Frontex Archives - The Automatic Earth

Lastly, Stephen Cohen, Professor of Russian studies at Princeton and NYU, an actual expert on China, weighed in, saying ‘Russia thinks we’re crazy, completely crazy.’ He even took some time to express his ‘disgust’ with Al Mattour, saying ‘your previous guest, I don’t mean to be rude to him. First of all, he doesn’t know what he’s talking about. And, secondly, he excludes the reality that Russia has a politics. And the politics in Russia today as we talk is […] the concern that America is preparing war against Russia. If not on Syria, then on the other two cold war fronts […] where NATO is building up in an unprecedented way. This is not good because they have nuclear weapons and because accidents happen.’

He then theorized what the conversation between Putin and Tillerson was like, pointing to the two having a history of trust together from the time Tillerson led Exxon Mobile. ‘Rex, says Putin, what in the world is going on in Washington?’ Professor Cohen, ominously, summed it up, ‘I’m not young. I’ve been doing this 40 years, sometimes as a Professor, sometimes inside. I have never been as worried as I am today about the possibility of war with Russia.’

Any day now.

• We’re Heading Straight Into a Recession – Jim Rickards (MWS)

Before the holiday weekend begins, best-selling author James Rickards joins Olivia Bono-Voznenko outside the NYSE to talk all about the markets and his latest book, “The Road to Ruin.” Jim discusses the currency wars, Trump’s turnaround on China & the Fed and an inevitable crisis amid a weak system.

Though he defines it poorly, Edwards is right that deflation is still here.

• How’s This For Grade 1 Central Bank Hubris? (Albert Edwards)

Peter Praet, the ECB’s chief economist said in a recent interview that, “Since the crisis, we have had serious concerns about deflationary risks on several occasions in the euro area, but now we can say they have disappeared.” Really? Has he seen the chart below, which shows core CPI in the Eurozone heading sharply lower and now approaching its all-time low seen at the start of 2015! Not only that, but Eurozone inflation expectations are also declining again, after surging in the aftermath of Donald Trump’s election. To be fair, Praet was focusing on the rise in headline inflation in the Eurozone, which touched 2% in February before dropping back in March to 1.5%.

After some 18 months bobbing around the zero mark, I can understand why central bankers might be heaving a sigh of relief, but for them to take credit for a recovery in headline inflation is totally disingenuous given it has been entirely driven by a recovery in the oil price. Similarly, Janet Yellen was quoted saying the Fed is “doing pretty well” in meeting its congressionally mandated goals of low and stable inflation and a full-strength labor market. It’s this sort of comment that has led Marc Faber to want to short central bankers, the only way being to buy gold. The increasing volume of central bank hubris may even explain the recent breakout of gold to the upside! It is not just eurozone inflation expectations that seem to be in retreat. The same thing is happening in the US too (see chart below).

I am always surprised how dominated 10y inflation expectations are by short-term movements in the oil price and headline inflation, but it was noticeable just how rapidly inflation expectations ran up in the wake of Trump’s election – way in advance of what might have been expected by the bounce in the oil price. One might have thought the surge in the oil price from its trough some 12-18 months ago might have had more impact on wage inflation, but so far that does not seem to be the case. Despite the euphoria in the markets about the “reflation trade”, survey inflation expectations have continued to drift downwards. One thing is certain: for central banks to call victory over deflation may prove very premature indeed. Nemesis awaits.

Easter jitters.

• Wall Street Fear Gauge Hits Fresh High For The Year (CNBC)

Stocks may be in for a deeper pullback, now that the so-called fear index is finally breaking out higher. The CBOE Volatility Index (.VIX), considered the best gauge of fear in the market, closed above its 200-day moving average for the first time since the election this week. The indicator jumped more than 2% Thursday afternoon at one point to a fresh high for the year. U.S. markets are closed for trading Friday for the Easter holiday. The recent spike in fear comes just as geopolitical risk heats up. The Pentagon said Thursday U.S. military forces dropped the largest non-nuclear bomb in Afghanistan, the first time the so-called mother of all bombs has ever been used in combat. U.S. stocks fell, with the S&P 500 and DJIA closed at two-month lows Thursday. “I’d say it’s probably more of a Trump trade [reversing] than the geopolitics, but going forward I think the geopolitics is the topic the market is focusing on,” said Andres Jaime at Barclays.

Good argument: A foreign-buyer’s tax can be refunded to individuals to the extent they pay income taxes..

• The Ethical Case For Taxing Foreign Home Buyers (Gordon)

Foreign capital is playing an important role in the real estate markets of Toronto and Vancouver, and has for some time. As political leaders debate its impact and possible policy measures to alleviate its attendant issues, it is important to think clearly about the ethics of foreign ownership. Predictably, those who want to stymie or avoid policy action in this area have alluded to “xenophobia” to deter critics. Even some well-intentioned people have given credence to these claims. Yet curtailing or taxing foreign ownership is not xenophobic, especially if policy is properly designed. Xenophobia is the irrational or unjustified fear of foreigners. Concerns about the impact of foreign ownership are about flows of money, not people, and they are certainly justified in Toronto and Vancouver.

Foreign ownership raises two main ethical problems. First, those who buy based on foreign income or wealth often have access to money in ways that are unavailable to local residents. This means that locals are potentially put into disadvantageous, or unfair, competition for real estate where they live. Second, people who buy property based on foreign income or wealth may not have contributed much in Canadian taxes, which is largely what makes the property so valuable in the first place. Canadian real estate has become an attractive place to stash international money for a variety of reasons – we don’t effectively enforce money laundering regulations, we have relatively low property-tax rates and the enforcement of capital gains taxes has been lax. But real estate in Canada is ultimately attractive because of the country’s stable institutions, its public infrastructure and its social cohesion.

These latter things are paid for, or fostered by, taxes collected from Canadians – income taxes in particular. At a minimum, then, Canadians should have preferential access to property ownership, since they are paying for what makes it so valuable. It is precisely for these reasons that we see nothing ethically problematic about charging foreign students more in tuition at Canadian universities. Residential property is no different. Concerns around foreign ownership are especially potent when money is arriving from societies where corruption is widespread, and when foreign money is playing a significant role in driving up prices. Both apply in the cases of Toronto and Vancouver.

[..] We can then better design a foreign-buyer’s tax, which is needed to calm Toronto’s frenzied market. A foreign-buyer’s tax can be refunded to individuals to the extent they pay income taxes – the amount they pay in the three years following a purchase, for instance. This makes it clear that the tax need not discourage entrepreneurial talent from abroad, as claimed by Toronto Mayor John Tory. This understanding of the issue also leads straightforwardly into the proposal by many economists in British Columbia, including my colleague Rhys Kesselman. Provincial governments should introduce an annual property surtax on expensive homes that can be offset by income taxes paid, while exempting seniors with sustained CPP contribution records. This continuous surtax would powerfully target foreign ownership, and would thereby reconnect the local housing market to the local labour market.

I’ll believe it when I see it. Nobody wants to see the economy crash, they’ll stick with loose lending standards to prevent it.

• UK Banks Crack Down On Credit Card Lending After Borrowing Binge (Tel.)

Britain’s credit card binge could be at an end as banks tighten up controls on consumer debt. Borrowing growth hit rates of more than 10pc over the past year, a pace not seen since the boom years before the financial crisis, but now banks are touching the brakes. The Bank of England has warned that a consumer debt could be more of a risk to banks than mortgage lending, should there be an economic downturn. Fierce competition to win new customers has led banks to offer more credit to customers with increasingly long interest-free periods.But banks have started tightening lending criteria for credit card applicants in a move of an intensity not seen since the depths of the financial crisis in 2008 and 2009.

A net balance of 33pc of lenders expect to tighten standards in the coming three-month period, according to Bank of England data. When unsecured loans are also included, a net balance of 27pc plan to scrutinise applications more closely. There was also a fall in the number of credit card applications approved in the first quarter of the year, and banks expect the number to remain roughly steady in the coming quarter. By contrast credit scoring criteria for secured loans, such as mortgages, is holding broadly steady. “The recent rapid growth in consumer credit could principally represent a risk to lenders if accompanied by weaker underwriting standards,” warned the Bank of England’s Financial Policy Committee this month.

After first praising it.

• CIA Director Brands Wikileaks A ‘Hostile Intelligence Service’ (G.)

Mike Pompeo, the director of the CIA, has branded WikiLeaks a “hostile intelligence service,” saying it threatens democratic nations and joins hands with dictators. In his first public remarks since becoming chief of the US spy agency in February, Pompeo focused on the group and other leakers of classified information like Edward Snowden as one of the key threats facing the United States. “WikiLeaks walks like a hostile intelligence service and talks like a hostile intelligence service. It has encouraged its followers to find jobs at CIA in order to obtain intelligence… And it overwhelmingly focuses on the United States, while seeking support from anti-democratic countries and organisations,” said Pompeo. “It is time to call out WikiLeaks for what it really is – a non-state hostile intelligence service often abetted by state actors like Russia.”

[..] Last month, WikiLeaks embarrassed the CIA and damaged its operations by releasing a large number of files and computer code from the agency’s top secret hacking operations. The data showed how the CIA exploits vulnerabilities in popular computer and networking hardware and software to gather intelligence. Counterintelligence investigators continue to try to find out who stole the files and handed them to WikiLeaks. Assange meanwhile criticized the US agency for not telling the tech industry and authorities about those vulnerabilities so they can be fixed. Pompeo said Assange portrays himself as a crusader but in fact helps enemies of the United States, including aiding Russia’s interference in last year’s presidential election.

“Assange and his ilk make common cause with dictators today. Yes, they try unsuccessfully to cloak themselves and their actions in the language of liberty and privacy; in reality, however, they champion nothing but their own celebrity. Their currency is clickbait; their moral compass, nonexistent.” However, Pompeo did not comment on how Trump has previously lavished praise on Assange for the information he has made public. Nor did Pompeo mention that he himself had cited and linked to WikiLeaks in a tweet attacking the Democratic Party. Pompeo at the time was a Republican congressman and member of the House Intelligence Committee. The CIA declined to comment on that.

Translation: get it done.

• ‘US Will Keep ‘Open Mind’ On Any IMF Aid To Greece’ (AFP)

The US government will keep an “open mind” on any new loan package from the IMF for debt-burdened Greece, a senior US Treasury official said Thursday. Despite criticism of international organizations by the Trump administration, the comments allay concerns that US Treasury Secretary Steven Mnuchin could veto any large new aid package for Athens. “We’re looking for the Europeans to help Greece to resolve its economic problems, and we think the IMF can play a supportive role,” the official told reporters. “And we’ll look at any potential future agreement with an open mind.” IMF chief Christine Lagarde on Wednesday said Greece and its eurozone creditors have made progress towards a new loan package that includes debt relief, but that is something the fund has been saying for months without a final deal.

Greece last week accepted a tough set of reforms demanded by its eurozone creditors in hopes of securing a new loan in time to avert a looming debt default in July, although it still must finalize the details. Athens has been deadlocked for months over reforms, and budget targets, which has put the IMF and EU at loggerheads over the need for debt relief in order to ensure an economic recovery, and the government’s ability to repay its loans. The eurozone is under heavy pressure to end the feud in order to avert a chaotic default and inflicting damage on an already stalled Greek recovery. Greece has about €7 billion in debt repayments due in July. All the key officials involved in the talks are expected to be in Washington next week to attend the IMF and World Bank annual meetings.

We waste. That’s what we’re good at.

• American Energy Use, In One Diagram (Vox)

Every year, Lawrence Livermore National Laboratory LLNL produces a new energy flow chart showing the sources of US energy, what it’s used for, and how much of it is wasted. If you’ve never seen it before, it’s a bit of a mind-blower. Behold US energy in 2016: So much information in so little space! (It’s worth zooming in on a larger version.)

[..] a British thermal unit (BTU) is a standard unit of energy — the heat required to raise the temperature of a pound of water by 1 degree Fahrenheit. If you prefer the metric system, a BTU is about 1055 joules of energy. A “quad” is one quadrillion (a thousand trillion) BTUs. [..] a few things equivalent to a quad: 8,007,000,000 gallons (US) of gasoline, 293,071,000,000 kilowatt-hours (kWh), 36,000,000 metric tons of coal The US consumed 97.3 quads in 2016, an amount that has stayed roughly steady (within a quad or so) since 2000.

Perhaps the most striking feature of the spaghetti diagram — what everyone notices the first time they see it — is the enormous amount of “rejected” energy. Not just some, but almost two-thirds of the potential energy embedded in our energy sources ended up wasted in 2016. (And note that some scholars think LLNL is being too optimistic, and that the US is not even 31% efficient but more like 13%.) What’s more, the US economy is trending less and less efficient over time. Here’s the spaghetti diagram from 1970 (LLNL has been at this a long time):

Back then, we only wasted half our energy! It’s important to put this waste in context. It is not mainly about personal behavior or inefficient energy end use — keeping cars idling or leaving the lights on, that kind of thing. That’s a part of it, but at a deeper level, waste is all about system design. The decline in overall efficiency in the US economy mainly has to do with the increasing role of inefficient energy systems. Specifically, the years since 1970 have seen a substantial increase in electricity consumption and private vehicles for transportation, two energy services that are particularly inefficient. (Electricity wastes two-thirds of its primary energy; transportation wastes about three-quarters.)

There is loss inherent in any system that converts raw materials to usable energy, or transports or uses energy, of course. That follows from the second law of thermodynamics. And it’s true both narrowly (a car is an energy system) and broadly (a city is an energy system). It’s not possible to achieve perfect efficiency, or anything close to it. But surely we can do better than 31%! Sixty-six quads is a truly mind-boggling amount of energy to vent into the atmosphere for no good purpose. It really highlights the enormous potential of better-designed systems — especially better electricity and transport systems, along with better urban systems (i.e., cities) — to contribute to the country’s carbon reduction goals. We could double our energy use, with no increase in carbon emissions, just by halving our energy waste.

I like this, and it’s high time energy became a part of economic modeling; Steve Keen is working on it too. BUT: to understand today’s predicaments, you have to look -seperately- at what has happened in financial markets. The debt binge was not a result of what went on with energy; it stood -and stands- on and by itself.

• Macroscale Modeling Linking Energy and Debt (King)

What if you realized that the fundamental economic framework of macroeconomics is insufficient to inform our most pressing concerns? The world is dynamic, in constant change, yet most economic models (even the most widely used “dynamic” model) lack fundamental feedbacks that govern long-term trends (e.g., regarding role of energy) and make assumptions that prevent the ability to describe important real-world phenomena (e.g., financial-induced recessions). Monetary models of finance and debt often assume that natural resources (energy, food, materials) and technology are not constraints on the economy. Energy scenario models often assume that economic growth, finance and debt will not be constraints on energy investment.

Energy and food costs have declined since industrialization, but no longer

These assumptions must be eliminated, and the modeling concepts must be integrated if we are to properly interpret the post-2008 macroeconomic situation: unprecedented low interest rates, high consumer and private debt, high asset valuations, and energy and food costs that are no longer declining. As we attempt to understand newer and more numerous options (e.g., electric cars, renewables, information) regarding energy system evolution, it is paramount to have internally consistent macro-scale models that take a systems approach that tracks flows and interdependencies among debt, employment, profits, wages, and biophysical quantities (e.g., natural resources and population). There is a tremendous research need to develop a framework to describe our contemporary and future macroeconomic situation that is consistent with both biophysical and economic principles. Unfortunately, this fundamental integration does not underpin our current thinking.

U.S. consumer costs of fundamental needs (energy, food, housing, transport) are no longer declining

• Debt is money.

• Money is created when commercial banks lend money to businesses, not when the U.S. Treasury prints money or when Federal Reserve Bank lowers interest rates. Those government and Fed actions are reactions to the creation or destruction of money (e.g., paying back loans) within the real economy.

• Businesses seek new loans when economic opportunities are present. Thus, a growing economy can support more debt.

• Economic opportunities are present when consumers have disposable income to spend (and when innovative technologies supplant old technologies, thus lowering prices, and enabling growth).

• Consumers have more money to spend when core needs (e.g., food, energy, housing) are getting cheaper relative to incomes. Thus, if these core needs are no longer getting cheaper, this is an indication of the lack of income growth to support business investment. In turn banks stop lending because there are fewer viable business opportunities.

• The conclusion is that without decreasing food and energy costs to consumers, real incomes do not rise.

• This is a viable explanation of the post-2008 economy, but one ignored by practically all policy makers, economists, and advisors!

Frontex is a disaster.

• Refugee Rescue Group Accuses EU Border Agency Of Plotting Against Them (AFP)

A Spanish group which has been rescuing migrants in the Mediterranean since 2016 accused the EU’s border control agency Frontex on Wednesday of plotting to discredit private aid organisations in order to put off donors. Allegations by Frontex that donor-funded rescue vessels may have colluded with traffickers at the end of last year prompted Italian prosecutors to begin an informal investigation into their funding sources. “The declarations by Frontex and political authorities are intended to discredit our actions and erode our donors’ trust,” said Proactiva Open Arms head Riccardo Gatti. “They are trying to say that we support the smuggling or the traffickers themselves,” he said. In a report cited in December by the Financial Times daily, Frontex raised the possibility that traffickers were putting migrants out to sea in collusion with the private ships that recover them and bring them to Italy “like taxis”.

Prosecutors then publicly wondered at the amount of money being spent, though they stopped short of opening a formal probe. “We feel there’s someone who wants to put a spoke in our wheels, though we do not really know who is behind it,” Gatti said. The organization said it had nothing to hide. “We have 35,000 donors. Some are well known – like Pep Guardiola, the current manager of Manchester City – others are anonymous,” said Oscar Camps, Proactiva Open Arms director. He said the group had so far received €2.2 million euros in donations for an op in the Med that costs between €5,000 and €6,000 a day. Pro-Activa Open Arms also heavily criticized a deal signed in February between Italy and Libya which purportedly hopes to stem the flow of migrants from the coast of North Africa to Italy.

Gatti said the deal was made with only part of the 1,700 militias he said control Libya and would therefore be ineffective. Human rights watchers have also warned the accord would put the lives of those fleeing persecution and war in greater danger. “Everything is controlled by the militias in Libya, even the coast guard, and 30 percent of the financial flows in the country come from human trafficking,” he said. The deal is in doubt after it was suspended in March by Tripoli’s Court of Appeal. Nearly 25,000 migrants have been pulled to safety and brought to Italy since the beginning of the year in a sharp increase in arrivals.

Happy Easter.

• At Least 97 Migrants Missing As Boat Sinks Off Libya (AFP)

At least 97 migrants were missing after their boat sank on Thursday off the Libyan coast, a navy spokesman said. Survivors said the missing include 15 women and five children, General Ayoub Qassem told AFP. He said the Libyan coastguard had rescued a further 23 migrants of various African nationalities just under 10 kilometres (6 miles) off the coast of Tripoli. The boat’s hull was completely destroyed and the survivors, all men, were found clinging to a flotation device, he said. Those who had disappeared were “probably dead”, but bad weather had so far prevented the recovery of their bodies, Qassem added. An AFP photographer said survivors had been given food and medical care at Tripoli port before being transferred to a migrant centre east of the capital.

Six years since the revolution that toppled dictator Moamer Kadhafi, Libya has become a key departure point for migrants risking their lives to cross the Mediterranean to Europe. Hailing mainly from sub-Saharan countries, most of the migrants board boats operated by people traffickers in western Libya, and make for the Italian island of Lampedusa 300 km away. Since the beginning of this year, at least 590 migrants have died or gone missing along the Libyan coast, the International Organization for Migration said in late March. In the absence of an army or regular police force in Libya, several militias act as coastguards but are often themselves accused of complicity or even involvement in the lucrative people-smuggling business. More than 24,000 migrants arrived in Italy from Libya during the first three months of the year, up from 18,000 during the same period last year, according to the UN High Commissioner for Refugees.

Easter feel good.

• The Ultimate Lovebird (DM)

A stork has melted hearts in Croatia by flying to the same rooftop every year for 14 years – to be reunited with its crippled partner. The faithful bird, called Klepetan, has returned once again to the village of Slavonski Brod in east Croatia after a 5,000 mile migration. He spends his winters alone in South Africa because his disabled partner Malena cannot fly properly after being shot by a hunter in 1993. Malena had been found lying by the side the road by schoolteacher Stjepan Vokic, who fixed her wing and kept her in his home for years before helping her to build a nest on his roof. After placing her there, she was spotted by Klepetan 14 years ago. And now every year they are reunited in the spring. Klepetan keeps a very strict timetable, usually arriving back at the same time on the same day in March to be welcomed by locals.

But this year he was running six days late, causing panic among local media and fans of the stork couple. Such is the popularity of the pair that there is even a live feed on the main square in the capital Zagreb showing the two storks. There was huge excitement when stork-watchers saw what they thought was Klepetan circling over the nest, and then coming in to land. But the new arrival turned out to be a different stork that was attempting to woo Malena. She quickly attacked him and drove him off and continued to wait for Klepetan. Stjepan Vokic, whose roof the couple nest on, said: ‘She was pretty clear about the message, I doubt he will be back again.’ Vokic has taken care of Malena since she was first injured by hunters and says that she – like her partner – is now part of the family.

During the winter, Vokic keeps her inside the house, and then lets her go to the roof each spring where she patiently waits for her partner. This year, Malena made a rare flight and the couple were reportedly inseparable for hours. She does have the ability to make very short flights but her wing has not healed well enough for her to make the trip to Africa, or even to properly feed herself. Every summer, the pair bring up chicks, with Klepetan leading their flying lessons in preparation for the trip south in summer. The oldest recorded living stork was 39. Locals are hopeful the couple’s long relationship will continue for years to come.

Debt Rattle June 23 2016

Jun 232016

June 23, 2016 Posted by Raúl Ilargi Meijer at 8:48 am Finance Tagged with: bond waiver, Brexit, cartel, Erdogan, Frontex, poverty, Silk Road, Tesla 4 Responses »

Harris&Ewing Horse and Motor Oil, Washington, DC 1918

• World’s Central Bankers Will Be Holed Up In Basel For Brexit Fallout (BBG)

• Who Is The “European Movement”? (Werner)

• Vancouver Proposes Tax on Empty Homes If Province Fails to Act (BBG)

• IMF Warns The US Over High Poverty (BBC)

• China’s Xi Lauds New Silk Road (R.)

• Tesla: Incessant Cash Burn, Looming Competition No Trillion-Dollar Formula (WSJ)

• Tesla Bid For Solarcity ‘Shameful’: Jim Chanos (BBC)

• ECB Restores Bond Waiver, Lets Greek Banks Tap Cheap Credit (AP)

• European Commission To Freeze Payments To Greece (NE)

• Erdogan Says Referendum Might Be Held On Turkey’s Negotiations With EU (TM)

• EU Approves Common Border Agency (WSJ)

Won’t be sleeping peacefully.

• World’s Central Bankers Will Be Holed Up In Basel For Brexit Fallout (BBG)

Bank of Japan Governor Haruhiko Kuroda will be in Switzerland as the results are announced of the U.K.’s June 23 vote on whether to remain in the European Union. Kuroda will be traveling from June 23 to June 28 to attend meetings of the Bank for International Settlements, where other central bankers also will gather, the BOJ said Wednesday. Given the travel time between Europe and Japan, Kuroda would be unable to chair an emergency meeting if the central bank decides to hold one Friday Tokyo time in the event the U.K. votes to leave the EU. “This raises the likelihood of the BOJ not taking drastic measures right after the results come out,” said Daiju Aoki, an economist at UBS in Tokyo.

“Kuroda probably sees the benefit of being with other central bankers where they could talk about coordinated action.” In a press conference June 16, Kuroda declined to comment about whether he’d convene an emergency meeting after the Brexit vote and said the central bank was in touch with counterparts including the Bank of England amid Brexit concerns he said had had an impact in the bond market. The BOJ can hold an emergency meeting without the governor, according to the bank’s rules. In May 2010, then-Deputy Governor Hirohide Yamaguchi led an emergency gathering in the absence of Governor Masaaki Shirakawa, who was traveling in Europe.

A comprehensive overview of things EU for those who can still stomach more.

• Who Is The “European Movement”? (Werner)

Prime Minister David Cameron, together with the heads of the IMF, the OECD and various EU agencies have given dire warnings that economic growth will drop, the fiscal position will deteriorate, the currency will weaken and UK exports will decline precipitously. George Osborne, the chancellor of the exchequer has threatened to cut pensions if pensioners dare to vote for exit. But what are the facts? I have been trained in international and monetary economics at the London School of Economics and have a doctorate from the University of Oxford in economics. I have studied such issues for several decades. I have also recently tested, using advanced quantitative techniques, the question of the size of impact on GDP from entry to or exit from the EU or the eurozone.

The conclusion is that this makes no difference to economic growth, and everyone who claims the opposite is not guided by the facts. The reason is that economic growth and national income are almost entirely determined by a factor that is decided at home, namely the amount of bank credit created for productive purposes. This has sadly been very small in the UK in recent decades, thus much greater economic growth is possible as soon as steps are taken to boost bank credit for productive purposes – irrespective of whether the UK stays in the EU or not (although Brexit will make it much easier to take such policy steps).

We should also remember that a much smaller economy like Norway – thought more dependent on international trade – fared extremely well after its people rejected EU membership in a referendum in 1995 (which happened against the dire warnings and threats from its cross-party elites, most of its media and the united chorus of the heads of international organisations). Besides, Japan, Korea, Taiwan and China never needed EU membership to move from developing economy status to top industrialised nations within about half a century. The argument of dire economic consequences of Brexit is bogus.

10 years late. We called it Hongcouver by then.

• Vancouver Proposes Tax on Empty Homes If Province Fails to Act (BBG)

Vancouver, home of Canada’s priciest housing market, is proposing a tax on empty homes to help address an “unprecedented” low vacancy rate as residents struggle to find affordable housing. Vancouver’s preferred option is to have the provincial government of British Columbia create a new tax for empty or under-occupied residential homes, Mayor Gregor Robertson said in a statement Wednesday. Failing that, the city plans to impose a business tax on empty homes held as investment properties. The city wants a response from the province by Aug. 1.

“Vancouver housing is first and foremost for homes, not a commodity to make money with,” Robertson said. “We need a tax on empty homes to encourage the best use of all our housing, and help boost our rental supply at a time when there’s almost no vacancy.” Prices in Vancouver are the highest in Canada, topping C$1.5 million ($1.2 million) for a detached home in May, a 37% rise over the prior year, according to that city’s real estate board. At 0.6%, the current vacancy rate means there are only 330 purpose-built rental apartments available at a given time, Robertson said. That’s in a municipal region of about 2.5 million people.

Lagarde’s just a lot of emptiness.

• IMF Warns The US Over High Poverty (BBC)

The US has been warned about its high poverty rate in the International Monetary Fund’s annual assessment of the economy. The fund said about one in seven people were living in poverty and that it needed to be tackled urgently. It recommended raising the minimum wage and offering paid maternity leave to women to encourage them to work. The report also cut the country’s growth forecast for 2016 to 2.2% from a previous prediction of 2.4%. Slower global growth and weaker consumer spending were blamed. US economic growth slowed to an annual pace of 0.5% during the first three months of the year, down sharply from 1.4% in the last three months of 2015.

But the stronger labour market meant that overall “the US economy is in good shape”, said the IMF’s managing director Christine Lagarde. May’s unemployment figures showed the rate at an eight-year low of 4.7%. However Ms Lagarde warned that “not only does poverty create significant social strains, it also eats into labour force participation, and undermines the ability to invest in education and improve health outcomes”. “Our assessment is that, if left unchecked, these four forces – participation, productivity, polarisation and poverty – will corrode the underpinnings of growth and hold back gains in US living standards,” she added.

All the things monopoly money can buy.

• China’s Xi Lauds New Silk Road (R.)

Chinese companies invested nearly $15 billion in countries participating in Beijing’s new Silk Road initiative last year, up one-fifth from 2014, President Xi Jinping said in Uzbekistan, lauding a scheme that is one of his key foreign policy. Under the program, announced by Xi in 2013, and also known as the “One Belt, One Road” program, China aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe. China has dedicated $40 billion to a Silk Road Fund and the idea was the driving force behind the establishment of the $50 billion Asian Infrastructure Investment Bank.

In comments carried by state media late on Wednesday, Xi said China’s trade with countries participating in the new Silk Road exceeded $1 trillion in 2015, accounting for a quarter of its total foreign trade. “The Belt and Road Initiative’s primary planning and deployment has been completed and is now stepping onto the stage of taking root and intensive cultivation for sustained development,” Xi told the Uzbek parliament. Regions like the Balkans and Central Asia are key to the project, the government has said. Xi’s trip to Uzbekistan followed trips to Serbia and Poland. The initiative envisages the revival of the ancient Silk Road routes from China to Europe to open new trade markets for its firms as the domestic market slows.

Musk has easy access to the green bubble.

• Tesla: Incessant Cash Burn, Looming Competition No Trillion-Dollar Formula (WSJ)

Visions of a future dominated by electric cars have long powered Tesla Motors’ stock price. Sooner or later, the reality of corporate finance is likely to intervene. Tesla’s offer to acquire solar-energy company SolarCity brings this issue to the forefront. Though details on the financial benefits of the proposed tie-up are scant, Tesla CEO Elon Musk was his usual bold self on a conference call with analysts on Wednesday. He said the proposed deal could help Tesla become the world’s first company with a trillion-dollar market capitalization. That would require a more than 30-fold increase from today’s value. Yet that boast may not be the most jarring one Mr. Musk has offered of late.

Powered by the new Model 3 mass-market sedan, Tesla aims to deliver 500,000 vehicles in 2018, Mr. Musk said last month. That target is two years ahead of the previous goal. Tesla forecasts 80,000 to 90,000 deliveries this year. In a world of slow growth and cautious corporate management teams, bold ambition is a central part of Tesla’s appeal to investors. But reaching for the stars has proven expensive. Tesla’s core business has burned more than $3 billion in cash over the past six quarters. Capital needs are expected to further intensify over the coming years. No surprise there; automobile manufacturing is a low-return, capital-intensive business.

The SolarCity transaction could further pressure Tesla’s financial profile. Mr. Musk said Wednesday that Tesla would be willing to provide a bridge loan to SolarCity before the deal closes if needed, although he thought such a scenario to be unlikely. Still, even the possibility of such a loan should raise eyebrows. Mr. Musk said he expects SolarCity to be cash-flow positive within three to six months. That could be the case in a given quarter, but analysts at Barclays forecast 2016 free cash flow at negative-$1.8 billion. As for Tesla, Barclays expects the auto maker to burn $2.1 billion without much improvement over the coming two years. The combined company could burn as much as $3.4 billion in 2018, before factoring in the financial impact of the merger.

Always funny how close shameful and shameless are in the English language.

• Tesla Bid For Solarcity ‘Shameful’: Jim Chanos (BBC)

Tesla’s bid to buy struggling solar energy firm SolarCity has been called “shameful” by financier Jim Chanos. Mr Chanos, who is betting against the shares of both firms, described the bid as a “shameful example of corporate governance at its worst”. Tesla made a $2.8bn (1.9bn) offer for SolarCity on Tuesday. Tesla’s chief executive Elon Musk said the deal, which will be paid for in Telsa shares, was a “no brainer”. The two firms have close ties. Mr Musk owns 22% of SolarCity and sits on the company’s board. SolarCity’s chief executive Lyndon Rive and Mr Musk are cousins. “As a combined automotive and power storage and power generation company, the potential is there for Tesla to be a trillion-dollar market cap company,” Mr Musk said.

Mr Chanos has taken short positions in both Tesla and SolarCity. When investors take short positions they borrow shares of a company, sell those shares and try to buy them back at a lower price. Mr Chanos said SolarCity was “headed toward financial distress,” and neither company could handle the burden of a tie-up. “[SolarCity] is burning hundreds of millions in cash every quarter, a burden that now Tesla shareholders will have to bear, at a total cost of over $8bn,” he said.

Why now?

• ECB Restores Bond Waiver, Lets Greek Banks Tap Cheap Credit (AP)

The ECB has restored a key waiver that will let Greek banks tap emergency central bank credit, one step toward putting the country’s financial institutions back on their feet. The decision announced Wednesday permits Greek government bonds to be used by banks as collateral to get cheap money from the ECB — even though those bonds are rated too low under the usual rules. Greek banks were shattered by the country’s financial and debt crisis which has led to three bailouts since 2010. They have been relying on more expensive financing from the Greek national central bank to do business. The ECB restored the waiver after the Greek government got a €7.5 billion installment on its latest bailout, ensuring the government can pay its bills for now.

Still a very corrupt country. And not given the time to do something about it; ‘reform’ has eaten that away.

• European Commission To Freeze Payments To Greece (NE)

The European Commission will stop all payments of the European Regional Development Fund/Cohesion fund to Greece for the 2014-2020 programmes. This is confirmed by an internal letter obtained by New Europe signed by Walter Deffaa, Director-General for Regional Development. The reason for the Commission’s pause is an investigation of the Greek competition authority, which concerns possible manipulation of tendering procedures for major infrastructure projects. While the letter was circulated internally on June 17, it is expected that the decision will not be announced until after the European Commission President, Jean-Claude Juncker, has concluded his trip to the Greek capital, but possibly before the competition authority will examine the case on July 21.

The European Commission did not immediately respond to New Europe on whether the President had discussed the issue with Greek Prime Minister Alexis Tsipras, or as to the amount of money that would be affected by this decision. According to the letter, the Greek authorities working on the case have “already identified companies participating in the cartel as all major constructions companies and large foreign companies present in Greece.” The cartel was allegedly active for over 27 years from 1989, to this year, in the domain of road construction, railroads, metro, and concession projects. The Director-General confirms that some of these projects “will certainly have been co-financed by EU funds”.

We’ll file this under entertainment…

• Erdogan Says Referendum Might Be Held On Turkey’s Negotiations With EU (TM)

President Recep Tayyip Erdogan has said that Turkey might hold a referendum on whether to end or continue negotiations with European Union (EU). Erdogan commented on Turkey’s EU accession negotiations during a graduation ceremony of Fatih Sultan Mehmet Foundation University on Wednesday. “Just like United Kingdom, we could also ask our people whether to continue or end negotiations with EU”, Erdogan said.

“Turkey is not after visa-free travel or the shipping back [to Turkish territory of migrants who arrive in Greece]. However, you are after Turkey right now. You are thinking about what would happen if Turkey was to open the gates and let the refugees pass. You are losing your temper because Erdoan throws off your mask and reveals your true, ugly face. That’s why you are thinking of ways to get rid of Erdogan. Europe, you do not want us only because the majority of our people are Muslims”, Erdogan added.

Erdogan’s remarks came after European Commission President Jean-Claude Juncker said that the only person standing in the way of Turkey’s visa-free travel to EU was Erdogan. “If Turks cannot travel to EU without a visa right now, that is because they have not fulfilled the necessary criteria. If Erdogan breaks the deal, he has to explain his people why they can’t travel to EU [without a visa]”, Juncker said.

Foreign armed ‘soldiers’ operating in another country’s sovereign territory. Is that what people want?

• EU Approves Common Border Agency (WSJ)

The European Union on Wednesday agreed on setting up a common external border agency and coast guard to be deployed in countries struggling with a massive influx of migrants. The plan was originally put forward in December and has been pushed by Germany and France in response to the migration crisis that saw over one million asylum seekers arrive via Greece last year, and the threat from Islamic State terrorists mingling with the stream of refugees. Sovereignty concerns raised by some EU governments have been addressed in a compromise whereby a majority of governments would have to approve any deployment of EU border guards, including the country where the external border is deemed too porous and an intervention needed.

If an EU country which belongs to the Schengen border-free area refuses to accept such a deployment, and its failure to protect the common border is considered to endanger the border-free area, other countries can erect borders to isolate themselves from it. The U.K. and Ireland won’t be part of the new agency, as they are not part of the Schengen area. The compromise deal, approved Wednesday by the bloc’s 28 ambassadors, still requires the formal adoption by EU governments and the European Parliament, but EU officials say this is a formality that will likely happen in the coming weeks. The European Border and Coast Guard will build on an existing EU agency—Frontex—which is based in Warsaw and currently only has limited powers when it comes to patrolling land and sea borders—a national prerogative.

The new agency will also comprise a network of national authorities responsible for border management and will have a reserve pool of 1,500 border guards to be deployed in emergency cases within a week. But setting up the pool of 1,500 will take time and resources, as EU countries aren’t equally motivated to see this project come to life, EU officials say. In previous years, EU countries were slow in dispatching border guards to Greece and Italy, whose governments requested EU assistance for search and rescue missions at sea or for patrolling the land border between Greece and Turkey. This is partly because some EU countries need the guards back home and also because polyglot border guards are rare.

Debt Rattle June 1 2016

Jun 012016

June 1, 2016 Posted by Raúl Ilargi Meijer at 9:00 am Finance Tagged with: Abenomics, bubble, cash crunch, Death Cross, Draghi, elephants, Fed, Frontex, refugees, subprime, yuan 6 Responses »

Arthur Rothstein Steam shovels on flatcars, Cherokee County, Kansas 1936

• China’s Debt Bubble Bigger Than Subprime Bubble (MW)

• Yuan Tumbles As China PMI Miraculously Hugs Flatline (ZH)

• Double Blow for China Banks as Fed Worry Meets June Cash Crunch (BBG)

• Hong Kong April Retail Sales Fall 7.5%, 14th Straight Month (R.)

• Abenomics “Death Cross” Strikes As Japan PMI Plunges To 40-Month Lows (ZH)

• Pension Funds Pile on Risk Just to Get a Reasonable Return (WSJ)

• Germany: Draghi v the Banks (FT)

• The Most Powerful Man in Banking (WSJ)

• Central Banks As Pawnbrokers Of Last Resort (M. Wolf)

• Germany Considers Easing of Russia Sanctions (Spiegel)

• Elephants In Tanzania Reserve Could Be Wiped Out By 2022 (AFP)

• Mediterranean Death Toll Soars In First 5 Months Of 2016 (UNHCR)

• Frontex Denies, Prevents Help To Refugees: Witnesses (MEE)

“The problem is that the banking sector in China has been pushing out new lending aggressively, but with slowing economic growth many loans have not gone to create more factories and jobs but to financial assets that have been leveraged to boost returns..”

• China’s Debt Bubble Bigger Than Subprime Bubble (MW)

Unproductive debt in China—that is, debt that’s used to drive up asset prices—swelled in 2015, eclipsing the level seen in the U.S. in the run-up to the Great Financial Crisis, said Torsten Slok, chief international economist at Deutsche Bank, in a note to clients published Tuesday. Slok’s findings are illustrated in the chart below, where he compares the level of credit growth required in the U.S. and China to generate 1percentage point of GDP growth. (He notes that the red bar for 2015 also grew, suggesting more credit growth is now required in the U.S. to produce onepercentage point of GDP growth).

Chinese officials are partly responsible for the expansion of credit last year, analysts say, as the People’s Bank of China lessened requirements regarding the collateral lenders put up to borrow funds from the central bank, among other stimulus measures. The move was meant to spur economic growth, the pace of which slowed last year, stoking fears that it could precipitate a sharp global downturn. The world’s second-largest economy saw growth slow to 6.8% in 2015—missing the government’s target for 7% growth by a hair. In the first quarter of 2016, the country’s economy grew at an annual rate of 6.7%, its slowest pace since 2009.

It’s important to note, however, that many economists believe Chinese data overstates the strength of its economy. Over the past year, Chinese stocks, and more recently commodities like iron ore and steel rebar traded in China, have seen a series of dizzying rallies and frightening crashes as investors, emboldened by easy credit engage in speculation. “The problem is that the banking sector in China has been pushing out new lending aggressively, but with slowing economic growth many loans have not gone to create more factories and jobs but to financial assets that have been leveraged to boost returns,” Slok said.

Everyone, US, Japan and EU too, needs that services PMI to flourish, but…

• Yuan Tumbles As China PMI Miraculously Hugs Flatline (ZH)

Since May 2012, China Manufacturing PMI has miraculously stayed within a 1 point range of the knife-edge 50 level between contraction and expansion. May 2015 just printed 50.1, the same as April with New Orders weaker and business activity expectations (hope) tumbling to 4 month lows. The Steel Industry PMI collapsed from 57.3 to 50.9 with New Steel Orders collapsing from 65.6 to 52.7 – the biggest monthly drop in record. And while non-manufacturing PMI remained in ‘expansion territory at 53.1, it fell back from a brief bounce in April with employment and business expectations both weaker. For now, equity markets are unreactive but offshore Yuan is tumbling on the news, not helped by a sizable devaluation in the official fix. The magic of manufacturing data… as non-manufacturing slowly catches down…

Disappointment triggering more offshore Yuan selling… Not helped by yet another devaluation by PBOC…
*CHINA SETS YUAN FIXING AT 6.5889 VS 6.5790 DAY EARLIER
*PBOC CUTS YUAN FIXING TO LOWEST LEVEL SINCE 2011 FOR THIRD DAY

Refinancing is becoming a major problem.

• Double Blow for China Banks as Fed Worry Meets June Cash Crunch (BBG)

Shanghai’s money market is braced for higher borrowing costs as a credit-fueled economic recovery coincides with the prospect of higher U.S. interest rates in June, a month that has historically seen funding crunches in China. The overnight interbank lending rate averaged 1.99% in May, up from 1.18% a year ago, as Federal Reserve tightening weakened the yuan, spurring capital outflow pressures. That borrowing cost has climbed every June since 2011, as lenders hoard deposits ahead of quarter-end regulatory checks. The cost of fixing rates in the swap market is surging as data showed property leading a rebound in investment in the world’s second-biggest economy.

“The internal and external factors combined will certainly add pressure to the money market in June, driving interest rates higher,” said Liu Dongliang at China Merchants Bank, the nation’s sixth-largest lender. “We’re not optimistic about the bond market in the short term.” Any cash crunch would aggravate a rout in bonds that led to 190.6 billion yuan ($28.9 billion) in canceled sales this quarter, making it harder for issuers to refinance a record amount of maturing debt. The overnight money rate has been moving in tandem with the weakening currency in the past year after touching a six-year low, as estimated outflows reached $1 trillion in the past year, according to a gauge compiled by Bloomberg.

The yuan declined 1.5% in May as Federal Reserve Chair Janet Yellen said that evidence of strength in the U.S. economy means there could be an increase in borrowing costs in the coming months. The probability of Fed action in June has surged to 24% from 12% at the end of April, while the premium for China’s one-year sovereign yield over U.S. Treasuries has narrowed to a seven-week low. The People’s Bank of China has an incentive to keep monetary conditions relatively tight as it looks to control the yuan’s decline, rein in excessive lending by banks and keep a lid on inflation. The authority will create a neutral and appropriate monetary environment, it said in an article published in China Business News last week. The comments came after data showed the nation’s consumer price index maintained a 2.3% acceleration for the third month in April, a pace not seen since mid-2014.

Mainland Chinese fail to appear.

• Hong Kong April Retail Sales Fall 7.5%, 14th Straight Month (R.)

Hong Kong’s retail sales fell for the 14th successive month in April, as a drop in tourists and weak local consumption deepened the pain for retailers in the city. Retail sales in April slid 7.5% from a year earlier to HK$35.2 billion ($4.5 billion) in value terms, less than a 9.8% slump in March. In volume terms, April sales dropped 7.6%, government data showed on Tuesday. “Many types of retail outlet still recorded notable falls in sales, reflecting the continued drag from the slowdown in inbound tourism as well as the more cautious local consumer sentiment amid subpar economic conditions,” the government said in a statement.

Hong Kong is struggling with mounting economic challenges from the prospect of rising U.S. interest rates, which has stepped up capital outflows, and from China’s economic slowdown. Mainland tourists are avoiding the city amid political tensions with China and growing calls from radical activists for greater autonomy from Beijing. “The near-term outlook for retail sales will continue to depend on the performance of inbound tourism,” the government added.

“Output tumbled at the fastest pace in 25 months and new orders are the worst since Jan 2013. This is the death cross for Abenomics..”

• Abenomics “Death Cross” Strikes As Japan PMI Plunges To 40-Month Lows (ZH)

Since Abenomics was unleashed on the world (with QQE starting in April 2013), things have not worked out as the smartest men in the Japanese rooms predicted. In fact, with April’s final manufacturing PMI printing at 47.7, operating conditions in Japan worsened at the sharpest pace in 40 months… since Abe began his three arrows. Output tumbled at the fastest pace in 25 months and new orders are the worst since Jan 2013. This is the death cross for Abenomics… The weakest Japanese manufacturing PMI since the start of Abenomics…

Commenting on the Japanese Manufacturing PMI survey data, Amy Brownbill, economist at Markit, which compiles the survey, said: “The aftermaths of the earthquakes in one of Japan’s key manufacturing regions continued to weigh heavily on the manufacturing sector. Both production and new orders declined sharply midway through the second quarter of 2016. A marked fall in international demand also contributed to the drop in total new orders, as exports declined at the fastest rate since January 2013.” Flashing the “death cross” of Abenomics three arrows… As it is now clear that the massive expansion of the Bank of Japan balance sheet has done nothing… in fact worse than nothing… for the Japanese economy.

Talk about a death cross…

• Pension Funds Pile on Risk Just to Get a Reasonable Return (WSJ)

What it means to be a successful investor in 2016 can be summed up in four words: bigger gambles, lower returns. Thanks to rock-bottom interest rates in the U.S., negative rates in other parts of the world, and lackluster growth, investors are becoming increasingly creative—and embracing increasing risk—to bolster their performances. To even come close these days to what is considered a reasonably strong return of 7.5%, pension funds and other large endowments are reaching ever further into riskier investments: adding big dollops of global stocks, real estate and private-equity investments to the once-standard investment of high-grade bonds. Two decades ago, it was possible to make that kind of return just by buying and holding investment-grade bonds, according to new research.

In 1995, a portfolio made up wholly of bonds would return 7.5% a year with a likelihood that returns could vary by about 6%, according to research by Callan Associates, which advises large investors. To make a 7.5% return in 2015, Callan found, investors needed to spread money across risky assets, shrinking bonds to just 12% of the portfolio. Private equity and stocks needed to take up some three-quarters of the entire investment pool. But with the added risk, returns could vary by more than 17%. Nominal returns were used for the projections, but substituting in assumptions about real returns, adjusted for inflation, would have produced similar findings, said Jay Kloepfer, Callan’s head of capital markets research.

The amplified bets carry potential pitfalls and heftier management fees. Global stocks and private equity represent among the riskiest bets investors can make today, Mr. Kloepfer said. “Stocks are just ownership, and they can go to zero. Private equity can also go to zero,” said Mr. Kloepfer, noting bonds will almost always pay back what was borrowed, plus a coupon. “The perverse result is you need more of that to get the extra oomph.”

How to destroy the euro from within.

• Germany: Draghi v the Banks (FT)

In Dillingen an der Donau, a small town in rural Bavaria, the local Sparkasse savings bank is providing an unusual service. For customers who live a long way from a branch, it is giving out free bus tickets. And for those who cannot get to the bank at all — the old or sick, for example — it offers to send a member of staff directly to their homes to deliver small sums of cash. The Sparkasse came up with the idea to compensate for the fact that it was closing several branches as revenues dwindled due to interest rates being at a record low and customers visiting less frequently. “If your revenues are shrinking, then you have to do something about your costs,” says an official at the bank. “You have to economise.” The pressure on Germany’s army of savings banks is just one example of the increasing strains on the country’s financial system caused by the ultra-loose monetary policy of the Frankfurt-based ECB.

In a bid to jolt the eurozone’s lacklustre economy back to life , the central bank has, over the past five years, slashed interest rates to record lows and even pushed its deposit rate into negative territory. On top of this, it has launched a €1.7tn asset purchase programme, which has driven down bond yields across the continent. The measures have bought time for reform in the battered economies of southern Europe. Yet in Germany, they have met a blizzard of opposition. The country’s hawkish monetary policy establishment has always nurtured a degree of scepticism about the institution that succeeded the Bundesbank as the custodian of Germany’s monetary stability. But as savers, banks and insurers have been increasingly hurt by low interest rates — nominal yields on 10-year German bonds have fallen from about 4% in 2008 to less than 0.2% today — the criticism of the ECB has intensified.

The media has accused the central bank of fuelling a “social disaster”, while one bank has claimed that low interest rates will have deprived German households of €200bn between 2010 and the end of this year. Germany’s financial watchdog, BaFin, branded low rates a “seeping poison” for the country’s financial system. The most dramatic intervention, however, came from Wolfgang Schäuble, the hawkish finance minister, who blamed ECB president Mario Draghi for “half” the rise in support for Alternative for Germany, the rightwing, anti-immigration, anti-euro party. Mr Draghi hit back, archly noting that the ECB has a mandate “to pursue price stability for the whole of the eurozone, not only for Germany”, and argued that low borrowing costs were symptomatic of a glut in global savings for which Germany was partly to blame.

“He’s judge and jury and everything else..”

• The Most Powerful Man in Banking (WSJ)

The most important person in the banking business isn’t a banker. To most Wall Street executives, that title goes to Federal Reserve governor Daniel Tarullo, a brusque, white-haired former law professor who has come to personify Washington’s postcrisis influence over how banks do business. Mr. Tarullo heads the Fed’s Committee on Bank Supervision. On paper—and in practice for most of the previous decades—the post isn’t a hugely powerful one. But the 63-year-old took office at the Fed in 2009 at a moment of broad public support for a more aggressive tack and has pressed that advantage ever since. Financiers privately call Mr. Tarullo “the Wizard of Oz” for his behind-the-scenes sway over everything from corporate strategy to how many billions of dollars banks must maintain in capital.

Through the stress tests he championed to evaluate how banks might fare in another market shock, the Fed wields control over whether banks can raise the dividends they pay to shareholders. For a big bank in 2016, getting a stamp of approval from Mr. Tarullo is an effort consuming thousands of employees. The industry’s lawyers pore over transcripts of Mr. Tarullo’s dense speeches to grasp the meaning of every word. When Citigroup and Bank of America stumbled on the stress tests in recent years, each bank said it spent at least $100 million to correct the problems the Fed had called out. Peter Conti-Brown, a historian and author of “The Power and Independence of the Federal Reserve,” called Mr. Tarullo’s influence extraordinary. One former bank executive put a finer point on it: “He’s judge and jury and everything else,” he said.

Mr. Tarullo in an interview attributed his power to his longevity at the Fed and consensus with other regulators. And, he said, the full impact of the regulatory changes made on his watch have yet to be felt. “I think it likely that firms are going to have to change in some cases their size, in some cases their business model, and in some cases their organization,” he said. Mr. Tarullo’s influence illustrates the outsize role that government regulation now plays for banks. For most of the modern era, regulators took a more hands-off approach, monitoring the industry for abuses but stopping short of injecting themselves into bank operations. But the near collapse of the financial system in 2008 brought widespread criticism of regulators for not being more vigilant and changed the equation.

“..governments try to make finance safer and finance exploits the support to make itself riskier.”

• Central Banks As Pawnbrokers Of Last Resort (M. Wolf)

Will there be another huge financial crisis? As Hamlet said of the fall of a sparrow: “If it be now, ’tis not to come. If it be not to come, it will be now. If it be not now, yet it will come – the readiness is all.” So it is with banks. They are designed to fall. So fall they surely will. A recent book explores not only this reality but also a radical and original solution. What makes attention to this suggestion even more justified is that its author was at the heart of the monetary establishment before and during the crisis. He is Lord Mervyn King, former governor of the Bank of England. His book is called The End of Alchemy . The title is appropriate: alchemy lies at the heart of the financial system; moreover, banking was, like alchemy, a medieval idea, but one we have not as yet discarded. We must, argues Lord King, now do so.

As Lord King remarks, the alchemy is “the belief that money kept in banks can be taken out whenever depositors ask for it”. This is a confidence trick in two senses: it works if, and only if, confidence is strong; and it is fraudulent. Financial institutions make promises that, in likely states of the world, they cannot keep. In good times, this is a lucrative business. In bad times, the authorities have to come to the rescue. It is little wonder, then, that financial institutions have become so large and pay so well. Consider any large bank. It will have a wide range of long-term and risky assets on its books, mortgages and corporate loans prominent among them. It will finance these with deposits (supposedly redeemable on demand), short-term loans and longer-term loans. Perhaps 5% will be financed by equity.

What happens if lenders decide banks might not be solvent? If they are depositors or short-term lenders, they can demand their money back immediately. Without aid from the central bank, the only institution able to create money without limit, banks will fail to meet that demand. Since a generalised collapse would be economically devastating, needed support is forthcoming. Over time, this reality has created a “Red Queen’s race”: governments try to make finance safer and finance exploits the support to make itself riskier. Broadly speaking, two radical solutions are on offer. One is to force banks to fund themselves with far more equity. The other is to make banks match liquid liabilities with liquid and safe assets. The 100% reserve requirements of the “Chicago plan”, proposed during the Great Depression, is such a scheme.

If liquid, safe liabilities finance liquid, safe assets — and risk-bearing, illiquid liabilities finance illiquid, unsafe assets — alchemy disappears. Finance would be safe. Unfortunately, the end of alchemy would also end much risk-taking in the system. Lord King offers a novel alternative. Central banks would still act as lenders of last resort. But they would no longer be forced to lend against virtually any asset, since that very possibility must create moral hazard. Instead, they would agree the terms on which they would lend against assets in a crisis, including relevant haircuts, in advance. The size of these haircuts would be a “tax on alchemy”. They would be set at tough levels and could not be altered in a crisis. The central bank would have become a “pawnbroker for all seasons”.

The US will need to pressure a lot harder to keep the sanctions going.

• Germany Considers Easing of Russia Sanctions (Spiegel)

As expected, G-7 leaders reiterated their hardline approach to Moscow in the Japan summit’s closing statement. Chancellor Angela Merkel complained last Thursday that there still isn’t a stable cease-fire in Ukraine and the law pertaining to local elections in eastern Ukraine, as called for by the Minsk Protocol, still hasn’t been passed. That, she said, is why “it is not to be expected” that the West will change its approach to Russia. What Merkel didn’t say, though, is that behind the scenes, her government has long since developed concrete plans for a step-by-step easing of the sanctions against Russia and that the process could begin as early as this year. Thus far, the message has been that the trade and travel restrictions will only be lifted once all the provisions foreseen by the Minsk Protocol have been fulfilled. 100% in return for 100%.

Now, however, Berlin is prepared to make concessions to Moscow – on the condition that progress is made on the Minsk process. “My approach has always been that sanctions are not an end in themselves. When progress is made on the implementation of the Minsk Protocol, we can also then talk about easing sanctions,” says Foreign Minister Frank-Walter Steinmeier. The Chancellery also supports the new approach. Thus far, it was the Social Democrats that were particularly vocal about rapprochement with Russia. Led by Economics Minister Gabriel, the SPD is Merkel’s junior coalition partner. While Steinmeier, also a senior SPD member, has never explicitly demanded the easing of sanctions, he has long supported Russia’s return to the G-7. Merkel, by contrast, had always maintained a hard line. Now, though, the Chancellery also appears to be changing course.

[..] more and more EU member states have begun questioning the strict penalty regime, particularly given that it hasn’t always been the Russians who have blocked the Minsk process. Despite Tusk’s apparent optimism, indications are mounting that getting all 28 EU members to approve the extension of the sanctions at the end of June might not be quite so simple. Berlin has received calls from concerned government officials whose governments have become increasingly skeptical of the penalties against Russia but have thus far declined to take a public stance against them. Members of some governments, though, have very clearly indicated that they are not interested in extending the sanctions in their current stringent form. Austrian Vice Chancellor Reinhold Mitterlehner is among the skeptics as is French Economics Minister Emmanuel Macron. So too are officials from Italy, Spain, Greece and Portugal.

Time for the death penalty?! Time to put our armies to good use?

• Elephants In Tanzania Reserve Could Be Wiped Out By 2022 (AFP)

Elephants in Tanzania’s sprawling Selous Game Reserve could be wiped out within six years if poaching continues at current levels, the World Wildlife Fund warned. Tanzania’s largest nature reserve was in the 1970s home to 110,000 elephants, but today only 15,000 remain and they are threatened by “industrial-scale poaching”. The Selous “could see its elephant population decimated by 2022 if urgent measures are not taken,” the WWF said. More than 30,000 African elephants are killed by poachers every year to supply an illegal trade controlled by criminal gangs that feeds demand in the Far East. Tanzania is among the worst-affected countries with a recent census saying the country’s elephant population fell by 60% in the five years to 2014.

The Selous reserve is a tourist draw contributing an estimated $6 million (5 million euros) a year to Tanzania’s economy, according to a study commissioned by WWF and carried out by advisory firm Dalberg. It is named after Frederick Selous, a British explorer, hunter and real-life inspiration for the H. Rider Haggard character Allan Quatermain in King Solomon’s Mines. “By early 2022 we could see the last of Selous’ elephants gunned down by heavily armed and well trained criminal networks,” the report said. The 55,000-square kilometre (21,000-square mile) reserve in southern Tanzania was named a World Heritage Site by UNESCO in 1982. But it was put on a watch list in 2014 as poaching spiked, with six elephants killed every day and industrial activities including oil and gas exploration, as well as mining, threatening the delicate environment.

The sadness just intensifies.

• Mediterranean Death Toll Soars In First 5 Months Of 2016 (UNHCR)

At least 880 people are believed to have drowned last week in a spate of shipwrecks and boat capsizings on the Mediterranean, the UN Refugee Agency said today. “For so many deaths to have occurred just in a matter of days and months is shocking and shows just how truly perilous these journeys are,” said UN High Commissioner for Refugees Filippo Grandi. UNHCR told a press briefing in Geneva that the latest figures were arrived at following new information received through interviews with survivors brought ashore in Italy.

“As well as three shipwrecks that were known to us as of Sunday, we have received information from people who landed in Augusta over the weekend that 47 people were missing after a raft carrying 125 people from Libya deflated,” UNHCR spokesperson William Spindler detailed. He added that eight others were reported separately to have been lost overboard from another boat, and four deaths were reported after fire on board another. “Thus far 2016 is proving to be particularly deadly. Some 2,510 lives have been lost so far compared to 1,855 in the same period in 2015 and 57 in the first five months of 2014,” Spindler added.

“Everything started after the EU agreement,” he said. “These people are no longer refugees to them [the authorities]. They are prisoners and are being detained. But they have left the humanitarian aspect out of the story.”

• Frontex Denies, Prevents Help To Refugees: Witnesses (MEE)

Frontex denied aid to refugees including a baby and kept them floating in the sea off Greece for nearly two hours, according to aid workers. Eyewitnesses told MEE that Frontex officers prevented aid workers helping 50 people as they landed on the northern shore of the Greek island of Lesbos early on Monday. Their tactic was to take them directly into detention “without any aid, even the injured,” one aid worker said. Witnesses also told MEE that officers from the Maltese branch of the European border control police prevented a doctor tending to a baby that was “unresponsive”. In a written statement to MEE, Frontex said the crew on the Maltese ship had followed a Hellenic Coast Guard officer’s instructions and that none of the volunteers identified themselves as a doctor.

The reports come as the UN says that more than 2,500 people have died trying to make the perilous journey across the Mediterranean to Europe so far in 2016, a sharp jump from the same period last year. In the past week alone, at least 880 people are believed to have died in a series of shipwrecks – but thousands of people have also been rescued in the last seven days, with some 90 rescue operations launched. Frontex, supported by a series of national fleets and coast guards as well as several NGOs and some private volunteers, is charged with carrying out rescue operations in the Mediterranean. However, witnesses told MEE that the boat crammed with refugees was made to float out at sea until Frontex ground units came to take the passengers away in buses, after the Greek coastguard granted permission for the landing at the fishing hamlet of Skala Skiaminias on Lesbos’s north coast.

Esther Camps, from Spanish NGO Proactiva, which provides aid and rescue operations at sea, was at the scene. She said the incident took place at around 01:00 on Monday morning – the arrivals, she said, included around 10 children, as well as women who were crying out for help. “We were told to do nothing and to ‘stay away’,” she told MEE. “As they [the refugees and migrants] were disembarking, we saw there was a baby that was not making any noise. One of the officers said the baby was ‘fine’ and kept us away. We said, ‘how do you know it is OK? You are not doctors.'” Camps, who has been working with Proactiva since December, said that babies normally cry when they are brought ashore, but that in this case the child was not making any noise. MEE understands that a doctor from the aid organisation Waha was also at the scene but was denied access.

Handout photo released as courtesy by German humanitarian NGO Sea-Watch shows a crew member holding a drowned baby as dead bodies were recovered after a wooden boat transporting migrants capsized off the Libyan coast on 27 May, 2016 (AFP)

The Balkanization of Europe

Feb 252016

February 25, 2016 Posted by Raúl Ilargi Meijer at 2:58 pm Finance Tagged with: Banks, bombing, borders, EU, Frontex, Greece, NATO, refugees, Syria, Turkey 4 Responses »

Danae Stratou, Ilargi, Yanis Varoufakis and Steve Keen Feb 16 2016

When my mate Steve Keen took me to meet Yanis Varoufakis for dinner last week when we all happened to find ourselves in Athens together, I at least sort of regretted not having the time and space to talk to Yanis about his DiEM25 project for the democratization of Europe. It was a private occasion, there were other people at the dinner table, Steve and Yanis had no seen each other for a while, it was simply not about that.

I did think afterward that it would be great to do this kind of get together more often, and get ideas running, but then realized we are all workaholics and we all live thousands of miles apart, so the odds of that happening are slim at best. And that in turn made me think of how inspiring the years were when I toured the world with my Automatic Earth partner in crime Nicole Foss, how important it is to have people around to bounce off your ideas of what’s going on, how much faster that crystallizes your own ideas.

But as things are, and as they happened, I didn’t have that time with Yanis. And not nearly enough with Steve either, for that matter, who has/is a brain that I would love to pick for days if not weeks, he’s such a brilliant mind. When you have just a few hours, though, the time is filled with drinking wine and catching up with what’s happened in each other’s personal lives, it had been 3 years since we met, and professionally, since Steve knows Nicole very well, they did quite a few presentations together, yada yada.

Immensely gratifying, of course, to be able to renew a friendship like that, but almost as frustrating to not be able to expand on it.

But to get back to Yanis: I think I have two major problems with his DiEM25 project. One is that, as I have written umpteen times before, the very structure of the EU (self-)selects for sociopaths to take up its leading positions. None of them have been democratically elected, and that would be very hard to begin with because no Greek or Portuguese has ever heard of, or has any connection with, some guy from Finland or Poland with a name they can’t pronounce. It wouldn’t just take democratization, you’d have to rewrite the entire machine from scratch.

The second is that I don’t think the EU will last long enough to pull through the democratization process he envisions, and appear at the ‘other end of the tunnel’ in 2025. I just don’t see it. For one thing, because the whole world is set to be hit with the most severe financial crisis in its history between now and then, and Europe will be in the eye of the storm center of that crisis. Talk about democratization, well-intended and needed as it may seem, will be on a back-back burner when that hits.

I first said about a year ago that Angela Merkel should call a UN emergency meeting over the refugee crisis, but she still hasn’t yet. The EU problem in a nutshell: Merkel is the de facto leader of both the EU and Germany. When EU interests, or interests of one or more other EU nations clash with German ones, she has no choice but to pick the German side. Because the Germans elected her, not Europe.

You can either hand over German sovereignty to Brussels or you can fall into trap after trap. These traps will not hurt Germany most -since Merkel calls the shots-, they will hurt the poorer nations first and most. But it is still the worst model one could ever have invented. And since neither Germany nor any other EU member is willing -or ever will be- to give up that sovereignty, there’s only one option: leave the EU.

There are many ways in which European sovereign nations can work together, open borders, promote trade and all these things. The worst possible way is through a bureaucracy like the EU, which may promise an equal voice and treatment and opportunities for all countries, but down the line will always be controlled by the biggest ones. It’s not a coincidence that Germany has a trade surplus.

The clampdown on Greece to keep French and German banks safe should have made clear once and for all where the EU fails. If it’s any consolation: the big economies, too, will fall.

But chances are that before that happens, the union will have splintered apart back into its separate member states. Britain toys with the Brexit idea, the Czechs say if Britain leaves there’ll be a Czexit, Holland wants a referendum on EU membership (Hexit), Marine Le Pen patiently waits for the French economy to go south so she can be elected president and fulfill her promise to take France into a Frexit. And those are just a few examples. Trouble brews just about everywhere.

And there is of course no bigger trouble than the refugee situation. If only European nations would stop bombing the places the refugees were from, that would send a signal that they’re serious about this. But instead after the Paris attacks France and Britain increased their bombing efforts in Syria, supported by Germany and Holland. If that doesn’t say enough about where their priorities lie, what can?

The Balkanization of Europe is well on its way in, appropriately, the Balkan area and surrounding nations. A conference on closing borders in Austria yesterday was attended by Albania, Bosnia, Bulgaria, Kosovo, Croatia, Macedonia, Montenegro, Serbia and Slovenia. But not Greece or Germany. These are not all EU members, but most would like to be. Greece doesn’t like it one bit, it has threatened to block all EU decision until this is resolved, and recalled its ambassador to Vienna today..

Six countries has (re-)introduced border checks: Belgium, France, Austria, Denmark, Norway and Sweden. Many more have have erected razor wire fences. Hungary has the loudest voice; it announced a referendum on refugee quota yesterday. Quota that by the way are not worth the paper they’re written and translated into 20-odd languages on. Out of 160,000 agreed on, only some 500 refugees have been relocated.

The EU’s response so far has been a sort of para-military police force, Frontex, and now even NATO. As if refugees are a military threat. It’s amusing to see that many nations accuse Greece of not closing its borders properly, but never explain how that should be done when that border happens to be at sea. Just like they’ve never sent the people or equipment they vowed to make available. The EU in the end is proving to be toothless.

A German newspaper reports that a government document in Berlin talks about 3.6 million refugees in the country by 2020. That can only make one wonder what Europe will look like in 2020. But more importantly, we should wonder what Greece will look like in, say, a month from now. Since Frontex and NATO can’t stop the refugee flow any more than Greece itself can, and borders to countries to the north are closed, tens if not hundreds of thousands of people may get stranded in the country.

Europe has played a major role in turning Ukraine into a failed state, and did the same in Libya, Iraq and Syria. Unless someone shows some leadership soon and the chaos is stopped from spreading further, Greece could well be next on the list.

What I personally find deep black hilarious is that many if not all of the countries involved have signed a whole slew of both European and international laws, but even something as elementary as the Geneva convention gets thrown out the window seemingly at will. Just as black is the question: do refugees also have the right to asylum when they’re fleeing your own bombs?

The worst choice the EU -and Berlin- have made is to ally with Turkey’s Erdogan the way they have. And to force this inane alliance on Greece too. Erdogan plays everyone off against everyone while pocketing millions from ISIS oil sales to refugee smuggling, and now stands to be paid €3 billion per year to -not- stop refugees from ‘sailing’ from Turkey to Greece. Erdogan will soon start talking about Aegean territorial rights too.

There are bad partnerships -the US and EU with Saudi Arabia, just to name another example-, but relying on Turkey to stop the refugee flow is a real whopper. You could just not bomb Syria, and ask Jordan and Lebanon how you can assist with the refugee situation that’s overwhelming their nations, and even rebuild what you’ve just bombed.

Making a deal with Erdogan only seems to highlight that Europe really couldn’t care less. That they truly see the crisis as their crisis, and not that of the refugees. That it’s the people living in Berlin and Vienna and Amsterdam who get the short end of the stick, not those no longer living in Aleppo.

So when do we get to see a real Balkanization, with armies in streets and confronting each other on borders? And what will the EU ‘leadership’ and Hollande and Merkel do when that time comes?

No, I don’t see an EU left in 2025 ‘to be democratized’. I see a lot of old rifts in Europe’s future. And that’s without even having asked how Europe is going to ‘save’ its banks -and banking system- this time around. Or how they’re planning to tell their present and future pensioners that sorry, but the coffers are empty.

These things will start to play out well before 2025. It won’t be a good time to be a refugee living in Europe.

Greece Is A Nation Under Occupation

Dec 052015

December 5, 2015 Posted by Raúl Ilargi Meijer at 7:15 pm Finance Tagged with: borders, constitution, EU, Frontex, Greece, occupation, Tsipras 3 Responses »

Yannis Bahrakis Witnessing the refugee crisis 2015

Perhaps the best way to show what a mess Europe is in is the €3 billion deal they made with Turkey head Erdogan, only to see him being unmasked by EU archenemy Vlad Putin as a major supporter, financial and who knows how else, of the very group everyone’s so eager to bomb the heebees out after Paris. It could hardly have been more fitting. That’s not egg on your face, that’s face on your egg.

But Brussels thinks it’s found a whipping boy for all its failures. Greece. It’s fast increasing its accusations against Athens’ handling of the 100s of 1000s of refugees flooding the country. Everything that goes wrong is the fault of Greece, not Brussels. The EU has so far given Greece €30 million in ‘assistance’ for the refugee crisis, while the country has spent over €1.5 billion in money it desperately needs for its own people. But somehow it’s still not done enough.

The justification given for this insane shortfall is that Greece doesn’t blindly follow all orders emanating from Europe’s ‘leaders’. Orders such as setting up a joint patrol of the Aegean seas with … yes, Erdogan’s Turkey. Where Greece gets next to nothing as the children keep drowning, Turkey gets €3 billion and a half-baked promise to join the Union sometime in the future.

Which was never going to happen, the EU would blow up before Turkey joins and certainly if it does, and most certainly now that Russia’s busy detailing the link between the Erdogan cabal and Europe’s supposed new archenemies -move over Putin?!, which, incidentally, are reason for France to ponder a kind of permanent state of emergency; ostensibly, this is Hollande’s way of exuding confidence. ‘We must protect our way of life’.

Given Schengen -while it lasts-, which effectively erases all frontiers, this de facto means permanent emergency across the entire EU. And that, to a degree, though the two may seem unrelated, plays into the EU’s insistence to station foreign border guards (military police) at Greek borders. A, we can’t put it in different words, completely insane demand to which Alexis Tsipras’ government has apparently even acceded.

Insane because once you have foreigners deciding who can enter or leave your country, you’re effectively a country under occupation. It really is that simple. This latest attempt at power grabbing on the part of Brussels could have some ‘unexpected side effects’, though. And that may be a good thing.

We are not specialists in the Greek constitution -terribly hard to read-, but we very much question whether an elected government can decide to give up its nation’s sovereignty this way. Two -related- issues here are: 1) does the EU have the legal capacity to force this (EU border guards agency Frontex) on a member state, and 2) does Tsipras have the legal capacity to sign over the sovereignty of his country to foreigners?

Brussels may claim that Athens voluntarily ‘invited’ in German and Polish ‘officers’, but that’s far short of even half the story. EU countries have been complaining about the way Greece has dealt with the refugee crisis, stating that it is not capable of protecting its borders, which it ‘should’ under Schengen.

Nonsense of course. Athens is very capable of protecting its borders, but it has stated -quite correctly, it would seem- that it protects its borders from enemies, and the refugees are not enemies. The reason the refugees keep arriving -and/or drowning-, mind you, has a lot more to do with Angela Merkel’s ‘invitation’ for them to come, and with Turkey’s eagerness to let them leave, than it does with anything Greece has done. Or not done.

But that’s not what Brussels talks about. Far from it. The EU claims it has the power to take over, even if Greece would resist. Reuters quotes a EU official as saying: “One option could be not to seek the member-state’s approval for deploying Frontex but activating it by a majority vote among all 28 members..”

In other words, if 15 countries vote to occupy Greece, it’s a done deal. Once more, we’re quite shaky on Greek constitution at the moment, but we’re thinking someone somewhere (preferably but not necessarily Greece) should take this to a constitutional court. Again, preferably in Athens, but that’s not where the buck stops.

Because if the EU can do this to Greece, it can ostensibly do it to any member state. All 28 countries in the EU could be subject to their borders being taken over. And no matter how shaky we are on any of the 28 constitutions, we are darn sure that at the very least some of them will not allow for this kind of tomfoolery. A nation is either sovereign or it’s not.

Can anyone imagine Frontex taking control of British borders, or German or French? The very notion is too silly to even bring up in serious conversation. But that is exactly what Tsipras has just accepted. It would seem wise to let that sink in.

And we, in all the innocence and ignorance we have, and we have plenty, fail to see how Alexis Tsipras can retain his position as prime minister in the face of this. No prime minister gets elected to sign over his country’s sovereignty to some group of bureaucrats the country happens to be aligned with on one way or the other.

There must be terms written into the Greek constitution, too, that prevent this from happening. Or else the nation was handed over to the dogs long ago, just waiting to be conquered once again. We don’t think Greeks are stupid, and most certainly not that stupid.

The refugee crisis is not Greece’s fault. In much the same way that the EU/ECB decision to bail out French/Dutch/German banks from their losses on Greek casino loans was not Greece’s fault. The EU is turning rapidly into a theater where the largest and most powerful countries get to play the weaker for whatever they desire. And that won’t last. Not with sovereign nations and their constitutions.

The internal problem in Greece, and we have to hand it to Tsipras that he understands this, is that when he leaves, the old guard will take over again. And that will be even worse for Greeks. Whose economy is being systematically dismantled by Brussels as we speak. Greece has zero chance of recovering from its crisis under the terms the EU has forced upon it.

But that doesn’t mean that an elected prime minister has the legal power to sign over the entire nation to a bunch of international bankers and power-thirsty politicians. There are still laws in this world. Written into constitutions.

Europe’s own Real Donald (there’s one on each side of the Atlantic), the one called Tusk, who owes his job exclusively to badmouthing Putin, on top of all sorts of suggestions to halt Schengen for 2 years or so, talked about detaining all refugees for 18 months, pending background checks and the like.

And we’re thinking, in our innocence, pray tell where, Don? In Poland, where you guys have such great experience with detention camps? But we’re drifting, straying… We’ve written too many times to count over the past while that the EU is bound to collapse because its structure selects for sociopaths. Who dream of power, night and day.

Look, Greece should leave while it can. Britain’s going to sign some convoluted deal to keep up appearances, though the ECB is not at all pleased with the idea of a multi-currency union, but deep down David Cameron is a second-hand car salesman who can’t even spell principles or morals, so it’ll get done.

The Danes voted down more EU in their country this week, in an outcome eerily familiar when it comes to actual votes on the Union. It seems every time such a vote takes place, Brussels loses.

But neither Britain nor Denmark not any other EU nation would vote to give up their sovereignty, their borders, their control over who enters and who leaves. And very rightly so. Greece shouldn’t either, it’s gone way too far already trying to please the bully.

Alexis Tsipras has made exactly that decision, however. And that makes his position untenable, even though neither he nor -allegedly- anyone else realizes it yet. He’ll be lucky not to face trial for treason. We’re not kidding.

Debt Rattle November 8 2015

Nov 082015

November 8, 2015 Posted by Raúl Ilargi Meijer at 10:14 am Finance Tagged with: China, debt, EU, Evros, Fed, Frontex, Germany, Greece, Merkel, steel, VW 5 Responses »

John Vachon Big Four Cafe, Cairo, Illinois May 1940

• China October Imports Fall 18.8% From A Year Ago, Exports Down 6.9% (Reuters)

• Marginal Productivity Of Chinese Debt Goes From Bad To Much Worse (Gavekal)

• Global Investors Threatened as China Cement Maker Nears Default (Bloomberg)

• Troubled Tata Steel Demands 30% Price Reduction From Suppliers (Telegraph)

• Welcome To The First Global Recession Created By Central Banks (FuW)

• Jim Grant: ‘The Fed Is An Irrelevant Anachronistic Relic (Zero Hedge)

• Another Phony Payroll Jobs Number (Paul Craig Roberts)

• Volkswagen Managers Afraid To Travel To US For Fear Of Prosecution (Reuters)

• Germany Says It’s Testing Diesel Cars Of Foreign Automakers (Reuters)

• How Juncker And Dijsselbloem Blocked European Anti-Tax Haven Laws (Spiegel)

• The Indispensable European (Economist)

• The German Machine Is Breaking Down (Boston Globe)

• Germany Defies EU as Lawmakers Spurn Deposit-Insurance Plan (Bloomberg)

• Germany Spied on Friends and Vatican (Spiegel)

• A Nation Of Immigrants (MarketWatch)

• EU’s Tusk Urges Germany To Help Secure European Borders (Reuters)

• Frontex To Deploy Forces On Greek-Albanian Border (AP)

• Athens May Mull Opening Evros Fence As Part Of EU Deal (Kath.)

• Humanity Is Laid Bare On The Shores Of Europe (Giles Duley)

This is what’s shaping the world economy today, far more than anything else, than the Fed or ECB or US jobs reports.

• China October Imports Fall 18.8% From A Year Ago, Exports Down 6.9% (Reuters)

China’s trade figures disappointed analyst expectations by a wide margin in October, reinforcing views that the world’s second-largest economy will likely have to do more to stimulate domestic demand given stubborn softness in overseas markets. While Beijing has already repeatedly cut interest rates and softened the exchange rate to prop up the economy, latest trade numbers suggest that a greater risk of a hard landing remains. October exports fell 6.9% from a year ago, dropping for a fourth month, while imports slipped 18.8%, leaving the country with a record high trade surplus of $61.64 billion, the General Administration of Customs said on Sunday.

Combined exports and imports fell 8.5% in the first 10 months of the year from the same period a year earlier, well below the full-year official target for growth of 6%. “We see that the trade will unlikely turn around the momentum in the near term, and the renminbi exchange rate will be under downward pressure especially as Fed signals to hike soon,” Commerzbank China economist Zhou Hao said. Last week, the Ministry of Commerce said the value of China’s exports this year was likely to stay similar to 2014 levels, while imports could drop sharply in the fourth quarter. For 2016, the ministry expects to see steady growth in combined exports and imports as policy measures to support the trade sector take effect.

China’s economy is facing headwinds from cooling exports and investment. President Xi Jingping has said it was possible for the country to maintain an annual growth of around 7% over the next five years, but that there were uncertainties. Chinese growth dipped to 6.9% in the third quarter, dropping below the 7% mark for the first time since the global financial crisis. In order to lower social financial costs for firms, the central bank cut interest rates in late October for the sixth time in less than a year, and again reduced the amount of cash that banks must set aside as reserves. It also guided the yuan into weaker territory against the dollar. The onshore yuan has weakened by more than 2% in 2015.

One of our favorite numbers. But note this: “In reality the ratio is probably much lower than the current reading of .47.”

• Marginal Productivity Of Chinese Debt Goes From Bad To Much Worse (Gavekal)

Taking the Chinese GDP statistics at face value (an increasingly big assumption these days) we point out a rather ominous scenario which seems to be developing in the productivity dynamics of Chinese debt-financed growth. Basically the amount of growth that each new unit of credit produces is plunging to levels not seen since 2009-2010 when the Chinese unleashed the largest GDP adjusted stimulus program in the world. As it stands now, each new unit of debt is buying less than .5 units of marginal growth, and that, again, is taking for granted the accuracy of the GDP stats (chart 1). In reality the ratio is probably much lower than the current reading of .47.

Is this sustainable? Of course not. As we have been saying for several years now, Chinese growth is going much lower as the economy rebalances from being an investment led model to a consumption led model. One of the signs we’re looking for to indicate that the transition is taking place is actually a slowing of new loan growth and improvement in the indicator in chart 1. We’ve got exactly the opposite so far, which is an indication of the Chinese pushing on the debt string even more to fuel growth rather than accepting slower growth still, but a rebalanced economy.

This, in a perverse way, probably increases the risk of the dreaded hard landing as the chances of a credit “event” rise even further.

All Chinese commodities companies are grossly overinvested and overleveraged.

• Global Investors Threatened as China Cement Maker Nears Default (Bloomberg)

International investors in Chinese corporate debt face fresh risks after a cement producer said it may default on onshore notes, which could lead to nonpayment on its dollar securities. China Shanshui Cement Group isn’t sure it can repay 2 billion yuan ($315 million) of local securities due Nov. 12 after a shareholder tussle stymied financing, it said in a filing Thursday. Failure to repay those notes would trigger a default on its $500 million 7.5% bonds due 2020, according to the statement. Global investors have been scarred by defaults from Chinese companies this year in industries including property and commodities as economic growth slows and anti-corruption investigations continue. Kaisa Group reneged on obligations in April amid a probe.

Coal trader Winsway Enterprises failed to pay interest on dollar bonds for a second time this year in October, and Hidili Industry International didn’t repay its dollar notes due Wednesday. “Recently, there have been more cases of Chinese commodities companies having trouble to repay debt,” said Raymond Chia, the head of fixed-income research for Asia ex-Japan at Schroder Investment Management Ltd. in Singapore. “But if a relatively healthy cement company ended up having problems, the sentiment to China’s commodity space will surely go down.” Shanshui has been mired in a shareholder fight for control since April amid President Xi Jinping’s call to cull weaker firms in industries grappling with overcapacity. Its largest shareholder Tianrui International has been trying to change Shanshui’s board.

Meanwhile its two other shareholders China National Building Material and Taiwan’s Asia Cement have announced they are considering the terms of a possible offer. Shanshui cited its “current cash position and the difficulties it faces in raising financing” in its filing Thursday. While the company has been seeking funding since June, all the financial institutions it contacted “have expressed concern in relation to the uncertainty of the management,” it said.

China’s overcapacity is bringing down global commodities.

• Troubled Tata Steel Demands 30% Price Reduction From Suppliers (Telegraph)

Tata Steel has been accused of “bully boy” tactics after demanding its suppliers slash their prices by 30pc as it attempts to pass on the cost of the steel crisis. The Indian-owned company has written to businesses in its supply chain telling them it requires an immediate 10pc price reduction on all purchases, and plans to increase the cuts to 30pc. The letter – which has been seen by the Telegraph – implies that any of its “valued suppliers” that fail to comply with the price cuts face being dropped. Demands contained in the letter emerged just days after Tata’s global parent company reported a £301m interim profit. The current crisis in Britain’s steel industry – which saw Tata axe 1,200 in Scunthorpe and Scotland last month, on top of a further 1,000 earlier in the year – was blamed for the company writing down the value of its UK assets by £866m.

In a letter signed by Lorraine Sawyer, procurement director of Tata Steel Long Products Europe, which makes up about a quarter of the company’s operations in Europe, the company spells out the difficulties it is currently facing. These include global over-capacity and declining steel prices. It adds that “UK-based steel manufacturers have been particularly challenged by their higher cost position driven by high energy prices and business rates…worsened by sterling’s appreciation”, and cites the closure of SSI’s plant at Teesside and Caparo Industries’ collapse as evidence of the depth of the crisis. Tata’s Long Steel unit faces “a difficult business situation”, the letter says, adding that to “ensure a long term sustainable business we have launched a transformation programme to improve our market performance and reduce our cost base”.

As a result, the business “will focus on reducing external spend. We cannot achieve this transformation without the support of our valued suppliers.” The letter adds: “To this end we are seeking a long-term price reduction of 30pc… on all purchases. As a first step we would appreciate an immediate price reduction of 10pc. “Supporting each other in these challenging times will enable us to further strengthen our relationship into the future. We look forward to having a long term partnership with you.” The letter then hints that suppliers who do not comply may be dropped from the company’s supply chain: “We greatly appreciate your support but also want to stress that we require contribution from all of our suppliers. “Should you – for any reason – be unable to support us in our efforts, we will need to fully consider other options.”

“..even if interest rates are at zero you’re still losing money and you have debt on top of it.”

• Welcome To The First Global Recession Created By Central Banks (FuW)

Charles Biderman, founder of the research firm TrimTabs, thinks the global slowdown will force the Federal Reserve to launch another stimulus program.

For more than a year, the Fed is trying to prepare the financial markets for a rate hike. What would that do to the credibility of the central bankers if they back off now and actually take a U-turn? Who says they have any credibility? The real problem is that the people who run the central banks are either economists or bankers. If you look at the record of global economists, they’ve been consistently wrong on the market and on the economy. At least in the United States, 95% of the economists surveyed have said at the start of each of the last five years that interest rates are going to end the year higher. Although they have been wrong each year, people keep listening to them. And when it comes to bankers, consider this: I went to Harvard Business school. The top students there went to firms like McKinsey, Boston Consulting or to the top Hedge Funds. So where did the graduates go who couldn’t get the top jobs? They went to the banks. So what you end up with is people just as greedy but not as smart.

The Fed already blinked at the September meeting. Why are they so hesitant to make a move? If the economy continues to slow down going into an election year, the Fed will be under tremendous pressure to do something. They will not let the economy and the stock market slump. That’s why I think there will be further easing.

Why are today’s stock markets so heavily focused on monetary policy? A simple way to look at market valuations is earnings divided by interest rates or cash flow divided by interest rates. So even if you raise interest rates only a quarter of a point that lowers the value of stocks. Also, once the Fed starts raising, it keeps raising. That decreases the attractiveness of flow trades into the stock market because now you can earn some money on your other assets. Right now, if you’re a corporation, your cash earns nothing. So you might as well use some of it to reduce your share count or to do a takeover. Both have been essential drivers of the bull market.

When it comes to the real economy, cheap central bank money seems not to be that beneficial. Governments are creating headwinds for growth. So the best thing central banks can do to promote growth is to cut interest rates to zero or even lower. That can work for a little while. But now it’s creating a global recession because of all the excess capacities. Even if it doesn’t cost to build a new plant or drill new wells, when demand dries up you’re not making a profit. So even if interest rates are at zero you’re still losing money and you have debt on top of it. That’s why I say: Welcome to the first global recession created by central banks.

Always when we see him, we expect Grant to switch into a Superman costume.

• Jim Grant: ‘The Fed Is An Irrelevant Anachronistic Relic (Zero Hedge)

Central bank’s experimental policies are only hurting America instead of leading the nation into financial prosperity, exclaims James Grant, editor of Grant’s Interest Rate Observer. “The Fed is a relic of the age of command and control. The Fed is an anachronism,” Grant tells Bloomberg TV in this excellent interview, “The Fed ought to get out of the business of masterminding ‘the American enterprise,’ what we call the U.S. economy.” Central bankers, Grant adds, by pressing rates to nothing, have given rise to this “very pleasant kind of inflation we call bull markets.” While bull markets are great insofar as they reflect what is actually going on, “they are very dangerous to the extent that they are the artificial creation of artificial interest rates.”

“We are in a regime of price administration. Price control is a policy that has failed for millenia. When prices are manipulated, manhandled, and otherwsise distorted, real decisions follow and the real decisions are distorted… there’s bricks, mortar, and human lives attached to these [interest rate decisions]… and that’s why they matter” “How do they know the funds rate ought to be zero?” “The world’s central bankers went to the same schools, talk the same language, have the same world view. They have shared conditions. They believe, for example, that an average of prices, which they believe they can calculate, must rise at two% a year unless the world fall into something they choose to call deflation.

They believe that they can see into the future. They believe that they have the knowledge and the dexterity to manipulate interest rates to the benefit of society. The central banks no more than the rest of us can see into the future. They are managed by human beings who do their best but who cannot – underscore – cannot see into the future and improve it before it happens. That’s their conceit. But it is not given to mankind to do such things. They try. They have every good intention. But they are appliers of an outdated scheme of command and control. They don’t know what they do.”

“What is wrong with these numbers? Just about everything.”

• Another Phony Payroll Jobs Number (Paul Craig Roberts)

The Bureau of Labor Statistics announced today that the US economy created 271,000 jobs in October, a number substantially in excess of the expected 175,000 to 190,000 jobs. The unexpected job gain has dropped the unemployment rate to 5%. These two numbers will be the focus of the financial media presstitutes. What is wrong with these numbers? Just about everything. First of all, 145,000 of the jobs, or 54%, are jobs arbitrarily added to the number by the birth-death model. The birth-death model provides an estimate of the net amount of unreported jobs lost to business closings and the unreported jobs created by new business openings. The model is based on a normally functioning economy unlike the one of the past seven years and thus overestimates the number of jobs from new business and underestimates the losses from closures.

If we eliminate the birth-death model’s contribution, new jobs were 126,000. Next, consider who got the 271,000 reported jobs. According to the Bureau of Labor Statistics, all of the new jobs plus some—378,000—went to those 55 years of age and older. However, males in the prime working age, 25 to 54 years of age, lost 119,000 jobs. What seems to have happened is that full time jobs were replaced with part time jobs for retirees. Multiple job holders increased by 109,000 in October, an indication that people who lost full time jobs had to take two or more part time jobs in order to make ends meet. Now assume the 271,000 reported jobs in October is the real number, and not 126,000 or less, where are those jobs?

According to the BLS not a single one is in manufacturing. The jobs are in personal services, mainly lowly paid jobs such as retail clerks, ambulatory health care service jobs, temporary help, and waitresses and bartenders. For example, the BLS reports 44,000 new retail trade jobs, a questionable number in light of sluggish real retail sales. Possibly what is happening is that stores are turning a smaller number of full time jobs into a larger number of part time jobs in order to avoid benefit costs associated with full time workers. The new reported jobs are essentially Third World type of jobs that do not produce sufficient income to form a household and do not produce exportable goods and services to help to bring down the large US trade deficit resulting from jobs offshoring.

The problem with the 5% unemployment rate is that it does not include any discouraged workers. When discouraged workers—those who have ceased looking for a job because there are no jobs to be found—are included the unemployment rate is about 23%. Another problem with the 5% number is that it suggests full employment. Yet the labor force participation rate remains at a low point. Normally during a real economic recovery, people enter the labor force and the participation rate rises. The bullion banks acting as agents of the Federal Reserve used the phony jobs number to launch another attack on gold and silver bullion, dumping uncovered shorts into the futures market. The strong jobs number provides cover for the naked shorts, because it implies an interest rate hike and movement out of bullion into interest bearing assets.

One passport already seized. Watch the California air resources board. They don’t fool around.

• Volkswagen Managers Afraid To Travel To US For Fear Of Prosecution (Reuters)

Volkswagen managers are worried about travelling to the US, a German newspaper reported on Saturday, saying US investigators have confiscated the passport of an employee who is there on a visit. Citing company sources, the Suddeutsche Zeitung said Volkswagen believes the investigators want to prevent the manager from evading questioning or criminal prosecution linked to the diesel emissions scandal. A spokesman for VW said: “Volkswagen employees are still travelling to the United States. Everything else is speculation.“ Volkswagen is under investigation in the US and could face penalties of up to $18bn after admitting it deliberately rigged emissions tests of diesel-powered vehicles.

Mary Nichols, head of the California air resources board, which is investigating VW, has criticised the carmaker’s handling of the scandal. Citing a person with knowledge of the matter, the paper said it was now unlikely that new VW chief executive Matthias Mueller would travel to the US in the second half of November as planned. “We need legal security here before he can fly to the United States,” the paper quoted a person from group management as saying. There is no official plan for VW’s new chief executive Matthias Mueller to travel to the US and VW has so far declined to comment when asked whether such a trip is likely.

Sure, let’s piss off the French…

• Germany Says It’s Testing Diesel Cars Of Foreign Automakers (Reuters)

Germany is subjecting diesel vehicles including those from foreign manufacturers to strict checks, its transport minister said, following Volkswagen’s latest disclosure that it gave false data on CO2 emissions. In a deepening scandal, Volkswagen on Tuesday said it had understated the fuel consumption and carbon dioxide emissions of about 800,000 vehicles sold in Europe. VW in September admitted that it had cheated on diesel emissions tests in the United States.

“We are currently carrying out strict checks on diesel vehicles from other manufacturers including foreign ones,” Transport Minister Alexander Dobrindt told the Bild daily in an interview published on Saturday. Dobrindt said the EU was working on tougher car emissions tests for the future, which would include tests on the road as well as in the lab. “The tests will therefore become more strict and will more closely resemble the normal driving behavior in road traffic,” he told the newspaper.

Shameless grifters. What the EU leadership stands for. All it stands for.

• How Juncker And Dijsselbloem Blocked European Anti-Tax Haven Laws (Spiegel)

In speeches and interviews, Juncker has always claimed that Luxembourg has in no way enriched itself “at the expense of its neighboring countries,” and especially not by encouraging tax avoidance. In everyday political life, however, Juncker’s people fought for precisely the kinds of corporate advantages their boss used such rich language to denounce. In order to attract as much corporate money as possible into the country, his officials played around with tax models like “hybrid financial instruments” and, especially, so-called “patent boxes.” Introduced in order to spur technological advancement, finance policy experts in Belgium, the Netherlands and Luxembourg led the pack in transforming tax advantages into an instrument allowing corporations to steer proceeds from patents or licenses to their Benelux subsidiaries in order to pay lower taxes there.

Under the system, national subsidiaries of large corporations in countries with higher corporate tax rates would pay large patent and licensing fees to subsidiaries in lower tax countries. The system ensured that money got pumped into the government coffers of the Benelux countries, but it also put other EU countries at a disadvantage, in addition to the majority of small- and middle-sized businesses for whom such preferential treatment wouldn’t even be considered. Representatives of the other EU member states knew very well what was going on. The German representative in the Working Group on Tax Questions, for example, filed a cable to Berlin in March 2013 in which he noted there had been repeated “doubts about the harmlessness” of a few of the tax models, “mostly having to do with the license box rules of LUX and NDL,” the abbreviations being references to Luxembourg and the Netherlands.

But nothing was done about it for years. Each time the Working Group on Tax Questions proposed changes, Luxembourg, Belgium and the Netherlands warded them off successfully. It’s no wonder, either, given that representatives of the Benelux countries regularly coordinated their decisions in advance at their own meetings. Working in close collaboration, Luxembourg and the Netherlands refused to reveal information about tax rulings for major corporations as far back as 2010, four years prior to the LuxLeaks scandal. The new revelations are highly sensitive. It’s not just European Commission President Juncker whose past as the leader of the tax-haven Luxembourg is catching up to him. Another important man at the top of an EU institution also now has some uncomfortable questions to answer: Dutch Finance Minister Jeroen Dijsselbloem. Even after ascending to his current position as head of the Euro Group, his country continued to block every call for change.

“Her natural caution has given rise to a German neologism, merkeln (“to merkel”, or put off big decisions)..”

• The Indispensable European (Economist)

Look around Europe, and one leader stands above all the rest: Angela Merkel. In France François Hollande has given up the pretence that his country leads the continent (see Charlemagne). David Cameron, triumphantly re-elected, is turning Britain into little England. Matteo Renzi is preoccupied with Italy’s comatose economy. By contrast, in her ten years in office, Mrs Merkel has grown taller with every upheaval. In the debt crisis, she began as a ditherer but in the end held the euro zone together; over Ukraine, she corralled Europeans into imposing sanctions on Russia (its president, Vladimir Putin, thinks she is the only European leader worth talking to); and over migration she has boldly upheld European values, almost alone in her commitment to welcoming refugees.

It has become fashionable to see this as a progression from prudence and predominance to rashness and calamity. Critics assert that, with her welcoming attitude to asylum-seekers, Mrs Merkel has caused a flood that will both wreck Europe and, long before, also bring about her own political demise. Both arguments are wrong, as well as profoundly unfair. Mrs Merkel is more formidable than many assume. And that is just as well: given the European Union’s many challenges, she is more than ever the indispensable European. Mrs Merkel’s predominance in part reflects the importance of Germany—the EU’s largest economy and its mightiest exporter, with sound public finances and historically low unemployment. She is also the longest-serving leader in the EU.

Her personal qualities count for much, too. She has defended Germany’s interests without losing sight of Europe’s; she has risked German money to save the euro, while keeping sceptical Germans onside; and she has earned the respect of her fellow leaders even after bruising fights with them. Most impressively (and alone among centre-right leaders in Europe), she has done this without pandering to anti-EU and anti-immigrant populists. For all the EU’s flaws, she does not treat it as a punchbag, but rather as a pillar of peace and prosperity. Mrs Merkel is far from perfect. She is not given to great oratory or grand visions. She can be both a political chameleon who adopts left-wing policies to occupy the centre-ground, and a scorpion who quietly eliminates potential rivals.

Her natural caution has given rise to a German neologism, merkeln (“to merkel”, or put off big decisions). Her timidity in handling the euro’s woes deepened the crisis unnecessarily; she has spurned the risk-sharing that the euro area needs to thrive. Ironically it is boldness, not timidity, that has brought Mrs Merkel the greatest challenge of her time in office. Her staunch refusal to place an upper limit on the number of refugees that Germany can absorb has caused growing consternation at home and criticism abroad. As German municipalities protest, her political allies are denouncing her and eastern European countries are accusing her of “moral imperialism”. With Willkommenskultur fading, there is even talk of her losing power.

Already broken. We just don’t notice yet.

• The German Machine Is Breaking Down (Boston Globe)

Rarely have the fortunes of a major European nation changed so quickly as Germany’s. Far from being a driver of the European policy process, a role it had just settled into, Germany now finds itself driven by events, mainly the refugee crisis. This turn will not only have a significant impact on Germany’s ability to manage its own affairs but is also bound to have global consequences. If Germans have proved particularly adept at one skill, it has been what can broadly be described as complexity management. That is why, for example, German policy makers felt that they could take it upon themselves to launch a radical shift toward renewable energy, even though that strategy met with near disbelief in many quarters outside the country.

Meeting that mega-sized energy transformation challenge alone basically required an “all in” effort on behalf of policy makers, industry, and society at large. Despite the daunting challenges, Germans by and large felt optimistic about their collective ability to get it done. Now, on the eve of the COP21 climate talks in Paris, in the midst of the refugee crisis, one can’t be so sure any more that Germany can stay the course. Merely coping with the tremendous refugee inflow has quickly become an all-absorbing effort. All of a sudden, the ability of public authorities and the private sector to get much else done is very limited. Germany’s civil servants, skilled and efficient as they generally are, are plainly exhausted. That exhaustion is felt at the local, state, and federal levels.

Just how profoundly the policy landscape in Germany has changed reveals itself perhaps most starkly if one looks at the members of Chancellor Angela Merkel’s CDU party in the German Parliament. Many are basically speechless, if not incensed. They believe, with good reason, that Germany was already facing many serious policy challenges, from the eurozone crisis to improving the integration of young immigrants that were already in the country. Those problems now seem a mere pittance compared to dealing with the vast inflow of refugees. It has been a rude awakening for a country that thought itself so in control of its destiny.

Amidst all that, Volkswagen’s diesel scandal doesn’t help. Perceptions matter a great deal, and the fallout is bound to have an impact on Germany’s export industries, at least in terms of reputation. In addition, markedly reduced tax payments from VW and its suppliers, whether owing to losses or declining sales, reduce the fiscal space of state and local governments at an inopportune time. Where does all of this leave us? It would be, of course, completely inappropriate to use the refugee problem as an explanation for Germany’s — and Europe’s — present troubles. It is much more appropriate to argue that the massive wave of refugees simply exposed many of the cracks that had already shown up in the European edifice.

Everyone flaunts EU laws as they see fit. It’s a free for all.

• Germany Defies EU as Lawmakers Spurn Deposit-Insurance Plan (Bloomberg)

Germany’s dispute with Brussels over the pace of unification in the euro-area banking industry escalated as the country’s parliament called on Chancellor Angela Merkel to resist a proposed common deposit-insurance plan. Lawmakers in the Bundestag, Germany’s lower house of parliament, approved a resolution late on Nov. 5 that urges the government not to agree to the deposit-insurance initiative put forward by EC President Jean-Claude Juncker. While the resolution is non-binding, it would be very difficult politically for Merkel’s coalition to disregard it. Juncker announced the plan in his state-of-the-union address on Sept. 9, promising a “legislative proposal on the first steps” by year-end. German Finance Minister Wolfgang Schaeuble signaled his opposition days later, insisting that a common deposit-guarantee system would have to wait until financial-stability measures already on the books, such as common bank resolution rules, were fully implemented.

“Half-baked proposals that make German savers liable for other countries” make no sense, said Manfred Zoellmer, a member of the Social Democratic Party, part of Merkel’s ruling coalition. “Germany has done its homework; we’re well placed in this respect,” he said. “Other countries have to do their homework first. Only then can we talk about further steps.” Antje Tillmann, the lead lawmaker in the Bundestag’s Finance Committee for Merkel’s Christian Democratic Union, said an existing EU directive on deposit guarantee schemes, on the books since mid-2014, should be properly transposed into national law by all of the bloc’s member states before further measures are considered.

The directive “was only transposed by half of the countries,” she said. “Against this background, the commission’s proposal comes at the wrong time. We should first implement what has already been agreed. Diligence should come before speed.” Juncker used a speech in Germany before the vote to play down the impact of his proposal. Speaking to an audience of German cooperative bankers, he said it doesn’t involve full risk-sharing between the euro-zone countries, something the German government has been wary of throughout the creation of Europe’s banking union.

Because they can.

• Germany Spied on Friends and Vatican (Spiegel)

Three weeks ago, news emerged that Germany’s foreign intelligence service, the Bundesnachrichtendienst (BND), had systematically spied on friends and allies around the world. In many of those instances, the BND had been doing so of its own accord and not at the request of the NSA. The BND came under heavy criticism earlier this year after news emerged that it had assisted the NSA in spying on European institutions, companies and even Germans using dubious selector data. SPIEGEL has since learned from sources that the spying went further than previously reported. Since October’s revelations, it has emerged that the BND spied on the United States Department of the Interior and the interior ministries of EU member states including Poland, Austria, Denmark and Croatia.

The search terms used by the BND in its espionage also included communications lines belonging to US diplomatic outposts in Brussels and the United Nations in New York. The list even included the US State Department’s hotline for travel warnings. The German intelligence service’s interest wasn’t restricted to state institutions either: It also spied on non-governmental organizations like Care International, Oxfam and the International Committee of the Red Cross in Geneva. In Germany, the BND’s own selector lists included numerous foreign embassies and consulates. The e-mail addresses, telephone numbers and fax numbers of the diplomatic representations of the United States, France, Great Britain, Sweden, Portugal, Greece, Spain, Italy, Austria, Switzerland and even the Vatican were all monitored in this way.

Diplomatic facilities are not covered under Article 10 of Germany’s constitution, the Basic Law, which protects German telecommunications participants from such surveillance. The initial revelations came after Chancellor Angela Merkel’s Chancellery, which is in charge of overseeing Germany’s intelligence agencies, informed the Bundestag’s Parliamentary Control Panel, which is responsible for applying checks and balances to intelligence efforts, in mid-October that the BND had been surveilling the institutions of numerous European countries and other partners for many years. In October 2013, Chancellor Angela Merkel condemned spying on her mobile phone by saying, “Spying among friends? That’s just not done.” Apparently these words didn’t apply to the BND.

2013.

• A Nation Of Immigrants (MarketWatch)

As America becomes more diverse, that is being reflected in the home countries of those choosing to become American citizens. Nearly 800,000 people decided to become American citizens in the 12 months that ended Sept. 30, 2013 — and more than a third of them came from Asia. Asians comprised the biggest group of new Americans by region, according to recent data from the Department of Homeland Security, edging out those from North America, in which DHS includes those from Central America and the Caribbean. Mexicans remain the single largest group of foreigners who were naturalized as citizens. But by state they are the biggest group in only 24. Among the remaining 26 states plus the District of Columbia, 10 other nationalities claim the top spot, as this map shows.

In nine states, Indians made up the biggest group of naturalized citizens. Those from the Dominican Republic, who nationwide topped those from China for the first time in at least a decade, are the biggest group in five states, the DHS data show. One of those states is New Jersey. For two years running, Dominicans have made up the biggest group of naturalizations each year, narrowly exceeding the number of Indians. DHS counts 779,929 people who were naturalized across the U.S. in the 2013 fiscal year, up 3% from a year earlier but 25% fewer than the record 1,046,539 who were naturalized in the fiscal year that ended Sept. 30, 2008. Asians were 275,700 of them, followed by the 271,807 from North America, Central America and the Caribbean. Europeans, the biggest source of the immigration waves of a century ago, were 80,333 of the year’s naturalizations. By country, the biggest groups after Mexico are India, Philippines, Dominican Republic and China.

German soldiers patrolling Greek borders? Don’t think so.

• EU’s Tusk Urges Germany To Help Secure European Borders (Reuters)

Germany needs to be tougher in the refugee crisis and do more to help secure Europe’s external borders, European Council President Donald Tusk said ahead of a meeting with Chancellor Angela Merkel on Sunday. While Tusk praised Germany’s leadership role as the most liberal and tolerant in European history, he urged Berlin to do more to get the current situation under control. “Leadership responsibility also means securing Europe’s external borders together with other member states,” Tusk told Die Welt am Sonntag newspaper. “I understand why due to historical reasons, Germany may have difficulty setting up a strict regime on its borders.

But for Germany, European leadership responsibility also means controlling Europe’s external borders if necessary energetically in a pan-European unit.” Tusk, a former Polish prime minister, has repeatedly stressed the urgency of tightening Europe’s borders, while Merkel has pushed for states to show “solidarity” and share responsibilities for refugees. In October, Tusk rebuked fellow European leaders by calling arguments over how to accommodate refugees “naive” as long as Europe fails to stop them surging over its borders. Tusk is due to dine with Merkel on Sunday in Berlin ahead of an EU-Africa summit in Malta on Wednesday and EU leaders meeting on refugees on Thursday.

Evil organization.

• Frontex To Deploy Forces On Greek-Albanian Border (AP)

The European Union border protection agency Frontex says it will deploy forces along Greece’s border with neighboring Albania. Frontex head Fabrice Leggeri on Friday told Albanian television station Top Channel the agency wants to prevent migrants from attempting to reach Western Europe by traveling through Albania. That route isn’t used at the moment by the large number of people fleeing conflict and poverty in the Middle East, Africa and Asia. Tirana says, however, it has made preparations to shelter refugees should they begin arriving during the winter. Leggeri said there was no plan for a camp in Albania as “that could be a burden on the countries in the region and it is not in line with the union’s decisions for the distribution of the emigrants from Greece to the other EU countries.”

As I said before: the people should open that fence, not wait for Athens OR Brussels.

• Athens May Mull Opening Evros Fence As Part Of EU Deal (Kath.)

Greek authorities have ruled out, again, the possibility of joint sea patrols with Turkey in the Aegean but have indicated, for the first time, that they would be willing to consider opening the fence on the Evros border with the neighboring country if a broad agreement with European Union members could be reached. Speaking to the semi-state Athens-Macedonian News Agency on Saturday, Citizens’ Protection Minister Nikos Toskas indicated that Athens will not engage in any further discussion on the idea of common sea patrols. “This matter has closed,” he said. “There is no chance of joint patrols taking place. What can happen is coordination in the sea or whatever other borders, but each side has to be responsible for its own territory, its own territorial waters.”

Athens is opposed to the idea of joining forces with Turkey to patrol the Aegean in order to deter human trafficking gangs from sending refugees across to eastern Aegean islands because Ankara disputes Greece’s territorial rights in the sea separating the two countries. “We are a sovereign state and we will not try to solve one problem by creating another bigger one,” said Toskas. However, the minister suggested that the Greek government would be willing to consider opening a safe passage for refugees through the fence on the Evros border in northeastern Greece if there is an agreement with Turkey, Bulgaria and the EU. “We can’t just open everything when there is a danger that everything will close in Europe,” said Toskas in reference to other eastern and central European countries installing fences at their borders. “Evros is not just the 12-kilometer fence on its land border with Turkey, there is also a 140-kilometer river,” added the minister, who visited Alexandroupoli in northeastern Greece on Saturday.

The EU has already died on its own shores.

• Humanity Is Laid Bare On The Shores Of Europe (Giles Duley)

In mid-October I arrive in Skala Sikamineas on the north coast of the Greek island of Lesbos. I am here as part of a long-term project for the UN High Commissioner for Refugees (UNHCR), documenting the refugee crisis across Europe and the Middle East. For more than a decade I have documented the effects of conflict and humanitarian disaster across the world, and much of that work has been in the countries from which these people now flee. From Afghanistan to South Sudan, in the past years I have seen growing instability across the globe. I understand the fear that is driving people to leave their homes. I thought I had seen it all, but I have never been so overwhelmed as by the human drama unfolding on the beaches of Lesbos. In its sheer scale, it is hard to comprehend; the lack of response impossible to explain or excuse.

The events of the past few years are unprecedented in size and scope. Not since the second world war have so many people been on the move. The UNHCR estimates there are more than 60 million forcibly displaced people worldwide, with over 4 million Syrians alone leaving their war-torn country to seek safety in neighbouring countries and Europe. On Lesbos, I have watched thousands land, fleeing wars in Afghanistan, Syria and Iraq. Again and again they say to me: “We thought we would die on that boat, but at least there was some chance; what we left behind was certain death.” On landing, men break down into tears, women stand lost in visible shock, children cry hysterically. The noise and chaos is deafening; humanity is laid bare on the shores of Europe and the response from politicians is a shambles.

It is volunteers who hold this frontline; often taking unpaid leave from work, bringing their own equipment and living in whatever accommodation they can find; a nurse from Palestine, a doctor from Israel, lifeguards from Barcelona; from Bolton to Oslo, everyday people are making a difference. When survivors, upon landing, shake your hand and say “thank you”, I turn ashamed, for they have nothing to thank us for. If this were ever to be my family seeking safety, I hope the world would treat them better. We can argue about the root causes and possible solutions; we can discuss the difference between refugees, asylum seekers and migrants; we can blame traffickers and smugglers. But the simple truth is that men, women and children are suffering terribly and dying on the coasts of Europe, and for the sake of humanity alone we must help them, not turn our backs.

[..] Today, 3 November, has been one of the busiest on record for refugees arriving, and despite the dark, boats are still landing. Estimates put the figure at more than 7,000. Two men and two children drowned. The camps are full, the volunteers and agencies overwhelmed. Families are sleeping wherever they can. An Afghan father with a baby in his arms asks for somewhere to sleep. He offers to pay three times the price in a hotel, even just for his wife and baby. When it’s explained there is nowhere left and no blankets, he says: “Touch me, am I not human too?” This is Europe, this is today.

Refugees Expose Europe’s Lack Of Decency

Aug 272015

August 27, 2015 Posted by Raúl Ilargi Meijer at 1:34 pm Finance Tagged with: deaths, decency, EU, Frontex, Greece, Italy, Juncker, Merkel, morals, refugees 18 Responses »

Dorothea Lange Arkansas flood refugee family near Memphis, Texas 1937

This is a story I’ve been wanting to write for a while now, at least two full weeks, but haven’t gotten around to because I have my dying mother to attend to. Something I can to an extent approach from a rational point of view, because she has expressed her explicit will to die. But it will of course never be easy, if only because I’ve been close to her all my life even in the 20-odd years I lived thousands of miles away. It’s a thing of the heart.

And so must be, at some moment or another, my dealing with what she goes through, and what I will go through when she finally gets her wish. A wish I would have thought would be reasonably easy to fulfill in a country as supposedly advanced as Holland, but that’s not true. People have to suffer more, long after they’ve signaled they’ve had enough, just to satisfy someone or another’s idea of ethics who has little to no involvement in the situation. Unless they’ve been through endless series of conversations with total strangers who will then decide when it’s time.

The person herself doesn’t have the right to make that decision. Now that I’m witnessing the process in progress, I would recommend everyone buy that pill or that gun well in advance, lest they get subjected to the same kind of self-serving morality nonsense themselves. We may not have the legal right to decide about our own lives, but what law is going to stop us from taking that decision regardless? The craziest expression of this mindless attitude is probably that in countless nations and cultures, suicide is still a punishable offence. My mother is not the suicidal kind; she just wants dignity, and is denied it.

But that’s not the story I wanted to write.

The way I write is that I sit down and let fly, most often inspired by things I’ve read recently. I make some notes, site down and often don’t use even half of those notes. In this case, I’ve taken lots of notes through the weeks, and now don’t know where to start anymore, let alone finish. Nicole (Foss) is a whole different writer: she can do the notes thing, and work on an article, which often turns out to be quite lengthy, for days if not weeks. I guess I just don’t have that kind of attention span. But you know, because we’re so different we work so well together. Because our styles may vary greatly, but we still have the same views, we just express them in different ways.

But that’s not the story I wanted to write either.

I want to say something about the issue of the refugees -never ever again migrants- that are swamping Europe. So much has been said about them, and so much has happened since I made my first notes, but not a soul has put their finger on the sore spot, and the real story. At least not that I’ve seen.

That real story is the painfully woefully inadequate -and I’m being painfully polite here- failure of Brussels and Berlin and Paris in responding to what’s been unfolding. And don’t get me started about London; there’s nothing coming from Britain these days that’s even worth talking about. When you dare talk about a ‘swarm of migrants’, you’re no longer part of the conversation.

And it’s not as if what Europe has perpetrated upon the Greek economy, and the Greek people who depend on it, isn’t enough. It is more than enough. Only, nobody seems to be willing to understand this, to let it sink in to its fullest. But that’s still kind of alright; financial policies are not the EUs biggest failure.

Even if even Varoufakis insists on being part of the EU -albeit a reformed one-. You can’t reform the EU. It’s allergic to any reform that would take even just a few of its powers away. That is embedded in its model. Varoufakis doesn’t sufficiently get this: you can’t any longer just change a few puppets in Brussels. Its alleged democracy is no longer anything but thin and peeling veneer.

It’s like the old Groucho joke, that he wouldn’t want to be part on any club that would have him as a member. It’s exactly that, actually. If you want to survive in Europe, let alone with dignity and values, it cannot be done inside the EU. And the refugee crisis tells us why, even more than the Greek crisis has.

What Brussels lacks most of all is morals, decency and compassion. It is a bureaucracy that has no human values. And this is expressed, in a painful and deadly way, not only in the streets of Athens, though it’s plenty glaringly clear there too, but even more in how the so-called Union “deals with” (that is, it doesn’t) the Mediterranean refugee issue.

We can take a philosophical approach to this, which can be interesting, though it doesn’t change a thing. We can for instance theorize about how a country, a society, a culture, that is hundreds or thousands of years old, and has gone through numerous natural and man-made disasters in its history, like so many in Europe, will have a response formulated for the next batch of mayhem, and on how to deal with those who are the victims of said mayhem.

That is what we see in how Italy and Greece have been trying to deal with the flood of refugees sailing off from Lybia and Turkey towards their shores. Both countries – or at least substantial segments of them – have gone out of their way to save refugees. Then late last year the EU -ostensibly- took over. But the EU has done next to nothing. It has paid lip service only. Which has cost thousands of human lives this year alone. And still nothing happens.

Now, now, some of them are waking up. The EU agency that is supposed to deal with it, Frontex, has announced it’s going to step up efforts to halt refugees from entering Europe. Just like it did when it took over from Italy and Greece, and the main idea was to send in the military to blow up the boats of the ugly and evil people smugglers.

Hungary is building a wall. Macedonia fired tear gas and stun grenades. The Czechs have said they’re going to send in the army. Police dogs and batons have become a common sight wherever the refugees are. Who are forced to walk a thousand miles or more, children and women and everyone. It’s a picture of disgrace. And the disgrace belongs to all of us.

EC head Juncker, after breaking a months long silence on the topic, declared this week that there’s no need for an Immigration Summit. All EU countries need to do is comply with existing regulations. Which, if I may remind you, were ‘agreed’ upon in a time when there was no such thing as the present influx of people.

What Europe should do, or rather should have done, because I guarantee you it’s too late now, is send as many people as needed to make sure people would stop drowning. To make sure the media would stop using the term ‘migrants’. To show Europe cares, and it alleged leaders first of all. To make sure there would be space and provisions for all who undertook the perilous journey, women, children, men, every single one.

Europe instead has only tried to ignore the issue, hoping it would go away by itself. This has cost at least 17,000 lives so far. And they know it. Here is a picture of a 100-meter list of 17,306 migrants who have died attempting to reach Europe, a list which was recently unveiled at the EU Parliament:

They know, and they’ve known for a long time. But still the UN said this week that Greece should do more. Greece? And Juncker says a summit is not needed. Juncker is supposed to be one of the main leaders of Europe. If we didn’t already know before, we now know for sure he’s no leader. Merkel? Haven’t seen her until this week when she said the situation is unworthy of Europe. But if anything, it’s unworthy of Merkel. She’s supposed to be a leader in Europe, and she’s very obviously not.

There’s a huge amount of people in Brussels and various European capitals who are posing as ‘leaders’, and all of them have fallen way short. All of them, Merkel, first, need to shut up and act now. Not tell other nations, or her own co-Germans, that they should be ashamed. Merkel should be ashamed of herself first. And we know that there are elections coming up, but we’re talking about human lives here, for sweet Jesus’s sake. What’s wrong with you, Angela, and all those like you? What part of you guys is even human anymore? Is only your ego left?

The EU, unlike Greece and Italy, has no history, no society, and above all no culture. The way it reacts to the refugee issue tells its entire empty story. All of it. Brussels doesn’t do anything at all in the face of thousands of people drowning. It waits for Greece to deal with the problem, which is obviously far too great for the Greeks to solve by themselves. And besides, the EU a year ago insisted on taking over rescue operations from Rome and Athens. This has brought about a strange and eery and deadly kind of Mexican stand-off.

The EU has already failed, dramatically and irreparably, in this regard. The only help refugees get is from Italy, Greece and private parties. It’s so bad that if Greece would take “full care” of the refugees entering the country -and that’s assuming it could-, there’d be even much less hope of Brussels ever lifting a finger.

In this fashion, the EU doesn’t just leave the refugees to their fate, it uses them as bait, as hostages, in its fight over financial and political power with Alexis Tsipras and the Syriza government. And though of course multiple voices try to lay the blame on Tsipras, that’s not where it belongs. Even if he could, he couldn’t. The only solution is for Greece to get out of the EU(ro) and restore dignity and humanity within its own borders.

For make no mistake, if you elect to remain part of the EU, and you let Juncker and Merkel speak in your name, then the blood of all those needlessly lost lives is also on your hands. That goes for every European citizen as much as it goes for the hapless heartless leaders they have elected.

For one thing, I can’t for the life of me understand why there are not thousands of young Dutch and German and British and French people, organized and all, in Athens, and on the Greek islands. While there are plenty of them there to get a bloody suntan on their “well-deserved vacation” while people are perishing within eyesight, and complain about their holidays being spoiled. Not all of them, I know, but c’mon, get a life! There are people dying every single day, and just because your so-called leaders let them drown doesn’t mean you should too.

Do you even know what “a life” is anymore, either yours or that of someone else? Have you ever known? A life means caring about other people. A life is not trying to make sure your own ass can sit as pretty as it can.

As for finding a solution to the refugee issue, Europe has done nothing to find one. The EU still wants the problem to just go away, and it wants the refugees to just go away. But it won’t and they won’t.

Yes, we have a mass migration on our hands. And these are invariably hard to deal with. But our first priority should always be to approach the people involved with decency and compassion. And that is not happening. We are approaching them with the opposite of decency. With stun grenades and police dogs. And with misleading terminology such as ‘migrants’.

The EU doesn’t seem to have any idea what’s causing the wave of refugees entering ‘its’ territory. When the refugees themselves state “we’re here because you destroyed our countries”, Brussels will simply say that is not true. That kind of admission is way beyond the consciousness of the ‘leadership’. But it’s a denial that won’t get them anywhere.

Meanwhile, this issue, like so many others, is being used as a reason to plea for more EU:

Summer Crisis Tests Europe’s New Nationalisms

Dimitris Avramopoulos, the EU home affairs commissioner, argued last week [that] the very reach of the migration crisis shows the limits of national solutions. That, he said, puts pressure on governments to agree in Brussels to collective measures – even, he stressed, when they are not popular.

It’s an empty hollow plea. Why agree to give up more sovereignty if Brussels only uses its growing powers to do nothing? Europeans who give in to this kind of thing give up much more than sovereignty; they give up their decency and human values too.

The refugee issue can and will not be solved by the EU, or inside the EU apparatus, at least not in the way it should. Nor will the debt issue for which Greece was merely an ‘early contestant’. The EU structure does not allow for it. Nor does it allow for meaningful change to that structure. It would be good if people start to realize that, before the unholy Union brings more disgrace and misery and death upon its own citizens and on others.

However this is resolved and wherever the refugees end up living, we, all of us, have the obligation to treat them with decency and human kindness in the meantime. We are not.

Debt Rattle August 24 2015

Aug 242015

August 24, 2015 Posted by Raúl Ilargi Meijer at 11:54 am Finance Tagged with: Black Monday, central banks, China, crash, Fed, Frontex, Merkel, refugees, stocks 4 Responses »

Dorothea Lange Rear window tenement dwelling, 133 Avenue D, NYC June 1936

• Global Selloff Deepens as Stocks Sink With Oil (Bloomberg)

• Global Bloodbath Sparks Financial Crisis Fears (News.com.au)

• A Sell-Off Of Epic Proportions Spreads Further (FT)

• Commodities Slump to 16-Year Low as China Slowdown Roils Markets (Bloomberg)

• China Poised to Raise Banks’ Liquidity to Boost Lending (WSJ)

• China’s One-Year Bonds Decline in Sign of Tightening Liquidity (Bloomberg)

• Is The Game Up For China’s Much Emulated Growth Model? (Ghosh)

• Chinese Pension Fund ‘Allowed’ To Invest In Stock Market (BBC)

• Angry Investors Capture Head Of China Metals Exchange (FT)

• Hong Kong Can’t Escape the Turmoil Next Door (Pesek)

• Central Banks Have Become A Corrupting Force (Roberts and Kranzler)

• The Fed Is Looking at a Very Different Dollar Than Wall Street (Bloomberg)

• It’s Time To Lay Siege To The Robber Barons Of High Finance (Ben Chu)

• Bank Litigation Costs Hit $260 Billion With $65 Billion More To Come (FT)

• Brazil’s Scandal Takes Another Toxic Turn (Bloomberg)

• EU Border Agency Frontex To Boost Patrols In Aegean To Halt Migrants (Kath.)

• Germany Shames EU for Failure to Shoulder Refugee Surge

No emperor AND no clothes.

• Global Selloff Deepens as Stocks Sink With Oil (Bloomberg)

The global selloff in riskier assets deepened, spurring the biggest drop in Asian shares since 2011 and sending emerging-market currencies to the weakest levels on record. U.S. 10-year yields dropped below 2%. Commodity prices sank to a 16-year low, while credit risk in Asia increased to the highest since March 2014. The yen rallied and government bonds rose as investors sought haven assets. China’s Shanghai Composite Index tumbled 8.5%, while U.S. equity-index futures signaled a fifth straight day of losses. The rand dropped more than 3%. “Things are probably going to get worse before they get better,” Nader Naeimi at AMP Capital Investors said. “You really need rate cuts and more policy easing in China. In the meantime, things can get worse. We’ve got to see more clarity around the Fed.”

More than $5 trillion has been erased from the value of global stocks since China unexpectedly devalued the yuan, fueling speculation that the slowdown in the world’s second-largest economy may be deeper than previously thought. The rout is shaking confidence that the global economy will be strong enough to withstand higher U.S. interest rates. All major Asian markets were lower after U.S. stocks capped their biggest two-day retreat in almost four years Friday. Futures on the Standard & Poor’s 500 Index retreated as much as 3.1% after the U.S. benchmark plunged 5.2% through the final two days of last week. The MSCI Asia Pacific Index fell for a seventh straight day, sinking 4.3% by 12:57 p.m. Tokyo time, set for its lowest close since June 26, 2013. The gauge is on the cusp of a 20% slide from an April high.

View from Oz.

• Global Bloodbath Sparks Financial Crisis Fears (News.com.au)

Global markets are in meltdown with losses approaching those not seen since the global financial crisis. Should we be worried? Absolutely. Australia bet big on never-ending Chinese growth and, increasingly, it looks like we could walk out of the casino empty-handed. Global stock markets have been rocked over the past few weeks amid growing signs of a slowdown in China. It’s causing fears we could be seeing a re-run of the 1997-98 Asian financial crisis, and there are dire implications for the Australian economy. The Australian market has plunged by 3.5% today as of 12:45 AEST, with almost $60 billion stripped from the value of the nation’s companies.

It’s the biggest daily fall since September 2011, and is compounding an already dismal stretch which is on track to be the worst month since the GFC. The benchmark S&P ASX 200 has fallen more than 16% from its highs near the 6000 mark earlier this year. The local market looks to be heading for its first negative year since 2011. From their highs earlier this year, US shares are now down 7.5%, eurozone shares are down 14%, Asian shares have fallen 20%, Chinese shares are down 32% and emerging market shares are down by 17%. Meanwhile, the Shanghai Composite has crashed 8.4% this morning, putting even greater pressure on Australian stocks, particularly the big mining companies.

On top of everything else, there are fresh fears that Greece could exit the euro after Prime Minister Alexis Tsipras called for snap elections after growing division within his radical left-wing Syriza party over the stricken country’s bailout deal. So should we be worried? “The short answer is absolutely,” said ABC Bullion chief economist Jordan Eliseo. “The volatility over the last week has simply revealed the fact that the primary cause of the GFC — excessive debt and capital misallocation — has not been solved.”

Eruope off ‘only’ 2.5-3% as I write this. US futures look ugly.

• A Sell-Off Of Epic Proportions Spreads Further (FT)

Chinese equities fell more than 8% in the morning session, leading a sell-off across Asia that prompted fresh questions about what policymakers might do to staunch the losses. The benchmark Shanghai Composite fell 8.5%, erasing all of its 2015 gains, while the tech-heavy Shenzhen Composite tumbled 7.6%. Hong Kong’s Hang Seng Index lost 4.6%, extending its August decline to nearly 13%, writes Patrick McGee in Hong Kong. “Today has all the hallmarks of being one of the worst trading days of the past five years,” said Evan Lucas at IG, a spread-betting group. The MSCI Asia Pacific Index fell 4.3%, on pace for its lowest finish since late June 2013.

Before China markets opened the global equity rout of last week accelerated across Asia in a negative feedback loop. Once China joined in on the turmoil the sell-off accelerated and was joined by commodity prices. Tokyo’s Nikkei 225 slid 3.3%, falling below 19,000 for the first time since April, while the Topix sank 4.2%. In Sydney, the S&P/ASX 200 dropped 3.3%, while Taiwan’s Taiex was down as much as a 7.5% — at risk of its biggest daily sell-off since 1990 — before paring the loss to 4.3%. Turnover in Japan, Australia and Taiwan was 77%, 90% and 113% above the 30-day average. Bank and energy stocks led the declines as the slide in the price of commodities such as oil showed no signs of abating.

The Bloomberg Commodity Index, a 22 member gauge that looks at everything from egg futures to natural gas, fell 1.2% to $86.79, its lowest since 1999. Even the price of gold is down 0.4% today, as investors sell quality assets to raise much-needed cash for margin calls. The Chinese falls place further pressure on the country’s authorities to act. The Shanghai market fell nearly 12% last week as investors questioned whether Beijing was still propping up equities with an array of policies. A key manufacturing gauge hit a six-year low on Friday, spurring a wave of selling but drawing no real response from authorities. Many were expecting the People’s Bank of China to cut interest rates or inject liquidity over the weekend, however, no such steps were taken, heightening fears Beijing is no longer staking its credibility on bolstering the market.

Yes, that would be 1999.

• Commodities Slump to 16-Year Low as China Slowdown Roils Markets (Bloomberg)

Commodities sank to the lowest level in 16 years, joining a rout in global equities and emerging-market currencies on concern that China’s economic slowdown will exacerbate gluts of everything from oil to metals. The Bloomberg Commodity Index of 22 raw materials lost as much 1.7% to 86.3542 points, the lowest level since August 1999. Resources stocks from BHP Billiton to Cnooc tumbled while Brent crude fell below $45 a barrel for the first time since 2009. “Sentiment is extremely negative across the commodity complex,” Mark Keenan at Societe Generale in Singapore, said in an e-mail. “Markets are plagued by concerns of oversupply.” Raw materials are in retreat as supplies outstrip demand amid forecasts for the slowest Chinese growth since 1990.

The largest user of energy, grains and metals was much weaker than anyone expected in the first half of the year, according to Ivan Glasenberg, head of commodity trader Glencore Plc. Chinese shares plunged after U.S. stocks sank last week. “It’s being fueled by the large drop in the Chinese stock market today, which is making people nervous about the management of the Chinese economy, which has direct implications for commodities,” Ric Spooner, a chief market strategist at CMC Markets Asia Pty, said by phone from Sydney. “It’s now basically a risk-off move.”

Shares in BHP, the world’s largest mining company, fell as much as 5.3% in Sydney to the lowest level since 2008, while Fortescue Metals Group Ltd. plunged 15% after reporting full-year profit dropped 88%. Nanjing Iron & Steel Co. led losses on the Shanghai Composite Index, sliding 10% as the gauge erased its gains for the year. Cnooc slumped 7.1% in Hong Kong. Oil has sunk as producers maintain or boost supply even as a glut persists, prioritizing sales over price. Iran will raise output at any cost to defend its market share, Oil Minister Bijan Namdar Zanganeh told his ministry’s news website, Shana.

Brent for October settlement declined as much as 3.2% to $44 a barrel on the ICE Futures Europe exchange, the lowest price since March 2009. West Texas Intermediate in New York dropped 3.2%, taking its loss over the past year to 58%. Copper on the London Metal Exchange lost as much as 3% to $4,903 a metric ton, the lowest since 2009. The metal is regarded as an indicator of global economic activity. Output topped demand by 151,000 tons in the six months through June, according to the World Bureau of Metal Statistics.

Panic in Detroit: Reserve requirements down, pension funds forced to buy stocks. Remember when pensions could invest only in AAA rates assets?

• China Poised to Raise Banks’ Liquidity to Boost Lending (WSJ)

The People’s Bank of China is preparing to flood the banking system with liquidity to boost lending, according to officials and advisers to the central bank, as its recent currency moves are squeezing yuan funds out of the market and renewing concerns over capital leaving Chinese shores. The planned step—which involves cutting the deposits banks are required to hold in reserve—signals that the Chinese central bank’s exchange-rate maneuvering in the past two weeks is backfiring, forcing it to again resort to the reserve-requirement reduction, the same easing measure that so far has failed to help spur economic activity.

The move, which could come before the end of this month or early next month, would involve a half-percentage-point reduction in the reserve-requirement ratio, potentially releasing 678 billion yuan ($106.2 billion) in funds for banks to make loans. It would be the third comprehensive reduction in the reserve requirement this year. Another option being considered at the PBOC is to target the cut only at banks that lend large amounts to small and private businesses—the ones deemed key to China’s future growth—though such a strategy hasn’t proven effective in the past in channeling credit to those borrowers.

One concern the Chinese central bank has over further lowering the reserve-requirement ratio is that, in theory, releasing more liquidity could add to the depreciation pressure on the yuan. But right now, the PBOC’s bigger worry is over the liquidity squeeze as a result of its recent yuan intervention—actions that have resulted in yuan funds being drained from the financial system. That, on top of fresh signs of capital outflows, is threatening a shortage of funds at Chinese banks, causing greater market jitters. To ensure ample liquidity, the central bank is poised to cut the reserve-requirement again.

All under control anyone?

• China’s One-Year Bonds Decline in Sign of Tightening Liquidity (Bloomberg)

China’s one-year sovereign bonds fell for a second day amid speculation liquidity is tightening as the central bank buys yuan to support the exchange rate. The People’s Bank of China will likely cut lenders’ reserve requirements this week or next to replenish funds in the financial system and help arrest an economic slowdown, according to Standard Chartered. The currency has been kept at about 6.40 per dollar since Aug. 13, after a surprise devaluation led to a 3% drop over three days. Only the Hong Kong dollar, which is pegged, has been more stable over the past week among 31 major currencies.

The yield on notes due July 2016 rose three basis points to 2.35% as of 11:36 a.m. in Shanghai, according to National Interbank Funding Center prices. That for June 2018 debt increased two basis points to 2.90%. “It’s clear that the central bank wants to stabilize the exchange rate by selling dollars and buying the yuan via big banks, and the result is naturally a drop of local currency supply,” said Huang Wentao, an analyst at China Securities Co. in Beijing. “This is why some investors are refraining from putting money into the bond market. Reserve-ratio cuts could lead to further depreciation pressure, and that’s why the PBOC would prefer to use reverse repos in the short-term.”

To hold down borrowing costs, the PBOC is adding funds via loans to banks. It conducted 240 billion yuan ($37.5 billion) of reverse-repuchase agreements last week and extended 110 billion yuan using its Medium-term Lending Facility. The overnight repurchase rate, a gauge of funding availability in the banking system, was poised to increase for a record 38th day. It was at 1.83%, the highest level since April, according to a weighted average compiled by the National Interbank Funding Center. The seven-day repo rate fell two basis points to 2.53%, after rising to a six-week high of 2.58% on Aug. 20.

It was all only ever a sleight of hand.

• Is The Game Up For China’s Much Emulated Growth Model? (Ghosh)

[..] the “recovery package” in China essentially encouraged more investment, which was already nearly half of GDP. Provincial governments and public sector enterprises were encouraged to borrow heavily and invest in infrastructure, construction and more production capacity. To utilise the excess capacity, a real estate and construction boom was instigated, fed by lending from public sector banks as well as “shadow banking” activities winked at by regulators. Total debt in China increased fourfold between 2007 and 2014, and the debt-GDP ratio nearly doubled to more than over 280%. We now know that these debt-driven bubbles end in tears. The property boom began to subside in early 2014, and real estate prices have been stagnant or falling ever since.

Chinese investors then shifted to the stock market, which began to sizzle – once again actively encouraged by the Chinese government. The crash that followed has been contained only because the government pulled out all the stops to prevent further falls. All this comes in the midst of an overall slowdown in China’s economy. Exports fell by around 8% in the year to July. Manufacturing output is falling, and jobs are being shed. Construction activity has almost halted, especially in the proliferating “ghost towns” dotted around the country. Stimulus measures such as interest rate cuts don’t seem to be working. So the recent devaluation of the yuan– which has been dressed up as a “market-friendly” measure – is clearly intended to help revive the economy.

But it will not really help. Demand from the advanced countries – still the driver of Chinese exports and indirectly of exports of other developing countries – will stay sluggish. Meanwhile, China’s slowdown infects other emerging markets across the world as its imports fall even faster than its exports and its currency moves translate into capital outflows in other countries. The pain is felt by commodity producers and intermediate manufacturers from Brazil to Nigeria and Thailand, with the worst impacts in Asia, where China was the hub of an export-oriented production network. Many of these economies are experiencing collapses of their own property and financial asset bubbles, with negative effects on domestic demand. The febrile behaviour of global finance is making things worse. This is not the end of the emerging markets, but is – or should be – the end of this growth model.

Forced.

• Chinese Pension Fund ‘Allowed’ To Invest In Stock Market (BBC)

China plans to let its main state pension fund invest in the stock market for the first time, the country’s official news agency, Xinhua, has reported. Under the new rules, the fund will be allowed to invest up to 30% of its net assets in domestically-listed shares. China’s main pension fund holds 3.5tn yuan ($548bn; £349bn), Xinhua said. The move is the latest attempt by the Chinese government to arrest the slide in the country’s stock market. The fund will be allowed to invest not just in shares but in a range of market instruments, including derivatives. By increasing demand for them, the government hopes prices will rise. The Shanghai Composite Index closed down more than 4% on Friday after figures showed monthly factory activity contracting at its fastest pace in six years.

It capped a tough few days for Chinese investors, with the index down 12% on the week. Chinese shares are now down more than 30% since the middle of June. Earlier this month, the Chinese central bank devalued the yuan in an attempt to boost exports. These measures come against a backdrop of slowing economic growth in China. In the second quarter of this year, the country’s economy grew by 7% – its slowest pace for six years. Last year, the economy grew at its slowest pace since 1990. Fears of a prolonged slowdown have also hit global stock markets, with US and leading European indexes posting heavy losses last week.

We’re poised to see a lot of this.

• Angry Investors Capture Head Of China Metals Exchange (FT)

The head of a Chinese exchange that trades minor metals was captured by angry investors in a dawn raid and turned over to Shanghai police, as the investors attempted to force the authorities to investigate why their funds have been frozen. Investors have been protesting for weeks after the Fanya Metals Exchange in July ceased making payments on financial investment products. The exchange, based in the southwestern city of Kunming, bought and stockpiled minor metals such as indium and bismuth, while also offering high interest, highly-liquid investment products from its offices in Shanghai and its financing branch in Kunming. Troubles at the exchange are one of many factors contributing to turbulence in China’s financial markets, as a slowing economy exposes the weaknesses of the country’s debt-driven growth.

Some investors flew in from faraway cities to join hundreds more surrounding a luxury hotel in Shanghai before dawn on Saturday. When Fanya founder Shan Jiuliang attempted to check out, they manhandled him into a car before delivering him to the nearest police station. Shanghai police took Mr Shan into custody and promised to work with local authorities in Yunnan province to investigate what has happened to investors’ money. They later released him without charge. The demonstrations in Shanghai and Kunming and the exchange’s unusual accumulation of several years’ supply of some metals have so far failed to attract much public attention from regulators. A report by the local regulator identifying the exchange as one of the bigger investment risks in Yunnan was redacted to remove reference to Fanya late last year.

“The selloff [..] relegated Hong Kong to the same trading orbit as Pakistan..”

• Hong Kong Can’t Escape the Turmoil Next Door (Pesek)

Twelve months ago, it seemed Beijing’s retrograde politics would eventually sink Hong Kong’s exalted international reputation. Now China’s ailing economy seems likely to finish off the job sooner than anyone expected. Hong Kong is dealing with a long list of problems, including tumbling tourist arrivals, a dollar peg that makes it the priciest place in Asia, a precarious property bubble and a leader not up to even mundane challenges never mind an existential crisis. And that’s before you even get to Hong Kong’s biggest challenge: the fallout from China’s loss of economic credibility around the globe. How else to explain the 9% drop in the Hang Seng Index since Beijing’s Aug. 10 devaluation?

The selloff put the city’s valuations at their lowest, relative to global equities, since 2003, and relegated Hong Kong to the same trading orbit as Pakistan, a place grappling with chronic power shortages. Forbes magazine spoke for many last year when it asked: “Is Hong Kong Still China’s Golden Goose?” The concern then was that political turmoil would disrupt Hong Kong’s status as China’s financial green zone, where companies can enjoy the rule of law and politicians can invest ill-gotten millions in real estate and with Beijing-friendly billionaires. Hong Kong seemed to be the perfect Chinese special-enterprise zone – except for the mounting discontent among the city’s middle class, whose needs tended to be ignored in favor of the tycoons lording over the city.

When hundreds of thousands of residents began protesting in favor of democracy in September 2014, the city’s chief executive Leung Chun-ying, like the good Communist functionary he is, shut the demonstrations down. Political discord no longer seems an immediate existential threat to the city’s special status – but China’s sputtering economy does. Waning trust in the Chinese economy is driving investors away from Hong Kong, while China’s devaluation is making the city less attractive for mainland tourists enticed by cheaper destinations like Japan. Economy Secretary So Kam-leung blamed the 8.4% drop in visitors in July on the strong dollar. Retail sales in the city declined for a fourth straight month in June.

Hong Kong doesn’t have many good options. For years economists urged Hong Kong to diversify its growth engines – more tech and science startups, fewer hedge funds and property developers riding mainland growth. Rather than deliver the changes Hong Kong needed, Leung has squandered his three years as chief executive kowtowing to his Communist Party benefactors in Beijing.

All central banks that matter these days are Ponzi scams.

• Central Banks Have Become A Corrupting Force (Roberts and Kranzler)

Are we witnessing the corruption of central banks? Are we observing the money-creating powers of central banks being used to drive up prices in the stock market for the benefit of the mega-rich? These questions came to mind when we learned that the central bank of Switzerland, the Swiss National Bank, purchased 3,300,000 shares of Apple stock in the first quarter of this year, adding 500,000 shares in the second quarter. Smart money would have been selling, not buying. It turns out that the Swiss central bank, in addition to its Apple stock, holds very large equity positions, ranging from $250,000,000 to $637,000,000, in numerous US corporations — Exxon Mobil, Microsoft, Google, Johnson & Johnson, General Electric, Procter & Gamble, Verizon, AT&T, Pfizer, Chevron, Merck, Facebook, Pepsico, Coca Cola, Disney, Valeant, IBM, Gilead, Amazon.

Among this list of the Swiss central bank’s holdings are stocks which are responsible for more than 100% of the year-to-date rise in the S&P 500 prior to the latest sell-off. What is going on here? The purpose of central banks was to serve as a “lender of last resort” to commercial banks faced with a run on the bank by depositors demanding cash withdrawals of their deposits. Banks would call in loans in an effort to raise cash to pay off depositors. Businesses would fail, and the banks would fail from their inability to pay depositors their money on demand. As time passed, this rationale for a central bank was made redundant by government deposit insurance for bank depositors, and central banks found additional functions for their existence.

The Federal Reserve, for example, under the Humphrey-Hawkins Act, is responsible for maintaining full employment and low inflation. By the time this legislation was passed, the worsening “Phillips Curve tradeoffs” between inflation and employment had made the goals inconsistent. The result was the introduction by the Reagan administration of the supply-side economic policy that cured the simultaneously rising inflation and unemployment. Neither the Federal Reserve’s charter nor the Humphrey-Hawkins Act says that the Federal Reserve is supposed to stabilize the stock market by purchasing stocks. The Federal Reserve is supposed to buy and sell bonds in open market operations in order to encourage employment with lower interest rates or to restrict inflation with higher interest rates.

If central banks purchase stocks in order to support equity prices, what is the point of having a stock market? The central bank’s ability to create money to support stock prices negates the price discovery function of the stock market.

Why the rate hike may still happen.

• The Fed Is Looking at a Very Different Dollar Than Wall Street (Bloomberg)

By many popular measures, the dollar has traded sideways for the last six months. Then there’s the Federal Reserve’s measure. The greenback is surging, according to an index the Fed created to track the U.S. currency versus 26 of the country’s biggest trading partners. It’s risen 1.3% beyond a 12-year high reached in March, when the central bank fired the first of a series of warnings that a stronger dollar may hurt growth and lower inflation. At a time when the Fed’s tightening path has become one of the biggest drivers in the $5.3 trillion-a-day foreign-exchange market, the discrepancy between Wall Street’s view – largely based on the dollar’s performance against the euro and the yen – and that of policy makers may lead to a jolt for investors expecting recent ranges to persist.

The rapid trade-weighted appreciation this quarter has come mostly against big exporters such as China and Mexico, and it undercuts the Fed’s goal of quicker inflation. It may trigger further jawboning from officials looking to cool the dollar’s broad gains as the Fed begins raising interest rates for the first time in almost a decade. “The dollar still continues to strengthen on a trade-weighted basis and the Fed definitely takes that into the equation,” said Brad Bechtel, a managing director at Jefferies Group LLC in New York. “The risk is the Fed starts really emphasizing that, and the market would be caught offside.” The Fed’s trade-weighted broad dollar index measures the greenback against the currencies of 26 economies according to the size of bilateral trade. China, Mexico and Canada make up 46% of the gauge.

Meanwhile, most private-sector dollar gauges track a basket of the world’s most liquid, widely used currencies. Intercontinental Exchange Inc.’s U.S. Dollar Index, which serves as the benchmark for various futures and options instruments, has a 58% weight to the euro and 14% for the yen. It lacks representation from any emerging markets, which account for more than half of the U.S.’s total trade flow. The two indexes had moved alongside each other until a month ago. The Fed’s broad dollar index surged 3.4% this quarter to a 12-year high as China devalued the yuan to support a slowing economy, while a renewed commodities rout undermined Canada’s loonie and the Mexican peso. The ICE dollar gauge dropped 0.7% during the same period.

Amen.

• It’s Time To Lay Siege To The Robber Barons Of High Finance (Ben Chu)

Rent extraction, or “rent-seeking” as it is also often known, has evolved and broadened as an economic concept. It now covers a whole range of activities in a modern economy. A famous example used in economic textbooks is licensed taxis. Black cab drivers pressure city authorities to clamp down on the activities of unlicensed minicabs. More recently they’ve also tried to get new entrants to the taxi market, like those who work for the Uber web app service, banned. To the extent they are successful in these rent-seeking activities they boost the value of their own licences. It is their customers who end up paying in the form of higher fares. But cabbies are small fry in the rent-extraction ocean.

A more lucrative practice is found in the law firms that mildly tweak and re-file patents as a means of squeezing more money out of clients’ old intellectual property, or who aggressively sue other firms over minor and often spurious infringements. None of this incentivises more research or innovation. And it is the public who pay for this “patent trolling” in higher prices for products. But easily the biggest source of wealth extraction in modern economies is the wholesale financial sector. Much of the activity of Wall Street and City of London traders in investment bankers constitute a form of rent-extraction. Their phenomenally lucrative market-making activities in interest rates and foreign exchange don’t actually create new wealth – they merely shift money from the pockets of companies and pension funds into their own.

In a properly functioning market new players would enter and these outsize market-making profits would be competed away. But the sheer size of these financial dealers erects effective barriers to entry, curbing competition. And the “too big to fail” status of these mega financial institutions (which provides an implicit state guarantee) also secures them artificially cheap finance in the money markets, compounding their commercial advantage. But how do we distinguish rent extraction from high profits due to legitimate business success? A good indicator is the extent to which their profits seem to be dependent on political and official connections.

The American financial sector has spent $6.6bn (£4.2bn) since 1998 lobbying US politicians, according to researchers. It seems unlikely they would spend such sums for no reason. Our own ministers also seem to have an open door for the UK financial lobby. The power of the lobby can be seen in the fact that widespread calls to simply break up the too-big-to-fail banks in the wake of the global financial crisis were rejected on both sides of the Atlantic by politicians.

And who do you think pays for this?

• Bank Litigation Costs Hit $260 Billion With $65 Billion More To Come (FT)

The wave of fines and lawsuits that has swept through the financial industry since the 2007/8 crisis has cost big banks $260bn, new research from Morgan Stanley shows. The analysis, which covers the five largest banks in the US and the 20 biggest in Europe, predicts the group will incur another $60bn of litigation costs in the next two years. Bank of America, Morgan Stanley, JPMorgan, Citi and Goldman Sachs have borne the brunt of the fines so far, collectively paying out $137m. They have another $15bn to come in the next two years, Morgan Stanley said. The top 20 European banks have paid out about $125bn and have about $50bn to come “albeit with a wide range”, the analysis said.

In the States … there have been more precedents on settlements and so as more banks have settled, the market’s ability to make a guesstimate of the amount for other banks has improved, said Huw van Steenis, managing director at Morgan Stanley. Mr van Steenis said the fines, which cover everything from foreign exchange rate rigging to US mortgage-backed securities and mis-selling of payment protection insurance in the UK, are having a profound impact on the banks. Litigation not only takes a bite out of your equity but has a much longer lasting impact on the amount of capital you need to hold, he said. The figures include fines and penalties banks have already paid, plus any provisions taken by June 30 for issues the groups see coming down the tracks, such as US mortgage fines that European banks expect to pay.

The report also charts what banks have done to reduce the risk of future litigation, but concludes that lack of disclosure means it has been difficult for us to say definitively which firms have developed the best practices overall . Bank of America is spending $15bn a year on compliance, Morgan Stanley said, while JPMorgan is spending $8bn or $9bn. Mr van Steenis and his colleagues said they struggled to obtain consistent data on extra compliance costs in Europe. The impact goes beyond the financial. A lot of management time and IT budget has been focused on rectifying malfeasance rather than being able to position the bank for the future, said Mr van Steenis.

A crazed country.

• Brazil’s Scandal Takes Another Toxic Turn (Bloomberg)

On Thursday, Brazilian Attorney General Rodrigo Janot formally charged Eduardo Cunha, Brazil’s highest-ranking lawmaker with commanding a farrago of felonies, including shaking down suppliers of Petrobras, the scandal-ridden national oil company, for some $5 million, and then laundering the bribes through more than 100 financial operations from Montevideo to Monaco. Running 85 pages and garnished with an aphorism by Mahatma Gandhi, the indictment reads like the production notes to a noir movie script. My favorite scene: 250,000 reais (around $71,000) in booty decanted through Cunha’s preferred house of worship, the Assembly of God.

Not surprisingly, Janot’s indictment has enthralled Brasilia, where President Dilma Rousseff has seen the national economy and her approval ratings sink to record lows, and not even core allies can be trusted to back her emergency reforms. Ever since Cunha won the right to the top microphone in Congress, trouncing Rousseff’s own candidate for the job, the Rio de Janeiro lawmaker has dedicated his mandate to making her life miserable, delaying revenue raising initiatives and planting some “fiscal bombs” in Congress that would plump constituents’ earnings at the expense of the swelling public deficit. So how do you say schadenfreude in Portuguese? After weeks of escalating rhetoric and street protests clamoring for impeachment, suddenly it’s Rousseff’s archenemy who looks to be on the brink.

But hold those vuvuzelas. While Cunha may be hobbled by the scandal, he’s hardly out of play. Even if the Supreme Court accepts Janot’s indictment and sends Cunha to trial, he has no obligation to step aside. Removing him would take half plus one of the 513 members of Brazil’s lower house, an ecosystem where Cunha is at home.

This is getting beyond shameless.

• EU Border Agency Frontex To Boost Patrols In Aegean To Halt Migrants (Kath.)

A joint action plan drafted by the Greek Police, the Hellenic Coast Guard and Frontex aims to boost patrols in the eastern Aegean in a bid to curb a dramatic influx of refugees and immigrants, Fabrice Leggeri, the executive director of the EU’s border monitoring agency, has told Kathimerini. The key goal of the European border guards will be to spot smuggling vessels heading toward Greece from neighboring Turkey before they enter Greek waters and to inform Turkish Coast Guard officials so the vessels can be returned. The Frontex officials to be dispatched to Greece are to conduct sea patrols but also land patrols on islands such as Lesvos and Kos that have borne the brunt of an intensified influx of migrants.

In an interview with Kathimerini, Leggeri said European Union member-states have appeared reluctant to contribute equipment, particularly technical equipment, that Greek authorities need to effectively deal with the migration crisis. He said the organization’s budget for operations in Greece has been tripled, to €18 million, adding that he was pushing to secure as much aid as possible for the country. The EU “must show solidarity,” he said, noting that Greece, Italy and Hungary have been hit the hardest by the migration crisis, and to a lesser extent Spain.

A total of 340,000 refugees and immigrants have entered the European Union so far this year, he said, blaming the increase primarily on the war in Syria but also on a deteriorating security situation in Libya, which has discouraged migrants from taking that route. This week, Greek Police and Hellenic Coast Guard officials are to meet with Frontex officials at the agency’s office in Piraeus to hammer out a strategy.

Oh, right, and Merkel has shown herself to be a real leader, right?!

• Germany Shames EU for Failure to Shoulder Refugee Surge

The unwillingness of most European Union states to accommodate a surge in refugees amassing at the trade bloc’s southern fringes is a “huge disgrace,” German Vice Chancellor Sigmar Gabriel said. Speaking on the country’s ARD television Sunday, Gabriel said just three countries – Germany, Sweden and Austria – were taking on more refugees, with most states snubbing their plight. By closing the door to people fleeing wars, the EU puts its internal open-border policy at risk, Gabriel said. “I find it a huge disgrace when the majority of member states say, ’that’s got nothing to do with us’,” said the Social Democrat chairman, whose party co-rules with Chancellor Angela Merkel’s Christian Democrats. “Returning to a Europe without open borders will have catastrophic economic, political and cultural consequences.”

Germany and the EU Commission are failing to break the opposition of EU partners including the U.K., Spain, Denmark and Hungary to taking on a larger share of refugees thronging on the bloc’s borders. Germany can cope with a fourfold influx of refugees this year, to about 800,000, but “not indefinitely,” Gabriel said. Merkel and French President Francois Hollande will reopen the question of refugee quotas for individual EU members when they meet in Berlin tomorrow, French Foreign Minister Laurent Fabius said in Prague. An earlier effort to assign a firm number of refugees to each EU country failed after a majority of the bloc’s members refused to commit.

Hungary is building a wall along its border with Serbia to prevent refugees from crossing. Denmark in July said it would cut benefits for asylum seekers in a bid to stem their influx. Estonia said it could accept just 150-200 refugees over two years, while U.K. Prime Minister David Cameron this month characterized people trying to enter his country illegally from north Africa as a “swarm.” Underlining the urgency of countering the EU’s disunity over its refugee problem is a gross miscalculation of the number of people fleeing to the continent from such countries as Syria, Iraq, Eritrea and Afghanistan. As late as May, Germany predicted the number of refugees and asylum seekers entering the country this year at 450,000.

Europe Has Completely Lost It

Apr 262015

April 26, 2015 Posted by Raúl Ilargi Meijer at 2:43 am Finance Tagged with: EU, Europe, Frontex, Greece, Italy, Lybia, military, moral values, refugees, Triton 18 Responses »

DPC Clam seller in Mulberry Bend, NYC 1904

After the high-level EU summit on the migrant issue, hastily convened after close to a thousand people drowned last weekend off the Lybian coast, Dutch PM Mark Rutte was quoted by ‘his’ domestic press as saying ‘Our first priority is saving human lives’. That sounds commendable, and it also sounds just like what everybody knows everybody else wants to hear. One can be forgiven, therefore, for thinking that it’s somewhat unfortunate that the one person tasked by Brussels with executing the noble ‘saving lives’ strategy, doesn’t seem to entirely agree with Rutte:

EU Borders Chief Says Saving Migrants’ Lives ‘Shouldn’t Be Priority’ For Patrols

The head of the EU border agency has said that saving migrants’ lives in the Mediterranean should not be the priority for the maritime patrols he is in charge of, despite the clamour for a more humane response from Europe following the deaths of an estimated 800 people at sea at the weekend. On the eve of an emergency EU summit on the immigration crisis, Fabrice Leggeri, the head of Frontex, flatly dismissed turning the Triton border patrol mission off the coast of Italy into a search and rescue operation.

He also voiced strong doubts about new EU pledges to tackle human traffickers and their vessels in Libya. “Triton cannot be a search-and-rescue operation. I mean, in our operational plan, we cannot have provisions for proactive search-and-rescue action. This is not in Frontex’s mandate, and this is in my understanding not in the mandate of the European Union,” Leggeri told the Guardian.

To refresh your memory, the Triton border patrol mission took the place late last year of Italy’s Mare Nostrum mission, which ended in October 2014. For good measure, the budget was slashed from the €9.5 million per month Italy had been putting in, to €2.9 million per month. Saving lives can be simply too expensive when you think about it in your high rise office in that brand new €1 billion+ EU building. These are hard economic times, and we all need to make sacrifices and to cut costs wherever we can.

But of course after that summit, Europe announced it was going to triple the budget for the Triton mission. That will of course only simply bring back the budget to where it already was before it was cut by two-thirds, but it’s a nice headline anyway.

The difference in focus between Rutte and Frontex head Leggeri can be found all around Europe. It would be nonsense to claim Europe agrees on much of anything regarding the refugee issue. Well, they agree it’s a nuisance that all these people die and Europe is supposed to do something. The national government leaders would like it much better if such things didn’t happen, it’s bad publicity. But at the same time, it’s nothing that can’t be spun and turned to their advantage. Or so they like to think.

Reactions to the statements released after the summit were not all positive, to say the least. Amnesty said that the only thing Europe tries to save is its face. Former Belgian PM Guy Verhofstadt, at present a member of the European Parliament, indicated that the equipment Frontex has at its disposal (one helicopter, two ships and seven planes) wouldn’t even be enough to survey the Belgian coast (of which there’s not a lot).

Just to make sure his peers wouldn’t think he’d gone all soft, Rutte came with another catchy oneliner: “Last time I checked, Lybia was in Africa, not Europe.” In other words, ‘saving lives’ is a great press quote, but don’t blame him for lives lost. And that’s the crux behind the shift from Italy’s mission to the EU’s. The former was patrolling off the coast of Lybia, while the latter occupies itself only with the European coastline, and it just so happens that’s not where refugees’ lives are under threat (let’s stop saying migrants, that’s a grossly misleading term).

In its infinite wisdom, the EU has decided in its summit that there will be 5000 ‘resettlement’ places available for the hundreds of thousands of refugees (migrants) that want to go to Europe. The EU in a post-summit statement said it expects 150,000 refugees this year, but it might as well add up to 500,000 in 2015 alone. How Brussels thinks it’s going to send back almost half a million people is a big question mark. So much so we’d put our money on no-one having properly thought it over.

According to the United Nations High Commissioner for Refugees, millions of refugees are making their way to the Mediterranean from trouble spots across Africa. To put it in somewhat cynical economic terms, think of this as pent-up demand. And also don’t forget how Patrick Boyle framed it: “We fear the arrival of immigrants that we have drawn here with the wealth we stole from them.”

The typical story of the refugees is one in which it takes years to get from their mostly sub-Saharan homes to the Lybian coast, working odd jobs on the way. Once they get to Lybia, which has been shot to bits by western forces, they’re dependent on all sorts of militia, who often arrest them, take their money etc. Perhaps the most insulting thing to come out of Brussels is the comparison with Somali pirates, and the argument that the refugee stream should be dealt with in the same way.

Indeed, much of the European ‘leadership’ have emphasized one approach more than any other: send in the military, start shooting. The idea being that if the boats of the traffickers are destroyed, everything will return to ‘normal’. But the issue here is not the traffickers, it’s the refugees. Want to send in the military against them too?

If there’s anything good that can come from the deeply deplorable death of far too many poor sods in the Meditteranean, it’s that it shows us all once more, as if we needed further confirmation, what a dysfunctional entity – morally as well as practically – the European Union is. More than anything, the EU makes itself entirely irrelevant. There is no decision structure in Brussels, since there is no ultimate responsibility that has been assigned. And they all sort of like it that way for now, because it means everyone can deflect that responsibility if and when necessary.

From the first example above that should be very clear: Rutte says the first priority should be saving lives, but the man who leads the organization that is tasked with executing it, flatly denies that.

Greek news organization Kathimerini ran a piece this week that serves to add yet another level of cold cynicism. Lest we forget, it’s Europe’s poorest countries that are forced to deal with the brunt of the refugee problem. In that summit we mentioned before, half of all European nations refused to take up even one single refugee. Yet another example of the absolute lack of coherence and solidarity that so-called union exhibits.

The idea seems to be: Let ’em all stay in Greece, while we suffocate the nation financially. But Greece cannot solve the issue all by itself, it can’t handle the expected 100,000 refugees on its own. It will be forced to open its borders and tell the refugees to try and reach Germany or France. See also: Open Letter From Greece on the Mediterranean Migrants Issue.

The present EU policy is that a refugee must stay in the country where (s)he has been registered. Hence, all Greece and Italy need to do is not register them. Kathimerini:

The Dubious Politics Of Fortress Europe

In “Border Merchants: Europe’s New Architecture of Surveillance” (published by Potamos), Apostolis Fotiadis, an Athens-based freelance investigative journalist, seeks to document a paradigm shift in Europe’s immigration policy away from search and rescue operations to all-out deterrence. The switch, the 36-year-old author argues, plays into the hands of the continent’s defense industry and is being facilitated by the not-so-transparent Brussels officialdom. “Their solution to the immigration problem is that of constant management because this increases their ability to exploit it as a market. The defense industry would much rather see the protracted management of the problem than a final solution,” Fotiadis said in a recent interview with Kathimerini English Edition.

“Without a crisis there would be no need for emergency measures, no need for states to upgrade their surveillance and security systems,” he said. Fotiadis claims the trend is facilitated by the revolving door between defense industry executives and the Brussels institutions, which means that conflict of interests is built right into EU policy. “There is a certain habitat in which many people represent the institutions and at the same time express a philosophy about the common good,” he said. [..]

Fotiadis believes there is no reason Greece should not be able to set up some basic infrastructure to deal with the influx. He says that the number of immigrants and refugees received by the EU is in fact small compared to the more than 1.5 million refugees who have found shelter in Turkey due to civil war in Syria. Jordan is estimated to be home to over 1 million Syrian refugees, while one in every four people in Lebanon is a refugee. Meanwhile, the EU, one of the wealthiest regions of the world, with a combined population of over 500 million, last year took in less than 280,000 people. “All that hysteria is a knee-jerk overreaction to an illusory version of reality,” he said.

Why Greece or any other country would wish, be eager even, to be part of the EU is becoming ever harder to comprehend. The moral values prevalent in Brussels, whether it comes to EU policies regarding Ukraine, Greece or the refugees’ dilemma, don’t seem to be shared in any individual European nation (if anything, they’re reminiscent of what various extreme right wing parties espouse).

And as the Greek negotiations with the eurogroup and the ‘institutions’ show us with intense and increasing clarity, the notion of the euro being a boat to lift all tides turns out to be full-on bogus. Southern Europe’s nations will be either thrown out or allowed to stay only as debt servants. For now, Germany and Holland prefer to keep everyone on board, but that may still change. It would therefore seem like a good idea for Greece and Italy to make their moves while they can.

In order to achieve that, however, they must convince their people that staying in the EU, and in the eurozone, is a bad choice. And since their old-time political establishments will continue to deny this (because the EU allowed them to sit fat and pretty), that will not be an easy task. Perhaps the refugee issue can help.

In all likelihood, the victims of the sunken boat near the Lybian coast this weekend will never be identified, except for perhaps a handful. Nobody knows who they are, and those who do stayed behind a thousand miles or more away. These deceased people, most of whom will never even be buried ashore, define, in one fell swoop, the ‘new’ price of a human life. Theirs, yours, and everyone else’s.

Sinking nameless to the bottom of the sea, with no-one either ever knowing who you are or aware of how you are doing. That is our new valuation of a human being. It’s price discovery in its most cynical sense, it’s how assets get re-priced in markets.

What Tsipras and Varoufakis must accomplish is to make people understand that what Europe does to the refugees, it will do to its own citizens too.