Oct 212018
 


Pablo Picasso Harlequin and woman with necklace 1917

 

The Global Dollar Shortage is Here – And It’s Becoming A Big Problem (Palisade)
The Party’s Far From Over For The US Economy, As GDP Will Show (MW)
Trump, Europeans Call Saudi Account Of Khashoggi Death Inadequate (R.)
Trump Says US Will Pull Out Of Nuclear Arms Deal With Russia (AFP)
Social Security Does Not Add To The Federal Deficit (F.)
PM Tsipras Says EU Approved Greek Budget Without Pension Cuts (R.)
700,000 March To Demand A Final Say On Brexit (Ind.)
Series Of Small Earthquakes Detected Near UK Fracking Site (G.)
Facebook Shareholders Call For Zuckerberg To Be Kicked Out As Chairman (Ind.)
What Has Google Ever Done for Us? (Varoufakis)

 

 

More dollars borrowed globally than the Fed ever issued. And now it issues fewer.

The Global Dollar Shortage is Here – And It’s Becoming A Big Problem (Palisade)

The credit market – in my opinion – is indicating an inevitable ‘crunch’ coming up. And even worse – we’re seeing the global dollar shortage deepening. [..] Personally – I think this may be the trigger that kicks off a brutal, worldwide, financial crisis. . . For instance – just look at what’s happened with Emerging Markets because of a tightening Federal Reserve, a stronger dollar, and drying liquidity. Don’t forget – a dollar shortage is synonymous with disappearing liquidity. Which means we can expect more violent and sudden market crashes to occur – just like we saw over the last two weeks.

Stock markets (and bond markets) around the world took big losses. The only thing that really outperformed was gold. The fear of rising ‘real’ U.S. interest rates and slowing economic growth (especially from China) is making investors rethink their positions. Not to mention the cost of borrowing short-term dollars via LIBOR (aka London Interbank Offered Rate) is indicating aggressive financial tightening. Take a look at the 3-month U.S. dollar LIBOR rate – it just had its biggest one day jump since late May. And even more startling – it’s now at its highest level since 2008.

So what does this mean? Well – it’s indicating that the short-term borrowing of dollar denominated debt’s getting very expensive. And investors – especially overseas – are finding it harder and costlier to get their hands-on U.S. dollars. This isn’t a big surprise – but what’s making me worried is just how costly and scarce these dollars are becoming. . . Corporations worldwide borrowing dollars for business operations. And even ordinary citizens with mortgages and credit cards (which are mostly driven by LIBOR) will face higher interest payments.

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Ahead of the tariffs kicking in, imports and exports rose. There’s a time lag here.

The Party’s Far From Over For The US Economy, As GDP Will Show (MW)

The official scorecard for the economy, known as gross domestic product, will be released Friday. While economists polled by MarketWatch predict a 3% increase in third-quarter GDP, some estimates such as the Atlanta Federal Reserve’s “Nowcast” are closer to 4%. A few big wild cards are in play. The U.S. trade deficit shrank in the second quarter, for instance, but it looks set to expand in the third quarter. How come? Many American companies in the spring hastened to export soybeans and other goods to China and elsewhere before U.S. and retaliatory foreign tariffs kicked in. Exports have since declined.

At the same time, imports have risen to a record high. Americans are better off than they’ve been in years and they can afford to buy more imported goods. The strong dollar also makes foreign products cheaper. Businesses, for their part, ramped up production in the summer and restocked warehouse shelves. An increase in inventories boosts GDP, but it’s a herky-jerky statistic that’s always hard to predict. “Trade will be a significant drag [on GDP], but inventories will add to growth,” said Richard Moody, chief economist at Regions Financial.

More importantly, though, Americans kept spending. They almost certainly didn’t spend as much as they did in the spring, but they still spent a lot. Consumer spending accounts for some 70% of U.S. economic activity. If GDP generates the biggest headlines, the real story of where the economy is headed can be seen through the monthly tally on new orders for long-lasting products. These “durable” goods include new cars, appliances, computers, furniture and such. In any case, the economy cannot grow rapidly in the long run and generate a higher standard of living absent strong investment.

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Trump takes a viewpoint. Then takes a step back, and then another one. Negotiating. It all looks completely different when you’re trying to figure out what’s going on than when your opinion is already made up.

Now people are saying Trump’s in Saudi pockets. The same people who said he’s in Putin’s pockets. So which is it? Both? And does everyone involved know this?

Trump’s been hammered on entirely false topics -Russiagate- for far too long for the hammerers to pull back now and move to the real ones. Dangerous.

Trump, Europeans Call Saudi Account Of Khashoggi Death Inadequate (R.)

U.S. President Donald Trump joined European leaders on Saturday in pushing Saudi Arabia for more answers about Jamal Khashoggi after Riyadh changed its story and acknowledged that the journalist died more than two weeks ago at its consulate in Istanbul. Saudi Arabia said early on Saturday that Khashoggi, a critic of the country’s de facto ruler Crown Prince Mohammed bin Salman, had died in a fight inside the building. Germany called that explanation “inadequate” and questioned whether countries should sell arms to Saudi Arabia, while France and the European Union urged an in-depth investigation to find out what happened to the Washington Post columnist after he entered the consulate on Oct. 2 for documents for his marriage.

Turkish officials suspect Khashoggi, a Saudi national and U.S. resident, was killed inside the consulate by a team of Saudi agents and his body cut up. The Khashoggi case has caused international outrage and frayed political and business ties between Western powers and U.S. ally Saudi Arabia, the world’s No.1 oil exporter. Asked during a trip to Nevada if he was satisfied that Saudi officials had been fired over Khashoggi’s death, Trump said: “No, I am not satisfied until we find the answer. But it was a big first step, it was a good first step. But I want to get to the answer.” In an interview with the Washington Post, Trump said that “obviously there’s been deception, and there’s been lies.”

Trump’s comments about the Khashoggi incident in recent days have ranged from threatening Saudi Arabia with “very severe” consequences and warning of economic sanctions, to more conciliatory remarks in which he has played up the country’s role as a U.S. ally against Iran and Islamist militants, as well as a major purchaser of U.S. arms.

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Bolton. Time for Trump and Putin to meet again.

Trump Says US Will Pull Out Of Nuclear Arms Deal With Russia (AFP)

President Donald Trump confirmed Saturday that the United States plans to leave a Cold War-era nuclear weapons treaty with Russia, which criticized the move as Washington’s latest effort to be the sole global superpower. Trump claims Russia has long violated the three-decade-old Intermediate-Range Nuclear Forces Treaty, known as the INF, was signed in 1987 by president Ronald Reagan and Mikhail Gorbachev. But a foreign ministry source told the RIA Novosti state news agency that Washington’s “main motive is a dream of a unipolar world,” one that won’t be realized.

“We’re the ones who have stayed in the agreement and we’ve honored the agreement, but Russia has not unfortunately honored the agreement, so we’re going to terminate the agreement and we’re going to pull out,” Trump told reporters in Elko, Nevada. “Russia has violated the agreement. They’ve been violating it for many years. I don’t know why president (Barack) Obama didn’t negotiate or pull out. And we’re not going to let them violate a nuclear agreement and go out and do weapons (while) we’re not allowed to.”

Trump spoke as his National Security Advisor John Bolton was set to meet next week with Russia’s Foreign Minister Sergei Lavrov, ahead of what is expected to be a second summit between Trump and Russian leader Vladimir Putin this year. Bolton was also set to meet with Security Council Secretary Nikolai Patrushev and Putin aide Yuri Ushakov. Kremlin spokesman Dmitry Peskov said a “possible meeting” was being prepared between Putin and Bolton. The Trump administration has complained of Moscow’s deployment of 9M729 missiles, which Washington says can travel more than 310 miles (500 kilometers), and thus violate the INF treaty.

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So there. But in 15 years it’ll be broke.

Social Security Does Not Add To The Federal Deficit (F.)

This is not a political column, it’s a push back on the political distortion of legal and math facts about Social Security. Recently political leaders, such as the Senate leader Mitch McConnell, as Michael Hiltzik writes in the LA Times, are gunning to cut Social Security benefits to reduce the federal deficit. But Social Security can’t, by law, add to the federal deficit. Medicare and Medicaid can, but not Social Security. Social Security is self-funded. It is correct to say that Congress added to the deficit, not Social Security . The deficit rose substantially because of the 2017 tax cut, which reduced total revenue by 5% and revenue from corporate taxes by 35%.

And because it must balance its books Social Security is prudently funded. It collects revenue and saves for expected costs. Currently, Social Security has a $2.8 trillion trust fund built up by the boomer generation paying more in taxes than needed to pay current benefits. The trust fund is a vital way workers save for retirement. With tax revenues and earnings and principal from the trust fund Social Security is estimated to be solvent until 2034. After that, if it doesn’t get more revenue Social Security will only pay 77% of promised benefits. Social Security can’t add to the deficit because it pays for itself. If revenue falls short, benefits are cut.

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Why am I thinking someone will say not a chance?! Or is it ‘give the dog a bone’?

PM Tsipras Says EU Approved Greek Budget Without Pension Cuts (R.)

The European Union’s executive has approved Greece’s first post-bailout budget without requiring the implementation of legislated pension cuts, the country’s prime minister said on Saturday. “The European Commission approved the Greek budget without pension cuts after eight years of austerity,” Alexis Tsipras said, calling the development a “success”. The country’s third international bailout program ended in Augusts. The government aims to outperform on primary surplus targets for a fifth straight year to be in a position to avoid implementing painful austerity measures agreed with creditors.

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You’ll need more people, and do it every week, and then every day.

700,000 March To Demand A Final Say On Brexit (Ind.)

The crowds stretched so far back that plenty of people never even made it to the rally. Masses overflowed through the streets of London for more than a mile, from Hyde Park Corner to Parliament Square, as an estimated 670,000 protesters took their demand for a fresh Brexit referendum right to Theresa May’s doorstep. They came from every corner of the UK, in what is believed to be the largest demonstration since the Iraq War march in 2003, when more than a million people turned out in the capital to oppose the conflict.

Amid the swathes of EU flags and banners, there was also a growing sense that campaigners, MPs and activists were realising, perhaps for the first time, that this was a battle that could be won. “We were the few, and now we are the many,” Tory MP Anna Soubry told the crowds crammed into Parliament Square. “We are winning the argument and we are winning the argument most importantly against those who voted Leave.” She said: “We will not walk away. We will take responsibility and sort out this mess with a people’s vote.”

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After two days?! Promising!

Series Of Small Earthquakes Detected Near UK Fracking Site (G.)

A series of small earthquakes have been detected in Lancashire close to the site where fracking operations began this week. The British Geological Survey (BGS), which provides impartial advice on environmental processes, recorded four tremors in the vicinity of the energy firm Cuadrilla’s site on Preston New Road near Blackpool on Friday. Fracking was stopped in 2011 after two earthquakes, one reaching 2.3 on the Richter scale, were triggered in close proximity to the site of shale gas test drilling. A subsequent report found that it was highly probable that the fracking operation caused the tremors. On Monday Cuadrilla began drilling again after campaigners lost a high court legal challenge.

The BGS said: “Since hydraulic fracturing operations started at Preston New Road, near Blackpool, we have detected some small earthquakes close to the area of operations. “This is not unexpected since hydraulic fracturing is generally accompanied by micro-seismicity. The Oil and Gas Authority (OGA) has strict controls in place to ensure that operators manage the risk of induced seismicity. “All of the earthquakes detected at Preston New Road so far are below the threshold required to cease hydraulic fracturing.” One of Friday’s tremors measured 0.3, the level beyond which the BSG says hydraulic fracking should proceed with caution. Tremors above 0.5 would force operations to cease.

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Facebook has much bigger issues than who gets to play chairman.s

Facebook Shareholders Call For Zuckerberg To Be Kicked Out As Chairman (Ind.)

Mark Zuckerberg’s strong control over Facebook has come under question after several high-profile investors called for him to step down as chairman of the company. The shareholder proposal follows a series of controversies and scandals at the technology firm, including large-scale data breaches and accusations that the social network has become a platform for misinformation campaigns and political propaganda. State and city treasurers from Illinois, Rhode Island and Pennsylvania joined the New York City Pension Funds and Trillium Asset Management in requesting the Facebook board of directors to make the role of chairman an independent position. “Doing so is best governance practice that will be in the interest of shareholders, employees, users, and our democracy,” the filing states.

The proposal cites Facebook’s “mishandling” of “severe controversies,” including how the social network was used to manipulate the 2016 US presidential elections through Russian troll farms, and the sharing of data with Chinese device manufacturers like Huawei. According to the shareholders, Facebook’s governance structure puts investors at risk and should fall in line with other major tech firms like Google, Microsoft and Apple in having separate CEO and chairperson roles. “Facebook plays an outsized role in our society and our economy. They have a social and financial responsibility to be transparent – that’s why we’re demanding independence and accountability in the company’s boardroom,” said New York City Comnptroller Scott Stringer.

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A fresh take on something Varoufakis first mentioned a few years ago in the first -Greek- version of his book Talking to my Daughter About the Economy: make Big Tech partly public companies.

What Has Google Ever Done for Us? (Varoufakis)

When James Watt built one of his famed steam engines, it was his creation, his product. A buyer who put the engine to work in, say, a textile factory could think of his profit stream as a just reward for having taken the risk of purchasing the machine and for the innovation of coupling it to a spinning jenny or a mechanical loom. By contrast, Google cannot credibly argue that the capital generating its profit stream was produced entirely privately. Every time you use Google’s search engine to look up a phrase, concept, or product, or visit a place via Google Maps, you enrich Google’s capital. While the servers and software design, for example, have been produced capitalistically, a large part of Google’s capital is produced by almost everyone.

Every user, in principle, has a legitimate claim to being a de facto shareholder. Of course, while a substantial part of Big Tech’s capital is produced by the public, there is no sensible way to compute personal contributions, which makes it impossible to calculate what our individual shares ought to be. But this impossibility can be turned into a virtue, by creating a public trust fund to which companies like Google transfer a percentage – say, 10% – of their shares. Suddenly, every child has a trust fund, with the accumulating dividends providing a universal basic income (UBI) that grows in proportion to automation and in a manner that limits inequality and stabilizes the macro-economy.

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Oct 102018
 


Paul Klee Angelus Novus 1920 (see last article)

 

Trump “Doesn’t Like What The Fed Is Doing” (ZH)
Chinese Yuan Could Reach A Record Low Against The Dollar (MW)
China’s (Non-Government) Business Survey Collapses As Trade War Strikes (ZH)
Chinese Firms Now Hold Stakes In Over A Dozen European Ports (NPR)
UK Public Finances Are Among Weakest In The World – IMF (G.)
IMF Warns Italy Not To Breach EU Spending Rules In Next Budget (G.)
Bank of England Warns EU Over Brexit Risk To Financial Stability (G.)
One Good Thing About Brexit: Leaving Disgraceful EU Farming System (Monbiot)
UK Fracking Rules On Earthquakes Could Be Relaxed (G.)
Shell CEO: Mass Reforestation Needed To Limit Temperature Rises To 1.5C (G.)
Florida Panhandle Bracing for Category 4 Hit from Michael (WU)
The Emergency Brake (Sperber)

 

 

Sorry, but I see nothing other than Trump reaffirming the Fed’s independence.

Trump “Doesn’t Like What The Fed Is Doing” (ZH)

With the dollar spiking and rates surging to 7 years highs, President Trump doubled down on his criticism of the Fed and on his way to a rally in Iowa, said the Federal Reserve is moving too fast with interest rates increases, dismissing concerns about inflation. “I don’t like what the Fed is doing”, Trump told reporters at the White House. “I think we don’t have to go as fast” on rate hikes. “I like low interest rates,” Trump said. Trump also said that rates are too high because there’s no inflation, but said that he has not talked to Chair Powell about it because he doesn’t want to get involved. Trump’s comments echoed prior criticisms of the Fed.

When the Fed announced its third increase of the year in September, Trump said he was “not happy” about it. Trump has publicly criticized the Fed’s interest-rate increases on several occasions, breaking with more than two decades of White House tradition of avoiding comments on “independent” monetary policy. Some commented that this is another sly move by the president to preemptively shift blame on the Fed chair ahead of what may be a turbulent 2019 when rates are expected to keep rising, potentially resulting in a sharp slowdown in the economy and/or a stock market crash.

Separately, hours after Nikki Haley announced her departure as US ambassador to the UN, Trump said he would consider Goldman’s Dina Powell for the post. “Dina is certainly a person I would consider,” Trump told reporters at the White House on the way to board the presidential helicopter as he embarked on a trip to Iowa. But he added there are others he would also consider. Earlier CNBC reported that Dina Powell, a Goldman Sachs exec and Trump’s former deputy national security advisor, has had discussions with senior members of the administration about possibly replacing Nikki Haley as U.S. ambassador to the United Nations.

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Manipulation?

Chinese Yuan Could Reach A Record Low Against The Dollar (MW)

The pressure on China’s currency continues to mount as the world’s second-largest economy shows more signs of slowing and traders bet that the dollar will soon buy a record amount of yuan in the offshore market. As the country returned to work on Monday after the Golden Week holiday, the People’s Bank of China cut the Reserve Ratio Requirement, the percent of deposit liabilities owed to its customers banks are required to hold, for the fourth time this year. While that may spur banks to lend more, it sent the Chinese yuan another leg lower, moving toward its August low against the greenback and in sight of the psychological 7.00 level. A move through 7.00 would be a record low in offshore trading.

The yuan has already posted six straight monthly declines against the dollar, including a drop of 0.6% in September. The slide in the yuan comes as the economy shows more signs of slowing. A closely watched economic activity indicator, the official Purchasers Manufacturing Index, fell to 52 in September, from 52.2 in August, according to Wei Yao, an economist at Société Générale. Magnifying concerns around the Chinese economy was a steeper-than-expected drop in China’s foreign-exchange holdings during September, to $3.087 trillion. A decline in the country’s reserves raises concerns that the PBOC could not defend the yuan in should a large amount of money flee the country.

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“For most, business has never been worse.”

China’s (Non-Government) Business Survey Collapses As Trade War Strikes (ZH)

As China returns from its Golden Week vacation, it is not just its currency and stock market that is collapsing… As Bloomberg reports, an indicator produced by a Beijing-based business school in the style of the closely-watched purchasing managers index plunged last month, adding to concerns about the slowing economy and raising the question of whether business conditions may be worse than official statistics show. The index is based on a survey of CKGSB students and graduates who are executives at companies operating in China. The respondents represent around 300 privately-owned small and mid-sized enterprises across several sectors of the economy.

“Most surveyed companies are now experiencing unprecedented difficulties and have become increasingly pessimistic about business prospects for the next six months,” Li Wei, the economics professor at CKGSB who oversees the survey, said in a commentary accompanying the September survey results. “For most, business has never been worse.”

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Next up: military presence?

Chinese Firms Now Hold Stakes In Over A Dozen European Ports (NPR)

In the past decade, Chinese companies have acquired stakes in 13 ports in Europe, including in Greece, Spain and, most recently, Belgium, according to a study by the OECD. Those ports handle about 10 percent of Europe’s shipping container capacity. It is part of China’s 21st Century Maritime Silk Road, which aims to better connect the country to commercial hubs in Africa, Asia, Europe and Oceania. China is the European Union’s biggest source of imports and its second-largest export market, adding up to more than $1 billion in trade per day. And sea shipping outweighs rail or air freight. But this is about more than just moving cargo, analysts say. President Xi Jinping’s new silk road, named after the ancient trade route, has sped up China’s advance toward becoming a superpower of the seas, spreading not just commercial ships but naval power and influence to more and more areas of the world.

For instance, Chinese investments in the ports of Djibouti, Sri Lanka and Pakistan have been followed by Chinese naval deployments. While there are no public plans to turn European ports into Beijing’s military bases, Chinese warships have already paid a friendly visit to Greece’s Piraeus port. This all raises a slew of questions about issues ranging from military defense to labor conditions. “The main issue is for Europe to decide how it wants to deal with China’s influence,” says Frans-Paul van der Putten, a China expert at the Netherlands Institute of International Relations. “What degree of China’s influence is unavoidable and acceptable especially in sectors such as ports?”

[..] COSCO, with the world’s fourth-largest container shipping fleet, is leading the charge in Europe, beginning with Piraeus. In 2016, after years of investment, the company bought a majority stake in the Piraeus Port Authority in a concession agreement that runs until at least 2052. It is now in charge of container terminals, cruise ship piers and ferry quays. “A few years ago, when COSCO first became involved in Greece, the European view was it was good because Greece was in a lot of financial difficulties and at least someone wanted to invest there,” van der Putten says. “Piraeus was not a top-ranking port. People in Brussels thought it wouldn’t have a lot of significance.”

Today, about 20 million passengers go through Piraeus each year. Since COSCO’s takeover, it has become the fastest-growing port in the world, according to the industry news outlet Seatrade Maritime. COSCO’S chief executive in Piraeus, Capt. Fu Cheng Qui, says he wants to make it the largest in the Mediterranean.

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“corporation liabilities from zero in 2007 to 189% of GDP in 2008..”

UK Public Finances Are Among Weakest In The World – IMF (G.)

Britain’s public finances are among the weakest in the world following the 2008 financial crash, according to a fresh assessment of government assets and liabilities by the IMF. The Washington-based lender said a health check on the wealth of 31 nations found almost £1tn had been wiped off the wealth of the UK’s public sector – equivalent to 50% of GDP – putting it in the second weakest position, with only Portugal in a worse state. In calculations that combine measures of wealth and stress tests that mimic those applied to the banking sector, the IMF said the bailout of UK banks and the growth of Britain’s public sector pension liabilities were significant factors in the UK’s low ranking.

The tests are an effort by the IMF to show the balance of assets and liabilities in relation to a nation’s overall income to judge how well governments are prepared for economic shocks. Norway ranked as the most secure nation with a war chest built on its publicly held oil wealth, in contrast to the UK, which allowed private sector companies to extract North Sea oil reserves and spent the tax revenues during the 1980s and 1990s. The Gambia, Uganda and Kenya rank above the UK because while they have smaller assets and liabilities than Britain, they have a higher net wealth relative to GDP.

Cruder measures taking a snapshot of a country’s assets and liabilities showed Italy and Greece, which were excluded from the broader tests, fared worse than the UK. Barbados was another country with a lower rating. But most other countries were in a better position relative to their national income, the IMF said. [..] The report said: “The United Kingdom balance sheet expanded massively during the crisis. Most of the expansion in the balance sheet was the result of large-scale financial sector rescue operations that resulted in reclassification of the rescued private banks into the public sector. [This] increased (non–central bank) public financial corporation liabilities from zero in 2007 to 189% of GDP in 2008, with similar [falls] in financial assets.”

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Austerity still rules. Sovereignty, not so much.

IMF Warns Italy Not To Breach EU Spending Rules In Next Budget (G.)

The International Monetary Fund has thrown its weight behind Brussels in its battle with Italy’s coalition government over plans to increase the indebted country’s borrowing in its next budget. The Washington-based lender of last resort, which is holding its annual conference in Bali this week, warned Rome to abide by the EU’s financial rulebook or risk a rebellion by investors that could trigger a debt default. Italy’s populist coalition is targeting a deficit of 2.4% of GDP next year, tripling the previous government’s target, as it pledges more spending despite a huge debt pile, which at about 130% of GDP is the biggest in the eurozone behind Greece.

Brussels has rejected the idea of Italy running a larger budget deficit – the gap between income from taxes and government spending – than previously planned over the next three years. Rome is due to submit its draft budget by 15 October to the EU commission, the bloc’s executive arm, which will check whether it is in line with EU rules. The government has said it wants to use a spending boost to kickstart investment and consumer spending to fuel growth. The IMF’s chief economist, Maurice Obstfeld, said it was important to maintain the confidence of international money markets, especially when the risks of an escalating trade war and a damaging no-deal Brexit were rising.

The IMF’s intervention could prove significant while both sides seek allies in the budget battle as it is considered an important ally by governments as they seek to persuade electorates that debt-fuelled spending could lead to a collapse in confidence and rising borrowing costs. Obstfeld said EU rules that prevented governments adding to already sky-high levels of debt to GDP should be maintained in the current unstable economic climate.

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Only £70 trillion in derivatives?!

Bank of England Warns EU Over Brexit Risk To Financial Stability (G.)

The Bank of England has issued its strongest warning yet to the EU that its lack of adequate planning for Brexit has created growing risks for almost £70tn of complex financial contracts. Threadneedle Street said the bloc had made only limited progress to protect the financial system and time was running out, with little more than six months before the UK is due to leave the EU. Stressing the urgency of the situation in a statement from its financial policy committee, the Bank said: “In the limited time remaining, it is not possible for companies on their own to mitigate fully the risks of disruption to cross-border financial services.”

Without action, the contracts governing the financial derivatives – currently sold across the UK-EU border by banks to companies looking to protect themselves from movements in interest rates and changes in global markets – could be rendered illegal the moment Britain leaves, it warned. EU firms have about £69tn of outstanding derivatives contracts that are handled through a process known as “clearing” in the UK, while as much as £41tn mature after Britain exits the EU in March 2019. In a corner of the finance industry worth more than three times the overall value of the EU economy, the process of clearing derivatives involves banks organising their trades through a central third-party organisation – known as a clearing house – which takes on the risk of either party defaulting.

Clearing has become increasingly important since the financial crisis as the EU introduced rules forcing banks to trade greater volumes via clearing houses, with the idea of improving transparency and to avoid the confusion of banks going bust with complex webs of contracts with multiple parties – as was the case in 2008. EU-authorised clearing houses must handle EU banks’ trades, but UK organisations such as the London Stock Exchange’s LCH handle the bulk of business and could fall outside the rules in the event of a hard Brexit. As much as 90% of EU firms’ interest rate swaps – one of the most common types of financial derivative – are cleared in the UK.

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Don’t think I’ve ever understood how this got so out of hand.

One Good Thing About Brexit: Leaving Disgraceful EU Farming System (Monbiot)

I’m a remainer, but there’s one result of Brexit I can’t wait to see: leaving the EU’s common agricultural policy. This is the farm subsidy system that spends €50bn (£44bn) a year on achieving none of its objectives. It is among the most powerful drivers of environmental destruction in the northern hemisphere. Because payments are made only for land that’s in “agricultural condition”, the system creates a perverse incentive to clear wildlife habitats, even in places unsuitable for farming, to produce the empty ground that qualifies for public money. These payments have led to the destruction of hundreds of thousands of hectares of magnificent wild places across Europe.

It is also arguably the most regressive transfer of public money in the modern world. Farmers are paid by the hectare for owning or using land; so the more you have, the more you get. While in the UK benefits for poor people are capped at £20,000 (outside London), these benefits for the rich are uncapped. Some landowners receive £1m or more. You don’t even have to live in the EU to take this money: you just have to own land here. Among the benefit tourists sucking up public funds in the age of austerity are Russian oligarchs, Saudi princes and Texas oil barons.

It is hard to discern any just principle behind an occupational qualification for receiving public money. Some farmers are poor, but seldom as poor as rural people who have no land, no buildings and no jobs. Why should one profession be supported when others aren’t? Yet even farmers have been hurt by these payments. European subsidies have helped turn farmland into a speculative honeypot, making it highly attractive to City financiers. The price of land has more than doubled since payments by the hectare were introduced, pushing it out of reach of most farmers. By reinforcing economies of scale, these subsidies have driven out small farmers and accelerated the consolidation of land ownership.

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Craziest headline in ages.

UK Fracking Rules On Earthquakes Could Be Relaxed (G.)

Rules designed to halt fracking operations if they trigger minor earthquakes could be relaxed as the shale industry begins to expand, the UK energy minister, Claire Perry, has said. A series of small tremors seven years ago prompted tough regulations that mean even very low levels of seismic activity now require companies to suspend fracking. The shale gas firm Cuadrilla plans to start fracking near Blackpool this week if it can see off a last-minute legal challenge on Thursday. If seismic sensors detect anything above 0.5 magnitude on the Richter scale – far below what people can feel at the surface – the company would have to stop and review its operations.

But Perry has told a fellow Conservative MP that the monitoring system was “set at an explicitly cautious level … as we gain experience in applying these measures, the trigger levels can be adjusted upwards without compromising the effectiveness of the controls”. The comments were made in a letter to Kevin Hollinrake, the MP for Thirsk and Malton, whose constituency has several prospective fracking sites. The letter was obtained by Greenpeace’s investigative unit, Unearthed. Hollinrake, who is pro-fracking if it can be done safely, told the Guardian: “We’d need to be very careful about any revision to the regulations put in place. I’d want to understand why we were doing that and take plenty of evidence. We certainly wouldn’t want to see those rules being relaxed now.”

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Or close down your business?

Shell CEO: Mass Reforestation Needed To Limit Temperature Rises To 1.5C (G.)

The boss of Shell has said a huge tree-planting project the size of the Amazon rainforest would be needed to meet a tougher global warming target, as he argued more renewable energy alone would not be enough. Ben van Beurden said it would be a major challenge to limit temperature rises to 1.5C (equivalent to a rise of 2.7F), which a landmark report from the UN’s climate science panel has said will be necessary to avoid dangerous warming. “You can get to 1.5C, but not by just by pulling the same levers a little bit harder, because they are being pulled roughly as fast and and as hard as we are currently imagining. What we think can be done is massive reforestation. Think of another Brazil in terms of rainforest: you can get to 1.5C,” he told an oil and gas industry audience in London.

“It’s not what some people sometimes think: we’ll just do a little bit more solar, a bit more wind and we’ll get there,” he added. Reforestation is seen as essential in the scenarios outlined this week by the UN’s intergovernmental panel on climate change, if the world is to restrict warming to 1.5C. But Van Beurden stressed that meeting the challenge would be an uphill battle, because while it was “technically about doable”, it would not be commercially viable without changes to government policies and regulation. “Already to get to less than 2C will be [a] quite unimaginable, unprecedented scale of collaboration. Getting to 1.5C is a major challenge on top of it,” he said.

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Florida Panhandle has never seen a Cat 4 storm make landfall since records began 167 years ago.

Florida Panhandle Bracing for Category 4 Hit from Michael (WU)

Just hours away from an expected Wednesday afternoon landfall, Hurricane Michael became ever stronger and more organized on Tuesday night over the eastern Gulf of Mexico. Michael’s high winds, torrential rain, and very large storm surge were pushing briskly toward the Florida Panhandle and the Big Bend region just to the east, the areas in line to experience the worst impacts. Update (2 am EDT Wednesday): Michael has been upgraded to Category 4 strength as of 2 am EDT, with top sustained winds of 130 mph. Some additional strengthening is possible before landfall.

Satellite images of Michael’s evolution on Tuesday night were, in a word, jaw-dropping. A massive blister of thunderstorms (convection) erupted and wrapped around the storm’s eye, which has taken taking a surprisingly long time to solidify. A layer of dry air several miles above the surface being pulled into Michael from the west may have been one of the factors that kept Michael from sustaining a classic, fully closed eyewall (see embedded tweet below). A closed eyewall is normally a prerequisite for a hurricane to intensify robustly, but somehow Michael managed to reach Category 3 status without one.

[..] If Michael reaches the coast with top winds of at least 130 mph (minimal Category 4 strength), it will be the strongest hurricane landfall ever recorded in the Florida Panhandle, as well as along most of Florida’s Gulf Coast—all the way from the Alabama border to Punta Gorda—in records going back to 1851.

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See the painting at the top of this Debt Rattle.

The Emergency Brake (Sperber)

Because we seem to be living through a stretch of history in which history is threatening to extinguish history itself, an examination of the 20th century philosopher and critic Walter Benjamin’s concept of the angel of history, and his interrelated notion of the emergency brake, may point to a way. Evoked by the Swiss artist Paul Klee’s watercolor Angelus Novus, Benjamin introduced the figure of the angel of history in his final essay, “Theses on the Philosophy of History.”Appearing with its face “turned toward the past,” hurtling backward through space by “a storm blowing from paradise,” the angel is unable to close its wings and determine its own movement. Overpowered by this storm, it can do little more than watch impotently as catastrophic wreckage (the manifestation of history and progress) piles up at its feet.

That is, caught in the storm blowing from paradise, the storm of history is preventing the angel from doing what it desires to do. But just what does it desire? As Benjamin writes: the angel “would like to stay, awaken the dead, and make whole what is smashed.” Although prevented from doing so by the storm of progress that determines (and undermines) its flight, the angel’s utopian desire is to repair the world – not in order to restore paradise (a longstanding tendency of utopian messianism), but, rather, to restore life and autonomy to a social world destroyed by the coercive and destructive forces of history and ideology. While the angel desires this, however, the ecocidal storm (the bulldozer of progress, as the Supreme Court Justice William O. Douglas phrased the world-ravaging forces of history and technology) is far too powerful.

This is where the messianic notion of the emergency brake enters the picture – rupturing history and releasing its utopian essence. As Benjamin famously put it in his essay’s paralipomena; “Marx said that revolutions are the locomotive of world history. But perhaps things are very different. It may be that revolutions are the act by which the human race traveling in the train applies the emergency brake.” That is, the emergency brake would stop the “bulldozer of progress,” would cut off the ecocidal storm of history, and thereby allow the revolutionary potential of the angel (and humanity) to realize itself.

Read more …

Jul 232018
 


René Magritte Man in a bowler hat 1964

 

Martyrs to the Cause: Carter Page and Julian Assange (Raimondo)
British Assassination Campaign Targeting Russian Exiles? (SCF)
The Burden Of Proof Is On The Russiagaters (CJ)
Russian Hysteria An Exercise In PsyOps (Kunstler)
Liquidity Crisis: Tesla Asks Suppliers For “Cash Back” (ZH)
Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival.
How The Fracking Revolution Broke OPEC’s Hold On Oil Prices (Rapier)
Less Than 20% Of US Apartments Affordable For Middle-Income Black Renters (MW)
China Probes Stainless Steel Imports From Indonesia, EU, Japan And Korea (R.)
The World’s Largest Megacities By 2100 (ZH/VC)
Earth’s Resources Consumed In Ever Greater Destructive Volumes (G.)
Crop Failure And Bankruptcy Threaten Farmers As Drought Grips Europe (G.)

 

 

“Assange is, in short, the greatest journalist of our time..”

Martyrs to the Cause: Carter Page and Julian Assange (Raimondo)

Assange was granted sanctuary due to Rafael Correa, then the President of Ecuador: unfortunately, Correa’s successor – one Lenin Moreno – has caved to pressure from the US and Britain, and it looks like Assange is going to be handed over to the British imminently. What happens next is anybody’s guess, but my own view is that there has indeed been a grand jury secretly deliberating his case, and charges will be made public: which means Assange will be sent to America, and to an uncertain fate. Uncertain due to the Supreme Court decision in the Pentagon Papers case, in which the Supremes ruled that the First Amendment protects journalists who report facts that may embarrass or otherwise inconvenience the government.

In other circumstances, and in an earlier era, his fate would not be uncertain, it would be sealed. After all, WikiLeaks has revealed more US government secrets than any single individual or state adversary in history. One after another the revelations came – a US helicopter gunship gunning down Iraqi civilians, the entire secret diplomatic history of the US, complete with original documents and references, the methodology of hi-tech US surveillance on ordinary Americans, and the list goes on and on. Assange is, in short, the greatest journalist of our time – and so naturally the rest of the profession hates his guts, and is calling for his head.

The reasons for this should be clear enough: the Russia-gate mythology, a matter of faith for the Fourth Estate, characterizes Assange as one of its chief demons. He is, in their fake-expert phraseology, a Russian “asset,” Putin’s puppet, who deprived Hillary Clinton of her rightful due and “stole” the 2016 presidential election on behalf of Donald Trump.

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Since the narrative is not based on any evidence whatsoever, we can simply turn it upside down.

British Assassination Campaign Targeting Russian Exiles? (SCF)

For its part, the Russian government has always categorically denied any involvement in the ill-fate of nationals living in exile in Britain. On the Skripal case, Moscow has pointed out that the British authorities have not produced any independently verifiable evidence against the Kremlin. Russian requests for access to the investigation file have been rejected by the British. On the Litvinenko case, Russia has said that the official British inquiry was conducted without due process of transparency, or Russia being allowed to defend itself. It was more trial by media. A common denominator is that the British have operated on a presumption of guilt. The “proof” is largely at the level of allegation or innuendo of Russian malfeasance.

But let’s turn the premise of the argument around. What if the British state were the ones conducting a campaign of assassination against Russian émigrés, with the cold-blooded objective of using those deaths as a propaganda campaign to blacken and criminalize Russia? In a recent British media interview Russia’s Foreign Minister Sergei Lavrov was typically harangued over alleged Russian malign activity in Britain. Lavrov rightly turned the question around, and said that the Russian authorities are the ones who are entitled to demand an explanation from the British state on why so many of its nationals have met untimely deaths. The presumption of guilt against Russia is based on a premise of Russophobia, which prevents an open-minded inquiry.

If an open mind is permitted, then surely a more pertinent position is to ask the British authorities to explain the high number of deaths in their jurisdiction. As ever, the litmus-test question is: who gains from the deaths? In the case of the alleged attempted assassination of Sergei Skripal and his daughter, would Russia risk such a bizarre plot against an exile who had been living in Britain undisturbed for 10 years? Or would Britain gain much more from smearing Moscow at the time of President Putin’s re-election in March, and in the run-up to the World Cup?

The more recent alleged nerve-agent poisoning of two British citizens – Charlie Rowley and Dawn Sturgess – in the southern English town of Amesbury revived official anti-Russia accusations and public fears over the earlier Skripal incident in nearby Salisbury. The Amesbury incident in early July occurred just as a successful World Cup tournament in Russia was underway. It also came ahead of US President Donald Trump’s landmark summit with Vladimir Putin in Helsinki. Again, who stands to gain most from these provocative events? Russia or Britain?

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This is how it should be done.

The Burden Of Proof Is On The Russiagaters (CJ)

As we’ve discussed previously, in a post-Iraq invasion world the confident-sounding assertions of spies, government officials and media pundits is not sufficient evidence for the public to rationally support claims that are being used to escalate dangerous cold war tensions with a nuclear superpower. The western empire has every motive in the world to lie about the behaviors of a noncompliant government, and has an extensive and well-documented history of doing exactly that. Hard, verifiable, publicly available proof is required. Assertions are not evidence.

But even if there wasn’t an extensive and recent history of disastrous US-led escalations premised on lies advanced by spies, government officials and media pundits, the burden of proof would still be on those making the claim, because that’s how logic works. Whether you’re talking about law, philosophy or debate, the burden of proof is always on the party making the claim. A group of spies, government officials and media pundits saying that something happened in an assertive tone of voice is not the same thing as proof. That side of the Russiagate debate is the side making the claim, so the burden of proof is on them. Until proof is made publicly available, there is no logical reason for the public to accept the CIA/CNN Russia narrative as fact, because the burden of proof has not been met.

[..] There are many Russiagate skeptics who have been doing copious amounts of research to come up with other theories about what could have happened in 2016, and that’s fine. But in a way this can actually make the debate more confused, because instead of leaning back and insisting that the burden of proof be met, you are leaning in and trying to convince everyone of your alternative theory. Russiagaters love this more than anything, because you’ve shifted the burden of proof for them. Now you’re the one making the claims, so they can lean back and come up with reasons to be skeptical of your argument.

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“I think that the thinking class in the United States has literally lost its mind.”

Russian Hysteria An Exercise In PsyOps (Kunstler)

The media over the last few years has indulged in wild speculation around U.S.-Russian relations. And as seen, the run up to this weeks meeting at Helsinki between the leaders of the two nations has been no different. James believes the ongoing Russia investigation, the election of Donald Trump and the defeat of Hillary Clinton has made a certain class of people in the U.S. irrational. “I think that the thinking class in the United States has literally lost its mind. Donald Trump’s persona is so odious that it’s just driven them mad and he’s like a giant splinter in the eye of the thinking class.”

A registered Democrat, Kunstler doesn’t believe that the Russians interfered in the U.S. election in any meaningful way. And any efforts to punish or antagonize them are crazy and dangerous. The ongoing expansion of NATO, playing war games at Russia’s borders and the destabilizing of Ukraine has consolidated bad relations with Russia stretching back to the Cold War. History repeats itself tragically when the thinking classes of powerful nations start to behave extremely irrationally. “Doing anything to interfere with trade and erect barriers and put up tariffs might be a dangerous thing to do,” says Kunstler.

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Boy, what a story.

Liquidity Crisis: Tesla Asks Suppliers For “Cash Back” (ZH)

According to a memo seen by The Wall Street Journal that was sent to a supplier last week, Tesla said it is asking its suppliers for cash back to, drumroll, help it become profitable, as if that is somehow the priority of the company’s suppliers. And we are not talking about a few cents here and there: Tesla requested the supplier return what it calls a meaningful amount of money of its payments since 2016. But wait, it gets better: the memo which was sent by a global supply manager (who will probably be fired shortly), described the request as “essential to Tesla’s continued operation” and characterized it as an investment in the car company to continue the long-term growth between both players.

In other words, Tesla has given its vendors an ultimatum: give us a haircut, or else we won’t survive, and not only is your business with us over, but all those billions in payables we owe you, well, good luck with the other pre-petition claims in bankruptcy court. Or as one Tesla skeptic noted on twitter: “TSLA has been cranking out cars 24/7 at 2-3x the rate they can deliver them, turning supplier parts on credit into finished goods. Then they turn around and “ask” for a cash back so they don’t default on said suppliers. Y’all just got played.” For those wondering how much money Tesla owes its suppliers, or “ransom” as it is now better known, the answer is $2.6 billion and rising exponentially.

As the WSJ further adds, “while Tesla said in the memo that all suppliers were being asked to help it become profitable, it is unclear how many were asked for a discount on contracted spending amounts retroactively.” While Tesla did not comment on the memo, it spun the situation as standard industry practice (it isn’t) confirming it is seeking price reductions from suppliers for projects, some of which date back to 2016, and some of which final acceptance many not yet have occurred. The company called such requests a standard part of procurement negotiations to improve its competitive advantage, especially as it ramps up Model 3 production. Odd that Tesla did not consider all these aspects of its business when it signed contracts which laid out, very clearly, what its obligations were.

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Why still austerity in Greece?

Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival.

Ramón Rivera had barely gotten his olive oil business started in the sun-swept Algarve region of Portugal when Europe’s debt crisis struck. The economy crumbled, wages were cut, and unemployment doubled. The government in Lisbon had to accept a humiliating international bailout. But as the misery deepened, Portugal took a daring stand: In 2015, it cast aside the austerity measures its European creditors had imposed, igniting a virtuous cycle that put its economy back on a path to growth. The country reversed cuts to wages, pensions and social security, and offered incentives to businesses. The government’s U-turn, and willingness to spend, had a powerful effect. Creditors railed against the move, but the gloom that had gripped the nation through years of belt-tightening began to lift. Business confidence rebounded. Production and exports began to take off — including at Mr. Rivera’s olive groves.

“We had faith that Portugal would come out of the crisis,” said Mr. Rivera, the general manager of Elaia. The company focused on state-of-the-art harvesting technology, and it is now one of Portugal’s biggest olive oil producers. “We saw that this was the best place in the world to invest.” At a time of mounting uncertainty in Europe, Portugal has defied critics who have insisted on austerity as the answer to the Continent’s economic and financial crisis. While countries from Greece to Ireland — and for a stretch, Portugal itself — toed the line, Lisbon resisted, helping to stoke a revival that drove economic growth last year to its highest level in a decade. The renewal is visible just about everywhere. Hotels, restaurants and shops have opened in droves, fueled by a tourism surge that has helped cut unemployment in half.

In the Beato district of Lisbon, a mega-campus for start-ups rises from the rubble of a derelict military factory. Bosch, Google and Mercedes-Benz recently opened offices and digital research centers here, collectively employing thousands. Foreign investment in aerospace, construction and other sectors is at a record high. And traditional Portuguese industries, including textiles and paper mills, are putting money into innovation, driving a boom in exports. “What happened in Portugal shows that too much austerity deepens a recession, and creates a vicious circle,” Prime Minister António Costa said in an interview. “We devised an alternative to austerity, focusing on higher growth, and more and better jobs.”

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How long for?

How The Fracking Revolution Broke OPEC’s Hold On Oil Prices (Rapier)

A decade ago, in the summer of 2008, the price of West Texas Intermediate (WTI) crude was racing toward $150 a barrel. Over the previous three years, and despite strong demand growth, the world had only increased oil production by 1.2 million BPD, and it essentially all came from OPEC. Many analysts, including me, were extremely concerned about the future hold OPEC would maintain over the world’s oil supplies. It appeared that there would an enormous transfer of wealth from those countries dependent upon oil imports – like the United States – to OPEC countries. In many cases, these countries have interests that are hostile to those of the U.S., so this was very much an issue of national security.

But the future played out differently than it seemed it would in the summer of 2008. Unbeknownst to most people, oil producers were experimenting with a marriage between two established oil drilling technologies — horizontal drilling and hydraulic fracturing. The success of this marriage would unlock oil in tight oil and shale oil deposits that had previously been too expensive to recover, and would result in one of the greatest oil booms the world had ever seen. In fact, the “fracking revolution” caused U.S. oil production to turn upward in 2009, and then rise over the next seven years at the fastest rate in U.S. history.

While it is still true that OPEC still produced 42.6% of the world’s oil in 2017, the majority of new oil production since 2008 has come from the U.S. Of the 10.3 million BPD of new oil production since 2008, the U.S. supplied 6.2 million BPD (60%). The world’s two other major oil-producing countries, Saudi Arabia and Russia, saw their production increase by 1.7 million BPD and 1.2 million BPD respectively since 2008. OPEC overall increased its production by 3.6 million BPD since 2008, primarily as a result of production growth in Saudi Arabia, Iraq, and Iran. But OPEC’s gains were limited by production declines in Venezuela, Libya, and Nigeria. There were also regional production declines in Europe, Asia, Africa, and South and Central America.

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What happens if you use cheap credit to make your zombie economy look alive.

Less Than 20% Of US Apartments Affordable For Middle-Income Black Renters (MW)

Millions of Americans rent because they can’t afford to buy. And many of those people struggle to pay the rent, new research suggests, more so if they are African-American or Hispanic. A renter who earned $39,647 per year, the median black household income in the U.S., could afford just 16.2% of rentals available on Zillow if they kept their housing costs below 30% of their pretax income, according to a new analysis from the real-estate company. Hispanic renters fared somewhat better: Those who earned the median household income could afford 27.3% of rentals before they risked spending more than a third of their pretax income on housing.

Spending 30% of your gross income on rent is the traditional measure of affordability used by many real-estate experts. Comparatively, white renters who earned the median household income for their demographic could afford 49.7% of rentals, while Asian renters could afford 67.4%. “Perhaps more so than any other factor, income determines where and how we live in the United States today,” said Zillow senior economist Aaron Terrazas in the report. “Income disparities across racial and ethnic groups in the United States have remained stubbornly persistent and, as a result, black and Hispanic families encounter far fewer affordable rental options than white and Asian families,” he said.

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More tariffs?

China Probes Stainless Steel Imports From Indonesia, EU, Japan And Korea (R.)

China on Monday launched an anti-dumping probe into stainless steel imports worth $1.3 billion, including from a privately owned Chinese mill with operations offshore, after complaints that a flood of product has damaged the local industry. The Commerce Ministry said on Monday the investigation will target imports of stainless steel billet and hot-rolled stainless steel sheet and plate from the European Union, Japan, South Korea and Indonesia, which nearly tripled last year. The move follows a complaint by Shanxi Taigang Stainless Steel with backing from four other state-owned mills including Baosteel’s stainless steel division, which blamed cheap imports on falling prices, it said.

China makes and consumes around half of the world’s stainless steel, which is used to protect against corrosion in buildings, transportation and packaging. While the complaint targets eight foreign producers, it also lists a number Chinese companies, including the Indonesian unit of one of the world’s top producers, Tsingshan Stainless Steel, and 19 traders who import product. Some private Chinese companies have opened or started building plants in Indonesia in recent years, drawing on its plentiful nickel resources and lower-cost of production. A significant portion of the new production has been sold in China, analysts say.

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At least a little scary.

The World’s Largest Megacities By 2100 (ZH/VC)

Throughout the course of human history, the biggest cities have always seemed impossibly large. For many millennia, it was almost unfathomable for a city to sustain more than 1 million residents. In fact, as Visual Capitalist’s Jeff Desjardins notes, it wasn’t until the 19th century that the largest cities globally, such as London and Beijing, were able to consistently hold populations beyond that impressive mark. Despite this, in the modern era, we’ve quickly discovered that a city of 1 million people isn’t remarkable at all. In China alone, there are now over 100 cities with a million people today – and as such, our mental benchmark for what we consider to be a “big city” has changed considerably from past times.

Just like a city the size of modern Tokyo was hard to imagine for someone living in the 19th century, it can be an extremely difficult thought experiment for us to visualize what future megacities will look like. Researchers at the Global Cities Institute have crunched the numbers to provide us with one view of the potential megacities of the future, extrapolating a variety of factors to project a list of the 101 largest cities in the years 2010, 2025, 2050, 2075, and 2100.

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The Overshoot theme is shaky, but not fully devoid of meaning.

Earth’s Resources Consumed In Ever Greater Destructive Volumes (G.)

Humanity is devouring our planet’s resources in increasingly destructive volumes, according to a new study that reveals we have consumed a year’s worth of carbon, food, water, fibre, land and timber in a record 212 days. As a result, the Earth Overshoot Day – which marks the point at which consumption exceeds the capacity of nature to regenerate – has moved forward two days to 1 August, the earliest date ever recorded. To maintain our current appetite for resources, we would need the equivalent of 1.7 Earths, according to Global Footprint Network, an international research organisation that makes an annual assessment of how far humankind is falling into ecological debt.

The overshoot began in the 1970s, when rising populations and increasing average demands pushed consumption beyond a sustainable level. Since then, the day at which humanity has busted its annual planetary budget has moved forward. Thirty years ago, the overshoot was on 15 October. Twenty years ago, 30 September. Ten years ago, 15 August. There was a brief slowdown, but the pace has picked back up in the past two years. On current trends, next year could mark the first time, the planet’s budget is busted in July. While ever greater food production, mineral extraction, forest clearance and fossil-fuel burning bring short-term (and unequally distributed) lifestyle gains, the long-term consequences are increasingly apparent in terms of soil erosion, water shortages and climate disruption.

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Record highs everywhere.

Crop Failure And Bankruptcy Threaten Farmers As Drought Grips Europe (G.)

Farmers across northern and central Europe are facing crop failure and bankruptcy as one of the most intense regional droughts in recent memory strengthens its grip. States of emergency have been declared in Latvia and Lithuania, while the sun continues to bake Swedish fields that have received only 12% of their normal rainfall. The abnormally hot temperatures – which have topped 30C in the Arctic Circle – are in line with climate change trends, according to the World Meteorological Organization. And as about 50 wildfires rage across Sweden, no respite from the heatwave is yet in sight. Lennart Nilsson, a 55-year-old cattle farmer from Falkenberg near Malmo and co-chair of the Swedish Farmers Association, said it was the worst drought he had experienced.

“This is really serious,” he said. “Most of south-west Sweden hasn’t had rain since the first days of May. A very early harvest has started but yields seem to be the lowest for 25 years – 50% lower, or more in some cases – and it is causing severe losses.” If no rain comes soon, Nilsson’s association estimates agricultural losses of up to 8bn Swedish kronor (£700m) this year and widespread bankruptcies. The drought would personally cost him around 500,000 kronor (£43,000), Nilsson said, adding that, like most farmers, he is now operating at a loss. The picture is little different in the Netherlands, where Iris Bouwers, a 25-year-old farmer, said the parched summer had been a “catastrophe” for her farm.

“Older families around me are comparing this to 1976,” she said. “My dad can’t remember any drought like this.” The Bouwerses expect to lose €100,000 this year after a 30% drop in their potato crop. After investing in a pig stable over the winter, the family have no savings to cover the loss. Asked what she would do, Bouwers just laughed. “Hope and pray,” she said. “There is not much more I can do. I wouldn’t talk about bankruptcy yet, but our deficit will be substantial. It probably means we need to have a very good talk with the bank.”

Read more …

Apr 152018
 
 April 15, 2018  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  19 Responses »


 

Russia Claims OPCW Manipulated Skripal Findings (AFP)
To Opt Out Of Facebook’s Tracking, I’m Going To Have To Join Facebook (Wired)
Tesla Is The Worst Car Manufacturer In The Developed World (F.)
New Lawsuit Alleges Musk Knowingly Lied About Model 3 Production (ZH)
Subprime Stages Comeback As ‘Non-Prime’ (CNBC)
247,977 Stories In The Vacant City (NYDN)
Judge Rules Exxon Can’t Stop Probe Into Whether They Lied For Decades (Ind.)
World May Hit 2ºC Warming in 10-15 Years Thanks to Fracking (NC)
‘There Is No Such Thing As Past Or Future’ (G.)
Time is Elastic (Rovelli)

 

 

Curiouser. You’d think Russia doesn’t just make up an entire Swiss lab.

Russia Claims OPCW Manipulated Skripal Findings (AFP)

Moscow on Saturday accused the chemical weapons watchdog of manipulating the results of its investigation into the poisoning of a former Russian spy, saying his samples had traces of a nerve agent used by the west. Britain says former double agent Sergei Skripal and his daughter Yulia were last month targeted with a nerve agent of the novichok family, which was developed in the Soviet Union. The attack shredded ties between Russia and Britain and led to a crisis in relations between Moscow and the west including a huge wave of tit-for-tat diplomatic expulsions. The Organisation for the Prohibition of Chemical Weapons has said it confirmed “the findings of the United Kingdom relating to the identity of the toxic chemical” without naming the substance involved.

On Saturday, Russia’s foreign minister, Sergei Lavrov, claimed the UN-linked Organisation for the Prohibition of Chemical Weapons (OPCW) had sent the Skripals’ biomedical samples to Swiss experts who found they contained traces of the nerve agent BZ, used by the west. “According to the results of the examination, the samples had traces of toxic chemical BZ and its precursors,” Lavrov said, citing what he said was “confidential information”. “Russia and the USSR never developed such chemical substances,” he said. “In this regard we are asking the OPCW why the information which reflected the conclusions of specialists from the Spiez laboratory was completely omitted from the final document.”

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Not a discussion we should leave up to Facebook. Or Congress.

To Opt Out Of Facebook’s Tracking, I’m Going To Have To Join Facebook (Wired)

Now I know what you’re thinking. What kind of person has never been on Facebook? I’d like to tell you it was all about privacy, but the truth is, I just had a bad feeling about it. You see, I went to Cambridge, so I was one of the first to get the chance to join what you insist on calling your “community.” And almost instantly, it was clear that it turned people into wankers. (Bigger wankers. This was Cambridge, after all.) If I remember correctly, in the early days everyone was desperate to have a higher friend count. Then it was obsessive tagging in photos. Yes, even in its earliest days, your system brought out the worst in people.

It’s not easy, not being on Facebook. At first, it was the parties. At a certain point, people stopped sending email invites. They just assumed you were on Facebook – and, if you weren’t, you didn’t find out. I’m 35 now, so I don’t get invited to parties, unless they’re for small children. Instead, I miss out on work, because I can’t contact people or share my articles. When you finally make journalism pivot to Facebook Groups, I’ll be completely screwed. I considered joining many times. But every time I aired the thought, I got the same reaction: “Don’t! It’s the worst!” I wasn’t sure if I remembered this correctly, so I called a few people to check. All agreed: they hate your service, but they have to use it, because everyone else does. (One person objected. She works in your London office.)

Every other social network, even Twitter, has a core of fans that genuinely wish it well. You’re the sole exception. Then I got into tech, and privacy, and data protection, and I learned that you were throttling internet freedoms in developing countries, and letting random strangers see your users’ most intimate details, so I started becoming one of those paranoid people who uses a VPN all the time, and puts a scrap of torn-off Post-It note on their laptop camera. Just like you! But you probably knew all this about me anyway. Which brings me back to my question. In your testimony to Congress, you said: “Anyone can turn off or opt out of any data collection for ads, whether they use our services or not.”

But, as you should know, while that’s possible for someone on Facebook, for me, a non-Facebook user, it’s not. Your illegal trackers follow me across 30 per cent of the internet, building a “shadow profile” you store in a nonanonymised format in your “Hive” analysis database. You claim to do it “for security purposes” (let me tell you, if Facebook’s security requires you to surveil the world’s population, then you have made a desert and called it peace). But reporters – and people who used to work in your advertising team – say the information is collected to improve the friend suggestions you’ll give me in case I do ever sign up. It’s one more growth hack on a whole site of them.

What can I do to stop you? I’ve installed tracker blockers on my browser, but, since you killed the media business, a lot of my favourite sites make me disable them. And your trackers work in the apps on my phone. Unless I go full tin-foil hat (and it’s tempting), you’ve basically left me with one option. To opt out of Facebook’s tracking, I’m going to have to join Facebook. So yeah: fuck you. Because, of course, this is exactly your plan. Forcing people onto Facebook is what you’re all about.

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“..that is a terrible way to produce a consumer product, and a terrible way to generate returns for shareholders.”

Tesla Is The Worst Car Manufacturer In The Developed World (F.)

I visited my first auto plant in 1992, and have been fortunate enough to visit plants in most countries where cars are made. I have seen workers sleeping under half-finished bodies in Brazil, seen employees trying to make doors fit by using rubber hammers at a now-closed Ford facility in New Jersey and, noted, that, yes, they do have beer in the vending machines at many German auto factories. To see a rack of die castings sitting outside exposed to the weather at a facility that is, according to Google Maps, 10.7 miles away from the actual Tesla assembly facility in Fremont is just mind-boggling. Tesla is the worst car manufacturer in the developed world. Bar none. Note that I didn’t write “designer” or “marketer,” but manufacturer.

Musk had zero auto industry experience when founding Tesla and CTO J.T. Straubel—who according to Tesla’s 10-K filing personally holds Tesla’s important patents—developed a love for electric vehicles by rebuilding golf carts. It’s just astounding to me that the markets are affording a $50 billion valuation to a company that can’t perform the most basic task for which it was incorporated. Famed VW purchasing chief José Ignacio López de Arriortúa famously walked into a plant and repeatedly pointed at boxes of yet-to-be-used parts and yelled the word “capital.” When capital is tied up in byzantine manufacturing processes that stunts the development of cash flow. It’s all connected. This is why Tesla has such dire cash flow problems.

This is why I believe—sorry, Elon—Tesla is going to have to issue equity this year. My favorite automotive mantra is “quality is designed in.” That’s the most damning piece of information in the CNBC article, actually, more damning than the pictures of parts racks. Here is the quote: “Current and former employees from the company’s Fremont, Calif. and Sparks, Nevada factories blame Tesla for spending less time to vet suppliers than is typical in auto manufacturing. These people said the company failed to comprehensively test “variance specs” with some vendors before embarking on Model 3 production.”

Tesla has cut corners in building up to current production, and published reports this week indicated Tesla was alerting suppliers of an incredibly fast 19-month design-to-job one timetable on the upcoming Model Y crossover. So, it would seem corner-cutting is continuing, and that is a terrible way to produce a consumer product, and a terrible way to generate returns for shareholders.

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He better hope he wins this one.

New Lawsuit Alleges Musk Knowingly Lied About Model 3 Production (ZH)

A new securities class action lawsuit filed in late March 2018, which names Elon Musk as a defendant, alleges that the Tesla CEO knew that the Model 3 was not going to be able to be produced as the rates he claimed – and that the company was not going to be able to meet production goals due to – get this – the production lines not even being assembled. The lawsuit alleges that this didn’t prevent Elon Musk from going out and telling the investing public otherwise, hence the allegation of securities fraud. First, the allegation that Musk was told by his own employees that the Model 3 couldn’t be mass produced by the end of 2017, which was the company’s stated goal.

Then, after claiming in May 2017 that the company was “on track” to meet its mass production goal, it’s alleged the company hadn’t even finished building its production lines, clearly meaning it wasn’t “on track”. The lawsuit alleges that Musk knew the line was “way behind”. The suit alleges that the company was building Model 3’s by hand at a “pilot shop” at the same time Tesla claimed to be on track for “mass production”; it also claims that it was “evident to anyone who visited the facility” – including Elon Musk – that the line wasn’t built and that “construction workers were spending most of their shifts sitting around with nothing to do”. We also read in the lawsuit that Tesla’s Gigafactory, at the time in question, was allegedly capable of producing only one battery pack per day – and that the production of one battery pack took “two shifts” to complete.

The suit alleges that the company’s former CFO, Jason Wheeler – who is one of more than 50 key executives and VPs to have left the company over the last half decade or so – told Elon Musk personally that they wouldn’t be able to mass produce by the end of 2017. The entire lawsuit is available at this link and some of the most interesting content was first shared by critics of the company on Twitter. The drumbeat of accountability for Elon Musk continues to pound louder and louder as each day progresses, with some analysts calling for the SEC to investigate him if the company doesn’t meet its stated cash flow positive and “no capital raise” guidance for the back end of 2018.

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Got to find the last sucker.

Subprime Stages Comeback As ‘Non-Prime’ (CNBC)

They were blamed for the biggest financial disaster in a century. Subprime mortgages – home loans to borrowers with sketchy credit who put little to no skin in the game. Following the epic housing crash, they disappeared, due to strong, new regulation, and zero demand from investors who were badly burned. Barely a decade later, they’re coming back with a new name — nonprime — and, so far, some new standards. California-based Carrington Mortgage Services, a midsized lender, just announced an expansion into the space, offering loans to borrowers, “with less-than-perfect credit.” Carrington will originate and service the loans, but it will also securitize them for sale to investors.

“We believe there is actually a market today in the secondary market for people who want to buy nonprime loans that have been properly underwritten,” said Rick Sharga, executive vice president of Carrington Mortgage Holdings. “We’re not going back to the bad old days of ninja lending, when people with no jobs, no income, and no assets were getting loans.” Sharga said Carrington will manually underwrite each loan, assessing the individual risks. But it will allow its borrowers to have FICO credit scores as low as 500. The current average for agency-backed mortgages is in the mid-700s. Borrowers can take out loans of up to $1.5 million on single-family homes, townhomes and condominiums.

They can also do cash-out refinances, where borrowers tap extra equity in their homes, up to $500,000. Recent credit events, like a foreclosure, bankruptcy or a history of late payments are acceptable. All loans, however, will not be the same for all borrowers. If a borrower is higher risk, a higher down payment will be required, and the interest rate will likely be higher. “What we’re talking about is underwriting that goes back to common sense sort of practices. If you have risk, you offset risk somewhere else,” added Sharga, while touting, “We probably are going to have the widest range of products for people with challenging credit in the marketplace.”

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It’s not about people, it’s about money. Fundamental flaw.

247,977 Stories In The Vacant City (NYDN)

There’s a hidden city in the five boroughs. Though its permanent population is zero, it is growing faster than any other neighborhood. Early numbers from the Census Bureau’s Housing and Vacancy Survey show the unoccupied city has ballooned by 65,406 apartments since 2014, an astonishing 35% jump in size in the three years since the last survey. Today, 247,977 units — equivalent to more than 11% of all rental apartments in New York City — sit either empty or scarcely occupied, even as many New Yorkers struggle to find an apartment they can afford. The Vacant City — let’s call it that, with a tip of the hat to the 1948 movie and old TV series “Naked City” — has tripled in 30 years.

A generation ago, there were just 72,051 apartments in the Vacant City. Back in 1987, when rents were cheap by today’s standards at a median $395 a month, the Vacant City made up less than 4% of rental apartments. Today, the median rent is $1,450, having risen twice as fast as inflation, even while the Vacant City tripled in size. The numbers just don’t add up the way conventional wisdom said they should. For years, development officials, the real estate industry and think tanks have told us that artificially low rents are holding the city back. Higher rents, the argument went, would free landlords to make a reasonable amount of money and serve as an incentive to increase the housing supply.

The new Census gleanings finally put the lie to that reasoning. We have higher prices for sure — but the only part of the city’s residential real estate that has grown is the Vacant City. More apartments are being held off the market than ever. Some remain vacant for legitimate reasons. Almost 28,000 of those unused units have been rented or sold but not yet occupied, or are awaiting a sale. Almost 80,000 are getting renovated, 9,600 tied up in court, and 12,700 vacant because the owner is ill or elderly or simply can’t be bothered. But that still leaves more than 100,000 units — 74,945 occupied temporarily or seasonally, and 27,009 held off the market for unexplained reasons.

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Shell, Exxon, they’ve all known all along. But they have lots of power.

Judge Rules Exxon Can’t Stop Probe Into Whether They Lied For Decades (Ind.)

A Massachusetts judge has ruled that ExxonMobil cannot stop a probe into whether the oil giant misled shareholders for decades about the dangers of climate change and its impact on their business. The judge, in a Friday ruling, found that Massachusetts Attorney General Maura Healey has grounds to pursue its civil investigation into the matter even though Exxon is not technically an in-resident corporation. The judgement follows after a federal judge in New York dismissed a similar lawsuit aimed at ending the climate change probe late last month. In that lawsuit, Exxon argued that Ms Healey and her New York counterpart, Eric Schneiderman, were pursuing their climate probes in bad faith. The judge dismissed the argument as “implausible”.

“For the second time this month, Exxon’s scorched earth campaign to block our investigation has been entirely rejected by the courts. In its decision today, our state’s highest court affirmed that Exxon is subject to our laws, and that our office has authority to investigate,” Ms Healey said in a statement following the decision. “Now Exxon must come forward with the truth, what it knew about climate change, when, and what it told the world. The people of Massachusetts — and people everywhere — deserve answers.” New York and Massachusetts first began their climate change probes after news reports in 2015 found that Exxon had known for years that reducing greenhouse gas emissions is necessary to combat climate change impacts, but did not reveal those concerns to shareholders or the public.

Exxon has denied that their public policies were in any way inconsistent with what their scientists’ findings that climate change poses a serious risk to its business and to the environment.

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It’s used to be 2100. Now it’s 2030.

World May Hit 2ºC Warming in 10-15 Years Thanks to Fracking (NC)

In 2011, a Cornell University research team first made the groundbreaking discovery that leaking methane from the shale gas fracking boom could make burning fracked gas worse for the climate than coal. In a sobering lecture released this month, a member of that team, Dr. Anthony Ingraffea, Professor of Engineering Emeritus at Cornell University, outlined more precisely the role U.S. fracking is playing in changing the world’s climate. The most recent climate data suggests that the world is on track to cross the two degrees of warming threshold set in the Paris accord in just 10 to 15 years, says Ingraffea in a 13-minute lecture titled “Shale Gas: The Technological Gamble That Should Not Have Been Taken,” which was posted online on April 4.

That’s if American energy policy follows the track predicted by the U.S. Energy Information Administration, which expects 1 million natural gas wells will be producing gas in the U.S. in 2050, up from roughly 100,000 today. An average global temperature increase of 2° Celsius (3.6° Fahrenheit) will bring catastrophic changes — even as compared against a change of 1.5° C (2.7° F). “Heat waves would last around a third longer, rain storms would be about a third more intense, the increase in sea level would be approximately that much higher and the percentage of tropical coral reefs at risk of severe degradation would be roughly that much greater,” with just that half-degree difference, NASA‘s Jet Propulsion Laboratory explained in a 2016 post about climate change.

A draft report from the Intergovernmental Panel on Climate Change (IPCC), which was leaked this January, concludes that it’s “extremely unlikely” that the world will keep to a 1.5° change, estimating that the world will cross that threshold in roughly 20 years, somewhat slower than Ingraffea’s presentation concludes.

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Hawking’s successor.

‘There Is No Such Thing As Past Or Future’ (G.)

Rovelli’s work as a physicist, in crude terms, occupies the large space left by Einstein on the one hand, and the development of quantum theory on the other. If the theory of general relativity describes a world of curved spacetime where everything is continuous, quantum theory describes a world in which discrete quantities of energy interact. In Rovelli’s words, “quantum mechanics cannot deal with the curvature of spacetime, and general relativity cannot account for quanta”. Both theories are successful; but their apparent incompatibility is an open problem, and one of the current tasks of theoretical physics is to attempt to construct a conceptual framework in which they both work.

Rovelli’s field of loop theory, or loop quantum gravity, offers a possible answer to the problem, in which spacetime itself is understood to be granular, a fine structure woven from loops. String theory offers another, different route towards solving the problem. When I ask him what he thinks about the possibility that his loop quantum gravity work may be wrong, he gently explains that being wrong isn’t the point; being part of the conversation is the point. And anyway, “If you ask who had the longest and most striking list of results it’s Einstein without any doubt. But if you ask who is the scientist who made most mistakes, it’s still Einstein.”

How does time fit in to his work? Time, Einstein long ago showed, is relative – time passes more slowly for an object moving faster than another object, for example. In this relative world, an absolute “now” is more or less meaningless. Time, then, is not some separate quality that impassively flows around us. Time is, in Rovelli’s words, “part of a complicated geometry woven together with the geometry of space”. For Rovelli, there is more: according to his theorising, time itself disappears at the most fundamental level. His theories ask us to accept the notion that time is merely a function of our “blurred” human perception.

We see the world only through a glass, darkly; we are watching Plato’s shadow-play in the cave. According to Rovelli, our undeniable experience of time is inextricably linked to the way heat behaves. In The Order of Time, he asks why can we know only the past, and not the future? The key, he suggests, is the one-directional flow of heat from warmer objects to colder ones. An ice cube dropped into a hot cup of coffee cools the coffee. But the process is not reversible: it is a one-way street, as demonstrated by the second law of thermodynamics. Time is also, as we experience it, a one-way street. He explains it in relation to the concept of entropy – the measure of the disordering of things.

Entropy was lower in the past. Entropy is higher in the future – there is more disorder, there are more possibilities. The pack of cards of the future is shuffled and uncertain, unlike the ordered and neatly arranged pack of cards of the past. But entropy, heat, past and future are qualities that belong not to the fundamental grammar of the world but to our superficial observation of it. “If I observe the microscopic state of things,” writes Rovelli, “then the difference between past and future vanishes … in the elementary grammar of things, there is no distinction between ‘cause’ and ‘effect’.”

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Extract from Carlo Rovelli’s The Order of Time.

Why do things fall? Because “..the movement of things inclines naturally towards where time passes more slowly..”

Time is Elastic (Rovelli)

Reality is often very different from what it seems. The Earth appears to be flat but is in fact spherical. The sun seems to revolve in the sky when it is really we who are spinning. Neither is time what it seems to be. Let’s begin with a simple fact: time passes faster in the mountains than it does at sea level. The difference is small but can be measured with precision timepieces that can be bought today for a few thousand pounds. This slowing down can be detected between levels just a few centimetres apart: a clock placed on the floor runs a little more slowly than one on a table. It is not just the clocks that slow down: lower down, all processes are slower. Two friends separate, with one of them living in the plains and the other going to live in the mountains.

They meet up again years later: the one who has stayed down has lived less, aged less, the mechanism of his cuckoo clock has oscillated fewer times. He has had less time to do things, his plants have grown less, his thoughts have had less time to unfold … Lower down, there is simply less time than at altitude. Einstein understood this slowing down of time a century before we had clocks precise enough to measure it. He imagined that the sun and the Earth each modified the space and time that surrounded them, just as a body immersed in water displaces the water around it. This modification of the structure of time influences in turn the movement of bodies, causing them to “fall” towards each other.

What does it mean, this “modification of the structure of time”? It means precisely the slowing down of time described above: a mass slows down time around itself. The Earth is a large mass and slows down time in its vicinity. It does so more in the plains and less in the mountains, because the plains are closer to it. This is why the friend who stays at sea level ages more slowly. If things fall, it is due to this slowing down of time. Where time passes uniformly, in interplanetary space, things do not fall. They float. Here on the surface of our planet, on the other hand, the movement of things inclines naturally towards where time passes more slowly, as when we run down the beach into the sea and the resistance of the water on our legs makes us fall headfirst into the waves. Things fall downwards because, down there, time is slowed by the Earth.

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Oct 062017
 


Jean Renoir Les Grands Boulevards 1875

 

China’s Economic Boom Is About To Be Cut Short By Peak Oil (Ahmed)
A Volatility Trap Is Inflating Market Bubbles (BBG)
China Is In ‘Lock-down’ Ahead Of Its Most Important Meeting In Years (CNBC)
Bitcoin’s Rise Happened in Shadows of Finance. Now Banks Want In (BBG)
HSBC Traders Used Code Words to Trigger Front-Running (BBG)
US Rounds On Britain Over Food Quotas As Post-Brexit Trade Woes Deepen (Pol.)
Few Tears Are Being Shed In Quebec Over The Energy East Pipeline’s Demise (BBG)
Onshore Fracking To Begin In UK ‘Within Weeks’ (Ind.)
Catalan Separatists Squeezed Further as Spain Tightens Its Grip (BBG)
Apple Gave Uber ‘Unprecedented’ Access To Secret iPhone Backdoor (BI)
Tropical Storm Nate Kills 22 In Central America, Heads For US (R.)
Pesticides That Pose Threat To Humans And Bees Found In Honey (Ind.)
Tiny Pacific Island Nation Of Niue Creates Huge Marine Sanctuary (AFP)

 

 

From China’s government.

China’s Economic Boom Is About To Be Cut Short By Peak Oil (Ahmed)

A new scientific study led by the China University of Petroleum in Beijing, funded by the Chinese government, concludes that China is about to experience a peak in its total oil production as early as next year. Without finding an alternative source of ‘new abundant energy resources’ , the study warns, the 2018 peak in China’s combined conventional and unconventional oil will undermine continuing economic growth and ‘challenge the sustainable development of Chinese society’. This also has major implications for the prospect of a 2018 oil squeeze – as China scales its domestic oil peak, rising demand will impact world oil markets in a way most forecasters aren’t anticipating, contributing to a potential supply squeeze. That could happen in 2018 proper, or in the early years that follow.

There are various scenarios that follow from here – China could: shift to reducing its massive demand for energy, a tall order in itself given population growth projections and rising consumption; accelerate a renewable energy transition; or militarise the South China Sea for more deepwater oil and gas. Right now, China appears to be incoherently pursuing all three strategies, with varying rates of success. But one thing is clear – China’s decisions on how it addresses its coming post-peak future will impact regional and global political and energy security for the foreseeable future. The study was published on 19 September by Springer’s peer-reviewed Petroleum Science journal, which is supported by China’s three major oil corporations, the China National Petroleum Corporation (CNPC), China Petroleum Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC).

Since 1978, China has experienced an average annual economic growth rate of 9.8%, and is now the world’s second largest economy after the United States. The new study points out, however, that this economic growth has been enabled by “high energy consumption.” In the same period of meteoric economic growth, China’s total energy consumption has grown on average by 5.8% annually, mostly from fossil fuels. In 2014, oil, gas and coal accounted for fully 90% of China’s total energy consumption, with the remainder supplied from renewable energy sources. After 2018, however, China’s oil production is predicted to begin declining, and the widening supply-demand gap could endanger both China’s energy security and continued economic growth.

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“Zombie companies that would otherwise fail continue to be in business, refinancing at near-zero interest rates in bond markets.”

A Volatility Trap Is Inflating Market Bubbles (BBG)

A number of markets show not only elevated valuations, but also irrational behavior on the part of investors, including a suspension of traditional valuation models, an increase in trading volumes or “flipping” in the hopes of quick gains, and financial engineering. Potential bubbles can be found in emerging-market debt, technology stocks, U.S. high yield bonds, some sovereign debt, cryptocurrencies, properties — even art and collectibles. It is becoming clearer to economists and central bankers that even though we may be experiencing a long phase of growth, stretching the cycle with monetary stimulus inspired by crisis-era toolkits may be bringing several collateral effects. These include not only asset bubbles, but also a worsening of wealth inequality and a misallocation of resources.

Persistent low interest rates in the past have helped to roll forward an increasing amount of private and public debt to future generations, but this is no longer working. Economic fundamentals are different from the post-war period. Technology is deflationary. Demographics are no longer a tailwind, as there are fewer young people able to carry a higher debt burden in the future. The generation of so-called millennials is the first that will likely be poorer than their parents in the post-war period. Productivity is low as the economy suffers from hysteresis: a financial boom-bust cycle that can leave large swathes of the workforce out of the job market. The longer the debt cycle, the longer companies and workers develop business and skills in leverage-heavy sectors (e.g. finance, real estate, energy), the deeper the scars when the bust comes.

Often the misallocation is so large that low rates are necessary to keep people in their jobs: Zombie companies that would otherwise fail continue to be in business, refinancing at near-zero interest rates in bond markets.

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Xi will need drastic measures to tackle the debt disaster. But it may well be too late already.

China Is In ‘Lock-down’ Ahead Of Its Most Important Meeting In Years (CNBC)

Although the Chinese will head back to work and school on Monday, their country is expected to remain in a holding pattern ahead of a pivotal Communist Party Congress set to start later this month. “Commentators and markets rightly assume that the authorities are consumed by this transition and that all other policy matters are on the back-burner or in lock-down until after the Congress,” Freya Beamish, Pantheon Macroeconomics’ chief Asia economist, wrote in a recent note. The once-in-five-years meeting will usher in leadership changes that are likely to see incumbent President Xi Jinping extend his term and consolidate power. The coming years of Xi rule will be critical for the world’s second-largest economy as it grapples with the fallout from three decades of unbridled growth.

As Xi — the most powerful Chinese leader in decades — embarks on a new era, the meeting will review “faulty” outcomes from the economic reforms and review if China needs a new direction, said independent economist, Andy Xie. China undertook a series of market reforms in the last three decades that propelled the Communist country to the spot of the world’s second largest economy. Market watchers, however, are concerned about the nation’s debt-fueled growth, industrial overcapacity and capital outflows that may potentially spur a global economic crisis. The Communist Party has been working to steer outbound merger and acquisition activities over the last year, but major initiatives have slowed ahead of the Congress. That push is likely to pick up again in the fourth quarter, said Chunshek Chan, Dealogic’s global M&A research head.

No matter the macroeconomic concerns, the only thing on Beijing’s mind at this time is consolidating power in the country, Xie said: “It’s much more important now to strengthen the control of the Communist Party than anything else.” “The key is to have the Communist Party as a coherent organization to control everything in the society — that seems to be the case. The people at the top worry about the stability. Stability is always number one in China,” added Xie.

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“What are they going to do if bitcoin drops for a given client and they’ve given that client a ton of leverage on margin, and that client only has assets in bitcoin?”

Bitcoin’s Rise Happened in Shadows of Finance. Now Banks Want In (BBG)

At first, bitcoin was a way to make payments without banks. Now, with more than $100 billion stashed in digital currencies, banks are debating whether and how to get in on the action. Goldman Sachs CEO Lloyd Blankfein tweeted Tuesday that his firm is examining the cryptocurrency. Other global investment banks are looking into facilitating trades of bitcoin and other cryptocurrencies, according to industry consultants. Bitcoin has surged more than 300 percent this year, drawing the attention of hedge funds and wealthy individuals. “They’re clearly receiving interest from their clients, both from retail investors and on the institutional side,” said Axel Pierron, managing director of bank consultant Opimas. “It’s highly volatile, it’s highly illiquid when you need to trade large volumes, so they see the opportunity for a new asset class which would require the capability of a broker-dealer.”

But bitcoin presents Wall Street with a conundrum: How do banks that are required by law to prevent money-laundering handle a currency that’s not issued by a government and that keeps its users anonymous? The debate has played out in the open recently, with JPMorgan CEO Jamie Dimon and BlackRock CEO Larry Fink saying that bitcoin was mostly used by criminals, while Morgan Stanley chief James Gorman took a more measured stance, saying it was “more than just a fad.” On Wednesday, UBS Chairman Axel Weber, a former president of Germany’s central bank, said he was skeptical about bitcoin’s future because “it’s not secured by underlying assets.” There’s even tension within some banks. On the same day Dimon trashed bitcoin, calling it a “fraud,” his firm’s private bank hosted a panel stocked with cryptocurrency investors.

Handling bitcoin would invite scrutiny from every major U.S. regulator, according to Joshua Satten, director of emerging technologies at Sapient Consulting. “From the perspective of the U.S. Treasury, do you classify it as an asset class or a currency?” Satten said. “If banks are starting to manage and hold bitcoin for their clients, you would have the OCC and the FDIC looking at how they classify the assets on their balance sheet and how they state the assets for the portfolio of a client.” And banks need to avoid antagonizing governments that are increasingly concerned about this area. For instance, China is cracking down by shutting cryptocurrency exchanges. Then there’s the risk that stems from its high volatility and lack of correlation to other major assets. “What are they going to do if bitcoin drops for a given client and they’ve given that client a ton of leverage on margin, and that client only has assets in bitcoin?” Satten said.

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Greed.

HSBC Traders Used Code Words to Trigger Front-Running (BBG)

A group of HSBC currency traders in London and New York feverishly jumped ahead of a $3.5 billion client order after they were tipped off using the code words “my watch is off,” a U.S. prosecutor told a federal judge. The buying frenzy was launched after Mark Johnson, HSBC’s former global head of foreign exchange who the bank chose to lead the transaction, alerted the traders via phone call that was recorded, the prosecutor said Thursday in Brooklyn, New York. Johnson is on trial for fraud. After the trial recessed for the day, prosecutor Carol Sipperly told U.S. District Judge Nicholas Garaufis that the government wants the jury to hear the recordings on Friday, in which Johnson can be heard tipping off a trader in Hong Kong, a signal that she said eventually reached others on both sides of the Atlantic.

Prosecutors say Johnson and Stuart Scott, the bank’s former head of currency trading in Europe, along with these other traders, bought pounds before the transaction, collectively making the bank $8 million in illicit profit. Sipperly said the call involved Johnson, who was in New York that day, speaking to Scott who was in London, just before the Dec. 7, 2011, transaction for its client, Cairn Energy. “We actually have Mark Johnson telling Stuart Scott ‘Tell Ed my watch will be off,’” she said. “We have communications where the word ‘watch’ is used, and then within seconds, 20 seconds of ‘my watch is off,’ we have all that trading that’s been described. The word is instrumental in getting the information to the traders when it comes to their early front-running trades.”

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Things are getting messy.

US Rounds On Britain Over Food Quotas As Post-Brexit Trade Woes Deepen (Pol.)

The U.S. and other international trade heavyweights have dashed Prime Minister Theresa May’s hopes of a smooth Brexit by rejecting one of her core plans for reintegrating into global trade networks. Washington’s slap-down of Britain is the second big trade reality check for May in less than a fortnight. Only last week, the U.K.’s increasingly fragile position in trade disputes was exposed by the country’s inability to prevent new, ultra-high tariffs from the U.S. that could hit thousands of jobs in a plane factory in Northern Ireland. In a fast-developing second trade spat, Washington has teamed up with Brazil, Argentina, Canada, New Zealand, Uruguay and Thailand to reject Britain’s proposed import arrangements for crucial agricultural goods such as meat, sugar and grains after Brexit.

The fact that the U.K.’s opponents include the U.S., Canada and New Zealand is a significant setback because Britain is trying to style its former colonies as natural strategic and commercial allies after it has quit the EU. Since August, Britain and the EU have repeatedly insisted that they had reached an agreement on the terms under which Britain would buy in food from around the world after Brexit. Brussels currently negotiates all these quotas and tariffs on behalf of Britain and the 27 other EU countries jointly, but London will need to take independent control of these policies from March 2019. That creates a dilemma over how to divide up the EU’s current quota arrangements with other countries — agreed at the World Trade Organization — between the U.K. and the remaining 27. These tariff-rate quotas allow countries outside the EU to export certain goods into the bloc with reduced duties, but only up to a maximum limit.

The argument from Britain and the EU is that the rest of the world will be “no worse off” after Brexit — a key legal defense in trade disputes — if the EU’s quotas are simply reduced, and Britain takes a share of them. British Trade Minister Liam Fox told POLITICO in an interview that Britain had agreed to take a portion of the EU’s quotas based on the U.K.’s average consumption over the last three years. America and the six other big food exporters, however, wrote an unusually sharply worded letter of complaint dated September 26 to the U.K. and EU representatives at the World Trade Organization over the terms of such an arrangement. “We cannot accept such an agreement,” reads the letter, seen by POLITICO. The seven countries dispute the legal defense that the proposed post-Brexit arrangement would leave them “no worse off.”

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Transporting oil across thousands of miles just so you can sell it to Europe. Insane.

Few Tears Are Being Shed In Quebec Over The Energy East Pipeline’s Demise (BBG)

TransCanada had applied to build Energy East three years ago, seeking to open access for Western Canadian oil producers to the Atlantic Ocean for exports to Europe. It faced intense opposition in Quebec, where Premier Philippe Couillard said the C$15.7 billion ($12.5 billion) line posed a significant risk to its freshwater resources. Quebec has long required that TransCanada meet seven conditions before allowing construction of the pipeline. Among other demands, Quebec insisted that the project be subject to an environmental assessment and that TransCanada must guarantee an emergency plan in case of a spill, consult with communities including aboriginal groups along the route and ensure the project doesn’t reduce the province’s gas supply. Last month, TransCanada asked Canadian regulators for a 30-day suspension on its applications for the Energy East and Eastern Mainline projects, adding to doubt about the future of two major pipelines that the nation’s energy producers had hoped for.

The latest delay meant the writing was on the wall, Quebec Energy and Natural Resources Minister Pierre Arcand said Thursday. “We’re not the promoters of the project. The promoter made a commercial decision,” Arcand told reporters at the provincial legislature. “When they decided to suspend the project about one month ago, I thought we were inevitably going to go toward this decision.” Energy East “was supposed to cross more than 700 bodies of water,” Quebec Environment Minister David Heurtel said separately in Quebec City. “This is a project that raised a lot of questions. We were still in the process of getting answers to our questions” from the company, he said. TransCanada’s decision “is great news,” Jean-Francois Lisée, head of the separatist Parti Quebecois, the official opposition in the provincial legislature, said in Quebec City. “Quebec’s territorial integrity is no longer threatened.”

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Feels like the Middle Ages.

Onshore Fracking To Begin In UK ‘Within Weeks’ (Ind.)

Fracking for shale gas will begin in the UK within weeks, the company undertaking it for the first time has announced. Third Energy said it plans to complete five fracks in North Yorkshire before the end of 2017. The controversial technique involves injecting liquid into underground rock at high pressures in order to create cracks that release trapped gas. This is then collected and used to generate electricity. Fracking has been vocally opposed by environmental campaigners but permits to use the technique have been approved by government ministers. Alan Linn, Third Energy’s technical director, said the final sign-off needed for fracking to begin was ‘imminent’.

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Vote count to be published today?!

Catalan Separatists Squeezed Further as Spain Tightens Its Grip (BBG)

Spanish Prime Minister Mariano Rajoy convenes his cabinet on Friday as the financial and political squeeze on the separatist government in Catalonia tightens. After a week of political drama that rocked financial markets, Rajoy will meet with his ministers in Madrid as events 600 kilometers (370 miles) to the northeast in the Catalan capital Barcelona threaten to spiral still further out of control. The region’s president, Carles Puigdemont, risks economic damage and European isolation if he pushes ahead with plans to declare Catalan independence based on a referendum that breached Spain’s constitution. CaixaBank, the symbol of the region’s financial strength, may follow Banc Sabadell in abandoning Catalonia when its board meets Friday.

For his part, Rajoy and his minority government will be loathe to risk a repeat of Sunday’s scenes of police beating peaceful voters that drew international condemnation and inflamed the separatist cause. With options to quell an increasingly bitter constitutional dispute fast running out, events may come to a head on Monday. That’s when Puigdemont had sought to evaluate the result of the independence vote at a session of the regional parliament – until it was suspended by the Spanish Constitutional Court. That means Rajoy may again have to send in the police to enforce a court ruling, and Puigdemont must decide if he’s ready to again defy the law. “There will be some formula for the Catalan Parliament to convene and hold its meeting as planned,” Jordi Sanchez, who heads the most powerful group among the separatists, known as the Catalan National Assembly, said in an interview in Barcelona. “There will be a plenary session.”

As anti-independence organizers plan rallies for this weekend in Madrid and in Barcelona, Catalan separatist are seeking to avoid an immediate declaration of independence. There’s a divide in the movement’s leadership, with most leaders keen to delay that leap into the unknown to create more time for a negotiated settlement, according to two people familiar with their plans. Puigdemont’s mainstream separatist group is concerned that a move toward independence would send the economy into a tailspin, the people said. But following Sunday’s illegal referendum on secession – which the regional government said won the support of 90%t of 2.3 million voters – hardliners from the anarchist party CUP are demanding a quick break with Spain.

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What a surprise. Apple is an Uber investor.

Apple Gave Uber ‘Unprecedented’ Access To Secret iPhone Backdoor (BI)

Uber’s iPhone app has a secret backdoor to powerful Apple features, allowing the ride-hailing service to potentially record a user’s screen and access other personal information without their knowledge. The existence of Uber’s access to special iPhone functions is not disclosed in any consumer-facing information included with Uber’s app, despite giving the company direct access to features so powerful that Apple almost always keeps them off limits to outside companies. Although there is no evidence that Uber used this access to take advantage of the iPhone features, the revelation of the app’s access to privileged Apple code raises important questions for a company already under investigation for a variety of controversial business practices.

Uber told Business Insider the code was not currently being used and was essentially a vestige from an earlier version of its Apple Watch app, but it set off alarm bells among experts. “Granting such a sensitive entitlement to a third-party is unprecedented as far as I can tell, no other app developers have been able to convince Apple to grant them entitlements they’ve needed to let their apps utilize certain privileged system functionality,” Will Strafach, a security researcher who discovered the situation, told Business Insider. [..] Apple became an Uber investor through its investment in Chinese ride-hailing company Didi Chuxing. In 2016, Didi merged with Uber’s Chinese subsidiary.

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It ain’t over.

Tropical Storm Nate Kills 22 In Central America, Heads For US (R.)

Tropical Storm Nate has killed at least 22 people in Central America as it battered the region with heavy rain while heading toward Mexico’s Caribbean resorts and the US Gulf Coast where it could strike as a hurricane this weekend. Several offshore oil rigs in the Gulf of Mexico were evacuated and others had shut production ahead of the storm. In Nicaragua, at least 11 people died, seven others were reported missing and thousands had to evacuate homes because of flooding, according to the country’s vice president, Rosario Murillo. Emergency officials in Costa Rica reported that at least eight people were had been killed, including two children. Another 17 people were missing, while more than 7,000 had to take refuge from Nate in shelters.

Two youths also drowned in Honduras due to the sudden swell in a river, while a man was killed in a mud slide in El Salvador and another person was missing, emergency services said. “Sometimes we think we think we can cross a river and the hardest thing to understand is that we must wait,” Nicaragua’s Murillo told state radio, warning people to avoid dangerous waters. “It’s better to be late than not to get there at all.“ Costa Rica’s government declared a state of emergency, closing schools and all other non-essential services. Highways in the country were closed due to mud slides and power outages were also reported in parts of country, where more than 3,500 police were deployed. The National Hurricane Centre said Nate could produce as much as 51 cm (20 inches) in some areas of Nicaragua, where schools were also closed. Nate is predicted to strengthen into a Category 1 hurricane by the time it hits the US Gulf Coast on Sunday, NHC spokesman Dennis Feltgen said.

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Slow motion mass suicide.

Pesticides That Pose Threat To Humans And Bees Found In Honey (Ind.)

Three-quarters of the honey produced around the world contains nerve agent pesticides that can harm bees and pose a potential health hazard to humans, a study has shown. Scientists who tested 198 honey samples from every continent except Antarctica discovered that 75% were laced with at least one of the neonicotinoid chemicals. More than two-fifths contained two or more varieties of the pesticides and 10% held residues from four or five. Environmental campaigners responded by demanding a “complete and permanent” ban preventing any further use of neonicotinoids on farm crops in Europe. Experts called the findings “alarming”, “sobering” and a “serious environmental concern” while stressing that the pesticide residue levels found in honey generally fell well below the safe limits for human consumption.

However, one leading British scientist warned that it was impossible to predict what the long term effects of consuming honey containing tiny amounts of the chemicals might be. Dave Goulson, Professor of Biology at the University of Sussex, said: “Beyond doubt … anyone regularly eating honey is likely to be getting a small dose of mixed neurotoxins. “In terms of acute toxicity, this certainly won’t kill them and is unlikely to do measurable harm. What we don’t know is whether there are long-term, chronic effects from life-time exposure to a cocktail of these and other pesticides in our honey and most other foods.”

[..] The new research published in the journal Science could not have come at a more sensitive time in Europe. EC policymakers are right now discussing whether to make the ban permanent and more wide ranging. A total ban would have a huge impact on cereal growers in the UK. For the study, an international team of European researchers tested almost 200 honey samples from around the world for residues left by five different neonicotinoids. [..] While in most cases the levels were well below the EU safety limits for human consumption, there were exceptions. Honey from both Germany and Poland exceeded maximum residue levels (MRLs) for combined neonicotinoids while samples from Japan reached 45% of the limits.

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“This commitment is not a sacrifice, it is an investment in the certainty and stability of our children’s future..”

“..the palm-dotted island’s name in the local language means “Behold, the Coconut”..

Tiny Pacific Island Nation Of Niue Creates Huge Marine Sanctuary (AFP)

The tiny Pacific island nation of Niue on Friday announced the creation of a huge marine sanctuary, saying it wanted to stop overfishing and preserve the environment for future generations. While Niue’s landmass is only 260 square kilometres (100 square miles), its remote location about 2,400 kilometres northeast of New Zealand means it lays claim to vast tracts of ocean. The government said that 40% of its exclusive economic zone, about 127,000 square kilometres representing an area roughly the size of Greece, would be set aside for the marine sanctuary. Premier Toke Talagi said his government wanted to stop the depletion of fish stocks and give the ocean space to heal to protect the environment for the next generation.

“This commitment is not a sacrifice, it is an investment in the certainty and stability of our children’s future,” he said. “We simply cannot be the generation of leaders who have taken more than they have given to this planet and left behind a debt that our children cannot pay.” Known locally as “The Rock”, Niue was settled by Polynesian seafarers more than 1,000 years ago and the palm-dotted island’s name in the local language means “behold, the coconut”. The British explorer captain James Cook tried to land there three times in 1774 but was deterred by fearsome warriors, eventually giving up to set sail for more welcoming shores and naming Niue “Savage Island”.

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Dec 142016
 
 December 14, 2016  Posted by at 10:02 am Finance Tagged with: , , , , , , , , ,  5 Responses »


Louise Rosskam General store in Lincoln, Vermont 1940

Janet Yellen Needs To Announce Her Resignation — Not A Rate Hike (Crudele)
Stephen Roach Flags Trade, China Under Trump, Tillerson (CNBC)
Trump May Be Turning China’s $1.16 Trillion Of Treasuries Into A Weapon (F.)
China To Fine Unnamed US Automaker For ‘Monopolistic Behavior’ (R.)
Top US Spy Agency Has Not Embraced CIA Assessment On Russia Hacking (R.)
Lavrov Hints ISIS Recapture Of Palmyra Orchestrated By US (R.)
There Is More Than One Truth To Tell In The Awful Story Of Aleppo (Fisk)
How To Make A Profit From Defeating Climate Change (Carney/Bloomberg)
Greece ‘Boxed In’ as EU and IMF Fight Over Nation’s Debt Relief Plan (G.)
Tsipras To Propose To EU Leaders That IMF Be Excluded (Kath.)
Crisis Leaves Greeks Gloomiest In Europe And Beyond (R.)
Final EPA Study Confirms Fracking Contaminates Drinking Water (EW)
A Crack In Antarctica Is Forming An Iceberg The Size Of Delaware (PopSci)

 

 

“Yellen is a lame-duck chair. And Trump is going to want to cook her goose. It isn’t going to be pheasant.”

Janet Yellen Needs To Announce Her Resignation — Not A Rate Hike (Crudele)

If Janet Yellen had any class, she wouldn’t just be announcing an interest rate hike this week – she would also be offering her resignation. Yellen was appointed chair of the Federal Reserve by President Obama in 2014. While most heads of government agencies will soon be offering their resignations to President-elect Donald Trump, the Fed is not a government agency. It’s an independent entity. Which means Yellen doesn’t have to resign. Her term as chair – which makes her, perhaps, the second-most powerful person in Washington — doesn’t end until January 2018. And even then, she can hang around as a mere board member – one of 14 – until 2024. So, although Yellen and her colleagues have screwed things up, they get to keep their jobs. And boy has the Fed screwed things up — both before and since the financial crisis that started in 2007. [..]

It’s clear that Trump doesn’t like Yellen. And she hasn’t said anything nice about the incoming president or his policies either. So the two aren’t likely to get along. Yellen has shown no inclination to give up her job even though Trump has lashed out at her. “I think the Fed is being totally controlled,” Trump said during a campaign stop at the Economic Club of New York. “They’re not raising rates. And they’re being controlled politically.” Welcome to reality, Mr. Trump. The Fed lost its independence four decades ago. And you’ll be trying to control it soon. Yellen has hit back at Trump, saying that his pledge to spend $1 trillion on infrastructure to help the economy was dangerous. She said that after Trump spent that much money, there “is not a lot of fiscal space should a shock to the economy occur.”

Yellen also continued to assert her preposterous notion that the “economy is operating close to full employment.” If true, why hasn’t she already raised interest rates vigorously? And why, if the economy was doing so well, did the election go so badly for the incumbents — the Democrats? The Fed boss understands economics better than Trump. The higher borrowing costs that are already being seen (and which the Fed will pile onto this week) will automatically cause government borrowing costs – and therefore, spending – to increase and make US debt levels much worse. How much worse? That depends on how high rates go and how reluctant the Chinese are to continue to lend us money, especially now that Trump has picked a fight with Beijing. Yellen is a lame-duck chair. And Trump is going to want to cook her goose. It isn’t going to be pheasant.

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Few people in the west know China the way Roach does.

Stephen Roach Flags Trade, China Under Trump, Tillerson (CNBC)

Stock markets are euphoric after Donald Trump’s victory as pundits bet on U.S. economic growth based on the president-elect’s stimulus plans, but be aware of trade deficits and funding U.S. consumption, said Yale economist and noted author on China, Stephen Roach. “Given the overall savings of the U.S., that spells bigger trade deficits and for a president who is clearly raising some protectionist flags at a time when our trade deficits are going to widen, that’s a big disconnect,” Roach, a former chairman of Morgan Stanley Asia and chief economist, told CNBC’s “Squawk Box”. “The idea of larger trade deficits colliding with protectionist shifts in policy is a very worrisome development for the U.S. and for the broader global economy,” added Roach.

Roach’s comments come against a background of Trump having campaigned on remedying a wide trade gap in favor of Beijing that he said was spurred by moves to artificially weaken the yuan and restrict entry into home markets. He has also angered China by taking a congratulatory phone call from Taiwan President Tsai Ing-wen and calling into question the foundations of the “One China” policy. China is the world’s top holder of U.S Treasurys, and any major change in that stance would have broad macroeconomic impact. “The deeper question is less about the integrity of the leadership skills he can bring to the job, but how much scope for action he will have in the Trump administration … (after) Mr Trump has made some very strong statements about a number of critical foreign policy issues,” said Roach.

Roach also commented broadly on issues that will have to be resolved in the early phase of a Trump administration, including how a U.S. savings shortfall will be financed, suggesting choices of higher interest rates or a weak dollar as possibilities. He also expects a reassessment of Trump’s economic policies and outcomes in late 2017. As for Trump’s goals to shore up the battered manufacturing industries, Roach said Americans will have to pay a price for penalizing offshore operations. “As they bring those activities home, the cost of goods sold, the prices that go to American families who are hard strapped who voted for Mr. Trump, those prices are going to go up … We can’t have it both ways,”he said.

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Only, the author doesn’t really say how.

Trump May Be Turning China’s $1.16 Trillion Of Treasuries Into A Weapon (F.)

When Donald Trump talks about China devaluing its currency it’s difficult for investors to figure out exactly what he’s trying to convey. China, in fact, is trying to strengthen its own currency against the dollar as part of an effort to prevent capital from leaving the country. It leaves people uncertain whether Trump–who has access to people who know the capital markets and can point out his mistake–simply misunderstands what’s happening in global capital markets, or if he’s picking a fight with China. Trump’s decision to take a phone call Dec. 2 from Taiwan’s President, Tsai Ing-wen, sent off alarms in Beijing, and leaders there appear to be moving toward the conclusion that Trump is picking a fight. Trump’s response that the longstanding U.S. “one China” policy may be a bargaining chip in potential trade negotiations made matters worse.

China subsequently sent a bomber capable of carrying a nuclear payload outside its borders over the contested South China Sea in a show of force aimed at expressing displeasure with Trump’s posture. China held $1.16 trillion of U.S. government debt as of September, according to the most recent data available from the Treasury. That’s down by $100 billion from the year before. During that period Treasuries have actually rallied, with the benchmark 10-year note yield falling to 1.60% from 1.99%. China’s reduction in holdings didn’t hurt the bond market, as the economic stresses that led them to allocate cash away from Treasuries led other investors to seek out safety in the debt. China is well-positioned to use the bond market to show its displeasure with the U.S. in a manner that would be more than symbolic: it could sell more Treasuries. For the President-elect, who has plans to borrow to pay to ramp up infrastructure spending, that could cause real pain. The 10-year note yield has risen to a two-year high of 2.49% up from 1.88% on election day.

For more than a decade, politicians have expressed concern that China and other foreign government could use their significant stakes in Treasuries against the U.S. by dumping them on the market. Such a move would potentially drive borrowing costs throughout the U.S. sharply higher. Bond market conventional wisdom has been that this would be unlikely because it would reduce the value of the seller’s remaining reserves, weakening it’s own capital bulwarks against a future crisis. Trump’s pugnacity mixed with his seeming willingness to ignore facts contrary to his argument make it hard to assess his motives, which may scramble conventional thinking and raise the risks of an unorthodox response from China.

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Let the games begin.

China To Fine Unnamed US Automaker For ‘Monopolistic Behavior’ (R.)

China will soon slap a penalty on an unnamed U.S. automaker for monopolistic behavior, the official China Daily newspaper reported on Wednesday, quoting a senior state planning official. News of the penalty comes at a sensitive time for China-U.S. relations after U.S. president-elect Donald Trump called into question a long-standing U.S. policy of acknowledging that Taiwan is part of “one China”. Beijing maintains that self-ruled Taiwan is a wayward province of China and has never renounced the use of force to take it back. Investigators found the U.S. company had instructed distributors to fix prices starting in 2014, Zhang Handong, director of the National Development and Reform Commission’s price supervision bureau, was quoted as saying.

In an exclusive interview with the newspaper, Zhang said no one should “read anything improper” into the timing or target of the penalty. China, the world’s largest auto market, has become crucial to the strategies of car companies around the world, including major U.S. players General Motors and Ford. “We are unaware of the issue,” said Mark Truby, Ford’s chief spokesman for its Asia-Pacific operations. In a statement, GM said: “GM fully respects local laws and regulations wherever we operate. We do not comment on media speculation.”

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There’s just so much borrowing going on. And that was never the Chinese way.

Just Another Chinese Cash Crunch, But Bigger (BBG)

In markets where investors are highly leveraged, things tend to happen slowly at first, then fast. China is having one of those moments, and as with the 2008 crisis, it can’t be pinned on one event. On Monday, the Shanghai Composite Index sank 2.5%, then extended that decline Tuesday before rebounding to close little changed. The one-year government note yield rose 7 basis points to 2.72%, on top of Monday’s 15 basis-point increase. The root cause may be banks. There’s clearly a liquidity squeeze on Chinese lenders. Nothing new there: Financial institutions tend to face higher demand for cash in December, and this year that’s been exacerbated because Chinese New Year falls early – the holiday, when many people withdraw deposits to buy gifts and travel, begins Jan. 28.

Perhaps more important, banks also want to boost the deposits they can account for as of Dec. 31, when they close their books. Financial institutions struggled to meet a loan-to-deposit ratio ceiling of 75%, and that cap was scrapped in June. None of the banks wants to show that the amount they lend is completely disconnected from what they have in the coffers, however. Which may explain why short-term deposit rates are far higher than longer-term ones. In simple terms, this is a seasonal cash crunch. The issue is that this time it’s on steroids, because it comes after several months when the People’s Bank of China increased short-term rates. This boosted funding costs for wealth-management products and for investors using leverage to buy everything from stocks to bonds to iron ore. As some of the trades begin to offer negative returns, these investors are selling.

Curiously, Hong Kong is going through a similar issue because of the impending Federal Reserve rate increase. Then the vicious circle of leverage begins: Assets being sold drop below agreed levels, triggering margin calls – or the requirement that someone borrowing money to buy securities post more cash to back up the loan. To meet those calls, investors sell more of their securities, putting further pressure on prices and prompting new margin calls. The slump in Chinese stocks last year was exacerbated by just such a dynamic. Investors must now hope that China has learned the lesson from that rout and will use its pension funds to steady the market. Otherwise, if this selloff really is the result of a liquidity squeeze, it’s unlikely to stop before February, when people return from the holiday.

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And neither has the FBI.

Top US Spy Agency Has Not Embraced CIA Assessment On Russia Hacking (R.)

The overseers of the U.S. intelligence community have not embraced a CIA assessment that Russian cyber attacks were aimed at helping Republican President-elect Donald Trump win the 2016 election, three American officials said on Monday. While the Office of the Director of National Intelligence (ODNI) does not dispute the CIA’s analysis of Russian hacking operations, it has not endorsed their assessment because of a lack of conclusive evidence that Moscow intended to boost Trump over Democratic opponent Hillary Clinton, said the officials, who declined to be named. The position of the ODNI, which oversees the 17 agency-strong U.S. intelligence community, could give Trump fresh ammunition to dispute the CIA assessment, which he rejected as “ridiculous” in weekend remarks, and press his assertion that no evidence implicates Russia in the cyber attacks.

Trump’s rejection of the CIA’s judgment marks the latest in a string of disputes over Russia’s international conduct that have erupted between the president-elect and the intelligence community he will soon command. “ODNI is not arguing that the agency (CIA) is wrong, only that they can’t prove intent,” said one of the three U.S. officials. “Of course they can’t, absent agents in on the decision-making in Moscow.” The FBI, whose evidentiary standards require it to make cases that can stand up in court, declined to accept the CIA’s analysis – a deductive assessment of the available intelligence – for the same reason, the three officials said. [..] In October, the U.S. government formally accused Russia of a campaign of cyber attacks against American political organizations ahead of the Nov. 8 presidential election. President Barack Obama has said he warned Vladimir Putin about consequences for the attacks.

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That’s quite the claim. Especially since all western reporting contradicts even the possibility.

Lavrov Hints ISIS Recapture Of Palmyra Orchestrated By US (R.)

Foreign Minister Sergei Lavrov said talks with the United States on Syria were at a dead end, and Islamic State’s advance to Palmyra may have been staged by the United States and its regional allies to allow Syrian rebels in Aleppo a respite. During a visit to Belgrade, Lavrov said Russia was ready to quickly negotiate with the United States the opening of corridors for the pullout of rebels from Aleppo, but said these would have to be agreed before any ceasefire happened. “Our American colleagues do, so to speak, agree with that, and from Dec. 3 when we met John Kerry in Rome they supported such a concept and even gave us their approval on paper,” Lavrov told reporters at a news conference with his Serbian counterpart on Monday.

“But after three days they revoked that agreement and returned to their old, dead-end position which comprises this: Before the agreement on corridors there has to be a truce… as I understand, this would just mean the rebels would get a break,” he said. Earlier in the day, a military source said the Syrian army was on the verge of announcing victory in its battle to retake rebel-held eastern Aleppo. The Syrian army made new advances on Monday after taking the Sheikh Saeed district, leaving rebels trapped in a tiny part of the city. Lavrov also said he believed that Islamic State’s seizure of Palmyra might have been engineered by the U.S.-led coalition to divert attention from Aleppo. “That leads us to a thought – and I am sincerely hoping I am wrong, that this is all orchestrated, coordinated to give a break to those bandits that are in eastern Aleppo,” he said.

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Robert Fisk suggests Lavrov may be on to something.

There Is More Than One Truth To Tell In The Awful Story Of Aleppo (Fisk)

[..] it’s time to tell the other truth: that many of the “rebels” whom we in the West have been supporting – and which our preposterous Prime Minister Theresa May indirectly blessed when she grovelled to the Gulf head-choppers last week – are among the cruellest and most ruthless of fighters in the Middle East. And while we have been tut-tutting at the frightfulness of Isis during the siege of Mosul (an event all too similar to Aleppo, although you wouldn’t think so from reading our narrative of the story), we have been willfully ignoring the behaviour of the rebels of Aleppo. Only a few weeks ago, I interviewed one of the very first Muslim families to flee eastern Aleppo during a ceasefire. The father had just been told that his brother was to be executed by the rebels because he crossed the frontline with his wife and son.

He condemned the rebels for closing the schools and putting weapons close to hospitals. And he was no pro-regime stooge; he even admired Isis for their good behaviour in the early days of the siege. Around the same time, Syrian soldiers were privately expressing their belief to me that the Americans would allow Isis to leave Mosul to again attack the regime in Syria. An American general had actually expressed his fear that Iraqi Shiite militiamen might prevent Isis from fleeing across the Iraqi border to Syria. Well, so it came to pass. In three vast columns of suicide trucks and thousands of armed supporters, Isis has just swarmed across the desert from Mosul in Iraq, and from Raqqa and Deir ez-Zour in eastern Syria to seize the beautiful city of Palmyra all over again.

It is highly instructive to look at our reporting of these two parallel events. Almost every headline today speaks of the “fall” of Aleppo to the Syrian army – when in any other circumstances, we would have surely said that the army had “recaptured” it from the “rebels” – while Isis was reported to have “recaptured” Palmyra when (given their own murderous behaviour) we should surely have announced that the Roman city had “fallen” once more under their grotesque rule. Words matter. These are the men – our “chaps”, I suppose, if we keep to the current jihadi narrative – who after their first occupation of the city last year beheaded the 82-year-old scholar who tried to protect the Roman treasures and then placed his spectacles back on his decapitated head.

By their own admission, the Russians flew 64 bombing sorties against the Isis attackers outside Palmyra. But given the huge columns of dust thrown up by the Isis convoys, why didn’t the American air force join in the bombardment of their greatest enemy? But no: for some reason, the US satellites and drones and intelligence just didn’t spot them – any more than they did when Isis drove identical convoys of suicide trucks to seize Palmyra when they first took the city in May 2015. There’s no doubting what a setback Palmyra represents for both the Syrian army and the Russians – however symbolic rather than military. Syrian officers told me in Palmyra earlier this year that Isis would never be allowed to return. There was a Russian military base in the city. Russian aircraft flew overhead. A Russian orchestra had just played in the Roman ruins to celebrate Palmyra’s liberation.

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The craziest thing I’ve seen in a long time.

How To Make A Profit From Defeating Climate Change (Carney/Bloomberg)

From rising sea levels to more severe storms and more intense droughts, climate change will present serious risks to, and create major opportunities for, nearly every industry. Citizens, consumers, businesses, governments, and international organisations are all taking action. And entrepreneurs are developing disruptive technologies that will create and destroy value. The challenge is that investors currently don’t have the information they need to respond to these developments. This must change if financial markets are going to do what they do best: allocate capital to manage risks and seize new opportunities. Without the necessary information, market adjustments to climate change will be incomplete, late and potentially destabilising.

Public policy, consumer demand and technological innovation are driving a shift towards a low-carbon economy. Which companies and industries are most, and least, dependent on fossil fuels? And who stands ready to provide resilient and sustainable infrastructure? Which financial institutions are best positioned to gain and which to lose? In every case, which firms have the governance, resources and the strategy to manage, and profit from, these major shifts? We believe that financial disclosure is essential to a market-based solution to climate change. A properly functioning market will price in the risks associated with climate change and reward firms that mitigate them. As its impact becomes more commonplace and public policy responses more active, climate change has become a material risk that isn’t properly disclosed.

In response to a G20 request to consider the financial stability risks, the Financial Stability Board created a taskforce on climate-related financial disclosures. Its purpose is to develop voluntary, consistent disclosures to help investors, lenders and insurance underwriters manage material climate risks. As befits a solution by the market for the market, the taskforce is led by members of the private sector from across the G20, including major companies, large investors, global banks and insurers. After a year of intensive work and widespread consultation its recommendations are now publicly available. They concentrate on the practical, material disclosures most relevant to investors and creditors and which can be compiled by all companies that raise capital as well as financial institutions.

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Poul Thomsen was always a disgrace.

Greece ‘Boxed In’ as EU and IMF Fight Over Nation’s Debt Relief Plan (G.)

The row over how to stabilise the indebted Greek economy has resurfaced with renewed vigour after the European Union on Tuesday angrily rejected charges by the IMF that its current rescue programme is “not credible”. The spectre of the country’s economic crisis flaring up again deepened as the extent of the differences between creditors was laid bare. Caught in the middle, Athens also ratcheted up the rhetoric, as its finance minister told the Guardian that the IMF was “economising with the truth”. “Greece is being boxed into a corner,” said Euclid Tsakalotos, claiming that the country was under intense pressure to specify new austerity measures that made “no economic or political sense”. The war of words intensified after the IMF issued a 1,300-word statement distancing itself from the economic policies underpinning the nation’s latest bailout.

The adjustment programme agreed last summer in exchange for €86bn (£72bn) worth of rescue loans – a plan the IMF has so far refused to support – was based on measures that were “unfriendly to growth”, wrote Poul Thomsen, who directs the IMF’s European department, and Maurice Obstfeld, its chief economist. “It is not the IMF that is demanding more austerity,” the officials argued in a blog published late on Monday. “If Greece agrees with its European partners on ambitious fiscal targets, don’t criticise the IMF … when we ask to see the measures required to make such targets credible.” Athens, they said, had agreed to achieve a budget surplus – where state tax income exceeds expenditure – of 3.5% of GDP once the bailout expired in 2018, a feat that was not feasible without further cuts, said the IMF.

On Tuesday, the European commission hit back, insisting that the economic fundamentals were not only sound, but working. “The European institutions consider that the policies of the ESM program are sound and if fully implemented can return Greece to sustainable growth and can allow Greece to regain market access,” said commission spokeswoman Annika Breidthardt. The plan, she added, had undergone “several parts of scrutiny”, and even the European court of auditors had provided feedback, which had been taken into account. [..] Hopes of a political breakthrough are now resting on meetings Tsipras will have later this week with German and French leaders. But on past form, lenders are unlikely to yield, and Greek officials are now worrying that the row could be the precursor of the IMF pulling out of the programme altogether.

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“s it likely when around 45% of pensioners receive monthly payments below the poverty line of €665, and almost 4 million people, that is more than a third of the population, have been classed as being at risk of poverty or social exclusion, that Greece’s main problem is that pensions and tax credit allowances are too generous?”

Tsipras To Propose To EU Leaders That IMF Be Excluded (Kath.)

Prime Minister Alexis Tsipras is to suggest to European counterparts this week that the IMF should be left out of the Greek program, sources have told Kathimerini. Tsipras is expected to sound out Francois Hollande, who he is due to hold talks with Wednesday, and Angela Merkel, with whom he will have a working lunch on Friday, about the idea of the Fund no longer having a role in Greece’s bailout. If an agreement cannot be reached on this proposal, Tsipras will put forward the possibility of the IMF retaining just a technical role in the program. Athens believes that the political cost of the Fund remaining on board has become too high after the latest spat between the government and the organization, which flared up as the institutions returned to the Greek capital for further talks aimed at completing the bailout review.

The talks resumed under a cloud after the IMF’s European director Poul Thomsen and head of research Maurice Obstfeld published a blog post on Monday night in which they denied that the Fund was responsible for asking Greece to adopt more austerity measures and claimed that the country’s pensions and tax benefits are still too generous. Finance Minister Euclid Tsakalotos confronted the IMF mission chief Delia Velculescu over the blog post when talks between the Greek government and the institutions resumed in Athens Tuesday. Velculescu is said to have assured the Greek minister that the IMF did not want to make negotiations harder but simply to express its view.

A little earlier, Tsakalotos had publicly countered the claims made by the IMF officials in their article. “In effect [the Fund] is arguing for Greek pensioners and poorer wage earners to make further economies, while it economizes on the truth,” he told The Guardian. “Greek expenditure on both pensions and other subsidies is about 70% of the EU average and 52% of that of Germany. Is it likely when around 45% of pensioners receive monthly payments below the poverty line of €665, and almost 4 million people, that is more than a third of the population, have been classed as being at risk of poverty or social exclusion, that Greece’s main problem is that pensions and tax credit allowances are too generous?” he added.

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But of course they are short on anti-depressants too.

Crisis Leaves Greeks Gloomiest In Europe And Beyond (R.)

Greece’s debt crisis has made its population the unhappiest not only in western Europe but also in comparison with people in some former Communist countries, a study showed on Tuesday. The “Life in Transition” survey conducted by the European Bank for Reconstruction and Development (EBRD) and the World Bank has questioned households across a broad region since 1991 as the Cold War came to an end, but Greece was included for the first time this year. Over 92% of Greeks said the debt crisis had affected them, with 76% of households suffering reduced income due to wage or pension cuts, job losses, delayed or suspended pay or fewer working hours.

Only one in 10 Greeks were satisfied with their financial situation and only 24% with life overall, compared with 72% in Germany and 42% in Italy, the two western European countries used as comparisons. The figure was 48% in post-communist countries. Austerity measures demanded by international creditors have been tough on Greeks. Pensions, for example, have been reduced by about a third since the crisis began in 2009. Only 16% of the respondents in Greece saw their situation improving over the next four years, compared with 48% in post-communist countries and 35 and 23% in Germany and Italy, respectively. “This signals that, despite the recent political changes and attempts at economic reforms that have taken place in the country, Greeks do not see their situation improving for the foreseeable future”, the report said.

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So that stops all fracking, right?!

Final EPA Study Confirms Fracking Contaminates Drinking Water (EW)

The U.S. Environmental Protection Agency (EPA) has released its widely anticipated final report on hydraulic fracturing, or fracking, confirming that the controversial drilling process indeed impacts drinking water “under some circumstances.” Notably, the report also removes the EPA’s misleading line that fracking has not led to “widespread, systemic impacts on drinking water resources.”The report, done at the request of Congress, provides scientific evidence that hydraulic fracturing activities can impact drinking water resources in the United States under some circumstances,” the agency stated in a media advisory. This conclusion is a major reversal from the EPA’s June 2015 pro-fracking draft report. That specific “widespread, systemic” line baffled many experts, scientists and landowners who—despite the egregious headlines—saw clear evidence of fracking-related contamination in water samples.

Conversely, the EPA’s top line encouraged Big Oil and Gas to push for more drilling around the globe. But as it turns out, a damning exposé from Marketplace and APM Reports revealed last month that top EPA officials made critical, last-minute alterations to the agency’s draft report and corresponding press materials to soft-pedal clear evidence of fracking’s ill effects on the environment and public health. Thomas Burke, EPA deputy assistant administrator and science advisor, discussed the agency’s final report released Tuesday. “There are instances when hyrdofracking has impacted drinking water resources. That’s an important conclusion, an important consideration for moving forward,” Burke told reporters today, according to The Hill. Regarding the EPA’s contentious “national, systemic conclusion,” Burke said, “that’s a different question that this study does not have adequate evidence to really make a conclusive, quantified statement.”

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Small state, but big chunk of ice.

A Crack In Antarctica Is Forming An Iceberg The Size Of Delaware (PopSci)

An iceberg the size of Delaware is starting to break away from Antarctica. It began with a small crack, but has now grown 70 miles long and more than 300 feet wide. When it reaches the edges of the ice sheet, the state-sized chunk will drift away into the sea. The crack is a third of a mile deep—reaching all the way to the sea below. It’s a relatively new rift in the ice sheet, called Larsen C, but is following in its icy brethren’s footsteps: Larsen A and B both broke away from the main Antarctic sheet in the last two decades in much the same way. All three began with clefts in the ice and eventually floated away to disintegrate. That dramatic a cleft is unusual—it’s more common for ice sheets to slowly break up along the edges and fall in smaller chunks. Only in the last half century has it become common for the Antarctic to form these dramatic fault lines, and scientists say global warming is likely to blame.

NASA has been monitoring the Larsen ice sheets since Larsen A broke off in 1995. Larsen B followed it in 2002, and Larsen C is expected to go the same way soon. Operation IceBridge has surveyed the polar ice caps annually for the past eight years as a way to track changes in the glaciers and ice sheets. The MIDAS Project, a U.K.-based research group, first reported the Larsen C rift in 2014 and has kept a watchful eye on it ever since. [..] The more than 2,400 square miles that is likely to break away from Larsen C will only be about 12% of the ice sheet’s total area. But once that part comes loose, the MIDAS Project predicts that the rest of the sheet could become unstable and completely disintegrate. The crack is growing steadily and shows no signs of stopping, though the break won’t happen immediately. It takes much longer for ice sheets to break up—unlike many human relationships, this one will last through the holiday season.


A rare ice crack not formed by that squirrel from the Ice Age movies – NASA/John Sonntag

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Jun 252016
 
 June 25, 2016  Posted by at 8:26 am Finance Tagged with: , , , , , , , ,  3 Responses »


Harris&Ewing Underwood Typewriter Co., Washington, DC 1919

World’s 400 Richest People Lose $127 Billion on Brexit (BBG)
Global Markets Lose $2.1 Trillion In Brexit Rout (AFP)
[Friday Was] The Appetizer For Monday (ZH)
Alan Greenspan Says Brexit Is The ‘Tip Of The Iceberg’ For Europe (MW)
Bravo Brexit! (David Stockman)
The Sky Has Not Fallen After Brexit But We Face Years Of Hard Labour (AEP)
They Got It Wrong: Swarms of Global Chatterers Misread Brexit (BBG)
UK ‘Leave’ Vote Deflates Hopes For TTIP (R.)
Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come (ZH)
A Look At The Global Economic Malaise Through Deutsche Bank (MW)
Electoral Surge Of Far Left Likely To Shake Up Spanish Politics (R.)
Regling: Varoufakis’ FinMin Tenure Cost Greece €100 Billion (Kath.)
Hillary Clinton Adopts The Shorthand Of The Hyperinflation Fearmongers (Dayen)
Rural Pennsylvanians Say Fracking ‘Just Ruined Everything’ (CPI)
Italy Coastguard Rescues 7,100 In Mediterranean In Two Days (G.)

Try and feel sorry. I dare you.

World’s 400 Richest People Lose $127 Billion on Brexit (BBG)

The world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2% of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.

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Meaningless. If the euro loses against the dollar, what is lost exactly? Besides, it’s all virtual overkill anyway.

Global Markets Lose $2.1 Trillion In Brexit Rout (AFP)

Britain’s shock vote to pull out of the European Union wiped $2.1 trillion from global equity markets Friday as traders panicked in the face of a new threat to the global economy. Investors fled to the safety of gold, the yen and blue-chip bonds as the seismic shift in the structure of Europe left many huge questions hanging, including who will lead Britain following the resignation of Prime Minister David Cameron. The Brexit vote sparked 8% losses in the Tokyo and Paris bourses, nearly 7% in Frankfurt and more than 3% in London and New York. Central banks stepped in to bolster confidence, promising to inject liquidity where needed and appearing to mitigate some of the sharpest losses.

Still, the pound crashed 10% to a 31-year low at one point, before rebounding slightly for a 9.1% loss against the greenback in late trade. The euro also plummeted, dropping 2.6% on the dollar. Benefitting from a massive safety selloff, gold jumped nearly 5% and the yen surged 4.2% against the dollar and 7.0% on the euro. The dollar at one point fell below 100 yen for the first time since November 2013. US 10-year treasury bond yields hit their lowest since 2012 at 1.42% before edging higher, while the German 10-year bund fell into negative territory for the second time in history.

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Try Italian banks: “..Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today..”

[Friday Was] The Appetizer For Monday (ZH)

RBC’s Charlie McElligott: “I do feel that Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today (as we’re washing out all the delta one flows which are dwarfing client trading)…lots of discipline being displayed thus far, with low turnovers and folks not chasing.

FTSE (UKX, benchmark equities index) is an absolute CHAMP right, trading -8.7% within the first 10 minutes of the open before clawing-back to all but -1.9% at ‘highs.’ Wrap your head around this: week-to-date, UKX is up over 2.8%! What’s the driver of today’s massive rally? People are getting their arms around the impact of this extraordinarily weak Sterling as a backdoor stimulus for exporters (ironic the power of what a departure from the EU can do vs what x # of kagillions of QE purchases couldn’t get done) and the inevitable rate cut from the BoE.

What I have to continue keeping one eyeball on is SX7E (EU banks index); the thing cannot get off mat. And if that can’t get off the mat, peripheries (and their sovereign debt) won’t either, as we re-enter the EU-crisis-era “Doom Loop” where widening sovereign spreads drag down the banks who are stuffed to the gills with them….vicious cycle, what else is new. FWIW, as I write and we’ve had this massive bounce in equities, Italian stocks (FTSEMIB) are back at their lows. This will likely be the next “hot zone” as we begin playing EU existential dominos (Spanish elections Sunday too).

My model Equity L/S portfolio is -285bps today. That is NOT cool. Elsewhere, from a thematic or factor perspective, we see the implications we spoke about earlier of the RAGINGLY STRONGER DOLLAR smashing the reflation / cyclical beta trade (value, energy, beta all struggling, while momentum mkt neutral works with defensive longs + and fins / biotech / energy -)”

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Of his own making.

Alan Greenspan Says Brexit Is The ‘Tip Of The Iceberg’ For Europe (MW)

The global economy is suffering from even bigger woes than the decision by U.K. voters to leave the European Union, Former Federal Reserve Chairman Alan Greenspan said Friday. ”This is just the tip of the iceberg,” Greenspan said in an interview on CNBC. “The global economy is in real serious trouble.” The rejection of British voters of the status quo in Europe was fueled by a “massive slowing” in the growth rate of real incomes that is widespread across Europe, Greenspan said. This, he said, is creating serious political problems that are not easy to resolve. Behind the slowdown in income is the sharp drop in worker productivity, according to Greenspan. Governments have to cut entitlements to reflect this weakness, he said.

The biggest concern is not a recession, but stagnation, the former Fed chief said. “The euro-area…is failing,” Greenspan said. “Greece is in real serious trouble and it is not going to continue in the euro very much longer irrespective of what is going on currently,” he said. Asked what he would do if he was still Fed chief, Greenspan said: “I would worry.” “This is the worst period I recall since I’ve been in public service,” he said. “There is nothing like it,” he said, including the 23% drop in the Dow Jones Industrial Average on a single day in October 1987.

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“..there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.”

Bravo Brexit! (David Stockman)

At long last the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off, but it won’t be credible, sustainable or maybe even possible. The central banks and their compatriots at the EU, IMF, White House/Treasury, OECD, G-7 and the rest of the Bubble Finance apparatus have well and truly over-played their hand. They have created a tissue of financial lies; an affront to the very laws of markets, sound money and capitalist prosperity. So there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.

On the immediate matter of Brexit, the British people have rejected the arrogant rule of the EU superstate and the tyranny of its unelected courts, commissions and bureaucratic overlords. As Donald Trump was quick to point out, they have taken back their country. He urges that Americans do the same, and he might just persuade them. But whether Trumpism captures the White House or not, it is virtually certain that Brexit is a contagious political disease. In response to today’s history-shaking event, determined campaigns for Frexit, Spexit, NExit, Grexit, Italxit, Hungexit and more centrifugal political emissions will next follow. Smaller government – at least in geography – is being given another chance. And that’s a very good thing because more localized democracy everywhere and always is inimical to the rule of centralized financial elites.

The combustible material for more referendums and defections from the EU is certainly available in surging populist parties of both the left and the right throughout the continent. In fact, the next hammer blow to the Brussels/German dictatorship will surely happen in Spain’s general election do-over on Sunday (the December elections resulted in paralysis and no government). When the polls close, the repudiation of the corrupt, hypocritical lapdog government of Prime Minister Rajoy will surely be complete. And properly so; he was just another statist in conservative garb who reformed nothing, left the Spanish economy buried in debt and gave false witness to the notion that the Brussels bureaucrats are the saviors of Europe. So the common people of Europe may be doubly blessed this week with the exit of both David Cameron and Mariano Rajoy. Good riddance to both.

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“..It was the first episode of a pan-Europe uprising against the Caesaropapism of the EU Project and its technocrat priesthood.”

The Sky Has Not Fallen After Brexit But We Face Years Of Hard Labour (AEP)

It is time for Project Grit. We warned over the final weeks of the campaign that a vote to leave the EU would be traumatic, and that is what the country now faces as markets shudder and Westminster is thrown into turmoil. The stunning upset last night marks a point of rupture for the post-war European order. It will be a Herculean task to extract Britain from the EU after 43 years enmeshed in a far-reaching legal and constitutional structure. Scotland and Northern Ireland will now be ejected from the EU against their will, a ghastly state of affairs that could all too easily lead to the internal fragmentation of the Kingdom unless handled with extreme care. The rating agencies are already pricing in a different British destiny. Standard & Poor’s declared that Brexit “spells the end” of the UK’s AAA status.

The only question is whether the downgrade is one notch or two, and that hangs on Holyrood. Moody’s has cocked the trigger too. Just how traumatic Brexit will be depends on whether Parliament can rise to the challenge and fashion a credible trade policy – so far glaringly absent – to safeguard access to European markets and ensure the viability of the City, and it depends exactly how Brussels, Berlin, Paris, Rome, Madrid, and Warsaw react once the dust settles. Both sides are handling nitroglycerin. Angry reproaches are flying in all directions, but let us not forget that the root cause of this unhappy divorce is the conduct of the EU elites themselves. It is they who have pushed Utopian ventures, and mismanaged the consequences disastrously.

It is they who have laid siege to the historic nation states, and who fatally crossed the line of democratic legitimacy with the Lisbon Treaty. This was bound to come to a head, and now it has. The wild moves in stocks, bonds, and currencies this morning were unavoidable, given the positioning of major players in the market, and given that the Treasury, the IMF, and the Davos brotherhood have been deliberately – in some cases recklessly – stirring up a mood of generalized fear.

[..] Some in Europe accuse the British people of strategic nihilism, of setting in motion the disintegration of the EU. It is true that French, Dutch, Italian, and Swedish eurosceptics are now agitating even more loudly for their own referenda, but voters are rising up across the EU in defence of national self-government and cultural ‘terroir’ for parallel reasons. Brexit is not the cause and this is not contagion. The latest PEW survey shows that anger with Brussels is just as great in most of Northwest Europe as it is Britain, and in France it is higher at 61pc. This referendum was never a fight between Britain and Europe, as so widely depicted. It was the first episode of a pan-Europe uprising against the Caesaropapism of the EU Project and its technocrat priesthood. It will not be the last.

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No-one got it more wrong than the bookmakers. At least, what they said.

They Got It Wrong: Swarms of Global Chatterers Misread Brexit (BBG)

A global cohort said before Thursday’s Brexit vote that Britain was unlikely to pull out of the European Union, the post-World War II international project that brought an unprecedented era of prosperity and peace. Yet some were led astray by the belief that free trade’s money and material goods outweighed nationalism and the tug of nostalgia. Conservative U.K. Prime Minister David Cameron called the referendum, presumably confident he would win. He lost, and he’s now resigning. “Brits don’t quit,” Cameron said in an impassioned plea on Tuesday to voters to support remaining in the EU. “We get involved, we take a lead, we make a difference, we get things done.” The Brits quit.

Opinion polls on Brexit were all over the place; the theoretical lead had changed hands dozens of times since September, although “leave” never reached 50% support. Still, betting odds put the chance of remaining at 90% as the polls closed on Thursday. Ladbrokes was offering 4-to-1 on a leave vote, according to The Guardian. Even though most players in the market were actually backing leave, more money was bet on remain by the affluent, who were generally behind staying, Matthew Shaddick, head of political betting at Ladbrokes, wrote in a blog post. Bookies are trying to make money, not help people forecast results, so the vote worked out fine for Ladbrokes, he said.

“Is this just one of the inevitable, normal occasions where an outsider wins, or a fatal blow to the idea of betting markets as being a useful forecasting tool?” Shaddick said. “Maybe unsurprisingly, I tend to think the former, but that doesn’t mean we don’t have to reflect on all of their potential flaws and decide how we best interpret them in the future.” The London-based Political Studies Association surveyed members, journalists, academics and pollsters from May 24 to June 2. Every group got it wrong. Overall, 87% of respondents said Britain was more likely to stay in the EU, 5% said it was likely to leave, and 8% said both sides had an exactly equal chance. The predicted probability of Britain voting to leave the EU: academics, 38%; pollsters, 33%; journalists, 32%; other, 38%; mean, 38%.

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The advantages keep coming in.

UK ‘Leave’ Vote Deflates Hopes For TTIP (R.)

Britain’s looming exit from the European Union is another huge setback for negotiations on a massive U.S.-EU free trade deal that were already stalled by deeply entrenched differences and growing anti-trade sentiment on both sides of the Atlantic. The historic divorce launched by Thursday’s vote will almost certainly further delay substantial progress in the Transatlantic Trade and Investment Partnership (TTIP) talks as the remaining 27 EU states sort out their own new relationship with Britain, trade experts said on Friday. With French and German officials increasingly voicing skepticism about TTIP’s chances for success, the United Kingdom’s departure from the deal could sink hopes of a deal before President Barack Obama leaves office in January.

“This is yet another reason why TTIP will likely be postponed,” said Heather Conley, European program director at the Center for Strategic and International Studies, a think tank in Washington. “But to be honest, TTIP isn’t going anywhere, I believe, before 2018 at the earliest,” she said. U.S. Trade Representative Michael Froman said in a statement on Friday that he was evaluating the UK decision’s impact on TTIP, but would continue to engage with both European and UK counterparts. “The importance of trade and investment is indisputable in our relationships with both the European Union and the United Kingdom,” Froman said. “The economic and strategic rationale for TTIP remains strong.”

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Xi can no longer hold off the tide. Q1: what happens to the unemployed? Q2: how are the shadow banks paid off?

Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come (ZH)

Two months ago, when looking at the soaring number of bond issuance cancellations and postponements as calculated by BofA, we commented that it was only a matter of time before the long overdue tide of corporate defaults, held by for so many years by the Chinese government which would do anything to delay the inevitable, was about to be unleashed. This prediction has indeed been validated and as the FT reports overnight, Chinese bankruptcies have surged this year “as the government uses the legal system to deal with “zombie” companies and reduce industrial overcapacity as part of a broader effort to restructure the economy.”

In just the first quarter of 2016, Chinese courts have accepted 1,028 bankruptcy cases, up a whopping 52.5% from a year earlier, according to the Supreme People’s Court. Just under 20,000 cases were accepted in total between 2008 and 2015. This is surprising because while China’s legislature had approved a modern bankruptcy law in 2007 it had barely been used for years, with debt disputes often handled through backroom negotiations involving local governments. “Bankruptcy isn’t just about creditor-borrower relations. It also touches on social issues like unemployment,” said Wang Xinxin, director of the bankruptcy research centre at Renmin University law school in Beijing. “For a long time many local courts weren’t willing to accept them, or local governments didn’t let them accept.”

However, following the dramatic collapse of global commodity prices, which as we showed last October meant that more than half of local companies could not afford to even make one coupon payment with cash from operations, Beijing had no choice but to throw in the towel. And as the FT adds, “bankruptcy courts have been recruited into China’s drive for “supply-side reform”, which centres on reduction of overcapacity in sectors such as steel, coal and cement.”

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Deflation.

A Look At The Global Economic Malaise Through Deutsche Bank (MW)

I like to keep an eye on major financials, as they are the backbone of the global economy. If the banks have problems, not much else will be doing all that great from a macro perspective. I know there are serious issues with European financials, as collapsing (and in some cases negative) government-bond yields, coupled with negative short-term policy rates, have basically shrunk their net-interest margins as their loans are priced off those rates. The same is the case in Japan. In the U.S, despite a massive flattening of the Treasury yield curve, we have so far been spared from this rather unfortunate banking situation.

So I punched out the ticker “DB” on my screen two Fridays ago and looked at the TV before the chart would load. I looked back at the screen, and I thought I had made a mistake as sometimes the web browser will “remember” ticker symbols on the drop-down quote menu and occasionally the wrong chart would load. It had to be a mistake, as I was looking at the 10-year Treasury yield chart that was just shown on the TV screen seconds earlier, with some futures trader making the comment that the U.S. Treasury market was “breaking out.” I looked closer, and I was stunned. There was no mistake. To that moment, I had not realized that Deutsche Bank’s stock was tracking the 10-year Treasury note yield almost tit for tat. If the Treasury market is breaking out, that would mean Deutsche Bank stock is breaking down, I thought.

It did not take long to figure out why the stock of a major global financial firm — DB, the largest bank in Germany — would follow the 10-year U.S. Treasury yield so closely. As I have explained on numerous occasions in this column, I think we face a global deflationary problem. There are numerous implications for this, but economic growth cycles driven by too much borrowing in the developed world and in many emerging markets — the largest of which is China — are causing that mountain of debt to catch up with faltering economies. Falling long-term U.S. interest rates at a time when the Federal Reserve has not officially given up on a hopelessly-misguided rate-hiking cycle are a symptom of this global deflation.

Banks tend to perform very poorly in a deflationary environment as weak nominal corporate revenues make servicing debts problematic and lending growth tends to suffer. In a deflationary environment, the real value of debts rises as they stay nominally constant; but the assets those debts are financing tend to fall in price, causing rising non-performing loan (NPL) ratios. Combine this with the unorthodox global QE monetary policies and negative short-term interest rates, and you have collapsing net interest margins for many global banks like Deutsche Bank as many yield curves globally, including the one in Germany, have vanished.

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One more technocrat government gone on Monday?

Electoral Surge Of Far Left Likely To Shake Up Spanish Politics (R.)

The parched olive groves and tranquil towns of Spain’s southern Cordoba province are an unlikely backdrop for a political upset that could reverberate across Europe. Yet some locals like 57-year-old Lorenzo Molina, an unemployed librarian, hope they can help deliver just that in a fresh nationwide election on June 26 following an inconclusive December ballot. Gains for an anti-austerity alliance led by the young Podemos party in tightly-contested provinces like this could tip the balance in its bid to lead the next government, and this could turn Spain into the European Union’s next headache after Britain’s June 23 referendum on EU membership. A surge into second place for Unidos Podemos (“Together We Can”) ahead of Spain’s Socialists would make the far-left front a serious contender to form a coalition government, cementing the decline of Spain’s once-mighty center-left in the process.

After radical leftist Syriza’s success in crushing the social democratic Pasok in Greece, a Podemos breakthrough could also buoy euro-skeptic anti-establishment movements in the likes of Italy or France as worsening inequality fuels discontent. For Molina, a dyed-in-the-wool backer of the ex-communists now part of the leftist alliance, it’s a momentous prospect after decades on the fringes of Spanish politics, hankering after this so-called “sorpasso” (eclipse) of the Socialists. “It’s time to air things out,” Molina said on a balmy evening in the city of Cordoba, as an eclectic mix of families and people waving hammer and sickle flags arrived at a rally in a local park. “The Socialists have been in charge of our institutions for many years,” he added, as cries of “Yes we can” rang out among the crowd of several hundred.

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The cost of not doing what you’re told. Take heed, Britain and everyone else. All your base are belong to us.

Regling: Varoufakis’ FinMin Tenure Cost Greece €100 Billion (Kath.)

The cost of Yanis Varoufakis’s tenure as Greece’s Finance Minister during the January-August 2015 period was estimated at around €100 billion, Klaus Regling, head of the European Financial Stability Facility (EFSF) and first managing director of the European Stability Mechanism, told Skai TV. In the interview that aired on Wednesday, Regling noted that during the Varoufakis era, relations between Greece and its lenders were not good, that reforms were halted and that the overall situation at the time did not serve the interests of the Greek economy.

Regling also urged the current Greek government to stick to agreed reforms and noted that the next two months would see negotiations between Greece and its creditors regarding changes in the country’s labor laws, among others, before a second review of the country’s bailout program in September. Regling also argued that some members of the coalition administration did not seem committed to the bailout program, particularly with regard to privatizations and the privatization fund. On the subject of debt relief for Greece, Regling noted that the institutions had agreed on principle, but disagreed over the time frame.

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“..Alan Greenspan, former chair of the Federal Reserve, echoed Trump’s comments almost verbatim back in 2011, when the U.S. came close to reaching the debt limit. “The United States can pay any debt it has because we can always print money to do that..”

Hillary Clinton Adopts The Shorthand Of The Hyperinflation Fearmongers (Dayen)

Deficit hawks often raise the specter of hyperinflation to scare people who disagree with them. And that’s exactly what Hillary Clinton did on Tuesday. Speaking in Columbus, Clinton criticized Donald Trump for saying last month that the U.S. can never default on its debt obligations “because you print the money.” “We know what happened to countries that tried that in the past, like Germany in the ‘20s and Zimbabwe in the ‘90s,” Clinton said. “It drove inflation through the roof and crippled their economies.” But printing money — otherwise known as increasing the money supply – is a routine occurrence for governments that control their own currency.

The Federal Reserve has increased its balance sheet by over $3 trillion since the financial crisis, explicitly to support the economy. (The Fed does this by buying stocks and bonds with electronic cash that didn’t exist before.) In fact, an increasingly influential school of economics, known as Modern Monetary Theory, argues that deficit spending, including through money printing, is critical to promote full employment. Even Alan Greenspan, former chair of the Federal Reserve, echoed Trump’s comments almost verbatim back in 2011, when the U.S. came close to reaching the debt limit. “The United States can pay any debt it has because we can always print money to do that,” Greenspan told “Meet the Press.”

“If you think about it, it is precisely this power that makes U.S. Treasuries [T-Bonds] so safe in the first place,” said Stephanie Kelton, an economics professor at the University of Missouri-Kansas City and a former chief economist to Bernie Sanders on the Senate Budget Committee. Kelton is one of the leading proponents of Modern Monetary Theory. But deficit hawks – typically members of the economic elite who favor small government and correspondingly low taxes, and are terrified of the effect inflation would have on their investments and cash reserves — have repeatedly warned that these perfunctory monetary policy actions would lead to Weimar Germany-levels of chaos.

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A mess in the name of Mammon.

Rural Pennsylvanians Say Fracking ‘Just Ruined Everything’ (CPI)

Sixty years after his service in the Army, Jesse Eakin still completes his outfits with a pin that bears a lesson from the Korean War: Never Impossible. That maxim has been tested by a low-grade but persistent threat far different than the kind Eakin encountered in Korea: well water that’s too dangerous to drink. It gives off a strange odor and bears a yellow tint. It carries sand that clogs faucets in the home Eakin shares with his wife, Shirley, here in southwestern Pennsylvania. The Eakins told the state environmental agency about their bad water nearly seven years ago and hoped for a quick resolution. Like thousands of others who live in the natural gas-rich Marcellus Shale, however, they learned their hopes were misplaced.

Today, the state is still testing their water. The results of those tests will dictate whether a gas exploration and production company is held responsible for providing them with a clean supply. Meanwhile, the Eakins drink donated bottled water and in late 2014 began paying for deliveries of city water to avoid showering in contaminants such as lead and manganese. Since 2007, at least 2,800 water-related complaints have been investigated by the Pennsylvania Department of Environmental Protection’s Oil and Gas Program. Officials found ties to the drilling industry in 279. Another 500 or so cases, including the Eakins’, are open. While regulators try to catch up to natural gas exploration, some residents of the state have gone months, even years, without access to clean water at their homes.

Responding to a public-records request by the Center for Public Integrity, the Department of Environmental Protection, or DEP, provided data on 1,840 complaints lodged since 2010. More than half took longer than the agency’s target of 45 days to resolve. Almost one in 10 took more than a year. The state’s often-plodding response has left hundreds of rural Pennsylvanians in a sort of forced drought, scrambling to pay for water deliveries, seek remedies in court, take out second mortgages or even abandon their homes.

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Off the top of my head, over 150,000 landed in Italy so far this year. And Germany has a backlog of 450,000 asylum applications.

Italy Coastguard Rescues 7,100 In Mediterranean In Two Days (G.)

Ship crews have pulled more than 2,000 refugees from overcrowded boats in the Mediterranean, Italy’s coastguard has said, as people-smugglers stepped up operations during two consecutive days of good weather. More than 7,100 people have now been rescued from international waters since Thursday, many of them on the dangerous journey from Libya. Europe’s worst immigration crisis since the second world war is in its third year, and there has been little sign of any let-up in the flow of people coming from North African to Italy.

Ships belonging to Doctors without Borders, Migrant Offshore Aid Station, Italy’s navy, the EU’s border agency Frontex and the bloc’s anti-people-smuggling mission Sophia all helped take the migrants off nine boats on Friday. About 60,000 boat refugees have been brought to Italy so far this year, according to the interior ministry.

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Apr 242016
 


NPC Shad fishing on the Potomac 1920

China’s Commodity Futures Bubble Insanity (ZH)
Where Have All Britain’s Shoppers Gone? (Observer)
Why America’s Impressive 5% Unemployment Rate Still Feels Like A Lie (Qz)
The Lemmings Of Wall Street (Stockman)
A Pro-EU ‘Study’ Straight From The Ministry Of Truth (Tel.)
ECB’s Nowotny Says Negative Rates Necessary To Avoid Deflation (Reuters)
Schaeuble Sees No Greece Debt Relief as Long as Debt Sustainable (BBG)
Why Juncker Should Worry About Panama Papers (Politico)
EU Finmins To Focus On Spending Cap To Cut Morass Of Budget Rules (R.)
UK Issues Travel Warning For Southern US States (CNBC)
US Government Is a Major Counterparty to Wall Street Derivatives (Martens)
Australian Politician Sets River On Fire (AFP)
In This Jungle, Mowgli Might Not Have Any Playmates Left (CNBC)
Visa-Free Travel A Stumbling Block For Turkey and EU (DW)
Merkel Accused Of Turning Blind Eye To Plight Of Syrian Refugees In Turkey (O.)
Tomorrow, We Have A Chance To Stop The Death Of Innocents (Observer)

It’s not just the next bubble in line: each bubble is crazier than the one before.

China’s Commodity Futures Bubble Insanity (ZH)

The credit-fueled speculative bubble in China’s commodity market, as we detailed previously, exploded this week as the mainstream slowly comes to realize that the gains in industrial metals are not a “sign of strength in China’s and the world’s economic recovery” but merely the next rotation of fast-money slooshing from Chinese equities to Chinese corporate bonds to Chinese real estate and now to Chinese commodity futures… Trading in futures on everything from steel reinforcement bars and hot-rolled coils to cotton and polyvinyl chloride has soared this week, prompting exchanges in Shanghai, Dalian and Zhengzhou to boost fees or issue warnings to investors. Deutsche Bank details the total crazinesss…

The onshore China commodity markets this week traded (conservatively) $350bn notional, a 17x increase on the $20bn notional that traded on Feb 1st 2016 i.e. a month ago (is it coincidence that the notional is about the same as at the peak of the equity frenzy?).

My calculations are pretty basic; I’ve trawled the screens and chosen 32 commodities in agri, metals and coke/coal and done a quick (contracts x value)/CNY for a dollar amount. I have not used the largest day’s volume either (e.g. Deformed Bar, RBTA has traded close to $100bn, but I used closer to $60bn). Cotton (VVA Comdty) has been trading $15bn, up from $500mm in Feb. In the US, the long established cotton contract (CT1 Comdty) trades $600mm. China listed Sugar (CBA Comdty) has traded $14bn versus the US listed sugar beet at $850mm.

This is what insanity looks like!!

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Deflation=slowing consumer spending=lower money velocity. Simple. But the only answer they can come up with is “We need some warm weather…”

Where Have All Britain’s Shoppers Gone? (Observer)

Shopping is the national pastime. High streets, malls and retail parks have long been places people went for a day out, rather than on a mission to buy a particular item, and their spending helped lift the country out of recession. But a big drop in footfall – the number of people visiting high street and retail centres – over the past year has exposed fresh cracks in the high street, leaving retail chiefs wondering where all their customers have gone. Analysts are reporting declines in the number of shopper visits to high streets and shopping centres around the country of as much as 10% in some cities over the past year. Worries about the economic outlook, coupled with the rise of internet shopping, jitters about the EU referendum and more spending on eating out and leisure leave little cash left over for splurging in the shops.

“There is a lot of nervousness around [among retailers],” says Tim Denison, retail analyst at Ipsos Retail Performance. “People have had more disposable income but retailers have not been as successful as they could have been in taking their share. Instead any spare money has gone on leisure and holidays rather than pure retail spend.” According to Ipsos’s retail traffic index, overall footfall was down 0.9% in the first quarter of 2016 compared with the same period a year ago. But that headline masks the fact that some towns and cities are faring much worse than the national picture would suggest. The Ipsos data singles out Newcastle upon Tyne as the worst performer, with shopper numbers down a hefty 9.95% over the past year, closely followed by Stoke-on-Trent, down 8.1%. Other pockets of particular weakness were Chelmsford, Lincoln and Cambridge.

By comparison Ashford in Kent, Crawley in West Sussex and Epsom in Surrey were among the best-performing retail centres – the result, according to Denison, of wealth radiating out from London. Even in those towns, however, growth is not exactly rampant. Five of the top seven best-performing shopping centres were up less than 1% year on year. A number of retail chains have already blamed poor performance on declining numbers of shoppers. Poundland has pointed directly to the fact there are fewer people on the high street as a key reason behind its slowing sales. Last week value fashion retailer Primark revealed its first drop in UK underlying sales for 12 years, although boss George Weston said it was not yet time to press the panic button, given that chilly spring weather had weighed on all sales for all fashion retailers. “We need some warm weather and then we will know if there is a real problem on the high street,” he said.

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“..the labor participation rate has fallen from a high of 67.3% in 2000 to 62.6% today. That 62.2% represents a 38-year low, which puts Bloomberg’s claim of a 42-year-low in joblessness in perspective.”

Why America’s Impressive 5% Unemployment Rate Still Feels Like A Lie (Qz)

On Apr. 14, Bloomberg News announced that jobless claims in the US have reached their lowest level since 1973. “All other labor market data are telling us that the economy is creating a lot of jobs,” economist Patrick Newport told the outlet. “This is further confirmation that the labor market is strong.” That same day, thousands of fast food workers, airport workers, home care workers, and adjunct professors took to the streets across the country to protest brutal labor conditions and demand a $15 minimum wage. Most of these workers make far below $15 per hour. Some make as low as $7.25 per hour, the current federal minimum wage. Most lack benefits. Some, like adjunct professors, have contingent, temporary jobs, sometimes consisting of only one poorly paid course per year.

Many low-wage employees work two or even three jobs in an attempt to cobble together enough income to cover basic needs. According to the US Bureau of Labor, all of these workers are considered “employed.” They are viewed as part of the American economy’s success story, a big part of which is our 5% unemployment rate. As president Barack Obama boasted in February: “The United States of America right now has the strongest, most durable economy in the world.” Obama’s claims of a strong economy ring hollow for the many thousands of workers who say they cannot make enough to survive. But Obama’s claims of a strong economy ring hollow for the many thousands of workers—in professions ranging from those which require a GED to those which require a PhD—who say they cannot make enough money to survive.

And these people, at least, are working. Those who cannot find work at all tell an even grimmer story.] There are three main reasons the vaunted economic recovery still feels false to so many. The first is the labor participation rate, which plunged at the start of the Great Recession and discounts the millions of Americans who have been out of work for six months or more. The second is “the 1099 economy,” a term The New Republic’s David Dayen coined to refer to the soaring number of temps, contractors, freelancers, and other often involuntarily self-employed workers. The third is a surge in low-wage service jobs, coupled with a corresponding decrease in middle-class jobs.

Employment statistics in particular have a habit of eclipsing the real story. As any worker will tell you, it is not the number of jobs that matters most, but what kind of jobs are available, what they pay, and how that pay measures against the cost of living. The 5% unemployment rate, other words, is hiding the devastating story of underemployment, wage loss, and precariousness that defines life for millions of Americans. Since 2008, the labor participation rate has fallen from a high of 67.3% in 2000 to 62.6% today. That 62.2% represents a 38-year low, which puts Bloomberg’s claim of a 42-year-low in joblessness in perspective. The jobless number is “low” only because more people are no longer considered to be participating in the workforce.

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“..the visage of an old age colony being hurtled toward the edge of a debt cliff by central bankers who have taken leave of their faculties does not bring the idea of economic recovery and growth immediately to mind.”

The Lemmings Of Wall Street (Stockman)

I mistakenly took Squawk Box off mute this morning. It was just in time to hear one of the regular anchors – the one who makes Joe Kernen sound slightly insightful by comparison – forecast a pick-up in global growth on the grounds that “China is recovering”. Yes, the credit intoxicated land of the Red Ponzi just tied one on for the record books. During Q1 it generated new debt at a madcap annual rate of $4 trillion or nearly 40% of GDP. And that incendiary deposit of more unpayable debt, which came on top of the $30 trillion already smothering history’s greatest construction site and open air gambling den, did indeed goose China’s real estate prices, state company CapEx, infrastructure building and steel production. Call it fiat growth because even pyramid building adds to stated GDP, at first.

Even then, the overwhelming share of this explosion of new credit went to pay interest on the existing mountain of IOUs. Charles Ponzi could never have imagined a scam so audacious. Nor are the red suzerains of Beijing unique in the headlong dash toward the financial cliff. Except for the nicety that Japan’s 30-year and 40-year bonds are trading at a microscopic fraction this side of zero (0.3%), Kuroda and his tiny band of mad men at the BOJ have driven the entirety of Japan’s monumental public debt – which is now actually measured in the quadrillions of yen – into the netherworld of negative yield. Needless to say, the visage of an old age colony being hurtled toward the edge of a debt cliff by central bankers who have taken leave of their faculties does not bring the idea of economic recovery and growth immediately to mind.

The same can be said for the ECB’s $90 billion per month bond buying bacchanalia. Having made German bunds so scarce as to have eviscerated any semblance of yield and turned Italy’s sovereign junk into super-bluechips, the ECB will soon be slurping up the corporate bonds of any global company that can fog a BBB credit breathalyzer and plant an SPV within the borders of the EU-19. What happens when Draghi is finally stopped and the Big Fat Bid of the ECB and its fast money front-runners disappears? The hopeful CNBC anchor-lady didn’t say. And about what happens if he isn’t stopped, she didn’t say, either.

The fact is, Simple Janet has already proven the end game. Money printing central bankers can’t stop. Were they to allow financial prices to normalize and trillions of bad credit to be liquidated, the whole financial house of cards they have built around the planet would blow sky high. The “soft landing” case is a null set.

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“The sole purpose of this “sober and serious” text, there can be no doubt, was to produce one conclusion – an alarming headline “finding” which, however dubious, can be repeated again and again in the weeks to come, until it lodges in the public consciousness.”

A Pro-EU ‘Study’ Straight From The Ministry Of Truth (Tel.)

Earlier this month, the government published a leaflet strongly urging us to vote “Remain” in the European Union – and sent it to all 27m UK households. Not only did the multi-million pound cost of producing and distributing this leaflet undermine the carefully-negotiated spending rules relating to the referendum on June 23, designed to stop the campaign becoming a money-driven free-for-all. The text itself was blatant propaganda – full of statistical sleights of hand disguised as reasoned arguments, a master-class in passive aggressive manipulation. It turns out, though, this tawdry leaflet was just the start when it comes to “Remain” using taxpayer cash and “the government machine” to bolster its cause.

For last week, Chancellor George Osborne launched a thumping 200-page “Treasury study” into the long-term implications of leaving the EU, which “forecast a £4,300 fall in GDP per household” if we leave. For many millions of voters, that’s a scary number – around a quarter of today’s average disposable income. Once again, this huge Treasury document represents a clear breach of long-standing rules that Whitehall remains detached from political campaigning, rules of particular relevance during a knife-edge referendum contest. And, reading through it, one is constantly stuck by the grotesque extent to which, for all the scientific pretence, the “analysis” is deliberately skewed.

The sole purpose of this “sober and serious” text, there can be no doubt, was to produce one conclusion – an alarming headline “finding” which, however dubious, can be repeated again and again in the weeks to come, until it lodges in the public consciousness. Rather than Her Majesty’s Treasury, this document could have been produced by Orwell’s Ministry of Truth. Unusually for a newspaper pundit, perhaps, I’m a trained economist. And in all my many years of studying official economic documents – budgets, comprehensive spending reviews and the like – through all that sifting and weighing of fine-print, I’ve never come across methodology and assumptions so blatantly rigged.

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Ergo: the ECB doesn’t understand what deflation is.

ECB’s Nowotny Says Negative Rates Necessary To Avoid Deflation (Reuters)

The euro zone needs negative interest rates to avoid sliding into deflation, ECB Governing Council member Ewald Nowotny said in an Austrian newspaper interview, defending the policy against widespread criticism in Germany. The ECB kept the cost of borrowing for banks at zero on Thursday and will continue to charge them 0.4% for parking money at the central bank. A slew of German politicians have complained in recent weeks that low interest rates are hurting savers. But Nowotny defended the policy. “You have to discuss negative rates in a broad context,” the head of the Austrian central bank was quoted as saying by the newspaper Der Standard on Saturday.

They are part of the central bank’s efforts to stabilize Europe’s economic situation after a severe crisis, he said. “Now it is all about preventing Europe from dropping into deflation.” He said that he would welcome it if interest rates could be raised again “the sooner the better”, but that the conditions must be right. “This will happen as soon as the economy is doing better, business activity picks up and inflation gets higher.” Countering the criticism of low interest rates, Draghi himself said on Thursday that some of it could be seen as endangering its independence, which could delay investment and hence prolong its current policies.

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Next step is demand for more austerity in Greece.

Schaeuble Sees No Greece Debt Relief as Long as Debt Sustainable (BBG)

German Finance Minister Wolfgang Schaeuble said Greece doesn’t need debt relief now and won’t require an easing of its debt burden as long as the troika of creditors determines that debt sustainability is ensured. The European Stability Mechanism, the euro region’s financial backstop, will seek to lock in the favorable refinancing costs it’s passing on to Greece for an extended period of time, Schaeuble said in Amsterdam. While not part of the Greek program, these operations – if in place – would help ease pressure on Greece, he said. “The debt sustainability analysis determines whether measures are needed” to help the cash-strapped country, Schaeuble told reporters after a two-day meeting of EU finance ministers. “It is my conviction that this is not necessary for the coming years.”

Greece’s government bonds rose for a third day on Friday after euro-area finance ministers and the IMF signaled that a deal on the nation’s next bailout installment is in sight. Schaeuble said “we have no desire” to repeat the confrontation between Greece and its creditors from last summer. The nation’s government submitted a bill to parliament on Friday evening, overhauling the Greek pension system and raising income tax for middle and high earners. The bill, which also raises taxation on gambling and dividends, is part of a €5.4 billion belt-tightening package required by creditors for the conclusion of the bailout review. The government still has to negotiate with representatives of creditor institutions a set of contingency measures equal to 2% of Greek GDP, which will only be triggered if it fails to meet its budget targets. An agreement on the bailout package and the target for Greece to reach a primary surplus of 3.5% of GDP by 2018 “appear possible,” Schaeuble said.

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He has little to fear unless and until the documents are released Wikileaks style. Once that is done, Juncker is not the biggest fish.

Why Juncker Should Worry About Panama Papers (Politico)

[..] The European Council chose to forget or ignore that Juncker had long resisted attempts to improve banking transparency and improve cross-border taxation – which had given Luxembourg a particular competitive advantage over its neighbors. A lot now depends on the extent to which LuxLeaks and/or the Panama Papers erode Juncker’s defense that everything was legal and he was ignorant of any wrongdoing. If there was law-breaking, then the ex-prime minister is vulnerable to the charge that either he didn’t know what was going on and should have, or he knew what was going on and allowed it. He is vulnerable also to whispers that Luxembourg’s business and political community is so small and tightly knit that complete ignorance is implausible.

What is more difficult to guess – at this moment of shifting standards – is whether Juncker will be condemned for allowing practices in Luxembourg that though legal were morally questionable. (You do not have to be a tax lawyer to see that what Juncker calls “the logic of non-harmonization” was compounded by Luxembourg’s culture of secrecy/discretion, which meant that companies could keep secret their tax arrangements and individuals could hide their revenue.) It is entirely possible that the government leaders who put Juncker in place – and their successors – will stick to the view that bygones should be bygones and Juncker’s past policies should not affect his standing as Commission president.

But what I detect, in at least some parts of Europe, is a readiness to revisit the past and to apply the standards of the present — meaning that what was legally correct may yet be found morally unacceptable in the court of public opinion. Juncker may choose to argue that his Commission is at the vanguard of reform. But what if his past record embarrasses the likes of Margrethe Vestager, as she turns over tax rulings made by national authorities with multinational corporations? Or Jonathan Hill, as he advances his proposal for increasing the tax transparency rules applying to multinationals? Or Pierre Moscovici, arguing for measures against tax evasion and money-laundering? Is this a sinner who repents, an opportunist, or just a hypocrite?

Whether Juncker is credible will also be important in the context of the Commission’s attempt to enforce fiscal discipline in Greece (or anywhere else). How does the Commission argue for improving revenue collection while LuxLeaks and Panama Papers paint a picture of a Juncker-run Grand-Duchy promoting tax-avoidance?

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The blind moving goalposts as they ‘see’ fit.

EU Finmins To Focus On Spending Cap To Cut Morass Of Budget Rules (R.)

EU finance ministers agreed on Saturday to discuss whether they can regain some control over a morass of EU budget rules by focusing mainly on an annual spending cap as the best measure of compliance. Years of changes and additions to EU rules, called the Stability and Growth Pact, have made meeting targets extremely complex, prompting an attempt to simplify them, European Commissioner Vice President Valdis Dombrovskis told a news conference after the meeting of EU finance ministers. “We did not discuss how to change the Pact, just how to choose the indicators to assess the compliance with the Pact,” Dutch Finance Minister Jeroen Dijsselbloem said.

The Dutch, who currently preside over the EU, proposed that the ministers consider using a single indicator with which to judge budgetary compliance, called the expenditure rule. It already exists in EU law as one indicator to be used to judge the fiscal performance of an EU country, but has so far been more in the background. The focus until now was on the development of the structural budget balance, a measure that strips off changes to budget revenue and expenditure stemming from the phase of the business cycle as well as all one-offs. Because the structural deficit is a complex and volatile indicator, the Dutch instead proposed putting more emphasis on the expenditure rule, which says a government cannot increase annual spending more than its medium-term potential growth rate.

“It is directly in the hands of finance ministers. It gives us more guidance in the process of designing the budget. It says in advance what you have to do, and you have the control in your hands,” Dijsselbloem said. He said that while the structural deficit, which is the key indicator mentioned in EU economic legislation, was a valuable theoretical concept, it could not be directly controlled by finance ministers. “There was general agreement that we need an indicator that takes out all the cyclical elements and one-offs but preferably it should be more stable and not change all the time, and we could put more emphasis on indicators that we can actually directly influence as finance ministers,” he said.

Dijsselbloem said EU deputy finance ministers would further work on what measurement to use to better assess compliance and the ministers would return to the discussion in the third quarter of 2016. The aim of the EU budget rules, created in 1997, is to keep nominal budget deficits below 3% of gross domestic product and public debt below 60%. But as the rules were revised in 2005, 2011 and 2013 to take account of economic and political realities and to incorporate intergovernmental treaties, they became more and more complex. “The sheer number of indicators in the current framework poses a massive challenge for the national implementation of the fiscal framework,” the Dutch presidency said in a paper prepared for the ministers’ meeting. “It contains targets, upper limits and benchmarks for the nominal balance, structural balance, expenditure growth and debt development,” the paper said.

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While Obama was talking up the special relationship.

UK Issues Travel Warning For Southern US States (CNBC)

The U.K. government has updated foreign travel advice, warning British citizens about risks visiting America’s Southern states. Specifically the new advice draws attention to potential difficulties for lesbians, gays, bisexuals and transgenders. “The U.S. is an extremely diverse society and attitudes towards LGBT people differ hugely across the country,” the U.K. Foreign Office website says. “LGBT travelers may be affected by legislation passed recently in the states of North Carolina and Mississippi,” it said. North Carolina and Mississippi have introduced laws that negatively affect people in the LGBT community. The North Carolina “bathroom” law is a statewide policy banning individuals from using public bathrooms that don’t correspond to their sex as stated on their birth certificate.

Celebrities including Bruce Springsteen, Ringo Starr and Pearl Jam have canceled concerts there in protest. And tech giant PayPal has canceled a large-scale investment plan after the legislation was rubber stamped. In Mississippi a “religious liberties” law will take effect in July. That legislation again blocks cities from allowing transgender people to use public bathrooms for the sex they identify as. It also aims to protect dozens of forms of businesses and services from being prosecuted if they refuse to serve LGBT people. A similar transgender “bathroom bill” in the Tennessee state failed Monday after it was withdrawn by its sponsor.

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By design.

US Government Is a Major Counterparty to Wall Street Derivatives (Martens)

According to a study released by the Federal Reserve Bank of New York in March of last year, U.S. taxpayers have already injected $187.5 billion into Fannie Mae and Freddie Mac, two companies that prior to the 2008 financial crash traded on the New York Stock Exchange, had shareholders and their own Board of Directors while also receiving an implicit taxpayer guarantee on their debt. The U.S. government put the pair into conservatorship on September 6, 2008. The public has been led to believe that the $187.5 billion bailout of the pair was the full extent of the taxpayers’ tab. But in an astonishing acknowledgement on February 25 of this year, the Government Accountability Office, the nonpartisan investigative arm of Congress, issued an audit report of the U.S. government’s finances, revealing that the government’s “remaining contractual commitment to the GSEs, if needed, is $258.1 billion.”

This suggests that somehow, without the American public’s awareness, the U.S. government is on the hook to two failed companies for $445.6 billion dollars. And that may be just the tip of the iceberg of this story. The official narrative around the bailout of Fannie and Freddie is that they were loaded up with toxic subprime debt piled high by the Wall Street banks that sold them dodgy mortgages. While that is factually true, the other potentially more important part of this story is the counterparty exposure the Wall Street banks had to Fannie and Freddie’s derivatives if the firms had been allowed to fail.

The New York Fed’s staff report of March 2015 concedes the following: “Fannie Mae and Freddie Mac held large positions in interest rate derivatives for hedging. A disorderly failure of these firms would have caused serious disruptions for their derivative counterparties.” Exactly how big was this derivatives exposure and which Wall Street banks were being protected by the government takeover of these public-private partnerships that had spiraled out of control into gambling casinos? According to Fannie and Freddie’s regulator of 2003, OFHEO, “The notional amount of the combined financial derivatives outstanding of Fannie Mae and Freddie Mac increased from $72 billion at the end of 1993, the first year for which comparable data were reported, to $1.6 trillion at year-end 2001.”

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“Unbelievable. A river on fire. Don’t let it burn the boat..”

Australian Politician Sets River On Fire (AFP)

An Australian politician has set fire to a river to draw attention to methane gas he says is seeping into the water due to fracking, with the dramatic video attracting more than two millions views. Greens MP Jeremy Buckingham used a kitchen lighter to ignite bubbles of methane in the Condamine River in Queensland, about 220 kilometres (140 miles) west of Brisbane. The video shows him jumping back in surprise, using an expletive as flames shoot up around the dinghy. “Unbelievable. A river on fire. Don’t let it burn the boat,” Buckingham, from New South Wales, said in the footage posted on Facebook on Friday evening, which has been viewed more than two million times. “Unbelievable, the most incredible thing I’ve seen. A tragedy in the Murray-Darling Basin (river system),” he said, blaming it on nearby coal-seam gas mining, or fracking.

Australia is a major gas exporter, but the controversial fracking industry has faced a public backlash in some parts of the country over fears about the environmental impact. Farmers and other landowners are concerned that fracking, an extraction method under which high-pressure water and chemicals are used to split rockbeds, could contaminate groundwater sources. The Murray-Darling Basin is a river network sprawling for one million square kilometres (400,000 square miles) across five Australian states. But the industry has said the practice is safe and that coal seam gas mining is a vital part of the energy mix as the world looks for cleaner fuel sources.

Origin Energy, which operates wells in the region, said it was monitoring the bubbling. “We’re aware of concerns regarding bubbling of the Condamine River, in particular, recent videos demonstrating that this naturally occurring gas is flammable when ignited,” the company said in a statement to the Australian Broadcasting Corporation. “We understand that this can be worrying, however, the seeps pose no risk to the environment, or to public safety, providing people show common sense and act responsibly around them.” The Australian energy firm said the methane seeps could be due to several factors, including natural geology and faults, drought and flood cycles, as well as human activity including water bores and coal seam gas operations.

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The planet’s future is its past: cockroaches and jellyfish. “We’re gradually destroying our planet’s ability to support our way of life..” Eh, gradually?!

In This Jungle, Mowgli Might Not Have Any Playmates Left (CNBC)

In Disney’s live-action remake of “The Jungle Book,” young human Mowgli is still palling around with bears and panthers. In reality, however, the world has changed since Rudyard Kipling’s tales first hit shelves more than a century ago. Speaking figuratively, biodiversity’s bag of Skittles has not only gotten smaller, it now has fewer flavors. Just how different are things? One expert puts it this way: If Mowgli were around today, he would most likely be raised by cows, goats and chickens instead of wolves and panthers and orangutans. If he were really unfortunate, his compatriots could be even worse. “Maybe even rats and cockroaches, if things go badly,” said Charles Barber, former forest chief at the U.S. Department of State’s Bureau of Oceans and International Environmental and Scientific Affairs, in an interview with CNBC.

The problem, according to some scientific experts, is that humans have changed the world so dramatically that it has also altered the diversity of life on Earth. “Most of these changes represent a loss of biodiversity,” analysts wrote in the Millennium Ecosystem Assessment in 2005, a report that chronicled the effects of human activity on nature produced by the United Nations and the World Resources Institute, where Barber now works. Among the Millennium Assessment’s findings were that humans have “changed ecosystems more rapidly and extensively than in any comparable period in human history,” due to food, fresh water and fuel needs. The spillover from those changes has contributed to big gains in humanity’s development, but “have been achieved at growing costs in the form of the degradation of many ecosystem services,” researchers wrote at the time.

This means that “plants and animals are now sharing the planet with a whole lot of people,” Barber said, adding that “we’re dealing with a fantastically different world.” One measure of biodiversity loss is just how fast certain species are now disappearing. Organizations like the Center for Biological Diversity state that an “extinction crisis” is underway that is wiping out plants and animals at a breathtaking pace. The last few hundred years have borne witness to mass extinctions that occur much quicker than the so-called natural “background rate” of one to five species per year. The CBD estimates that “literally dozens” of species are dying every day, which could see 30-50% of endangered populations being wiped out by midcentury.

Today, scientists say nearly a quarter of all mammals and coniferous trees are threatened with extinction. [..] A recent report by the World Wildlife Fund found that between 1970 (the year Earth Day was born) and 2010, the number of mammals, birds, reptiles and fish fell by more than 50%. “We’re gradually destroying our planet’s ability to support our way of life,” said WWF CEO Carter Roberts, at the time the report was published.

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If Brussels tries to push this through, it’ll mean the end of the EU. If it doesn’t, it’ll mean the refugee flow will start all over again and at the very least Schengen dies. Can’t win.

Visa-Free Travel A Stumbling Block For Turkey and EU (DW)

The refugee deal between the European Union and Turkey is stalled on the complexities of visa liberalization. EU officials say they won’t sacrifice their principles, but will they follow through? Turkish and EU leaders appear optimistic: 78 million Turkish citizens will gain long-coveted visa-free travel to the Schengen zone by June. After all, they have to in order to prevent a controversial deal on deportations from crumbling. Ankara has threatened to withdraw from the EU-Turkey migrant deal if visa liberalization is not in place by the end of June, putting in jeopardy a plan on which the European Union has pinned all of its hopes for slowing the arrival of people fleeing conflict and poverty.

Under the deal, reached in March, Turkey agreed to take back irregular migrants and refugees who crossed the Aegean to Greece in exchange for the European Union’s taking in Syrian refugees directly, as well as financial aid, visa liberalization and the acceleration of Turkey’s EU membership talks. While several parts of the migration deal have come under criticism, Turkey’s long-running struggle to gain unfettered access to the European Union for its citizens raises its own questions and remains a major sticking point. The EU executive, the European Commission, will present its third visa-liberalization progress report on May 4, and, if Turkey fulfills all 72 criteria to bring the country into compliance with EU and international law, a legislative proposal will be put forward to transfer the country to the visa-free list.

Less than two weeks before May 4, the European Commission said this week that Turkey was making progress but had only met 35 of 72 criteria for visa-free travel. On Thursday, however, European Migration Commissioner Dimitris Avramopoulos told reporters that he believed all benchmarks would be met. In a troubling sign, Turkey and the EU appear unable to even agree on what criteria have been met so far, with Turkish Prime Minister Ahmet Davutoglu saying this week that his government had brought the number down to the “single digits.” He has vowed to push the remaining criteria through parliament. According to Angeliki Dimitriadi, a visiting fellow at the European Council on Foreign Relations in Berlin, a major issue is what the EU means by “implementing.”

“It’s unclear how we measure benchmarks,” Dimitriadi told DW. “Are we looking at the benchmark as laws being passed or looking for actual implementation of all 72 criteria? Questions remain whether they have fulfilled this on paper or in reality.” Noting that the technical aspects of meeting EU criteria -implementing biometric passports, for example – take time, Dimitriadi said it would be nearly impossible to meet the June deadline. “I would be extremely surprised if they succeeded, and it has nothing to do with Turkey,” she said. “Any country would have a problem.”

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“..only a third of the children go to school – partly because of a lack of capacity, and partly because they are put to work by their parents.”

Merkel Accused Of Turning Blind Eye To Plight Of Syrian Refugees In Turkey (O.)

Merkel and her European colleagues have been accused of pandering too much to Turkey, amid calls for stronger international criticism of its crackdown on the political opposition. On Saturday Can Dundar, one of two prominent Turkish journalists on trial for reporting that Turkey was supplying arms to Syrian rebels, said Merkel was betraying the principles of democracy and free speech. “When you arrive, we’ll be on trial – alongside several academics who signed a petition calling for peace,” Dundar wrote in Der Spiegel, the German weekly magazine. “Will you again leave, behaving as if none of this pressure exists? Or will you lend an ear to us, and those who stand with us, in support of free expression?”

There are also concerns that Merkel is undermining free speech in Germany, after she acceded to a request from Ankara to prosecute a German comedian who made fun of President Erdogan. By going ahead with the EU-Turkey deal, Merkel was also accused of turning a blind eye to the predicament of Syrians in Turkey; many are due to be deported back there on the basis that Turkey guarantees their rights. But, despite recent legislative changes, only a tiny minority of Syrians have the right to work in Turkey. The majority work in the black market and live in urban poverty, far from camps like the one Merkel visited – which house just 10% of Turkey’s 2.7 million Syrians. And some have been deported back to Syria, according to research by Amnesty International.

In the areas surrounding the camp, Syrians praised Merkel for her wider support for refugees in 2015 – but reminded her of the predicament of the majority who did not have homes provided for them by the Turkish state. “It’s true the camp in Nizip is very nice,” said Abu Shihab, Syrian manager of a sweatshop in Gaziantep that employs Syrian children. “But what about those who live outside the camps?” While Merkel’s visit to a child-protection centre highlighted her intention to help Syrian children, solving the humanitarian crisis requires a more concerted effort. In Gaziantep, surveys of refugees by the Syria Relief Network, a coalition of NGOs, suggest only a third of the children go to school – partly because of a lack of capacity, and partly because they are put to work by their parents.

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We’re dead set to do much worse tomorrow than we did yesterday. So much for progress.

Tomorrow, We Have A Chance To Stop The Death Of Innocents (Observer)

Rabbi Harry Jacobi was one of 10,000 Jewish children saved from Nazi-controlled territory on the eve of the Second World War by those who recognised their plight and the necessity to act. Born in Berlin, his family sent him to Amsterdam, as his uncle had agreed to sponsor him. It was assumed that he would be safe in the neutral Netherlands and he joined other children in the orphanage. In May 1940, the Nazis invaded the Netherlands and began their rapid march on the capital. On 15 May, a Dutch woman, Truus Wijsmuller, the head of the refugee committee, went straight to the orphanage, rounded up the children and had them bussed directly to the nearest port. There, on the docks, she nagged and cajoled and twisted arms until the captain of a cargo ship, De Bodegraven, finally agreed to take the children and set sail for Britain and safety.

No permission was sought or given; Wijsmuller and the ship’s captain simply ignored the red tape. The children were in danger and something had to be done. Ten minutes after they sailed, the radio announced that the Netherlands had capitulated. They survived the journey, although the boat was strafed by Nazi fighter planes, and at last arrived in Falmouth. There, they were held on the boat for three days while the authorities weighed up whether to let them in or not; three days of anxious uncertainty aboard a boat that the Nazis has reported sunk. Thankfully, permission was given to dock in Liverpool and Harry became one of the very lucky 10,000 children who avoided near-certain death, were welcomed to Britain and offered a secure future.

Ten thousand children. Hauntingly, just the same figure has surfaced recently in the discussions around tomorrow’s Commons debate on amendments to the immigration bill that calls on the UK to take a lead in protecting unaccompanied minors in Europe. Seventy-six years after Harry Jacobi’s rescue, the figure of 10,000 is the number of children that Europol has identified as having disappeared on our continent in the process of fleeing from danger and suffering elsewhere. Ten thousand children who will have disappeared into trafficking networks across Europe, forced into drug abuse, child labour, sexual exploitation. Independent medical assessments have found that nearly half of all unaccompanied minors carry a sexually transmitted disease, testament to the terrible dangers they face along the way to Europe.

Some will have died. In the past three months, two minors have died trying to reach their family members in the UK from Calais. These 10,000 are a small percentage of the 95,000 migrant children estimated to be alone in Europe. And the “Dubs amendment” to be debated tomorrow, named for Alf (Lord) Dubs, who has sponsored it and is himself a survivor of the Kindertransport, calls for the resettlement of only 3,000 in the UK. A tiny proportion of those at risk, but it’s a start in securing safe and legal routes out of danger. Anything is better than the appallingly unsafe and illegal routes currently creating such havoc.

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Feb 252016
 
 February 25, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle February 25 2016


DPC “Ice fountain on Washington Boulevard, Detroit” 1906

China Does Not Have a Trade Surplus (Balding)
China Equities Plunge 6.4% as Volatility Reignites (BBG)
Rush of Corporate Bonds Inflames Worries About China’s Debt (WSJ)
PBOC Says China Can Handle Raising Budget Deficit to 4% (BBG)
Why China and the World Needs a New Plaza Accord (Barron’s)
Lew Says Don’t Expect ‘Crisis Response’ From G20 Meeting (BBG)
IMF Warns The Global Economy Is “Highly Vulnerable” (BBC)
Dear Janet, Mario, & Haruhiko – It’s Time For The ‘C’ Word (ZH)
Bundesbank Chief Warns Of Zero-Rate Impact On Banks (Reuters)
Oil Slump To Hit US Investment Banks’ Capital Market Revenue (BBG)
Biggest Wave Yet of U.S. Oil Defaults Looms as Bust Intensifies (BBG)
North Dakota’s Largest Oil Producer Suspends All Fracking (Reuters)
Big Banks and the White House Are Teaming Up to Fleece Poor People (FP)
Spanish Government Pact Dealt Fatal Blow Hours After Announcement (Reuters)
How America Made Donald Trump Unstoppable (Matt Taibbi)
Hungary To Hold Referendum On EU Plan For Migrant Quotas (Reuters)
German Government Expects Arrival Of 3.6 Million Refugees By 2020 (Reuters)
Greek Authorities Scramble To Find Shelter For Refugees (Kath.)
Tsipras: “We Will Not Allow Greece To Turn Into A Warehouse Of Souls” (Afp)

It’s all fake. Great piece.

China Does Not Have a Trade Surplus (Balding)

[..] Misinvoicing contributes a not entirely insignificant share to unrecorded capital inflows and outflows. However, Chinese authorities have become much more aware and concerned about these issues and gone through various waves of cracking down over this issue. Furthermore, the aggregate sums here are not enough to move the RMB and cause the currency pressures we are currently seeing. In fact, misinvoicing is merely the beginning of the financial flow problems in trade with Chinese innovation taking it a step further. China, as a country with strict currency controls, maintains records on international financial transactions sorted by a variety of categories. For instance, there is data on payment or receipt of funds by current or capital account, goods or service trade, and direct or portfolio investment.

For our purposes, this allows us to compare in a relatively straightforward manner, how international payments are flowing compared to the customs reported flow of goods. The differences in key data surrounding trade data is illustrative. Chinese Customs data reports goods exports valued at $2.27 trillion, with SAFE reporting goods exports of $2.14 trillion but Chinese banks report receipts of $2.37 trillion. In other words, funds received for exports of goods and services or about $100 billion higher than reported. At 4-11% higher than the Customs and SAFE reported values this is slightly elevated, but given expected discrepancies in the mid-single digits, this number is slightly elevated but not extreme. The differences between import and international payment data, however, is astounding.

Whereas Chinese Customs reports $1.68 trillion and SAFE report $1.57 in goods imports into China, banks report paying $2.55 trillion for imports. In other words, funds paid for imported goods and services was $870-980 billion or 52-62% higher than official Customs and SAFE trade data. This level of discrepancy is extreme in both absolute and relative terms and cannot simply be called a rounding error but is nothing less than systemic fraud. If we adjust the official trade in goods and services balance to reflect cash flows rather than official headline trade data as reported by both Customs and SAFE, the differences are even worse.

According to official Customs and SAFE data, China ran a goods trade surplus of $593 or $576 billion but according to bank payment and receipt data, China ran a goods trade surplus of only $128 billion. If we include service trade, the picture worsens considerably. China via SAFE trade data reports a $207 billion trade deficit in services trade. Payment data reported via SAFE actually reports about $42 billion smaller deficit of $165 billion. In other words, the supposed trade surplus of $600 billion has become a trade in goods and services deficit of $36 billion. Expand to the current, through a significant primary income deficit, and the total current account deficit is now $124 billion.

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It’s all about the yuan by now, I’m afraid.

China Equities Plunge 6.4% as Volatility Reignites (BBG)

China’s stocks tumbled the most in a month as surging money-market rates signaled tighter liquidity and the offshore yuan declined for a fifth day. The Shanghai Composite Index sank 6.4% at the close, with about 70 stocks falling for each that rose. Industrial and technology companies led losses. The overnight money rate, a gauge of liquidity in the financial system, climbed the most since Feb. 6. The plunge in equities underscores the challenge for China’s policy makers as they seek to project an image of stability in the nation’s financial markets as the economy slows.

Finance chiefs and central bankers from the Group of 20 will meet in Shanghai on Friday, while the annual meeting of the legislature begins in Beijing next week. The return of volatility is also a test for China’s new top securities regulator, who took over on the weekend after his predecessor was removed amid criticism of mismanagement. “The market is in a quite fragile state when everyone scrambles for an exit,” said Central China Securities Shanghai based strategist Zhang Gang.“None of the news in the market is sufficient enough to trigger such a slump.” Today’s declines almost erased a 10% rebound in the benchmark equity index from a January low. The Shanghai Composite has fallen 23% this year, the world’s worst performer after Greece. Volumes on the gauge were 43% above the 30-day average.

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The numbers are stunning.

Rush of Corporate Bonds Inflames Worries About China’s Debt (WSJ)

A surge of corporate bonds is adding to China’s already-high debt levels, amplifying risks to the economy as Beijing persistently encourages borrowing to fuel growth. The new rounds of corporate funding deepen anxieties among investors and analysts that China’s debt, already expanding at twice the pace of its gross domestic product, is feeding a nascent credit crisis that could further set back the country’s efforts to shift the economy to a slower, consumption-led model. Corporate debt now amounts to 160% of China’s gross domestic product, compared with 98% in 2008, according to Standard & Poor’s Ratings Services. The level in the U.S. is 70%. Outstanding corporate bonds in China last year surged 25% to 14.6 trillion yuan ($2.2 trillion), according to the central bank.

Worries over China’s rapid accumulation of credit, up 12.4% last year, are compounded by signs that not much of it is creating new wealth. State policy is directing the boom in corporate bonds, which can be 15% cheaper for borrowers than benchmark loans, meaning issuers can use them to favorably reschedule loans. The government says the push is part of a plan to have companies bear more direct risk as banks struggle with rising bad loans, and there is room for more. “This is in accordance with China’s reform direction,” Wang Yiming, vice minister at the Development Research Center of the State Council, the national cabinet’s think tank, said last week. “In the past, we’ve primarily relied on bank loans. We want to gradually increase direct financing.”

China has long sought to deepen its capital markets by developing debt and equity financing. Banks have traditionally accounted for about 70% of all lending in China. As souring loans began to pile up two years ago, regulators looked to the stock and bond markets to spread credit risk in the system, lower funding costs and expand financing channels for companies. Hopes to use equity markets as a key fundraising tool fell apart as stock prices collapsed last summer, but regulators still view the bond market as a viable channel to restructure risk. “In 2016, we want to adequately fulfill the financing function of the corporate bond market to further promote reform, steady growth and a bigger role for risk management,” the National Development and Reform Commission said in a statement on Wednesday.

Also on Wednesday, China’s central bank moved to make it easier for qualified foreign institutional investors to buy bonds on China’s interbank market, where issues from the Ministry of Finance and large government entities are traded. The move follows similar permission granted to some central banks and sovereign wealth funds last July and comes as China seeks to encourage use of the yuan to continue liberalizing its currency system. To accomplish its goal, analysts say, China needs to attract investment into its bonds, in particular by global institutional investors. [..] As the cost of debt servicing grows, capital is diverted from productive investment to interest payments. Research firm Gavekal Dragonomics estimates China now spends around 20% of its GDP just servicing its corporate and household debt.

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And why not…

PBOC Says China Can Handle Raising Budget Deficit to 4% (BBG)

China is able to increase its budget deficit to 4% of gross domestic product as the government seeks to cut corporate taxes, central bank officials wrote in an article on the Economic Daily’s website. Low levels of government debt, “relatively fast” economic growth and abundant state-owned assets give the country more capacity to sell more bonds, according to an article written by People’s Bank of China officials including Sheng Songcheng, head of the statistics department. China could maintain a debt-to-GDP ratio of up to 70% at end-2025 if the deficit were raised to 4%, the officials said.

China is looking to fiscal policy to help it grapple with the slowest growth since 1990. The deficit is likely to rise this year from 2.3% of GDP in 2015, the official Xinhua News Agency recently reported, citing a statement after a fiscal work conference. Vice Finance Minister Zhu Guangyao said last year the “red line” of 3% for the deficit-to-GDP ratio and 60% for the debt-to-GDP ratio should be revisited after lessons learned from the financial crisis. The article in the official Economic Daily publication comes ahead of a gathering of the nation’s top lawmakers early next month, when the year’s economic plans and targets will be agreed upon and announced.

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Doesn’t look like it’s going to happen, though. Unless they’re all just faking the denials.

Why China and the World Needs a New Plaza Accord (Barron’s)

Perhaps it’s time for a new Plaza Accord that focuses on Chinese imbalances in ways that calm world markets. The most obvious expression of those vulnerabilities is an overvalued yuan. Barclays speaks for many when it says the No. 2 economy needs a radical devaluation. Perhaps not in the 25%% neighborhood analysts Ajay Rajadhyaksha and Jian Chang suggest, but sizable enough to stimulate growth and keep pace with Beijing’s depleting currency-reserve holdings. Yet doing so could devastate jittery world markets – and President Xi Jinping knows it. The last thing Xi wants is to trigger Lehman Brothers 2.0. The Group of Seven nations could serve up a face-saving solution: a globally authorized yuan drop organized in a cooperative, transparent and orderly manner.

The model is what transpired 30 years ago in the New York hotel owned by U.S. presidential wannabe Trump. On Sept. 22, 1985, the then G-5 nations – France, Germany, Japan, the U.K. and the U.S. – plotted an unprecedented intervention in currency markets. One can argue Japan came out on the losing end of a deal to boost the yen, but traders marveled at the show the unity and relative competence of the moment. Arguably, it’s never been duplicated, even after the group expanded to include Canada and Italy to become the G-7. Of course, we live in more of a G-20 world nowadays – an admission that without Brazil, China, India, Saudi Arabia and Turkey at the table, many problems are intractable. But too many G-20 members fear retribution and won’t speak truth to Chinese power. That’s why the G-7 should quietly hatch a devaluation plan with Beijing.

If this sounds like a non-starter, consider the alternative: on an unsuspecting evening in the not-so-distant future, Beijing announces a 10% downshift, knocking the Dax, Dow Jones, FTSE, Nikkei and Shanghai Composite indexes several hundred points lower each. The yen surges, putting the final nail in the Abenomics coffin. Deutsche Bank executives call TV stations to insist, anew, their balance sheet is sound. Rumors of hedge-fund blowups ricochet around global markets. Politicians in London, Tokyo and Washington wonder how, of how, did this happen?

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They got one chance, and then announce beforehand it’s a no-go?!

Lew Says Don’t Expect ‘Crisis Response’ From G20 Meeting (BBG)

U.S. Treasury Secretary Jacob J. Lew downplayed expectations for an emergency response to global market turbulence when Group of 20 finance chiefs and central bankers meet this week in China, calling on nations to do more to boost demand without pursuing unfair currency policies. “Don’t expect a crisis response in a non-crisis environment,” Lew said in an interview broadcast Wednesday with David Westin of Bloomberg Television. “This is a moment where you’ve got real economies doing better than markets think in some cases.” Policy makers from the world’s biggest economies are unlikely to make the kind of detailed national commitments to restore growth they did to at the height of the global financial crisis, Lew said.

Instead, the group, which meets in Shanghai Feb. 26-27, may put more “meat on the bones” of the principles it has advocated in recent years, such as by strengthening the pledge that nations will refrain from competitive currency devaluations, he said. While the world economy isn’t in a moment of crisis, Lew said that “I don’t think it’s unreasonable to have the expectation that coming out of this will be a more stable understanding of what the future may look like.” Lew’s comments discount the prospect of a coordinated agreement to boost lackluster global growth and restore confidence after a selloff in world stocks to start the year. Some analysts and investors have called for a modern-day Plaza Accord, the 1985 deal among major economies to weaken the dollar and stabilize currency markets.

The world’s cloudy growth outlook and policy makers’ potential response will dominate the agenda in Shanghai, according to people familiar with the talks. It’s unlikely to produce the kind of action that came out of the G-20 meeting in London in April 2009, when countries collectively pledged more than $1.1 trillion in stimulus to rejuvenate a then-hobbled global economy.

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You don’t say.

IMF Warns The Global Economy Is “Highly Vulnerable” (BBC)

The IMF has said the global economy has weakened further and warned it was “highly vulnerable to adverse shocks”. It said the weakening had come “amid increasing financial turbulence and falling asset prices”. The IMF’s report comes before the meeting of G20 finance ministers and central bank governors in Shanghai later this week. It said China’s slowdown was adding to global economic growth concerns. China’s economy, the second-biggest in the world, is growing at the slowest rate in 25 years. “Growth in advanced economies is modest already under the baseline, as low demand in some countries and a broad-based weakening of potential growth continue to hold back the recovery,” the Washington-based IMF said.

“Adding to these headwinds are concerns about the global impact of China’s transition to more balanced growth, along with signs of distress in other large emerging markets, including from falling commodity prices.” The IMF also noted any future prospects for global growth “could be derailed by market turbulence, the oil price crash and geopolitical conflicts”. The agency has called on the G20 group to plan new mechanisms to protect the most vulnerable countries. Earlier this year, the IMF downgraded its forecast for global economic growth. It now expects economic activity to increase 3.4% this year followed by 3.6% in 2017.

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Them’s some graphs.

Dear Janet, Mario, & Haruhiko – It’s Time For The ‘C’ Word (ZH)

As policy errors pile up – just as they did in 2007/8 – around the world, we thought the following three charts might warrant the use of the most important word in modern central banking… "Contained"

 

Haruhiko, You Are Here…

 

Mario, You Are Here…

 

And Janet, You Are Here…

It does make one wonder, with all this carnage and so little action, whether "coordinated" inaction is the post-Davos decision – Don't just do something, stand there and jawbone!!

With the goal being a big enough catastrophe to warrant unleashing the war on cash, then NIRP, then the unlimited money drop… because as we stand, no matter what crazy policy has been imagined by the Keynesian "seers" – inflationary (well deflationary now) expectations have collapsed.

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Weidmann keeps taking the other side.

Bundesbank Chief Warns Of Zero-Rate Impact On Banks (Reuters)

Bank profits will shrink if rock-bottom interest rates stay in place for too long, the head of Germany’s central bank warned on Wednesday, signaling that he favors an eventual change in tack. The remarks from the Bundesbank’s influential president, Jens Weidmann, illustrate how seriously Germany is taking the fallout from years of low borrowing rates after a recent crash in bank stocks sucked in the country’s flagship Deutsche Bank. “The low interest-rate environment particularly weighs on banks’ earnings potential,” Weidmann told journalists, referring to the market slump. “The longer the low-interest-rate phase stays, the steeper interest rates fall, the … smaller banks’ profit,” said Weidmann, who also sits on the European Central Bank’s decision-taking Governing Council.

Early next month, ECB governors will meet to decide whether to loosen monetary policy further, for instance, by extending a €1.5 trillion money printing scheme to buy government bonds or by cutting interest rates further. A cut to the deposit rate, which translates into a charge on banks that park money with the ECB, would penalize banks. Weidmann referred to a survey of German banks that concluded they would see pre-tax profits shrivel by 25% by 2019 as a result. Should low interest rates remain in place until 2019, he said, profits could fall by up to half. Further cuts to borrowing rates during this time would make their results worse still.

The former adviser to German chancellor Angela Merkel, saying that he hoped interest rates would eventually rise again, played down any threat of deflation or falling prices and predicted that a modest economic recovery would continue. Falling price inflation is generally considered an economic alarm bell and is typically used as a trigger for ECB action. In talking down such a problem, Weidmann is also playing down the need for any action. He also voiced scepticism about the proposal to scrap the €500 note, saying that Germans still wanted to be free to pay in cash. “It would be fatal if the impression were to be created … that the discussion about the scrapping of the €500 note … was a step towards ending the use of cash generally.”

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I’m convinced the real numbers are much worse.

Oil Slump To Hit US Investment Banks’ Capital Market Revenue (BBG)

Revenue generated by U.S. investment banks through their capital markets businesses may “suffer” if oil and commodity prices stay low and the global economy slows further, Moody’s Investors Service has warned. While direct energy loan exposures for the largest U.S. banks look “manageable relative to earnings” and most of their exposures are to investment-grade borrowers, additional loss provisions will be necessary in some cases should oil remain subdued for an extended period, the credit assessor said in a report dated Feb. 24. Moody’s also warned that “lower-for-longer” oil prices presented a rising threat for lenders around the world.

JPMorgan Chase said this week its reserves for impaired energy loans would increase by about $500 million in the first quarter and it would have to add an additional $1.5 billion to the set-aside if oil prices held at $25 a barrel for about 18 months. Wells Fargo, the world’s largest bank by market value, said Wednesday in a filing soured energy loans climbed 49% in the last three months of 2015, while higher oil-and-gas provisions at Royal Bank of Canada crimped quarterly earnings. “Oil price volatility has contributed to increased market volatility, which could help boost trading activity and returns,” Moody’s said. “However, current weak sentiment in global equity and credit markets could work in the opposite direction, reducing trading volumes and banks’ related revenues.”

For U.S. global investment banks such as Bank of America, Citigroup and JPMorgan Chase, funded exposures to the oil and gas industry range from 1.5% to 5% and average 2.3% of total loans, according to Moody’s. The ratings company also underscored risks for banks in energy-exporting regions from the Middle East and Russia to Africa and Latin America. “Banks’ direct and indirect exposures to the drop in oil prices pose the potential for deterioration in asset quality, particularly in net oil-exporting countries,” Moody’s said. “While direct exposures appear broadly manageable from both a solvency and earnings perspective, low oil prices could still test the credit profiles of banks across our global rated portfolio.”

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The debt figures are incredible. “Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples’ money.”

Biggest Wave Yet of U.S. Oil Defaults Looms as Bust Intensifies (BBG)

In less than a month, the U.S. oil bust could claim two of its biggest victims yet. Energy XXI and SandRidge Energy, oil and gas drillers with a combined $7.6 billion of debt, didn’t pay interest on their bonds last week. They have until the middle of next month to either pay the interest, work out a deal with their creditors or face a default that could tip them into bankruptcy. If the two companies fail in March, it would be the biggest cluster of oil and gas defaults in a month since energy prices plunged in early 2015. “We’re just beginning to see how bad 2016 is going to be,” said Becky Roof, managing director for turnaround and restructuring with consulting firm AlixPartners.

The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples’ money. Drillers piled up a staggering $237 billion of borrowings at the end of September, according to data compiled on the 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. U.S. crude production soared to its highest in more than three decades. Oil prices have now fallen more than 70% from a 2014 peak, and banks and bondholders are fighting for scraps. Bond prices reflect investors’ fears. U.S. high yield energy debt lost 24% last year, the biggest fall since 2008, according to Bank of America Merrill Lynch U.S. High Yield Indexes.

Both Energy XXI and SandRidge could still reach an agreement with creditors that will give them time to turn their businesses around. SandRidge said last week that it missed a $21.7 million interest payment. The company owes $4.2 billion, including a fully-drawn $500 million credit line. Energy XXI, which owes $3.4 billion, said in a filing last week that it missed an $8.8 million interest payment. David Kimmel, a spokesman for SandRidge, said it has the money to make interest payments due in February, March and April. He wouldn’t comment on SandRidge’s options if it doesn’t make the interest payments by the end of the grace period.

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And its shares soar…

North Dakota’s Largest Oil Producer Suspends All Fracking (Reuters)

North Dakota oil producer Whiting Petroleum Corp said on Wednesday it will suspend all fracking and spend 80% less this year, the biggest cutback to date by a major U.S. shale company reacting to the plunge in crude prices. Shares of Whiting jumped 7.7% to $4 per share in after-hours trading as investors cheered the decision to preserve capital. During the trading session, Whiting had slid 5.6% to $3.72. Whiting’s cut is one of the largest so far this year in an energy industry crippled by oil prices at 10-year lows. The cuts will have a big impact in North Dakota, where Whiting is the largest producer.

Denver-based Whiting said it will stop fracking and completing wells as of April 1. Most of its $500 million budget will be spent to mothball drilling and fracking operations in the first half of the year. After June, Whiting said it plans to spend only $160 million, mostly on maintenance. Rival producers Hess Corp and Continental Resources Inc have also slashed their budgets for the year, though neither has cut as much as Whiting. “We believe this conservative strategy should help us to maintain our liquidity position and leave us well positioned to capitalize on a rebound in oil prices,” Whiting CEO Jim Volker said in a statement. The cuts will drag down production and likely reverberate in the economy of North Dakota, the second-largest U.S. oil producing state after Texas, which currently pumps 1.1 million barrels per day.

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Excellent by Pedro da Costa.

Big Banks and the White House Are Teaming Up to Fleece Poor People (FP)

When Wall Street and its regulators talk about servicing the so-called “unbanked,” people who are generally disconnected from the banking sector, it often sounds like a mission to do God’s work — bank unto others as thou banketh for thyself. “Basic financial services are out of reach for one in four individuals on Earth,” U.S. Treasury Secretary Jack Lew, a former Citigroup banker, said at a December speech launching the White House’s latest initiative targeted at the unbanked, which involves a partnership with JPMorgan Chase and PayPal. A report co-sponsored by JPMorgan Chase in 2014 speaks of the problem in similarly biblical terms: “Roughly 75% of the world’s poor — 2.5 billion people — do not have a bank account or otherwise participate in the mainstream financial system.” The lack of access to “secure, affordable financial products and services severely limits the global poor’s financial security and opportunities.”

Yet when bankers and regulators debate the travails of the unbanked or underbanked — effectively euphemisms for poor and lower-middle-class Americans — they usually avoid two key questions: Why is this cross-section of society so marginally attached to the banking system in the first place? And who is behind the provision of “alternative” services — high-cost loan sharks, payday lenders, cash checking stores, pawnshops — the poor turn to instead of banks? In reality, it is the banks themselves that appear to have cut off and driven away the low-income consumer, not the other way around. Wall Street won’t make loans to the poor — at least not directly. But large banks, it turns out, are behind many of the predatory nonbank, high-cost lenders that notoriously prey on poor communities.

Most recently, the same JPMorgan Chase that’s working with the White House to reach the unbanked partnered with OnDeck Capital, an online lender that approves loans in a flash and charges eye-popping interest rates that averaged around 54% as of 2014. In other words, the big banks are already well-acquainted with the poor unbanked poor — and they’re fleecing them.In other words, the big banks are already well-acquainted with the poor unbanked poor — and they’re fleecing them. They’re simply doing it the clean, Wall Street way, through intermediaries and with little accountability. Some banks are willing to do the dirty work themselves.

This is how Wells Fargo advertises its Direct Deposit Advance Loan, which carries an annual percentage rate of 120%: “These short term loans … can assist you with getting through a short term financial crisis by providing you with options and flexibility…. [for example] a medical bill, car repair, or similar unplanned expense.” How sweet of them. Those who are already in the system don’t fare much better. Big banks push the poor into the more shadowy corners of consumer finance by charging those at the financial margins high and sometimes repeated and lofty overdraft fees, ATM charges, and checking account minimum balances. The poor often live in areas that lack bank branches, meaning that even after they open an account, they have to use a local ATM that charges them $3 on top of the $3 their own bank likely charges. So taking out a $20 bill could cost $6, a 30% surcharge.

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Ungovernable poster child for recovery.

Spanish Government Pact Dealt Fatal Blow Hours After Announcement (Reuters)

A government deal between Spain’s Socialists and liberal Ciudadanos was dealt a fatal blow hours after it was announced on Wednesday when both the Conservatives and anti-austerity Podemos refused to back it. Such is the fragmentation of Spain’s political landscape after an election last December that the Socialists and Ciudadanos, with only 130 seats in the 350-seat parliament between them, cannot govern alone. Podemos won 69 seats and the center-right People’s Party (PP) 123. Continued bickering between all sides means Spain could be without a government for several more months at a time when the economic recovery is still fragile and unemployment stubbornly high at over 20%. To be elected prime minister, socialist leader Pedro Sanchez needs an absolute majority on March 2 or a simple majority of seats in a second vote that would take place in parliament on March 5.

The pact with Ciudadanos could have gone through only if the PP or Podemos had backed it or at least abstained in the second vote, something they again ruled out. Podemos said it did not agree with the social and economic policies outlined in the deal, which includes tax reforms and measures to make government spending more efficient. The party also said it was suspending its own talks with the Socialists. “This is a deal that is incompatible with Podemos,” Inigo Errejon, a senior party member, told a news conference. Hours earlier, the leader of the PP, acting Prime Minister Mariano Rajoy, had also reiterated his party would vote against the pact which he called “misleading” because it fell way short of any majority.

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Long article. Do read it though. Matt’s in a class of his own.

How America Made Donald Trump Unstoppable (Matt Taibbi)

The first thing you notice at Donald Trump’s rallies is the confidence. Amateur psychologists have wishfully diagnosed him from afar as insecure, but in person the notion seems absurd. Donald Trump, insecure? We should all have such problems. At the Verizon Giganto-Center in Manchester the night before the New Hampshire primary, Trump bounds onstage to raucous applause and the booming riffs of the Lennon-McCartney anthem “Revolution.” The song is, hilariously, a cautionary tale about the perils of false prophets peddling mindless revolts, but Trump floats in on its grooves like it means the opposite. When you win as much as he does, who the hell cares what anything means? He steps to the lectern and does his Mussolini routine, which he’s perfected over the past months.

It’s a nodding wave, a grin, a half-sneer, and a little U.S. Open-style applause back in the direction of the audience, his face the whole time a mask of pure self-satisfaction. “This is unbelievable, unbelievable!” he says, staring out at a crowd of about 4,000 whooping New Englanders with snow hats, fleece and beer guts. There’s a snowstorm outside and cars are flying off the road, but it’s a packed house. He flashes a thumbs-up. “So everybody’s talking about the cover of Time magazine last week. They have a picture of me from behind, I was extremely careful with my hair … ” He strokes his famous flying fuzz-mane. It looks gorgeous, like it’s been recently fed. The crowd goes wild. Whoooo! Trump!

It’s pure camp, a variety show. He singles out a Trump impersonator in the crowd, tells him he hopes the guy is making a lot of money. “Melania, would you marry that guy?” he says. The future first lady is a Slovenian model who, apart from Trump, was most famous for a TV ad in which she engaged in a Frankenstein-style body transfer with the Aflac duck, voiced by Gilbert Gottfried. She had one line in that ad. Tonight, it’s two lines: “Ve love you, New Hampshire,” she says, in a thick vampire accent. “Ve, together, ve vill make America great again!” As reactionary patriotic theater goes, this scene is bizarre – Melania Knauss didn’t even arrive in America until 1996, when she was all of 26 – but the crowd goes nuts anyway. Everything Trump does works these days. He steps to the mic. “She’s beautiful, but she’s more beautiful even on the inside,” he says, raising a finger to the heavens. “And, boy, is she smart!”

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Outcome is guaranteed.

Hungary To Hold Referendum On EU Plan For Migrant Quotas (Reuters)

Hungary will hold a referendum on European Union plans to create a system of mandatory quotas for migrants, an initiative that Hungary’s government has rejected, Prime Minister Viktor Orban said on Wednesday. Orban has used harsh anti-migrant rhetoric since the migrant crisis escalated last year and gained notoriety for erecting a steel fence along Hungary’s southern border to keep out migrants – a policy now adopted by other Balkan countries. He said the plebiscite, the first of its kind in Europe, would be a major test of European democracy. The EU declined official comment, saying it was were trying to clarify what Orban was proposing.

Orban, who did not say when the vote might be held, has said the quotas would redraw the ethnic, cultural and religious map of Hungary and Europe. Under the plan, most EU nations would be obliged to accept a certain number of immigrants. “Nobody has asked the European people so far whether they support, accept, or reject the mandatory migrant quotas,” he said at a news conference. “The government is responding to public sentiment now: we Hungarians think introducing resettlement quotas for migrants without the backing of the people equals an abuse of power.” Orban said he was aware of potential wider ramifications of such a referendum, especially if Hungarians say “No” to quotas. “We had to think about the potential impact on European politics of such a proposal, but that was a secondary consideration,” he said.

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Late last year expectations were for 3 million in Europe this year alone. Still, more realistic than ‘we have to stop them all’.

German Government Expects Arrival Of 3.6 Million Refugees By 2020 (Reuters)

The German government expects a total influx of 3.6 million refugees by 2020, with an average of half a million people arriving each year, German media reported on Thursday, in a country that took in a record 1.1 million migrants last year. The calculations are based on internal estimates by the Economy Ministry in coordination with other ministries, German newspaper Sueddeutsche Zeitung said. In order to project economic development, the Economy Ministry created “an internal, purely technical estimate on migration in coordination with other government departments”. There is no official government estimate on how many refugees Europe’s biggest economy expects over the next years, as numbers are highly volatile.

But the unprecedented arrival of 1.1 million asylum seekers last year, included in the 3.6 million forecast, stretched public resources thin and put strains on German Chancellor Angela Merkel’s government. Merkel, whose open-door refugee policy has put her under much pressure, in recent months vowed to significantly reduce the number of people arriving this year. On Wednesday, German federal police said that they had only registered 103 migrants arriving on Tuesday, suggesting a sharp drop as a result of tighter controls along the Balkan route. At the start of the prior week, over 2,000 were arriving on a daily basis. Last autumn the daily arrivals sometimes totaled over 10,000.

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Things are intensifying fast here.

Greek Authorities Scramble To Find Shelter For Refugees (Kath.)

Government officials were on Wednesday night trying to find more places to host refugees and migrants as the number of people arriving continued to rise while limits on those leaving remained in place. Tens of thousands of migrants are thought to be in Greece at the moment, waiting to find a way out after border controls were stepped up north of the country. An official at the Migration Policy Ministry said that the government had made contingency plans for looking after 50,000 people. But these plans may prove inadequate as the Former Yugoslav Republic of Macedonia (FYROM) is only allowing a few hundred migrants to cross from Greece each day. In contrast, an average of around 3,000 people have been arriving on Greek islands each day this week.

On Wednesday, more than 1,700 migrants arrived at Piraeus on passenger ferries from the islands. Greek authorities are trying to find ways, including stopping coaches on the national highway, to prevent all the arrivals traveling to Idomeni, next to the border with FYROM, where some 3,000 people have already gathered. The migrants who have been stopped on their journey north are being housed in motels and sports centers. The transit centers at Schisto, Elaionas and Elliniko in Athens, as well as Diavata in Thessaloniki have filled up over the last few days. The camps at Schisto and Diavata are hosting around 2,000 people each. There are concerns that the lack of spaces will mean that migrants will start camping out in city squares. Some 300 people set up camp in Victoria Square, central Athens, on Wednesday.

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The talks will not be very friendly for much longer.

Tsipras: “We Will Not Allow Greece To Turn Into A Warehouse Of Souls” (Afp)

EU interior ministers hold fresh talks on migration on Thursday, seeking to reduce the flow of people through the Balkans and plan for what the bloc has warned is a looming humanitarian crisis. Ministers from non-EU members Serbia, Former Yugoslav Republic of Macedonia (FYROM) and Turkey will also be in Brussels as the European Union reaches outside the borders of the 28-nation bloc in a desperate attempt to deal with the stream of people. Ahead of the talks, Greek Prime Minister Alexis Tsipras threatened not to cooperate with future EU agreements on the migrant crisis if the burden was not fairly shared among member states.

Athens is seething over a series of border restrictions along the migrant trail to northern and western Europe that has caused a bottleneck in Greece, the main entry point to Europe. “Greece will no longer agree to any deal if the burdens and responsibilities are not shared proportionally,” Tsipras told the Greek parliament Wednesday, adding: “We will not allow our country to turn into a warehouse of souls.”

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Feb 152016
 
 February 15, 2016  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  8 Responses »


John M. Fox Garcia Grande newsstand, New York 1946

Japan’s Economy Shrinks 1.4% As Abenomics Is Blown Off Course (Guardian)
China Imports Plunge -18.8% YoY In January, Exports Fall -11.2% (FT)
Yuan Rises Most Since 2005 as PBOC Voices Support, Raises Fixing (BBG)
PBoC Governor Zhou Breaks Long Silence (BBG)
Chinese Start to Lose Confidence in Their Currency (NY Times)
China Markets Brace for Wild Swings in Year of the Monkey (WSJ)
Selloff Plus A Market Holiday Make China Stocks Look Even More Expensive (BBG)
Hong Kong Land Price Plunges Nearly 70% in Government Tender (BBG)
Pakistan Default Risk Surges as $50 Billion Debt Bill Coming Due (BBG)
ECB In Talks With Italy Over Buying Bundles Of Bad Loans (Reuters)
Italy’s Banking Crisis Spirals Elegantly out of Control (WS)
Nuclear Fuel Storage in South Australia Seen as Economic Boon (BBG)
Oil Resumes Drop as Iran Loads Europe Cargo (BBG)
Condensate Vs Crude Oil: What’s Actually in Those Storage Tanks? (Westexas)
Renewables: The Next Fracking? (JMG)

So Nikkei up 7%, more mad stimulus expected.

Japan’s Economy Shrinks 1.4% As Abenomics Is Blown Off Course (Guardian)

Japan’s economy shrank at an annualised rate of 1.4% in the last quarter of 2015, new figures showed on Monday, dealing a further blow to attempts by the prime minister, Shinzo Abe, to lift the country out of stagnation. Last quarter’s contraction in the world’s third largest economy was bigger than the 1.2% decline that had been forecast, as slow exports to emerging markets failed to pick up the slack created by weak demand at home. The economy shrank 0.4% in October-December from the previous quarter, according to cabinet office figures. Slower exports and weak domestic demand were largely to blame for the contraction – a sign that Abe’s attempts to boost spending is failing to deliver.

Private consumption, the driving force behind 60% of GDP, slumped by 0.8% between October and December last year, a bigger fall than the median market forecast of 0.6%. Some analysts, though, expect domestic spending to pick up ahead of a planned rise on the consumption (sales) tax, from 8% to 10%, in April 2017. “However, this should be short-lived, as activity will almost certainly slump once the tax has been raised,” said Marcel Thieliant of Capital Economics. “The upshot is that the Bank of Japan still has plenty of work to do to boost price pressures.” The Nikkei benchmark index opened sharply higher on Monday, gaining more than 3% off the back of gains on Wall Street and in Europe on Friday, as well as encouraging US retail sales figures.

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Not much in imports left after 15 months in a row. Do note difference between dollar- and yuan terms.

China Imports Plunge -18.8% YoY In January, Exports Fall -11.2% (FT)

China’s exports and imports suffered larger-than-expected drops in the first month of this year in both renminbi- and dollar-denominated terms. Exports fell 6.6% year-on-year in January to Rmb1.14tn, following a 2.3% gain in December. Economists expected a gain of 3.6%. It was the biggest fall in exports since an 8.9% drop in July last year. The drop was even more pronounced measured in US dollars, with exports crashing 11.2% year-on-year last month to $177.48bn. That was from a 1.4% drop in December, and versus expectations for a 1.8% slide. It was the biggest drop since a 15% fall in March last year. The import side of the equation fared worse in both renminbi- and dollar-terms. Shipments to China cratered by 14.4% year-on-year to Rmb737.5bn in January. That’s from a 4% drop in December, and versus expectations for a 1.8% rise.

In dollar terms, imports plunged 18.8% last month to $114.19, from a 7.6% drop in January and versus an expected drop of 3.6%. This was the biggest monthly drop in imports since last September and also means shipments have contracted year-on-year for the past 15 months straight. The general weakness in the renminbi, which fell 1.3% in January and had weakened by 2.2% in the final quarter of 2015, is likely playing a part, by making overseas goods more expensive. However, exports have yet to receive a boost from the currency’s depreciation. China’s trade surplus grew to Rmb496.2bn last month from Rmb382.1bn in December. Economists expected it to inch higher to Rmb389bn. In dollar terms, China’s trade surplus rose to $63.29bn from $60.09 in December and versus expectations of $60.6bn.

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Whatever it takes revisited.

Yuan Rises Most Since 2005 as PBOC Voices Support, Raises Fixing (BBG)

China’s yuan surged by the most in more than a decade, catching up with dollar declines during a week-long holiday, after the central bank chief voiced support for the exchange rate and set its fixing at a one-month high. The currency advanced 0.9%, the most since the nation scrapped a peg to the dollar in July 2005, to 6.5170 a dollar as of 10:50 a.m. in Shanghai. The offshore yuan fell 0.16% to 6.5186 to almost match the onshore rate, compared with a 1% premium last week when mainland Chinese markets were shut for the Lunar New Year holidays. The People’s Bank of China on Monday raised its daily fixing against the greenback, which restricts onshore moves to a maximum 2% on either side, by 0.3%, the most since November, to 6.5118. A gauge of dollar strength declined 0.8% last week, while the yen rose 3% and the euro advanced 0.9%.

China’s balance of payments position is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, PBOC Governor Zhou Xiaochuan said in an interview published Saturday in Caixin magazine. The nation’s foreign-exchange reserves shrank by $99.5 billion in January, the second-biggest decline on record, as the central bank sold dollars to fight off yuan depreciation pressure. An estimated $1 trillion of capital left China last year. “In the near term, the stronger fixing and Zhou’s comments reflect the PBOC’s consistent view of stabilizing the yuan,” said Ken Cheung at Mizuho. “Containing yuan depreciation expectations and capital outflows remain top-priority tasks. Mild depreciation could be allowed, but that would be done only after stabilizing depreciation expectations.”

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What is this, some sort of reverse psychology? By now nobody trusts him anymore.

PBoC Governor Zhou Breaks Long Silence (BBG)

China’s central bank has stepped up efforts to restore stability to the nation’s currency and economy, with Governor Zhou Xiaochuan breaking his long silence to argue there’s no basis for continued yuan depreciation. The nation’s balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, Zhou said in an interview published Saturday in Caixin magazine. That’s an escalation in verbal support after such comments have been left in recent months to deputies and the central bank research department’s chief economist. Zhou dismissed speculation that China plans to tighten capital controls and said there’s no need to worry about a short-term decline in foreign-exchange reserves. The country has ample holdings for payments and to defend stability, he said.

“He’s desperately trying to make sure that all of his work in the past few years on capital liberalization does not go to waste,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “He’s trying hard to instill investor confidence in the renminbi so that the Chinese government does not have to resort to the extreme measure of unwinding all of the progress on offshore renminbi in the past few years.” The comments come as Chinese financial markets prepare to reopen Monday after the week-long Lunar New Year holiday. The weakening exchange rate and declining Chinese share markets have fueled global turmoil and helped send world stocks to their lowest levels in more than two years. The PBoC set the daily fixing against the dollar, which restricts onshore moves to a maximum 2% on either side, 0.3% higher at 6.5118, the strongest since Jan. 4. The Shanghai Composite Index dropped 2.3% as of 9:39 a.m. local time.

Lost amid the angst over China’s stocks, currency and sliding foreign exchange reserves is the flush liquidity situation at home. The People’s Bank of China has been putting its money where its mouth is, pumping cash into the financial system to offset record capital outflows amid fears the yuan could weaken further. Data that could come as soon as Monday is expected to show China’s broadest measure of new credit surged in January on a seasonal uptick in lending, and as companies borrowed to pay off foreign debt. Aggregate financing likely grew 2.2 trillion yuan ($335 billion), according to the median forecast of a Bloomberg survey of economists. [..] Even as foreign exchange reserves have declined since mid 2014 – to a four-year low of $3.23 trillion in January – M1 money supply has continued to rise.

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No-one has a clue where it’ll be in a week, a month.

Chinese Start to Lose Confidence in Their Currency (NY Times)

As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less. To get around the country’s cash controls, individuals are asking friends or family members to carry or transfer out $50,000 apiece, the annual legal limit in China. A group of 100 people can move $5 million overseas. The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China’s economic prospects and shaking global markets. Over the last year, companies and individuals have moved nearly $1 trillion from China.

Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas and paying off debts owed in dollars. Others, like Smurfing, are more dubious, and in certain cases, outright illegal. Chinese customs officials caught a woman last year trying to leave the mainland with $250,000 strapped to her chest and thighs and hidden inside her shoes. If the government cannot keep citizens from rushing to the financial exits, China’s outlook could darken. The swell of outflows is a destabilizing force in China’s slowing economy, threatening to undermine confidence and hurt a banking system that is struggling to deal with a decade-long lending binge. The capital flight is already putting significant pressure on the country’s currency, the renminbi.

The government is trying to prevent a free fall in the currency by stepping into the markets and tapping its huge cash hoard to shore up the renminbi. But a deep erosion of those reserves may set off further outflows and create turbulence in the markets. China is also trying to put the brakes on outflows, by tightening its grip on the country’s links to the global financial system. The government, for example, just started to clamp down on people’s use of bank cards to buy overseas life insurance policies. Such moves have trade-offs. The limits create concerns that the government is pulling back on reform efforts that China needs to keep growth humming in the decades to come. But the near-term pressure also requires serious attention, given the global shock waves.

“The currency has become a very near-term threat to financial stability,” said Charlene Chu, an economist at Autonomous Research. Navigating such problems is fairly new for China. For years, China soaked up much of the world’s investment money, as the economy grew at annual rates in the double digits. A largely closed financial system kept China’s own money corralled inside the country. Now, with growth slowing, money is gushing out of the country. And the government has a looser grip on the spigot, because China dismantled some currency restrictions to open up its economy in recent years. “Companies don’t want renminbi and individuals don’t want renminbi,” said Shaun Rein, the founder of the China Market Research Group. “The renminbi was a sure bet for a long time, but now that it’s not, a lot of people want to get out.”

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Huh? What is that?: “There will be an incredible amount of strong psychological pessimism in China this week..”

China Markets Brace for Wild Swings in Year of the Monkey (WSJ)

Investors in Chinese stocks are facing a tumultuous return to action Monday after a weeklong holiday in mainland markets for the Lunar New Year shielded them from the global market turmoil. Chinese shares are already among the world’s worst-performing this year, with the main benchmark Shanghai Composite Index down 21.9% at 2763.49. The market has almost halved in value since its peak last June, dropping some 47% since then. But analysts say both the Shanghai and Shenzhen stock exchanges could face further sharp losses at Monday’s open, as they catch up with the past week’s mostly gloomy global markets. Japanese stocks sank 11% last week and the yen shot up, defying a recent move by the Bank of Japan to introduce negative interest rates, partly designed to keep the local currency weaker and help Japanese exporters.

Markets in Europe and the U.S. whipsawed as investors lost faith in banking stocks, while Australian shares entered bear market territory, having fallen more than 20% since their most recent peak in late April. Meanwhile, Chinese stocks trading in Hong Kong lost 6.8% and the city’s benchmark Hang Seng Index fell 5% in the two days markets were open here at the end of last week. “There will be an incredible amount of strong psychological pessimism in China this week,” said Richard Kang at Emerging Global Advisors. “[Global assets] are going up and down together, it’s very macro-driven right now.” China was at the epicenter of market mayhem at the start of 2016, as shares fell sharply and the country’s currency, the yuan, dipped in value. Before last summer, Chinese market slumps had little impact beyond the country’s borders, mainly because stock-buying there remains largely driven by local retail investors.

Foreign investors still account for a small amount of stock ownership in China. But the Chinese selloff early this year was met with a confused response from Beijing policy makers, who flip-flopped on new measures to stem the market bleeding and were criticized for failing to communicate clearly a change in currency strategy. That contributed to a perception among global investors that Chinese leaders have lost their grip on the country’s economy. The nervousness in markets around the world has now taken on new dimensions. Central banks are struggling to boost growth, despite the Bank of Japan joining the European Central Bank in setting negative interest rates for the first time. Bank profits face a squeeze as the margin between what they pay out on deposits and what they make on lending narrows.

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Not a small detail.

Selloff Plus A Market Holiday Make China Stocks Look Even More Expensive (BBG)

For once, it wasn’t China’s fault. With the country’s markets closed for lunar new year holidays last week, global equity investors found plenty of other reasons to sell – everything from sliding oil prices to shrinking bank profits and crumbling faith in global monetary policy. The MSCI All-Country World Index plunged 2.6%, entering bear-market territory for the first time in more than four years. While the rout may help Communist Party officials counter perceptions that China is the biggest risk for global markets, investors in yuan-denominated A shares will find little to cheer about as trading resumes Monday. Valuations in the $5.3 trillion market, already inflated by a record-breaking bubble last year, now look even more expensive versus their beaten-down global peers.

The Shanghai Composite Index trades at a 34% premium to MSCI’s emerging-markets index – up from an average gap of 10% over the past five years – and equities in the tech-heavy Shenzhen market are almost four times more expensive than their developing-nation counterparts. Shares with dual listings, meanwhile, are valued at a 46% premium on the mainland relative to Hong Kong, near the widest gap since 2009. “There’s been a lot of embedded selling pressure in the A-share market,” said George Hoguet at State Street Global Advisors, which has $2.4 trillion under management. “I don’t think the market is fully cleared yet.” While the Shanghai Composite has dropped 22% in 2016, the gauge is still up 31% over the past two years, a period when the MSCI Emerging Markets Index sank 22%.

The Chinese stock measure is valued at 15 times reported earnings, versus 11 for the developing-nation gauge. Chinese markets will be volatile when they reopen as investors determine where they “sit in the global marketplace,” Garrett Roche, a global investment strategist at Bank of America Merrill Lynch, said by phone from New York. The firm oversees $2.5 trillion in client assets. “From the Chinese perspective, we are relatively nervous about it anyway, so it won’t change our view that the selloff hurts,” he said. Investors shouldn’t read too much into what happens in global markets when assessing the outlook for Chinese equities because the country still has a relatively closed financial system, said Eric Brock at Clough Capital Partners. The Shanghai Composite’s correlation with the MSCI All-Country index over the past 30 days was less than half that of the Standard & Poor’s 500 Index.

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Stick a fork in it?!

Hong Kong Land Price Plunges Nearly 70% in Government Tender (BBG)

In the latest sign that Hong Kong’s property correction is deepening, a piece of land sold by the government in the New Territories sold for nearly 70% less per square foot than a similar transaction in September. The 405,756 square foot (37,696 square meter) parcel of land in Tai Po sold for HK$2.13 billion ($274 million) or HK$1,904 per square foot, in a tender that closed on Feb. 12, according to the Hong Kong Lands Department website. The buyer was Asia Metro Investment, a subsidiary of China Overseas Land & Investment.

The plunge in the price of land comes amid weaker appetite from Hong Kong developers against the backdrop of a nearly 11% drop in housing prices since their September high, according to the Centaline Property Centa-City Leading Index. In January, sales of new and secondary homes reached their lowest monthly level since Centaline started tracking data in January 1991. Hong Kong home prices surged 370% from their 2003 trough through the September peak before the correction began, spurred by a rising supply of housing and a slowdown in China. Lower prices paid for land could eventually lead to cheaper home prices down the road, and are viewed as a leading indicator of the negative sentiment on the market.

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Asia’s troubles are sure to spread. Reporting on it is slow, that’s all.

Pakistan Default Risk Surges as $50 Billion Debt Bill Coming Due (BBG)

Bets are rising that Pakistan will default on its debt just as it starts to revive investor interest with a reduction in terrorist attacks. Credit default swaps protecting the nation’s debt against non-payment for five years surged 56 basis points over the past week amid the global market sell-off, the steepest jump after Greece, Venezuela and Portugal among more than 50 sovereigns tracked by Bloomberg. About 42% of Pakistan’s outstanding debt is due to mature in 2016 – roughly $50 billion, equivalent to the size of Slovenia’s economy. Prime Minister Nawaz Sharif has worked to make Pakistan more investor-friendly since winning a $6.6 billion IMF loan in 2013 to avert an external payments crisis. The economy is forecast to grow 4.5%, an eight-year high, as a crackdown on militant strongholds helps reduce deaths from terrorist attacks.

“Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions,” Mervyn Tang, lead analyst for Pakistan at Fitch said by e-mail. Since Sharif took the loan, Pakistan’s debt due by end-2016 has jumped about 79%. He’s also facing resistance in meeting IMF demands to privatize state-owned companies, leading to a strike this month at national carrier Pakistan International Airlines. The bulk of this year’s debt, some $30 billion, is due between July and September, and repayments will get tougher if borrowing costs rise more. The spread between Pakistan’s 10-year sovereign bond and similar-maturity U.S. Treasuries touched a one-year high on Thursday.

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Making it up as they go along. Not a confidence booster.

ECB In Talks With Italy Over Buying Bundles Of Bad Loans (Reuters)

The ECB is in talks with the Italian government about buying bundles of bad loans as part of its asset-purchase program and accepting them as collateral from banks in return for cash, the Italian Treasury said. The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their €200 billion ($225 billion) of soured credit and free up resources for new loans. Nonetheless, it would likely fuel a debate in other countries about whether the ECB is taking on too much risk by buying asset-backed securities (ABS) based on loans that have not been repaid for roughly three months. Italian Treasury officials told reporters the ECB may buy these securities as part of its €1.5 trillion asset-purchase program or accept them as collateral from banks in return for cash, in so called repurchase agreements.

In November last year, an ECB source said that buying rebundled non-performing loans could be an extreme option if the euro zone’s economic situation became “really bad”. The bank has been struggling to revive inflation and is likely to cut its deposit rate again next month. Italy’s high stock of bad loans has been a drag on the euro zone’s third-largest economy and is a growing concern for investors, who have been selling shares in Italian banks heavily since the start of the year. The ECB has been buying an average of €1.19 billion of ABS every month since November 2014, Datastream data showed, and prefers securities backed by performing loans. Under existing rules, the ECB can buy ABS as long as they have a credit rating above a certain threshold, thereby ensuring it only buys high-quality securities.

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Nothing stops the ECB, least of all its own rules.

Italy’s Banking Crisis Spirals Elegantly out of Control (WS)

Italy, the Eurozone’s third largest economy, is in a full-blown banking crisis. Four small banks were rescued late last year. The big ones are teetering. Their stocks have crashed. They’re saddled with non-performing loans (defined as in default or approaching default). We’re not sure that the full extent of these NPLs is even known. The number officially tossed around is €201 billion. But even the ECB seems to doubt that number. Its new bank regulator, the Single Supervisory Mechanism, is now seeking additional information about NPLs to get a handle on them. Other numbers tossed around are over €300 billion, or 18% of total loans outstanding. The IMF shed an even harsher light on this fiasco. It reported last year that over 80% of the NPLs are corporate loans. Of them, 30% were non-performing, with large regional differences, ranging from 17% in some of the northern regions to over 50% in some of the southern regions. The report:

High corporate NPLs reflect both weak profitability in a severe recession as well the heavy indebtedness of many Italian firms, especially SMEs, which are among the highest in the Euro Area. This picture is consistent with corporate survey data which shows nearly 30% of corporate debt is owed by firms whose earnings (before interest and taxes) are insufficient to cover their interest payments.

The reason these NPLs piled up over the years is because banks have been slow to, or have refused to, write them off or sell them to third parties at market rates. Recognizing the losses would have eaten up the banks’ scarce capital. Reality would have been too ugly to behold. The study found that the average time for writing off bad loans has jumped to over six years by 2014. And this:

In 2013, on average less than 10% of bad debt, despite already being in a state of insolvency, was written off or sold. The bad debt write-off rate varies significantly across the major banks, with banks with the highest NPL ratios featuring the lowest write-off rates. The slow pace of write-offs is an important factor in the rapid buildup of NPLs.

Now, to keep the banks from toppling, the ECB has an ingenious plan: it’s going to buy these toxic assets or accept them as collateral in return for cash. That’s what the Italian Treasury told reporters, according to Reuters. Oh, but the ECB is not going to buy them directly. That would violate the rules; it can only buy assets that sport a relatively high credit rating. And this stuff is toxic. So these loans are going to get bundled into structured Asset Backed Securities (ABS) and sliced into different tranches. The top tranches will be the last ones to absorb losses. A high credit rating will then be stamped on these senior tranches to make them eligible for ECB purchases, though they’re still backed by the same toxic loans, most of which won’t ever be repaid.

The ECB then buys these senior tranches of the ABS as part of its €62.4-billion per-month QE program that already includes about €2.2 billion for ABS (though it has been buying less). Alternatively, the ECB can accept these highly rated, toxic-loan-backed securities as collateral for cash via so-called repurchase agreements. But buying even these senior tranches would violate the ECB’s own rules, which specify:

At the time of inclusion in the securitisation, a loan should not be in dispute, default, or unlikely to pay. The borrower associated with the loan should not be deemed credit-impaired (as defined in IAS 36).

Hilariously, the NPLs, by definition, are either already in “default” or “unlikely to pay,” most of them have been so for years, and the borrower is already “deemed credit impaired” if the entity even still exists. But hey, this is the ECB, and no one is going to stop it. Reuters: “The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their €200 billion of soured credit and free up resources for new loans.” But the scheme would limit ECB purchases to only the top tranches, and thus only a portion of the toxic loans. So there too is a way around this artificial limit.

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Might as well move out now. There is no safe storage for nuclear waste.

Nuclear Fuel Storage in South Australia Seen as Economic Boon (BBG)

The storage and disposal of nuclear waste in South Australia would probably deliver significant economic benefits to the state, generating more than A$5 billion ($3.6 billion) a year in revenue, according to the preliminary findings by a royal commission. Such a facility would be commercially viable, with storage commencing in the late 2020s, the Nuclear Fuel Cycle Royal Commission said in its tentative findings released Monday. It doesn’t make economic sense to generate electricity from a nuclear power plant in the state in the “foreseeable future” due to costs and demand, the report found. “The storage and disposal of used nuclear fuel in South Australia would meet a global need and is likely to deliver substantial economic benefits to the community,” the commission said. “

Such a facility would be viable and highly profitable under a range of cost and revenue assumptions.” South Australia, where BHP Billiton operates the Olympic Dam mine, set up the commission last year to look at the role the state should play in the nuclear industry — from mining and enrichment to energy generation and waste storage. While Australia is home to the world’s largest uranium reserves, it has never had a nuclear power plant. Concerns over climate change have prompted debate about whether to reverse Australia’s nuclear policy. Longer term, “Australia’s electricity system will require low-carbon generation sources to meet future global emissions reduction targets,” the commission said in its report. “Nuclear power may be necessary, along with other low carbon generation technologies.”

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A ways to go.

Oil Resumes Drop as Iran Loads Europe Cargo (BBG)

Oil resumed its decline below $30 a barrel as Iran loaded its first cargo to Europe since international sanctions ended and Chinese crude imports dropped from a record. West Texas Intermediate futures fell 0.5% in New York after surging 12% on Friday, while Brent in London slid 0.2%. A tanker for France’s Total was being loaded Sunday at Kharg Island while vessels chartered for Chinese and Spanish companies were due to arrive later the same day, an Iranian oil ministry official said. Chinese imports in January decreased almost 20% from the previous month, according to government data. “Iran is going to add headwinds to the market,” David Lennox, an analyst at Fat Prophets in Sydney, said. “We still have 500 million barrels of U.S. inventories and shale producers are still pumping. Until there are significant cuts to output, the rally is not sustainable.”

Oil in New York is down 21% this year amid the outlook for increased Iranian exports and BP Plc predicts the market will remain “tough and choppy” in the first half as it contends with a surplus of 1 million barrels a day. Speculators’ long positions in WTI through Feb. 9 rose to the highest since June, according to data from the U.S. Commodity Futures Trading Commission. WTI for March delivery slid as much as 49 cents to $28.95 a barrel on the New York Mercantile Exchange and was at $29.28 at 2:50 p.m. Hong Kong time. The contract gained $3.23 to close at $29.44 on Friday after dropping 19% the previous six sessions. Total volume traded was about 12% above the 100-day average. WTI prices lost 4.7% last week. Brent for April settlement declined as much as 69 cents, or 2.1%, to $32.67 a barrel on the ICE Futures Europe exchange. The contract climbed $3.30 to close at $33.36 on Friday. The European benchmark crude was at a premium of $1.59 to WTI for April.

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Our old friend and oil expert Jeffrey Brown with an interesting take.

Condensate Vs Crude Oil: What’s Actually in Those Storage Tanks? (Westexas)

After examining available regional and global production data (using EIA, OPEC and BP data sources), in my opinion actual global crude oil production – generally defined as 45 API Gravity or lower crude oil – has probably been on an “Undulating Plateau” since 2005. At the same time, global natural gas production and associated liquids, condensate and natural gas liquids (NGL), have so far continued to increase. Schlumberger defines condensate as: “A low-density, high-API gravity liquid hydrocarbon phase that generally occurs in association with natural gas.” The most common dividing line between crude oil and condensate is 45 API Gravity, but note that the upper limit for WTI crude oil is 42 API Gravity. However, the critical point is that condensate is a byproduct of natural gas production.

Note that what the EIA calls “Crude oil” is actually Crude + Condensate (C+C). When we ask for the price of oil, we generally get the price of either WTI or Brent crude oil, which both have average API gravities in the high 30’s, and the maximum upper limit for WTI crude oil is 42 API Gravity. However, when we ask for the volume of oil, we get some combination of crude oil + partial substitutes, i.e., condensate, NGL and biofuels. From 2002 to 2005, as annual Brent crude oil prices approximately doubled from $25 in 2002 to $55 in 2005, global natural gas production, global NGL production and global C+C production all showed similar rates of increase. For example, from 2002 to 2005 global natural gas production increased at a rate of 3.2%/year, as global C+C production increased at a rate of 3.3%/year.

From 2005 to the 2011 to 2013 time frame, annual Brent crude oil prices doubled again, from $55 in 2005 to an average of $110 for 2011 to 2013 inclusive, remaining at $99 in 2014. From 2005 to 2014, global natural gas production increased at 2.4%/year, while global C+C production increased at only 0.6%/year. Given that condensate production is a byproduct of natural gas production, the only reasonable conclusion in my opinion is that increasing global condensate production accounted for all, or virtually all, of the post-2005 slow rate of increase in global C+C production [..]

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Haha! So glad Greer does it for us, so we don’t get the hate mail. But he’s right, obviously. Only thing is, he forgets a whole group of people. He says there are those who believe in renewables vs those who actually live with them. A third group are those who plan to make a killing off of renewables. And they drive the discussion.

Renewables: The Next Fracking? (JMG)

I’d meant this week’s Archdruid Report post to return to Retrotopia, my quirky narrative exploration of ways in which going backward might actually be a step forward, and next week’s post to turn a critical eye on a common but dysfunctional habit of thinking that explains an astonishing number of the avoidable disasters of contemporary life, from anthropogenic climate change all the way to Hillary Clinton’s presidential campaign. Still, those entertaining topics will have to wait, because something else requires a bit of immediate attention. In my new year’s predictions a little over a month ago, as my regular readers will recall, I suggested that photovoltaic solar energy would be the focus of the next big energy bubble. The first signs of that process have now begun to surface in a big way, and the sign I have in mind—the same marker that provided the first warning of previous energy bubbles—is a shift in the rhetoric surrounding renewable energy sources.

Broadly speaking, there are two groups of people who talk about renewable energy these days. The first group consists of those people who believe that of course sun and wind can replace fossil fuels and enable modern industrial society to keep on going into the far future. The second group consists of people who actually live with renewable energy on a daily basis. It’s been my repeated experience for years now that people belong to one of these groups or the other, but not to both. As a general rule, in fact, the less direct experience a given person has living with solar and wind power, the more likely that person is to buy into the sort of green cornucopianism that insists that sun, wind, and other renewable resources can provide everyone on the planet with a middle class American lifestyle.

Conversely, those people who have the most direct knowledge of the strengths and limitations of renewable energy—those, for example, who live in homes powered by sunlight and wind, without a fossil fuel-powered grid to cover up the intermittency problems—generally have no time for the claims of green cornucopianism, and are the first to point out that relying on renewable energy means giving up a great many extravagant habits that most people in today’s industrial societies consider normal. Debates between members of these two groups have enlivened quite a few comment pages here on The Archdruid Report. Of late, though—more specifically, since the COP-21 summit last December came out with yet another round of toothless posturing masquerading as a climate agreement—the language used by the first of the two groups has taken on a new and unsettling tone.

Climate activist Naomi Oreskes helped launch that new tone with a diatribe in the mass media insisting that questioning whether renewable energy sources can power industrial society amounts to “a new form of climate denialism.” The same sort of rhetoric has begun to percolate all through the greenward end of things: an increasingly angry insistence that renewable energy sources are by definition the planet’s only hope, that of course the necessary buildout can be accomplished fast enough and on a large enough scale to matter, and that no one ought to be allowed to question these articles of faith.

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