May 082016
 
 May 8, 2016  Posted by at 9:31 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle May 8 2016


DPC Peanut stand, New York 1900

Saudi Arabia’s Oil ‘Maestro’ Exits As Young Prince Flexes Muscles
Saudi Shake-Up Rolls On With Big Reshuffle Of Economic Posts (R.)
Canada Fire ‘Out Of Control,’ Doubles In Size (AFP)
70,000 Fort McMurray Foreign Workers May Have To Leave Canada (AFP)
China April Exports, Imports Decline More Than Expected (R.)
Britain Braced For A Ban On Second Homes (DM)
The TTIPing Point: German Protests Threaten Trade Deal (Spiegel)
Is For-Profit Care For The Elderly The Answer? (Economist)
On The Frontline Of Africa’s Wildlife Wars (G.)
German Vice Chancellor Urges Debt Relief For Greece (R.)
Greece Has ‘Basically Achieved’ Reform Goals, Says Juncker (AFP)
1,700 Years Ago, Mismanagement Of A Migrant Crisis Cost Rome Its Empire (Q.)

Panic in Riyadh.

Saudi Arabia’s Oil ‘Maestro’ Exits As Young Prince Flexes Muscles

The end of Ali al-Naimi’s more than two-decade tenure as Saudi Arabia’s oil minister signals a new era for crude markets, analysts said on Saturday, and appeared to be a reaffirmation of Saudi policy to let oil set its own pricing. On Saturday, Saudi Arabia issued a royal decree that replaced al-Naimi with Khalid al-Falih, chairman of Saudi Aramco, as part of a broad reshuffling of the cabinet. The move came as the world’s largest oil producer continues to grapple with the fallout from the global bear market in crude oil. Al Naimi was the most watched figure in the oil world, and was often described as a “maestro” of the market. His utterances on production levels could swing prices and drive the direction of oil for months. Last month, a high-stakes summit in Doha between OPEC and non-OPEC producers failed to produce an agreement to freeze output, in what was seen as the product of tensions between Saudi Arabia and Iran.

The failure of Doha reinforced what many analysts have said for months: That the oil cartel was quickly losing its ability to set the agenda of world oil markets, and influence prices. Al-Naimi battled to manage the price of oil throughout his time as minister. In his absence, the Saudis may allow market forces to play a greater role in setting the cost of crude, according to observers. “What that means is you’ll have much more market volatility. You’ll have higher highs and lower lows if you don’t manage” crude prices, Pira Energy Group founder and executive chairman Gary Ross told CNBC on Saturday. Al-Naimi was a “stabilizing force,” and markets could react negatively to his absence, said Ross, who has known al-Naimi for more than 20 years. Although savvy observers say the aging al-Naimi was ready to vacate his post, the implications of the shake up are still far reaching. “The Saudi put is gone,” Ross added.

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Say what? “..encouraging Saudis to spend money at home by creating more entertainment opportunities.”

Saudi Shake-Up Rolls On With Big Reshuffle Of Economic Posts (R.)

Saudi Arabia’s King Salman on Saturday replaced his veteran oil minister and restructured some big ministries in a major reshuffle apparently intended to support a wide-ranging economic reform programme unveiled last week. The most eye-catching move was the creation of a new Energy, Industry and Natural Resources Ministry under Khaled al-Falih, chairman of the state oil company Aramco. He replaces the 80-year-old oil minister Ali al-Naimi, in charge of energy policy at the world’s biggest oil exporter since 1995. But major changes were also made to the economic leadership, with Majed al-Qusaibi named head of the new Commerce and Investment Ministry, and Ahmed al-Kholifey made governor of the Saudi Arabian Monetary Agency (SAMA), the central bank.

The changes, announced in a series of royal decrees, go far beyond Salman’s previous reshuffles since he became king in January last year, and also put the stamp of his son, Deputy Crown Prince Mohammed bin Salman, author of the Vision 2030 reform programme, on the government. Prince Mohammed’s programme has been presented as a sweeping rethink of the entire way that Saudi Arabia’s government and economy will function to prepare for a future that is less dependent on oil income. Some of the most important elements of the plan, which will be fleshed out in coming weeks, involve creating a massive sovereign wealth fund, privatizing Aramco, cutting energy subsidies, expanding investment and streamlining government. The plan also seeks to boost revenues by increasing the number of foreign pilgrims outside the main annual Haj, and encouraging Saudis to spend money at home by creating more entertainment opportunities.

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The Alberta blaze is so big smoke from the fire is being detected in Florida.. It’s now threatening to cross the border into both Sasketchewan and the Northwest Territories too. It’ll take months to get it under control.

Canada Fire ‘Out Of Control,’ Doubles In Size (AFP)

A ferocious wildfire wreaking havoc in Canada doubled in size and officials warned that the situation in the parched Alberta oil sands region was “unpredictable and dangerous.” “This remains a big, out of control, dangerous fire,” Public Safety Minister Ralph Goodale said of the raging inferno bigger than London that forced the evacuation of the city of Fort McMurray. Winds were pushing the flames east of the epicenter around the oil city late Saturday, as nearly all 25,000 people who were still trapped to the north finally left town, either via airlift or convoys on the roads. The wildfire had doubled in size in one day, covering more than 200,000 hectares (494,000 acres) by midnight and continuing to grow, the Alberta Emergency Management Agency said in an update late Saturday. “Fire conditions remain extreme,” it said.

Low humidity, high temperatures nearing 30 degrees Celsius (86 Fahrenheit) and gusty winds of 40 kilometers (25 miles) in forests and brush dried out from two months of drought are helping fan the flames. Still, in a glimmer of positive news, the authorities have recorded no fatalities directly linked to the blaze that began almost a week ago. Cooler, moist air with some chance of rainfall could help slow the fires in the coming days, Alberta Fire Service director Chad Morrison said. However, “we need heavy rain,” he cautioned. “Showers are not enough.” The only “good news,” he said, was that the wind was pushing the fires away from Fort McMurray and oil production sites to the northeast, presenting less threat to people although causing serious damage to the environment.

The government has declared a state of emergency in Alberta, a province the size of France that is home to one of the world’s most prodigious oil industries. In the latest harrowing chapter, police convoys shuttling cars south to safety through Fort McMurray resumed at dawn. Making their way through thick, black smoke, the cars were filled with people trapped to the north of the city, having sought refuge there earlier in the week. Police wearing face masks formed convoys of 25 cars, with kilometers (miles) of vehicles, smoke swirling around them, patiently awaiting their turn. Separate convoys of trucks carried essential equipment to support “critical industrial services,” according to the Alberta government. With elevated risk that something could go wrong, the convoys along Highway 63 were reduced in size compared to the previous day.

Those being evacuated – for a second time, after first abandoning their homes – had fled to an area north of the city where oil companies have lodging camps for workers. But officials concluded they were no longer safe there because of shifting winds that raised the risk of them becoming trapped, and needed to move south to other evacuee staging grounds and eventually to Edmonton, 400 kilometers away. Some 2,400 vehicles made it to safety on Friday. But concerns are growing about the effect on the oil industry, the region’s economic mainstay, as the fires come dangerously close to extraction sites. Syncrude, one of several oil companies in the region, announced that it had shut down its facility 50 kilometers (31 miles) north of Fort McMurray due to smoke, followed by Suncor, after the local authorities ordered them to evacuate personnel. The military dispatched C130 aircraft to help evacuate 4,800 Syncrude employees.

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Hard to see how the tar sands industry could ever be rebuilt.

70,000 Fort McMurray Foreign Workers May Have To Leave Canada (AFP)

Jonathan Infante fled for his life from wildfires ravaging Canada’s remote Athabasca oil-producing region, and now he and other migrant workers face the grim prospect of having to altogether leave Canada. Their residency here is tied to their employment and if that is now gone – literally up in smoke – they could be forced to leave this country. The wildfires in northern Alberta have forced the evacuation of 100,000 people. Among the evacuees were almost two dozen distraught migrant workers who arrived late Friday at a government shelter in Edmonton, Alberta’s capital. Marco Luciano of the migrant advocacy group Coalition for Migrant Worker Rights in Canada, who was on hand to greet them, said many showed up in their work uniforms.

“They had been evacuated from work and did not have time to stop at home to pick up any of their clothes or belongings,” Luciano told AFP. “They’re not sure what’s coming… Because they no longer have work, their (residency) status has become precarious.” “Many are bracing for the worst,” he said. Infante’s wages support a wife and two children back in the Philippines. The Wendy’s fast food restaurant in Fort McMurray where he worked is believed to have survived the wildfires, so far. “Our employer told us to wait and see,” Infante said outside an evacuation center in Lac La Biche, about 300 kilometers (185 miles) south of Fort McMurray. According to Luciano’s group, there are about 70,000 temporary foreign workers accredited in Alberta. There’s no breakdown available of how many were displaced by the fires.

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“April imports dropped 10.9% from a year earlier, falling for the 18th consecutive month. ”

China April Exports, Imports Decline More Than Expected (R.)

China’s exports fell more than expected in April, reversing the previous month’s brief recovery, as weak global demand weighed on trade out of the world’s second-largest economy. Exports fell 1.8% from a year earlier, the General Administration of Customs said on Sunday, supporting the government’s concerns that the foreign trade environment will be challenging in 2016. April imports dropped 10.9% from a year earlier, falling for the 18th consecutive month. The continued decline in imports suggests domestic demand remains weak, despite a pickup in infrastructure spending and record credit growth in the first quarter. China had a trade surplus of $45.56 billion in April, versus forecasts of $40 billion. [..]

An official factory survey and Caixin’s private-sector gauge for April painted a mixed picture of the health of the manufacturing sector. The official purchasing managers’ index (PMI) showed factory activity expanded for the second month in a row in April but only marginally, while Caixin’s manufacturing PMI pointed to 14 straight months of sector contraction. Concerns of a hard-landing in China had eased after the strong March economic data, but analysts have warned that the rebound may be short-lived. Economists expect a slowdown in credit growth and industrial production in April although inflation could accelerate. Key economic data is expected over the next two weeks. [..] Amid shrinking global demand, China still managed to grow its share of world exports to 13.8% last year from 12.3% in 2014, indicating the country’s export sector remains competitive despite higher costs.

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“..I worry that it is discriminatory..” Well, what is more discriminatory? A person not being able to buy a second home, or a person not having access to any home?

Britain Braced For A Ban On Second Homes (DM)

Councils across the UK are set to consider banning people who already own homes from buying holiday cottages after a historic vote yesterday. More than 80% of voters in St Ives, Cornwall, backed proposals that will mean new housing developments will only get planning permission if homes there are reserved for full-time residents. And now councils in the Lake District, Derbyshire Dales, north Devon and the Isle of Wight are all looking at schemes to prevent outsiders buying holiday homes. But ministers are poised to oppose the ban, saying it could be regarded as unfair and discriminatory. Tory MP Mark Garnier told The Times: ‘The only home I own is in St Ives but I live in rented properties elsewhere. Would it be considered as a second home? ‘I worry that it is discriminatory – that one person can buy a home but another can’t.’

The mayor of Aldeburgh on the Suffolk coast, Michael Kiff, admitted that he would be watching what happened in St Ives with interest, and Liberal Democrat MP Norman Lamb said that a vote to ban second homes would be ‘entirely justified’ in his North Norfolk constituency, which has a high percentage of holiday homes. The St Ives vote comes after figures revealed that 48% of homes in the town centre were second homes or holiday lets. Planning minister Brandon Lewis will meet the St Ives’ MP Derek Thomas on Monday to urgently discuss the ban – which is subject to a legal challenge by a firm of architects from Penzance. The town has been dubbed Kensington-on-Sea because of the number of rich holidaymakers who own houses there, and concerns were raised that local people in the town were struggling to stay in the area thanks to increasingly expensive house prices, and rents that spiral during the summer months.

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You’d almost hope they try to push it through regardless. Germany badly needs a wake-up call that is not right-wing and racist.

The TTIPing Point: German Protests Threaten Trade Deal (Spiegel)

As the battle over TTIP was lost, Angela Merkel feigned resolution yet one more time. “We consider a swift conclusion to this ambitious deal to be very important,” her spokesperson said on her behalf on Monday. And this is the government’s unanimous opinion. But the German population has a very different one. More than two-thirds of Germans reject the planned trans-Atlantic free trade agreement. And even in circles within Merkel’s cabinet, the belief that TTIP will ever become a reality in its currently planned form is disappearing. That’s because on Monday morning, Greenpeace published classified documents from the closed-door negotiations. Even if the papers only convey the current state of negotiations and do not document the end results, they still confirm the worst suspicions of critics of TTIP.

The 248 pages show that bargaining is taking place behind the scenes, even in areas which the EU and the German government have constantly maintained were sacrosanct. These include standards on the environment and consumer protection; the precautionary principle, a stricter EU policy that sets high hurdles for potentially dangerous products; the legislative self-determination of the countries involved, etc. Even the pledge made on the European side that there would be no arbitration courts has turned out to be wishful thinking. So far, the Americans have insisted on the old style of arbitration court. The result is that Merkel’s grandly staged meeting with US President Barack Obama in Hanover eight days earlier had been nothing more than a show – one aimed at hiding the fact that the two sides are anything but united in their positions.

The leaks have resulted in a failed attempt to bypass 800 million European citizens as they negotiate the world’s largest bilateral free trade agreement. From the very beginning, the government underestimated the level of resistance these incursions on virtually all aspects of life would unleash among the people. What began as a diffuse discomfort over opaque backroom dealings grew into a true public initiative, especially in Germany. It was fueled by an international alliance of non-government organizations that has acted in a more professional and networked way than anything that has come before.

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We need discussions on this. Big ones. On pensions and on health care. But we’re not having them. Not everything can be optimized for profit. What happens when the profit is gone, what happens when the economy crashes? We’re going to dump our elderly?

Is For-Profit Care For The Elderly The Answer? (Economist)

The forecasts are clear: by 2050 the number of people aged over 80 will have doubled in OECD countries, and their share of the population will rise from 3.9% to 9.1%. Around half will probably need help with daily tasks—particularly those with enduring chronic illnesses such as Alzheimer’s, heart disease and osteoporosis. Health systems designed only to offer hospital care for acute cases will struggle to provide such support. To maintain the well-being of wrinkly populations, hospital stays can be replaced by residencies in purpose-built facilities at less cost. A forthcoming report covering 20 countries from KPMG, a consultancy, suggests the number of care-home residents could grow by 68% over the next 15 years. How care is managed in any one country reflects a tussle between cultural attitudes, national budgets and gritty demographic realities.

The increasing availability of technology that would allow the elderly to stay in their homes for longer will also affect demand for such options. Residential care in America and Japan is flourishing. But in an era of tight public finances, some governments are trimming the payments they offer to cover, or subsidise, care-home places. Some operators now struggle to make money; in western Europe, for example, governments are encouraging the elderly to stay in their own houses for longer. This is why the length of stays in care homes has declined from an average of three to four years a decade ago to 12 to 18 months today, says Max Hotopf, the boss of Healthcare Business International, a publishing company. Thousands of residential beds in the Netherlands and Sweden have disappeared as a result. About 5,000 debt-laden British care homes—a quarter of the total—may close within three years.

This makes emerging markets a more attractive prospect, at least for European care firms. Senior Assist, a Belgian company which manages residential facilities and home help, is now expanding in Chile and Uruguay. But China is the big prize. The Chinese will rely heavily on residential care, thanks to the country’s one-child policy and increasing urbanisation: two parents and four grandparents often depend on one child far away. Families in other developing countries are more hesitant about handing Granny over to strangers, however. In Brazil, India and richer countries of the Middle East, such as Saudi Arabia, elderly care remains centred around hospitals. In Brazil taking the old from their neighbourhoods is frowned upon. In India and the Middle East, families are expected to look after their elderly when they are not in hospital.

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Let’s make our armies do something useful.

On The Frontline Of Africa’s Wildlife Wars (G.)

Brigadier Venant Mumbere Muvesevese, a 35-year-old father of four, became the 150th ranger in the last 10 years to be killed protecting lowland gorillas, elephants and other wildlife in Virunga national park last month. He and his young Congolese colleague, Fidèle Mulonga Mulegalega, were surrounded by local militia, captured and then summarily executed. For Emmanuel de Mérode, the Belgian head of Virunga, himself shot and wounded by militia in 2014, the two killings in Africa’s oldest park, in the Democratic Republic of the Congo, were yet another atrocity in the brutal wildlife wars raging through southern Sudan, the Central African Republic, Congo and parts of Uganda, Chad and Tanzania. “These two rangers were killed in situations that may amount to war crimes in any other conflict,” he said. “We cannot sustain these kind of losses in what is still the most dangerous conservation job in the world.”

Virunga has lost five rangers so far this year. Speaking to the Observer from the park’s fortified HQ in Goma, De Mérode said security had got worse in recent months. “We lost people in January, too. We have a state of armed conflict, a low-intensity war being fought over the exploitation of natural resources in the park,” he said. “For the rangers it is not impossible to work, but it is now very dangerous. We are training 100 new rangers now and there will be 120 more next year. We are still very committed and optimistic.” The battle for central Africa’s wildlife has exploded as heavily armed militia target elephants and rhino and gun down anyone trying to protect them. Three rangers were killed and two wounded in a shootout in the vast Garamba national park in DRC last week; others were killed in Kahuzi-Biéga park near the city of Bukavu in March; in northern Tanzania, poachers killed British helicopter pilot Roger Gower in January.

The five rangers shot in Garamba were working for African Parks, a Johannesburg-based nonprofit conservation group that sends South African and other military officials to train rangers in the 10 wildlife parks it manages on behalf of governments. According to Peter Fearnhead, African Parks director, Garamba is now the heart of the illegal African wildlife trade. Its 300-odd armed guards combat helicopters and drones and find poachers from as far afield as the Central African Republic, Uganda, Sudan, Chad, Somalia, Kenya and Tanzania. “We have lost probably 30 people in Garamba alone in seven years. Hundreds of elephants are killed every year. This is the last stronghold of elephant and giraffe in Congo, but probably the toughest park in Africa. Every elephant poached can turn into a firefight,” said Fearnhead. “Life for a wildlife ranger is now very dangerous in some countries, probably more risky than being in a national army.”

[..] “Last week we buried three people but morale is as strong as ever. When [the rangers] were told that their colleagues had been shot, they all wanted to respond. The poachers use automatic weapons, even grenades. Being a ranger is not about chasing people through the bush and arresting them. It’s war. The rangers put their lives on the line every day, and are under real siege in Garamba. We are not militia but it requires a militaristic response to defend wildlife. [Groups of militia] are now bidding for contracts to get tons of ivory. It’s big business with groups of armed people crossing multiple borders. These people have phenomenal bush skills, with AK-47s. They shoot for the head. They are a total law unto themselves.”

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Stop talking and do it already.

German Vice Chancellor Urges Debt Relief For Greece (R.)

German Vice Chancellor Sigmar Gabriel urged euro zone finance ministers to start talks on debt relief for Greece, saying it made no sense to crush the green shoots of economic recovery with further austerity measures. The finance ministers of the euro zone’s 19 countries are due to meet in Brussels on May 9 to discuss Greece’s debt and a new set of contingency measures that Athens should adopt to ensure it will achieve agreed fiscal targets in 2018. “The euro group meeting on Monday must find a way to break the vicious circle,” Gabriel, who is also Economy Minister, said in an emailed statement to Reuters on Saturday. “Everyone knows that this debt relief will have to come at some point. It makes no sense to shirk from that time and time again,” he added.

The IMF wants Greece’s European partners to grant Athens substantial relief on its debt, which it sees as vital for its long term sustainability. But Germany’s hardline Finance Minister Wolfgang Schaeuble opposes any debt relief, arguing it is not necessary. Thrice-bailed-out Greece needs to secure an overdue aid payment of €5 billion to repay IMF loans, bonds held by the ECB maturing in July, and growing state arrears. “It doesn’t help the people and the country to have to fight every 12 months to get new credit to pay off old loans,” Gabriel said. “Greece needs debt relief.” Gabriel spoke out against further austerity measures and said Athens had managed to achieve better economic growth than expected. “It makes no sense to destroy these tender shoots once again with new austerity measures,” he added.

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“Tsakalotos warned of the price of a “failed state” if the crucial talks on Monday run aground.”

Greece Has ‘Basically Achieved’ Reform Goals, Says Juncker (AFP)

Greece has “basically achieved” the objectives of the reforms required by its creditors and its eurozone partners will begin discussing possible debt relief for the country, according to European Commission head Jean-Claude Juncker. “We are now at the time of the first review of the programme (to aid Greece) and the objectives have been basically achieved,” Juncker said in an interview to be published on Sunday in Funke Mediengruppe newspapers in Germany. Greece’s creditors carried out the review intended to evaluate progress on reforms by the Athens government as it hopes to unlock the next tranche of its €86bn bailout agreed in July. The Eurogroup, comprised of the 19 finance ministers of the euro area countries, is set to meet on Monday in Brussels and take up this review of Greek reforms.

They will also “start the first discussions about how to make Greece’s debt sustainable in the long term”, Juncker told the German papers. Approval of the reforms is needed before any consideration of Greek debt relief, but despite months of talks, Greece’s reforms have yet to win the backing of all its creditors largely due to differences between the EU and the IMF, which has demanded more reforms. Juncker’s comments come as Greek finance minister Euclid Tsakalotos Saturday called on his eurozone partners to back Greece’s reform package of cuts worth €5.4 billion, and to put aside the creditors’ call for €3.6 billion of additional measures. “Any package in excess of €5.4 billion is bound to be seen by both Greek citiziens and economic agents, within and beyond Greece, as socially and economically counter-productive,” he wrote in a letter to the Eurogroup. Tsakalotos warned of the price of a “failed state” if the crucial talks on Monday run aground.

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History rhymes.

1,700 Years Ago, Mismanagement Of A Migrant Crisis Cost Rome Its Empire (Q.)

On Aug. 3, 378, a battle was fought in Adrianople, in what was then Thrace and is now the province of Edirne, in Turkey. It was a battle that Saint Ambrose referred to as “the end of all humanity, the end of the world.” The Eastern Roman emperor Flavius Julius Valens Augustus—simply known as Valens, and nicknamed Ultimus Romanorum, (the last true Roman)—led his troops against the Goths, a Germanic people that Romans considered “barbarians,” commanded by Fritigern. Valens, who had not waited for the military help of his nephew, Western Roman emperor Gratian, got into the battle with 40,000 soldiers. Fritigern could count on 100,000. It was a massacre: 30,000 Roman soldiers died and the empire was defeated. It was the first of many to come, and it’s considered as the beginning of the end of the Western Roman Empire in 476.

At the time of the battle, Rome ruled a territory of nearly 600 million hectares, with a population of over 55 million. The defeat of Adrianople didn’t happen because of Valens’s stubborn thirst for power or because he grossly underestimated his adversary’s belligerence. What was arguably the most important defeat in the history of the Roman empire had roots in something else: a refugee crisis. Two years earlier the Goths descended toward Roman territory looking for shelter. The mismanagement of Goth refugees started a chain of events that led to the collapse of one of the biggest political and military powers humankind has ever known. It’s a story shockingly similar to what’s happening in Europe right now—and a it should serve as a cautionary tale.

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May 062016
 
 May 6, 2016  Posted by at 9:29 am Finance Tagged with: , , , , , , , , , ,  13 Responses »


NPC Sidney Lust Leader Theater, Washington, DC 1920

Asian Stocks Sink to Four-Week Low as Yen, Dollar Gain (BBG)
Broker CLSA Sees China Bad-Loan Epidemic With $1 Trillion of Losses (BBG)
China Regulator Tries Again To Rein In Banks’ Shadow Assets (WSJ)
China Produces Most Steel Ever After Price Surge (BBG)
Wages’ Share of US GDP Has Fallen for 46 Years (CH Smith)
Deutsche Chief Economist: ECB Should Change Course Before It Is Too Late (FT)
UK Economic Recovery Is ‘On Its Knees’ (Ind.)
The Book That Will Save Banking From Itself (Michael Lewis)
Shift In Saudi Oil Thinking Deepens OPEC Split (R.)
US Crude Stockpiles Seen Rising Further to Record (BBG)
Fort McMurray Fires Knock One Million Barrels Offline (FP)
Canada’s Wildfires Grow Tenfold In Size (G.)
Turkish Power Struggle Threatens EU Migrant Deal (FT)
Merkel Warns Of Return To Nationalism Unless EU Protects Borders (AFP)
Quarter Of Child Refugees Arriving In EU Travelled Without Parents (G.)

The last steps up for the yen?

Asian Stocks Sink to Four-Week Low as Yen, Dollar Gain (BBG)

Global stocks dropped, set for the biggest weekly loss since February, and the yen rose before key American jobs data that will help shape the U.S. interest-rate outlook. Australia’s currency slumped and its bonds surged after the nation’s central bank lowered its inflation forecast. The Stoxx Europe 600 Index and the MSCI Asia Pacific Index both lost ground, as did S&P 500 futures. Shanghai shares tumbled the most since February as raw-materials prices sank in China. The yen rose against all 16 major peers. The Bloomberg Dollar Spot Index gained for a fourth day, buoyed by comments from Federal Reserve officials that a June rate hike is possible. U.S. crude oil sank below $44 a barrel and industrial metals were poised for their biggest weekly loss since 2013. Australia’s three-year bond yield fell to a record.

A retreat in global equities gathered pace in the first week of May as data highlighted the fragile state of the world economy. The Reserve Bank of Australia joined the European Union in trimming inflation projections this week, after the Bank of Japan on April 28 pushed back the target date for meeting its 2% goal for consumer-price gains. Economists predict U.S. non-farm payrolls rose by 200,000 last month, a Bloomberg survey showed before Friday’s report. “With the U.S. jobs report coming up, investors are holding back,” said Masahiro Ichikawa at Sumitomo Mitsui in Tokyo. “They’re watching the yen very closely.” Four regional Fed presidents said Thursday they were open to considering an interest-rate increase in June, something that’s been almost ruled out by derivatives traders. Fed Funds futures put the odds of a hike next month at around 10%, down from 20% a month ago.

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Losses in shadow banks are consistently underestimated.

Broker CLSA Sees China Bad-Loan Epidemic With $1 Trillion of Losses (BBG)

Chinese banks’ bad loans are at least nine times bigger than official numbers indicate, an “epidemic” that points to potential losses of more than $1 trillion, according to an assessment by brokerage CLSA Ltd. Nonperforming loans stood at 15% to 19% of outstanding credit last year, Francis Cheung, the firm’s head of China and Hong Kong strategy, said in Hong Kong on Friday. That compares with the official 1.67%. Potential losses could range from 6.9 trillion yuan ($1.1 trillion) to 9.1 trillion yuan, according to a report by the brokerage. The estimates are based on public data on listed companies’ debt-servicing abilities and make assumptions about potential recovery rates for bad loans. Cheung’s assessment adds to warnings from hedge-fund manager Kyle Bass, Autonomous Research analyst Charlene Chu and the IMF on China’s likely levels of troubled credit.

The IMF said last month that the nation may have $1.3 trillion of risky loans, with potential losses equivalent to 7% of GDP. CLSA estimates bad credit in shadow banking – a category including banks’ off-balance-sheet lending such as entrusted loans and trust loans – could amount to 4.6 trillion yuan and yield a loss of 2.8 trillion yuan. CLSA cites a diminishing economic return on stimulus pumped into the economy as among the reasons for a worsening outlook, with Cheung saying at a briefing that bad loans had the potential to rise to 20% to 25%. “China’s banking system has reached a point where it needs a comprehensive solution for the bad-debt problem, but there is no plan yet,” he said in the report.

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Beijing can’t regulate shadow banking, since it let it grow far too big, but it can try to pick favorites. It’s relevant to ask who has the power in China these days. Local governments are neck deep in shadow loans, and Xi can’t afford, politically, to let them go bust. But can he afford to support them, financially?

China Regulator Tries Again To Rein In Banks’ Shadow Assets (WSJ)

In the pursuit of order in its financial markets, China’s banking regulator has tended to be one step behind in keeping up with a decade-long dalliance between commercial banks and the country’s non-bank lenders, called the shadow banking sector. Its latest directive suggests the government might finally be trying to get ahead. Bankers and analysts say the China Banking Regulatory Commission issued a notice to commercial lenders last week, taking aim at a shadow-banking product that has allowed banks to hide loans, including bad ones, from their books. The watchdog has tried cracking down on similar arrangements in the past. But this time, it appears to have taken a more nuanced approach in order to more effectively get at banks that originate the loans underlying these products.

In its crosshairs is a relatively obscure instrument called credit beneficiary rights, a product that is derived from shadow-banking deals and can then be sold between banks. The CBRC’s new directive in part takes aim at this practice by calling for banks to stop investing in credit beneficiary rights using funds raised from their own wealth management products. In China, shadow banks’ dexterity and relentlessness at product innovation have regularly pushed them right to the edge of what their regulators can tolerate. The CBRC directive, known as Notice No. 82, is the latest in a cat-and-mouse game that banks have played with regulators for years. Beneficiary rights are themselves an innovation to circumvent a CBRC clampdown in 2013 and 2014 on banks directly buying trust products in a similar arrangement to disguise loans, and then developing a lively interbank market for these rights transfers.

There have been regulatory interventions on variations of the practice every year since 2009. The commission hasn’t publicly released the directive. Analysts say the regulator is likely now huddled with banks to gauge how hard they will push back and how thoroughly the regulator can implement the requirements. Beneficiary rights confer on the buyer the right to a stream of income without ceding actual ownership of the underlying asset. That asset is often a corporate loan, which may or may not have already soured, though it could also be anything that generates an income stream, such as a trust, a wealth management product or a margin financing deal.

When one bank sells credit beneficiary rights to another, the transaction allows the first bank to use the accounting change to turn the underlying loan on its books into an “investment receivable.” The rules require banks to set aside about 25% of the receivable’s value in capital provisions, compared with 100% had it been a loan. The deals get more complex as layers are added to further disguise the loan. Banks will have third-party shadow financiers extend the actual loan to the company, in exchange for the bank’s purchase of beneficiary rights to the loan’s income stream.

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And where would you think steel prices are going?

China Produces Most Steel Ever After Price Surge (BBG)

China, maker of half the world’s steel, probably boosted production to a record in April as mills fired up furnaces and domestic prices surged to 19-month highs, according to Sanford C. Bernstein. Average daily output may have eclipsed the previous high of about 2.31 million metric tons in June 2014, said Paul Gait, a senior analyst in London. Producers ramped up supply as demand rebounded and prices jumped as much as 69% from their November low, generating the best margins since 2009.

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1970 is a reasonable guess for peak of prosperity. It’s not the only one, but it’s right up there.

Wages’ Share of US GDP Has Fallen for 46 Years (CH Smith)

The majority of American households feel poorer because they are poorer. Real (i.e. adjusted for inflation) median household income has declined for decades, and income gains are concentrated in the top 5%:

Even more devastating, wages’ share of GDP has been declining (with brief interruptions during asset bubbles) for 46 years. That means that as GDP has expanded, the gains have flowed to corporate and owners’ profits and to the state, which is delighted to collect higher taxes at every level of government, from property taxes to income taxes.

Here’s a look at GDP per capita (per person) and median household income. Typically, if GDP per capita is rising, some of that flows to household incomes. In the 1990s boom, both GDP per capita and household income rose together. Since then, GDP per capita has marched higher while household income has declined. Household income saw a slight rise in the housing bubble, but has since collapsed in the “recovery” since 2009.

These are non-trivial trends. What these charts show is the share of the GDP going to wages/salaries is in a long-term decline: gains in GDP are flowing not to wage-earners but to shareholders and owners, and through their higher taxes, to the government. The top 5% of wage earners has garnered virtually all the gains in income. The sums are non-trivial as well. America’s GDP in 2015 was about $18 trillion. Wages’ share -about 42.5%- is $7.65 trillion. If wage’s share was 50%, as it was in the early 1970s, its share would be $9 trillion. That’s $1.35 trillion more that would be flowing to wage earners. That works out to $13,500 per household for 100 million households.

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When you start with statements like this, what’s left to talk about? “The Bundesbank and Federal Reserve, for example, are respected for achieving monetary stability..”

Deutsche Chief Economist: ECB Should Change Course Before It Is Too Late (FT)

Over the past century central banks have become the guardians of our economic and financial security. The Bundesbank and Federal Reserve, for example, are respected for achieving monetary stability, often in the face of political opposition. But central bankers can also lose the plot, usually by following the economic dogma of the day. When they do, their mistakes can be catastrophic. In the 1920s the German Reichsbank thought it a clever idea to have 2,000 printing presses running day and night to finance government spending. Hyperinflation was the result. Around the same time, the Federal Reserve stood by as more than a third of US bank deposits were destroyed, in the belief that banking crises were self-correcting. The Great Depression followed. Today the behaviour of the ECB suggests that it too has gone awry.

When reducing interest rates to historically low levels did not stimulate growth and inflation, the ECB embarked on a massive programme of purchasing eurozone sovereign debt. But the sellers did not spend or invest the proceeds. Instead, they placed the money on deposit. So the ECB went to the logical extreme: it imposed negative interest rates. Currently almost half of eurozone sovereign debt is trading with a negative yield. If this fails to stimulate growth and inflation, “helicopter money” will be next on the agenda. Future students of monetary policy will shake their heads in disbelief. What is more, as purchaser-of-last-resort of sovereign debt, the ECB is underwriting the solvency of its over-indebted members. Countries no longer fear that failure to reform their economies or reduce debt will raise the cost of borrowing.

Six years after the onset of the European debt crisis, total indebtedness in the eurozone keeps on rising. Badly needed reforms have been abandoned. As a result the eurozone is as fragile as ever. Safe keepers of our wealth, such as insurance companies, pension funds and savings banks barely earn a positive spread. Inflation is just above zero, well below the ECB’s defined target. And with growth anaemic, debt levels in some countries, such as Italy, are not sustainable. Worse still, the ECB is failing in its other mandated duty – to promote stability. Popular opposition to low and negative interest rates, when combined with continuing high unemployment, is fomenting anger with the European project. Even if current policy eventually results in an overdue recovery, political pressure is unlikely to abate.

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It’s like one of those oracle-type questions: ‘how can something be on its knees that doesn’t exist’?

UK Economic Recovery Is ‘On Its Knees’ (Ind.)

The latest survey of the UK’s dominant services sector has today rounded off a dismal hat-trick of disappointment for the British economy. The Markit/CIPs PMI Index for April came in at 52.3. That’s above the 50 point that separates contraction from growth. But it’s also the weakest reading since February 2013, when the economy’s recovery was just starting. And it follows two pretty desperate readings this week from the equivalent PMIs for the manufacturing and construction sectors, which both showed the feeblest levels of activity in around three years. Put all these three readings together and one gets the “composite” PMI which can be used to roughly approximate to GDP growth in the overall economy. And combine these two metrics in the chart below (from Pantheon Macroeconomics) and you get this grim picture:

The blue line (left hand scale) shows the level of the composite PMI. The black line (right hand scale) shows the % quarterly rate of GDP growth. They track reasonably well over time. And the decline in the composite reading suggests GDP growth, which weakened to 0.4% in the first quarter of 2016, could be heading down to zero in the second quarter. What’s going on? Samuel Tombs of Pantheon says business and consumer jitters emanating from uncertainty about the outcome of the Brexit referendum has “brought the recovery to its knees”. More economists are now seriously talking of the possibile need for macroeconomic stimulus to get the recovery back on track. “The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth either by cutting interest rates or through non-standard measures such as QE” said Chris Williamson of Markit.

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Lewis paints King a tad too much like a cross between Einstein and Mother Theresa, if you ask me. He presided over a period when debt was already rising like there’s no tomorrow.

The Book That Will Save Banking From Itself (Michael Lewis)

One of my favorite memories of my brief life on Wall Street in the late 1980s is of Mervyn King’s visit. A year after Professor King – as I still think of him – had been my tutor at the London School of Economics, he was tapped to advise some new British financial regulator. As he had no direct experience of financial markets, either he or they thought he’d benefit from exposure to real, live American financiers. I’d been working at the London office of Salomon Brothers for maybe six months when one of my bosses came to me with a big eye roll and said, “We have this academic who wants to sit in with a salesman for a day: Can we stick him with you?” And in walked Professor King. I should say here that King’s students, including me, often came away from encounters with him feeling humored.

He was gentle with people less clever than himself (basically everyone) and found interest in what others had to say when there was no apparent reason to. He really wanted you to feel as if the two of you were engaged in a genuine exchange of ideas, even though the only ideas with any exchange value were his. Still, he had his limits. The man who a year before had handed me a gentleman’s B and probably assumed I would vanish into the bowels of the American economy never to be heard from again saw me smiling and dialing at my Salomon Brothers desk and did a double take. He took the seat next to me and the spare phone that allowed him to listen in on my sales calls. After an hour or so, he put down the phone. “So, Michael, how much are they paying you to do this?” he asked, or something like it.

When I told him, he said something like, “This really should be against the law.” Roughly 15 years later, King was named governor of the Bank of England. In his decade-long tenure, which ended in 2013, the Bank of England became, and remains, the most trustworthy institutional narrator of events in global finance. It’s the one place on the inside of global finance where employees don’t appear to be spending half their time wondering when Goldman Sachs is going to call with a job offer. For various reasons, they don’t play scared. One of those reasons, I’ll bet, is King.

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They’re all very nervous. What happens when oil prices start falling again?

Shift In Saudi Oil Thinking Deepens OPEC Split (R.)

As OPEC officials gathered this week to formulate a long-term strategy, few in the room expected the discussions would end without a clash. But even the most jaded delegates got more than they had bargained with. “OPEC is dead,” declared one frustrated official, according to two sources who were present or briefed about the Vienna meeting. This was far from the first time that OPEC’s demise has been proclaimed in its 56-year history, and the oil exporters’ group itself may yet enjoy a long life in the era of cheap crude. Saudi Arabia, OPEC’s most powerful member, still maintains that collective action by all producers is the best solution for an oil market that has dived since mid-2014.

But events at Monday’s meeting of OPEC governors suggest that if Saudi Arabia gets its way, then one of the group’s central strategies – of managing global oil prices by regulating supply – will indeed go to the grave. In a major shift in thinking, Riyadh now believes that targeting prices has become pointless as the weak global market reflects structural changes rather than any temporary trend, according to sources familiar with its views. OPEC is already split over how to respond to cheap oil. Last month tensions between Saudi Arabia and its arch-rival Iran ruined the first deal in 15 years to freeze crude output and help to lift global prices. These resurfaced at the long-term strategy meeting of the OPEC governors, officials who report to their countries’ oil ministers.

According to the sources, it was a delegate from a non-Gulf Arab country who pronounced OPEC dead in remarks directed at the Saudi representative as they argued over whether the group should keep targeting prices. Iran, represented by its governor Hossein Kazempour Ardebili, has been arguing that this is precisely what OPEC was created for and hence “effective production management” should be one of its top long-term goals. But Saudi governor Mohammed al-Madi said he believed the world has changed so much in the past few years that it has become a futile exercise to try to do so, sources say. “OPEC should recognize the fact that the market has gone through a structural change, as is evident by the market becoming more competitive rather than monopolistic,” al-Madi told his counterparts inside the meeting, according to sources familiar with the discussions.

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And how could prices rise in the face of record reserves?

US Crude Stockpiles Seen Rising Further to Record (BBG)

U.S. crude inventories will expand to a record 550 million barrels this month before starting their seasonal slide, according to a forecast by Citigroup. Stockpiles rose 2.8 million barrels to 543.4 million last week, the most in more than 86 years, according to data from the Energy Information Administration. Inventories reached the highest ever at 545.2 million barrels in October 1929, according to monthly EIA data.

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Record stockpiles with a million barrels missing. Prices are already dropping again.

Fort McMurray Fires Knock One Million Barrels Offline (FP)

The shut down of energy facilities accelerated Thursday, taking off line about one million barrels – close to 40% – of Alberta’s daily oilsands production, as a wildfire that started near Fort McMurray spread south to new producing areas. Meanwhile, oil companies poured their resources into the firefighting effort — from sheltering evacuees to helping with medical emergencies. Overnight Wednesday, the raging fire forced the evacuation of smaller communities south of Fort McMurray, where many evacuees fleeing the flames this week had taken shelter. They joined residents of Fort McMurray, who were ordered to leave their homes earlier in the week.

“Based on press releases and our discussions with producers, the fires have impacted oilsands production by an estimated 0.9 to 1 million b/d – disproportionately weighted towards synthetic crude oil,” Greg Pardy, co-head of global energy research at RBC Dominion Securities, said in a report. “This would constitute about 35% to 38% of our 2016 oilsands outlook of 2.6 million b/d.” Steve Laut, president of Canadian Natural Resources, said it was difficult to gauge the long-term impacts of the crisis because it was still evolving. “It’s devastating to the city of Fort McMurray,” he said Thursday after addressing the company’s annual meeting. Many production facilities are located away from the fire, but “it’s really the workers at the mines and the plants who live in Fort McMurray who are impacted,” Laut said. Canadian Natural said its operations at the Horizon mining project were stable.

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How is it possible that no-one died yet? They must be doing something very right.

Canada’s Wildfires Grow Tenfold In Size (G.)

A catastrophic wildfire that has forced all 88,000 residents to flee Fort McMurray in western Canada grew tenfold on Thursday, cutting off evacuees in camps north of the city and putting communities to the south in extreme danger. Authorities scrambled to organise an airlift of 8,000 people from the camps on Thursday night and hoped to move thousands more to safer areas as the fast-moving fire threatened to engulf huge areas of the arid western province of Alberta. Officials said 25,000 people had taken shelter in the oilsands work camps when the fires engulfed the city. The remaining 17,000 would have to wait until fuel reserves were refilled and the opening of a main highway to drive themselves south. The out-of-control blaze has burned down whole neighborhoods of Fort McMurray in Canada’s energy heartland and forced a precautionary shutdown of some oil production, driving up global oil prices.

The Alberta government, which declared a state of emergency, said more than 1,100 firefighters, 145 helicopters, 138 pieces of heavy equipment and 22 air tankers were fighting a total of 49 wildfires, with seven considered out of control. Three days after the residents were ordered to leave Fort McMurray, firefighters were still battling to protect homes, businesses and other structures from the flames. More than 1,600 structures, including hundreds of homes, have been destroyed. “The damage to the community of Fort McMurray is extensive and the city is not safe for residents,” said Alberta premier Rachel Notley in a press briefing on Thursday night, as those left stranded to the north of the city clamoured for answers. “It is simply not possible, nor is it responsible to speculate on a time when citizens will be able to return. We do know that it will not be a matter of days,” she added.

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Merkel bet on the wrong horse again. And this one, too, will put people’s well-being in danger. “..It’s time the EU starts to connect the dots and see it for what it is.” Oh, they see it alright.

Turkish Power Struggle Threatens EU Migrant Deal (FT)

A pivotal deal to staunch the flow of migrants from Turkey into the EU, masterminded by Angela Merkel, German chancellor, is in doubt after Turkey’s pro-European prime minister resigned. Ahmet Davutoglu, who personally negotiated the deal with Ms Merkel, quit on Thursday following a power struggle with President Recep Tayyip Erdogan. The premier’s departure imperils an agreement credited with sharply reducing the influx of asylum-seekers into the EU – and rescuing Ms Merkel from a potentially fatal political backlash. The deal enables the EU to send migrants arriving illegally on the Greek islands back to Turkey in exchange for visa requirements on Turkish visitors being eased and financial aid. However, President Erdogan has responded coolly towards the agreement struck by his premier and has shown increasing hostility towards the EU.

Without reforms to Turkey’s antiterrorism and anti-corruption laws, which Mr Erdogan has angrily resisted, Brussels may be unable to grant some of the most important concessions in the deal — a move that Ankara has already warned would cancel its obligation to curtail refugee crossings into Greece. “We’ve made good progress on the agreement with Turkey,” Ms Merkel said in Rome on Thursday. “The European Union, or at least Germany and Italy, are prepared and stand by the commitments that we’ve agreed to. We hope that’s mutual.” To keep the pact on track, Ankara must still meet several benchmarks, including major revisions to its antiterrorism legislation to ensure civil liberties, that Mr Erdogan has been loath to support.

EU officials are now concerned that Ankara will backtrack on reform commitments. “It’s certainly not good news for us,” said the EU official. “Erdogan would be very ill-advised to throw this out of the window and think this is now a matter of horse-trading. He thinks it’s 50% wriggle room, and the rest is all arm-wrestling.” Sinan Ulgen, a former Turkish diplomat at the Carnegie Europe think-tank, said that Mr Erdogan had been “much more categorical” in resisting changes to the antiterrorism law, adding that, with his AK party and parliament in disarray, the chances of reforms being passed in time for a June deadline was becoming increasingly unlikely. When Ms Merkel set out to persuade sceptical EU countries to back the migrant deal, one of her central arguments, according to diplomats, was that it would shore up the pro-European faction in Ankara, led by Mr Davutoglu.

Instead, the deal hastened the demise of her main Turkish ally and left the pro-Europeans seriously weakened. President Erdogan saw Mr Davutoglu’s increasingly close relationship with the EU as a threat. A rift between the two men turned into a power struggle which the prime minister lost. [..] European lawmakers who must now approve the deal say they are becoming increasingly wary. “If this was an isolated incident, you could say it’s just an internal affair,” said Marietje Schaake, a Dutch liberal who has become a leading voice on Turkey in the European parliament. “But we’ve seen a series of incidents that are clearly a pattern towards authoritarianism. It’s time the EU starts to connect the dots and see it for what it is.”

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Merkel has lost it: the EU, in order to survive, needs to start protecting people, especially children, before protecting borders. It’s the only thing that could still save the Union.

Merkel Warns Of Return To Nationalism Unless EU Protects Borders (AFP)

German Chancellor Angela Merkel on Thursday urged European leaders to protect EU borders or risk a “return to nationalism” as the continent battles its worst migration crisis since World War II. As Italian Prime Minister Matteo Renzi kicked off two days of talks in Rome with Merkel and senior EU officials, the German leader said Europe must defend its borders “from the Mediterranean to the North Pole” or suffer the political consequences. Support for far-right and anti-immigrant parties is on the rise in several countries on the continent which saw more than a million people arrive on its shores last year. In Austria, Norbert Hofer of the far-right Freedom Party is expected to win a presidential run-off on May 22 after romping to victory in the first round on an anti-immigration platform.

Merkel told a press conference with Renzi that Europe’s cherished freedom of movement is at threat, with ramped-up border controls in response to the crisis raising questions over whether the passport-free Schengen zone can survive. With over 28,500 migrants arriving since January 1, Italy has once again become the principal entry point for migrants arriving in Europe, following a controversial EU-Turkey deal and the closure of the Balkan route up from Greece. In previous years, many migrants landing in Italy have headed on to other countries – but with Austria planning to reinstate border controls at the Brenner pass in the Alps, a key transport corridor, Rome fears it could be stuck hosting masses of new arrivals. Renzi lashed out at Austria on Thursday, describing Vienna’s position as “anachronistic”.

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Child refugees have to be the no. 1 priority. A Europe with no morals has no future either.

Quarter Of Child Refugees Arriving In EU Travelled Without Parents (G.)

A quarter of all child refugees who arrived in Europe last year – almost 100,000 under-18s – travelled without parents or guardians and are now “geographically orphaned”, presenting a huge challenge to authorities in their adopted countries. A total of 1.2 million people sought asylum in the EU in 2015, 30% of whom – almost 368,000 – were minors. The number of children arriving in Europe last year was two-and-half times that recorded a year earlier, and almost five times as many as in 2012. But the most staggering statistic is that a quarter of the young arrivals were unaccompanied. In all, 88,695 children completed the dangerous journey without their parents – an average of 10 arriving every hour. The highest proportion of child refugees last year were Syrian, followed by Afghans and Iraqis. Together these three nationalities accounted for 60% of all minors seeking asylum in the EU.

In absolute terms, Germany received the highest number of child refugees, taking in more than 137,000 in 2015. However, as a proportion of population Sweden took in the most. Half of the unaccompanied minors came from Afghanistan, and one in seven were Syrian. More unaccompanied minors hailed from Eritrea (5,140) than from Iraq (4,570). Sweden took the highest number of lone children, 35,000 in total, two-thirds of them from Afghanistan. It also recorded the highest number of unaccompanied minors per head of population, followed by Austria and Hungary. It is not possible to get a full picture of how many children have sought asylum in Europe so far in 2016, as several countries have not yet published figures for the first quarter of the year. But the number of child asylum applicants recorded in Europe in January and February already far exceeds that recorded in the same months of 2015.

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May 052016
 


Lewis Wickes Hine Boys working in Phoenix American Cob Pipe Factory 1910

FX Market Truce Looks Increasingly Fragile (BBG)
The ‘Ostrich Approach’ Ignores Real Global and National Debt Figures (SM)
Easy Money Isn’t the Answer for Japan (BBG)
Japan’s Coma Economy Is A Preview For The World (GS)
Eurozone Retail Sales Fall More Than Expected In March (R.)
Kyle Bass Sees 30% To 40% Losses On Chinese Investments (BBG)
Hong Kong Cracks Down On Fake Trade Invoices From China (R.)
Regulators Want to Slow Runs on Derivatives (BBG)
Brexit, Like Grexit, Is Not About Economics (WSJ)
Even ‘Small Crisis’ Enough To Tear EU Apart, Moody’s Warns (Tel.)
Let The TTIP Die If It Threatens Parliamentary Democracy (AEP)
Turkey In Political Freefall As Erdogan Grabs More Power, PM To Resign (MEE)
Study: Bailouts Went To Banks, Only 5% To Greeks (Hand.)
The Terrible News From Fort McMurray, And The Hope That Remains (G&M)
‘Omega Block’ Behind Searing Heat Inflaming Fort McMurray Wildfire (WaPo)
UN Envoy Warns of New Wave of 400,000 Refugees From Syria (WSJ)

A truce that never stood a chance. Some may have believed in it, though.

Foreign-Exchange Market Truce Looks Increasingly Fragile (BBG)

The foreign exchange market is notorious for overshooting. A currency that starts moving in a particular direction as economic fundamentals change will often end up at a rate that can’t be justified by the data. So trying to nudge the matrix of currency values is akin to policy makers attempting to steer a Ouija board pointer – which is exactly what seems to have happened since their February Group of 20 meeting in Shanghai produced a tacit truce in the currency war. Suspicions that finance ministers had agreed in February to stop talking their currencies down seemed confirmed by the dollar’s decline of more than 6% from its Jan. 20 peak.

China’s recent moves to boost the yuan’s reference rate to its highest levels this year also backed the impression of a suspension of hostilities. But while U.S. manufacturers worried that a too-strong dollar would threaten their exports and profits, the recent reversal, and gains for the euro and the yen, pose bigger risks to the struggling economies of Europe, and Japan. The euro, for example, pierced $1.16 on Tuesday, reaching its highest level since August:

The yen, meanwhile, has breached 106 to the dollar, down from as weak as 122 in January:

Those are the kinds of moves that make central banks uncomfortable – especially when, like the ECB and the BOJ, they’re already struggling to avert deflation. Australia’s surprise decision to cut interest rates overnight, driving its currency lower against all 31 of its major trading peers, is a sign that skirmishes might be breaking out again. Marcus Ashworth, a strategist at Haitong Securities in London, said in a research note: The rumor mill has been incessant (despite official denials) that the so-called Shanghai G-20 accord to pacify markets and quell unrest between the members has actually served to make international relations as toxic as they have been for many years.

The Shanghai deal was to stop the negative feedback loop and thereby prevent a sharp devaluation of the yuan; however, it was meant to curtail the rise of the dollar, not sharply reverse it. [..] It’s clear the Treasury doesn’t want the dollar to resume its ascent. But it’s also clear that trying to steer the currency market into stasis has failed, and that the inflation outlooks in both the euro zone and Japan are deteriorating. The environment looks ripe for hostilities to break out again, providing yet another reason to be pessimistic about the prospects for a global economic recovery.

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Much more in the article.

The ‘Ostrich Approach’ Ignores Real Global and National Debt Figures (SM)

According to Hoisington and Hunt, the ratio of nonfinancial debt-to-GDP rose to 248.6% at the end of 2015, higher than the previous record of 245.5% set in 2009 and well above the average of 167.5% since this figure started to be tracked in 1952. They also point out that since 2000 it has taken $3.30 of debt to generate $1.00 of GDP compared with $1.70 in the 45 years prior to 2000. This points to the fact that a greater proportion of new debt is devoted to unproductive uses. Debt drains away vital resources from economic growth. Fighting a debt crisis with more debt is doomed to failure, yet that is not only what global central banks did during the crisis but long after markets stabilized (though the crisis never truly ended, just slowed). This was an epic policy failure that continues today.

U.S. government debt is growing to unsustainable levels. Gross debt (excluding off-balance sheet items) reached $18.9 trillion at the end of 2015, equal to 104% of GDP (considerably higher than the 63-year average of 55.2%). Government debt increased by $780.7 billion in 2015, or $230 billion more than the nominal or dollar rise in GDP. This actual debt increase is considerably larger than the budget deficit of $478 billion reported by the government because many spending items were shifted off-budget. Readers should remember this the next time The WSJ editorial page trumpets that the deficit dropped significantly from the four consecutive years of $1 trillion+ deficits between 2009 and 2012. And these figures don’t even touch upon the $60 trillion of unfunded liabilities (calculated on a net present value basis) for Social Security and other entitlement programs.

Globally, the debt picture is more disturbing. Total public and private debt/GDP is 350% in China, 370% in the U.S., 457% in Europe and 615% in Japan, respectively. Those numbers should speak for themselves.

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It isn’t the answer for anyone, certainly not today when everyone’s debts are through the roof.

Easy Money Isn’t the Answer for Japan (BBG)

Strolling through Tokyo on a Sunday afternoon, it’s hard to tell Japan’s economy is a mess. Deflation has returned, while growth hasn’t. But Shibuya Crossing remains as packed with diners, bag-toting shoppers and gawking tourists as ever. Nearby, a line of more than 50 people stretches outside a restaurant selling overpriced burgers. Lost decades be damned! Japan had the good fortune to have become wealthy before entering its years of stagnation. Some Japanese are now suffering in an economy that’s endured four recessions in eight years; the poverty rate has reached 16%, its highest level on record. But for many, especially in big cities such as Tokyo, life hasn’t so much deteriorated as frozen in time. GDP per capita, on a nominal basis, is little different now than in 1992.

And though the quality of many jobs has waned due to the increase of temporary work, joblessness remains a rarity. The unemployment rate is an enviable 3.2%. The Shibuya crowds raise serious and uncomfortable questions about the direction of Tokyo’s economic policy. Even as some analysts urge the Bank of Japan to double down on its monetary easing program and the government to ramp up its own spending in an effort to boost inflation, there’s a good argument to be made that the approach of Japan’s policymakers has been dead wrong, and for a very long time. The thrust of Japanese policies since the bursting of its gargantuan asset-price bubble in the early 1990s has been to spur growth with lots and lots of cash, whether from the government or the BOJ.

Since 2013, Prime Minister Shinzo Abe has dramatically pumped up that strategy – running large budget deficits, delaying taxes and encouraging the BOJ to print money on an ever grander scale. Arguably, however, Japan’s main focus should be to preserve the wealth it’s already accumulated. With a population that’s aging and shrinking, Japan can get richer on a per capita basis even if GDP remains perfectly flat. In that sense, deflation – long considered the scourge of Japan’s economy – is actually a boon: Falling prices raise the future value of savings, helping the elderly and others on fixed incomes. In constant terms, Japan’s GDP per capita is 17% higher than in 1992, thanks to deflation.

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“When you fly to Australia, you land in 2000, to China you land in 2016, Japan you land in 1989.”

Japan’s Coma Economy Is A Preview For The World (GS)

The 1980s were the apex of Japanese culture and economic might. Back then, Japan’s economy was growing so fast, it was thought they would overtake the US. But that all came to a screeching halt. Truth is, Japan’s meteoric rise was fueled by an epic lending bubble. Similar to the Roaring 20s in America. And when the bubble popped, the government launched massive and misguided measures that set Japan back decades. Their economy hasn’t expanded since. They are stuck in the 1980s. There’s been no growth for 30 years. And as you’ll hear about this in this special bonus video, the United States could be going down the same path. Imagine, if we are stuck in the 2000s for the next couple decades. How will you ever be able to retire?

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Deflation.

Eurozone Retail Sales Fall More Than Expected In March (R.)

Euro zone retail sales fell more than expected in March against February as consumers cut purchases of food, drinks and tobacco, the EU’s statistics office said on Wednesday. Retail sales, a proxy for household spending, decreased 0.5% in March month-on-month in the 19-country currency union, Eurostat said. Economists polled by Reuters had forecast a much smaller decrease of 0.1%. Yearly figures were also lower than expected, with sales up 2.1%, below market forecasts of a 2.5% rise. The fall in March sales was partly offset by an upward revision of data for February.

Eurostat said on Wednesday that in February sales rose 0.3% on a monthly basis and 2.7% year-on-year. It had previously estimated an increase of 0.2% monthly and 2.4% yearly. On a monthly basis, retail sales of food, drinks and tobacco products dropped 1.3% in March, the biggest fall among all the categories. Sales of non-food products, excluding automotive fuels, went down 0.5% month-on-month. Purchases of fuel for cars also dropped 0.4% on a monthly basis. Among the largest euro zone economies, Germany posted a 1.1% monthly drop of retail sales and France recorded a decrease of 0.7%. In Spain, sales increased 0.4% on a monthly basis in March.

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Conservative.

Kyle Bass Sees 30% To 40% Losses On Chinese Investments (BBG)

Kyle Bass, founder of Hayman Capital Management, said investors wouldn’t be investing in China if they realized how vulnerable its banking system is. “Common sense will tell you that they are going to have a loss cycle,” he said at the Milken Institute Global Conference in Beverly Hills, California, on Wednesday. “So if you think about how precarious that system is, you wouldn’t be allocating money to China.” Bass, a hedge fund manager famed for betting against U.S. subprime mortgages, is predicting losses for China’s banks and raising money to start a dedicated fund for bets in the nation. Bass said investors putting money in Asia should ask if they can handle 30 to 40% writedowns in Chinese investments.

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Or so we’re supposed to think.

Hong Kong Cracks Down On Fake Trade Invoices From China (R.)

Hong Kong is conducting a multi-pronged customs, shipping and financial sector crackdown against so-called fake trade invoicing that allows billions of dollars of capital to leave China illegally. Hong Kong’s central bank told Reuters it has beefed up its scrutiny of banks’ trade financing operations, while customs officials are doing more random checks on shipments crossing border posts and conducting raids on warehouses to ensure the authenticity of goods, senior officials working in shipping, logistics and banking said. The head of a logistics company said surprise customs inspections at Hong Kong border posts had doubled. The sources[..] said the increased efforts began this year and reflected concerns about billions of dollars in illicit cash authorities suspect are being channeled through Hong Kong following a stock market crash in China last year.

“Examinations and investigations reflect one of the strongest trends we are seeing now in the financial sector,” said Urszula McCormack, a partner at law firm King & Wood Mallesons, which helped co-author a report published by The Hong Kong Association of Banks in February that highlighted shipping as a sector where fake invoicing can thrive. “(Hong Kong) regulators are now in enforcement mode.” China has become increasingly concerned about capital outflows since the middle of last year when Chinese rushed to get money offshore for safekeeping or to invest following the stock market slump and unexpected yuan devaluation. Hong Kong is the most popular route, analysts say, because of its proximity to China.

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Until counterparties start raising their voices?!

Regulators Want to Slow Runs on Derivatives (BBG)

Nobody quite knows what it means for a bank to be “too big to fail,” so the regulators in charge of solving the problem have an understandable focus on tidiness. A bank that fails tidily, sensibly, in neat little compartments, probably won’t do much damage to anyone else. A bank whose failure is sprawling and incomprehensible might well turn out to be catastrophic. So the preferred mechanism for winding up a possibly too-big-to-fail bank these days is largely about compartmentalization. You put all of the important, messy stuff into subsidiaries – put the deposits in a bank subsidiary, the repurchase agreements and derivatives in a broker-dealer subsidiary, etc. – and put those subsidiaries under a “clean” bank holding company with a fairly large amount of capital and long-term debt.

Then if things go horribly wrong, the holding company’s shareholders and bondholders are the ones who lose money, shielding the people who have messier and more systemic claims on the subsidiaries. The regulators swoop in and recapitalize the holding company, or just sell the subsidiaries to other, healthier banks, in any case without ever interrupting service at the systemic subsidiaries. All the bad stuff happens at the holding company, all the important stuff happens at the subsidiaries, and you try to avoid mixing the two. Then all you have to do is make sure that the holding company has enough equity and long-term debt to shield the subsidiaries against any plausible bad outcome. But to make this work you really need to keep things in their boxes. Derivatives have a tendency to want to jump out of their boxes.

In particular, if bad things are happening at a large and systemically important bank holding company, there isn’t a lot of reason for the bank’s derivatives counterparties and repo creditors to stick around. Repo is meant to be a super-safe place to park your money overnight; if it looks like a repo counterparty might default, then you look for a different counterparty. And derivatives are just supposed to work: If Bank A owes you money under an interest-rate swap, and you owe Bank B money under an offsetting swap, and Bank A defaults, then all of a sudden you have an unanticipated unhedged risk. So if your derivatives or repo counterparty gets in trouble, you bail immediately to protect yourself. (Also there is always the possibility of making a lot of money on the unwind.) But while this is individually rational, it is systemically bad. As Janet Yellen put it yesterday:

“The crisis underscored that when a large financial institution gets into trouble, its failure can destabilize other firms. This is because large banking organizations are connected with each other by the business they do together and through the contracts that result from that business. Indeed, in the 21st century, a run on a failing banking organization may begin with the mass cancellation of the derivatives and repo contracts that govern the everyday course of financial transactions. When these contracts, known collectively as Qualified Financial Contracts or QFCs, unravel all at once at a failed large banking organization, an orderly resolution of the bank may become far more difficult, sparking asset firesales that may consume many firms.”

So yesterday U.S. banking regulators proposed new rules to prevent that from happening. The rules basically say that a bank subsidiary’s derivatives and repo contracts can’t be cancelled for 48 hours after the bank’s holding company files for bankruptcy or otherwise enters resolution proceedings. This gives the regulators two days to swoop in and conduct the neat resolution of the bank before its derivatives spill out everywhere and create a mess.

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Not only about economics. But if the economy were growing like crazy, the Brexit risk would be much more subdued.

Brexit, Like Grexit, Is Not About Economics (WSJ)

Britain’s flirtation with leaving the European Union is as puzzling as Greece’s stubborn desire to stay. After all, Britain’s economy has done quite well inside the bloc while Greece’s has been decimated. What explains both sentiments is that the European project has always been about more than economics. It also seeks “an ever closer union among the peoples of Europe,” as the Treaty of Rome, its founding charter, declared in 1957. “Closer union” with Europe deeply appeals to Greeks, whose own state has failed them so badly. But it repels many Britons, whose state works just fine and who want no part of a European political union. For them, the quagmire of the euro, which Britain hasn’t adopted, is a cautionary tale of what such a union could bring.

How they decide between the economic benefits and political risks of staying could determine whether Britain votes to leave the EU in a June 23 referendum. Greece joined the European Economic Community, the EU’s predecessor, in 1981, in search of shelter from foreign invaders, domestic coups, and its own dysfunctional government. Economics actually argued against membership: EEC technocrats said Greece wasn’t ready, but were overruled by political leaders worried about geopolitical instability on the Continent’s southern flank. The same logic brought Greece into the euro in 2001 when its debts and deficits should have disqualified it. Greece’s underdeveloped, overprotected economy was poorly prepared for life inside the EU.

A study led by Nauro Campos of Brunel University concluded only Greece was poorer in 2008 for having joined the EU; Britain, they reckon, was 24% richer. Eurozone membership initially brought down Greek interest rates and unleashed a borrowing binge but resulted in crisis and a six-year depression. Yet Greeks still don’t want to give up the euro. “Anglo Saxons think the euro is only an economic and financial project,” said Yannis Stournaras, governor of the Greek central bank, in an interview. “It’s political as well. It’s a means to an identity. We feel safer in the euro.” British considerations were just the opposite. A Conservative government took Britain into the EEC in 1973 largely for its trade benefits, a decision voters overwhelmingly approved in a 1975 referendum.

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You don’t say.

Even ‘Small Crisis’ Enough To Tear EU Apart, Moody’s Warns (Tel.)

Fresh turmoil in the EU risks triggering the disintegration of the entire bloc, according to Moody’s. In a stark warning, the rating agency said the “painful adjustment” faced by some countries in the eurozone meant the collapse of the single currency area and wider EU was believed by some to be a question of “when” not “if”. Moody’s said that even a “small crisis” threatened to set off an uncontrollable chain of events that would “threaten the sustainability” of the EU and its institutions. The rating agency praised the “significant political progress” made since the crisis in putting the foundations in place for a banking union and creating a eurozone rescue fund. However, it said endless austerity demands in return for bail-outs had fuelled deep resentment across the region, especially in countries weighed down by sky-high unemployment.

“Significant vulnerabilities” facing the bloc such as a British exit from the EU also remained, which would fuel support for “anti-establishment and anti-EU parties elsewhere”, it warned in a report. Colin Ellis, Moody’s chief credit officer for Europe, said a British exit could spark an “existential moment” for the bloc. “Even if the EU survives its current challenges largely unscathed, even a ‘small’ future crisis could threaten the sustainability of current institutional frameworks, if it coincided with negative public sentiment and populist political developments,” the report said. “This can create the impression that the question is when the system breaks, rather than if.”

It came as Mervyn King, the former governor of the Bank of England, warned that the eurozone faced four “unpalatable choices” as policymakers struggle to lift the bloc out of its economic malaise. Lord King said the single currency area would have to choose between an economic “depression” in the south, higher inflation in northern states like Germany, permanent fiscal transfers or a “change of composition of the euro area”. However, he told an audience in Frankfurt that there was “a limit to the economic pain that can be imposed in pursuit of a federal Europe without risking a political reaction. “There are no empires in Europe any more and our leaders would do well not to try to recreate one.”

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Ambrose votes Brexit?!

Let The TTIP Die If It Threatens Parliamentary Democracy (AEP)

Unloved, untimely, and unnecessary, the putative free trade pact between Europe and America is dying a slow death. The Dutch people have amassed 100,000 signatures calling for a referendum on this Transatlantic Trade and Investment Partnership, or TTIP. The number is likely to soar after Greenpeace leaked 248 pages of negotiation papers over the weekend. The documents do not exactly show a “race to the bottom in environmental, consumer protection and public health standards” – as Greenpeace alleges – but they do raise red flags over who sets our laws and who holds the whip hand over our eviscerated parliaments. Dutch voters have already rebuked Brussels once this year, throwing out an association agreement with Ukraine in what was really a protest against the wider conduct of European affairs by an EU priesthood that long ago lost touch with economic and political reality.

French president François Hollande cannot hide from that reality. Faced with approval ratings of 13pc in the latest TNS-Sofres poll, a TTIP mutiny within his own Socialist Party, and electoral annihilation in 2017, he is retreating. “We don’t want unbridled free trade. We will never accept that basic principles are threatened,” he said. In Germany, just 17pc now back the project, and barely half even accept that free trade itself a “good thing”, an astonishing turn for a mercantilist country that has geared its industrial system to exports. The criticisms have struck home. The Dutch, Germans, and French, have come to suspect that TTIP is a secretive stitch-up by corporate lawyers, yet another backroom deal that allows the owners of capital to game the international system at the expense of common people.

Weighty principles are at stake. The Greenpeace documents show that the EU’s ‘precautionary principle’ is omitted from the texts, while the rival “risk based” doctrine of the US earns a frequent mention. Clearly, the two approaches are fundamentally incompatible. It is a heresy in our liberal age – a sin against Davos orthodoxies – to question to the premises of free trade, but this tissue rejection of the TTIP project in Europe may be a blessing in disguise. You can push societies too far. [..] The European Commission’s Spring forecast this week has an eye-opening section on the rise of inequality. Without succumbing to the fallacy of ‘post hoc, propter hoc’, it is an inescapable fact that the pauperisation of Europe’s blue collar classes corresponds exactly with the advent of globalisation.

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Let’s sign another set of deals with them.

Turkey In Political Freefall As Erdogan Grabs More Power, PM To Resign (MEE)

News that Turkish Prime Minister Ahmet Davutoglu, after meeting President Recep Tayyip Erdogan, is to announce the holding of a party congress on Thursday, effectively signifying his resignation, has sent shockwaves through the country. The value of the Turkish Lira dropped from 2.79 to the dollar earlier in the day to 2.94. Davutoglu is expected to make the announcement at 1100am local time. After 14 years in power, the ruling Justice and Development Party (AKP) may be coming apart at the seams. But far more threatening than the unravelling of a political party are fears about the direction in which the country is headed. Both domestic and international critics have for years pointed to the growing authoritarianism and strong-man tactics employed by Erdogan. The fact that he can so easily dismiss the prime minister, a man he rapidly promoted through the ranks, is sending shivers down the spines of many.

“This is a palace coup,” said Yusuf Kanli, a veteran commentator on Turkish politics. “The president wanted the prime minister to step down and that’s it. Now we will have a party convention in May or early June,” Kanli told Middle East Eye. Rumours of tensions within the party have been rife for almost a year, but not even the AKP’s worst enemies had imagined a split could occur on such a scale. Unconfirmed reports suggest the AKP will convene a party congress within 60 days and that Davutoglu will not stand as a candidate. “Events today show that the AKP will move to consolidate Erdogan’s aspirations of becoming a super president. Whether they will succeed remains to be seen. These are very fine political calculations,” Kanli said. The party congress elects the party chairman, who automatically becomes their choice for prime minister.

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Now confirmed by another study.

Study: Bailouts Went To Banks, Only 5% To Greeks (Hand.)

After six years of ongoing bailouts amounting to more than €220 billion, or $253 billion in loans, Greece just cannot get out of crisis mode. It is tempting to blame those who refused to reform the country’s pensions and labor markets for the latest calamity. But a study by the European School of Management and Technology, a copy of which Handelsblatt has obtained exclusively, gives another perspective. The aid programs were badly designed by Greece’s lenders, the ECB, the EU and the IMF. Their priority, the report says, was to save not the Greek people, but its banks and private creditors. This accusation has been around for a long time. But now, for the first time, the Berlin-based ESMT has compiled a detailed calculation over 24 pages.

Their economists looked at every individual loan instalment and examined where the money from the first two aid packages, amounting to €215.9 billion, actually went. Researchers found that only €9.7 billion, or less than 5% of the total, ended up in the Greek state budget, where it could benefit citizens directly. The rest was used to service old debts and interest payments. The report comes as the EU and the Greek government prepare to hold negotiations about further debt relief. E.U. Economics Commissioner Pierre Moscovici said he hoped all sides could reach an agreement at a special meeting of the Eurogroup of euro-zone finance ministers next Monday. Extensions of credit repayment periods, deferments and freezing interest rates are all being discussed. This “debt relief light” would not affect private investors – just the loans from Europeans.

At the moment, German Chancellor Angela Merkel and her colleagues are not inclined to listen to the Greek prime minister, Alexis Tsipras, as he asks for a new multi-billion euro aid package. It is easy to understand why. The chancellor must feel she has seen it all before. She has experienced many near state bankruptcies since early 2010 when she put together the first bailout for Greece. But Jörg Rocholl, president of the European School of Management and Technology said that his institute’s research shows that the biggest problem lies with the way the bailout packages were designed in the first place. “The aid packages served primarily to rescue European banks,” he said. For example, €86.9 billion were used to pay off old debts, €52.3 billion went on interest payments and €37.3 billion were used to recapitalize Greek banks.

Of course, the servicing of debts and interest payments is a major source of expenditure in any state budget – so the Greek state did benefit from it indirectly, as it had also spent the loan money beforehand. But the new calculations do throw doubts on whether the aid programs were sensibly constructed: The loans were used to service debt, although Greece has been de facto bankrupt since 2010.

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Apart form the obvious human tragedy, I don’t know why, but nobody talks about this being the end of the tar sands industry. That’s a real possibility, though. Nearly all workers live in the town. And so oil prices are up a bit for the moment.

The Terrible News From Fort McMurray, And The Hope That Remains (G&M)

On Monday, residents of Fort McMurray watched anxiously as wildfires burned southwest of the northern Alberta city. Fort Mac’s streets are carved out of the boreal forest at the spot where the Clearwater River flows into the Athabasca. Backyards in the residential neighbourhoods in the west and northwest run up against walls of pine and spruce. Forest fire is always a threat, but on Monday the smoke and flames appeared to be far enough away to allow for hope that the city was safe. On Tuesday, the worst happened. The winds came up and the wildfires flanked the city. The two oldest residential developments, Abasands and Beacon Hill, have been decimated. Thickwood, Timberlea and Parsons Creek, the newest and by far the largest residential developments, where there are modern schools and shopping malls and a beautiful ravine park, were on the verge of being overrun by the flames.

The destruction by fire of an entire Canadian city of more than 80,000 people is suddenly a possibility. Fort McMurray is a remarkable place. People from across Canada and the world have built lives there. In grocery stores, you’ll find halal meats displayed alongside cod tongues. Muslim and Christian children mix easily at the new Roman Catholic high school. Fort Mac is often maligned as a transient, wild west town and a symbol of oil extraction at all costs, but it is in fact a tolerant, diverse and progressive city – a very Canadian boomtown. Not perfect, but doing its best to be a durable home for oil sands workers in spite of the capriciousness of oil prices, the isolation and the long winters.

The focus now is on the logistics of caring for 89,000 evacuees – a staggering challenge. Government officials at all levels and in all provinces, along with private industry and the many native bands around Fort McMurray, are offering aid. Residents are safe and, miraculously, no one has been reported killed or injured. But many, or even perhaps all, may not have homes to return to.

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Temperature anomalies keep spreading.

‘Omega Block’ Behind Searing Heat Inflaming Fort McMurray Wildfire (WaPo)

Unseasonably hot weather in Alberta, Canada, is fueling the worst wildfire disaster in the country’s history. An extreme weather pattern, known as an omega block, is the source of the heat. An omega block is essentially a stoppage in the atmosphere’s flow in which a sprawling area of high pressure forms. This clog impedes the typical west-to-east progress of storms. The jet stream, along which storms track, is forced to flow around the blockage. At the heart of the block in Canadian’s western provinces, the air is sinking and much warmer than normal. Such a clog can persist for days until the atmosphere’s flow is able to break it down and flush it out.

Centers of storminess form on both sides of the block, and the resulting jet stream configuration takes on the likeness of the Greek letter omega. In this case, cool and unsettled weather is affecting the eastern Pacific Ocean and eastern North America, including much of the U.S. East Coast. As the Fort McMurray wildfire rapidly spread Tuesday, temperatures surged to 90 degrees (32 Celsius), shattering the daily record of 82 degrees set May 3, 1945. Dozens of other locations in Alberta also had record high temperatures. More records are likely to fall today. Temperatures are forecast to climb well into the 80s today at Fort McMurray, about 30 degrees warmer than normal. The average high is in the upper 50s.

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This is very far from over.

UN Envoy Warns of New Wave of 400,000 Refugees From Syria (WSJ)

A top United Nations official warned of a new tide of refugees from Syria if world powers didn’t succeed in calming an outbreak of hostilities in and around the northern Syrian city of Aleppo. Staffan de Mistura, the U.N.’s special envoy for Syria, said after meeting with European diplomats and Syrian opposition officials Wednesday that the priority in moving forward with a peace process for Syria was to stop the fighting around what was once Syria’s most populous city. “The alternative is truly quite catastrophic,” Mr. de Mistura said. “We could see 400,000 people moving toward the Turkish border.” The talks in Berlin centered on ways to return to talks in Geneva on Syria’s political future. The opposition’s High Negotiations Committee, headed by Riad Hijab, pulled out of those talks on April 18 as a cessation of hostilities agreed to in February disintegrated.

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