that highlights the industry’s resilience. The analysis, published ahead of an annual oil-industry gathering in London next week, suggests that oil prices will need to drop even more – or stay low for a lot longer – to meaningfully reduce global production. OPEC and major oil companies like BP and Occidental Petroleum are betting that low oil prices will drive production down, eventually lifting prices. That’s taking longer than expected, in part due to the resilience of the U.S. shale industry and slumping currencies in oil-rich countries, which have lowered production costs in nations from Russia to Brazil.

The Wood Mackenzie analysis provides an estimate for the amount directly impacted by low prices – to the tune of 100,000 barrels a day since the beginning of 2015 – rather than output affected as new projects build up and aging fields decline. Canada, the U.S. and the North Sea have been affected the most by closures related to low prices. The International Energy Agency does estimate year-over-year change, and says global production in the fourth quarter was 96.9 million barrels a day. It forecast that outside OPEC, output will fall this year by 600,000 barrels a day, the largest annual decline since 1992. Last year, non-OPEC output rose 1.4 million barrels a day. “Since the drop in oil prices last year there have been relatively few production shut-ins,” according to the report.

The company, which tracks production and costs at more than 2,000 oilfields worldwide, estimates that another 3.4 million barrels a day of production are losing money at current prices, of about $35 a barrel. It cautioned against expecting further closures, because “many producers will continue to take the loss in the hope of a rebound in prices.” For major oil companies, a few months of losses may make more sense than paying to dismantle an offshore platform in the North Sea, or stopping and restarting a tar-sands project in Canada, which may take months and cost millions of dollars. “There are barriers to exit,” said Robert Plummer at Wood Mackenzie.

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China must have the same issue.

US Running Out Of Space To Store Oil (CNN)

The U.S. now has nearly 503 million barrels of commercial crude oil stockpiled, the Energy Information Administration said on Wednesday. It’s the highest level of supply for this time of the year in at least 80 years. The sky-high inventories are the latest sign that the U.S. oil boom is still alive and kicking. U.S. oil production is near all-time highs despite the epic crash in oil prices from $107 a barrel in June 2014 to just $30 a barrel now. Sure, domestic oil production has slowed – but just barely. Oil stockpiles are so high that certain key storage locations are now “bumping up against storage and logistical constraints,” according to Goldman Sachs analysts. In other words, these facilities are nearly overflowing. Cushing, Oklahoma is the delivery point for most of the oil produced in the U.S. This key trading hub is currently swelling with 64 million barrels of oil.

That represents a near-record 87% of the facility’s total storage capacity as of November, according to the EIA. “There is a fear of tank topping in Cushing. We’re seeing it get to its brims,” said Matthew Smith at ClipperData. Cushing has had to ramp up its storage capabilities in recent years just to deal with all this oil. If this key hub ran out of room to stockpile oil, that crude would have to be diverted elsewhere – and that would hurt oil prices. “There would be a ripple effect across the U.S. that would impact prices everywhere,” said Smith. Global inventories also remain high, with the International Energy Agency recently saying the world is “drowning” in oil. The agency is bracing for oversupply of 1.5 million barrels per day in the first half of 2016.

Wall Street is nervously watching supply constraints since they can have dramatic repercussions on prices. More so than other commodities, oil is vulnerable to so-called “operational stress” due to the expensive and sophisticated infrastructure that is needed for storage. “Each time the market brushes up against infrastructure constraints, oil prices will likely spike to the downside to make oil supplies back off,” Goldman wrote. By comparison, it’s relatively easy to pile up unwanted metals in an open space like a warehouse. “Aluminum only needs a grassy field,” Goldman wrote. To put these storage issues into context, Goldman estimates $1 billion of gold would fit into a bedroom closet. Crude oil of the same value would require 17 supertanker ships that can hold about 2 million barrels of oil each.

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Timing, sir?

Obama Proposes $10-a-Barrel Oil Tax (MW)

President Barack Obama is proposing a $10-a-barrel tax on oil to pay for clean transportation projects, the White House said Thursday. The tax, which will be part of the budget request Obama unveils next week, would be paid for by oil companies and gradually phased in over five years. It would apply to imported oil, not exported U.S. oil, White House National Economic Council Director Jeff Zients told reporters. Obama’s proposal lands in the midst of the 2016 election campaigns, and is likely to be harshly criticized by both Republican presidential candidates and lawmakers. In past years, Obama has proposed eliminating subsidies for the oil-and-gas industries. But those efforts have never made it through Congress. House Majority Whip Steve Scalise of Louisiana said the proposal could be Obama’s worst idea ever.

The tax would add roughly 25 cents to a gallon of gasoline, at current prices. The White House said Obama’s plan would boost investments in clean transportation by about 50%. Zients said the administration recognized oil companies would “likely pass on some of these costs” to consumers. But he added that the U.S.’s “crumbling infrastructure imposes a huge cost on American families,” by reducing competitiveness and by adding time and fuel costs to workers who are stuck in traffic. Brian Milne, energy editor and product manager at Schneider Electric, said the tax would “definitely” increase gasoline prices. “Maybe the president thinks because oil and gasoline prices are low, he can slip the tax through that will eventually be passed on to consumers without many realizing that they’re paying the government more to fuel their vehicles and warm their houses,” Milne said in an email. “However, I don’t think it will have enough support to move through Congress.”

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IMF sees great opportunities for power grabs. Pennies on the dollar. Or the SDR, rather.

IMF Honing Tools To Rescue EMs From China Spillover (Reuters)

China can avoid a “hard landing” if Beijing pursues reforms to state enterprises and sticks to a more market-driven and well-communicated exchange rate policy, IMF Managing Director Christine Lagarde said on Thursday. But Lagarde said spillovers from China’s transition to a slower, more sustainable growth rate would continue to pressure oil and commodity exporters around the globe, increasing demands for financing help from the IMF and other international institutions. She told an online media briefing that the IMF wanted to be ready to handle any emerging market difficulties with new and improved financing tools.

“China is going through that massive, multi-faceted transition and we do not expect a hard landing of China as has been talked about for many years,” Lagarde said. She noted that China’s transition will still be difficult and create market volatility, however. Oil and metals prices, now two thirds below their most recent peaks in 2014, will likely stay low for some time. As a result, the international financial safety net “needs to be strong and needs to be readily available to face any circumstances,” Lagarde said.

The IMF will be working in coming months to improve existing financing instruments, such as credit and liquidity lines, as well as new instruments to address their situations. Lagarde’s remarks came as several oil and commodity exporters, including Peru, Nigeria, Angola and Azerbaijan, are in talks with the World Bank on financing to cope with widening budget deficits. In a speech earlier on Thursday at the University of Maryland, Lagarde said a larger and more robust financial safety net would reduce the need for many emerging market countries to hold large foreign exchange reserves, freeing up funds for investments in infrastructure and education.

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The smell of Abenomics in the morning. This kind of decision making kills so much trust it can’t possibly be worth the price paid. But Abe gets to kick the can a while longer…

BOJ Board Among Those Surprised By Negative Interest Rate Plan (Reuters)

Just days before the Bank of Japan stunned financial markets with its radical adoption of negative interest rates, members of the central bank’s own policy board had also been taken by surprise by the move. Most of the nine board members were only told of the scheme in the week leading up to last Friday’s rate review, according to interviews with more than a dozen officials familiar with the deliberations. The startling speed and secrecy with which such a major policy shift was executed suggest its intent was more about delivering a shock to markets that would weaken the yen, than about maximising the stimulative impact of further easing. That would be in keeping with the single-minded style of central bank Governor Haruhiko Kuroda, people who know him well or have worked with him say, but could risk entrenching divisions between BOJ policymakers.

“If you’re a board member, you’re told about the plan at the last minute,” said a former board member, speaking on condition of anonymity. “It’s hard to argue against it or draft a counter proposal when there’s so little time left.” Kuroda had been saying for months that taking rates below zero was not a timely option, a position he had repeated as recently as Jan. 21. But the global market turbulence that greeted the start of 2016 had been threatening two planks of Prime Minister Shinzo Abe’s reflationary agenda – rising asset prices and a cheap yen. Before leaving for the annual World Economic Forum in Davos on Jan. 22, Kuroda instructed his staff to come up with options for further easing of the BOJ’s already ultra-loose policy, and report back to him when he returned to Tokyo three days later.

Expanding the bank’s massive asset purchasing programme, known as “quantitative and qualitative easing” (QQE), by 10-20 trillion yen ($83-$167 billion) was one option, sources said, though it was quickly ruled out as too weak to shock markets. Something more arresting was needed, and few investors were predicting negative rates. “The key was to show people that the BOJ will really do anything to achieve 2% inflation,” said a BOJ official. The complex plan, formulated by four top officials from the monetary affairs department, drew on studies of negative interest rate policies in Denmark, Switzerland and Sweden. By charging interest on just a fraction of banks’ deposits with the BOJ, they hoped to ease the pain on financial institutions and get around one of the big problems of twinning negative interest rates with QQE – that the central bank is force-feeding lenders cash it then penalises them for holding.

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Thinking bailouts?

US Banks Targeted By Activist Investors (Reuters)

Activist investors are putting the U.S. banking sector in their crosshairs, betting that headwinds whipping through the industry will accelerate consolidation among lenders. While these activist hedge funds have already targeted some major financial companies, such as insurer AIG and auto loan lender Ally Financial, banks have historically stayed out of their sights. Activists launched 97 campaigns last year aimed at the U.S. financial sector, around triple the amount from 2009, according to Thomson Reuters Activism data. Of those campaigns, 22 were aimed at banks, up from eight in 2009, the data show. The number has increased every year since the 2008 financial crisis.

Hedge funds such as Ancora Advisors, Clover Partners and Seidman & Associates are buying up stakes in lenders across the U.S., from community banks to large regional lenders. Driving these investments is the view that ultra-low interest rates, lagging returns on equity and tough regulations will push more banks to merge, with buyers willing to pay a hefty multiple to a bank’s tangible book value. Activist investors interviewed by Reuters say another factor is exposure to energy-related loans, which is driving down the valuations of certain banks and making them all the more vulnerable to a takeover. “Bigger banks are back in the market doing deals,” said Ralph MacDonald at law firm Jones Day. U.S. bank mergers and acquisitions volume rose 58% last year to $34.5 billion, according to Thomson Reuters data.

Last week alone saw two mergers. Huntington Bancshares said it would acquire FirstMerit for $3.4 billion in stock and cash, combining two Ohio-based lenders. And Chemical Financial said it was merging with Talmer Bancorp in an all-Michigan transaction that will create a bank with $16 billion in assets. To be sure, activists’ bets on banks are not without risk – especially if they get the timing wrong. The S&P 500 Financials index is down 14% since mid-December on fears that the Federal Reserve will take longer than previously expected to raise interest rates, hurting banks’ profitability. Another worry is that oil prices drop further, making a bank’s energy loan book more of a liability than an opportunity.

A takeout by a larger rival is also never a guarantee, but that is a risk activists are willing to take. On Monday, Hudson Executive Capital, a New York-based hedge fund, announced it had acquired a $56 million stake in Dallas-based Comerica Bank, a lender with $71 billion in assets under management. Among the banks that could buy Comerica is North Carolina-based BB&T Bank, according to activist investors who spoke to Reuters. [..] Zions Bancorporation, a Salt Lake City lender with $60 billion in assets, is another bank that activists said is vulnerable to an approach.

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And will be ignored again.

Two Anonymous Whistleblowers Are Pounding on the SEC’s Door Again (Martens)

Last night ABC began its two-part series on the Bernie Madoff fraud. Viewers will be reminded about how investment expert, Harry Markopolos, wrote detailed letters to the SEC for years, raising red flags that Bernie Madoff was running a Ponzi scheme – only to be ignored by the SEC as Madoff fleeced more and more victims out of their life savings. Today, there are two equally erudite scribes who have jointly been flooding the SEC with explosive evidence that some Exchange Traded Funds (ETFs) that trade on U.S. stock exchanges and are sold to a gullible public, may be little more than toxic waste dumped there by Wall Street firms eager to rid themselves of illiquid securities. The two anonymous authors have one thing going for them that Markopolos did not.

They are represented by a former SEC attorney, Peter Chepucavage, who was also previously a managing director in charge of Nomura Securities’ legal, compliance and audit functions. We spoke to Chepucavage by phone yesterday. He confirmed that two of his clients authored the series of letters. Chepucavage said further that these clients have significant experience in trading ETFs and data collection involving ETFs. Throughout their letters, the whistleblowers use the phrase ETP, for Exchange Traded Product, which includes both ETFs and ETNs, Exchange Traded Notes. In a letter that was logged in at the SEC on January 13, 2016, the whistleblowers compared some of these investments to the subprime mortgage products that fueled the 2008 crash, noting that regulators and economists were mostly blind to that escalating danger as well. The authors wrote:

“The vast majority of ETPs have very low levels of assets under management and illiquid trading volumes. Many of these have illiquid underlying assets and a large group of ETPs are based on derivatives that are not backed by physical assets such as stocks, bonds or commodities, but rather swaps or other types of complex contracts.

Many of these products may have been designed to take what were originally illiquid assets from the books of operators, bundle them into an ETP to make them appear liquid and sell them off to unsuspecting investors. The data suggests this is evidenced by ETPs that are formed, have enough volume in the early stage of their existence to sell shares, but then barely trade again while still remaining listed for sale. This is reminiscent of the mortgage-backed securities bundles sold previous to the last financial crisis in 2008.”

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If you look beyond the obvious play on fearmongering, this is still curious.

Europe’s Ports Vulnerable As Ships Sail Without Oversight (FT)

As Europe’s politicians struggle to control a deepening migrant crisis and staunch the rising threat of Islamist terrorism on their borders, little attention is being paid to the continent’s biggest frontier: the sea. New data highlight the extent to which smuggling, bogus shipping logs, unusual coastal stop-offs and inexplicable voyages are increasing across the Mediterranean and Atlantic for ships passing through Europe’s ports — with little or nothing being done to combat the trend. There is currently no comprehensive system to track shipments and cargos through EU ports and along its approximately 70,000km of coastline — a deficiency that has long been exploited by organised criminals and which could increasingly prove irresistible to terrorists too, say European security officials.

“So far, the thing about maritime security, and particularly terrorists exploiting weaknesses there, is that it’s the dog that’s not barked,” says former Royal Navy captain Gerry Northwood, chief operating officer of Mast, a maritime security company, and commander of the counter-piracy task force in the Indian Ocean. “But the potential is there. The world outside Europe – North Africa for example – is awash with weapons. If you can get a bunch of AK47s into a container, embark that container from Aden then you could get them into Hamburg pretty easily. A whole armoury’s worth.” In January, 540 cargo ships entered European ports after passing through the territorial waters of terrorist hotspots Syria and Libya, as well as Lebanon, for unclear or uneconomic reasons during the course of their voyages.

The number of vessels using flags of convenience — using the ensign of a state different to that in which a ship’s owners reside to mask identity or reduce tax bills — is also rising. Of the 9,000 ships that passed through European waters last month, 5,500 used flags of convenience.

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“We have to be demanding and disciplined [over the budget], but Portugal is not a pupil. There are no professor-states or student-states in the EU.”

Portugal’s Anti-Austerity Budget Provokes Brussels Showdown (FT)

Portugal’s new Socialist government faces an embarrassing rejection of its first “anti-austerity” budget by the European Commission on Friday after eleventh-hour talks failed to break a stalemate over additional cuts needed to bring Lisbon in line with EU deficit rules. Portuguese officials expressed confidence they would overcome objections from the commission, which last week warned Lisbon it risked “serious non-compliance” with the bloc’s fiscal rules. At the same time, they continued to show defiance, insisting they would not return to the spending policies of the previous centre-right administration. “We cannot continue following a path of blind austerity,” Augusto Santos Silva, Portugal’s foreign minister, told RTP television on Wednesday.

“We have to be demanding and disciplined [over the budget], but Portugal is not a pupil. There are no professor-states or student-states in the EU.” The commission announced it would hold a special meeting on Friday afternoon to decide whether Portugal’s 2016 budget — submitted three months late after protracted post-election coalition negotiations — would be rejected. If it is, it would mark the first time a eurozone government has had its spending plan vetoed by Brussels since the new crisis-era rules went into effect in 2011. Lisbon’s tussle with Brussels calls into question the government’s ability to deliver on election pledges to roll back years of austerity by cutting taxes and increasing public sector wages without running foul of the EU’s strict budgetary rules.

After Portugal emerged from its bailout in 2014, it was supposed to bring its deficit under the EU ceiling of 3% of economic output by 2015. But economic forecasts published by Brussels on Thursday, which take into account the government’s initial budget plan, show Lisbon with a 4.2% deficit in 2015 — and deficits above 3% in both 2016 and 2017. The 3.4% deficit projected for 2016 is in sharp contrast to the 2.6% Lisbon has forecast. Lisbon, however, said the commission’s forecasts do not take into account revisions to its budget proposals made over the past week. Under eurozone rules, a country that misses its deficit target must at least demonstrate it is undertaking significant economic reforms. But the Portuguese budget reins back such measures, prompting a warning from Brussels that its efforts were “well below” target.

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Desperate regime.

Saudis Say Cash Crunch Won’t Derail an Ambitious Foreign Agenda (BBG)

Saudi Arabia won’t let the plunge in oil prices derail a regional agenda that includes waging war in Yemen and funding allies in Syria and Egypt, Foreign Minister Adel al-Jubeir said in an interview. “Our foreign policy is based on national security interests,” al-Jubeir said on Thursday at the Ministry of Foreign Affairs headquarters in the kingdom’s capital, Riyadh. “We will not let our foreign policy be determined by the price of oil.” The world’s largest oil exporter, traditionally a cautious actor on the Middle Eastern stage, has become more assertive during the 13-month reign of King Salman. Saudi Arabia is fighting in Yemen against Shiite rebels it says are backed by Iran. It’s also sending billions of dollars to Egypt, to fend off instability in the most populous Arab country, and arming the increasingly beleaguered rebels in Syria’s civil war.

That’s a costly agenda to finance with Brent crude at the lowest in more than a decade. The oil shock left Saudi Arabia with a budget deficit of about $98 billion last year, pushing the kingdom to cut spending on energy subsidies and building projects. It’s also considering selling sovereign bonds and shares in its giant state oil company. The return to world markets of Iran, Saudi Arabia’s regional rival, is set to add to global supply. Sanctions on the Islamic Republic “are being lifted and will be removed as long as Iran complies with the terms of the nuclear agreement,” al-Jubeir said. “We believe there is sufficient room in the market for countries who produce oil.” Tensions between the two OPEC members have undermined efforts to end the war in Syria, where Saudi Arabia supports mainly Sunni militant groups trying to overthrow President Bashar al-Assad, who’s backed by Iran.

The countries are also at loggerheads over Yemen, though Western diplomats have played down Saudi claims about Iran’s involvement on the Houthi rebel side there. The Saudi-led intervention in Yemen, which began with airstrikes in March last year and has escalated to include ground troops, “was a war that nobody wanted to wage,” al-Jubeir said. “This was a war to protect Yemen from collapsing and to protect the kingdom from the dangers of a militia that is armed with ballistic missiles and in possession of an air force that is allied with Iran and Hezbollah.” Saudi Arabia said this week that 375 of its civilians have been killed by missile strikes around the border with Yemen. The United Nations says about 6,000 Yemenis have died in the conflict.

While the U.S. has expressed support for the Saudi engagement in Yemen, in other areas the longstanding alliance between the countries has shown signs of fraying. Saudi officials have expressed concerns about last year’s U.S.-backed nuclear agreement with Iran, and were angered when the U.S. called for former Egyptian President Hosni Mubarak to step down in 2011.

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Deflation.

World Food Prices Tumble Near 7-Year Low (CNBC)

World food prices fell to almost a seven-year low at the start of the year on the back of sharp declines in commodities, particularly sugar, according to the latest data from the UN. The Food Price Index, published by the UN’s Food and Agriculture Organization (FAO), averaged 150.4 points in January, down 16% from a year earlier and registering its lowest level since April 2009. The trade-weighted index tracks international market prices for five key commodity groups – major cereals, vegetable oils, dairy, meat and sugar – on a monthly basis. In January, the Sugar Price Index showed the largest declines having fallen 4.1% from December, its first drop in four months. The FAO said the drop was down to improved crop conditions in Brazil, the world’s leading sugar producer and exporter. The second largest declines were seen in the FAO’s Dairy Price Index which dropped by 3.0% in the same time period “on the back of large supplies, in both the EU and New Zealand, and torpid world import demand,” the FAO noted.

The Cereals and Vegetable Oils indices both saw declines of 1.7% in January from the previous month and the Meat Price Index fell 1.1%. The main factors underlying the lingering decline in basic food commodity prices are “the generally ample agricultural supply conditions, a slowing global economy, and the strengthening of the U.S. dollar,” the FAO noted. Food commodities are not the only ones suffering from demand failing to keep up with a glut in supply with oil prices suffering a similar fate with a steady decline since mid-2014. Signaling no let-up in production, the food agency raised its forecasts for worldwide cereal crops in 2016. “As a result of the upgraded production and downgraded consumption forecasts, world cereal stocks are set to end the 2016 seasons at 642 million tons, higher than they began,” the agency noted.

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Far from over. Pyrrhic.

Julian Assange Should Be Freed, Entitled To Compensation: UN Panel (AP)

A UN human rights panel says WikiLeaks founder Julian Assange has been “arbitrarily detained” by Britain and Sweden since December 2010. The UN Working Group on Arbitrary Detention said his detention should end and he should be entitled to compensation. Swedish prosecutors want to question Assange over allegations of rape stemming from a working visit he made to the country in 2010 when WikiLeaks was attracting international attention for its secret-spilling ways. Assange has consistently denied the allegations but declined to return to Sweden to meet with prosecutors and eventually sought refuge in the Ecuadorean embassy in London, where he has lived since 2012.

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Sep 042015
 
 September 4, 2015  Posted by at 9:35 am Finance Tagged with: , , , , , , , , ,  19 Responses »


John Vachon Houses in Atlanta, Georgia May 1938

A Global Deleveraging On A Scale The World Has Never Experienced (CNBC)
Foreigners Flee Japan Stocks at Fastest Pace Since at Least 2004 (Bloomberg)
Europe Responds To Desperate Refugees With Razor Wire And Racism (WaPo ed.)
Hungarian Police And Refugees In Standoff After Train Returns To Camp (Guardian)
Greek Government Says €1 Billion Needed To Tackle Refugee Crisis (Kath.)
Greece Wants EU Funding To Tackle Migrant Influx (Reuters)
UN Calls For 200,000 Refugees To Be Distributed Across EU (AFP)
The Refugee Crisis That Isn’t (Kenneth Roth, Human Rights Watch)
Germany Presses Europe Into Sharing Refugees (Guardian)
Refugees Brave Europe’s Deadly Seas Over Wealthy Arab Neighbors (Bloomberg)
Cameron’s EU Dilemma Grows With Bigger Refugee Crisis and Bills (Bloomberg)
Refugee Crisis: Much More Must Be Done, And Not Just By The UK (Guardian Ed.)
The US Dollar Is Stronger Than Steel (Bloomberg)
The Oil-Sands Glut Is About to Get a Lot Bigger (Bloomberg)
Australia PM’s Decision To Drop Bank Tax ‘Bizarre’ (Afr)
A Secretive Agency Hunts for China’s Crooked Officials Worldwide (Bloomberg)
New York’s Pension Fund Pact With the Devil (HuffPo)
EU Parliament Claims Role In Greek Bailout Supervision (EUObserver)
Varoufakis: I Don’t Think Tsipras Believes In Bailout (CNBC)
Food Sovereignty (Beppe Grillo)
Regenerative Agriculture: The Popular Face Of Permaculture (Lebo)

“.. markets do not like uncertainty and investors tend to shoot first and ask questions later. Therefore we are probably in for a lot more volatility. This global deleveraging is the cause of all the market turmoil, including the problems in China…”

A Global Deleveraging On A Scale The World Has Never Experienced (CNBC)

Everyone is blaming China for the recent stock-market rout, but this blame is misguided. China was the beneficiary of global expansion of money supply at the hands of activist central banks. In fact, my view is that Chinese leadership had little to do with the growth “miracle” it experienced over the last decade. As central banks in the U.S., Japan and Europe eased policy, money sought a higher-yielding home in China. This capital inflow was the cause of the growth “miracle” and now that the expansionary monetary policy is ending, it is only natural that the Chinese economy would begin to slow. Unfortunately, this “search for yield” has created the largest shadow banking system the world has even seen … and it could be in trouble.

According to the Bank for International Settlements (BIS), since 2010 the amount of U.S. dollar-denominated debt issued by foreign companies has grown by 50% from $6 trillion to $9 trillion. The proximate cause of this debt buildup was the impact of U.S. Federal Reserve quantitative easing on bond yields — as the Federal Reserve bought bonds, yields were pushed lower and investors were forced to search globally for higher-yielding financial instruments. This demand for yield fueled a credit binge of unprecedented scale. The epicenter of this pro-cyclical expansion of credit was the fast-growing emerging markets. Investors perceived that investing in countries like China, Brazil and Turkey was worth the risk, especially if emerging-market companies were offering higher yields.

Some of the credit extended to emerging-market companies was used for real economic projects, but a BIS report released in late August concludes that most of the money was simply invested in higher yielding shadow-banking instruments. This is the so-called global carry trade. The global carry trade works like this: An emerging-market company issues bonds denominated in U.S. dollars; critically, the yield on these bonds is above the yield of U.S. corporate bonds but BELOW the yield on shadow-banking instruments within the emerging markets. The relatively higher yielding bonds attract investors searching for yield; at the same time, the emerging-market company can invest the proceeds of the bond sale into higher yielding instruments. The emerging-market company earns the difference between its low yielding U.S. dollar bonds and its high yield emerging-market investments. This is financial engineering by another name.

The global carry trade works especially well under three conditions: 1) There is a large interest-rate differential between the U.S. and the emerging country, 2) The emerging country’s currency is rising, and 3) Currency volatility is very low. All three of these conditions have been present since 2010 and have been fuel for this massive build in debt. However the economic slowdown in China coupled with the U.S. Federal Reserve ending quantitative easinghas resulted in a strong U.S. dollar (weak emerging-market currencies) and tremendous currency volatility — thereby significantly reducing the attractiveness of the carry trade. The credit expansion of the carry trade resulted in emerging-market money supply growth that was the basis for economic growth.

In fact, it was the virtuous spiral of credit/money growth fueling economic growth that produced investor demand for emerging market bonds. Now, I fear, that process is beginning to reverse. The reversal of this process means a reversal of the capital flows from emerging market back to the United States. The strength of the U.S. dollar and weakness in emerging market currencies is a reflection of the process reversing. What this means is that the world is beginning a global deleveraging on a scale that it has never experienced. One of the knock-on effects of this global deleveraging is a slowdown in China. I do not mean to suggest that the sky is falling, but markets do not like uncertainty and investors tend to shoot first and ask questions later. Therefore we are probably in for a lot more volatility. This global deleveraging is the cause of all the market turmoil, including the problems in China.

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Deleveraging.

Foreigners Flee Japan Stocks at Fastest Pace Since at Least 2004 (Bloomberg)

Global investors are pulling money out of Japan’s equity market at the fastest pace since at least 2004, according to Mizuho. Foreigners last week sold a net 1.85 trillion yen ($15.4 billion) of Japanese stocks and equity index futures, the biggest combined outflow since Mizuho began tracking the data more than a decade ago, said Yutaka Miura, a Tokyo-based senior technical analyst at the brokerage. Investors are fleeing amid concern about China’s economic outlook and the prospect of higher interest rates in the U.S., he said. “This is a result of investors dumping global risk assets,” said Miura. “Japanese stocks have performed well since the start of the year, so similar to what’s happening in Europe, we’re seeing people take profits.”

The Topix index is down 13% from its Aug. 10 high, paring its 2015 advance to 4.8%. The nation’s shares are among the world’s worst performers since China unexpectedly devalued the yuan last month, roiling markets worldwide and intensifying concern about the outlook for Japan’s biggest trading partner. Foreigners dumped 1.43 trillion yen of Japanese equities in the three weeks through Aug. 28, Tokyo Stock Exchange data updated Thursday show. That’s the most for any three-week span on record, overtaking the period when Bear Stearns Cos. collapsed in 2008.

Net stock sales totaled 707 billion yen last week, and investors also reduced positions in index futures by 1.14 trillion yen, exchange data show. Cumulative flows for 2015 are still positive, with foreigners buying a net 1.1 trillion yen of equities through last week. Andrew Clarke at Hong Kong brokerage Mirabaud Asia said investors who needed to reduce positions in Asia and couldn’t offload stocks in China because of share suspensions turned to Tokyo instead. “The sell-off started in China,” Clarke said. “Investors couldn’t sell there in the end so selling spread to Asia, and Japan especially as it has a greater liquidity. This eventually spread to Europe and the U.S.”

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Orban is a loose cannon, easy pickings. But Orban did not order that train to halt. Merkel did.

Europe Responds To Desperate Refugees With Razor Wire And Racism (WaPo ed.)

The wrenching photographs of Aylan Kurdi , the 3-year-old Syrian boy whose body washed ashore on a Turkish beach this week, are an emblem of the moral and legal abdication of Western nations in the face of the worst refugee crisis the world has seen in decades. Hundreds of thousands of desperate Syrians, Afghans, Iraqis, Somalis and others have embarked this summer on dangerous voyages across the Mediterranean or arduous treks through southeastern Europe in the hope that rich, democratic nations will grant them safe harbor, in keeping with international law and their own commitments. To a shocking degree, they have been met with indifference, disregard or the cold hostility of razor wire and racism.

According to published reports, Aylan s family was denied a refugee visa by the Canadian government and an exit visa by Turkey, propelling it into the overcrowded boat that capsized while attempting to reach Greece. The boy was one of more than 2,600 refugees who have died trying to reach Europe this spring and summer, a toll driven by the abject failure of the European Union to create safe and legal means for refugees to seek asylum. The response to the crisis from leaders whose nations boast of their humanitarianism almost beggars belief. Britain has resettled just more than 200 of the 4 million Syrians who have fled the country, yet Prime Minister David Cameron this week claimed his government was taking its fair share.

So far this year, Hungary has granted asylum to 278 out of 148,000 applicants, according to the United Nations, even though two-thirds or more of those applying are fleeing war zones and have a right to refuge under international conventions. While Aylan s body was washing ashore, another disgraceful drama was playing out at Budapest s main train station, where authorities refused to allow thousands of refugees to board trains for Germany even though German authorities stood ready to receive them. Hungarian Prime Minister Viktor Orban has built a razor-wire fence along his country s southern border and promised to dispatch troops to stop asylum seekers. He has been shockingly blunt about his motivations: to defend Europe’s Christian culture from an influx of Muslims.

Such attitudes reveal the deeper stakes of the refugee crisis for the West. If intolerant demagogues such as Mr. Orban are allowed to prevail, then the EU’s identity as a community of states committed to human rights and the rule of law will be shattered. As German Chancellor Angela Merkel put it on Monday, “If Europe fails on the question of refugees, if this close link with universal civil rights is broken, then it won’t be the Europe we wished for”.

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Blame Germany. All these people could have been safe by now.

Hungarian Police And Refugees In Standoff After Train Returns To Camp (Guardian)

Hundreds of people remained on a train in the Hungarian town of Bicske over Thursday night following a botched attempt by authorities to move on some of the thousands gathered in Budapest’s main railway station. The Hungarian authorities earlier appeared to trick hundreds of people into taking a train to a refugee camp outside Budapest in an attempt to end a two-day standoff at the station where thousands have been trying to get to western Europe. There was confusion at Keleti rail terminus in the morning when departures were initially cancelled and then passengers piled on to a newly arrived train they hoped would take them to Austria or Germany.

Instead, the train stopped in the town of Bicske, outside the capital, where riot police were waiting to take the refugees to an overcrowded facility that many had left a few days earlier in the hope of finding sanctuary in Germany. There were chaotic scenes at the station when one man pulled his wife and child on to the tracks, begging police not to force them to go to the camp. “We won’t move from here,” he shouted repeatedly. The man was later handcuffed and taken away by officers. A large group of people was surrounded in a hot and cramped underpass leading out of the station, chanting “no camp, no camp”. Other passengers clashed with police and forced their way back on to the train to begin a standoff in the sweltering heat.

Police brought water but many of the migrants refused to take the bottles, vowing to go on hunger strike. Later, volunteers tried to offer them food but people refused to eat. “We don’t need food and water. Just let us go to Germany,” one said from an open train window. Hungarian police declared the area an “operation zone” and removed reporters from the station. Later, reporters were allowed to gather on a platform. About 100 people were on the opposite platform and about 50 riot police blocked the route across the tracks. The travellers on the train resorted to holding signs up against the train windows, which said “no camp for children” and “save our souls, we are children”.

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They’re not going to get it.

Greek Government Says €1 Billion Needed To Tackle Refugee Crisis (Kath.)

Greece is to make an immediate request for more funding from the European Commission to tackle the refugee crisis on the eastern Aegean islands but this will only represent a fraction of the €1 billion that the caretaker government believes it needs to address the situation. Kathimerini understands that the Greek police will on Friday request €6 million in emergency funding from Brussels to cover the cost of new equipment and sending more personnel to islands such as Lesvos, Kos, Samos and Chios, where around 2,000 refugees a day are landing in dinghies that set sail from Turkey. Police chiefs want to send a significant number of officers to these islands to help register refugees and migrants who arrive there. However, they also need more equipment, including fingerprint scanners.

The Commission approved an emergency transfer of €2.8 million to the Greek coast guard earlier this summer. However, the extra funds will fall well short of the total that Athens believes it needs to deal with the refugee crisis. Speaking at a news conference with several other cabinet members, Economy Minister Nikos Christodoulakis said that Greece needs around €1 billion but cannot be sure that it will receive this amount. “The minimum sum Greece needs is €400 million from the [EU] asylum fund and €330 million from the fund for the poor to tackle urgent infrastructure needs,” he said. His comments came as European Commission Vice President Frans Timmermans and European Commissioner for Migration Dimitris Avramopoulos arrived in Athens.

“We are here today to discuss with the Greek government the best way that we can quickly implement the decisions that are necessary for us to be able to assist financially and with people and material so that the situation becomes better,” said Timmermans after talks with caretaker Prime Minister Vassiliki Thanou. The EU officials are due to visit the eastern Aegean islands on Friday.

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Betcha EU is going to bring up trust issues.

Greece Wants EU Funding To Tackle Migrant Influx (Reuters)

Greece will ask the European Union for about 700 million euros to build infrastructure to shelter the hundreds of refugees and migrants arriving on its shores daily, the government said on Thursday. The cash-strapped country has seen a rise in the number of refugees and migrants – mostly from Syria, Iraq and Afghanistan – arriving on rubber dinghies from nearby Turkey. Aid agencies estimate about 2,000 people cross over to Greek islands including Kos, Lesbos, Samos and Chios every day. The interim government said it planned to set up a new operations centre and take steps to improve conditions at existing refugee centers.

Economy Minister Nikos Christodoulakis said the country will seek EU funds earmarked to address the crisis. “There is a major funding issue which should be addressed urgently,” Christodoulakis told a news conference. “The minimum sum Greece needs is €400 million from the asylum fund and €330 million from the fund for poor to tackle urgent needs for infrastructure.” Frans Timmermans, first vice president of the European Commission and EU Commissioner for Migration Dimitris Avramopoulos, are in Athens to meet Greek officials. They will meet police and coast guard officials on Kos on Friday. Christoudoulakis said Greece will also provide financial help to the many eastern Greek islands that are feeling the pressure from the migrants influx.

“Many northern and southern Aegean islands have faced a dive in tourist traffic in recent months,” he said. “If we don’t address that, we will have a new domestic wave of unemployed and poor.” He also called Greek ship-owners to offer vessels as temporary accommodation for refugees and blamed Europe for a lukewarm response to the migration issue. “These difficult problems cannot be solved at the sitting rooms in Europe or in other countries but at the piers and at the shores who receive scores of refugees every day,” he said.

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How many will go to America?

UN Calls For 200,000 Refugees To Be Distributed Across EU (AFP)

The UN High Commissioner for Refugees called Friday on the European Union to admit up to 200,000 refugees as part of a “mass relocation programme” that would be binding on EU states. “People who are found to have a valid protection claim… must then benefit from a mass relocation programme, with the mandatory participation of all EU member states,” Antonio Guterres said in a statement. “A very preliminary estimate would indicate a potential need to increase relocation opportunities to as many as 200,000 places,” he added. His call came ahead of a meeting later Friday of EU foreign ministers to discuss the continent’s refugee crisis, of which Syrian toddler Aylan Kurdi, whose lifeless body was found face down in the surf on a Turkish beach on Wednesday, has become a searing symbol. Referring to the pictures of the dead child, which “had stirred the hearts of the world public”, Guterres said: “Europe cannot go on responding to this crisis with a piecemeal or incremental approach.”

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No, true, it’s a Europe crisis.

The Refugee Crisis That Isn’t (Kenneth Roth, Human Rights Watch)

European leaders may differ about how to respond to the asylum-seekers and migrants surging their way, but they seem to agree they face a crisis of enormous proportions. Germany’s Angela Merkel has called it “the biggest challenge I have seen in European affairs in my time as chancellor.” Italian Foreign Minister Paolo Gentiloni has warned that the migrant crisis could pose a major threat to the “soul” of Europe. But before we get carried away by such apocalyptic rhetoric, we should recognize that if there is a crisis, it is one of politics, not capacity. There is no shortage of drama in thousands of desperate people risking life and limb to reach Europe by crossing the Mediterranean in rickety boats or enduring the hazards of land journeys through the Balkans.

The available numbers suggest that most of these people are refugees from deadly conflict in Syria, Afghanistan, Iraq and Somalia. Eritreans – another large group – fled a brutally repressive government. The largest group – the Syrians – fled the dreadful combination of their government’s indiscriminate attacks, including by barrel bombs and suffocating sieges, and atrocities by ISIS and other extremist groups. Only a minority of migrants arriving in Europe, these numbers suggest, were motivated solely by economic betterment. This “wave of people” is more like a trickle when considered against the pool that must absorb it. The EU population is roughly 500 million. The latest estimate of the numbers of people using irregular means to enter Europe this year via the Mediterranean or the Balkans is approximately 340,000.

In other words, the influx this year is only 0.068% of the EU’s population. Considering the EU’s wealth and advanced economy, it is hard to argue that Europe lacks the means to absorb these newcomers. To put this in perspective, the U.S., with a population of 320 million, has some 11 million undocumented immigrants. They make up about 3.5% of the U.S. population. The EU, by contrast, had between 1.9 and 3.8 million undocumented immigrants in 2008 (the latest available figures), or less than 1% of its population, according to a study sponsored by the EC. Put another way, nearly 13% of the U.S. population (some 41 million residents) are foreign-born – twice the proportion of non-EU foreign-born people living in Europe.

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Playing the good cop and getting away with it. But we know better.

Germany Presses Europe Into Sharing Refugees (Guardian)

The German chancellor, Angela Merkel, looks set for victory in her campaign to press Europe into a new system of sharing refugees after France caved in to a proposed new quotas system and Brussels unveiled plans to quadruple the number of people spread across most of the EU. In a major policy speech on Europe’s worst migration emergency, Jean-Claude Juncker, the president of the European commission, is to table proposals next Wednesday for the mandatory sharing of 160,000 refugees between 25 of the EU’s 28 countries. Britain, Ireland and Denmark are exempted from having to take part, but Dublin has already agreed to participate and David Cameron is under increasing pressure for Britain to pull its weight as the migration crisis escalates with scenes of chaos and misery on Europe’s borders.

Berlin and Paris have sought to maintain a common position for weeks, but the French equivocated on the key issue of binding quotas. On Thursday, the president, François Hollande, aligned himself with Merkel’s drive for compulsory EU sharing of refugees. Merkel announced from Switzerland that both sides had agreed a common platform and Hollande said there should be a “permanent and obligatory mechanism” for receiving refugees in the EU. “The president and the chancellor have today decided to forward joint proposals on the organisation of the reception of refugees and a fair sharing in Europe,” said the Élysée Palace. Germany, along with the European commission, has been pushing hard for a new mandatory system since May when Juncker tabled much more modest proposals for the compulsory sharing of 40,000 bona fide asylum-seekers over two years.

A summit of EU leaders in June rejected the quotas, saying they could only be voluntary and eventually agreeing to share only 32,000. The east European countries and Spain were the main opponents. Four east European prime ministers are to meet on Friday to consider their positions. Mariano Rajoy, the Spanish prime minister, reiterated his opposition to quotas in Berlin this week. But the speed of developments on the ground is dictating political responses. Donald Tusk, who chairs EU summits as president of the European council, said the EU should agree to share at least 100,000 refugees. In June, he opposed the quotas system. The proposed figures – 100,000 to 160,000 – refer merely to a mandatory quotas system, beyond the much higher numbers of asylum claims that the countries will have to process in any case. Germany alone expects 800,000 this year.

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Our friends the Saudis.

Refugees Brave Europe’s Deadly Seas Over Wealthy Arab Neighbors (Bloomberg)

Searching for a new home, Yassir Batal says Germany and its unfamiliar voices and customs are more enticing for his wife and five children than the wealthy Arab states whose culture, religion and language they share. Like so many other Syrians who have escaped civil war, the 36-year-old has ruled out heading south through Jordan to Saudi Arabia or beyond. They wouldn’t be welcomed the same way, he said. “In Europe, I can get treatment for my polio, educate my children, have shelter and live an honorable life,” said Batal, as he left a United Nations office in Beirut, the city that’s been the crossroads for more than a million refugees since the violence started in March 2011. “Gulf countries have closed their doors in the face of Syrians.”

Stories of fellow refugees suffocating in trucks or small children drowning in the Mediterranean Sea are doing little to tarnish the allure of Europe and the struggle to get there. As countries argue over how to cope with the scale of the tide of humanity, safer routes to the Gulf states remain blocked because of the difficulties gaining entry and concern over how migrants would be treated there. Gulf countries have been active in the Syrian conflict and millions of dollars raised in some states have found their way to rebel groups, including extremists. While they also spent billions of dollars of aid to displaced people in camps in Jordan and Lebanon, they maintain strict controls on who can cross their borders. Most of the migrants fleeing the war are Sunni Muslim, like most Gulf citizens.

“I’m most indignant over the Arab countries who are rolling in money and who only take very few refugees,” Danish Finance Minister Claus Hjort Frederiksen said in an interview this week at his office in Copenhagen. “Countries like Saudi Arabia. It’s completely scandalous.”

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Whichever way the wind blows, that’s where you’ll find David.

Cameron’s EU Dilemma Grows With Bigger Refugee Crisis and Bills (Bloomberg)

Europe is giving David Cameron a migraine. Accused of not caring about the refugee crisis, the prime minister is struggling yet again to navigate Britain’s ever-problematic relationship with the European Union following confirmation that his country had quietly paid a bill he once derided as “appalling” to the bureaucrats in Brussels. The U.K.’s unwillingness to take the same share of refugees threatens to undermine Cameron’s efforts to whip up support among his Europeans peers to win back powers from the 28-nation bloc ahead of a referendum on membership brought on by a growing tide of euroskepticism. In his quest to re-write terms for the U.K., Cameron heads to Spain and Portugal on Friday to meet with leaders.

“He’s quite clearly got a perception problem and has soured his relationships,” said Raoul Ruparel, co-director at the Open Europe think-tank. “There is a risk that will have an impact on what he’s trying to do in terms of renegotiation.” The 48-year-old Conservative leader is on the defensive. He said Thursday that the U.K. would fulfill its duty in helping asylum seekers as lawmakers from both sides of the aisle joined a global chorus of voices demanding he do more. After British newspapers ran a photograph of a dead child on a Turkish beach, Cameron was forced to respond. “Britain is a moral nation that always fulfills its moral obligations,” he said in a pooled television interview. “We are taking thousands of people and we will take thousands of people.”

Following a comfortable re-election in May that left the opposition in shambles, Cameron’s tact in handling the worst humanitarian crisis since World War II has been brought to task as the EU borders buckle under the weight of migrant flows from Syria and other troubled spots in Africa and the Middle East. EU governments now need to house at least 100,000 refugees, a far larger number than what had been envisaged, EU President Donald Tusk said on Thursday. Several countries have balked at an earlier proposal to redistribute 40,000, whittling that number down to 32,000. The U.K. did not participate at all.

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“What appears on our TV screens as a sudden emergency is really the culmination of years of failure..” Ongoing.

Refugee Crisis: Much More Must Be Done, And Not Just By The UK (Guardian Ed.)

Britain cannot open its borders to everyone fleeing war anywhere in the world, but this does not excuse the government’s shameful determination to keep our borders closed to as many refugees as possible. Our international treaty obligations, as well as the promptings of our collective conscience, entail a duty to offer meaningful sanctuary when a humanitarian catastrophe unfolds before our eyes. The prime minister surely understands this. He is personally capable of compassion, but his political instincts have been conditioned by defensive parochialism: fear of alienating those parts of the press and the electorate where hostility to foreigners is visceral. His reluctance to engage with pan-European efforts to accommodate refugees stems from a refusal to articulate any circumstances in which national questions should be answered at continental level.

This makes his argument for focusing on the causes of mass displacement, above all the war in Syria, sound disingenuous – hard-heartedness camouflaged as strategy. But the underlying point is valid. What appears on our TV screens as a sudden emergency is really the culmination of years of failure to confront Syria’s bloody collapse. This, sadly, is symptomatic of a more profound myopia in European security policy. Not only Britain is responsible for European paralysis. There is a wide arc of conflict-ridden, repressive and failed states running from the Middle East, round the Horn of Africa and along the southern Mediterranean coast. There are tens of millions of people living in that region who might reasonably decide that the only future for them and their families lies in Europe.

There is little sign that European leaders have even begun to engage with each other or with their electorates on the questions this raises for the security, legitimacy and stability of the European Union. Although it is essential in discussion of the current crisis to remember the legal distinction between refugees – seeking sanctuary from imminent danger – and the wider category of people who migrate in search of a better future for themselves and their families, it is also important to acknowledge that, in places where economic activity, law and order are breaking down, the line between the two categories is technically and ethically hard to draw.

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Much stronger.

The US Dollar Is Stronger Than Steel (Bloomberg)

When John Pierpont Morgan bought Andrew Carnegie’s steel business and combined it with two competitors to create U.S. Steel in 1901, the result was the world’s first billion-dollar corporation. Its roughly $1.4 billion market value would translate into about $33 billion in current dollars. But the company is worth less than a tenth of that today, at just under $2.5 billion. While the steel industry has been fading in the U.S. for decades, things have gotten worse recently. A strong U.S. dollar, combined with a slowing Chinese economy, is bringing unprecedented amounts of cheap, foreign steel to the U.S., swamping domestic producers. Average monthly imports spiked by almost 1 million metric tons in 2014, a 38% increase from 2013. Through June of this year, steel imports averaged 3.3 million metric tons a month, roughly the same as last year.

A lot of that is coming from China, the world’s largest producer. Although its economy has cooled, leading to the first dip in steel demand there in a generation, China’s mills have kept chugging along. Much of the excess output is being shipped overseas. In the first half of this year, China’s steel exports rose 28% compared with the same period in 2014. The recent devaluation of the yuan could make Chinese steel even more attractive to U.S. buyers. Exports from Brazil and Russia have also jumped as the real and ruble have fallen sharply against the greenback. U.S. producers have had no choice but to pull back. Andrew Lane, an analyst at Morningstar, expects U.S. steel production to come in at around 85 million metric tons this year, down from 98 million in 2007. “I don’t think we’ll get back to that level until 2020,” Lane says.

Things are particularly hard for U.S. Steel, the country’s No. 2 producer after Nucor. The company lost money in the first two quarters of this year and has laid off more than 1,700 employees, shaving its total workforce to 34,000. “The strong dollar is the icing on the cake,” says Mario Longhi, U.S. Steel’s Brazilian-born chief executive officer. Longhi says foreign producers have been unfairly dumping steel in the U.S. for several years, and trade laws need to be revamped to deal with the problem. “Our laws have not caught up to the 21st century,” he says. Since June, U.S. steel producers have filed three trade cases with the Department of Commerce, alleging that countries including Brazil, China, Japan, and South Korea are either benefiting from government subsidies or selling steel abroad for cheaper than they do at home, in violation of international trade laws.

Although a strong dollar is particularly bad for companies at the beginning of the supply chain, such as steel producers, it’s weighing on the entire U.S. industrial sector. After growing faster than the rest of the economy during the early years of the recovery, manufacturing activity, as measured by the ISM Manufacturing Index, dropped to its lowest level in two years in August. Manufacturing is on pace to post a record trade deficit for the third straight year. That’s dampened some of the enthusiasm around the “reshoring” trend of companies bringing outsourced factory jobs back to the U.S. Rising wages in China have helped make U.S. workers more competitive. But a stronger dollar, coupled with a slowing China, could blunt those gains..

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Who is financing this madness, and why?

The Oil-Sands Glut Is About to Get a Lot Bigger (Bloomberg)

The last place oil producers want to be when prices plummet to profit-demolishing lows is midstream on a billion-dollar project in one of the costliest parts of the planet to extract crude. Yet that’s exactly where half a dozen oil sands operators from Suncor to Brion find themselves with prices for Canadian oil now hovering around $30 a barrel. While all around them projects have been postponed or canceled, their investments were judged too far along when the oil game suddenly moved from offense to defense. These projects will add at least another 500,000 barrels a day – roughly a 25% increase from Alberta – to an oversupplied North American market by 2017.

For companies stuck spending billions in a downturn, the time required to earn back their investments will lengthen considerably, said Rafi Tahmazian at Canoe Financial. “But the implications of slowing down a project are worse,” said Tahmazian, who helps oversee about C$1 billion ($758 million) in energy funds at the Calgary investment firm. A general rule of thumb says new plants require a West Texas Intermediate price of $80 a barrel to break even. Western Canada Select, a blend of heavy Alberta crude, is currently selling at a discount of about $14 a barrel to the WTI benchmark. This differential for Alberta’s oil, based on such factors as quality and pipeline capacity, has ranged from $7 to $20 this year and exceeded $40 a barrel in late 2012 and part of 2013.

Cenovus Energy a Calgary-based producer that uses steam technology to melt bitumen and pump it to the surface, has postponed two new projects until the oil price recovers. But it’s pressing ahead with expansions started before the downturn that will add 100,000 barrels of capacity by next year. “We do not want short-term pricing to dictate our investment in long-life, high-return oil sands projects,” Cenovus Chief Executive Officer Brian Ferguson told analysts in July, when WTI was trading near $50. Oil companies plan for price variations during the lives of long-term projects. Cenovus “stress tested” its expansion down to a price of $50 a barrel, a level that will allow it to continue paying a reduced dividend and fund some further growth, Ferguson said in July.

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Abbott is bizarre, period.

Australia PM’s Decision To Drop Bank Tax ‘Bizarre’ (Afr)

So let me get this straight. After the four peak government agencies that oversee Australia’s financial system recommended taxpayers should receive a proper fee for the free default insurance they provide for $750 billion of bank deposits, Tony Abbott rolled his Treasurer’s correct call on the matter because he doesn’t want another “Labor tax”? “The last way to make our banks strong, the last way to protect depositors, is to hit banks with more taxes,” Abbott dissembled. “That’s the Labor way. It’s not the Coalition’s way.” The truth is that the policy principle of not giving away public insurance to banks for free has been embraced by pretty much every developed economy in the world, and was explicitly advocated in writing by the Council of Financial Regulators and only then belatedly backed by Labor’s Treasurer, Chris Bowen.

Contrary to Abbott’s misleading claims, this is neither a tax nor a Labor proposal. We are talking about a premium for free deposit insurance that was advised by our best bureaucrats because it minimises the “moral hazards” that arise when you give bankers a “heads we win, tails taxpayers lose” incentive structure. The Liberal Party is meant to reflexively support policies that remove or minimise public subsidies of private companies and here we have Abbott giving a free kick to the world’s most profitable banks. The decision is demonstrably bizarre on at least four levels. First, it was always going to be popular with main street. Holding the big banks to account and justifiably transferring wealth from the oligarchs and their shareholders back to taxpayers’ coffers would be welcomed by most.

Second, there was no political battle to be had here – Labor was not going to oppose an initiative it had already backed. Third, Abbott’s decision undermined his own Treasurer, who privately agrees with the idea of pricing free public insurance and eliminating moral hazards. This only reinforces the impression the Liberals are a divisive, clueless bunch of amateurs that struggle with rational action. Finally, the revenue generated by pricing the deposit insurance would have raised tens of billions of dollars over time that could have helped reduce Australia’s net debt, which is inflating every day towards dangerous (non-AAA rated) levels as the economy decelerates, care of the commodity price slump and a sharp contraction in Asian demand. Enough said.

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Xi is one desperate puppy.

A Secretive Agency Hunts for China’s Crooked Officials Worldwide (Bloomberg)

Qiao Jianjun seemed a model bureaucrat: strict on expense accounts, a stickler for rules. But the director of a sprawling state enterprise that controlled grain stockpiles for a chunk of Henan province had a secret, Chinese officials say: He was embezzling millions. In October 2011, he abandoned his government-issue black sedan at a local airport and disappeared — apparently headed for a favorite destination among China’s wayward party members: the U.S. China’s government released a list of 100 fugitives in April; Qiao was among 40 suspected of being in America. As President Xi Jinping’s nationwide corruption hunt has punished more than 100,000 officials over three years, many of those who’ve found bolt-holes abroad have remained frustratingly out of reach.

Rounding them up, in an operation called “Sky Net,” falls to China’s much feared Central Commission for Discipline Inspection (CCDI). In a rare interview in May with Bloomberg Businessweek, Sky Net’s leaders discussed their work with the U.S. in catching and returning fugitives. Despite a recent success – a U.S. indictment against Qiao, the grain official – such collaboration remains fraught with sensitivities, adding to tensions ahead of Xi’s U.S. trip this month. CCDI traces its origins to 1927, when the young Chinese Communist Party established a commission to monitor its members’ behavior. Its headquarters now occupy a cement-and-glass rectangle of a building behind a massive stone gateway in central Beijing, not far from the Forbidden City.

While there’s no sign on the gate, the traditionally secretive Party disciplinary arm has embraced a more public profile under Xi. Its website debuted in 2013; this year, it released an app that makes it a cinch to snitch using a mobile phone. The Xi-era drive to crack down on corruption has meant more work and growth for CCDI, including the expansion of its inspection offices to 12 from eight. The agency doesn’t publish staff numbers, but Chinese media reports estimate its size at up to 1,000. Job postings advertise for candidates with good computer skills, preferably with a degree from a top university. Party membership is mandatory.

If Sky Net sounds like a James Bond film, the role of M. could be played by Fu Kui, 53, CCDI’s head of international cooperation until last month when he was put in charge of the agency’s Hunan province operations. He’s square-headed and blunt-looking in a white button-down with no tie, and smokes as he talks. “Our work is about winning people’s hearts for the party,” Fu said in the May interview, in a conference room lined with world maps. “Now that we’re starting to hunt them down, the public is happy to see it.”

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Ridiculous.

New York’s Pension Fund Pact With the Devil (HuffPo)

I did some digging around and, confirmed that a recent New Yorker article by Pulitzer nominee Jennifer Gonnerman was true. I found that both the New York City and New York State pension funds have a direct stake in corporations that are second cousins to slavery, the private prison industry. This is a shocking revelation. I know and respect the stewards of these funds, Tom Dinapoli and Scott Stringer. They both have impressive civil rights records. As members of the New York State Assembly, the two were loyal supporters of the grassroots movement to repeal the racist Rockefeller Drug Laws. It is hard to believe that two of the most progressive elected officials in New York would take workers’ wages and invest them into such an inhumane enterprise.

The only explanation I could come up with is that they must have not have known that their respective pension funds were directly connected to such a repulsive operation. I brought my concerns to the attention of both men weeks ago, and, as of this writing, nothing has changed. Well, it’s one thing not to know, it’s quite another matter not to care. As Michelle Alexander put it in “The New Jim Crow,” mass incarceration in the United States has emerged as “a stunningly comprehensive and well-disguised system of racialized social control that functions in a manner strikingly similar to Jim Crow.” Investing in companies that profit from this system is morally indefensible. I know both Dinapoli and Stringer have voiced opposition to mass incarceration.

Yet in order to realize an increased value in the private prison portion of their equity portfolio, they must hope for what they claim to oppose — the expansion of the private prison system and the growth of mass incarceration. But it’s not just morally reprehensible to invest in prisons, it is also fiscally irresponsible. Two of the private prison stocks the city and state have wagered sacred pension fund money on, the GEO Group and Correctional Corporation of America (CCA), companies that control approximately 75% of the prison market, are heading south, daily hitting new 52 week lows. From President Obama’s recent spate of pardons, to pending state and federal legislation to cut prison sentences for low level, non-violent offenders, to the #BlackLivesMatter movement calling for an end to the Prison Industrial Complex, the writing is on the wall. Prisons are no longer a growth industry.

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Lest we forget: “..the sole European institution with a direct popular mandate..”

EU Parliament Claims Role In Greek Bailout Supervision (EUObserver)

The European Parliament and the European Commission are set to discuss the parliament’s role in the supervision of the Greek bailout programme after parliament leaders gave the green light to proceed.( ( Parliament president Martin Schulz received a mandate on Thursday (3 September) from the leaders of the assembly’s political groups to “explore” with commission president Jean-Claude Juncker “the possibilities” of such an involvement. An agreement could be announced as soon as next week, when Juncker participates in the parliament’s plenary session in Strasbourg. Juncker will attend the conference of presidents, the group that gave Schulz the green light. The parliament’s move comes in response to a request sent by former Greek PM Alexis Tsipras on 20 August.

Tsipras wrote to Schulz, asking for “the direct and full involvement of the European Parliament in the regular review process regarding the implementation of the loan agreement” between Greece and its creditors – the European Commission, the ECB, the European Stability Mechanism (ESM), and the IMF. “I deem it politically imperative that the sole European institution with a direct popular mandate acts as the ultimate guarantor of democratic accountability , Tsipras wrote. The basis of the discussion between the two presidents will be the so-called two-pack regulation, which sets up a monitoring and surveillance mechanism of eurozone countries.

In his letter, Tsipras mentioned article 3 of the two-pack, which says parliament should be kept informed and provides possibilities for exchanges of views with officials from the commission or the member state under surveillance. “There was large agreement between political groups , a parliament source told EUobserver. “It is not a surprise , Schulz said, “because the troika report at the end of the parliament’s last mandate already asked for a permanent structure of accompaniment on a parliamentarian level [of] all the actions of the institutions in the framework of the programme. The discussion between Schulz and Juncker could lead to a mechanism that gives the parliament more than the right to be simply informed about implementation of the bailout programme, but less than a deciding role in the monitoring of it.

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Lots of media.

Varoufakis: I Don’t Think Tsipras Believes In Bailout (CNBC)

Yanis Varoufakis, the controversial former Greek finance minister, has told CNBC that he doesn’t think Alexis Tsipras, who is currently campaigning for re-election as its Prime Minister, believes in the conditions of the country’s third bailout. “He considers it to be unreliable, as does the IMF,” Varoufakis said on Friday. Tsipras was still a personal friend and an “excellent politician”, the economist, who resigned as finance minister this summer after a brutal six months attempting to re-negotiate the austerity conditions of Greece’s bailout by international creditors, added. Varoufakis became the focal point for criticism of Greece for not accepting the austerity program, despite other programs being accepted by bailed-out countries like Portugal and Spain.

Tsipras eventually accepted another bailout with controversial austerity conditions, as the threat of Greece having to leave the euro zone in a disorderly fashion loomed. The third bailout is “unviable on an economy which is in this great depression and debt spiral,” Varoufakis said. Tsipras has recently called new elections in Greece, the second within a year. “I cannot look my electors in the eye and say to them that our party is capable now of stabilizing the economy,” Varoufakis added.

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“Food is the weapon of the future, not bombs.”

Food Sovereignty (Beppe Grillo)

Does Italy still exist, or is it, as Metternich puts it, a geographic expression? By joining the Euro, it lost its monetary sovereignty. It lost its territorial sovereignty after its defeat in the second world war with occupation by the Americans who have never left since then. It lost its military sovereignty as it is now reduced to taking orders from the USA and organising pretend peace missions in Afghanistan and in Iraq, and bombing Libya (thanks also to grandpa Napolitano)/ The fall of Gaddafi is the cause of the immigration of biblical proportions – from that country that no longer has connections with Italy What’s still left of this devastated country where the words “Patria” {fatherland} and “Nazione “ {nation} are considered to be offensive? If a country has no sovereignty and has leaky borders, can it still call itself a country?

Among the many types of sovereignty that have been lost, there’s also food sovereignty. Food sovereignty implies control by the people in relation to the production and consumption of food. The countries must be able to define their own agricultural and food policies on the basis of their own needs. In the period from 1971 to 2010, Italy lost five million hectares of agricultural land because people were abandoning the land, because of hydrological disturbances and because of “cementification”. Unless there are policies providing incentives for agriculture, people will continue to abandon the land. There are whole areas of Italy that are becoming depopulated with young people fleeing towards the cities. That’s something that started after the second world war and it has never let up. The total area of land now used for agriculture has reduced by 28% in 40 years. Our ability to provide our own food is approaching 80% and it is going down all the time. Only 20 years ago it was 92%.

Italy is the third country in Europe and the fifth in the world as regards the lack of land. It’s a country that is over-populated (we have roughly the same population as France with only half the area of usable land.) To cover our food needs, another 61 million hectares are needed. Every day, 100 hectares of land is being built on, that’s 10 square metres every second. An Italian-style suicide. The Great Public Works are given precedence. But the only thing about them that’s “great” are the associated kickbacks. Instead there should be a long-term plan to put an end to the hydrogeological disruption and to clean up the terrain that has been polluted by every type of waste product. The paradox of Expo 2015 is that it focuses on “Feeding the planet“ and yet to bring it into being, a million (yes – one million) square metres of agricultural land has been used. That’s beyond belief. Food is the weapon of the future, not bombs.

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From our friend Nelson in Wanganui.

Regenerative Agriculture: The Popular Face Of Permaculture (Lebo)

“Hippy farms always fail.” These were the words of Chuck Barry, a small-scale organic farmer I met in Montrose, Colorado about ten years ago. Chuck made a comfortable living growing high quality vegetables on two acres in a dry and seasonally cold environment that may be compared with Central Otago high country. His comment was based on observations of some people going into farming with good intentions but little understanding of the amount of work involved and inadequate business sense. There is popular, quaint, romantic notion among many people about growing food organically. But at the end of the day, when faced with actually doing it, most hippies opt out because it turns out to be just too hard.

On the other end of the spectrum – as we have been hearing recently in the news – many conventional farms also fail. Conventional farming wisdom over the last decade goes something like this: 1) borrow lots of money from the bank; 2) convert to dairy; 3) borrow more money; 4) rely on ever-increasing dairy pay outs; 5) borrow more money; 6) rely on ever-increasing land prices; 7) get rich; 8) what could possibly go wrong? Well, now we know. Dairy pay outs have fallen through the floor and many farmers are pushed to the wall. On one hand I feel sorry for those famers who have to sell because of their now un-payable debts. But on the other hand, I question why they bought into the paradigm described above in the first place, which appears to me to be very risky.

Alongside financial debt, many conventional farms also run a large soil debt. We see it every day flowing past our city and out into the Tasman Sea. Like financial debt, soil debt is difficult to repay but not impossible. Rebuilding soil fertility while growing food is sometimes called regenerative agriculture. Regenerative agriculture can include organic farming practices, some biodynamic techniques, and holistic range management. All three of these fall within the scope of the eco-design system known as permaculture. I see permaculture as the middle ground between failed hippy farms and failed conventional farms.

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 August 11, 2015  Posted by at 9:23 am Finance Tagged with: , , , , , , , , ,  1 Response »


Howard Hollem Assembly and Repairs Department Naval Air Base, Corpus Christi 1942

China Slashes Yuan Reference Rate by Record 1.9% (Bloomberg)
How To Anger Asia And The Fed In One Go: Devalue The Yuan (CNBC)
Emerging Stocks Head for Two-Year Low After China Devalues Yuan (Bloomberg)
China Joins The Global Devaluation Party (Coppola)
Chinese Spurn Unprecedented 30% Car Discounts Amid Slowdown (Bloomberg)
U.S. Consumers Rein in Spending Growth Plans, New York Fed Says (Bloomberg)
Greece And Lenders Reach Deal On Third Bailout (Kathimerini)
Germans And Slovaks Stand Ready To Scupper Greek Deal (Telegraph)
Germany Gained €100 Billion From Greece Crisis, Study Finds (AFP)
Greek Military: Armed and Financially Dangerous (Zeit)
Deflation Stalks the Euro Zone (Bloomberg)
Bank of Russia Gets Putin’s Praise as Ruble Rebounds With Crude (Bloomberg)
Impeaching Rousseff Would Set Brazil On Fire: Senate Chief (Reuters)
UK Farming Unions Call For ‘Seismic Change’ In Way Food Is Sold (Guardian)
New Zealand A ‘Virtual Economic Trade Prisoner Of China’ (Nz Herald)
EU To Provide $3.6 Billion Funding For Migrant Crisis Over 6 Years (Reuters)
French Police Say Time To ‘Bring In British Army’ To Calais (RT)
History In Motion (Pantelis Boukalas)
Japan Restarts Sendai Nuclear Reactor Despite Public Opposition (Fairfax)
A Good Week For Neutrinos (Butterworth)

I haven’t seen anyone in the US whine about currency manipulators yet. Da Donald?

China Slashes Yuan Reference Rate by Record 1.9% (Bloomberg)

China devalued the yuan by the most in two decades, ending a de facto peg to the dollar that’s been in place since March and battered exports. The People’s Bank of China cut its daily reference rate for the currency by a record 1.9%, triggering the yuan’s biggest one-day loss since China unified official and market exchange rates in January 1994. The change was a one-time adjustment, the central bank said in a statement, adding that it plans to keep the yuan stable at a “reasonable” level and will strengthen the market’s role in determining the fixing. “It looks like this is the end of the fixing as we know it,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group. “The one-off devaluation of the fix and allowing more market-based determination takes us into a new currency regime.”

The PBOC had been supporting the yuan to deter capital outflows and encourage greater global usage as China pushes for official reserve status at the IMF. The intervention contributed to a $300 billion slide in the nation’s foreign-exchange reserves over the last four quarters and made the yuan the best performer in emerging markets, eroding the competitiveness of Chinese exports. [..] The currency’s closing levels in Shanghai were restricted to 6.2096 or 6.2097 versus the dollar for more than a week through Monday and daily moves has been a maximum 0.01% for a month. The devaluation triggered declines of at least 0.9% in the Australian dollar, South Korea’s won and the Singapore dollar, while Hong Kong’s Hang Seng Index of shares rose 0.7%.

China has to balance the need to boost exports with the risk of a cash exodus, Tom Orlik, chief Asia economist at Bloomberg Intelligence, wrote in a research note. He estimates a 1% depreciation in the real effective exchange rate boosts export growth by 1 percentage point with a lag of three months. At the same time, a 1% drop against the dollar triggers about $40 billion in capital outflows, he wrote. “The risk is that depreciation triggers capital flight, dealing a blow to the stability of China’s financial system,” Orlik wrote. The calculation from China’s leaders is that with their $3.69 trillion of currency reserves “they can manage any risks from capital flight,” he said.

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The Fed must have been expecting this.

How To Anger Asia And The Fed In One Go: Devalue The Yuan (CNBC)

A new Asian currency war and a delayed Federal Reserve rate hike; these are the potential market-shaking implications of Beijing’s decision to devalue the yuan, strategists told CNBC. “If they are true to their word today and this is a new regime for the fixed mechanism, we might think about using the word ‘floating’ associated with the Chinese exchange rate—that’s a massive change,” noted Richard Yetsenga, head of global markets research at ANZ, referring to Tuesday’s announcement by the People’s Bank of China to allow the yuan to depreciate as much as 2% against the U.S. dollar.

The move took global traders by surprise, with many pointing to weak July trade data, the recent stock market rout’s spillover impact on consumption, and aspirations for inclusion into the IMF’s Special Drawing Rights basket as factors motivating Beijing. “It’s an interesting move which means several things: when the People’s Bank of China first started lowering interest rates and reserve requirements, that freed up bank lending, which likely went to stocks. Now this yuan re-engineering will help companies that represent the greater economy, i.e. exporters, not just companies heavily weighted in stock markets,” explained Nicholas Teo, market analyst at CMC Markets.

China may be focused on becoming more market-oriented, but Tuesday’s announcement is the latest in a series of competitive devaluations in Asia and other emerging markets, traders said. “Clearly, this is a shock to the rest of Asia. If you look at China’s top trading partners—Korea, Japan, the U.S. and Germany—this is a competitive hit to the exports of those countries. China is exporting disinflation to countries who receive Chinese exports. This is especially negative for Asia currencies,” noted Callum Henderson, global head of FX Research at Standard Chartered.

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There never was another option.

Emerging Stocks Head for Two-Year Low After China Devalues Yuan (Bloomberg)

Emerging-market stocks headed for a two-year low and currencies sank after China devalued the yuan amid a deepening slowdown in its economy. China Southern Airlines and Air China sank at least 12% in Hong Kong on concern a weaker yuan will boost the value of their dollar-denominated debt. Indonesian stocks fell to a 17-month low. China’s currency slid the most in two decades versus the dollar. South Korea’s won fell 1.3% and Malaysia’s ringgit extended declines to a 1998 low. Russia’s ruble lost 0.6%. The MSCI Emerging Markets Index slid 0.4% to 884.02 at 3:28 p.m. in Hong Kong. China’s central bank cut its reference rate by 1.9%, triggering the yuan’s biggest one-day loss since the nation unified official and market exchange rates in 1994.

Data on Tuesday showed China’s broadest measure of new credit missed economists’ forecasts last month. “This is another effort by China to boost economic growth as a weaker currency could increase exports,” said Rafael Palma Gil, a trader at Rizal Commercial Banking Corp., which has $1.8 billion in trust assets. Investors should favor companies that earn dollars over those with large dollar-denominated debts, he said. MSCI’s developing-nation stock index has fallen 7.3% this year and trades at 11.2 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has added 3.3% and is valued at a multiple of 16.4.

Eight out of 10 industry groups fell, led by industrial shares. China Southern Airlines tumbled 17% and Air China was poised for the biggest drop since April 2009. Hong Kong’s Hang Seng China Enterprises Index fell 0.6%, erasing earlier gains. The Shanghai Composite Index was little changed. Indonesia’s Jakarta Composite Index tumbled 2% on concern the yuan devaluation may weaken exports from Southeast Asia’s largest economy. Shipments to China, Indonesia’s third-largest trading partner, had already dropped 26% in the first half of 2015, according to government data.

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Beggar thy neighbor to the bottom of the barrel.

China Joins The Global Devaluation Party (Coppola)

As Chinese economic performance has worsened in recent months there has been a growing divergence between RMB “central parity” (the unofficial official exchange rate) and the RMB’s market rate. This increased sharply when the most recent statistics were released. Maintaining a higher parity than the market wants is costly, as Russia could tell you: China has been unloading its foreign reserves at a rate of knots to support its currency. Maintaining too high a parity is costly in other ways too. China’s precious export-led growth strategy is at risk from the rising dollar. The “macroeconomic and financial data” referred to by the PBOC includes sharply falling exports, particularly to the EU and Japan. July’s export figures were dismal, and the trade surplus was well below forecast.

Add to this the massive over-leverage of the Chinese economy – overtly engineered by the government – and recent stock market volatility, and devaluation was inevitable. The only surprise is that the PBOC has not acted sooner. Indeed, why hasn’t it acted sooner? After all, the Fed has been passively tightening monetary policy for a year now, ending QE and repeatedly signalling that rate hikes are on the horizon. This is principally why the yuan REER has been rising. Furthermore, both the ECB and the Bank of Japan are doing QE, depressing the Euro and the yen and forcing smaller countries to defend their currencies. Emerging market economies are particularly badly affected, but we shouldn’t forget about Switzerland, which is still trying to prevent its currency appreciating as capital flows in from the troubled Eurozone. Capital inflows can be every bit as damaging as capital outflows. Reuters has an explanation for the PBOC’s reluctance to join the devaluation party:

Analysts say Beijing has been keeping its yuan strong to wean its economy off low-end export manufacturing. A strong yuan policy also supports domestic buying power, helps Chinese firms to borrow and invest abroad, and encourages foreign firms and governments to increase their use of the currency.

This brings us back to the liberalization of the Chinese financial economy. China needs the yuan to be widely accepted OUTSIDE China if it is to have any chance of becoming one of the IMF’s SDR basket currencies – the essential prelude to becoming a global reserve currency. Hence PBOC’s reluctance to devalue. So now, having been forced to devalue because of bad economic news, the PBOC is making a virtue out of necessity. Devaluing the yuan is presented as part of its liberalization strategy. Not that the PBOC has any intention of moving to a free float any time soon, though its statement does signal that it might widen the band.

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Might as well give them away. Next year’s models are on the way.

Chinese Spurn Unprecedented 30% Car Discounts Amid Slowdown (Bloomberg)

Bill Shen wants to upgrade his 8-year-old Citroen to something fancier, maybe an Audi or a BMW. But the Shanghai resident is in no hurry. Cars keep getting cheaper. Facing the slowest growth in new car sales in four years, dealerships in China have chipped away at retail prices in the past several months. Now discounts of at least 30% are being offered in major cities on hundreds of models. Audi’s top-of-the-range A8L luxury sedan, originally listed for 1.97 million yuan ($317,000), is now going for 1.28 million yuan, according to Autohome, a popular car-pricing portal. “Prices are getting lower all the time, even as cars are getting better,” said Shen, 37, who works for an auto parts company. “If it’s not urgent, one can wait.”

Consumers like Shen represent the biggest threat to China’s new-vehicle market, which overtook the U.S. in 2009 to become the world’s biggest. With the Chinese economy flagging, and government curbs on car registrations and stock market volatility deterring would-be car buyers, the auto industry is pulling out unprecedented offers to drum up sales. Their success may be reflected in industry sales figures for July slated for release on Tuesday by both the Passenger Car Association and China Association of Automobile Manufacturers. “This round of price cuts is the worst in China’s auto industry history in terms of the number of models involved and the depth of the cuts,” said Su Hui, a deputy division head at the state-backed China Automobile Dealers Association and a 26-year veteran of the trade.

“Nobody saw it coming, not the government, not the automakers, not the dealers.” Besides discounting prices, carmakers and dealers are offering incentives such as subsidized insurance, zero down-payments, interest-free financing and boosting trade-in prices, according to brokerage Sanford C. Bernstein. Peugeot Citroen and Mazda. have warned of a looming price war that will damage profit margins. BMW said this month that slowing sales in China may force it to revise this year’s profitability goals.

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They’re broke just like the Chinese?!

U.S. Consumers Rein in Spending Growth Plans, New York Fed Says (Bloomberg)

U.S. consumers last month envisioned the slowest rate of growth in their planned spending in at least two years, according to a survey by the Federal Reserve Bank of New York released on Monday. The New York Fed’s July Survey of Consumer Expectations found that households expect to increase spending by 3.5% over the next year, down from the 4.3% gain seen in June, according to the median response. It was the lowest reading since the survey started in 2013. Median expected inflation over the next year was unchanged at 3%. The monthly New York Fed survey comes ahead of the release of a Commerce Department report on Thursday that is forecast to show U.S. retail sales rose 0.6% in July after falling 0.3% in June.

The Fed is looking for signs that the labor market and inflation have returned to normal before beginning to raise its benchmark federal funds rate. Most economists expect policy makers will act at their next meeting on Sept. 16-17. The Fed has kept rates near zero since 2008 to combat the worst economic crisis since the Great Depression. Spending data are important because the consumer underpins the Fed’s optimism that economic growth will accelerate. “That’s really fundamental to our improved outlook,” Chicago Fed President Charles Evans said during a breakfast with reporters last month. “We are really counting on the consumer playing a strong role.”

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Tentatively for now.

Greece And Lenders Reach Deal On Third Bailout (Kathimerini)

Greece and its lenders have reached an agreement on the terms of a third bailout, government sources said early on Monday. The deal appears to have been concluded shortly after 8 a.m. local time following a marathon last session of talks that began on Monday morning. Emerging from the Hilton hotel, where the negotiations were taking place, Finance Minister Euclid Tsakalotos suggested a deal is in place. “We are very close,” he told reporters. “There are a couple of very small details remaining on prior actions.”

Kathimerini understands that the agreement involves the government having to immediately implement 35 prior actions. The measures demanded include changes to tonnage tax for shipping firms, reducing the prices of generic drugs, a review of the social welfare system, strengthening of the Financial Crimes Squad (SDOE), phasing out of early retirement, scrapping tax breaks for islands by the end of 2016, implementation of the product market reforms proposed by the OECD, deregulating the energy market and proceeding with the privatization program already in place.

Should the agreement be finalized, it is likely to be voted on in Greek Parliament on Thursday. This would be followed on Friday by a Eurogroup and the process of other eurozone parliaments approving the deal. The European Stability Mechanism would then be in a position to disburse new loans to Athens before August 20, when Greece has to pay €3.2 billion to the ECB. Greece is aiming to receive €25 billion in the first tranche, allowing it to pay off international lenders, reduce government arrears and have €10 billion left for bank recapitalization.

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Good. We wouldn’t want anything to run smoothly, would we? Where’s the fun in that?

Germans And Slovaks Stand Ready To Scupper Greek Deal (Telegraph)

Eurozone creditor governments raised fresh concerns about the viability of a new Greek rescue package on Monday despite hopes from Athens that an agreement to unlock vital rescue funds was inching ever closer. Greeca and its creditor partners reportedly agreed on fiscal targets the country will need to hit over the next two years, on Monday evening. They would amount to a baseline of 0pc in 2015, followed by a primary surplus of 0.5pc the following year, and 1pc in 2017, according to an official quoted by Reuters. The targets would represent significant easing of the initial austerity measures demanded from Athens Leftist government, and reflect the severity of the damage that has been wrought to the economy by capital controls.

Creditors projections assume Greece will contract by another 0.5 pc in 2016, before returning to a 2.3% growth in 2017, the official added. However, in a sign of continued dissent among the ranks of Europe’s creditor nations, both Germany and Slovakia stood firm on the tough conditions Athens must accept as its price to stay in the eurozone. Sloviakian prime minister Robert Fico, who represents one of the most hardened member states against further eurozone largesse to Greece, insisted his government would not stump up a “single cent” in debt write-offs on Greece’s €330bn debt mountain. Without debt relief, the IMF has said it will pull out of talks with Athens until there is an “explicit and concrete agreement”, jeopardising the entire basis of a new three-year rescue package.

But Mr Fico said Slovakia would reject any attempt to cut the value of Greece’s debt and was “nervous” about the current status of talks between the Syriza government and its creditors. “Slovakia will not adopt a single cent on Greek sovereign debt, as long as I am prime minister”, he told Austria’s Der Standard. “There are other options: You can drag redemption dates but this also has limits: We can not wait 100 years until Greece repays its debts.” The IMF has recommended a maturity extension of another 30 years on Greece’s debt mountain; the country will already be paying back its creditors in 2057. Mr Fico added that he “wholeheartedly” supported German finance minister Wolfgang Schaeuble’s proposal for a “temporary” eurozone exit for Greece during eleventh hour summit talks in July.

“There are no rules in the EU over a euro exit…But that does not mean however, that you can not create the rules. The proposal with a fixed-term euro exit has advantages. I support the agreement reached for Greece, but we will be watching very closely what is happening now. We are nervous.”

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Meanwhile, in the real world..

Germany Gained €100 Billion From Greece Crisis, Study Finds (AFP)

Germany, which has taken a tough line on Greece, has profited from the country’s crisis to the tune of €100 billion, according to a new study Monday. The sum represents money Germany saved through lower interest payments on funds the government borrowed amid investor “flights to safety”, the study said. “These savings exceed the costs of the crisis – even if Greece were to default on its entire debt,” said the private, non-profit Leibniz Institute of Economic Research in its paper. “Germany has clearly benefited from the Greek crisis.” When investors are faced with turmoil, they typically seek a safe haven for their money, and export champion Germany “disproportionately benefited” from that during the debt crisis, it said.

“Every time financial markets faced negative news on Greece in recent years, interest rates on German government bonds fell, and every time there was good news, they rose.” Germany, the eurozones effective paymaster, has demanded fiscal discipline and tough economic reforms in Greece in return for consenting to new aid from international creditors. Finance Minister Wolfgang Schaeuble has opposed a Greek debt write-down while pointing to his own government’s balanced budget. The institute, however, argued that the balanced budget was possible in large part only because of Germany’s interest savings amid the Greek debt crisis.

The estimated €100 billion euros Germany had saved since 2010 accounted for over 3% of GDP, said the institute based in the eastern city of Halle. The bonds of other countries – including the United States, France and the Netherlands – had also benefited, but “to a much smaller extent”. Germany’s share of the international rescue packages for Greece, including a new loan being negotiated now, came to around €90 billion, said the institute. “Even if Greece doesn’t pay back a single cent, the German public purse has benefited financially from the crisis,” said the paper.

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And on top of the €100 billion German profit from Greece, there are the secret side deals with German arms industry. That the Troika will refuse for Syriza to cut.

Greek Military: Armed and Financially Dangerous (Zeit)

The Bonn International Center for Conversion has listed Greece among the most militarized countries since 1990. It was ranked ninth in 2014, ahead of all other NATO members – despite Greece’s financial crisis. “Athens’ high arms expenditures and extensive weapons purchases over the past years have contributed to the desolate budget situation,” according to BICC. The figures show that Greece invested nearly €6 billion in its military in 2000. Eight years later, the figure was €8.6 billion. In 2009, Europe’s NATO member countries spent an average of 1.7% of their GDPs on defense – Greece was at 3.1%. The country was among the world’s five biggest arms importers between 2005 and 2009, according to the Stockholm International Peace Research Institute.

Athens’ high arms expenditures and extensive weapons purchases over the past years have contributed to the desolate budget situation. In May 2010, Greece had to be saved from financial ruin, and eventually received a loan package of hundreds of billions of euros. The government used some of this money to buy more weapons. Now, even more cash is on the table. The Greek government, led by Alexis Tsipras, has accepted a number of conditions connected to the deal. Greece must save money. The value-added tax has been increased, pension payments are to decrease, state-owned companies are to be privatized, and corruption weeded out. But only marginal consideration has been given to the country’s huge military expenditures. The army remains sacrosanct.

Politicians and others in Germany have often harshly criticized Mr. Tsipras. But the critics seem to forget that debt-ridden Greece until recently was ordering armaments worth billions of euros from Germany. Between 2001 and 2010, Greece was the most important customer for the German defense industry. During this period, Greece bought 15% of all of Germany’s exports, SIPRI estimates. Greece’s armed forces have nearly 1,000 German-developed model Leopard 1 and 2 combat tanks. Including models from other countries, Greece has 1,622 tanks. The German military has 240 Leopard tanks in service. (That number is to increase by around 90 because of the crisis in Ukraine.) While the German armed forces have been shrinking and phasing out military equipment for years, Greece has gone the other way. No other E.U. country has more combat tanks today.

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A very flawed article that presents predictions by Bloomberg Survey economists as fact.

Deflation Stalks the Euro Zone (Bloomberg)

The euro zone is poised to record its ninth quarter of economic growth, with economists predicting that gross domestic product figures scheduled for release Friday will show the economy expanded by 0.4% in the second three months of the year. Unfortunately for the ECB, that revival isn’t dispelling the risk that disinflation will worsen into deflation. For reasons that future historians of economic policy may struggle to unravel, modern central bankers have decided that the Goldilocks rate of acceleration for consumer prices to run not too hot, not too cold, is 2%. And while forecasts compiled by Bloomberg suggest that economists expect the U.S. to achieve that state of inflationary nirvana in the first three months of next year, prices in the euro region are seen languishing at 1.5% in the first quarter of 2016 and then decelerating.

That outlook helps to explain why almost a quarter of the market for euro-zone government bonds has negative yields, meaning investors are paying for the privilege of keeping their money in $1.5 trillion of securities, according to data compiled by Bloomberg reporters Lukanyo Mnyanda and David Goodman. It has been almost a year, for example, since German two-year notes paid more than zero. The disparity in the inflation outlooks for the euro region and the U.S. is also driving a divergence in borrowing costs. As Bloomberg strategist Simon Ballard points out, investment-grade borrowers are paying more to borrow dollars than euros, and the gap has reached its widest level since at least December 2009.

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I said it before: Elvira Nabiullina is a smart cookie. Moreover, Russian debt levels are very low compared to western nations. The demise of Putin is greatly exaggerated in the western press.

Bank of Russia Gets Putin’s Praise as Ruble Rebounds With Crude (Bloomberg)

Russian President Vladimir Putin commended the central bank for its efforts to keep the ruble stable after policy makers called for calm as the currency bounced back from a six-month low. “The central bank is doing a lot to strengthen the national currency or in any case to ensure its stability and the stability of the financial system as a whole,” Putin said at a meeting with Governor Elvira Nabiullina. “I see how persistent you are in going down that path.” The Bank of Russia said on Monday that corporate debt payments in 2015 won’t overwhelm the foreign-exchange market with “excessive demand” after redemptions last year helped spark the worst currency crisis since 1998.

Companies and lenders have to repay as much as $35 billion out of the $61 billion that falls due from September to December, the central bank said on its website. The rest may be rolled over or refinanced because some of it is owed to affiliated companies, it said. [..] Policy makers are short on instruments as they try to avert another ruble collapse after a rushed switch to a freely floating currency in November. While the central bank has faced questions about its commitment to allow the market to set the ruble’s exchange rate, the Russian leadership has been more unabashed in acknowledging a measure of control over the currency market as the economy succumbs to a recession. Putin said in June that a weaker ruble was helping Russian companies weather the economic crisis.

The central bank last month halted foreign-currency purchases, started in mid-May to boost reserves, after a renewed slide in commodity prices triggered further ruble declines. It defended the operations as compatible with its free float and has pledged to avoid interventions unless the ruble’s swings threatened financial stability. With its statement on Monday, the central bank is conducting “verbal intervention aimed at stabilizing market sentiment regarding the ruble,” Dmitry Dolgin, an economist at Alfa Bank in Moscow, said by e-mail. “There are concerns on the market that the looming repayment of external debt will exert significant pressure on the balance of currency demand and supply on the domestic market, especially under the conditions of falling oil prices.”

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Her popularity rate is at 8%.

Impeaching Rousseff Would Set Brazil On Fire: Senate Chief (Reuters)

The president of Brazil’s Senate said on Monday that attempting to impeach President Dilma Rousseff was not a priority and warned that seeking her removal in Congress would “set the country on fire.” Renan Calheiros, who is often critical of the administration, struck a more positive tone amid a deepening political crisis after seven months into Rousseff’s second term. Many of the president’s opponents in Congress have called for her impeachment for allegedly breaking the law by doctoring fiscal accounts to allow her government to spend more in the run-up to her re-election in October. Calheiros, a leader of the country’s biggest party, the PMDB, spoke to reporters after meeting with Finance Minister Joaquim Levy to discuss the government’s fiscal austerity plan.

He promised to bring to a vote this week a bill that rolls back payroll tax breaks, which would save the government nearly 13 billion reais ($3.78 billion) a year. The rollback is the last key bill to be approved in an austerity package aimed at preserving the country’s investment-grade rating. The Brazilian real, buffeted by political uncertainty in recent weeks, added some gains after Calheiros’ comments. The lower chamber of Congress, whose speaker recently defected to the opposition, decides whether to start an impeachment process, which then goes to the Senate for a final ruling. Rousseff would be suspended as soon as the lower chamber agrees to impeach her, which requires two-thirds of the votes.

Rousseff’s support in Congress is rapidly fading as the economy heads toward a painful recession and a widening corruption scandal at state oil company Petrobras rattles the country’s political and business elite. Her popularity is at record lows and opponents plan a nationwide anti-government protest on Sunday. Congress has resisted Rousseff’s austerity efforts by watering down measures to cut expenditure and raise taxes, while passing bills that raise public spending.

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But.. but.. that’s protectionism…!

UK Farming Unions Call For ‘Seismic Change’ In Way Food Is Sold (Guardian)

Farming is in a “state of emergency” and a “seismic change” is needed to the way food is sold in Britain, agriculture leaders have warned after a crisis summit on falling milk prices. Leading farming unions called on the government to introduce long-term contracts between farmers, distributors and supermarkets and to force retailers to clearly label whether their products are British or imported. The emergency summit in London followed days of protests from farmers over the sharp fall in the prices they are being paid for milk. Asda and Morrisons distribution centres have been blockaded, farmers have removed cartons of milk from supermarkets and cows were paraded through the aisles of an Asda store in Stafford.

Figures from AHDB Dairy, the trade body, show that the average UK farmgate price for milk – the price that farmers are paid – has fallen by 25% over the last year, to 23.66p per litre. Industry experts claim it costs farmers 30p per litre to produce milk, meaning farms have been thrown into chaos by the drop in prices. Farmers have blamed the fall in prices on a supermarket price war but retailers claim the drop reflects declining commodity prices and an oversupply of milk, partly caused by Russia’s block on western imports. Farmers For Action, the campaign group behind the milk protests, is scheduled to meet representatives from Morrisons on Tuesday to discuss the crisis.

The farming unions warned of “dire consequences for the farming industry and rural economy” if the way in which food is sold does not change in the near future. The presidents of the NFU, NFU Scotland, NFU Cymru, Ulster Farmers Union and four other unions, said: “We would urge farm ministers across the UK to meet urgently. They need to admit that something has gone fundamentally wrong in the supply chain and take remedial action. “In general, voluntary codes are not delivering their intended purpose. Government needs to take action to ensure that contracts to all farmers are longer-term and fairer in apportioning risk and reward. “Government also needs to urgently ensure that rules are put in place regarding labelling so that it is clear and obvious which products are imported and which are British.”

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Sold their soul.

New Zealand A ‘Virtual Economic Trade Prisoner Of China’ (Nz Herald)

No one doubts the benefits of extending our trade opportunities – but many are alarmed at a dangerous naivety in what passes for our trade policy. That policy reflects our unfortunate dependence on a single commodity; our anxiety to maximise our one trading advantage by currying favour with powerful trading partners has led us into some treacherous waters. We have, for example, rapidly built up a Chinese market for our dairy produce with the result that – without any assurance that that market will remain open to us – we are now virtually economic prisoners, forced to meet almost any Chinese demand in order to retain a market that has become our life blood.

We have chosen, for example, to avert our gaze from the obvious effects of Chinese intervention in the Auckland property market for fear of offending Chinese opinion. More importantly, we have apparently not recognised that the Chinese interest goes beyond merely buying our products in a normal trading relationship, but extends to obtaining control of the productive capacity itself. Dairy farms themselves, processing plants, manufacturing capacity, expertise of various sorts are now owned by Chinese operators; their production increasingly by-passes New Zealand economic entities and suppliers and is marketed by Chinese companies directly to the Chinese consumer.

There are of course many instances of Chinese capital being deployed across the globe in pursuit of assets and capacity. This is not a cause for criticism – the Chinese are entitled like anyone else to pursue their own interests. It is simply a statement of fact. We, however, seem unaware of what is happening. It is no accident that this direct supply to the Chinese market has accompanied a fall in the proportion of New Zealand dairy production handled by Fonterra. While the proportion of our dairy production under Chinese control is still quite small, there can be little doubt that it will grow.

Low dairy prices will force the sale of a number of farms to foreign owners. As the Chinese increasingly control their own sources of supply, their reduced requirements for dairy produce on international markets will inevitably mean downward pressure on prices. Nor is it just the ownership of the physical product that has passed into foreign and often Chinese hands. The decision to allow non-farmer ownership of “units” (or, in other words, shares) in Fonterra has meant that we must now face the prospect of a significant part of the income stream from our most important industry to pass into private and often foreign hands.

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Over 6 years?! How about right now, and handle the issue properly?

EU To Provide $3.6 Billion Funding For Migrant Crisis Over 6 Years (Reuters)

The European Commission on Monday approved €2.4 billion of aid over six years for countries including Greece and Italy that have struggled to cope with a surge in numbers of immigrants. Italy is to receive the most aid – nearly €560 million, while Greece will receive €473 million. Tensions have escalated this year as thousands of migrants from the Middle East and Africa try to gain asylum in the European Union. In Calais, a bottleneck for migrants attempting to enter Britain illegally through the Eurotunnel from France, has seen several migrant deaths this month.

Britain has already received its €27 million from the commission in emergency aid funding, which it applied for in March. France will receive its €20 million later this month. Neither country has requested additional aid for security in Calais and will not receive funds from the latest aid program. “We are now able to disburse the funding for the French national program and the UK has already received the first disbursement of its funding,” Natasha Berthaud, a European Commission spokeswoman, said. . “Both of these programs will, amongst other things, also deal with the situation in Calais.” The Commission plans to approve an additional 13 programs later this year, which will then be implemented by EU member states.

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The only answer Europe ever seems to have.

French Police Say Time To ‘Bring In British Army’ To Calais (RT)

Police in Calais, from where thousands of illegal immigrants from Africa and the Middle East risk their lives trying to cross the English Channel to make it to the UK, have suggested bringing in the British army to curb the crisis. The head of the Alliance union for police deployed to the French port and Eurotunnel site, Bruno Noel, has warned that the situation could soon get out of control if additional help is not provided. He complained that his unit is “doing Britain’s dirty work.” “We have only 15 permanent French border police at the Eurotunnel site,” the Daily Telegraph quoted him as saying. “Can you imagine how derisory this is given the situation? “So I say, why not bring in the British Army, and let them work together with the French?” Mr Noel added.

According to different estimates, between 2,000 and 10,000 migrants in Calais are trying to cross the English Channel. Many have attempted to reach Britain by boarding trains through the tunnel or on lorries bound for UK destinations. Twelve people have died this year attempting to reach the UK. The numbers of migrants in the Calais camp, known as The Jungle, have soared over the past few months from 1,000 in April to nearly 5,000 by August. The first call to use British troops was made by Kevin Hurley (former Head of Counter Terrorism for City of London Police, an ex-Paratrooper and an expert on international security), who is currently Police and Crime Commissioner for Surrey. He said the problems stemming from the crowds of migrants trying to enter the UK from Calais through the Channel Tunnel could be dealt with efficiently by Gurkha regiments, based close by in Hythe, a small British coastal market town on the south coast of Kent.

The 700-strong 2nd Battalion of the Royal Gurkha Rifles has been based in the Shorncliffe and Risborough barracks just outside Hythe since 2000, according to Office of the Police and Crime Commissioner for Surrey. “I am increasingly frustrated by the huge numbers of illegal migrants who jump out of the backs of lorries at the first truck stop – Cobham Services in Surrey – and disappear into our countryside. There were 100 in the last month alone,” Mr Hurley said late last month. “But, while the UK and French governments decide their next prevention strategy we, the British police, have to deal with the immediate problem. The Gurkhas are a highly respected and competent force, and are just around the corner. They could help to ensure that our border is not breached,” he added.

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Mass migrations cannot be stopped.

History In Motion (Pantelis Boukalas)

Throughout the history of mankind the walls protecting cities under siege were never able to keep a determined enemy away forever – a first wave would be followed by a second, and so on. But when that enemy conquered those cities, the waves would stop. However, the overwhelming waves of migrating people that are reaching our shores today, mobilized by the desperate need for survival as opposed to the desire to conquer, will simply keep coming. These desperate people are trying to escape Middle Eastern, Asian and African countries where poverty, war and a lack of freedom threaten their very existence. What has been set in motion now is not the persecution of certain populations, but history itself.

This process cannot be halted, no matter how many fences are erected, no matter how many high walls are put up, such as the ones under construction by Hungary at its border with Serbia, or those envisioned by controversial mogul Donald Trump, a candidate for the Republicans’ presidential ticket, at the US-Mexico border. As for the Channel Tunnel, do the British truly believe that 50,000 – instead of 5,000 – determined refugees in Calais could be prevented from crossing at the mere sight of police officers and weapons? A recent editorial in The New York Times was poignant: “Residents on the island of Lesbos – where many refugees from the Middle East land because of its proximity to Turkey – have responded generously, providing meals, blankets and dry clothing.

Their response should shame others in Europe, particularly the British government, which is panicking over the prospect that a mere 3,000 migrants in Calais, France, might make it across the English Channel.” So far, despite officials’ meetings, the positions of Central and Northern Europe with regard to the refugee issue leaves a lot to be desired. As if Italy’s southern borders and Greece’s eastern borders were not the European Union’s own borders.

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“..only two of 85 medical institutes and 15 of 159 nursing and other care facilities within a 30-kilometre radius of the Sendai plant had proper evacuation plans.”

Japan Restarts Sendai Nuclear Reactor Despite Public Opposition (Fairfax)

Japan has restarted its first nuclear reactor since new safety rules were ordered in the wake of the 2011 Fukushima disaster, despite vocal public opposition and anxiety. After months of debate about safety, the No 1 reactor at the 30-year-old Sendai nuclear power plant, on the southwest island of Kyushu, became the first to be brought back to life on Tuesday morning. The reactor, one of 25 which have applied to restart, will begin generating power by Friday and reach full capacity next month. Prime Minister Shinzo Abe has made the restart of the country’s nuclear energy industry a priority of his administration, with the hiatus sending electricity bills soaring, providing a drag on his so-called Abenomics reforms, and serving to highlight Japan’s dependence on energy imports.

But with the scars of Fukushima yet to fade, newspaper polls have shown a majority of Japanese oppose the restart. Mr Abe’s personal approval ratings have also plumbed new depths, having also come under fire for pushing through a controversial new national security bill that will see Japanese troops fight overseas for the first time since World War II. “I would like Kyushu Electric to put safety first and take utmost precautions for the restart,” he said. Yoshihide Suga, the chief cabinet secretary, said “it is important for our energy policy to push forward restarts of reactors that are deemed safe”.

But local residents said they are worried about potential dangers from active volcanoes in the region, and there was no clarity around the evacuation plans for nearby hospitals and schools. An Asahi Shimbun newspaper survey found only two of 85 medical institutes and 15 of 159 nursing and other care facilities within a 30-kilometre radius of the Sendai plant had proper evacuation plans. About 220,000 people live within a 30-kilometre radius – the size of the Fukushima no-go zone – of the Sendai plant. “You will need to change where you evacuate to depending on the direction of the wind. The current evacuation plan is nonsense,” Shouhei Nomura, a 79-year-old former worker at a nuclear plant equipment maker, who now opposes atomic energy and is living in a protest camp near the plant told Reuters.

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A little physics fascination.

A Good Week For Neutrinos (Butterworth)

Neutrinos are made by firing protons into a target. This produces lots of mess, including charged particles called pions (made of a quark and an antiquark), which travel a while and can be focussed into a beam. They eventually decay to neutrinos, which remain in a collimated beam and, mostly, just carry on without interacting with anything. Crucially though, a few of them will, by random luck (maybe bad luck from the neutrinos point of view) collide with normal matter, some of it (by good luck from the physicists point of view) the matter inside the NOvA far detector, which can measure what kind of neutrinos they were.

The vast majority of neutrinos produced when a pion decays are so-called “muon neutrinos”. This means when they interact they should produce muons (a heavier version of the electron). If the neutrinos did nothing odd during their 800 km journey to NOvA, about 200 of them should have been seen by now. However, only 33 turned up. Also, six electron neutrinos turned up, when only about one would be expected.

This is evidence that the neutrinos transmogrify, or “oscillate”, during their journey. That is, they change types. This behaviour is already known; it is how we know neutrinos have mass (in the original version of the Standard Model of particle physics they were massless), and it may be connected with mysterious fact that there is so much matter around and so little antimatter. Studying this kind of mystery is what Nova was built for, and this confirmation of neutrino oscillations is just the start.

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Jul 112015
 
 July 11, 2015  Posted by at 4:51 pm Finance Tagged with: , , , , , , ,  6 Responses »


Kostas Tzioumakas Constantinos Polychronopoulos 2015

I made a new best friend this week. Constantinos Polychronopoulos, Kostas for short, is an inspirational man. And a dynamo and magnet all in one at the same time. He’s a source for hope and change and dignity for literally countless people around him in the city of Athens.

Kostas’ story goes a bit like this, as far as I have been able to gather (he speaks two words of English, but when I went to see him, my friend and photographer and interpreter Dimitri was with me, a good thing):

Kostas lost his job as a marketing specialist in a big firm in Athens early on when the financial crisis broke. Gradually, he had no choice but to move back in with his mother and was forced to share her ever more meagre pension. He must have been close to 45 at the time, he’s 50 now.

Then one day in 2011, as he tells it, he saw two kids fighting over some food they found in a dumpster (yes, that is Athens, even back then). The next day, he decided to go to a farmer’s market and ask the stall keepers for leftover food. Right then and there, he started to cook a meal with what they gave him, and to give it away to anyone who wanted to eat, to share.

His main motto still is: Free Food For All! He will not tolerate discrimination of any kind. And he always eats along with the people he feeds. We share!

Kostas now cooks ‘in the street’, and I mean that literally, every day. In the beginning, he was arrested multiple times on health related charges etc, but he successfully defended his case saying there was no law against cooking food in the street and giving it away.

Today, his statement reads:

The idea of Society Kitchen “The Other Human”

In an action of solidarity and a manifestation of love towards our fellow men, with the hope to awaken consciousness and for there to be other similar actions form other individuals and from groups.

These actions are not philanthropic or charity.

We cook “live”, we eat together and we live together.

A lunch with our fellow men on the street.

Join us to make each day more beautiful.

These days, he feeds over 300 people every day. Athens is the city of homeless people. And they’re not winos or people with mental issues, as we know from North American and European cities, though some of them inevitably are.

In Athens, they’re the people who not long ago had good jobs and good prospects, and often families to raise, and who now find themselves with nothing left. Many many people have moved (back) in with parents or family or friends, but not all have that choice. And even if they do, there is no future anywhere to be seen.

A big thing for Mr. Polychronopoulos (I love that say that name) is that he’s able to provide them with a goal in life, with something useful to do, so maybe one day they can go back into a normal functioning society, instead of only sinking ever deeper into a bottomless hole.

Today, these are the people that Kostas can count on to be his volunteers. He now has 3 crews cooking meals outside, in squares and streets, every day in various places in the city. There are a few spots where he’ll be every Tuesday, or every Thursday, but the rest are all different places all the time. Because the need is everywhere.

The food he cooks is all donated. By individuals, supermarkets, restaurants, wherever he can get it. A huge task all in itself. But he and his people get it done, 24/7. Kostas is not a big fan of soupkitchens, because since Athens never had a need for them, they have no cooking facilities and instead get catered to by professional enterprises who work for profit and in his eyes provide poor quality.

That’s not to say they’re not desperately needed, mind you, he simply feels there’s a better way to do it. To get the perspective, there are easily over 100,000 people in Athens alone who need to be fed every day. Half the population of Greece, some 6 million people, live on or below the edge of poverty.

I don’t know about you, but it feels to me like these people have already been told they don’t belong to Europe, no matter what proposals and negotiations are flying over the table. They are effectively living in the third word. Or perhaps even a fourth world.

Dimitri and I went to see Kostas on Wednesday in a sort of apartment building where his organization -that’s what it’s become by now-, named O Allos Anthropos, The Other Human, rents a space where homeless people can go for a meal, or to take a shower, or even, and I must admit I wouldn’t have thought of that, to let their children enjoy a real playroom:

There are clothes being donated -though I understand any and all donations become harder to come by even if ever more people want to donate, everyone simply has less and less-:

There’s a computer where everyone who walks in can go look for job applications -there are few, though it’s no exception to find people with university degrees here-, and of course there’s a kitchen:

Obviously, there’s the proverbial me and him -and furry cuteness- picture:

And the receipt:

As you may be able to decipher between all that Greek, I donated €500 to Kostas and his organization. I thought it good to be careful with your money (I always will), but now I think I should give him more. I can hardly think of anyone more deserving, or anyone who I’d trust more to make sure it’s used in the best possible way. And he insisted on seeing me again anyway before I go.

Which brings me to the next point. I have a ticket out of here on Thursday. So time is becoming an issue. I could get an extension, but I think I’d rather come back. Also because Nicole is in Europe now, and it would be nice to bring her along. Don’t worry, we cover our own travel costs, not a penny of the money you donated to the AE for Athens Fund goes to anyone or anything but the appropriate organizations in the city. Word. Cross my heart.

But there are other snags. For one, the euro may not be legal tender here much longer. I don’t think that’s a big risk, but it’s there. Also, ATMs may stop working altogether a few days from now (Monday?). And ironically, while apparently huge amounts of bank cards are being issued in the city, the organizations we donate to plead for cash euros. Because everything has become a cash economy. It’s hard to know what to do from one day to the next.

So I will have to see what is going to happen. I’m due to visit another clinic on Monday. I have the meeting with Kostas on Tuesday. Dimitri and I are looking hard for an organization that helps refugees, and that we like. Kostas wants to steer clear of all NGOs and government help, and that seems like a good idea. But it has to be possible. There are 1000s of refugess arriving in Greece every day, and €1000 is nothing in that respect.

As you may see, this occupies a lot of my time by now, But I also have to keep The Automatic Earth running. And see some daylight from time to time. Oh, and boy, this city is hot!

After my article on the clinic Wednesday, more money rolled in. You guys are truly something else. The total donations for the AE Fund for Athens have now gone over $8000 US!!! That’s still well over €7000. So I have some big decisions, and big responsibilities, by now. And I will live up to them as best I can. Look, the clinics will need money, and badly, at any given point in time, and for a long time to come. Kostas can and will only do good with anything we give him.

So it’s not that big a problem, but the idea of course is to spread the good around. I’m looking at organizations that take care of children. Very important too. I have a phone number for a lady who runs a private initiative for street kids. There’s so many of them… Will call her tomorrow.

Please keep donating, the need is immense, and may get even bigger as the negotiations over Greek budget cuts wrangle on. And even if the Troika decided to give the government another $100 billion, which I strongly doubt, next to nothing would go to where it’s needed most, it would all go to pay off debt, and your money would be much more efficient in helping where it counts.

I’ve been here for two weeks now, and I’ve found it takes time to find the proper ‘targets’ -and I refuse to waste any of your donations-. But we’re closing in on those targets, so by all means don’t stop now. I’ll always keep you posted on where every single dollar went. Your generosity has turned this into a mission for me.

By the way, a commenter at AE said this after my last AE Fund post, and I’m sorry if that still wasn‘t clear enough:

For those who crave more specific instructions: In the left column of this site, towards the top of the page, there is a section for making donations. If you would like to donate to the Greek cause use this section…BUT MAKE SURE YOUR DONATION AMOUNT ENDS WITH .99. Donations ending with any other decimal values will go to the AE site itself.

Most people already got that, as I can see from what comes in, but it may be good to repeat it once more.

And to quote myself from a while ago: Let’s leave the political ramifications alone for the moment, I deal with that on an almost daily basis here at the Automatic Earth already. Let’s for a moment focus on the more immediate. Let’s see what we can do here and now.

Please support the AE for Athens fund. You can donate through our Paypal widget at the top of the left sidebar. Make sure if you want to donate to Greece, to end the amount with $.99 (TAE itself needs funding too).

You can also donate bitcoin at this address: 1HYLLUR2JFs24X1zTS4XbNJidGo2XNHiTT.

Thank you from a city under siege.

You wouldn’t know that, by the way, from the number of tourists, but ironic as it may be, they’re probably the only thing that keeps this city, and the country, barely alive. Double irony: I can take as much out of an ATM as I like, though not all at once, (which allows me to make cash donations..), while my Greek friends are limited to €60 a day.

So the tourists empty the ATMs, bringing the moment that much closer that the Greeks themselves can’t get any anymore. There even seems to be an app now where people can check which ATMs still have cash in them, and which don’t.

Let’s try and help them through these crazy times as best we can. And we can.

Jun 252015
 
 June 25, 2015  Posted by at 8:48 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle June 25 2015


Lewis Wickes Hine ‘Hot dogs’ for fans waiting for gates to open at Ebbets Field 1920

Americans Throw Out $165 Billion Worth Of Food Every Year (MarketWatch)
Europe, A Big Phony (Costas Iordanidis)
Greek Problems Mask The Rising Risks In Italy And France (Satyajit Das)
Britain Would Not Survive A Vote For Brexit (FT)
Greece: A Deal Nobody Believes In (Paul Mason)
Troika’s Red Ink Tells Its Own Story (Guardian)
Greek Syriza Official Says Lenders’ Proposals ‘Blackmail’ (Reuters)
Last-Ditch Greek Rescue Hopes; Tsipras Faces Austerity Ultimatum (Telegraph)
Greece Debt Crisis Talks End In Renewed Deadlock (Guardian)
Greece Rejects Creditors’ Counter-Proposals (AFP)
How Draghi Shifted ECB Crisis Tactic Amid Greek Brinkmanship (Bloomberg)
To Potami Leader Warns Tsipras Over Bailout Reshuffle (FT)
Martin Schulz, The Man Who Would Be Caliph (Neurope)
IMF Must Help Europe With ‘Aggressive’ Athens: Sinn (CNBC)
US Credit Card Debt Grew At 11.5% In April, Fastest In Years (Forbes)
Three Words Count in Bonds: Liquidity, Liquidity, Liquidity (Bloomberg)
Toyota’s Drug Problem, and Japan’s (Pesek)
How WikiLeaks Could Help Precipitate The Fall Of The Saudi Empire (RT)

Inherent in the system design.

Americans Throw Out $165 Billion Worth Of Food Every Year (MarketWatch)

Americans are concerned about wasting food — yet they just can’t seem to stop throwing it out. Some 76% of households say they throw away leftovers at least once a month, while 53% throw them away every week, according to a survey released Wednesday of 1,000 consumers by market research firm TNS Global on behalf of the American Chemistry Council. (The latter is a trade organization for the U.S. plastics industry and so has a vested interest in people using its products to preserve food.) Despite throwing out food, 70% of people say they are bothered by the amount of food wasted in the U.S. Respondents estimated wasting $640 in household food each year — but U.S. government figures estimate people waste closer to $900.

Previous reports suggest even more people throw out unwanted or expired food. Over 90% of Americans may be prematurely tossing food because they misinterpret expiration dates, according to a separate 2013 study released by Harvard Law School’s Food Law and Policy Clinic and the Natural Resources Defense Council, or NRDC, a nonprofit environmental action group. Phrases like “sell by,” “use by,” and “best before” are poorly regulated and often misinterpreted, the report found: “It is time for a well-intended but wildly ineffective food date labeling system to get a makeover.”

Faulty expiration-date rules are confusing at best and, according to another report released this month by Johns Hopkins Bloomberg School of Public Health, the desire to only eat the freshest food and food safety concerns are the two main reasons for throwing it out. “Sell by” dates are actually for stores to know how much shelf life products have. They are not meant to indicate the food is bad. “Best before” and “use by” dates are for consumers, but they are manufacturers’ estimates as to when food reaches its peak. For most food, manufacturers are free to determine the shelf life for their own products.

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A different angle from mine, but the same conclusion.

Europe, A Big Phony (Costas Iordanidis)

On September 11, 2001, the US was the target of an unprecedented terrorist attack. But the country quickly regained its composure. The Americans reacted in the way they felt was the most appropriate, as a unified country ready to defend its vital interests. On September 15, 2008, Lehman Brothers, the fourth-largest investment bank in the US went bankrupt, but the United States bounced back, some way or another, proving itself to be a country with a sovereign currency and strong leadership. Later, cities in California defaulted one after the other, similarly to other US states which had also gone bankrupt in the past. The issue of exiting the dollar was never raised.

Of course the US is a unified country, with a single, sovereign currency, the most powerful and advanced war machine ever to exist in the history of mankind, while the European Union is a big phony. The bloc’s biggest achievement, the euro, was never a sovereign currency in any country, not even in Germany, although it was developed based on the latter’s fears and old ghosts. Greece went bankrupt in 2010 and the country which accounts for just 2% of the eurozone’s GDP created major panic. Europe’s gigantic bureaucracy was deemed insufficient to devise a plan for dealing with the problem. And so Germany called for the IMF to intervene.

Europe looks down on Alexis Tsipras’s government, and not unjustly, for its obsessions, amateurism and hard to justify delays – it was the same, although to a lesser extent, with previous Greek governments. But what is emerging from Brussels right now is positively morbid. How can a eurozone country and government leaders publicly state that proposals submitted by the Greek administration form a “basis” for discussion and have the IMF take it all back a few days later. Tsipras may well be leading a group of unruly and at times rude associates, but the eurozone leadership’s image is not far from that of a group which changes its mind depending on the whims of one of the three institutions. By the way, Antonis Samaras’s government was brought down because of the IMF’s obsessions.

In any case, this is where things stand right now. Wednesday night saw yet another impasse. Even if we assume that the negotiations are successfully completed on Thursday, the damage done to the notion of the euro is very serious. One way or another, the wall put up by Russia excludes any EU economic expansion to the east. Meanwhile, Germany’s dangerous expansion is being averted for the third time – only this time due to the euro. We Greeks, but also our partners, should stop pretending. The current dynamic lies outside Europe.

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Nuclear.

Greek Problems Mask The Rising Risks In Italy And France (Satyajit Das)

According to John Maynard Keynes “the expected never happens; it is the unexpected always”. Obsessed with the problems of Greece and the European periphery, financial markets are ignoring the rising risks of the core, especially Italy and France. Italy and France face mounting problems of high debt, slow growth, unemployment, poor public finances, lack of competitiveness and an inability to undertake necessary adjustments. Reductions in energy prices combined with low borrowing costs and a weaker euro, engineered by the ECB, cannot hide deep-seated and unresolved problems forever. Italian total real economy debt (government, household and business) is about 259% of gross domestic product, up 55% since 2007. France’s equivalent debt is about 280% of GDP, up 66% since 2007.

This ignores unfunded pension and healthcare obligations as well as contingent commitments to eurozone bailouts. Italy is running a budget deficit of 2.9%. Government debt is around €2.1tn, or 132% of GDP. French public debt is just above €2tn, or 95% of GDP. The current budget deficit is 4.2% of GDP. France’s budget has not been balanced in any single year since 1974. Italy’s economy has shrunk about 10% since 2007, as the country endured a triple-dip recession. Italy’s unemployment is more than 12%, with youth unemployment about 44%. French GDP growth is anaemic, with unemployment above 10% and youth unemployment of more than 25% Trade performance is lacklustre. Italy’s current account surplus of 1.9% reflects deterioration of the domestic economy rather than export prowess.

France’s current account deficit is about 0.9% of GDP, reflecting a declining share of the global export market. Italy and France’s problems are structural, rather than attributable to the eurozone debt crisis. High wages, inflexible labour markets, generous welfare benefits, large public sectors and restrictive trade practices are major issues. In the World Economic Forum’s competitiveness rankings, Italy and France ranked 49th and 23rd respectively, well behind Germany (fourth) and Britain (10th). In World Bank studies, Italy and France rank 56th and 31st in terms of ease of doing business. Transparency International ranks Italy 69 out of 175 countries in perceived levels of public corruption, comparable to Romania, Greece and Bulgaria.

The lack of competitiveness is exacerbated by the single currency. Italy and France faced a 15-25% overvalued currency until the recent decline in the euro. Denied the historically preferred option of devaluation of the lira or franc to improve international competitiveness, both countries have relied increasingly in recent times on debt-funded public spending to maintain economic activity and living standards.

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Cameron’s a side show in Europe, can’t get any attention.

Britain Would Not Survive A Vote For Brexit (FT)

Promising a referendum on Britain’s place in Europe was always a rash gamble — a tactical swerve blind to the strategic consequences. The stakes have risen. The rest of Europe does not want to see the Brits depart, but the EU would muddle on. For the UK, the choice has become existential. If Britain leaves Europe, Scotland will leave Britain. The union of the United Kingdom would not long survive Brexit. The referendum was offered to appease troublesome eurosceptics in David Cameron’s Conservative party. Some hope. There are signs the prime minister has begun to appreciate what is at stake. Never mind talk that he may be remembered as the leader who split his own party, or as the architect of Britain’s retreat from its own continent.

History will be even less kind if it records that a device to quell a Tory rebellion about Europe led to the unravelling of England’s union with Scotland. Mr Cameron’s government has lowered its sights accordingly. When Philip Hammond toured European capitals before the May election 25 of his 27 counterparts told the British foreign secretary that they would not rewrite the basic texts of the EU to accommodate British exceptionalism. Angela Merkel, the German chancellor, is particularly insistent that the Union’s organising “acquis” is sacrosanct. So the prime minister’s pre-election promise of “full-on treaty change” has made way for a more modest set of demands.

Mr Cameron has struck an emollient pose in his own post-election journey around EU chancelleries. What has emerged is a careful choreography for the negotiating process. As he explained it to Ms Merkel, the plan is to avoid undue acrimony and, for the most part, to keep the nitty gritty of negotiations low key and under wraps. The prime minister will stick to generalities at this week’s Brussels summit. His favourite refrain speaks of a “reformed Europe”, whatever that means. He wants an opt-out from the (never defined) treaty aspiration of ever closer union of the peoples of Europe, safeguards for the City of London against eurozone caucusing, and a motherhood-and-apple-pie declaration that Europe is about competition rather than regulation. Finally, he is asking for leeway to restrict in-work benefits paid to workers from the rest of the EU.

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And nobody should.

Greece: A Deal Nobody Believes In (Paul Mason)

The deal Greece wants in Brussels has three parts: budget, debt and public investment. In the flurry of last-minute negotiations, conducted under threat of a bank run and capital controls, the media has been obsessed with the first. The Greek newspaper Kathimerini carried the full Greek proposal on the budget for 2015-17, designed by Syriza’s negotiators to achieve the surplus target the IMF/ECB and EU have imposed. It is, as one of the ministers presenting it told me, “terrible”. To avoid cutting services and pensions further, Syriza is preparing to hit businesses, consumers and employees with a mixture of tax and higher contributions to their pensions. It will also raise the retirement age to 67 over the next 10 years, and severely limit incentives to early retirement.

The proposal meets the top line targets of the lenders but last night they were still haggling over the precise structure of VAT, pensions and “product market reform” – which is the codeword for the IMF’s obsession with Greek pharmacies and bakeries. While the proposal has caused outrage among the Greek conservatives who were only last week calling for a deal, and outrage among Syriza’s left-wing voters, and the 5,000 communist-led pensioners who staged a march last night, the real problem is bigger. Everything we’ve seen so far suggests it will not work. The lenders, as one senior participant in the talks put it to me, “do not do macroeconomics”. The models used in the EU’s negotiations assume that if you whack an €8bn tax rise on to an economy in recession it will at the very least only shrink by €8bn, and may even grow.

But the experience of Greek austerity – and this tax package is simply left austerity – shows you have to consider the “multiplier effects”. The IMF has already said its own model on this was flawed, and that the macroeconomic effect of cutting one euro could be not 50 cents but more like €1.50. The reason the IMF and EU are trying to tinker with stuff like VAT and bakeries is because they suspect that a switch from harsh spending cuts to harsh, redistributive tax rises will have the same overall impact: the economy will shrink and the debt will get larger. But a redistributive programme is all Syriza can sell to the people who voted for it. When they drew up this proposal the Greeks did so in the knowledge that it would need tens of billions of debt relief and tens of billions of structural funding from the EU to cushion the blow.

But the lenders are resisting. When it comes to debt, as one participant described it to me, the lenders are “each at war with the other”. The IMF wants debt write-offs; the ECB wants no debt write-offs. The proposal being discussed is to swap €27bn of debt Greece owes to the ECB into a programme called the ESM, where redemptions are decades away and interest rates low. It would mean paying the ECB out of a fund owned by national governments. I understand that, without some clear indication that debt relief is on the agenda, the Greeks cannot sign. Likewise, they are determined there should be an agreement to release structural funds for development projects from the European Commission.

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Red lines vs red ink.

Troika’s Red Ink Tells Its Own Story (Guardian)

The red ink told its own story. Greece’s creditors looked at the plan submitted by Alexis Tsipras to end his country’s debt crisis and found it wanting. Like a teacher dealing with an obtuse pupil, the message in the revised document sent back to the Greeks was simple: this is a shoddy piece of work. Do it again. Without question, this makes life tough for the Greek prime minister, who thought the concessions offered on Monday were as much as he could deliver politically. Tsipras bridled at the demands from the troika to cross all his red lines and that means the crisis is back on again.

Athens should not have been entirely surprised by the response given that the IMF – one third of the troika – thinks a repair job on the public finances should be structured so that 80% of the improvement comes through spending cuts and 20% from tax increases. The plan put forward by Tsipras was skewed in the other direction. Of the €7.9bn (£5.6bn) that the Greek government said the plan would raise, 92% came from tax increases. In the unlikely event that the extra revenues were collected in full, the IMF believes the one-off levy on bigger businesses coupled with the increases in corporation tax would hinder growth. It thinks the Greek plan will only add up if there are immediate cuts in pensions and higher VAT on restaurants and medical supplies.

Olivier Blanchard, the IMF’s chief economist, explained its reasoning earlier this month. Greece’s creditors, he said, were prepared to accept that the state of the economy meant it was now impossible to meet the target of running a 3% primary budget surplus (revenues minus spending, excluding debt interest payments) in 2015, and that a lower 1% goal would now be acceptable to creditors. “We believe that even the lower new target cannot be credibly achieved without a comprehensive reform of the VAT – involving a widening of its base – and a further adjustment of pensions”, Blanchard said in a blogpost.

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“There cannot be a deal without a substantial reference and specific steps on the issue of debt..”

Greek Syriza Official Says Lenders’ Proposals ‘Blackmail’ (Reuters)

A senior official of Greece’s ruling Syriza party attacked the latest proposals from international lenders as “blackmail” on Thursday, highlighting the deep divisions between Athens and its creditors as wrangling continued over a bailout deal. “The lenders’ demand to bring annihilating measures back to the table shows that the blackmail against Greece is reaching a climax,” Nikos Filis, the ruling Syriza party’s parliamentary spokesman told Mega TV. He said the Greek side was maintaining its insistence on debt relief as part of any accord, in comments that were echoed by Labour Minister Panos Skourletis. “There cannot be a deal without a substantial reference and specific steps on the issue of debt,” Skourletis said in an interview with state broadcaster ERT.

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“Speculation the EU was seeking political alternatives to Mr Tsipras’s Leftist Syriza government were heightened after leader of Greece’s centrist opposition party, To Potami also met with Brussels officials on Wednesday.”

Last-Ditch Greek Rescue Hopes; Tsipras Faces Austerity Ultimatum (Telegraph)

Greece’s eurozone future was thrown into fresh turmoil on Wednesday night as talks broke down after creditor powers demanded further austerity measures to release the funds the country needs to avoid a debt default. Dashing tentative hopes that an agreement could be struck at European Union leaders summit on Thursday, a meeting of finance ministers was suspended after only an hour as Prime Minister Tsipras was summoned for further late night talks with his bail-out chiefs. Earlier in the day, Greece’s three lending institutions rejected Athens’ €8bn reform plans, despite widely hailing it as a positive step forward only days ago. Greece now faces an imminent debt default and expiration of its bail-out June 30.

In a five-page set of counter proposals, creditors instead demanded Athens’ Leftist government carry out more spending cuts, abolish exemptions on VAT and implement a root and branch overhaul of its pensions system. The breakdown came after Athens seemed to renege on its previous commitments to end tax privileges for its islands and phase out supplementary pensions for the poorest. But the government was quick to reject the new demands, attacking them as “absurd” and sure to bring “Armageddon” to the beleaguered economy . Having been hauled back to Brussels on Wednesday morning, a wounded Mr Tsipras released an ambiguous statement suggesting ulterior motives behind lenders’ fresh demands.

“The repeated rejection of equivalent measures by certain institutions never occurred before — neither in Ireland nor in Portugal,” he said. “This curious stance may conceal one of two possibilities: either they don’t want an agreement or they are serving specific interest groups in Greece.” Mr Tsipras spent Wednesday holed up in more than seven hours of talks with European Commission president Jean-Claude Juncker, IMF managing director Christine Lagarde, and ECB chief Mario Draghi, as the sides sought to thrash out their differences.

[..] Speculation the EU was seeking political alternatives to Mr Tsipras’s Leftist Syriza government were heightened after leader of Greece’s centrist opposition party, To Potami also met with Brussels officials on Wednesday. After a meeting with EU economics chief Pierre Moscovici, party leader Stavros Theodorakis said the country should “cut down on expenditures and excessive spending in the public sector, so that we can save money without imposing further taxes”. To Potami holds 17 seats in the Greek parliament, a margin which could be crucial in any vote to pass a deal through should it emerge from the fractious round of talks.

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The troika keeps leaking to the press, and nobody protests that.

Greece Debt Crisis Talks End In Renewed Deadlock (Guardian)

Gruelling negotiations between Greece and its creditors broke up without agreement on Wednesday evening as lenders warned the country that it must accept more austerity if it is to avoid defaulting on its debts. A third meeting of eurozone finance ministers in less than a week was called to a halt amid fresh deadlock over an agreement on greater spending cuts in Athens in exchange for rescue funds. The finance ministers will reassemble on Thursday in a bid to achieve an elusive breakthrough, as Greece strives to meet next Tuesday’s deadline for a €1.6bn payment to the IMF. A deal could not be reached at the finance minister’s gathering despite six hours of talks earlier in the day between Alexis Tsipras, the Greek PM, and the heads of the IMF, ECB and EC. Tsipras met the creditors again on Wednesday night.

The meeting ended in the early hours of Thursday with Greece “remaining firm on its position” according to a Greek government official. Tsipras was dressed down at the creditors’ meeting on Wednesday morning, despite having presented new budget proposals on Monday that were generally welcomed as constructive. However, by the time he met the creditors on Wednesday he was being asked to toughen his plans. Tsipras sounded bitter and wounded after the creditors, led by Christine Lagarde of the International Monetary Fund, raised a host of problems with the 11-page policy document he had tabled. A revised version of the Greek proposals, littered with corrections entered in red type by the creditors, was soon leaked to the media.

“The repeated rejection of equivalent measures by certain institutions never occurred before, neither in [bailout countries] Ireland nor Portugal,” said Tsipras. “This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed.” Both sides are in a race to cut a deal before five years of bailouts worth €240bn (£171bn) lapse next Tuesday, the same day that Greece must repay the IMF. The Tuesday deadline is doubly pressing because the ECB, which is keeping the Greek banking system on life support, has indicated that it will not support banks if the bailout programme expires without a new agreement in place. Without ECB’s support Greek banks are expected to buckle, which would force the Tsipras government to impose capital controls and threaten the country’s exit from the eurozone.

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“This strange position maybe hides two things: either they do not want an agreement or they are serving specific interests in Greece,” Tsipras said.”

Greece Rejects Creditors’ Counter-Proposals (AFP)

Greece rejected Wednesday “counter proposals” from creditors that were issued in response to Athens’ latest budgetary plan, in light of the IMF’s position, a government source said. Questioned about whether “this counter proposal” – containing even bigger VAT tax hikes and public spending cutbacks – had been rejected by the radical left Greek government, the source replied: “Yes.” Creditors are calling for early retirement to be abolished and an increase in the retirement age from 62 to 67 by 2022, and not 2025, according to plans published on a leftist website and confirmed by the source. They are sticking to a demand for a rate of 23% for VAT, or value-added tax, for restaurants, instead of 13% at the moment. Athens is fearful over the impact on its valuable tourism sector.

Creditors also propose to increase the level of corporation tax to 28%, instead of the Greek plan to raise it to 29% from 2016 onwards. The current level is 26%. And they want defence expenditure to be slashed by 400 million euros instead of the proposed 200 million euros. Creditors also seek the removal of special VAT rates for residents of the Aegean islands. Earlier Wednesday, Greek Prime Minister Alexis Tsipras launched a scathing attack on the IMF for rejecting Greek reform proposals before arriving in Brussels, denting hopes of a final deal. The leftist leader hit out at the “strange position” of the creditors just minutes before going into an eleventh-hour meeting with key lenders including IMF chief Christine Lagarde and the European Union.

“This strange position maybe hides two things: either they do not want an agreement or they are serving specific interests in Greece,” Tsipras said. “The repeated rejection of equivalent measures by certain institutions never occurred before – neither in Ireland nor Portugal,” he tweeted, referring to previous bailouts in those two countries. The EU-IMF creditors were due to present Tsipras with their own “common position” in response to the last-ditch list of reform proposals submitted by Athens on Sunday, sources said. The Greek plans aimed to raise some VAT rates and hike business taxes, increase employee and employer pension contributions, and narrow the country’s budgetary gap.

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The worst kind of journalism. Greek brinkmanship is the first sign. But not mentioning that the ECB itself went public about capital controls risk, and then provided ELA, is quite another yet. It’s an ugly game.

How Draghi Shifted ECB Crisis Tactic Amid Greek Brinkmanship (Bloomberg)

Mario Draghi can’t afford to play by the same crisis rules as the European Central Bank did in the past. With Ireland in 2010 and Cyprus in 2013, a threat to withhold aid for lenders forced each country to agree to international bailouts. This time, Greece’s appetite for brinkmanship has so far left the ECB president dependent on Europe’s politicians to deliver the ultimatums, while policy makers have reluctantly kept Greek banks afloat. Through weekly, and now almost daily, doses of liquidity, ECB support for those institutions has given Greece’s government room to negotiate a bailout with creditors until the eleventh hour without imposing capital controls. That’s riled sticklers for rules on the ECB Governing Council, but such pliancy is a price Draghi may have paid to keep the euro intact.

“What strikes me is the patience which the ECB has found in all of this,” said Holger Schmieding, chief economist at Berenberg Bank in London. “This was too much of a political decision for the ECB. Ireland didn’t look like falling out of the euro, and Cyprus was much more marginal. So sometimes you discover a flexibility that you weren’t aware of before.” So-called Emergency Liquidity Assistance for banks has been part of the ECB’s toolkit since its foundation. It was intended to allow authorities to tide over solvent lenders who could neither raise funding in markets nor had collateral for regular ECB tenders. The measure was never meant to save whole countries. That’s what it’s now doing.

While Greece didn’t ask for an increase in assistance on Wednesday, according to a person familiar with the matter, it has needed fresh approval for a higher ELA limit four times in the past week. Via the Greek central bank, the ECB is replacing money withdrawn by depositors fearful that the government can’t agree a deal with its creditors, allowing lenders to rack up an overdraft of almost €90 billion since February. ELA cash loaned against state-guaranteed bank bonds and government debt at its 2012 peak amounted to almost 63% of Greek GDP, far more than the equivalent measure in Ireland or Cyprus. Now, Draghi says total liquidity support to Greece amounts to €118 billion euros, or about 66% of GDP, the highest level of any country in the euro.

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They smell power.

To Potami Leader Warns Tsipras Over Bailout Reshuffle (FT)

Alexis Tsipras will need to reshuffle his governing coalition if he suffers significant defections over a new bailout agreement, the head of Greece’s largest pro-EU protest party has warned. Stavros Theodorakis, leader of centre-left To Potami, said he discussed the possibility of such a reshuffle with Mr Tsipras during meetings last week, and predicted there would be “a lot of objections” from the prime minister’s far-left Syriza party when the measures are put to a vote. “That is something that will be discussed, and Tsipras will face, after passing the agreement through parliament, after he sees which members of his party — or members of his government — did not vote for the agreement,” Mr Theodorakis said in an interview with the Financial Times.

“We do not want to wound the prime minister when he’s in the middle of these hard negotiations,” he added. “But I can say Syriza has a choice: either Syriza will change or it will be beaten.” Mr Theodorakis, a charismatic former television journalist, created To Potami — The River — from scratch ahead of January’s national elections and rode a wave of mainstream protests to secure 17 seats in parliament, the third largest in the 300-seat chamber. Because of his populist credentials, Mr Theodorakis was seen as a natural coalition partner for Mr Tsipras shortly after the election. But because of its overtly pro-EU stance, To Potami was bypassed by Mr Tsipras for the right-wing nationalist Independent Greeks party, which — like Syriza — vowed to reject Greece’s international bailout.

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Talked about him yesterday. A tool.

Martin Schulz, The Man Who Would Be Caliph (Neurope)

There is a French cartoon character, Iznogood, a vizier whose only goal in life is to become Caliph in place of the Caliph… telling everybody he wants to be “Caliph in place of the Caliph”. He is shaken by fits of anger when he realises his goal remains distant. In his comic-book hubris, Iznogood, with his goatee and permanent bad mood, never puts forth his qualities (if any) for the coveted job. He only stomps the ground in irritation and shouts: “I want to be Caliph. I’ve been here long enough”. Martin Schulz has been around for more than 20 years. He first entered the European Parliament in 1994, as a German Socialist MEP, never to leave it again. He has been speaker of the Parliament since 2012, but last year he missed the Caliphate: the presidency of the Commission.

The Commission job is the most prestigious in the EU institutions. The President of the Commission is (almost) the equivalent of a chief of state. One had only to see how Jose Manuel Barroso was blushing and beaming, satisfaction oozing from his pores, whenever he was called “Mr President”. So, Schulz wanted to become Caliph after Caliph Barroso. What were his qualifications for running the Commission and becoming Caliph? Well, first of all, again, he’s been around long enough. He also carries the aura of a martyr: a decade ago, Berlusconi, angered by Schulz’s criticism of him, suggested in a plenary that he, Schulz, would be perfect in the role of a Nazi camp guard, as an extra in a movie. Astonishment: what? Was Schulz already here 10 years ago? Of course he was…

How about his studies? Martin Schulz is a rare case for someone in his position. No studies. Schulz never finished school. He doesn’t even have his Abitur, that German diploma that is as hard to obtain as the one marking the baccalaureate in France. In his youth, he dreamed of becoming a football player, but, as he told the German tabloid Bild, he became an alcoholic instead. He was saved from alcohol by his brother and became a bookseller, and even had his own bookshop for a decade before entering the SPD, the German Social Democrat party. In order to ensure that he might get the presidency of the Commission, he fought hard to have the capitals accept the principle of consulting with the major political groups in the EU Parliament when they nominate the Commission President.

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Sinn’s a tool AND a douche.

IMF Must Help Europe With ‘Aggressive’ Athens: Sinn (CNBC)

Greece’s far-left government have proved “aggressive” in lengthy cash-for-reforms talks, the head of an influential German think tank told CNBC, adding that all of Athens’ bailout supervisors must share the strain of negotiating. “You have seen what kind of wording Greece used during the crisis to really change the mood in Europe and I think it’s fair to say they have been aggressive,” the president of the Ifo Institute for Economic Research, Hans Werner-Sinn, told CNBC on Wednesday. He added: “It is easier for the Europeans if the IMF (International Monetary Fund) shares in the burden of absorbing this attitude, rather than everything being imposed on the other European countries – this is a recipe for hassle and strife.”

Greece is engulfed in debt to both the ECB and the IMF and needs urgent aid to save it from defaulting on a €1.6 billion debt at the end of the month. However, it has fought against creditors’ demands for further economic, social and political cuts and reforms. “The IMF is skeptical about the Greek proposals as I understand. They say the Greeks promised to increase their taxes, but they have not been very good in raising taxes in the past. So it’s more credible if they promise to cut wages or government employees or pensions and that is the issue about they are discussing,” Sinn told CNBC.

In addition to his role at Ifo, Sinn is an adviser to the Germany economy ministry and a professor of economics and public finance at the University of Munich. He is due to retire from Ifo in March 2016. The veteran economist has previously advocated the benefits for Greece of leaving the euro zone and he reiterated this view on Tuesday. “A ‘Grexit’ is a rescue strategy for Greece because the Greek people will, with the drachma (the Greek currency prior to the adoption of the euro) devaluation, then have more demand for their own products. The imported products will become more expensive and they will go to their farmers, for example,” Sinn told CNBC.

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Someone’s going to spin this into a recovery.

US Credit Card Debt Grew At 11.5% In April, Fastest In Years (Forbes)

EDITOR’S NOTE: Forbes launched Secrets From An Ex-Banker: How To Crush Credit Card Debt, our latest eBook. Written by a former banker, this book reveals tips and tricks to get you out of credit card debt within three years.

Secrets From An Ex-Banker: An eBook From Forbes If running from the collection agencies isn’t your exercise of choice, read this book for tips and tricks on how to crush credit card debt. We are a nation addicted to credit card debt. Americans have amassed $857 billion of it. As we begin to forget the 2008 financial crisis, banks have once again started aggressively marketing credit cards. I receive mail every week promising me bonus points, extra cash back and a lifetime of plastic-induced happiness. The marketing is working. In April, credit card debt grew at 11.5%, its fastest pace in years.

Credit cards can be remarkably useful and lucrative spending tools, when used responsibly. If you pay your balance in full and on time every month, you are receiving an interest free loan, often with some airline miles on top. However, over 40% of Americans are not able to pay their balance in full. Instead, they are borrowing money at interest rates that are usually well above 15%. That means the typical family is paying over $1,500 of interest every year. In a world where middle class families feel increasingly squeezed, this is too much money to be lost to interest.

Why do credit cards have this power over us? Why does the average household have more than $10,000 of credit card debt at interest rates well above 15%? And how can we break the cycle and get out of debt? Today I am publishing a Forbes eBook, “Secrets from An Ex-Banker: How To Crush Credit Card Debt.” This book uses my nearly 15 years of insider experience as a credit card executive to help you become debt-free forever. I helped introduce credit cards to the Russian market with Citibank. I ran the UK consumer credit card franchise of Barclays. But now I am focused on using my knowledge of how the industry works to help people avoid the tricks, traps and pitfalls of credit card debt.

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And there ain’t none left.

Three Words Count in Bonds: Liquidity, Liquidity, Liquidity (Bloomberg)

There are three things that matter in the bond market these days: liquidity, liquidity and liquidity. How – or whether – investors can trade without having prices move against them has become a major worry as bonds globally tanked in the past few months. As a result, liquidity, or the lack of it, is skewing markets in new and surprising ways. Spain, for instance, must pay more to borrow money than Italy for 30 years, even though Spain is considered safer by credit raters. Why? The Italian bond market is twice as big as the Spanish one — and, therefore, more liquid. The same thing is happening around the world. Bonds in smaller, less-traded markets like Finland, Singapore and Canada are starting to fall out of favor.

And with the Federal Reserve preparing to raise U.S. interest rates, investors want to know they can sell in a hurry if debt markets turn volatile. “Liquidity is our number-one criteria in country selection,” said Olivier de Larouziere at Natixis Asset Management. Concern liquidity is drying up has intensified as the global bond rout that erupted in April erased more than a half a trillion dollars from sovereign debt and triggered swings some have likened to a once-in-a-generation event. Aberdeen Asset Management Plc has already said it arranged $500 million in credit lines to fund potential withdrawals. In the U.S., regulators will meet with Wall Street firms to discuss how they can prevent post-crisis regulations and central bank policies from sparking a meltdown when the next selloff occurs.

Some investors aren’t waiting to find out. In Spain, where a slump in repurchase agreements and trading of bills sent government-debt turnover in April to lows not seen since at least 2012, they’re starting to demand a bigger premium to own the securities, data compiled by Bloomberg show. Yields on 10-year Spanish bonds reached 2.54 percent on June 16, and rose to the highest versus Italian securities since the end of 2013. Spain’s 30-year bonds are also yielding more than comparable Italian debt. For much of the past year, the relationship was reversed as investors preferred Spain. Part of the shift has to do with the rising cost of trading as liquidity dries up. The difference in yields for buyers and sellers of Spain’s 10-year notes — known as the bid-ask spread — is almost double that in Italy, the data show.

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Strong contender for weirdest story of the year.

Toyota’s Drug Problem, and Japan’s (Pesek)

Toyota has a drug problem. The company and CEO Akio Toyoda are dealing with the fallout from a bizarre case surrounding his newly promoted head of global public relations, Julie Hamp. It all started on June 18, when Hamp, an American who moved to Japan earlier this year, was arrested for allegedly having a controlled drug sent to her from Michigan. The powerful painkiller oxycodone is a relatively common prescription drug in the U.S., but is designated as a narcotic in Japan, where users need permission to import it. Japanese authorities could have chosen to confiscate the 57 pills sent to Hamp and schooled her on local regulations. Instead, they decided to make an example of her in ways that could damage corporate Japan’s efforts to attract foreign talent and diversify its boardrooms.

The day after Hamp’s arrest, Toyoda called a press conference to defend the company’s highest-ranking female executive ever. He launched into a spirited defense, declaring that Hamp hasn’t intentionally broken any laws. Those words came back to haunt Toyoda this week, on Tuesday, when police raided the company’s Toyota City headquarters and its Tokyo and Nagoya offices. The coordinated raids smacked of retribution by the police for Toyoda’s standing by a foreigner over local authorities. What’s even more troubling is that the police made the case public at all. Hamp was forced to do a perp walk on live television. (It led the news on national broadcaster NHK.)

But it’s safe to say the police wouldn’t even have told the media if a male Japanese Toyota executive were allegedly involved in similar lawbreaking. (Japanese law enforcement has never even attempted to arrest officials at Tokyo Electric Power Company for negligent oversight of nuclear reactors at Fukushima, or managers at Takata for selling the company’s faulty airbags.)

Meanwhile, the thrust of the media coverage about Hamp’s ordeal has been cringeworthy. Rather than treat it as an unfortunate aberration, the media have used it as an excuse to pillory companies for trying to attract foreign executives to Japan in the first place. Toyoda’s June 19 press conference was a case in point, filled with insinuating questions: What medical condition does Hamp have that requires pain medication? Why does Hamp live alone? (The answer to that one is that her family hasn’t yet arrived from the U.S.) What is Toyota’s basis for trusting this woman so much? Might this be a harbinger of future problems as diversity efforts increase?

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Interesting take.

How WikiLeaks Could Help Precipitate The Fall Of The Saudi Empire (RT)

Whistleblower group WikiLeaks has released a flurry of official documents lifting the lid on Saudi Arabia’s covert diplomatic apparatus. Not just another scandal, these revelations could bring Saudi Arabia to its knees. While WikiLeaks has seldom shied away from controversy it might just have outdone itself this June as it exposed Saudi Arabia’s grand media scheme to the public, shining a light onto state officials’ unscrupulous dealings as they worked and plotted to silence the truth and manipulate realities to suit their goals. And though many among the public will not be surprised at learning that one of the world’s most violent and repressive governments has actively worked to control the world’s media narrative by applying political and financial pressure upon international news organizations and foreign governments to both forward its agenda and shield its institutions from any political or judicial fallouts.

The sheer depth and breadth of this grand deception will certainly send a few heads spinning. Aided by Al Akhbar, a prominent Lebanese-based newspaper which has remained stubbornly independent despite aggravated pressures, WikiLeaks released last Friday 60,000 classified documents out of a reported half a million leaked diplomatic cables from the Kingdom of Saudi Arabia. Speaking on the content disclosed by WikiLeaks, Kristinn Hrafnsson, a spokesman for the group said “We are seeing how the oil money is being used to increase (the) influence of Saudi Arabia which is substantial of course – this is an ally of the US and the UK. And since this spring it has been waging war in neighboring Yemen.”

While most allies of the kingdom, Britain and the US at the head of the line, have attempted to play down the revelations, arguing the veracity of the leaked documents while redirecting the public’s attention onto other, less sensitive matters, it is pretty evident the kingdom is fast losing its cool. For a country which almost solely relies on control to exist, losing only just a nugget of power can be daunting; especially when the very fabric of the state stands to be obliterated by the very truths which are now being unveiled.

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Jun 042015
 
 June 4, 2015  Posted by at 10:12 am Finance Tagged with: , , , , , , , , ,  1 Response »


G.G. Bain Political museums, Union Square, New York 1909

It’s Wealth Inequality That Drags Down The Economy (WaPo)
US Companies Owe $1.267 For Every Dollar Of Earnings (Bloomberg)
BofA Explains How the Bond Rout Could Turn Into a Bloodbath (Bloomberg)
Bond Rout Wipes Out 2015 Gain as Traders Fret Even Leaving Desks (Bloomberg)
Bond Slump Deepens as Europe Shares Slide With Metals, Oil (Bloomberg)
Wall Street Sounds Bond Warning as Holdings Shift Sparks Concern (Bloomberg)
Syriza Could Split, And What Could Europe Have To Deal With Next? (Guardian)
Greek Groundhog Day Drags On As Tsipras Rejects Creditors’ Proposals (Bloomberg)
Europe Has No Choice – It Has To Save Greece (AEP)
Tsipras Turns to Party Hand Tsakalotos to End Talks Impasse (Bloomberg)
Greek Exports Ex-Fuel Products Soar 14% (Kathimerini)
Athens Concerned Over Exclusion From TurkStream Pipeline (Kathimerini)
Here’s What Defaults Did to Other Countries as Greece Teeters (Bloomberg)
A Member Of The Middle Class Responds To Jon Hilsenrath (Zero Hedge)
German And French Ministers Call For Radical Integration Of Eurozone (Guardian)
European Dream Just a Fairy Tale to New Breed of Eastern Leaders (Bloomberg)
EU Home To Widespread Labor Exploitation (RT)
Who Cares About China’s Economy When Stocks Are Rising This Much? (Bloomberg)
Oliver Stone: Wall Street Culture “Horribly Worse” Than Gordon Gekko (SMH)
Elizabeth Warren Blasts Mary Jo White’s SEC Leadership (MarketWatch)
Kim Dotcom Thwarts Huge US Government Asset Grab (TorrentFreak)
WikiLeaks Reveals New Australia Trade Secrets (SMH)
The Big Global Food Game (Beppe Grillo’s blog)
Replanting America: 90% of What We Eat Could Come From Local Farms (Nosowitz)

“Now we’ve reached the bottom 40% of Americans, but guess what? We’ve run out of stuff. Sorry guys, you get nothing.”

It’s Wealth Inequality That Drags Down The Economy (WaPo)

Let’s imagine that there are just 100 people in the United States. The richest guy – and, yes, he’s probably a guy – owns more than one-third of the total wealth in this country. He’s got a third of all the property, a third of the stock market and a third of anything else that can be owned. Not bad. The next-richest four people together own 28% of all the stuff. Divvied up four ways that’s still not too shabby. The next five people together own 14% of all the things, and the next 10 own another 12%. We’ve accounted for just 20% of the people, but nearly 90% of the total wealth. 90%! You can probably tell where this is going. The next 20% of people have only nine% of the wealth to split among them. Not great, but they’re still doing a lot better than the 60% of people below them.

The next 20% – the middle wealth quintile – only have 3% of the wealth to split 20 ways. Now we’ve reached the bottom 40% of Americans, but guess what? We’ve run out of stuff. Sorry guys, you get nothing. In fact, Wolff calculates that this bottom 40% actually has an overall negative net worth, which means that they owe more money than they own – and they probably owe that money to somebody in that top 5% or 10%. You’re not necessarily living in squalor if you have a negative net worth. For instance, some student loans and a brand-new mortgage will probably put you in that category. But if you’ve got a bachelor’s degree, a job and a house to show for it, you’re probably doing okay.

But plenty of folks will be stuck in that bottom 40% category forever. And as the OECD report points out, this is a big problem for everyone — even the top 1%. Their data shows that more inequality equals less economic growth: Between 1985 and 2005, the OECD estimates that increasing inequality has knocked nearly 5 percentage points off growth in OECD countries. If you’re one of the fortunate ones with money in the bank, you can think of this as a five% smaller return on your investment over that period, simply because the less fortunate aren’t able to contribute to the economy as much as they could otherwise.

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Much of it used to buy their own stock. The snake-eats-tail economy.

US Companies Owe $1.267 For Every Dollar Of Earnings (Bloomberg)

A dark shadow is lurking behind the happy façade of rising stock prices. U.S. companies are borrowing money faster than they’re earning it – and they’re doing it at the quickest pace since the aftermath of the financial crisis. Instead of deploying the debt to build factories, hire new workers or expand product lines, companies are funneling more of their money to shareholders or using it to fund deals. Stock buybacks reached an all-time high last year and the volume of global mergers and acquisitions announced so far this year would make it the second-busiest ever, according to data compiled by Bloomberg. The debt undermines future growth and could dent company income when borrowing costs rise. Higher interest rates will make already indebted companies less desirable to lend to.

The consequence: profitability, buoyed by cheap money since rates went to near-zero in 2008, will sink. “Companies have said, ‘We don’t have an ability to grow organically, so we can distract shareholders instead,’” according to Jody Lurie, a credit analyst at Janney Montgomery Scott LLC, which manages $63 billion. “When they buy back shares, all it does is optically make earnings per share look better.” As recently as last year, companies in the Standard & Poor’s 500 Index had the lowest net-debt-to-earnings ratio in at least 24 years. Examining a slightly different universe – companies, excluding financial firms, with top credit ratings who’ve issued debt – the median net leverage in the first quarter of 1.267 was the highest since 2010 and up from 0.927 in the first quarter of 2014.

The leverage figure means companies owe $1.267 for every dollar of earnings after subtracting cash on hand. Companies reacted to the Federal Reserve’s rumblings about raising interest rates by going on a borrowing spree. “There are a lot of pressures on management to lever up to improve returns,” said Charles Peabody of Portales Partners. “They’ve taken on more leverage because the cost of transactions is very low. If that changes because rates go up, it’s going to be hard to sustain that gain.” Investment-grade non-financial companies issued $366 billion in bonds in the past two quarters. The $194.6 billion they sold in the first quarter was the most in history, according to data compiled by Bloomberg.

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Yield chasing.

BofA Explains How the Bond Rout Could Turn Into a Bloodbath (Bloomberg)

The good news is investors are finally shaking off fears of economic stagnation worldwide. The bad news is this is brutal for credit markets. Prices on U.S. investment-grade bonds have fallen 1.1% in the first two days of June, a pace so fast it’s reminiscent of the notes’ 5% selloff in two months in 2013 when speculation emerged that the Federal Reserve was poised to scale back its bond buying. Bank of America strategists see the pain deepening from here. The reason? Investors who like these bonds tend to prize safety and reliable returns above all. They plowed into corporate bonds, often instead of more-creditworthy notes such as U.S. Treasuries, for higher yields as the Fed purchased debt and held interest rates at record lows to ignite growth.

These buyers, in particular, don’t like to see losses on their monthly mutual-fund statements. When the prospects for their debt look shaky, they’ve often responded by yanking their money. And that’s what they’ll likely do now, according to Bank of America analysts. “We expect high-grade fund flows to turn generally negative in line with the initial experience during the Taper Tantrum,” Hans Mikkelsen, a strategist in New York, wrote “Corporate bond prices are declining at a pace eerily similar to what we saw” during that selloff of 2013. That year, U.S. bond funds reported record withdrawals as investors girded for a period of steadily rising debt yields – or, in other words, losses. Investors pulled more than $70 billion from bond mutual funds in 2013, according to TrimTabs.

Of course, the exodus proved premature. Top-rated corporate bonds have returned 7.6% since the end of 2013 as oil prices plunged and ECB stimulus sent yields down globally. Now, however, there are signs that the American economy is finally improving enough for the Fed to raise rates as soon as this year. Yields on 10-year Treasuries are approaching the highest since November, making them a more attractive alternative to corporate debt for buyers looking for the safest source of income.

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“You want to shove rates down to zero, people are going to make big bets because they don’t think it can last; Every move becomes a massive short squeeze or an epic collapse..”

Bond Rout Wipes Out 2015 Gain as Traders Fret Even Leaving Desks (Bloomberg)

The global bond market selloff has erased all of this year’s gains as historic market moves from Germany to the U.S. and Japan whipsaw traders. After being up as much as 2.3% as of mid-April, the BoAML Global Broad Market Index of bonds with a total face value of $41 trillion is now down 0.4% for the year. Bond traders have been caught off guard by signs the worldwide economy is likely to avoid mass deflation and by improvement in the euro zone’s economy, leaving little incentive to own debt securities with yields that in some cases are below zero. The latest leg lower in bonds came Wednesday, when ECBPresident Mario Draghi said investors should get used to the heightened volatility they’ve seen in recent weeks.

“This is sheer panic in the market from the standpoint of what’s been happening in Europe,” said Thomas di Galoma at ED&F Man Capital Markets in New York. “Most of Wall Street is guarded here as far as taking on new positions.” Like many of his peers around the world, di Galoma said he has had to cancel meetings as yields rose ever higher through key levels that many thought would attract demand, but didn’t. Take the yield on the benchmark 10-year German bund: it soared to as high as 0.94% Thursday as of 7:18 a.m. in London from as low as 0.049% on April 17. During the same period, the yield on similar maturity Treasuries surged to as high as 2.39% from 1.84%. The U.S. yield was little changed at 2.38% in London trading.

At a conference in Cambridge, Mass., Michael Lorizio said he couldn’t keep his eyes away from his phone, where price alerts were announcing a crash in German bond prices. He said he skipped out early from the networking session, and headed back to his office in Boston. “I couldn’t pay attention to any of the content, I was just watching the price action,” said Lorizio, at Manulife. “You’ve had to be a little more decisive because prices are moving very quickly.” At a news conference in Frankfurt Wednesday after an ECB policy meeting, where it didn’t even change rates, Draghi suggested several reasons for the rout in bonds. He cited including an improving economic and inflation outlook in the euro area, heavier issuance, volatility, poor market liquidity and an absence of certain investors.

Draghi, the architect of a €1 trillion bond-buying program, is an unlikely foe of the bond market. Quantitative easing provides an almost endless source of demand for bonds and should keep yields low. Instead, it’s made investors overly sensitive, said Jim Bianco, president of Bianco Research LLC in Chicago. “You want to shove rates down to zero, people are going to make big bets because they don’t think it can last,” Bianco said. “Every move becomes a massive short squeeze or an epic collapse – which is what we seem to be in the middle of right now.”

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“There’s a huge selloff all over the world..”

Bond Slump Deepens as Europe Shares Slide With Metals, Oil (Bloomberg)

The global bond rout gathered pace, with Japanese notes and German bunds slipping a fourth day after Mario Draghi forecast faster euro-area inflation and continued market volatility. European shares slid with oil and metals as the Aussie declined. Yields on 10-year German government bonds climbed 2 basis points to 0.9% by 8:13 a.m. in London. The Japanese rate rose 3 basis points to 0.49% and Australia’s topped 3% for the first time in three weeks. The Stoxx Europe 600 index fell 0.4% and the MSCI Asia Pacific Index lost 0.5% as U.S. index futures slipped 0.2%. U.S. oil held below $60 before Friday’s OPEC meeting.

This year’s gains in global bonds evaporated as the ECB chief inflamed a selloff in German bunds, saying price growth in the region would pick up further. Greece’s premier claimed to be near agreement with creditors, adding there was no need to worry about an IMF payment due Friday. The U.S. reports jobless claims Thursday, before payrolls data at the end of the week. “There’s a huge selloff all over the world,” said Kim Youngsung at South Korea’s Government Employees Pension Service in Seoul. “The European economy is back on track. The U.S. economy is stable. Suddenly we’re worried about inflation.”

The Bank of America Merrill Lynch Global Broad Market Index of notes with a total face value of $41 trillion is down 0.4% for the year, after being up as much as 2.3% in mid-April. Ten-year German bund yields have soared by 41 basis points this week to the highest level since October. Rates on Australian government debt due in a decade jumped 15 basis points to 3%. Yields on similar-maturity New Zealand and Singaporean notes climbed at least four basis points. Ten-year South Korean sovereign yields rose 3 basis points to 2.48%. Benchmark Treasury notes held losses, with 10-year rates little changed at 2.36%.

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Talking their books.

Wall Street Sounds Bond Warning as Holdings Shift Sparks Concern (Bloomberg)

More Wall Street executives are sounding alarms about the bond market. The latest to warn were Gary Cohn, president of Goldman Sachs and Anshu Jain, co-CEO of Deutsche Bank. The concern is bond investors looking to buy, or especially to sell, will face wide prices swings and higher costs to get a transaction done. “The problem is on the days when you need liquidity, it probably won’t be there,” said Cohn at a Deutsche Bank investor conference on Tuesday. Large Wall Street banks, or dealers, are carrying a smaller share of bonds on their books, as regulations restrict the capital they can hold on their balance sheets. Money managers, meanwhile, are holding a lot more of them.

Dealer inventories dropped by 27% between 2007 and early 2015 while assets held by bond mutual funds and exchange-traded funds almost doubled. Federal Reserve officials have also taken notice. They discussed changes in the structure of bond markets at recent meetings, and said those changes may be a risk to financial stability. Deutsche Bank’s Jain said at the Tuesday conference that he didn’t have a “dire warning” about the growing gap between the dealers’ holdings and bond funds’ assets. “But I would certainly say as one of the larger market makers in the system, we very much have an eye on this growing imbalance,” Jain said.

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“Europe must also consider what it says to the world if, at a dangerous time, it proves unable to fix its own problems.”

Syriza Could Split, And What Could Europe Have To Deal With Next? (Guardian)

Another crisis of solvency, and Greece is – once again – described as confronting a fork in the road. Athens must finally choose, runs the argument of its creditors, whether it is ready to face up to its responsibilities, or whether instead it prefers to wish away the stack of red final-reminder bills piling up from the IMF, demanding €1.5bn this month. If Greece plumps for denial, however, it should not assume that it can rely on the flow of finance from the north, which is all that is keeping Greek cash dispensers going. Instead, Greeks will have to prepare to slip out of a euro they overwhelmingly wish to keep. There is something in the creditors’ account of events, and yet much is omitted. It neglects to mention how austerity has steadily smothered day-to-day life.

Greece has not merely suffered a recession but a full-blown Grapes of Wrath-style depression, with social and political convulsions to match. The unemployment rate has been 25%-plus for years, with a similar proportion knocked off national income. The “medicine” swallowed so far has proved to be poison. The “Greece must grow up” story also glosses over something else: the frightful choice confronting the rest of Europe. For Greece there is a real dilemma, albeit between two unappealing options. A new drachma would be a leap in the dark, with the disruption of contracts certain and a wipeout of savings likely, even if devaluation could also offer a possible path back to recovery by pricing Greece back into tourism and other markets.

Who is to say whether this mix of the ugly, the bad and the good is worse than the dismal certainties of more stagnation? For the wider eurozone, by contrast, the costs of Greek exit far exceed the costs of preventing it. Yes, bold debt forgiveness may provoke pesky requests for similar help from others in future, but the alternative would mean having to defend for the rest of time a supposedly permanent currency which had proved liable to crumble. Europe must also consider what it says to the world if, at a dangerous time, it proves unable to fix its own problems. The EU confronts Russian chauvinism to its east, terror in the Middle East, and a humanitarian crisis on its Mediterranean shore. Greece stands at the junction. A euro exit would throw the ideal of “ever closer union” – which is soon to be further tested by the UK referendum – into an unprecedented reverse.

This week it was reported that the creditors would offer Greece access to €7.2bn in aid in return for extreme prudence in the longer term, on a take-it-or-leave-it basis. Before risking a “leave it”, they need to ask themselves who it is they want to deal with. An iron law of modern European history runs thus: extreme economics leads to extremist politics. A line can be drawn from the Versailles treaty to the breakdown of the Weimar Republic. Eighty years on, a similar phenomenon is at work. In the course of its depression, Greece has lurched from a social-democrat government to a centre-right one to Syriza – a coalition of leftist parties ranging from Keynesian to Marxist. As the troika crashed Greece again and again, Syriza shot from nowhere to lead a government. Brussels’ strategy, then, has been politically counterproductive in the extreme.

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Kudos to Tsipras.

Greek Groundhog Day Drags On As Tsipras Rejects Creditors’ Proposals (Bloomberg)

Another round of top-level talks failed to resolve the standoff between Greece and its international creditors as Prime Minister Alexis Tsipras rejected proposals that would unlock bailout funds necessary to avert a default. After a meeting with European Commission President Jean-Claude Juncker and Dutch Finance Minister Jeroen Dijsselbloem, who also heads the Eurogroup, Tsipras said the basis for any accord must be a Greek proposal meant to avoid spending cuts and tax increases, rather than a plan drafted in recent days by creditors. “The realistic proposals on the table are the proposals of the Greek government,” Tsipras told reporters early Thursday in the Belgian capital. We can’t “make the same mistakes, the mistakes of the past,” he said.

The commission said in a statement that “intense work” will continue and “progress was made in understanding each other’s positions on the basis of various proposals.” Months of antagonism and missed deadlines have given way to a greater urgency to decide the fate of Greece. Without access to capital markets, the country has to meet four payments totaling more than €1.5 billion to the IMF in June, while its euro-area-backed bailout also expires this month. Tsipras signaled that Greece will meet its first June IMF payment, which is due Friday. “Don’t worry,” he said. Tsipras said demands by the euro area and the IMF for cuts in the income of poor pensioners and increases in value-added tax on power are unacceptable, highlighting what have been “red lines” in Greece’s stance since his anti-austerity Syriza party swept to power in snap elections in January.

“Ideas like cutting benefits for low-income pensioners, or raising the VAT rate for electricity by 10 percentage points, can’t be a basis for discussion,” he said. The premier sought to paint the commission, the EU’s executive arm, as more favorable to his proposals than are other creditor representatives deemed by Greece to be taking a harder line in the aid deliberations. “There was a constructive will from the EC to reach a common understanding,” he said. The Tsipras government has looked to the commission for support to dilute the austerity-first formula that’s underpinned two Greek rescues totaling €240 billion since 2010. This has led to clashes with creditors who say such bailout conditions have worked for other countries such as Ireland now out of aid programs and Greece should get no special treatment.

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Really, Ambrose? “..under existential threat from a revanchiste Russia”?

Europe Has No Choice – It Has To Save Greece (AEP)

Greece has been through the trauma of default and currency collapse before. It went horribly wrong. The sequence of events in the inter-war years have a haunting relevance today. In 1932, Greece turned to the League of Nations and British bankers in a last-ditch effort to defend the drachma under the Gold Standard as reserves drained away. The creditors dithered for three months but ultimately said “no”. Greece devalued and imposed a 70pc haircut on loans. Debt service costs fell by two-thirds at a stroke. It seemed like a liberation at first. The economy was growing briskly again – at more than 5pc – within a year. Then the sugar-rush faded. The credit system remained broken. Greek industry was too backward to exploit a cheaper exchange rate, unlike Japanese industry under Takahashi Korekiyo at the same time. .

The government never regained its credibility. There were four attempted coups d’etat, ending in the military dictatorship of Ioannis Metaxas. Political parties were abolished. Trade union leaders were killed or imprisoned. Greece fell to Balkan fascism. The cautionary episode is dissected in a seminal paper by the University of Athens. “The 1930s should perhaps be given more attention by those currently advocating the ‘Grexit scenario’,” it said. Nobody should underestimate the political hurricane that will follow if Europe proves incapable of holding monetary union together, and Greece spins out of control. The post-war order is already under existential threat from a revanchiste Russia. State authority has collapsed along an arc of slaughter through the Middle East and North Africa, while an authoritarian neo-Ottoman Turkey is slipping from of the Western camp.

To lose Greece in these circumstances – and to lose it badly – would be an earthquake. Yet that is exactly what Greek prime minister Alexis Tsipras evoked in a blistering outburst in Le Monde, more or less threatening an economic and strategic rejection of the West if the creditor powers continue to make “absurd demands”. Yet as a matter of strict economics, nobody knows if Greece would thrive or fail outside the euro. None of the previous break-up scenarios – ruble, Yugoslav dinar or Austro-Hungarian crown – tells us much. The chorus of warnings from EMU leaders that Grexit would be ruinous for the Greeks is a negotiating ploy, or mere cant. Each of the sweeping claims made by EMU propagandists over the last twenty years has turned out to be untrue.

The euro did not enhance growth, or bring about convergence, or displace the dollar as the world’s reserve currency, or bind EMU states together in spirit, and refuseniks such Britain, Sweden, and Denmark did not pay a price for staying out. To the extent that they believe their mantra on Greece, they risk misjudging the political mood in Athens. It leads them to suppose that Syriza must be bluffing. Costas Lapavitsas, a Syriza MP and an economics professor at London University, thinks the new drachma would plunge by 50pc against the euro before rebounding and stabilising at 20pc below current levels. The trauma would be over within six months. “Greece would be growing at a 5pc rate in a year and it would continue for five years,” he said.

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“..the Syriza government did not come to power supporting 70% of the Memorandum..”

Tsipras Turns to Party Hand Tsakalotos to End Talks Impasse (Bloomberg)

Greek PM Alexis Tsipras heads into talks to break a stalemate over a financial lifeline in Brussels on Wednesday surrounded by trusted party hands, chief among them Euclid Tsakalotos. The Oxford-educated economist and Greek deputy foreign minister was asked in April to step into the shoes of Finance Minister Yanis Varoufakis in day-to-day debt negotiations as Tsipras moved to defuse the acrimony building up with creditors. As sparring and missed deadlines to decide the fate of Greece enter a fifth month, Tsipras needs someone by his side who’s as acceptable to creditors as he is to party hardliners because the next stage of the battle to avoid financial collapse will likely be fought in Athens. “Tsakalotos is now, at least on paper, the guy in charge of the negotiations with the creditors,” said Wolfango Piccoli at Teneo Intelligence in London.

“It’s also useful for the prime minister to have him in Brussels in relation to the next big challenge: selling the deal to the party.” Tsipras said he will press creditors to be realistic about what his country can accept. After European leaders and the head of the IMF huddled late into the night in Berlin on Monday, creditors agreed on a new document designed to avert a default. Greece has four payments due to the IMF in June while its existing bailout expires this month. Tsipras, who put forward his own plan, is slated to meet EC President Jean-Claude Juncker on Wednesday evening. “I will explain to Juncker that today, more than ever, it’s necessary that the institutions and the political leadership of Europe move forward to realism,” Tsipras said before traveling to Brussels.

The latest twists put the onus on Tsipras’s anti-austerity government to shelve some election promises or jeopardize the country’s euro status. Sticking points in the talks have included budget measures, pension reforms and changes to Greece’s labor laws, with Tsipras’s Syriza party talking about red lines. Some members of the party have been critical of the backtracking on promises that brought Tsipras to power. John Milios, a member of the Syriza central committee, wrote and tweeted a few days ago that “the Syriza government did not come to power supporting 70% of the Memorandum. If Syriza had pledged so, it would probably not be included in the parliamentary map today, playing the key role.”

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Some things are going well.

Greek Exports Ex-Fuel Products Soar 14% (Kathimerini)

The increase in olive oil exports and the decline in exports of fuel products were the main factors that affected the course of external trade in the first quarter of the year, according to official data. There was also a significant shift in the main exporting products as well as the markets they head to. The total value of exports in the January-March period this year amounted to €6.27 billion, down 1.8% from the same period in 2014. However, when fuel products are exempted, there was a €549.1million increase, amounting to 14% year-on-year.

The European Commission recently revised its forecast regarding the course of Greek exports, reducing their expected growth to 4.1% on annual basis from a previous estimate of 5.6%. Most Greek exports (52.4%) head to fellow European Union member-states and their value climbed by 14.5% in Q1. However, exports to North America soared 45.8%, on the more favorable exchange rate of the euro with the dollar, making the US the sixth most important market for Greece’s exports, from tenth a year earlier.

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The pipeline itself needs EC approval, with the US dead set against it.

Athens Concerned Over Exclusion From TurkStream Pipeline (Kathimerini)

As a spokesman for the TurkStream pipeline said Wednesday that construction of the Gazprom-backed project will start by the end of the month, diplomatic sources in Athens suggested the Greek government was concerned that Moscow was mulling alternative routes which could potentially exclude Greece from the plans. During a meeting with Russian Prime Minister Dmitry Medvedev in Moscow on Tuesday, Slovakia’s Prime Minister Robert Fico put forward a plan that would see his country, plus another three European states, connected to the Russia-Turkey pipeline that will carry gas all the way to the Greek-Turkish border.

According to Fico’s plan, the pipeline would not cross Greek territory but transfer gas to Central Europe through Bulgaria, Romania, Hungary and Slovakia. Fico’s proposal also appeared to be welcomed by Hungary despite the fact that Budapest recently signed a declaration of intent stating that the pipeline will pass through Greece. The declaration was also signed by Hungary, Serbia, Turkey and the Former Yugoslav Republic of Macedonia (FYROM). Diplomatic sources on Wednesday said that Moscow will decide on the exact route only after it has the go-ahead from the European Commission.

The same sources described comments by Greek officials over an imminent deal with Moscow as overoptimistic. On Wednesday, an unnamed official attending an international gas conference in Paris told AFP that a deal signed in May with the Saipem construction company would allow work on the first of four sections to begin by the end of the month. At the same event, it was made known that Turkish Stream had been renamed TurkStream. The project was announced by Russian President Vladimir Putin late last year in a bid to replace the ditched South Stream pipeline. Analysts have called attention to a Washington warning against the construction of a pipeline bypassing Ukraine, a strategic US ally.

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The advantages of having one’s own currency.

Here’s What Defaults Did to Other Countries as Greece Teeters (Bloomberg)

By Friday, we may know whether Greece has reached a debt deal with its creditors. A failure could trigger a default and raise the prospect that it becomes the first country to leave the euro currency union. The history of previous economic cataclysms suggests that changes in currency values can work as escape valves that quickly, though not painlessly, relieve pressure on an economy. Massive depreciations allow countries to become more competitive internationally, enabling them to draw back from the brink more quickly. The charts below compare changes in exchange rates before and after four other disruptions that riled markets: Russia’s default in 1998, Argentina’s in 2001, the U.S. during and after the collapse of Lehman Brothers in 2008, and Greece’s debt restructuring in 2012. For Russia and Argentina, defaults punished their currencies.

For the U.S. dollar, the result was more mixed. Greece is part of the euro zone, and the 2012 impact on that currency was also mixed. The next charts show what happened to gross domestic product. Turns out the Argentine and Russian defaults were boons in those countries, with growth rebounding sharply. Upturns came much more slowly in the U.S. – which while home to the biggest-ever corporate bankruptcy didn’t default on its sovereign debt – and in Greece.

Unemployment rates in Argentina and Russia also showed clear inflection points for the better, while workers in the U.S. and Greece had to suffer through delayed improvement.What separates Greece’s from Argentina and Russia is the Greeks’ membership in the currency union (whereas Argentina and Russia have their own exchange rates). That means the country can’t enjoy the benefits of a massively cheaper currency before exiting the euro first, something that officials across the region have ruled out.

“The problem with Greece is that defaulting on the debt without the followup of a devaluation may buy time but won’t resolve its growth problems,” said George Magnus, senior economic adviser to UBS in London. “If Greece chose to default and stayed inside the euro zone, the option of a devaluation would not exist so it’s not clear why Greece should experience a growth rebound.”This dance that’s happening at the moment could go on for quite some time,” he said.

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“Arbeit macht frei” seems to have taken on a whole new meaning these days for whole bunch of us out here.”

A Member Of The Middle Class Responds To Jon Hilsenrath (Zero Hedge)

Dear Mr Hilsenrath and your Central Bank Team, This is Joe from the disappearing Middle Class in America. You asked me the other day to drop you a note if I felt that something was wrong. What I’m having trouble with is “why” you’re asking me if anything is wrong!? So let me explain. Regarding the weather, as you stated, the sun shined in April. It was also overcast some days some places, rained a few spots here and there, was nice quite a few days and even got dark on time, most evenings. And the Commerce Department is spot on that my spending didn’t increase any adjusted for the inflation that you all keep telling me isn’t there. Have you tried to buy some hamburger recently or do you just eat out on a corporate credit card? The price of a pack of spaghetti has doubled over the past 3 years.

Me and Mrs. J along with the kids kinda like spaghetti now and then and the Mrs. even made a great Bolognese sauce, but the hamburger got too expensive as has the spaghetti, so we had to cut back. So you’re right, we did sit at home and watch Dancing with the Stars a lot. It’s what we can afford. So, I really don’t get what you guys mean by those “winter doldrums” because things have gotten worse independent of the weather. The weather’s had nothing at all to do with it. And talking about worse, you’re right. I did get fired in late 2008 from a high paying salaried job with benefits when the economy dumped due to the Lehman Brothers shock.

Since then I’ve been holding down a part time greeters job at Home Depot with no benefits. I even took on a second part time job with no benefits at another place because I was getting bored watching television all day. Plus, we could use the extra money as our savings has been depleted. And we’re very worried about our health and the cost of healthcare is skyrocketing. But I guess you probably have a health care plan paid for by the Wall Street Journal. Why, feeling particularly liberated, Mrs. Joe’s even picked up a couple of part time jobs, as well. “Arbeit macht frei” seems to have taken on a whole new meaning these days for whole bunch of us out here.

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Surefire road to failure.

German And French Ministers Call For Radical Integration Of Eurozone (Guardian)

German and French politicians are calling for a quantum leap in how the EU’s single currency is run, proposing an embryo eurozone treasury equipped with a eurozone finance chief, single budget, tax-raising powers, pooled debt liabilities, a common monetary fund, and separate organisation and representation within the European parliament. They also propose that all teenagers in the EU be given the chance to spend a subsidised six months in another European country. In an article published in European newspapers, Sigmar Gabriel, Germany’s social democratic leader and vice-chancellor in Angela Merkel’s coalition government, and Emmanuel Macron, France’s young reformist economics minister, advocate a radical shift in integration of the eurozone, following five years of single currency crisis that have come close to tearing the EU apart.

They call for the setting up of “an embryo euro area budget”, “a fiscal capacity over and above national budgets”, and harmonised corporate taxes across the bloc. The eurozone would be able to borrow on the markets against its budget, which would be financed from a kind of Tobin tax on financial transactions and also from part of the revenue from the new business tax regime. The eurozone’s current bailout fund, the European Stability Mechanism, which is made up of national contributions under a deal between governments, would be made a common eurozone instrument and converted into a European Monetary Fund. The entire new regime would come under the authority of a new post of euro commissioner who would be answerable to eurozone MEPs who, in turn, would need to have a separate sub-chamber in the European parliament.

In reference to the Greek crisis currently moving towards some form of denouement, the two leading figures say the new regime they are proposing should also establish “a legal framework for orderly and legitimate sovereign debt restructurings, should they become necessary as a last resort. This would prevent both inappropriate use of crisis lending and self-defeating bouts of austerity when countries face unsustainable debts.” Germany and France are the two biggest countries in the eurozone. Gabriel and Macron are both seen as youngish leaders of reformist social democracy in an EU, however, dominated by the centre-right, suggesting that their ideas might struggle to find traction.

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The crumbling union.

European Dream Just a Fairy Tale to New Breed of Eastern Leaders (Bloomberg)

Natalia Krzywicka wasn’t alive when Poland shrugged off the shackles of communism in 1989. When it joined the European Union 15 years later, she was only eight. Now, the 19-year-old student is ready for her country to stop acting like a newcomer to the EU and start doing something for its voters, including her. She helped unseat the government-backed incumbent in a May 24 presidential runoff, eastern Europe’s fifth such upset since 2013. “I know that economic indicators quoted in the mainstream media show Poland is in good shape, but that’s just propaganda,” Krzywicka said in front of Warsaw’s Wilanow Palace, a sprawling 17th-century estate. “Poland’s policy makers need to refocus on defending the country’s interests, like everyone else.”

Krzywicka is among voters in the EU’s east who are shaking up politics after more than two decades of tolerating the fiscal and economic measures needed to qualify for membership in the bloc. After years of their governments focusing on selling state assets, luring foreign investment, overhauling communist-era bureaucracy and trying to meet EU budget and competition rules, they’re now demanding action on bread-and-butter issues including pensions and health care. In Poland, opposition-backed Andrzej Duda defeated President Bronislaw Komorowski by pledging to overturn a government-imposed increase in the pension age and to pull the country of 38 million away from the “European mainstream.” His victory followed presidential upsets against ruling party candidates in Romania, Slovakia, Croatia and the Czech Republic over the last two years.

Betting that incomes of the 100 million people in the eastern economies would approach the level of their western neighbors, investors plowed billions into the region even before the EU’s first wave of enlargement in 2004. Since then, they’ve been rewarded by outsized returns. Hungary’s local-currency government bonds have returned 169%, the most among 26 indexes tracked by the European Federation of Financial Analysts Societies. Polish notes have handed investors 107% and Czech securities 77%, compared with an EU average of 71%. Yet there are growing signs that the change from centrally planned to market-driven economies is mostly over.

While the region’s governments sold off most of their state-owned manufacturers, banks and utilities last decade, now governments in Bulgaria, Slovakia and Hungary are criticizing foreign-owned power companies for high prices. The latter two have imposed special taxes, mostly on lenders, to shore up their budgets, a plan Duda wants to emulate in Poland. Hungarian Prime Minister Viktor Orban has gone the farthest in the region in expanding state control, buying the local businesses of foreign companies including EON and GE Capital. “I expect the efforts to push through structural reform will decrease,” said Peter Schottmueller at Deka Investment in Frankfurt. “This is a major problem every government in Europe has to tackle: wage growth, youth unemployment. We haven’t found a solution.”

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Count me not surprised.

EU Home To Widespread Labor Exploitation (RT)

The European Union is home to widespread employment abuses, according to a new study. Both EU and non-EU citizens have fallen victim to labor exploitation, despite laws which allegedly protect workers. The study, conducted by the European Union Agency for Fundamental Rights (FRA), is the first of its kind to thoroughly explore all criminal forms of labor exploitation in the EU. The agency compiled around 600 interviews with representatives of trade unions, police forces and supervisory authorities, finding that employment abuses are prevalent across the EU. “Labor exploitation is a reality in the EU,” FRA spokesperson Bianca Tapia said, as quoted by Deutsche Welle. She added that it is becoming extremely commonplace in some sectors of the economy.

According to the findings, criminal labor exploitation is prominent in a number of industries – particularly construction, agriculture, hotel and catering, domestic work and manufacturing. The FRA said that one in five inspectors dealing with the issue came across severe cases of exploitation at least twice a week. “What these workers in different geographical locations and sectors of the economy often have in common is a combination of factors: being paid 1 euro or much less per hour, working 12 hours or more a day for six or seven days a week, being housed in harsh conditions, and not being allowed to go on holiday or take sick leave,” Tapia said in the report.

While the study stressed that both EU and non-EU citizens face such conditions, Tapia did note that “foreign workforces are at serious risk of being exploited in the EU.” Many migrant workers have their passports taken off of them and are cut off from the outside world by employers, the agency said. The Vienna-based rights group compiled over 200 case studies. Among those were Lithuanians working on British farms and living in sheds with little access to hygiene facilities. A case of Bulgarians harvesting fruit and vegetables in France for 15 hours a day – but being paid for just five of the 22 weeks they worked – was also cited.

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What do you mean, a bubble?

Who Cares About China’s Economy When Stocks Are Rising This Much? (Bloomberg)

When Sean Taylor looks at China’s soaring stock prices, he sees a market more disconnected from economic fundamentals than at any other time in a two-decade career. His advice to investors? Keep buying. The London-based head of emerging markets at Deutsche Asset & Wealth Management, whose developing-nation equity fund has outperformed 94% of peers tracked by Bloomberg this year, says what matters most in China right now is that policy makers have the motivation and firepower to keep the world-beating rally going. Rising stock prices not only help Chinese companies reduce debt levels by selling new shares, they also make it easier for the government to boost budget revenue and push forward on privatization plans through stake sales.

One way policy makers can support further gains is through further monetary stimulus: banks’ reserve requirement ratios are almost 6 percentage points higher than the 15-year average, even after two cuts this year. “The government wants a strong stock market, to privatize more companies and do more IPOs,” Taylor, whose firm oversees about $1.3 trillion, said in an interview in Hong Kong. He has an overweight position in Chinese shares. The Shanghai Composite has gained 141% in the past 12 months, the most among major global benchmark indexes. The gauge closed little changed today. The following charts underscore the disconnect between Chinese stocks and the economy.

• Shanghai Composite performance: The index rose last week to its highest level in seven years, while Bloomberg’s monthly gross domestic product tracker for China is near the lowest since 2009.

• Financial stocks: The CSI 300 Index’s gauge of banks, property developers and brokers climbed to its highest level since January 2008 last week. Data on May 13 showed the M2 measure of broad money supply grew 10.1% in April from a year earlier, the smallest expansion on record.

• Retail stocks: The consumer discretionary index has rallied 75% this year to a record. Retail sales grew 10% in April, the slowest pace since 2006.

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“Markets might recover, but often people do not.”

Oliver Stone: Wall Street Culture “Horribly Worse” Than Gordon Gekko (SMH)

The culture on Wall Street is “horribly worse” than it was in the 1980s, and America’s regulatory culture is lost, according to Hollywood director Oliver Stone. Mr Stone, who was in Melbourne speaking at the Game Changers event held by superannuation firm Sunsuper, said he made the sequel Wall Street: Money Never Sleeps in 2010 to address the problem with the culture he exposed in his iconic 1987 film Wall Street. “Gordon Gekko was an immoral character that became worshipped for the wrong reasons… the banks became a version of him, speculating for themselves. To hell with the investor,” he told Fairfax Media.

Gekko’s legacy may be alive and kicking in the finance mecca. A new study of US finance executives found that 47% said they it was likely their competitors had engaged in illegal or unethical conduct to gain a market advantage. A separate study found one third of Wall Street financiers who earned more than $500,000 had witnessed wrongdoing. Mr Stone’s comments came after two of Australia’s top regulators signalled a clampdown on a “rotten culture” that exists within the Australian finance industry. Australian Securities Investment Commission chairman Greg Medcraft said last week the way banks and brokers structured incentives was a driver of white collar crime. ASIC has said it is investigating three investment banks in Australia.

Mr Stone said while money had “polluted politics” in the US, he believed Australia’s regulation was stronger, which helped it avoid the full impact of the global financial crisis. But he was suprised to be told of the financial planning scandal enveloping the big four banks and the subsequent Financial System Inquiry. “You can always make money with banks, the problem is you have to self-discipline so you don’t screw the investors,” he said. Mr Stone said it was the nature of capitalism to bubble and burst. “You can never find a moderate balance. You need supervisroy intelligence to balance the excesses of market, and that is the lesson that [US President Franklin D.] Roosevelt taught us in the 1930s, but that seems to have been forgotten,” he said.

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Posterchild for regulatory failure.

Elizabeth Warren Blasts Mary Jo White’s SEC Leadership (MarketWatch)

Sen. Elizabeth Warren on Tuesday blasted the leadership of Securities and Exchange Commission Chairwoman Mary Jo White, calling it “extremely disappointing.” It’s the most aggressive critique yet from the Massachusetts Democrat, who has often criticized regulators over their perceived lax stance against Wall Street firms. In a 13-page letter sent to White on Tuesday, Warren cites four main complaints with White’s two-year tenure:

•The SEC’s failure to finalize Dodd-Frank rules regarding disclosure of CEO pay to median workers.

• White’s failure to curb the use of waivers for companies that violate securities laws. Several firms received a waiver after pleading guilty to Justice Department charges of manipulating the foreign exchange market.

• SEC settlements that don’t require an admission of guilt.

• Numerous SEC enforcement cases that require recusals by White because of conflicts from her prior law firm employment and her husband’s current law practice. Warren even suggests companies may deliberately hire her husband, John White, to lead to a recusal and a 2-to-2 deadlock of remaining commissioners.

White was aggressive in her response, saying the senator mischaracterized her comments. “I am very proud of the agency’s achievements under my leadership, including our record year in enforcement and the Commission’s efforts in advancing more than 30 congressionally mandated rulemakings and other transformative policy initiatives to protect investors and strengthen our markets,” White said in a statement. “Senator Warren’s mischaracterization of my statements and the agency’s accomplishments is unfortunate, but it will not detract from the work we have done, and will continue to do, on behalf of investors.”

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Looks like the US may be losing.

Kim Dotcom Thwarts Huge US Government Asset Grab (TorrentFreak)

Kim Dotcom has booked a significant victory in his battle against U.S. efforts to seize assets worth millions of dollars. In a decision handed down this morning, Justice Ellis granted Dotcom interim relief from having a $67m forfeiture ordered recognized in New Zealand. Dotcom informs TF that the victory gives his legal team new momentum. In the long-running case of the U.S. Government versus Kim Dotcom, almost every court decision achieved by one side is contested by the other. A big victory for the U.S. back in March 2015 is no exception. After claiming that assets seized during the 2012 raid on Megaupload were obtained through copyright and money laundering crimes, last July the U.S. government asked the court to forfeit bank accounts, cars and other seized possessions connected to the site’s operators.

Dotcom and his co-defendants protested, but the Government deemed them fugitives and therefore disentitled to seek relief from the court. As a result District Court Judge Liam O’Grady ordered a default judgment in favor of the U.S. Government against assets worth an estimated $67m. Following a subsequent request from the U.S., New Zealand’s Commissioner of Police moved to have the U.S. forfeiture orders registered locally, meaning that the seized property would become the property of the Crown. Authorization from the Deputy Solicitor-General was granted April 9, 2015 and an application for registration was made shortly after.

In response, Kim Dotcom and co-defendant Bram Van der Kolk requested a judicial review of the decision and sought interim orders that would prevent the Commissioner from progressing the registration application, pending a review. The Commissioner responded with an application to stop the judicial review. In a lengthy decision handed down this morning, Justice Ellis denied the application of the Commissioner while handing a significant interim victory to Kim Dotcom. Noting that the “fugitive disentitlement” doctrine forms no part of New Zealand common law, Justice Ellis highlighted the predicament faced by those seeking to defend themselves while under its constraints.

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“..an “extreme deregulatory agenda” on the part of both the United States and Australia’s negotiators with “serious implications for all service sectors, perhaps human services especially”.

WikiLeaks Reveals New Australia Trade Secrets (SMH)

Highly sensitive details of the negotiations over the little-known Trades in Services Agreement (TiSA) published by WikiLeaks reveals Australia is pushing for extensive international financial deregulation while other proposals could see Australians’ personal and financial data freely transferred overseas. The secret trade documents also show Australia could allow an influx of foreign professional workers and see a sharp wind back in the ability of government to regulate qualifications, licensing and technical standards including in relation to health, environment and transport services.

In its largest disclosure yet relating to the TiSA negotiations, WikiLeaks has published seventeen documents including draft treaty chapters, memoranda and other texts setting out the overall state of negotiations and individual country positions in a secret bargaining on banking and finance, telecommunications and e-commerce, health, as well as maritime and air transport. The leaked documents were to be kept secret until at least five years after the completion of the TiSA negotiations and entry into force of the trade agreement. Dr Patricia Ranald, research associate at the University of Sydney and convener of the Australian Fair Trade and Investment Network, said WikiLeaks’ publication revealed an “extreme deregulatory agenda” on the part of both the United States and Australia’s negotiators with “serious implications for all service sectors, perhaps human services especially”.

The leaked draft TiSA financial services chapter shows a continuing strong push by the United States, Australia and other countries for deregulation of international financial services, an approach strongly supported by Australian banks keen to increase their business in Asian markets. However Financial Sector Union secretary Fiona Jordan said there was a need to strengthen not weaken financial and banking regulation. “The issue has to be about Australia maintaining the tight regulations it has – and perhaps even adding to these,” Ms Jordan said.

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Global markets for basic necessities is always a bad idea. They can only lead to hunger.

The Big Global Food Game (Beppe Grillo’s blog)

The world’s population continues to grow and as the eating habits of people in developing countries like China and Brazil are changing rapidly, they are beginning to include more meat and cereals in their diets. Land for cultivating crops and raising livestock is a finite resource and the race to get hold of pieces of land, water and animals is already in full swing, with China grabbing the lion’s share. The big food game is already going full speed ahead and anyone who is left out at this stage is lost. In his book entitled Pappa Mundi, Francesco Galietti talks about how food is becoming one of the main issues in International relations. We interviewed him to find out more.

“A big hello to all the friends of Grillo’s Blog. Since we’re dealing with a market here, as always it is dictated by two factors, namely supply and demand, both of which are constantly changing. As far as demand is concerned, obviously the big daddy of all topics of debate on this issue is China, the Chinese Dragon. It’s not that the country’s population is increasing disproportionately, but what is changing, and very fast too, is the ratio of its very fast growing middle class to its total population. This means that there is now a whole range of new prerogatives, including tastes, fashions, desires and wants, all of which have very serious repercussions on foods. For these people, meat used to be something that only the privileged could enjoy in the exclusive restaurants but now that they can afford it too, they also want it.

For example, SmithField is the largest global piggery. It is an American company that breeds and raises pigs and just recently it was bought out by the Chinese. This acquisition came to the attention of the American Military, who were absolutely incredulous and couldn’t understand why on earth Chinese investors would come to America to buy pork. They were equally incredulous when they discovered that China has a specific doctrine in this regard, so much so that they have come up with the so-called Strategic Pork Reserve, in other words a way of making sure that China always maintains a certain stock of pork. Then there is also another component, namely the food anxiety that Middle-East investors have. Notwithstanding its great variety, the Middle-East is and remains little more than a huge sandbox.

This means that the petrol sheiks are looking for that which they don’t have, and they go looking for it all over the world. They have created such a huge expanse of rice paddies that Saudi-Arabia has now become the world’s sixth largest rice producer! There is a general fear of finding ourselves without any food for our people, above all the working people who are most often the disadvantaged ones that come from Pakistan and ’Asia, so I the case of the Middle-East, the search is on for what they don’t have. The third important component in the big food game is the use of food as a weapon of war. Putin has decided to counter western sanctions with counter-sanctions on food, which is a real tragedy for us Italians because it means bye-bye to our significant exports of Grana Padano to Russia, as well as other goodies for the oligarchy’s palates.

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It’s a shame that this focuses on emissions. There are much better reasons to eat local food.

Replanting America: 90% of What We Eat Could Come From Local Farms (Nosowitz)

Eating a local diet—restricting your sources of food to those within, say, 100 miles—seems enviable but near impossible to many, thanks to lack of availability, lack of farmland, and sometimes short growing seasons. Now, a study from the University of California, Merced, indicates that it might not be as far-fetched as it sounds. “Although we find that local food potential has declined over time, our results also demonstrate an unexpectedly large current potential for meeting as much as 90% of the national food demand,” write the study’s authors. 90%! What?

Researchers J. Elliott Campbell and Andrew Zumkehr looked at every acre of active farmland in the U.S., regardless of what it’s used for, and imagined that instead of growing soybeans or corn for animal feed or syrup, it was used to grow vegetables. (Currently, only about 2% of American farmland is used to grow fruits or vegetables). And not just any vegetables: They used the USDA’s recommendations to imagine that all of those acres of land were designed to feed people within 100 miles a balanced diet, supplying enough from each food group. Converting the real yields (say, an acre of hay or corn) to imaginary yields (tomatoes, legumes, greens) is tricky, but using existing yield data from farms, along with a helpful model created by a team at Cornell University, gave them a pretty realistic figure.

Still, the study involves quite a few major leaps of faith because it seeks not to demonstrate what is possible for a given American right now but to lay out a basic overview of the ability of local food to feed all Americans. It’s not just projecting yields for vegetables grown on land that is today dominated by corn and soy. The biggest leap of faith is perhaps an unexpected one and is surprisingly underreported: Why do we even want to adjust our food supply to be local in the first place?

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May 062015
 


Jack Delano Foggy night in New Bedford, Massachusetts 1941

Death Of The American Dream As A Big Bubble Readies To Pop (MarketWatch)
US Trade Deficit Soars To Worst Since 2008; Q1 GDP To Be Negative (Zero Hedge)
3 Out Of 4 US Retirees Receive Reduced Social Security Benefits (MarketWatch)
One In Five US Adults Have No Credit Score, Can’t Borrow Money (MarketWatch)
California’s Drought Could Upend America’s Entire Food System (ThinkProgress)
Steve Keen Explains Why Austerity Policies Are Naïve (EIUk)
Germany’s Record Trade Surplus Is A Bigger Threat To Euro Than Greece (AEP)
It’s Not Greek ATMs Running Out of Cash. It’s Germany’s (Bloomberg)
Greek Government Takes Aim At Creditors Over Stalled Bailout Talks (Guardian)
Greece Says Compromise Not Possible Under Current Conditions (Bloomberg)
Debt Talks On Hold Until Greece Agrees Reforms, Warns Moscovici (FT)
Varoufakis’ First 100 Days: All Style, No Substance? (CNBC)
Greece To Finalise Airports Deal ‘Immediately’ (Reuters)
Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet
China Mulls New Monetary Tool That ‘The World Has Never Seen’ (Caixin)
CFR Says China Must Be Defeated And TPP Is Essential To That (Zuesse)
Forget Tanks. Russia’s Ruble Is Conquering Eastern Ukraine (Bloomberg)
Moscow’s Last Stand: How Soviet Troops Defeated Nazis For First Time In WW2 (RT)

“..given the palpable sense of investor uneasiness lately, weakness on the social landscape bears watching.”

Death Of The American Dream As A Big Bubble Readies To Pop (MarketWatch)

Retail appetite for risk may be drying up, if last week’s unsettling action in the sexy social-media corner of the market is any indication. Sure, Friday ended with a strong push for the major indexes, but that didn’t erase the sting of a stretch that saw 20% post-result drops for Twitter, LinkedIn and Yelp. Broad market bellwethers they ain’t, of course. That doesn’t, however, mean this double-digit blip should be shrugged off like a wayward Pacquiao punch. When the frothy names get rocked, market mood tends to change. It’s too early to draw any ghastly conclusions, but given the palpable sense of investor uneasiness lately, weakness on the social landscape bears watching.

The flip side is that dip-buyers over the past few years have generally pounced when their faves wobble. This is also something to keep an eye on as the week pushes forward. A rebound, and it’s business as usual. Further weakness, and it’s beware the unravel. At this point, there’s no bounce in the making for that social-media trio ahead of the bell. And the rest of the market is poised to open in the red, with the must-watch jobs report due at the end of the week. Big-picture, those fretting about the potential for a tech bubble might want to gird against what’s about to happen to the American Dream. Again. The “smart money” is signaling trouble ahead in housing.

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Recession looming. Remind me, in what quarter was the growth 5%?

US Trade Deficit Soars To Worst Since 2008; Q1 GDP To Be Negative (Zero Hedge)

After shrinking notably in Feb, March’s US Trade deficit exploded. Against expectations of a $41.7bn deficit, the US generated a $51.4bn deficit – the worst since Oct 2008 and the biggest miss on record. Exports rose just $1.6bn while imports soared $17.1bn with the goods deficit with China soaring from $27.3bn to $37.8bn in March. Ironically, just as the “harsh winter” was found to lead to a GDP boost due to a surge in utility spending, so the West Coast port strike which was blamed for the GDP drop, was actually benefiting the US economy as it lead to a plunge in imports. In March, however, the pipeline was cleared, and US imports from China soared by over $10 billion to $38 billion. End result: prepare for upcoming Q1 GDP downgrades into negative territory, which with a Q2 GDP of 0.8% (per the Atlanta Fed) means the US is this close to a technical recession.

The increase in imports of goods mainly reflected increases in consumer goods ($9.0 billion), in capital goods ($4.0 billion), and in automotive vehicles, parts, and engines ($2.7 billion). A decrease occurred in petroleum and products ($1.1 billion). The goods deficit with China increased from $27.3 billion in February to $37.8 billion in March. From the report: The U.S. monthly international trade deficit increased in March 2015 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $35.9 billion in February (revised) to $51.4 billion in March, as imports increased more than exports. The previously published February deficit was $35.4 billion. The goods deficit increased $14.9 billion from February to $70.6 billion in March. The services surplus decreased $0.6 billion from February to $19.2 billion in March.

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And that’s just the beginning.

3 Out Of 4 US Retirees Receive Reduced Social Security Benefits (MarketWatch)

Growing numbers of workers expect to rely heavily on Social Security as a major source of income in retirement, but almost three-quarters of current retirees are receiving reduced benefits, according to two new reports. According to a recent Gallup survey, 36% of adults who are not yet retired expect Social Security to be a “major source” of retirement income. That figure is roughly 10 percentage points higher than a decade ago and higher than any response in the past 15 years. Of course, the best way to maximize Social Security is to delay claiming benefits until “full retirement age,” which is climbing gradually to 67, or beyond. A person due to receive a benefit of $1,000 at a full retirement age of 66 would receive only $750 at age 62 (the earliest age at which most people can claim benefits) – and $1,320 at age 70.

But that math isn’t stopping many workers from claiming benefits early. Among the 37.9 million Americans receiving Social Security retirement benefits as of December 2013, fully 73% were receiving reduced benefits “because of entitlement prior to full retirement age,” according to a new report from the Social Security Administration. Relatively more women (75.4%) than men (70.3%) received reduced benefits. The findings come at a time when the Social Security program itself is straining to meet demands and when many workers are anxious about the size of their nest eggs. Currently, the Social Security Administration is tapping the interest on the program’s trust funds to pay beneficiaries and, soon, will begin drawing down the assets themselves.

At the moment, the trust fund is scheduled to run out in 2033, after which Social Security recipients would receive about 75% of their benefits. Against that backdrop, a recent Wells Fargo/Gallup survey found that only 28% of non-retired investors are very confident they will have enough savings at the time they decide to retire. An additional 48% are somewhat confident. The latest Gallup survey concludes: “To the degree [workers’] savings are not sufficient to fund their retirement, [they] will have to make up the shortfall somehow. The guaranteed Social Security benefit is an obvious way to do that, if not by also seeking part-time work or scaling back their standard of living considerably.”

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“..disproportionately Black or Hispanic..”

One In Five US Adults Have No Credit Score, Can’t Borrow Money (MarketWatch)

One in 10 U.S. adults is invisible to much of the American economy because they have no credit report or score, a new report by the Consumer Financial Protection Bureau has found. Those 26 million adults — disproportionately Black or Hispanic — have virtually no chance to borrow money or use credit cards. And another 19 million adults have credit reports so “thin” that they are unscoreable by traditional methods, and also left behind by the credit system. Together, that means 45 million Americans — one in five adults — have no traditional credit score. “Today’s report sheds light on the millions of Americans who are credit invisible,” said CFPB Director Richard Cordray.

“A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity — to get an education, start a business, or buy a house. Further, some of the most economically vulnerable consumers are more likely to be credit invisible.” The CFPB found that 188.6 million American adults have credit records that can be scored using traditional models, or 80% of the population. Most of the Americans left behind by traditional scoring methods are young. Over 10 million of the estimated 26 million credit invisibles are younger than 25, the CFPB found.

The findings are consistent with other recent studies about the “credit invisibles.” FICO, which created the most widely-used formula for credit scoring, told The Wall Street Journal last month that 25 million Americans have no credit events on file and an additional 28 million have thin files. VantageScore, which offers an alternative to FICO scores, said last year that 30-35 million Americans don’t have a traditional credit score. Among those with thin files, the CFPB said the group was evenly split between those who have an insufficient credit history and those who lack a recent credit history.

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Much has to shift to other states.

California’s Drought Could Upend America’s Entire Food System (ThinkProgress)

On April 1, California Governor Jerry Brown stood in a field in the Sierra Nevada Mountains, beige grass stretching out across an area that should have been covered with five feet of snow. The Sierra’s snowpack — the frozen well that feeds California’s reservoirs and supplies a third of its water — was just 8% of its yearly average. That’s a historic low for a state that has become accustomed to breaking drought records. In the middle of the snowless field, Brown took an unprecedented step, mandating that urban agencies curtail their water use by 25%, a move that would save some 500 billion gallons of water by February of 2016 — a seemingly huge amount, until you consider that California’s almond industry, for example, uses more than twice that much water annually. Yet Brown’s mandatory cuts did not touch the state’s agriculture industry.

Agriculture requires water, and large-scale agriculture, like that in California, requires large amounts of water. So when Governor Brown came under fire for exempting farmers from the mandatory cuts — farmers use 80% of the state’s available water — he was unmoved. “They’re not watering their lawn or taking long showers,” he told ABC’s “The Week”. “They’re providing most of the fruits and vegetables of America to a significant part of the world.” Almonds get a lot of the attention when it comes to California’s agriculture and water, but the state is responsible for a dizzying diversity of produce. Eaten a salad recently? Odds are the lettuce, carrots, and celery came from California. Have a soft spot for stone fruit? California produces 84% of the country’s fresh peaches and 94% of the country’s fresh plums. It produces 99% of the artichokes grown in the United States, and 94% of the broccoli.

As spring begins to creep in, almost half of asparagus will come from California. “California is running through its water supply because, for complicated historical and climatological reasons, it has taken on the burden of feeding the rest of the country,” Steven Johnson wrote in Medium, pointing out that California’s water problems are actually a national problem — for better or for worse, the trillions of gallons of water California agriculture uses annually is the price we all pay for supermarket produce aisles stocked with fruits and vegetables. Up to this point, feats of engineering and underground aquifers have made the drought somewhat bearable for California’s farmers. But if dry conditions become the new normal, how much longer can — and should — California’s fields feed the country? And if they can no longer do so, what should the rest of the country do?

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MUST SEE! Brilliant exposé.

Steve Keen Explains Why Austerity Policies Are Naïve (EIUk)

In an exclusive interview with Every Investor, Professor Steve Keen from Kingston University has warned that politicians who promote austerity economics are naïve. The economist, who was one of the few who predicted the Great Recession, warned last year that the US and UK economies wouldn’t make a sustainable recovery due to the problem of high levels of private debt – public debt being more a symptom than a cause of this economic malaise. In this interview he gives a detailed explanation as to why the austerity-heavy economic policy of the Conservatives (and the Liberal Democrats), and the austerity-lite version from Lab is naïve and will lead not to economic growth but to economic stagnation.

Indeed, while not endorsing any political party, he does acknowledge that the economic policies of the SNP and Greens make more sense. This is a video that needs to be watched. It will give you insights that most professional economists appear to lack. (Hence, their evident surprise at news that the UK and US are slowing down). It should also encourage investors to be in ‘risk-off’ mode, which seems very sensible given likely market volatility that will follow the election and the grave economic news that we can expect this year.

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Germany violates a lot of EU agreements. It could face huge fines.

Germany’s Record Trade Surplus Is A Bigger Threat To Euro Than Greece (AEP)

Germany’s current account surplus is out of control. The European Commission’s Spring forecasts show that it will smash all previous records this year, reaching a modern-era high of 7.9pc of GDP. It will still be 7.7pc in 2016. Vague assurances that the surplus would fall over time have once again come to nothing. The country is now the biggest single violator of the eurozone stability rules. It would face punitive sanctions if EU treaty law was enforced. Brussels told Germany to do its “homework” a year ago, but recoiled from taking any action. We will see if Jean-Claude Juncker’s commission does any better this time. If not, cynics might justifiably conclude that big countries play by their own rules in Europe, and that Germany can defy all rules. The EMU punishment machinery is highly political, in any case.

The story of the EMU debt crisis is that the authorities persistently enforce a creditor agenda rather than macro-economic welfare (an entirely different matter). This is the fifth consecutive year that Germany’s surplus has been above 6pc of GDP. The EU’s Macroeconomic Imbalance Procedure states that the Commission should launch infringement proceedings if this occurs for three years in a row, unless there is a clear reason not to. There are few extenuating circumstances in this case. Germany’s surplus is not caused by a one-off shock. The surplus remains huge even if adjusted for lower energy import costs. It is a chronic structural abuse, rendering monetary union unworkable over time, and is surely more dangerous for eurozone unity than anything going on in Greece. “The European Commission should stop pulling its punches: Germany should be fined,” said Simon Tilford, from the Centre for European Reform.

“Their surplus should be treated in the same way as the southern deficits were treated earlier, as a comparable threat to eurozone stability. What is so worrying is that the surplus would normally be falling rapidly at this stage of the economic cycle,” he said. Germany’s jobless rate is at a post-Reunification low of 4.7pc. It should therefore be enjoying a surge of consumption. This it is not happening because the rebalancing mechanism is jammed. What this shows is the EMU remains fundamentally out of kilter, and doomed to lurch from crisis to crisis even if there is a recovery. Any rebound in southern Europe will lead to the same build-up in intra-EMU trade imbalances, and therefore in the same offsetting capital flows, vendor-debt financing, and asset bubbles that led to the EMU crisis in the first place.

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Major strikes for more pay.

It’s Not Greek ATMs Running Out of Cash. It’s Germany’s (Bloomberg)

European travelers have contended for weeks with the possibility that Greece’s dwindling finances might lead to empty ATMs. They should have concerned themselves instead with Germany. While cash machines in Athens are still operating without any trouble, striking couriers in Berlin this week stopped filling ATMs, leading to a crunch for those trying to make withdrawals. And the open-ended labor dispute with a local security company means there’s no end in sight. “That all depends on how the company reacts,” said Andreas Splanemann, a spokesman for the Ver.di union representing the security personnel. “There are now a lot of cash machines that are empty.” Berlin’s strike is the latest in a series of walkouts that have riled a nation more accustomed to mocking the labor strife which has so often beset neighboring France.

A strike by train drivers that began Tuesday is paralyzing travel and clogging highways throughout Germany. That action follows a March walkout by pilots at Deutsche Lufthansa AG that led to flight cancellations for 220,000 people. “It’s really annoying, especially if you’re pressed for time,” Batgerel Militz, a Berlin student, said as she unsuccessfully tried to withdraw cash at two banks. She finally got lucky at the third – just in time to catch her delayed train. “Probably because of the train strike,” she said with a laugh. Joking aside, Germany is seeking to curb the influence of smaller unions by drafting a law that would limit companies’ labor representation to one union per group of employees. The measure is currently winding its way through the Bundestag, the country’s lower house of parliament.

In the case of the passenger train strike, which is set to run through May 10, the walkout was called by the GDL union, which represents 19,000 train drivers, switch-yard engineers and conductors. The GDL is far smaller than the larger EVG, which has about 213,000 members staffing Germany’s rail network. The Lufthansa strike crippled travel because it was called by pilots. “They can strike more readily if they do so with solely their own goals in mind,” said Stefan Heinz, an academic specializing in labor politics at Berlin’s Free University. “They can get more out of it for their group.” While Germans still strike less than the French, those who’ve walked out recently in Germany often hold posts that have a wider ripple effect across society.

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“The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them..”

Greek Government Takes Aim At Creditors Over Stalled Bailout Talks (Guardian)

Greece’s government has blasted its creditors for holding back progress on bailout talks, laying the blame squarely on differences between the European Union and the International Monetary Fund. Racheting up the pressure on the two bodies, the anti-austerity Syriza government said conflicting strategies and opposing views were not only impeding negotiations but injecting “a high level of danger” into the talks at a time when the country’s finances had hit rock bottom. “Serious disagreements and contradictions between the IMF and European Union are creating obstacles in the negotiations and a high level of danger,” said a senior government source. The official added that both lenders were digging in their heels on divergent issues, effectively enforcing “red lines everywhere”.

While the IMF was refusing to compromise on labour deregulation and pension reform but was relaxed on fiscal demands, the EU was insistent that primary surplus targets be met while being much more conciliatory about structural changes. The official insisted: “In such circumstances, it is impossible to have a compromise. The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them”. Speaking exclusively to the Guardian, the Greek health minister, Panagiotis Kouroumblis, said creditors were constantly moving the goalposts. “They are not only implacable, the feeling that they give us is that they are impossible to satisfy,” he said. “They ask for 10 things to be done and then come back the next day and ask for another 10 more. As much as we would like, that’s not going to lead to compromise.”

The warnings came as the European commission slashed its forecast for Greece’s growth rate this year, predicting the economy would expand by a mere 0.5%, compared with the 2.5% it had projected barely three months ago. The downgrade was the clearest sign yet that the stalled negotiations have thrown the country, last year believed to be emerging from its worst recession on record, back into reverse. Talks aimed at unlocking desperately needed rescue funds – €7.2bn (£5.3bn) from the last bailout has been held up as both sides haggle over reforms – have been beset by problems since the far-left Syriza leader Alexis Tsipras assumed power in January. The EC said Greece’s economic recovery had been hit by the political tumult that had plagued the country in the four months since the previous government was forced to call snap polls. “In the light of the persistent uncertainty, a downward revision has been unavoidable,” said the EU’s monetary affairs commissioner, Pierre Moscovici.

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“The IMF won’t compromise on labor deregulation and pension reforms, while the European Commission is insisting on fiscal targets being met..”

Greece Says Compromise Not Possible Under Current Conditions (Bloomberg)

Greece blamed international creditors for the failure to achieve a breakthrough in bailout talks, saying a deal won’t be possible until they agree on a common set of demands. A Greek official said that the European Commission and the IMF are confronting the country with too many red lines and need to better coordinate their message. Greek bonds and stocks tumbled on Tuesday as optimism that an interim deal was close gave way to angst that the country isn’t moving fast enough to guarantee the continued flow of bank liquidity and bailout funds. Euro region finance ministers are next scheduled to meet on May 11, with Germany’s Wolfgang Schaeuble saying earlier he’s “skeptical” that an agreement can be reached by then.

Greece’s new line of argument focuses on what it says are divisions among the international creditors. The IMF won’t compromise on labor deregulation and pension reforms, while the European Commission is insisting on fiscal targets being met, said the official, who spoke on condition of anonymity because the talks are confidential. The commission is also refusing to consider a debt write down, he said. Greece is sending mixed signals about just how much money it has left. While officials say they’re confident of making payments to the IMF this week and next, one policy maker signaled last month that the country may struggle to keep its finances afloat beyond the end of this month.

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What’s the use of threatening Greece even further?

Debt Talks On Hold Until Greece Agrees Reforms, Warns Moscovici (FT)

Greece’s eurozone creditors will not discuss how to get the country’s sovereign debt back on a sustainable path until Athens agrees to a new economic reform programme that would release €7.2bn in desperately needed bailout funds, the EU’s economic chief said on Tuesday. The talks over the reform programme, which have intensified in recent days, are at the centre of a three-month stalemate between eurozone creditors and the new radical leftist Greek government. The Syriza administration in Athens has resisted many of the reforms in the existing bailout programme but needs the funding to fill its rapidly dwindling coffers.

Pierre Moscovici, the European commissioner for economic affairs, said debt issues “can only be discussed after we have agreed a reform programme”. His statement reflects resistance in eurozone capitals to any form of “haircut” on Greek sovereign debt, which is now mostly held by EU governments and institutions. Mr Moscovici’s comments come as the IMF has suggested eurozone creditors may need to write down some of their Greek bailout loans to ensure the country’s debt levels begin to decline more sharply. Officials involved in the talks said the IMF was not seeking large-scale debt relief immediately.

Instead, it was warning that any concessions to Athens that allowed the government to post lower budget surpluses — the likely trajectory of the current talks — would require debt relief to make up the difference. “Six months ago, we all concluded there was no need for debt relief,” said one senior official. “But if there’s a significant relaxation of the programme [targets], the IMF will want to see some debt relief.” Without a return to sustainable debt levels — or a larger bailout from the eurozone to ensure Athens can continue to pay its bills — the IMF may be forced under its rules to withhold its share of the current bailout tranche, which amounts to about half of the €7.2bn being negotiated.

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“..if Varoufakis was to leave public office and his life in the public eye, Greece would be the poorer for it, perhaps in more ways than one.”

Varoufakis’ First 100 Days: All Style, No Substance? (CNBC)

Negotiations with lenders over the future of Greece’s €240 billion bailout have been ongoing since Greece’s leftwing government came to power. And although Greece was given a four-month extension to its bailout in February, little has been achieved in terms of reforms. As talks dragged on into April, euro zone officials began to moan openly about Greece’s stance – and Varoufakis himself as he was in charge of negotiations — and the fact it was, as the Eurogroup’s President Jeroen Djisselbloem put it “wasting time.”The lack of progress raised concerns that Greece’s might not be able to find the money for upcoming loan repayments and whether it could avoid default and a potentially very messy exit from the euro zone.

Talk also turned to whether Varoufakis could lose his job as a way for show Greece to show its European partners that it was serious about reforms – serious enough to sack its own champion finmin. Instead, he was sidelined last Tuesday, keeping his job as finance minister but taken away from the frontline during negotiations – a move that one euro zone official said had helped negotiations to progress.Getting no love from either his euro zone counterparts or his own government, Varoufakis was verbally attacked and threatened with violence by anarchists in the Exarchia area of Athens, a neighborhood popular with anti-government protesters.

Varoufakis came out uscathed from the scuffle, but whether he can survive the blows and bruises of life in Greece’s tumultuous political landscape is yet to be seen. Just this weekend , the Greek finance ministry was denying reports that Varoufakis had offered to resign. Whether the reports are true or not, if Varoufakis was to leave public office and his life in the public eye, Greece would be the poorer for it, perhaps in more ways than one.

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Risky for Syriza, it threatens to go against its election promises.

Greece To Finalise Airports Deal ‘Immediately’ (Reuters)

Greece will finalise “immediately” a €1.2 billion deal with Fraport to run regional airports and reopen bidding for a majority stake in Piraeus port, a senior privatisations official said on Tuesday. The asset sales had been in doubt after Prime Minister Alexis Tsipras’ leftist-led government took power in January but may be the latest concessions offered by his government to try to secure more bailout cash from international creditors. The Greek finance, shipping and economy ministries involved in the sales declined to comment. “The issue of regional airports will be concluded immediately,” the official at Greece’s privatisations agency HRADF told Reuters on condition of anonymity, noting that an announcement could be expected by May 15.

Tsipras’ government is trying to renegotiate a 240-billion-euro bailout and has said it would review the sales, though various Greek officials have offered contradictory statements on the fate of both the airports and the Piraeus deals. Fraport and Greek energy firm Copelouzos had agreed with the privatisation agency in 2014 that it would run the airports in tourist destinations including Corfu, striking one of Greece’s biggest privatisation deals since the start of the debt crisis. Under the terms of the deal, the German-Greek group was expected to spend about €330 million in the first four years to upgrade the airports, that will be leased for 40 years.

On Tuesday, the privatisations official said Athens would invite shortlisted investors to submit by July binding offers for a 51% stake in Greece’s biggest port with the option to raise their stake to 67% over five years. “We will reopen the process in the coming days,” the official said. China’s Cosco Group, which already manages two of Piraeus port’s cargo piers, is among five preferred bidders. Greek port workers are due to stage a 24-hour strike on Thursday to protest against the privatisations of Piraeus and Thessaloniki ports, saying the government has rolled back on its pre-election pledges.

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“I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet

The rollback of financial regulation is stalled. Income inequality is a campaign issue. Americans are still angry about the financial crisis. Things aren’t shaping up the way the big banks expected, and an important reason is one laser-focused senator from Massachusetts.

Let’s assume that when he woke up on the morning of Dec. 12, Michael Corbat, CEO of Citigroup, was feeling pretty good. The day before, the House of Representatives had passed a bill that would save his bank and others lots of money and headaches. The trouble was, Elizabeth Warren, the senior senator from Massachusetts, was getting ready to speak on the Senate floor. She had his bank on her mind. What Warren wanted to talk about was an item tucked into page 615 of a 1,603-page spending package: the repeal of section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Known as the swaps push-out rule, section 716 required banks to set up separate subsidiaries, not backed by the government, to trade certain derivatives.

If the rule stood, it would generate huge administrative costs for the big banks. Citi had fought hard on this. The bank’s lobbyists had worked on lawmakers and helped draft language for the repeal. Getting it into a big spending package Congress was sure to pass was a coup. In the ongoing wars between Wall Street and the forces of government regulation, this repeal was a big win for the banks. “Today I am coming to the floor not to talk about Democrats or Republicans,” Warren began her speech, “but to talk about a third group that also wields tremendous power in Washington—Citigroup.” With that, Warren turned Citi into exactly the kind of villain so many people suspect lurks in the backrooms of the Capitol.

In one particularly striking moment, she connected nine top government officials—including Treasury Secretary Jacob J. Lew—directly to the megabank. She invoked Teddy Roosevelt, her favorite trust-busting president, who took on the big corporations of his day. “There is a lot of talk coming from Citigroup about how Dodd-Frank isn’t perfect,” Warren continued. “So let me say this to anyone who is listening at Citi. I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

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Will Beijing take on all debt to the shadow system?

China Mulls New Monetary Tool That ‘The World Has Never Seen’ (Caixin)

China’s central bank is considering lending to policy banks through a new tool so they can buy bonds issued by local governments, a person close to the regulator says. The loans would have a maturity of at least 10 years, the source said. Other details of how this would work remain unclear, but the tool will be unlike anything the bank has used before, he said. “It will be a new monetary tool the world has never seen,” the person said. “The format does not matter, and all possible means could be taken.” He said the regulator will use the new instrument to provide China Development Bank (CDB) and perhaps other policy banks with capital so they can buy bonds that local governments have issued.

The Ministry of Finance has said local governments can issue 1 trillion yuan ($160 billion) worth of bonds this year to repay their old debts — in other words allowing them to swap existing debts, which are mostly bank loans, for bonds that have longer maturities and cost less. The problem is that commercial banks are not interested in the bonds. Banks are “not at all interested” in buying such bonds because “their yields are too low and there is no liquidity,” a source from a joint-stock bank said. He said the bank he works for bought some local-government bonds only because its branches want to maintain a good relationship with local governments.

Xu Hanfei at Guotai Junan Securities said the interest rates of bank loans to local-government financing platforms — commercial vehicles that local governments used to circumvent a previous restriction that barred them from borrowing directly — are usually around 8%, and so are the yields of these platforms’ bonds. With local-government bonds, he said, the yields are usually halved. “Commercial banks do not want to buy local-government bonds … because the yields can hardly cover their capital cost,” a source from a bank’s financial-market division said. “There are many more assets that promise much better returns than local-government bonds. Why bother exchanging them for the bonds?”

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The war crazies.

CFR Says China Must Be Defeated And TPP Is Essential To That (Zuesse)

Wall Street’s Council on Foreign Relations has issued a major report, alleging that China must be defeated because it threatens to become a bigger power in the world than the U.S. This report, which is titled “Revising U.S. Grand Strategy Toward China,” is introduced by Richard Haass, the CFR’s President, who affirms the report’s view that, “no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China.” Haass gives this report his personal imprimatur by saying that it “deserves to become an important part of the debate about U.S. foreign policy and the pivotal U.S.-China relationship.” He acknowledges that some people won’t agree with the views it expresses.

The report itself then opens by saying: “Since its founding, the United States has consistently pursued a grand strategy focused on acquiring and maintaining preeminent power over various rivals, first on the North American continent, then in the Western hemisphere, and finally globally.” It praises “the American victory in the Cold War.” It then lavishes praise on America’s imperialistic dominance: “The Department of Defense during the George H.W. Bush administration presciently contended that its ‘strategy must now refocus on precluding the emergence of any potential future global competitor’—thereby consciously pursuing the strategy of primacy that the United States successfully employed to outlast the Soviet Union.”

The rest of the report is likewise concerned with the international dominance of America’s aristocracy or the people who control this country’s international corporations, rather than with the welfare of the public or as the U.S. Constitution described the objective of the American Government: “the general welfare.” The Preamble, or sovereignty clause, in the Constitution, presented that goal in this broader context: “in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.” The Council on Foreign Relations, as a representative of Wall Street, is concerned only with the dominance of America’s aristocracy.

Their new report, about “Revising U.S. Grand Strategy Toward China,” is like a declaration of war by America’s aristocracy, against China’s aristocracy. This report has no relationship to the U.S. Constitution, though it advises that the U.S. Government pursue this “Grand Strategy Toward China” irrespective of whether doing that would even be consistent with the U.S. Constitution’s Preamble. The report repeats in many different contexts the basic theme, that China threatens “hegemonic” dominance in Asia. For example: “China’s sustained economic success over the past thirty-odd years has enabled it to aggregate formidable power, making it the nation most capable of dominating the Asian continent and thus undermining the traditional U.S. geopolitical objective of ensuring that this arena remains free of hegemonic control.”

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Kiev left Eastern Ukraine alone, no cash in ATMs, no pensions payments, no benefit payments. There’s only one alternative.

Forget Tanks. Russia’s Ruble Is Conquering Eastern Ukraine (Bloomberg)

As a wobbly cease-fire keeps eastern Ukraine’s warring factions apart, Russia’s ruble is conquering new territory across the breakaway republics. In Donetsk, the conflict zone’s biggest city, supermarkets have opened ruble-only checkout counters to serve the fighters in camouflage lining up along pensioners. Bus and tram tickets come with a conversion from Ukraine’s hryvnia to the Russian currency. Gas-station workers are paid in rubles because that’s what their rebel customers use to fuel their armored jeeps. “There are no problems in shops, they all accept rubles,” said Natalya, 36, a hairdresser buying groceries for her parents, who declined to give her surname for fear of reprisals. “They don’t always have small change, but they can give you chewing gum or a cigarette lighter instead.”

The ruble’s creeping advance shows how the troubled regions are slipping further from the government’s grasp, even as a peace accord brokered by Germany, France and Russia calls for the nation of more than 40 million to remain whole. Separatist officials haven’t yet made their currency plans clear. The precedent in ex-Soviet countries from Georgia to Moldova shows that similar shifts can help entrench pro-Russian insurgents. “The increasing use of the ruble is yet another sign Russia’s going to keep de facto sovereignty over the territory it and the separatists control,” said Cliff Kupchan, Eurasia Group chairman in New York. “If the sides implement the latest truce, which is unlikely, perhaps both the hryvnia and the ruble will be used. If not, it will be all ruble.”

Ukraine is the one place in the world where the ruble’s 46% plunge against the dollar in 2014 didn’t make it any less attractive, considering a 48% drop in the hryvnia, the world’s worst performer for the last two years. The Russian currency has staged a partial recovery in 2015, with April its best month on record. It advanced 0.4% on Tuesday. And the ruble has been welcomed in Donetsk, where most shops and businesses now accept it. Hryvnias are no longer available from cash machines in rebel-held territory, forcing locals to go to other parts of Ukraine to withdraw money.

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There’s not nearly enough appreciation in the west for what Russia suffered, and achieved, in WWII. Russia mourned more dead than all other countries combined.

Moscow’s Last Stand: How Soviet Troops Defeated Nazis For First Time In WW2 (RT)

In October 1941 Hitler launched an offensive on the Russian capital codenamed Operation Typhoon. It was supposed to crush Moscow in a so-called double pincer – two simultaneous attacks from the north and south. The Soviet troops vigorously fought back, disrupting Hitler’s plans for a quick operation. The Battle of Moscow eventually lasted through January 1942 and ended in the first battlefield defeat of the Nazi army. The battle was one of the bloodiest and lethal struggles in world history and was later considered to be a decisive turning point in the fight against Nazi troops. Memories of that battle are still fresh for WW2 veteran Gennady Drozdov, 98, who was assigned to the 4th Guards Mortar Regiment at that time.

“During the Battle of Moscow, in December 1941, there was a raid on the hinterlands of the Nazi German troops. We came so close we could see the position of their troops, their machine gun, in particular, and its operators,” Drozdov told RT. “On our command the division fired a salvo, missiles flew over our heads – we completed our task and returned to the base.” The weather seemed to be on the side of the Soviet army, as autumn brought heavy rains, and then winter caught the Nazis unawares with exceptionally freezing temperatures. While the epic battle raged on, Moscow residents had to “survive all the horrors of war: hunger, cold, devastation, loss of family and the loved ones,” according to Rimma Grachyova, who was seven years old when the war broke out. “Most frightening of all was the bombing – daily bombings that continued incessantly,” the woman recalls.

“At first we would shelter in the “Park Kultury” underground station that was not far from our house. Then our family decided that if it was our fate to die we would die together and we wouldn’t run from it. There were five kids in our family.” “We helped the front as much as we could. We’d collect scrap metal from courtyards. I’d knit socks and mittens together with grown-ups, as I knew how. We wrote letters too. We also sang for the wounded in hospitals,” the 80-year-old witness said, sharing her childhood experience. Almost one million Soviet soldiers died during the defense and counter-offensive operations, which included the construction of three defensive belts in the Moscow region, as well as deployment of reserve armies. The outcome of the Battle of Moscow saw German troops pushed back nearly 200 km from the capital, becoming the first-ever blow to the Wehrmacht’s reputation as an invincible army.

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Apr 222015
 
 April 22, 2015  Posted by at 9:34 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle April 22 2015


Jack Delano Engineer at AT&SF railroad yard, Clovis, NM 1943

Europe’s Debt Mountain Just Got A Whole Lot Bigger (Telegraph)
$5.3 Trillion Of Government Bonds Now Have Negative Yields (David Stockman)
IMF Needs To Correct Its Big Fat Greek Bailout Mistake (Ashoka Mody)
Mythology That Blocks Progress In Greece (Martin Wolf)
Why the Real Deadline for Greece Is July 20 (Bloomberg)
Greece Buys Six Weeks’ Space With Transfer of City Funds (Bloomberg)
Varoufakis Sees ‘Clear Convergence’ in Greek Creditor Talks (Bloomberg)
Greece Hopes To Strike A Deal With Gazprom Soon (DW)
China Sees First Bond Default by State Firm (Bloomberg)
China Will Keep Growing Because It Has To (Bloomberg)
Hank Paulson Tells China to Be Wary (Sorkin)
Europe Should Protect People, Not Borders (Spiegel)
The Next Era of Campaign-Finance Craziness Is Already Underway (NY Times)
British Regulator Challenges US Over Scrutiny of Buffett’s Berkshire (FT)
‘Pipelines Blow Up And People Die’ (Politico)
Who Is Saudi Arabia Really Targeting In Its Price War? (Berman)
How to Avert a Nuclear War (James E. Cartwright and Vladimir Dvorkin)
UK Financial Trader Arrested Over 2010 Global Markets ‘Flash Crash’ (Guardian)
Metro Vancouver Is Swept Up In A Real Estate Frenzy (Vancouver Sun)
Decisions: Life and Death on Wall Street, by Janet M. Tavakoli (Nomi Prins)
The Food Production System is Criminal (Beppe Grillo’s blog)

“Despite attempts by governments across the bloc to rein in spending..”

Europe’s Debt Mountain Just Got A Whole Lot Bigger (Telegraph)

It’s official. The eurozone is drowning in debt. According to the latest figures from the bloc’s official statistical authority, government debt in the eurozone reached nearly 92pc of GDP last year – the highest level since the single currency was introduced in 1999. Unsurprisingly, debt-stricken Greece is the worst offender, with its public debt topping 177pc of national economic output. Italy is not far behind at 132pc of GDP, with bailed-out Cyprus at 107pc. The figures also show that only four of the eurozone’s 19 countries are below the Maastricht Treaty’s 60pc debt limit. Across Europe as a whole, 16 of out the 26 member states are officially in breach of the debt criteria.

Despite attempts by governments across the bloc to rein in spending, stagnant growth and insipid demand has seen debt ratios on the continent soar. Coupled with the ominous threat of deflation, the advanced world’s debt burden is now the foremost threat facing the global economy, according to the likes of the IMF. Total public and private debt levels have reached a record 275pc of GDP in rich countries, and 175pc in emerging markets. Both are up 30 points since the collapse of Lehman Brothers. But as the woes of Greece have shown, the prospect of mass debt write-offs is not on the cards. In the words of Margaret Atwood and beloved of the IMF: “And then the revenge that comes when they are not paid back.”

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Part of the game.

$5.3 Trillion Of Government Bonds Now Have Negative Yields (David Stockman)

The level of complacency in world financial markets is downright astounding – even stupid. Today there are two more signs of extreme mania – a brokerage firm calculation that there are now $5.3 trillion of government bonds trading at negative yields and the cross-over of eurolibor into the neither world of negative yields, as well. These deformations cannot be explained with reference to macroeconomic conditions – such as weak growth or a temporary spot of minimal CPI gains. Instead, they are the destructive work of central banks and a few hundred monetary mandarins who have literally usurped control of the entire world economy. And they have done it through a deft maneuver.

That is, by disabling the pricing system in financial markets entirely and displacing market forces with central command and control in the form of pegged money market rates, manipulated yield curves, invitations to speculators to front-run massive central bank bond buying programs and both implied and explicit promises that rising risk asset prices will be favored and facilitated at all hazards. All of this monetary mayhem is being done in the name of an astoundingly primitive Keynesian premise. Namely, that there is insufficient “aggregate demand” in the world and too little inflation in consumer goods and services as measured by the CPI and other consumption deflators; and that these insufficiencies can be magically remedied by ZIRP, massive government debt monetization and the rest of the easy money tool kit .

How? Why, by inducing businesses and households to borrow more and spend more when they are otherwise not inclined to spend income they don’t have; and to rid them of a reluctance to spend even what they can afford because the price of toilet paper, tonic water, TVs and trips to the mall may be going down tomorrow. Here’s the thing. Both of these alleged barriers to spending are postulates of Keynesian economic models, not conditions extant in the real world. Upwards of 85% of US households, for example, are not borrowing because they are already tapped out and trapped in “peak debt”. Even the borrowing rebound that has happened since the 2008 crisis has occurred for reasons that are irrelevant to the central bankers’ Keynesian predicate.

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Restructuring.

IMF Needs To Correct Its Big Greek Bailout Mistake (Ashoka Mody)

The Greek government’s mounting financial woes are leading it to contemplate the unthinkable: defaulting on a loan from the International Monetary Fund. Instead of demanding repayment and further austerity, the IMF should recognize its responsibility for the country’s predicament and forgive much of the debt. Greece’s onerous obligations to the IMF, the European Central Bank and European governments can be traced back to April 2010, when they made a fateful mistake. Instead of allowing Greece to default on its insurmountable debts to private creditors, they chose to lend it the money to pay in full. At the time, many called for immediately restructuring privately held debt, thus imposing losses on the banks and investors who had lent money to Greece.

Among them were several members of the IMF’s board and Karl Otto Pohl, a former president of the Bundesbank and a key architect of the euro. The IMF and European authorities responded that restructuring would cause global financial mayhem. As Pohl candidly noted, that was merely a cover for bailing out German and French banks, which had been among the largest enablers of Greek profligacy. Ultimately, the authorities’ approach merely replaced one problem with another: IMF and official European loans were used to repay private creditors. Thus, despite a belated restructuring in 2012, Greece’s obligations remain unbearable – only now they are owed almost entirely to official creditors. Five years after the crisis started, government debt has jumped from 130% of gross domestic product to almost 180%.

Meanwhile, a deep economic slump and deflation have severely impaired the government’s ability to repay. Almost everyone now agrees that pushing Greece to pay its private creditors was a bad idea. The required fiscal austerity was simply too great, causing the economy to collapse. The IMF acknowledged the error in a 2013 report on Greece. In a recent staff paper, the fund said that when a crisis threatens to spread, it should seek a collective global solution rather than forcing the distressed economy to bear the entire burden. The IMF’s chief economist, Olivier Blanchard, has warned that more austerity will crush growth. Oddly, the IMF’s proposed way forward for Greece remains unchanged: Borrow more money (this time from the European authorities) to repay one group of creditors (the IMF) and stay focused on austerity. [..]

Five years from now, the country’s economic and social stress could well be even more acute. The question will be: Why was more debt not forgiven earlier? No one is willing to confront that unpleasant arithmetic, and wishful thinking prevails. Having failed its first Greek test, the IMF risks doing so again. It remains trapped by the priorities of shareholders, including in recent years the U.K. and Germany. To reassert its independence and redeem its lost credibility, it should write off a big chunk of Greece’s debt and force its wealthy shareholders to bear the losses.

(Mody is a former IMF mission chief)

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I like this: “Forgiveness is inevitable.”

Mythology That Blocks Progress In Greece (Martin Wolf)

The Greek epic continues. It will not end well if the people involved do not recognise they are clinging on to myths. Here are six, each of which poses intellectual and emotional obstacles to reaching a solution.

A Greek exit would help the eurozone. “Will no one rid me of this turbulent priest?” This is the question Henry II is supposed to have asked about Archbishop Thomas Becket. Wolfgang Schäuble, Germany’s finance minister, must think much the same of his Greek partners. For the English king, however, the gratification of his wish was a disaster. A similar thing is likely to be true if Greece leaves. Yes, if Greece suffered a calamitous aftermath, populist campaigns elsewhere would be less effective. But euro membership would cease to be irrevocable. Each crisis could trigger destabilising speculation.

A Greek exit would help Greece. Many believe a weak new drachma offers a painless path to prosperity. But this is only likely to be true if the economy can easily expand its production of internationally competitive goods and services. Greece cannot. And the immediate consequences are likely to include exchange controls, defaults, a halt to foreign credit, and more political turbulence. Stable money counts for something, particularly in a mismanaged country. Ditching it carries a cost.

It is Greece’s fault. Nobody was forced to lend to Greece. Initially, private lenders were happy to lend to the Greek government on much the same terms as to the German government. Yet the nature of Greek politics, tellingly described in The 13th Labour of Hercules by Yannis Palaiologos , was no secret. Then, in 2010, it became clear the money would not be repaid. Rather than agree to the write-off that was needed, governments (and the IMF) decided to bail out the private creditors by refinancing Greece. Thus, began the game of “extend and pretend”. Stupid lenders lose money. That has always been the case. It is still the case today.

Greece has done nothing. Greece has undergone a huge adjustment of its fiscal and external positions. Between 2009 and 2014, the primary fiscal balance (before interest) tightened by 12% of gross domestic product, the structural fiscal deficit by 20% of GDP and the current account balance by 12% of GDP. Between the first quarter of 2008 and the last of 2013, real spending in the Greek economy fell by 35% and GDP by 27%, while unemployment peaked at 28% of the labour force. These are huge adjustments. Indeed, one of the tragedies of the impasse over the conditions for support is that the adjustment has happened. Greece does not need additional resources.

The Greeks will repay. This myth derives partly from the refusal to recognise sunk costs. The bad lending and the adjustment to the cessation of that lending both lie in the past. What is open is whether the Greeks will devote the next few decades to repaying a mountain of loans that should never have been made. What makes this far worse is that the debt burden has doubled, relative to GDP, despite a restructuring, since the crisis. Forgiveness is inevitable. Indeed, a report from the Centre for Economic Policy Research notes that excessive debt hangs over the entire eurozone, not just Greece.

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Is it in Greece’s interest to wait that long?

Why the Real Deadline for Greece Is July 20 (Bloomberg)

Greece probably has until late July to come to an agreement with its creditors. Possible delays in payments to the IMF shouldn’t prompt the European Central Bank to shut off vital liquidity to Greek banks. By contrast, a default on marketable debt, specifically the failure of the Greek government to pay €3.5 billion due to the ECB on July 20, would probably force the central bank’s hand. The Greek government and its creditors are still likely to reach a deal on a list of reforms before that crucial date. Greek banks are relying on liquidity from the ECB to avoid financial collapse. That support is currently provided by the Emergency Liquidity Assistance scheme from the monetary authorities in Frankfurt.

In the event of a sovereign default, the banks, which are large holders of Greek debt, would probably be ruled insolvent because the value of the assets on their balance sheets would fall sharply. Under the rules of the ELA, the ECB would be unlikely to be able to continue providing liquidity to lenders in the beleaguered country – users of the scheme must be solvent. Rolling over Treasury bills of about €11 billion between now and July 20 is unlikely to create a problem, as long as ECB liquidity remains available. The debt management office will probably be able to complete those operations because Greek banks have continued to be loyal buyers of those assets. A more pressing concern is a payment to the IMF. Greece must pay about €774 million on May 12.

Still, a failure to make that payment would be unlikely to cause the ECB to cut off liquidity to the country’s banks. Since the ability to pay depends on the ability to reach an agreement on reforms, that might be considered a matter of liquidity rather than solvency, allowing the ECB to keep funding Greek banks. In addition, the IMF wouldn’t even have to make a public announcement about the country being in arrears until three months have passed since the missed payment, though the country is immediately shut off from the Fund’s resources.

The IMF could still sign off on a “successful conclusion of the review” that would officially end Greece’s second bailout even if the country were in arrears. The four-month extension granted in February stipulates that this must be done by the end of June, though it’s a soft deadline. The “successful conclusion” would release the outstanding tranche of the current European Financial Stability Facility program – €1.8 billion – and the profits from the ECB’s Securities Markets Programme – €1.9 billion%. Those funds from Greece’s euro-area creditors, which sum to €3.7 billion, would be sufficient to repay the IMF about €3 billion that are due between now and July 13.

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Yeah, but those just make Syriza new enemies.

Greece Buys Six Weeks’ Space With Transfer of City Funds (Bloomberg)

Greek officials expect an order that local governments transfer funds to the central bank will keep the country afloat until the end of May as European policy makers turn up the heat on Prime Minister Alexis Tsipras. Municipalities’ reserves are estimated at about €1.5 billion, according to a person familiar with the matter, who spoke on condition of anonymity. Officials in Athens ruled out also seizing pension funds and the cash reserves of state companies because there wasn’t a need and the move would unnecessarily fuel anxiety, the person said. With bailout talks stalled, access to cash is becoming increasingly critical. Resistance at the ECB to further aiding the country’s stricken lenders is growing and the ECB is studying measures to rein in emergency funding for Greek banks.

“A bigger effort by the Greek side is needed so that we can close the topic in the interest of both sides,” European Commission President Jean-Claude Juncker said in Vienna. “The intensity of the talks has increased in the past 4-5 days but not to the extent that they are ripe enough to come to a quick conclusion.” Tsipras may meet with German Chancellor Angela Merkel on the sidelines of a European Union summit in Brussels on April 23, a Greek government official said Tuesday. Although a final accord is unlikely at a meeting of euro-area finance ministers in Latvia on Friday, another extraordinary meeting could be called at the end of April if needed.

“The sooner they come up with some kind of an agreement the better, but so far Europe has never missed the opportunity to miss an opportunity,” Standard Chartered Bank Global Chief Economist Marios Maratheftis said in a Bloomberg TV interview. Since Tsipras assumed office in January, Greece has been using up its cash reserves to meet its obligations. Greek lenders are mostly locked out of regular ECB cash tenders and instead have access to about €74 billion of emergency liquidity assistance from their own central bank – an amount that has been reviewed weekly by the ECB.

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Right.

Varoufakis Sees ‘Clear Convergence’ in Greek Creditor Talks (Bloomberg)

Greece and its creditors are narrowing their differences as officials on both sides recognize that the best chance for success is an accord that leaves them all a bit unsatisfied, Finance Minister Yanis Varoufakis said. “The convergence is absolutely clear, and the institutions are admitting that now,” Varoufakis told reporters in Athens late on Tuesday. Both sides “have invested a huge amount in achieving an agreement, and neither they nor we will let the opportunity slip to arrive at an agreement that’s clearly to the benefit of everyone.” Failure to do so would be “catastrophic,” he added. Greek Prime Minister Alexis Tsipras on Monday ordered local governments to move their funds to the central bank after failing to make sufficient progress in talks with European and IMF officials to release further bailout aid.

His government needs the cash for salaries, pensions and a payment to the IMF, and is running out of options to stay solvent. Municipalities’ reserves are estimated at about €1.5 billion, which will keep the country afloat until the end of May, according to a person familiar with the matter, who spoke on condition of anonymity. Greece is unlikely to meet the end-April target for it to submit a list of measures to revamp its economy, a European Union official said Tuesday. The euro area now views the end of June to be Greece’s main deadline to unlock aid payments, he added. While an April 24 meeting of euro area finance ministers in Latvia is probably too soon to seal an agreement, “an agreement will come,” Varoufakis said.

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“The proposed pipeline, which has not been approved by the European Union..”

Greece Hopes To Strike A Deal With Gazprom Soon (DW)

The Greek prime minister and Gazprom chief Alexei Miller held talks in Athens on Tuesday over a multibillion dollar gas pipeline project. Reports said both sides would work towards setting up a “road map” detailing the responsibilities the two parties would commit to in the coming months. Government sources said Athens hoped an agreement would be signed shortly. The proposed pipeline, which has not been approved by the European Union, could deliver Russian gas through Turkey and Greece to Europe. The visit by Miller came after Tsipras met Russian President Vladimir Putin in Moscow at the beginning of April and expressed his country’s interest in taking part in the so-called Turkish Stream gas pipeline project.

The pipeline is expected to transport Russian gas though Turkey and then in to Europe by 2017. Some observers, however, doubt the pipeline will be built on time, or even at all. “The pipeline is of big interest to our country and is among our priorities,” said Greek Energy Minister Panagiotis Lafazanis. “We are continuing talks with the Russian side and we hope to reach an agreement very soon,” he added, terming the talks as constructive. According to the Greek Kathimerini newspaper, Athens stands to earn several billion dollars in advance of the deal.

However, Lafazanis declined to comment when asked by reporters about any advance payments. Talking to reporters after meeting Tsipras, Gazprom’s Chief Executive Alexei Miller also did not make any reference to any advance payments to Greece from the pipeline. Greece is heavily dependent on Russian energy imports and is looking to negotiate a deal with Moscow for the reduction of the price of gas that it imports from Russia. Furthermore, Athens has indicated its interest in becoming a European hub for the natural gas pipeline project.

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Nothing is safe anymore?

China Sees First Bond Default by State Firm (Bloomberg)

A Chinese power-transformer maker became the country’s first state-owned company to default on an onshore bond, signaling the government’s willingness to let market forces decide an enterprise’s fate. Baoding Tianwei, the unit of central government-owned China South Industries Group Corp., said it will fail to pay 85.5 million yuan ($13.8 million) of bond interest due Tuesday. Kaisa Group Holdings Ltd. became the first Chinese developer to default on its U.S. currency debt Monday. Until now, only private-sector companies have defaulted in China’s domestic bond market even as state-owned enterprises have sold the vast majority of debt.

Tianwei’s default highlights a shifting attitude toward financial risk, underscored by Premier Li Keqiang’s pledge to open a cooling economy to market forces and strip power from the government. “It’s probably a start of more defaults in China,” said Qu Qing, a bond analyst at Huachuang Securities Co. in Beijing. “The economic slowdown has given a huge blow to some industries.” Baoding Tianwei’s 1.5 billion yuan of 5.7% April 2016 notes have dropped 7.1% since March 31 to 85.3% of par as of Monday, set for the sharpest monthly decline since they were issued in 2011.

The company will continue to raise payment funds via various means including asset disposal, according to today’s statement posted to Chinamoney.com.cn, the China Foreign Exchange Trade System website. The bonds’ rating is now B versus AA+ at issuance. “Our company suffered huge losses in 2014 and the debt to asset ratio surged quickly,” Baoding Tianwei said in today’s statement. “Our company has lost financing ability and suffered from a capital shortage. We can’t raise enough money to repay interest, despite all the efforts we have made.”

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There’s irony in that headline somewhere.

China Will Keep Growing Because It Has To (Bloomberg)

Can China’s economic policy makers maneuver their way out of this one? Let’s see: there’s a property bubble that’s beginning to deflate, a construction boom that’s now going in reverse and a financial system that’s riddled with bad debts. Oh, and the air is still really dirty. On the bright side, though, Cirque du Soleil and Segway are coming to China. With the success of the new Asian Infrastructure Investment Bank, the country has established itself as a global economic leader. And the Shanghai Composite Index has more than doubled during the past nine months. The outside world has a hard time fitting all this evidence together into a coherent picture. Is the stock boom a sign of hope, or a policy-driven bubble?

How about that bond default today by state-owned Baoding Tianwei – is it an indication of new financial maturity or the beginning of a great unraveling? Is the slowdown in construction, however scary for the world’s metal producers, a welcome signal that the economy is moving away from its dependence on exports and infrastructure to more sustainable consumer-driven growth? The common thread here is the Chinese government using every tool it has to keep its long growth run going. As the U.S. and the U.K. grew into industrial powers in the 19th century, they were tripped up every 10 to 20 years by financial crises and economic depressions. Measuring from December 1978, when the Chinese Communist Party “shifted its center of gravity from propagandizing class struggle and organizing political campaigns to economic construction,” China is now in its 37th straight year of economic expansion.

That quote is from a new biography of Deng Xiaoping by historians Alexander V. Pantsov and Steven I. Levine. I’ve just been reading the chapter about Deng’s 1977-78 battle with the charmingly named but otherwise not so great Whateverists, which set the course that China more or less still follows. In the months after founding father Mao Zedong’s death in September 1976, the Whateverist motto was:

We will resolutely defend whatever political decisions were taken by Chairman Mao; we will unwaveringly follow whatever directives were issued by Chairman Mao.

Mao’s handpicked successor, Hua Guofeng, defended these “two whatevers” even as he tried to tweak some of Mao’s decisions and directives. Deng, just rehabilitated after a year on the political outs, saw this as a disastrous approach to governing, given how often Mao had changed his mind and contradicted himself. He dug up an old Mao slogan to back himself up: “Seek truth from facts.” He then endorsed a polemic by several party intellectuals titled “Practice is the Sole Criterion of Truth” that pushed the two whatevers aside as the party’s guiding line.

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I know, I know, Paulson and Sorkin…

Hank Paulson Tells China to Be Wary (Sorkin)

About 340 pages into Henry M. Paulson’s new book on China, a sentence comes almost out of nowhere that stops readers in their tracks. “Frankly, it’s not a question of if, but when, China’s financial system,” he writes, “will face a reckoning and have to contend with a wave of credit losses and debt restructurings.” Mr. Paulson, the former Treasury secretary, knows a thing or two about financial crises, having been the lead firefighter during the 2008 financial collapse, the worst financial crisis since the Great Depression. Mr. Paulson also knows more about China, its politics and the players behind it than most Westerners, having been the former chief executive of Goldman Sachs and one of the first businessmen to seek to establish ties with China more than two decades ago, regularly making trips to the country and befriending top officials.

A crisis in China, even a small one, would be contagious, especially in the United States. Already, fears of a slowdown in China in recent months have led to jitters about the trajectory of the American economy. Mr. Paulson stresses that he’s not saying a crisis is inevitable, and he believes that one can be averted if officials make the right policy decisions. But Mr. Paulson’s anxieties about China have an unnerving similarity to the financial crisis in the United States, and his warnings demand attention. Like the United States crisis in 2008, Mr. Paulson worries that in China “the trigger would be a collapse in the real estate market,” and he declared in an interview that China is experiencing a real estate bubble. He noted that debt as a %age of GDP in China rose to 204% in June 2104 from 130% in 2008.

“Slowing economic growth and rapidly rising debt levels are rarely a happy combination, and China’s borrowing spree seems certain to lead to trouble,” he wrote. Mr. Paulson’s analysis in his book, “Dealing With China: An Insider Unmasks the New Economic Superpower,” are all the more remarkable because he has long been a bull on China and has deep friendships with its senior leaders, who could frown upon his straightforward comments. Mr. Paulson is hopeful that the book, an eye-opening account that praises China while acknowledging the challenges, will be published there and that the government won’t seek to press him to remove his critique. “I have just begun discussions with a Chinese publisher,” he said. “I will only authorize publication if it is published completely and accurately. I am unwavering on that.”

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Or banks.

Europe Should Protect People, Not Borders (Spiegel)

Workers at the Warsaw headquarters of Frontex, the European border protection agency, track every single irregular boat crossing and every vessel filled with refugees. Since December 2013, the authority has spent hundreds of millions of euros deploying drones and satellites to surveil the borders. The EU registers everything that happens near its borders. In contrast to the claims that are often made, they do not look away when refugees die. They are watching very closely. And what is happening here is not negligent behavior. They are deliberately killing refugees. People have been perishing as they sought to flee to Europe for years now. They drown in the Mediterranean, bleed to death on the border fences of the Spanish North African conclaves of Ceuta and Melilla or freeze to death in the mountains between Hungary and Ukraine.

But the European public still doesn’t appear to be entirely aware of the dimensions of this humanitarian catastrophe. We have become accomplices to one of the biggest crimes to take place in European postwar history. It’s possible that 20 years from now, courts or historians will be addressing this dark chapter. When that happens, it won’t just be politicians in Brussels, Berlin and Paris who come under pressure. We the people will also have to answer uncomfortable questions about what we did to try to stop this barbarism that was committed in all our names. The mass deaths of refugees at Europe’s external borders are no accidents — they are the direct result of European Union policies.

The German constitution and the European Charter of Fundamental Rights promise protection for people seeking flight from war or political persecution. But the EU member states have long been torpedoing this right. Those wishing to seek asylum in Europe must first reach European territory. But Europe’s policy of shielding itself off from refugees is making that next to impossible. The EU has erected meters-high fences at its periphery, soldiers have been ordered to the borders and war ships are dispatched in order to keep refugees from reaching Europe. For those seeking protection, regardless whether they come from Syria or Eritrea, there is no legal and safe way to get to Europe. Refugees are forced to travel into the EU as “illegal” immigrants, using dangerous and even fatal routes. Like the one across the Mediterranean.

A Darwinist situation has emerged on Europe’s external borders. The only people who stand a chance of applying for asylum in Europe are those with enough money to pay the human-traffickers, those who are tenacious enough to try over and over again to scale fences made of steel and barbed wire. The poor, sick, elderly, families or children are largely left to their fates. The European asylum system itself is perverting the right to asylum.

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One dollar one vote.

The Next Era of Campaign-Finance Craziness Is Already Underway (NY Times)

There may be no political adviser closer to Rand Paul than Jesse Benton. Benton was integral to Paul’s Senate run in 2010 and was a top strategist for both of Ron Paul’s Republican presidential campaigns. When a fellow Kentuckian, Senator Mitch McConnell, needed help with his re-election campaign last year, Rand Paul lent him Benton. Benton also happens to be married to Paul’s niece. So it would have been natural to expect Benton to move into Paul’s campaign headquarters as soon as he declared his candidacy for president. Not going to happen.

On April 6, the day before Paul made his formal announcement, National Journal reported that instead, Benton will be running America’s Liberty PAC, the principal Paul-supporting super PAC — the class of technically independent campaign organization that is free to spend as many millions of dollars as it can raise, without all those nettlesome regulations that limit donations to formal presidential campaigns to $5,400 a person. Then there is the longtime Jeb Bush adviser Mike Murphy. Murphy guided Bush through the rocky shallows of early-stage presidential politics and helped manage Bush’s successful push to lock down most of the Republican Party’s top donors for the 2016 race, effectively sidelining Mitt Romney and hobbling Chris Christie.

Not long ago, it would have been taken as a given that Murphy would join Bush’s formal campaign once it was announced — but people close to the campaign expect he will join Bush’s super PAC, Right to Rise, instead. And Gov. Scott Walker’s former campaign manager and chief of staff, Keith Gilkes, announced late last week that he would not be joining Walker’s formal campaign but rather Walker’s super PAC, Unintimidated PAC — this in spite of legal investigations into Walker’s aides’ interactions with outside conservative groups. All these moves point to the next stage in the great unraveling of the presidential campaign-finance system. And they make the few remaining prohibitions against coordination between these “independent” groups and campaigns look trifling, if not absurd.

Outside groups have played influential roles in presidential races for decades. Forerunners of the super PAC include groups like the National Security Political Action Committee, which produced the “Willie Horton” ads against Michael Dukakis in 1988, and the Swift Boat Veterans for Truth, which in 2004 brought false charges that John Kerry lied about his Vietnam War record. That same year, the Democratic-aligned groups America Coming Together and the Media Fund tried to help Kerry with get-out-the-vote operations and campaign ads attacking President George W. Bush.

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Nobody stateside dares touch Warren.

British Regulator Challenges US Over Scrutiny of Buffett’s Berkshire (FT)

British regulators have challenged their US peers over their apparent reluctance to subject Warren Buffett’s Berkshire Hathaway to tougher scrutiny as part of a worldwide push to make the financial system safer. The Bank of England has written to the US Treasury asking why Berkshire’s reinsurance operation — among the world’s most powerful — was left off a provisional list of “too big to fail” institutions drawn up by the Financial Stability Board. Regulators have already deemed nine primary insurance companies — including AIG of the US, Germany’s Allianz and UK-based Prudential — globally “systemically important”, a designation that could lead to higher capital requirements. But they have put off saying which reinsurers — groups such as Swiss Re, Munich Re and Berkshire, which provide insurance for insurers — should be included.

The failure to designate reinsurers has angered insurance companies, which argue reinsurers are more important to the financial system. In a separate move that underscores concern about the increased scrutiny brought by designation, MetLife has sued the US government to try to escape being deemed systemically important by Washington. Insurers deemed systemically important on a global level may need to hold more capital to cover unexpected losses and could face a requirement to draw up “living wills” to make them easier to wind down in a crisis. Yet regulators have yet to quantify the scale of the HLA requirements and the consequences of designation remain unclear. The Basel-based FSB was expected to make the reinsurance list public last year. But in November, following consultation with national authorities, it postponed the decision “pending further development of the methodology”.

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“Tens of thousands of miles of pipeline go completely unregulated by federal officials..”

‘Pipelines Blow Up And People Die’ (Politico)

Oil and gas companies like to assure the public that pipelines are a safer way to ship their products than railroads or trucks. But government data makes clear there is hardly reason to celebrate. Last year, more than 700 pipeline failures killed 19 people, injured 97 and caused more than $300 million in damage. Two of the past five years have been the worst for combined pipeline-related deaths and injuries since 2000. To understand the failure revealed by these numbers, POLITICO talked to more than 15 former and current federal pipeline officials and advisers, as well as dozens of safety experts, engineers and state regulators. We reviewed more than a decade of government data on fatalities, injuries, property damage, incident locations, inspections, damages and penalties.

The picture that emerges is of an agency that lacks the manpower to inspect the nation’s 2.6 million miles of oil and gas lines, that grants the industry it regulates significant power to influence the rule-making process, and that has stubbornly failed to take a more aggressive regulatory role, even when ordered by Congress to do so. This is a particularly bad time for a front-line safety agency to take a backseat. The current boom in fossil fuel production has created intense pressure for massive new pipelines like Keystone XL. Many of the pipes already in the ground are more than half a century old. Tens of thousands of miles of pipeline go completely unregulated by federal officials, who have abandoned the increasingly high-pressure lines to the states.

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“Stupid money”.

Who Is Saudi Arabia Really Targeting In Its Price War? (Berman)

Saudi Arabia is not trying to crush U.S. shale plays. Its oil-price war is with the investment banks and the stupid money they directed to fund the plays. It is also with the zero-interest rate economic conditions that made this possible. Saudi Arabia intends to keep oil prices low for as long as possible. Its oil production increased to 10.3 million barrels per day in March 2015. That is 700,000 barrels per day more than in December 2014 and the highest level since the Joint Organizations Data Initiative began compiling production data in 2002. And Saudi Arabia’s rig count has never been higher. Market share is an important part of the motive but Saudi Minister of Petroleum and Mineral Resources Ali al-Naimi recently emphasized that “The challenge is to restore the supply-demand balance and reach price stability.”

Saudi Arabia’s need for market share and long-term demand is best met with a growing global economy and lower oil prices. That means ending the over-production from tight oil and other expensive plays (oil sands and ultra-deep water) and reviving global demand by keeping oil prices low for some extended period of time. Demand has been weak since the run-up in debt and oil prices that culminated in the Financial Collapse of 2008. Since 2008, the U.S. Federal Reserve Board and the central banks of other countries have further increased debt, devalued their currencies and kept interest rates at the lowest sustained levels ever.

These measures have not resulted in economic recovery and have helped produce the highest sustained oil prices in history. They also led to investments that are not particularly productive but promise higher yields that can [not] be found otherwise in a zero-interest rate world. The quest for yield led investment banks to direct capital to U.S. E&P companies to fund tight oil plays. Capital flowed in unprecedented volumes with no performance expectation other than payment of the coupon attached to that investment. This is stupid money. These capital providers are indifferent to the fundamentals of the companies they invest in or in the profitability of the plays. All that matters is yield. The financial performance of most companies involved in tight oil plays has been characterized by chronic negative cash flow and ever-increasing debt.

Read more …

2 generals, one of each.

How to Avert a Nuclear War (James E. Cartwright and Vladimir Dvorkin)

We find ourselves in an increasingly risky strategic environment. The Ukrainian crisis has threatened the stability of relations between Russia and the West, including the nuclear dimension — as became apparent last month when it was reported that Russian defense officials had advised President Vladimir V. Putin to consider placing Russia’s nuclear arsenal on alert during last year’s crisis in Crimea. Diplomatic efforts have done little to ease the new nuclear tension. This makes it all the more critical for Russia and the United States to talk, to relieve the pressures to “use or lose” nuclear forces during a crisis and minimize the risk of a mistaken launch. The fact is that we are still living with the nuclear-strike doctrine of the Cold War, which dictated three strategic options: first strike, launch on warning and post-attack retaliation.

There is no reason to believe that Russia and the United States have discarded these options, as long as the architecture of “mutually assured destruction” remains intact. For either side, the decision to launch on warning — in an attempt to fire one’s nuclear missiles before they are destroyed — would be made on the basis of information from early-warning satellites and ground radar. Given the 15- to 30-minute flight times of strategic missiles, a decision to launch after an alert of an apparent attack must be made in minutes. This is therefore the riskiest scenario, since provocations or malfunctions can trigger a global catastrophe. Since computer-based information systems have been in place, the likelihood of such errors has been minimized. But the emergence of cyberwarfare threats has increased the potential for false alerts in early-warning systems.

The possibility of an error cannot be ruled out. American officials have usually played down the launch-on-warning option. They have argued instead for the advantages of post-attack retaliation, which would allow more time to analyze the situation and make an intelligent decision. Neither the Soviet Union nor Russia ever stated explicitly that it would pursue a similar strategy, but an emphasis on mobile missile launchers and strategic submarines continues to imply a similar reliance on an ability to absorb an attack and carry out retaliatory strikes. Today, however, Russia’s early warning system is compromised. The last of the satellites that would have detected missile launches from American territory and submarines in the past stopped functioning last fall. This has raised questions about Russia’s very ability to carry out launch-on-warning attacks.

Read more …

Fishy narrative. 2 questions: 1) if he’s so smart, how come he only made $40 million? 2) why let him continue for another 5 years if they were on to him even before the flash crash?

UK Financial Trader Arrested Over 2010 Global Markets ‘Flash Crash’ (Guardian)

A financial trader who played the world’s futures markets from a small suburban house in Hounslow, west London, has been arrested and faces extradition to the US after supposedly making $40m (£27m) for his alleged role in the so-called “flash crash” of 2010. The US Department of Justice (DoJ) said on Tuesday that it was seeking the extradition of Navinder Singh Sarao, 37, who it claims “spoofed” financial markets using commercially available trading software to place $200m of false trades from his home in Hounslow. The US agency added that Sarao’s supposed manipulation contributed to the flash crash on 6 May 2010, when the Dow Jones industrial average plunged 600 points in five minutes and created havoc on Wall Street.

Sarao is expected to appear in custody at Westminster magistrates court on Wednesday. He is accused of duping the market into believing there were a lot more sellers than there really were and profiting from the market movement. He is said to have changed his orders more than 19,000 times before cancelling them. The episode, although not attributed to him, formed the backdrop for the Robert Harris novel The Fear Index. A DoJ spokesman would not speculate on how one person, using widely available commercial software, might have been able to crash the world’s financial markets. Nor would he comment on how an individual, who appears to live in a street populated by unremarkable three-bedroom semi-detached houses, seemed to make such huge rewards from his alleged scheme.

However, the US regulator, the Commodity Futures Trading Commission, said Sarao and his company had profited by more than $40m. The DoJ detailed a series of supposed coups, including episodes where Sarao is said to have made profits of more than $820,000 during a day’s trading. In an affidavit published by the DoJ in support of its complaint, FBI special agent Gregory LaBerta said Sarao was “a futures trader who operated from his residence in the United Kingdom and who primarily traded through his company, Nav Sarao Futures Limited.

“On numerous occasions between at least in or about April 2010 and in or about April 2014, Sarao spoofed the market and manipulated the intra-day price for … S&P 500 futures contracts on the Chicago Mercantile Exchange, including on or about 6 May 2010, when the US stock markets plunged dramatically in a matter of minutes in an event that came to be known as the ‘Flash Crash’.”

Read more …

Hongcouver has been crazy for years.

Metro Vancouver Is Swept Up In A Real Estate Frenzy (Vancouver Sun)

It is no exaggeration to use an F-word to describe Vancouver’s current real estate scene. As in, the market is in a Frenzy. Observers describe a perfect storm of forces coming together to create a tempestuous result: A 5.8-per-cent jobless rate in B.C., low interest rates, a devalued Canadian dollar attracting more foreign buyers, and panic over prices going even higher if buying is delayed. Even the particularly vicious winters of recent years in Eastern Canada may be having an impact. Meanwhile, the Bank of Canada warned last Wednesday about the risk of correction in three Canadian property markets — Vancouver, Toronto and Calgary. For the moment, few are heeding the caution.

A press release sent out last week by WestStone Properties, regarding its Evolve condominium project in Surrey, reported sales in a single day (April 11) of 300 condo units, worth $70 million. And get this — project completion is still three years into the future. The release described the purchasers’ enthusiasm: “Excited early buyers who stood in line for hours, grappled for position and swarmed the buying counter in a frenzy that hasn’t been seen in recent years.” Who was buying? Everyone. “Today’s buyers included first-time homeowners, parents purchasing for children and a large number of buyers from throughout Canada, the U.S. and overseas.” The Greater Vancouver Real Estate Board reported earlier this month, bidding wars are taking place with greater frequency.

And Royal Lepage last week cited a rush on Vancouver’s detached homes, resulting from a scarcity of product and high demand to live here. It seems that real estate enthusiasm is not limited to the Lower Mainland. The B.C. Real Estate Association has just reported: “B.C. home sales post the strongest March in eight years. … More homes traded hands last month than any March since 2007.” Property sales jumped 37.6% over March 2014 and sales dollar volume was up 57.1%. In Greater Vancouver, activity was even more robust, with year-over-year sales jumping 53.2%. Association chief economist Cameron Muir says: “Many board areas are now exhibiting sellers’ market conditions, with home prices advancing well above the overall rate of inflation.” The average sale price in March for all types of Vancouver-area housing was $891,000 — up from $801,000 12 months earlier.

Read more …

Sounds like a book.

Decisions: Life and Death on Wall Street, by Janet M. Tavakoli (Nomi Prins)

Janet Tavakoli is a born storyteller with an incredible tale to tell. In her captivating memoir, Decisions: Life and Death on Wall Street, she takes us on a brisk journey from the depravity of 1980s Wall Street to the ramifications of the systemic recklessness that crushed the global economy. Her compelling narrative sweeps through her warnings about the dangers of certain bank products in her path-breaking books, speeches before the Federal Reserve, and in talks with Jaime Dimon. She probes the moral complexity behind the lives, suicides and murders of international bankers mired in greed and inner conflict. Some of the people that touched her Wall Street career reflect broken elements of humanity. The burden of choosing money and power over values and humility translates to a loss for us all.

To truly understand the stakes of the global financial game, you must know its building blocks; the characters, testosterone, and egos, as well as the esoteric products designed to squeeze investors, manipulate rules, and favor power-players. You had to be there, and you had to be paying attention. Janet was. That’s what makes her memoir so scary. In Decisions, she breaks the hard stuff down with humor and requisite anger. As a side note, her international banking life eerily paralleled my own – from New York to London to New York to alerting the public about the risky nature of the political-financial complex. Her six chapters flow along various decisions, as the title suggests. In Chapter 1 “Decisions, Decisions”, Janet opens with an account of the laddish trading floor mentality of 1980s Wall Street.

In 1988, she was Head of Mortgage Backed Securities Marketing for Merrill Lynch. Those types of securities would be at the epicenter of the financial crisis thirty years later. Each morning she would broadcast a trade idea over the ‘squawk box.‘ Then came the stripper booked for a “final-on-the-job-stag party.” That incident, one repeated on many trading floors during those days, spurred Janet to squawk, not about mortgage spreads, but about decorum. Merrill ended trading floor nudity and her bosses ended her time in their department. Her bold stand would catapult her to “a front row seat during the biggest financial crisis in world history.” Reading Decisions, you’ll see why this latest financial crisis was decades in the making.

Read more …

“Making a vegetable garden is a political statement”.

The Food Production System is Criminal (Beppe Grillo’s blog)

Italian foodstuffs are subject to strict controls in order to guarantee the quality of the end product and the health of the consumer. Thanks to the strictness of these controls and the hard work of small Italian livestock and vegetable farmers and fishermen, the food in our Country is considered to be a source of excellence worldwide. One of the few things that we have left but that we will soon lose even that as soon as the TTIP is approved, a treaty that will allow cheap, low quality US products to find their way onto our tables.

As the crisis deepens, Italian consumers will lower their expectations and purchase chlorine flavoured chickens , beef and pork grown and nourished on hormones and fruit and vegetables with pesticides. Their health will undoubtedly suffer, farmers breeders and fishermen will close up shop and “Made in Italy” foods will become little more than a distant memory. We simply cannot allow this crime against our health! My friend Carlo Petrini, the founder of the Slow Food movement, explains how each and every one of us can sink this Criminal Foodstuff System by supporting our small Italian producers through their purchasing choices.

Blog – Slow Food is at the Expo with this slogan: “SAVE OUR BIODIVERSITY. SAVE THE PLANET. Can you explain to us why biodiversity is such an important asset?

Carlo Petrini – Biodiversity is the real driving force behind human understanding so we have to respect it. If we continue sticking to this foodstuff production model, with this criminal foodstuff system that destroys biodiversity by virtue of the fact that we must favour strong and more productive breeds and cultivars because we are only interested in the bottom line and never in Mother Earth or nature, all we will hand down to future generations is a far, far weaker genetic legacy.

Blog – Let’s talk about the TTIP: you have often mentioned your concern about the effect that this treaty will have on the European food industry. Why is there such a rush to get it approved very quickly? Who will profit from the TTIP? Who will the losers be? What will the long term effects be for Italy and for the consumer? And what about the planet’s equilibrium?

Carlo Petrini – I think that it is dishonest and improper to come up with these treaties in total and absolute secrecy and without involving the community at all. When things are done in secret it usually means that those involved are being dishonest! We must not allow these treaties to be introduced on the backs of millions of farmers, fishermen and food producers that are working all around the world and must be protected like now when they are facing this fetish called the free market, which is anything but free and often destroys the lives of these communities. Now, by virtue of the free market, I am allowed to bring in products made from meat that is not subject to the strict requirements that our breeders have to comply with and is full of chemicals, antibiotics, anabolic steroids and growth hormones, all of which are banned in Italy and in Europe but not banned in the United States.

It is unfair on our breeders because the law should be the same for everyone. We citizens can become co-producers because our choices can lead to certain agricultural choices. If I eat products that come from local small-scale farmers who don’t use pesticides, in other words who farm cleanly, then I’m helping that kind of farming along. If instead I buy and eat products produced by the multinationals, products that perhaps come from elsewhere in the world without any of the rules that our farmers have to adhere to, and perhaps obtained by means of slave labour, then equally I am helping that kind of farming.

Read more …

Apr 022015
 
 April 2, 2015  Posted by at 10:05 pm Finance Tagged with: , , , , , ,  11 Responses »


Esther Bubley Passengers on Memphis-Chattanooga Greyhound bus 1943

I think I’ve never understood the American – and international – fascination with money, with gathering wealth as the no. 1 priority in one’s life. What looks even stranger to me is the idolization of people who have a lot of money. Like these people are per definition smarter or better than others. It seems obvious that most of them are probably just more ruthless, that they have less scruples, and that their conscience is less likely to get in the way of their money and power goals.

America may idolize no-one more than Warren Buffett, the man who has propelled his fund, Berkshire Hathaway, into riches once deemed unimaginable. For most people, Buffett symbolizes what is great about American society and its economic system. For me, he’s the symbol of everything that’s going wrong.

Last week, Buffett announced a plan to merge a number of ‘food’ companies in a deal he set up with Brazilian 3G Capital. For some reason, they all have German names (I’m not sure why that is or what it means, if anything): Heinz, Kraft, Oscar Mayer. Reuters last week summed up a few of the ‘foods’ involved:

His move on Wednesday to inject Velveeta cheese, Jell-O, Lunchables, Oscar Mayer wieners, and Kool-Aid into his portfolio, stuffs an already amply supplied larder. The additions came from the acquisition of Kraft Foods Group Inc by H.J. Heinz Co, which is controlled by 3G Capital and Buffett’s Berkshire Hathaway. His larder already included everything from Burger King’s Triple Whopper burgers, Coca-Cola soft drinks and Tim Horton donuts to See’s Candies and Dairy Queen icecream Blizzards, as well as such Heinz brands as Tomato Ketchup, Ore-Ida fries, bagel bites and T.G.I. Friday’s mozzarella sticks.

Isn’t it curious to see that once people have more than enough to eat, they sort of make up for that by drastically lowering the quality of their food, like there’s some sort of balance that needs to be found? Give them more than plenty, and they’ll start using it to poison themselves.

The key term here, the one that tells you where this goes awry, is what in economics is called ‘externalities’. Something large industries are very good at circumventing. The larger the are, the better they get at it. Mostly this has to do with environmental destruction as a result of resource extraction, but the razing of large swaths of natural habitat for the construction of highways and suburbs that make people use more products provided by the oil industry, is a good example too. That and the direct effect these products have on people’s physical health.

Buffett, the supposed genius, can only do these deals because nobody demands anybody to pay for the externalities that arise as a result of Warren pushing crap posing as food upon the American people. And then when he’s done getting even richer off of poisoning your kids, he’ll donate billions to their well-being.

But in a better and wiser world, Warren should pay into the health care system right now, he should pay for the obesity and diabetes costs his ventures and investments are going to cause. And he should do so in advance, not just after the fact in some warped and distorted kind of philanthropy. Warren Buffett kills American kids for profit. Huge profits.

The ballooning waistlines of America can be traced back, in a very simple and straight line, to the sorts of ‘food’ that Buffett’s new conglomerate produces. That’s where type 2 diabetes comes from. This is not some vague future scare scenario, it’s here and it’s now. As someone in a poor black community said a few years back: ‘we’re raising a generation of blind amputees’.

And it’s of course not just Buffett, the poisoning and degradation of America’s food runs across and through industries, both vertically and horizontally. The insanity of corn syrup and processed food ranges from Monsanto to Cargill to McDo’s to a zillion other companies and products. Who, as an industry, have managed to keep any responsibility, let alone litigation, at bay.

Who would even dream of taking McDonald’s to court for poisoning American kids? In the present set-up, it would be an impossible and unwinnable case. But that’s not because the accusation is absurd or even far-fetched. It’s because the narrative is that, even if it could be proven, people still have the right to choose to eat what they want.

The companies get the profits, society at large gets the damage. It’s the ultimate form of the Tragedy of the Commons. If you allow people – and companies – to dump the negative consequences, and the costs, of their undertakings on the public, they will, and they can get very rich off of that.

Yeah, Warren has Coke and Utz Potato Stix for breakfast. What a great story… But does that mean he is too thick to understand what happens in America? Does he not see the bulging waistlines? Or is his own bottom line simply that much more important? Does Warren Buffett consider his own profits way more important than the future of America’s children?

You could be forgiven for thinking so, couldn’t you? Warren Buffett is revered all over the place, but in reality, he’s the schoolbook example of everything that’s wrong with America. That whole money before and over anything else (including people’s health and well-being) mentality.

It makes people stupid, and it makes for stupid people. And sick ones, too. It’s their own choice, though, and their own responsibility, advocates of the model will say. All the industry does is help them make that choice by bombarding them with endless feel-good ads. But is that really a good idea if and when it means the world’s health care systems threaten to implode because of it?

Like many other industries, Buffett’s crap-for-food enterprise would not nearly be as profitable (probably not even viable) if it were to be charged for the damage it does to society and the people living in it. That’s what’s wrong with the current American economic model, and Warren epitomizes this.

This Tragedy of the Commons abuse is so ingrained in the economy that it’s hard to see how it can be changed. And that does not bode well for anyone except the Warren Buffetts profiteering from it.

Jul 132014
 
 July 13, 2014  Posted by at 3:40 pm Finance Tagged with: , , , ,  4 Responses »


G. G. Bain Jewish Farmers Exhibit, East Broadway, NY 1909

Today looks like a good day to do a shout out and promo for our dear friends Kirsten and Serenity in Melbourne, Oz, who were responsible for the impeccable organization of the tour of Australia Nicole and I did in 2012. So we have living proof that they know how to organize something once they pour their hearts into it, which bodes well for the new project they’re busy setting up.

The Open Food Network focuses on building and facilitating an interactive platform to connect farmers and eaters that are dedicated to good, honest and local food, with full transparency. Of course there are many initiatives out there, from farmers markets to organic food stores, but many people still have problems getting access to good food.

Besides, most ‘fresh’ food is bought in giant supermarket chains, transported over large distances, and subject to centralized control, from Monsanto at seed level, ConAgra as super-producer, to WalMart as super-retailer. And we should not want centralized control, especially not of our basic necessities; that has never been a good idea and it never will be. If we can get the Monsanto’s and WalMarts of this world out of our lives, and at the same time improve the quality of our food, that can only be a good thing.

And if that still doesn’t swing it for you, just think of all the local jobs that will be created if we all buy local food as much as we can. Don’t forget that a dollar spent inside your community is worth 3-4 times more than one spent outside of it. And no, WalMart, and the entire supply chain it stands for, is not your community.

The Open Food Network aims to use the internet to provide a way of organizing all this, community by community. Check it out. Here’s their blurb:

Open Food Network – Building a Better Food System

The Open Food Network is an open, online marketplace that makes it easy to find, buy, sell and move sustainable local food. It gives farmers and food hubs easier and fairer ways to distribute food, while opening up the supply chain so eaters can see what’s going on. It’s good for farmers, good for eaters and good for the food hubs, local businesses and communities that want real food.

We are proudly open source and not for profit – creating software with and for the global fair food movement. Contribute now to get this platform launched for use by farmers and food hubs in Australia, with the software available for use all around the world! We know that OFN has the potential to really disrupt our food systems – in a good way. But we need you to get on board now and help make it happen.

How will OFN help fix the food system?

Lots of people are working to break the stranglehold that supermarkets and large agribusiness have over our food system. We’ve spent 3 years talking with many farmers, producers, eaters and local enterprises (like food hubs, independent retailers and co-ops) about how we can work together to take back control of our food. The Open Food Network is our response. By turning the existing food system on its head, the Open Food Network provides efficient ways for buyers (hubs) to connect with many smaller sellers (producers) and distribute food into their communities.

GOOD for Farmers and Producers: There is currently a big gap for farmers between selling through “the big guys” or doing everything themselves to distribute directly to eaters e.g. setting up and running their own online store, farm gate sales and farmers’ markets. For many farmers, these are not enough and take time away from the important work of growing our food. Farmers need scalable, sustainable systems for distributing their food.

OFN makes it easier for farmers to sell directly and possible for them to work together and with others (like food hubs) to streamline marketing and distribution, while maintaining full transparency and control. With the OFN, farmers have the freedom to set prices, choose who they trade with, when, how often and under what terms.

GOOD for Eaters: It’s time to reconnect with our food! We’re ready to abandon the supermarkets and get good, honest produce from people we know. But sometimes it’s hard work to shop and eat locally. OFN makes it easy to access locally grown food direct from the grower or transparently through hubs. Just go online, find what’s near you and shop . . It’s like an online shopping centre, full of local food!

GOOD for Communities and Food Hubs: “Middle men” matter . . the problem is when there are only two! We want every community to have many different ways to get sustainable, local food. Local food enterprises – like buying groups, co-ops or larger scale wholesalers, retailers (and everything in between) can make this possible. OFN provides simple online ordering and shopping tools that make it easy to set up a hub and start moving food – while keeping the farmers and prices transparent all the way through. It removes admin barriers to small and medium sized food hubs working with local farmers

The OFN provides an ultra-flexible system for food hubs, enabling communities to set up what they need. Food hubs using OFN have complete freedom over:

• Your customers – whether they are households, buying groups, institutions, food service etc
• Your mark-ups and fees – OFN has a flexible fee structure so you can set it up how you want it, easy, transparent, independent
• Who you work with – OFN supports diverse networks, partnerships and social enterprises, with relationships and flexible fee structures

The Open Food Network:

• is an online marketplace that farmers and local hubs can use to distribute food
• makes it easier to find, buy, sell and move sustainable local food
• is software that helps organise the trade and distribution of locally grown food
• lets you manage your ordering, scheduling, payment and delivery cycles
• lets eaters order locally grown food from their chosen hub
• puts eaters in touch with the people who grow their food
• lets farmers list their own produce, set their prices and tell their own stories
• basic trading is free for farmers and eaters to use
• is proudly open source and not for profit

Tipping Point Goal: $25,000
Total Funding Goal: $100,000

Tipping Point Goal: We’ve done the numbers and – together with grant funds and some blood, sweat and tears – an additional $25,000 will get the software to the point where we can launch an ‘open beta’ OFN service in Australia (open to anyone in Australia to use for profiles and basic trading). The money will go towards designers, engineers, developers and testers. This is our tipping point goal. If we raise this amount, the campaign will be a success and we’ll get your pledged donation. If not, we won’t get anything. Please help us at least make our tipping point which will get the basic OFN into the hands of all the farmers and communities that need it!

Total Funding Goal: Additional funds raised up to $100K will build the features we need for a full beta public launch in March 2015. Amazing volunteers, our own money, and seed grants from VicHealth and Sustainable Table have enabled us to get this far. And we’ve been able to provide enough features to do working trials with our fabulous hub partners in Australia and abroad. But there’s so much more that could be done.

We understand what is needed. If we raise more money, we can build more of it. Word is spreading and there are food hubs, networks and developers around the world who are keen to get on board. We want to help that happen . . so … Funds raised over $5,000 in any individual country will support a mini-pilot with partners in that country. It would be amazing to raise enough funds to build features AND set-up local chapters internationally.

ECB Interest Rates Too Low For Germany, Says Bundesbank Chief (Reuters)

The European Central Bank’s interest rates are too low for Germany, Bundesbank chief Jens Weidmann said on Saturday, adding that ECB monetary policy should remain expansive for no longer than absolutely necessary. Speaking at a Bundesbank open day for the public, Weidmann noted that many savers in Germany were irritated by low interest rates but said these were aimed at supporting investment and consumption. The ECB cut interest rates to record lows last month as part of a package of measures to breathe life into a sluggish euro zone economy, where inflation is running far below the central bank’s target and there is a dearth of credit to smaller firms. The German economy, Europe’s largest, has been outperforming other countries in the bloc, however.

“It is clear that monetary policy, when seen from a German viewpoint, is too expansive for Germany, too loose,” Weidmann told a crowd at the start of the open day. “If we pursued our own monetary policy, which we don’t, it would look different.” “But we are in a currency union,” he said. “That means that in our monetary policy decisions, we must orientate ourselves to the whole currency union.” Repeating a warning he has made previously about the risks of leaving policy loose for too long, Weidmann added: “This phase of low interest rates, this phase of expansive monetary policy, should not last longer than is absolutely necessary.” Bundesbank Vice President Claudia Buch said property prices were overvalued in some big city areas in Germany by up to 20-25%, but that there was no acute risk of a price bubble forming.

Read more …

CalPERS Ex-CEO Guilty Plea Explains Why Bankers Make So Much Money (Forbes)

The ex-CEO of CalPERS, Fred Buenrostro, has just pleaded guilty to accepting doucers, cash bribes and fees for placing investment business with a specific firm. The economic point that this helps us elucidate is why bankers and fund managers make such vast incomes normally. It’s a concept called “efficiency wages”. Essentially, when stripped right down, if people are handling or responsible for a large amount of money then pay them very well. So that it’s not actually worth their trying to do anything naughty, the risk of losing that high income is greater than what they can gain by being naughty. Here’s the actual announcement of Buenrostro’s plea:

Buenrostro is the former Chief Executive Officer (CEO) of the California Public Employee Retirement System (CalPERS). In pleading guilty, Buenrostro admitted to conspiring with Alfred J. Villalobos, founder and operator of ARVCO Capital Research LLC (ARVCO). Buenrostro acknowledged in court today that he understood that Villalobos operated ARVCO as a placement agent that solicited investments by public pension funds into private equity funds. Buenrostro also admitted that he understood that ARVCO was typically paid an agreed-upon fee based on the percentage of the total dollar amount invested by the public pension fund.

To put it simply (and do note that Villalobos has not been found guilty of anything at all as yet and is thus innocent of all charges) there’s a layer of agents, or introducers, in the fund management industry. A pension fund, say, is looking around for where to invest, various fund management firms are looking for people to invest and those who introduce one to the other will get a (small) slice of the amount invested. The accusation is that Buenrostro favoured Villalobos in such allocations and then received various parcels of cash, had his wedding paid for etc. as a result. Again, note that Buenrostro has pleaded guilty, Villalobos is innocent. So far so grubby: but this gives us an insight into why pay is so darn high right across the fund management and financial industry. Simply because these people are handling such vast amounts of money. There’s therefore obviously a temptation to make off with some of that vast river of cash that flows through such offices.

Read more …

80% Of The Light In Space Is Missing (RT)

Scientists now believe that a tremendous amount of light that would otherwise be illuminating our universe is mysteriously absent. How much light exactly? According to new research conducted by a team of international scientists and funded in part by NASA, the National Science Foundation and the Ahmanson Foundation, around 80 percent of the universe’s light is nowhere to be found. “It’s as if you’re in a big, brightly lit room, but you look around and see only a few 40-watt lightbulbs,” astronomer Juna Kollmeier – a Carnegie Institution for Science professor and the lead author of the new study on missing light said in a statement this week. “Where is all that light coming from? It’s missing from our census.”

Kollmeier and company have published their research in the latest edition of The Astrophysical Journal Letters, and there they explain further why they have reason to believe that the universe is missing around 400 percent of its light. Along with Benjamin Oppenheimer and Charles Danforth of CU-Boulder’s Center for Astrophysics and Space Astronomy, Kollmeier reported that the amount of light that should be emitted from ionized tendrils of hydrogen in the universe is only a fraction of what it should be. “Something is amiss in the universe,” they write. “There appears to be an enormous deficit of ultraviolet light in the cosmic budget.”

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Ebola Spreads to Sierra Leone Capital Freetown as Deaths Rise (Bloomberg)

The worst outbreak of Ebola moved to Sierra Leone’s capital of Freetown where an Egyptian was found with the city’s first confirmed case of the disease. The unidentified Egyptian national had traveled from Kenema, the largest city in the nation’s Eastern Province, and checked into a clinic east of Freetown, Sidie Yahya Tunis, director of Information, Communication and Technology at the Ministry of Health and Sanitation, said by phone today. The person was moved back to the Ebola center in Kenema, he said. “The Ebola disease usually spreads to other places when suspected or confirmed cases in one community move to another, they abandon treatment centers to stay with relatives or they seek treatment outside the Ebola centers,” Tunis said.

There have been 99 Ebola deaths in Sierra Leone out of 315 laboratory-confirmed cases, the ministry said in an e-mailed statement today. The ministry said yesterday that 92 people had died out of 305 cases. Cases of the hemorrhagic fever have killed more than 540 people in Guinea, Sierra Leone and Liberia in an outbreak that according to the World Health Organization may last another three to four months. The toll is greater than the 280 people killed in 1976, when the virus was first identified near the Ebola River in what is now the Democratic Republic of Congo. The rapid spread of the virus is largely due to people moving across borders as well as cultural practices that are contrary to public health guidelines, such as people touching the body of a deceased relative before the funeral.

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The Wall Street GDP Forecast “Escape Velocity” Scam (Stockman)

There is nothing more predictable than the bevy of Wall Street economists who come charging out of the blocks early each year proclaiming that money printing by the Fed will finally work its magic, and that real GDP growth will hit “escape velocity”. But this year the markdowns have come fast and furious. After the disaster of Q1 and the limp data reported for Q2 to-date, the revised consensus outlook for 2014 at 1.7% is already below the tepid actual results of the last three years. So much for the year when “screaming” growth was certain to happen. The graph below is all the proof that is needed to demonstrate that Wall Street has become a pure Fed enabled casino. If honest “price discovery” was actually functioning, the stock market would not be at nosebleed heights, capitalizing hockey sticks that never materialize. Instead, it would be discounting a badly impaired economy that is stuck in a sub-2% rebound—and one that is dangerously at risk owing to the third and greatest financial bubble the Fed has created during this century.

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More Incoming Q2 Data: No Escape Velocity (Alhambra)

The wholesale inventory estimates seem to have raised more than a bit of optimism. I think that is highly misplaced for both GDP and the economy. On the GDP calculation side, there needs to be another huge gain in inventory to be “highly supportive” due to the second derivative nature of the estimate. As for the economy, even on a seasonally-adjusted basis, wholesalers are taking a dimmer view of holding inventory. The mainstream narrative, which has been copied almost word for word across the media, is here:

U.S. wholesale inventories rose in May, reinforcing the view that economic growth should surge in the second quarter following a weak first three months of the year.

This flips around what is actually taking place, as sales are lagging not surging. Whether you take it in the form of seasonally-adjusted or raw nominal data, there is nothing to suggest the pace of sales is appreciably better than the first quarter. If anything, the sales pattern continues to lag what would actually be consistent with sustainable growth. In fact, wholesale sales in May were only slightly better on a year-over-year basis than January and February.

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Slowing Customer Traffic Worries U.S. Retailers (WSJ)

American retailers may have more than a weather problem. Family Dollar said fewer shoppers came into its stores in the three months through May 31, pushing sales down 1.8%, excluding newly opened or closed stores. In a move to win back traffic, the dollar chain said it would begin carrying beer and wine nationally next year, adding to the tobacco, frozen food and other consumables that now make up 73% of sales. “Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment,” Chief Executive Howard Levine said. The discounter’s message echoed that of Container Store whose shares fell sharply midweek after its chief executive told investors that the company and its fellow store chains are in a “retail funk.” “We’ve come to realize it’s more than just weather,” Container Store CEO Kip Tindell said. Falling traffic led to the first drop in quarterly sales at the company in more than three years.

Investors flocked to the seller of bins, boxes and shelves when it went public last November, and shares more than doubled on opening day to close at $36.20. But so far this year, shares have dropped nearly 44%, as Container Store has succumbed to some of the pressures weighing on retail broadly. Results at retailers haven’t been uniformly bad this spring. But there are enough negatives to shake earlier hopes that shoppers would whip out their wallets and resume shopping after the long, tough winter. The mixed showing continues to cloud the optimism arising from stronger job growth and rising consumer confidence. The unemployment rate dropped to 6.1% in June, marking the best stretch of job growth in almost a decade. But five years into the economic expansion, big chains like Wal-Mart and Kroger remain divided over whether consumers are indeed bouncing back.

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Something Seems Off About The US Economy (BI)

Over a three-week span starting next Monday, 72% of the S&P 500’s members will report earnings, but some of the early indications about this earnings season, especially from companies highly exposed to the U.S. consumer, have not been encouraging. On Tuesday afternoon, two companies that are all about consumer spending, Bob Evans and The Container Store, reported earnings that were disappointing. But even more discouraging were the comments from company executives. Bob Evans, which wrapped up its fiscal year 2014 in its most recent quarter, said its results were impacted by severe weather (an oft heard refrain during the first quarter), as well as high food costs. In the upcoming year, the company’s CFO, Mark Hood, said, “consumer confidence continues to be adversely impacted by ongoing macroeconomic headwinds, including health care costs and unemployment which disproportionately affects lower- and middle- income consumers.”

Also on Tuesday afternoon, Container Store CEO Kip Tindell said in the company’s earnings release that, “Consistent with so many of our fellow retailer, we are experiencing a retail ‘funk.'” Wednesday evening, Lumber Liquidators, a specialty hardwood flooring retailer, said that the consumer demand it experienced following the tough winter didn’t carry into May and June. CEO Robert Lynch said, “The improvement in customer demand we experienced beginning in mid-March did not carry into May, and June weakened further. Our reduced customer traffic has coincided with certain weak macroeconomic trends related to residential remodeling, including existing home sales, which have generally been lower in 2014 than the corresponding periods in 2013.”

Thursday morning saw more downbeat commentary from a retailer, this time Family Dollar. Following the company’s report, which saw that same store sales fell 1.8% during the quarter, CEO Howard Levine said, “Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment.” And then yesterday afternoon, Gap topped off the week of discouraging retail commentary by reporting June same-store sales that fell 2% year-over-year. According to data from Bloomberg, sales were expected increase 0.8%. Gap’s management, however, was light on additional color. This rash of discouraging retail data, however, makes the broader U.S. economic picture seem murky.

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US Stocks Will Be ‘Very Disappointing’ For 10 Years (MarketWatch)

U.S. stocks are overvalued – and have been for months. That is what six well-known measures of valuation show. While that doesn’t mean a bear market is imminent, there is a high probability that investment returns over the next decade will be below average, according to Yale University economics professor and Nobel laureate Robert Shiller. Investors shouldn’t expect that what has worked for them over the past five years will continue to work in the future. One way to gauge the market’s valuation is to compare it to past bull-market peaks. There have been 35 since 1900, according to Ned Davis Research, a quantitative-research firm. Five of these six valuation ratios show the market is more overvalued today than it was at between 82% and 89% of those peaks. They are:

• The cyclically adjusted price/earnings ratio championed by Shiller, calculated by dividing the S&P 500 by its average inflation-adjusted earnings per share over the past decade.
• The dividend yield, which is the%age of a company’s stock price represented by its total annual dividends.
• The price/sales ratio, calculated by dividing a company’s stock price by its per-share sales.
• The price/book ratio, calculated by dividing a company’s stock price by its per-share book value, an accounting measure of net worth.
• The Q ratio, calculated by dividing a company’s market capitalization by the replacement cost of its assets.

It is noteworthy that there is such agreement among these ratios even though each calculates the market’s valuation in a profoundly different way. The sixth data point — the traditional price/earnings ratio, which focuses on trailing or projected 12-month earnings — is the one that paints the least-bearish picture. Still, it shows the market to be more overvalued than it was at 69% of those past market peaks. Shiller argues that the P/E doesn’t have as good a forecasting record as his cyclically adjusted variant. Some investors are ignoring the warning signs from these valuation ratios, since the bull market has continued higher even though the measures have told much the same story for some time.

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Well, that seals it.

Economists Don’t Expect US Recession (CNBC)

Although economists have trimmed their estimates for second-quarter U.S. gross domestic product (GDP) growth, they don’t believe the economy will hit a recession this year or next. The National Association for Business Economics’ Outlook survey of 50 economist, taken just days after the release of the June jobs report, also found economists believe the Federal Reserve will hike rates earlier than previously expected. The panelists’ median forecast for annual second-quarter 2014 real GDP growth is 3%, down from the 3.5% median forecast when the full Outlook survey was last released in June. But in a positive sign, economists said the probability of the U.S. economy entering a recession in 2014 or 2015 is extremely low, with 60% of panelist saying the odds were less than 10%. “Notwithstanding the difficult start to the year, opinion is widespread that the economy is on solid footing,” said Timothy Gill, Outlook survey chair.

The minutes from the Fed’s latest policy meeting did not indicate did not indicate that the central bank intends raise interest rates ahead of schedule. But with unemployment and inflation getting closer to the Fed’s target levels, analyst are predicting that rate hikes could come sooner rather than later. More than half of those surveyed forecast the Fed will next increase its federal funds rate target in the first half of 2015, with a plurality of almost 37% expecting a hike during the second quarter of next year. Another 36% said they expect an initial rate hike in the second half of next year. The results are nearly reversed from the June survey, when 33% expected a rate increase in the first half of 2015 and 53% expected a hike in the second half.

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Fed Presidents Differ on Timetable for Raising Interest Rate (Bloomberg)


Federal Reserve presidents disagreed today on whether a decline in the U.S. unemployment rate to the lowest level in almost six years warrants advancing the timing for an interest-rate increase. Philadelphia Fed President Charles Plosser said the Fed risks losing credibility by waiting too long to raise rates, and economic data are already suggesting a need to tighten policy. Chicago’s Charles Evans and Atlanta’s Dennis Lockhart countered that low inflation and labor-market slack will allow the central bank to wait until the second half of 2015 or 2016.

Plosser, speaking in a Bloomberg Television interview with Michael McKee in Jackson Hole, Wyoming, said “we are closer than a lot of people might think” to the first interest-rate increase since 2006. If the Fed waits too long, he said, “we’ll lose credibility. We may lose control of inflation.” Fed officials are approaching their goals for full employment and price stability faster than they had forecast, sharpening the debate over the timing of a rate increase. St. Louis Fed President James Bullard warned this week that inflation will rise above the Fed’s target late next year. “Monetary policy ought to be reacting to the data,” Plosser, 65, said. “We are on a path that says low for long and we have no plans to raise interest rates anytime soon, yet as the data keeps telling us, we ought to be raising rates.”

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Fed Fears Risks Posed By Exit Tools; Plan Almost Done (Reuters)

Federal Reserve officials are cautiously nearing completion of a new plan for managing interest rates, concerned that some of the new tools they are likely to rely on could pose unintended risks in a crisis. The central bank has devoted extensive debate to the matter over the past two months and officials “have made a lot of progress” on a strategy to return monetary policy to a more normal footing after years of coping with crisis, Chicago Federal Reserve Bank President Charles Evans said on the sidelines of an economic conference here. However, the sheer magnitude of the amounts of money used to combat the crisis – $2.6 trillion sitting at the Fed as bank reserves and $4.2 trillion held by the Fed in various securities – may complicate the U.S. central bank’s ability to control its target interest rate once the decision is made that it should be raised. A decision to begin increasing interest rates is expected in the middle of next year.

In recent weeks, the Fed has neared consensus that its workhorse tool will be the interest it pays banks on excess reserves on deposit at the Fed – giving the central bank a direct way to encourage banks to either take money out of circulation and leave it at the Fed, or lend it elsewhere. Another tool would have a similar impact but apply more broadly, using overnight repurchase agreements that would let money market funds and other institutions as well as banks essentially make short-term deposits at the Fed. The worry is that if financial conditions tighten, those large funds of money would flee to the repo facility as a safe haven, depriving the economy of credit and making a potential crisis even worse. “The broad concern is whether we want to facilitate what could be a period of financial stress by providing in a large or unlimited way that refuge, and whether that would tend to exacerbate a financially stressful situation,” said Atlanta Fed President Dennis Lockhart.

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Market Will Crash, Just Don’t Know Catalyst: Marc Faber (CNBC)

The market is setting up for a big decline that could be as bad as the crash of 1987, according to Marc Faber, known as “Dr. Doom.” He just isn’t sure exactly what will set it off. “The problem with crashes, you never know beforehand precisely what is the catalyst,” the publisher of the Gloom, Boom & Doom report told CNBC’s “Closing Bell.” It could come from the credit market, equities being perceived as too expensive or a geopolitical event, he added. His comments came a day after he told “Futures Now” that the asset bubble has begun to burst. “I think it’s a colossal bubble in all asset prices, and eventually it will burst, and maybe it has begun to burst already,” Faber said Tuesday.

He’s calling for a 30 percent decline in the S&P 500. “I think that the global economy does not support the current valuations,” he said Wednesday. Corporations “have had record profits, largely because they are buying back their own shares and so the number of shares is diminishing where revenue growth is basically flat.” In fact, he said the bond market, which is more sophisticated than the stock market, does not believe in a strong economic recovery and neither does he. Faber has been calling for a major correction for years. So far, the market hasn’t followed his theory, but he said that could be setting it up for an even bigger fall. “Since 2012, I said it would be healthy for the markets to have a meaningful correction, but it could be that we are in a year like ’87 when we go straight up and then we don’t have a correction but a more significant crash,” he said.

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6.8 Magnitude Earthquake Strikes Off Fukushima Coast (RT)

A 6.8 magnitude earthquake hit off the coast of Japan, with its epicenter located some 129 kilometers from the city of Namie in Fukishima prefecture, US Geological Survey reported. The quake was centered at a depth of about 10km, according to the Japan Meteorological Agency (JMA). Tsunami advisories have been issued for the Fukushima prefecture, as well as for nearby Iwate and Miyagi prefectures. There were no reports of abnormalities at Fukushima-1 nuclear plant following the quake, TEPCO reported.

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Portuguese Bank Crisis Is The Tip Of The Iceberg (MarketWatch)

The Portuguese crisis over Banco Espirito Santo should be a reality check for European markets. Espirito Santo is just the excuse – real problems lie far deeper. The European Central Bank has been playing with fire, with junk bonds ultimately funded by German taxpayers. Investors are waking up and smelling smoke, and at some point they will get singed. Three companies are involved in the Espirito Santo mess. Banco Espirito Santo is the largest publicly traded commercial bank in Portugal. Its controlling shareholder, Espirito Santo Financial Group, owns 25% of its shares. The privately held parent company, Espirito Santo International, owns 49% of Espirito Santo Financial Group (and therefore part of Banco Espirito Santo). It is this parent company that is likely to default on its payments. Even if Espirito Santo International defaulted, Banco Espirito Santo does not necessarily have to go under, but it might.

The problem is that Banco Espirito Santo is a weak institution irrespective of its parent holding companies, dabbling in risky assets in emerging markets that saner banks would not touch. Its risk management department needs a major shakeup. For instance, the bank has invested in Angola, setting up a subsidiary known as Banco Espirito Santo Angola (BESA). BESA has relied on Banco Espirito Santo for its funding, with loans in Angola amounting to 220% of deposits. Bad loans have exploded in Angola in recent years, rising by 84% from 2010 to 2013. BESA’s assets include €6 billion worth of loans payable, and Banco Espirito Santo has a 55% stake in the bank.

The government of Angola, a former Portuguese colony, has given the bank a “personal guarantee” amounting to 70% of the bank’s loans. There is doubt about whether the bank can retain solvency in the event of a crisis, even with the guarantee. An anti-corruption organization in the country, Maka Angola, has claimed that the reason for the guarantee was several hundred million dollars’ worth of loans given to powerful figures in the Angolan regime. However, the authenticity of these claims is unclear. There is also trouble closer to home for Banco Espirito Santo: It has lent over €1 billion to its various parent companies. Should Espirito Santo International default, Banco Espirito Santo will fall below the capital ratio mandates set by Basel III at the same time that the European Central Bank prepares to do stress tests.

Shares in Banco Espirito Santo were suspended from trading yesterday by the Portuguese government after they fell 17%. Prior to that, Espirito Santo Financial Group pulled its own shares from trading due to “ongoing material difficulties” at Espirito Santo International. The catalyst for the sell-off appears to have occurred July 9 when Espirito Santo International delayed repayment on short-term debt owed to customers of its Swiss bank. That was not the first time Espirito Santo International has been in trouble. In December, it sold €6 billion of debt to Espirito Santo Financial Group, exposing investors to even more losses should the company fail, in what the Wall Street Journal called “financial gymnastics.” In May, Espirito Santo Financial Group released an audit of Espirito Santo International, revealing that there were several irregularities on its balance sheet, making its outlook more negative that previously thought.

The debt of Banco Espirito Santo is government-guaranteed, leading to good ratings but also potential moral hazards. Given the size of the conglomerate, it is possible that one or more of the companies will require a bailout if things deteriorate. The Bank of Portugal has said it believes Banco Espirito Santo is not at risk, despite the problems at its parent companies. It also said explicitly that it had €6 billion on hand to rescue the banking sector if necessary.

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Piggy Banks Being Raided Signal Swedish Housing Dilemma (Bloomberg)

Increasing numbers of Swedes are turning to family and friends for help in buying a home, side stepping government efforts to cool soaring housing prices and growth in private debt. Swedes who received non-bank assistance to fund mortgages rose to 52% in the period from 2012 to 2014, the highest level since at least the 1970s and up from 25% in the early 2000s, according to data last month from state-owned mortgage lender SBAB. The rising numbers seeking help to buy a home are a sign that Sweden is struggling to find answers to rising personal debt even after the government capped mortgages at 85% of a property’s value in 2010 to slow house-price growth. Prior to that, first-time buyers could often get a loan covering 100% of the purchase price.

“The big problem for policy makers is the high household indebtedness,” said Bengt Hansson, an analyst at Sweden’s National Board of Housing, Building and Planning, in an interview last month. “It’s obvious by now that the loan-to-value cap hasn’t been sufficient to solve the debt problem and a stronger amortization culture is long overdue.” The lack of rental housing and the difficulty of being able to afford a first home have left many young adults struggling to start their own lives. Almost a quarter of Swedes 18 to 34 were living with their parents in 2012, compared with 19% a decade ago, according to Eurostat. “The combination of the mortgage cap and price gains have resulted in more people needing help with the down payment,” Tor Borg, chief economist at SBAB, said in an interview last month. “This is a big problem for the young in particular.”

That development looks unlikely to change, as policy makers contemplate further measures to stem debt growth. The financial regulator, which has twice raised the risk weights banks must apply to their mortgage assets, has said it would consider lowering the mortgage cap further if problems persist and the government is now preparing to force amortization. Low rates over the past years and a limited housing supply have fueled a surge in home prices and pushed debt levels to records in the $550 billion economy.

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Bulgaria To Allow Its Fourth-Biggest Bank To Collapse (Reuters)

Bulgaria is to allow its fourth-biggest lender to collapse and will hive off its healthy activities into a separate bank as it moves to clear up the mess from the country’s worst financial scandal since the 1990s. The central bank said it was removing Corporate Commercial Bank’s (Corpbank) license and alerting prosecutors to the possibility that its main shareholder stole money from the bank just before the central bank took over its operations. The scandal broke last month when Corpbank clients unnerved by media reports accusing top shareholder Tsvetan Vassilev of shady business deals dashed to withdraw their savings. The bank run spread quickly to another lender and saw Sofia announce a protective $2.3 billion credit line, a reminder that parts of Europe’s financial system are still far from secure despite progress from the worst days of the financial crisis.

“The results of the review of Corporate Commercial Bank speak, to put it mildly, about actions incompatible with the law and good banking practices,” the central bank said in a statement as it published the results of an audit. It said much of the documentation to back up 3.5 billion levs ($2.43 billion) out of Corpbank’s total 5.4-billion-lev loan portfolio was missing. The documents were, it believed, “most likely destroyed in the days before the central bank sent administrators there.” A significant part of the loan portfolio was linked to parties related to Corpbank’s main shareholder, the central bank said. Central bank administrators found Vassilev had withdrawn 205 million levs from the bank via a third party just before the state took control. Prosecutors would need to determine whether that withdrawal amounted to theft, the central bank said.

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Allianz CEO: “Euro Crisis Is Not Over” (Bloomberg)

When asking Allianz SE’s chief investment officer about the euro area’s sovereign debt woes, be prepared for an emphatic response. “The fundamental problems are not solved and everybody knows it,” Maximilian Zimmerer said at Bloomberg LP’s London office. The “euro crisis is not over,” he said. While extraordinary stimulus from the European Central Bank has encouraged investors to pile into the region’s government bonds this year, that’s not a sufficient remedy for Zimmerer, who oversees 556 billion euros ($757 billion) at Europe’s largest insurer. Countries are still building up their debt piles, and that’s storing up trouble for the future, he said. As Zimmerer was speaking, investors were getting a reminder of the volatility that was rife through the sovereign debt crisis that started in 2009, as sliding stocks and bonds of Portuguese financial institutions rippled across the region’s markets.

“There is only one country where the debt level last year was lower than 2012 and this is a signal the debt crisis can’t be over, only a recognition of the debt crisis has changed,” Zimmerer said on July 9. “If the debt levels are not going down in the end we will have a problem, that is for sure.” Euro-area governments are still grappling to get their debt under control in the wake of the region’s financial-market turmoil, which left five countries needing international aid and triggered the biggest restructuring in history in Greece. Only Germany reduced its debt-to-gross-domestic-product ratio last year, according to data published by the European Union’s statistics office in Luxembourg in April. Allianz is reducing holdings of euro-area government debt to avoid low interest rates after the bond-market rally incited by the ECB, Zimmerer said. The Munich-based insurer is planning to move cash from fixed income into “real assets” such as infrastructure and real estate, he said.

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Las Vegas Drought Drains Lake Mead to Lowest Since 1937 (Bloomberg)

Lake Mead, the man-made reservoir that supplies 90% of the water for 2 million people in the Las Vegas area, has been reduced by drought to the lowest level since it was filled in 1937, according to the federal government. The lake, now at 39% of capacity, has been dropping since 2012, according to U.S. Bureau of Reclamation data, as much of the western U.S. has suffered the most serious drought in decades. The shortfall is endangering water supplies to the residents and 43 million annual visitors to the driest metropolitan area in the country. Lake Mead, created by Hoover Dam in 1936 and 1937, holds mountain snowmelt from the Colorado River for farms, homes and businesses predominately in southern Nevada, southern California and most of Arizona. No metropolitan area depends on the lake more than Las Vegas, which lacks groundwater or other local sources.

“This is significant because it’s a resource used by three states,” said Rose Davis, a spokeswoman for the bureau, which manages the supply. “We all have to keep an eye on it because it’s the major water source for three areas. It concerns us all very much.” The lake’s surface, which reached a record high of 1,225 feet above sea level in July 1983, is now at about 1,083 feet, according to the bureau. If the level drops below 1,050 feet, one of the two intakes that feed water to Las Vegas will become inoperable. At 50 feet lower, the other would fail. Since 2008, contractors have been boring through rock to create a third conduit to draw water from as low as 860 feet. About 55% of Nevada, already the nation’s driest state, is under “extreme” or “exceptional” drought conditions, the worst grades on the U.S. Drought Monitor, a federal website. Portions of California, New Mexico and Colorado also are in the “exceptional” category, according to the monitor.

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1001 Blistering Future Summers (Climate Central)

If it feels hot to you now in the dog days of this summer, imagine a time when summertime Boston starts feeling like Miami and even Montana sizzles. Thanks to climate change, that day is coming by the end of the century, making it harder to avoid simmering temperatures. Summers in most of the U.S. are already warmer than they were in the 1970s. And climate models tell us that summers are going to keep getting hotter as greenhouse gas emissions continue. What will this warming feel like? Our new analysis of future summers illustrates just how dramatic warming is going to be by the end of this century if current emissions trends continue unabated.

For our Blistering Future Summers interactive we have projected summer high temperatures for the end of this century for 1,001 cities, and then showed which city in the U.S. — or elsewhere in the world, if we couldn’t find one here — is experiencing those temperatures today. We’ve highlighted several striking examples on the interactive, but make sure to explore and find how much hotter summers will likely be in your city. By the end of the century, assuming the current emissions trends, Boston’s average summer high temperatures will be more than 10°F hotter than they are now, making it feel as balmy as North Miami Beach is today. Summers in Helena, Mont., will warm by nearly 12°F, making it feel like Riverside, Calif.

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