Fukushima Archives - Page 3 of 3 - The Automatic Earth

Which blocs/nations are most likely to face banking/liquidity crises in the next year? Hating the U.S. dollar offers the same rewards as hating a dominant sports team: it feels righteous to root for the underdogs, but it’s generally unwise to let that enthusiasm become the basis of one’s bets. Personally, I favor the emergence of non-state reserve currencies, for example, blockchain crypto-currencies or precious-metal-backed private currencies – currencies which can’t be devalued by self-serving central banks or the private elites that control them. But if we set aside our personal preferences and look at fundamentals and charts, odds seem to favor the U.S. dollar making a major move higher in the next few months. Let’s start with a national index of finance-power which combines GDP, military spending, banking, foreign direct investment (FDI) and foreign exchange:

The key take-away is the preponderance of the U.S. and the Anglo-American alliance, a.k.a. the special relationship of Great Britain and the U.S. The U.S. exceeds Germany, China, Japan and France combined, and the U.S.-Great Britain alliance is roughly equal to the next 10 nations: the four listed above plus The Netherlands, Switzerland, Italy, Spain, Canada and the Russian Federation. We don’t have to like it, but as investors it’s highly risky to act like it isn’t reality.

If the whining about Beautiful Brexit would finally stop in the UK, maybe they could do something constructive.

• Pound Nears Three-Decade Low as May Sets Date for Brexit Trigger (BBG)

The pound approached the three-decade low set in the days following the Brexit referendum after U.K. Prime Minister Theresa May said she’ll begin the process of withdrawal from the European Union in the first quarter of 2017. Sterling dropped to the weakest level since July 6, the day it reached its 31-year low of $1.2798, and slipped against all of its 31 major peers. Hedge-fund data showed speculators raised bets that the currency would fall. May told delegates at her Conservative Party’s annual conference that she’ll curb immigration, stoking speculation the nation is headed toward a so-called hard Brexit. Stocks of U.K. exporters rose, boosted by the weaker currency. “We’re back to the Brexit risks,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “Sterling has taken a bit of a knock.”

Let’s see large-scale global issuance of debt in yuan. Then we talk.

• China Seeking To Succeed Where Japan Failed In Reserve Currency Push (BBG)

Like the yuan, the yen’s march toward liberalization was gradual and marked with ambivalence. Under the Bretton Woods system after World War II, the Japanese currency was fixed at 360 a dollar, before a trading band was introduced in 1959 to make it slightly more flexible. For three decades, all capital flows except those explicitly permitted were banned, making it easier for the government to achieve policy goals. It wasn’t until 1998 that approval or notification requirements for financial transactions and outward direct investments were abolished. The push to internationalize the yen initially came from the U.S., which wanted greater global use to fuel appreciation and reduce Japan’s trade surplus with America. China’s situation now isn’t dissimilar.

Having thrived on an economic model of closed borders and accumulation of reserves for decades, its capital account is still closed, individuals’ foreign-exchange conversions are capped and inter-country money flows occur mainly through specific programs. Policy makers have tightened controls on outflows in the past year after the yuan’s August 2015 devaluation exacerbated depreciation pressures. The currency was little changed Friday at 6.68 per dollar. Lowering the hurdles to create a true freely traded currency might risk a flight of capital during times of weakness, a concept China doesn’t always seem comfortable with. “Everyone wants this thing called ‘exorbitant privilege,’ but if you try to give it to them, they get furious and they tell you to stop,” said Michael Pettis, a finance professor at Peking University.

“Countries like China that are running huge surpluses because of insufficient domestic demand – basically they are creating the role of the dollar as the dominant reserve currency.” The term “exorbitant privilege,” coined by former French finance minister Valery Giscard D’Estaing in 1965, referred to the benefits the U.S. received for the dollar’s status. Daniel McDowell, a Syracuse University political science assistant professor who studies international finance, made the point that the appeal of a nation’s sovereign debt market plays a key role in a currency’s internationalization. The yen never became a major reserve currency because its government bonds weren’t as attractive or as plentiful as the U.S., he said.

Everyone’s just trying to save face by now. Merkel, Obama, DOJ.

• Deutsche Bank Races Against Time To Reach US Settlement (R.)

Deutsche Bank is throwing its energies into reaching a settlement before next month’s presidential election with U.S. authorities demanding a fine of up to $14 billion for mis-selling mortgage-backed securities. The threat of such a large fine has pushed Deutsche shares to record lows, and a cut-price settlement is urgently needed to reverse the trend and help to restore confidence in Germany’s largest lender. Its shares won’t trade in Germany on Monday because of a public holiday, but they will resume trading on the U.S. market later on Monday. A media report late on Friday that Deutsche and the U.S. Department of Justice were close to agreeing on a settlement of $5.4 billion lifted the stock 6% higher, but that report has not been confirmed.

The Wall Street Journal reported on Sunday that the bank’s talks with the DOJ were continuing. Details are in flux, with no deal yet presented to senior decision makers for approval on either side, the paper said, citing people familiar with the matter. “Clearly, so long as a fine of this order of magnitude ($14 billion) is an even remote possibility, markets worry,” UniCredit Chief Economist Erik F. Nielsen wrote in a note on Sunday. Ratings agency Moody’s said it would be positive for bondholders if the lender could settle for around $3.1 billion, while a fine as high as $5.7 billion would dent 2016 profitability but not significantly impair the bank’s capital position.

[..] The Bild am Sonntag newspaper wrote on Sunday that Deutsche’s chairman had informed Berlin just before it disclosed the potential $14 billion fine but had not asked for help. The same newspaper quoted the president of the Bavarian Finance Centre, Wolfgang Gerke, as saying that the German government should step in and buy a 20% stake in the bank before its value fell any further. The group represents financial services companies in the southern German state. “Fundamentally, I’m against state interventions,” he told the newspaper, but added that in this case a government stake would be “a signal that could turn the whole market”.

Making Merkel’s day, no doubt. It wasn’t nearly hard enough for her yet.

• German Economy Minister Accuses Deutsche Bank Of Hypocrisy (Pol.)

Germany’s economy minister has highlighted the irony of Deutsche Bank blaming speculators for its falling share price when the bank itself has built its business on speculation. “I did not know if I should laugh or get angry that the bank that made speculation a business model is now saying it is a victim of speculators,” Sigmar Gabriel told journalists on a plane to Tehran on Sunday, Der Spiegel reported. The threat of a $14 billion fine by U.S. authorities over the sales of mortgage-backed securities before the financial crisis sent Deutsche Bank’s shares to new lows this month. Gabriel was responding to a letter sent by Deutsche Bank CEO John Cryan to staff Friday blaming “new rumors” for causing the plunge in share prices and saying “forces” wanted to weaken trust in Germany’s largest bank.

“US banks won’t be nearly as badly hit by the measure as their European counterparts, which is no doubt why their regulators are gunning so hard for it.”

• It’s Not Just Deutsche. European Banking is Utterly Broken (Tel.)

[..] as is evident from the events of the last week, the banking crisis itself is far from over. Nine years after the initial eruption, it still rumbles on, with the epicentre now moved from the US to Europe. Only it’s not the same crisis; in large measure, it is completely different. Today’s mayhem is not so much the result of reckless bankers and asleep at the wheel regulators, but rather of the public policy response to the last crisis itself – that is to say, regulatory over-reach and central bank money printing. All eyes are naturally focused on the specific problems of Deutsche Bank, but Deutsche is in truth no more than the canary in the coal mine. As Tidjane Thiam, chief executive of Credit Suisse, observed last week, as an entire sector, European banks are still “not really investable”.

Much the same disease as afflicts Continental banks also applies to British counterparts, including RBS, Barclays and even Lloyds. All are fast being enveloped by a perfect storm of negatives, and this time around, it is substantially the policymakers and law enforcers who are to blame. There are essentially four factors at work here. First, it’s virtually impossible to make money out of banking in a zero interest rate environment, frustrating attempts to rebuild capital buffers after the bad debt write-downs of recent years. In circumstances where central banks have bought right along the yield curve, flattening it down to virtually nothing, the margin from maturity transformation all but disappears. Much the same thing has happened to the once lucrative returns of investment banking.

Even Goldman Sachs has been forced to admit that it is struggling to cover its cost of capital. Second is ever tougher international capital requirements, the latest instalment of which is dubbed Basel IV. The renewed crackdown is understandable, given what occurred nine years ago, but also ill-conceived and discriminatory, unfairly penalising European banks against their American counterparts. The technical details need not concern us too much here, suffice it to say that in order to stop banks gaming the system, regulators are attempting to impose a so-called “output floor”, tightly limiting the scope for easier capital requirements on risk weighted assets. US banks won’t be nearly as badly hit by the measure as their European counterparts, which is no doubt why their regulators are gunning so hard for it.

That is so convenient for Abe…

• Kuroda Blamed For Abenomics Failure, Ruins Chance Of Second Term (BBG)

Governor Haruhiko Kuroda has ruined his chances of getting a second full term, according to Nobuyuki Nakahara, who has advised the prime minister on the economy and was an intellectual father of the Bank of Japan’s first run at quantitative easing in 2001. The central bank’s switch to yield-curve targeting compounds its earlier error of adopting negative interest rates and is a disappointing move away from monetary-base expansion, Nakahara, 81, said in an interview on Sept. 30. In a stinging attack on the BOJ’s recent actions, he said the decision to conduct a comprehensive review of monetary policy had invited defeat on reflationist efforts and would raise questions about Abenomics as a whole.

Prime Minister Shinzo Abe’s economic program consists of three so-called arrows: the first being aggressive monetary policy, the second fiscal spending and the third structural reform. The central bank’s program, which began when Abe tapped Kuroda for the BOJ role in early 2013, has been the most prominent and highly debated aspect of Abenomics. “They are trying to clean up the mess of negative rates. It’s impossible to do a stupid thing like keeping the yield curve under government control,” said Nakahara. “They changed the regime to rates from quantity, meaning those who support quantitative easing were defeated. Reflationists on the BOJ policy board lost. An exit from deflation is going to be far away.”

After being greeted with fanfare when he took the helm, Kuroda, 71, now faces a reversal of fortunes on multiple fronts. Markets have moved against him and critics are growing more vocal. The extended honeymoon he enjoyed with a rising stock market and falling yen are long gone and his 2% inflation goal is nowhere in sight. Kuroda has less than 19 months to go in his term. While no BOJ governor has been tapped for a second five-year term since the 1960s, Kuroda’s central role in Abenomics has led to speculation that he may be different.

If you don’t know what deflation is, you can’t fight it.

• BOJ Deploys US World War II Tactics That Failed to Spur Prices (BBG)

In deciding to target bond yields, Japan is deploying a monetary strategy to combat deflation used by its former enemy in World War II. The trouble is that America’s experience back then suggests that the tactics probably won’t work on their own. Economists who have studied that period say that it was increased government spending, along with heightened inflation expectations, that eventually led to a stepped-up pace of U.S. price increases more than a half century ago. Once inflation was humming along, the Federal Reserve’s strategy of pegging long-term interest rates did nothing to put a lid on it, which is why the central bank pushed for a 1951 agreement with the Treasury to abandon the long-term yield fix.

If inflation expectations are contained, simply targeting yields won’t necessarily spur price pressures, according to Barry Eichengreen, a professor at the University of California at Berkeley who co-wrote a paper on U.S. monetary and financial policy from 1945 to 1951. But if people already expect faster inflation, then the tool can help promote it. That’s not a helpful conclusion for Bank of Japan Governor Haruhiko Kuroda and his colleagues, who last month switched the focus of their monetary stimulus to controlling yields across a range of maturities, after simply expanding the monetary base through debt purchases. It set the target for the yield on the 10-year Japanese government bond at around 0%.

Another piece of their new framework: trying to shock inflation expectations higher by pledging to keep stimulus in place until prices are rising even faster than their 2% target. Their struggle is to overturn subdued household and corporate expectations that have been set hard by decades of deflation. For the Fed in World War II and its aftermath, capping long-term yields at 2.5% had nothing to do with inflation per se. Its goal was to limit the government’s borrowing costs and so support the war effort. Inflation was held down by price controls during the war, then spiked higher after hostilities ended, hitting a high of 19.7% in 1947. The surge proved short-lived, as an economic recession that began late the following year produced a return of the deflation that had plagued the country during the Great Depression.

And if successful, they’re all going to do it? Oops, too late.

• Canada’s Big Bet on Stimulus Draws Global Attention (WSJ)

In the global struggle to boost growth, a Canadian experiment in fiscal spending is providing a test case for some of the world’s biggest economies. PM Justin Trudeau’s Liberal government unveiled a plan last spring to spend heavily on tax benefits and infrastructure, with $120 billion CAD (US$91.39 billion) going into infrastructure over the next decade, including about one-tenth of that on short-term projects. It’s a bold bet to inject life into an economy struggling with a rout in commodity prices, especially crude oil, which was once Canada’s top export. It also highlights the limits of monetary stimulus, since the country’s central bank cut rates twice in 2015, to 0.5%, and has acknowledged—as its counterparts around the world have—that monetary policy becomes a less powerful tool when interest rates are already low.

Mr. Trudeau’s big infrastructure spend will be largely financed by a bigger deficit, which is projected to reach C$29.4 billion this fiscal year, or about 1.5% of GDP. That’s a sharp turn from the balanced-budget promise of his Conservative predecessor, who hewed the austerity path Mr. Trudeau is now shunning. Canada’s efforts stand in contrast to many of the world’s economies, whose finance ministers and central bankers meet this week in Washington for semiannual meetings of the International Monetary Fund and World Bank. Some—like Australia, also hit by the commodity rout—are trying to use coordinated fiscal and monetary policy. But larger advanced economies are holding firm to tight budgets, making Canada’s embrace of debt-fueled stimulus unusual.

“The eyes of the world—the economists—will be watching to see how Canada performs,” said Martin Eichenbaum, a Northwestern University economist who is also an international fellow at the C.D. Howe Institute, a Canadian think tank. “We’re all watching to see: Will they get it right?”

Yeah. Not going to happen….

• Jail Wells Fargo CEO and Chairman John Stumpf! (Nomi Prins)

Consider this. You’re a mob boss. You run a $1.8 trillion network of businesses across state lines and continents. Many of these are legit, but a select subset of them – not so much. Every so often the illegal components flare up; some Washington commission launches an investigation, someone blows a whistle, people lose their homes, a pack of investors sheds a ton of money and lawsuits fly. You get reprimanded and have to pay lawyers and accountants overtime to deal with the paperwork. You settle on fines with the government — $10 billion worth. Then you keep going with no one the wiser, no wings clipped, no hard time. After all of that — you say you’re sorry, forfeit some money you didn’t even make yet, and (maybe) resign with boatloads more of it.

This is what we’re dealing with regarding Wells Fargo CEO and Chairman John Stumpf. He could be a really nice guy and wears some lovely tailored attire. (Hell, even Al Capone cared about proper milk expiration date labels.) But he’s also a crook, plain and simple. He’s cheated shareholders and taxpayers and customers, and used a stockpile of FDIC-backed deposits as fodder for illicit activities that have been repeatedly investigated and fined. And he made hundreds of millions of dollars doing it. This is not conjecture, nor sour grapes from the nonmillionaire swath of the population. It’s based on documented facts. But by no means is Wells the only guilty bank on the street, or Stumpf the only “apologetic” CEO. Apologies are cheap, and so is money when it’s a small piece of a much larger pie.

Somewhere, Jamie Dimon and Lloyd Blankfein are sighing in relief that this time it was Stumpf and not one of them, the other two of the three (of the Big Six bank) CEOs left standing since the crisis. These are just some highlights of those nearly $10 billion in total fines Wells agreed to, rather than take matters to court, since 2009. The sheer sum of those fines reveal a recidivist attitude toward ethics, regulations and the law. The associated transgressions were all committed under Stumpf’s leadership. There’s no way a regular citizen committing a fraction of a fraction of anything like these wouldn’t be in jail. Complexity is no excuse for criminal behavior. Nor is calling these practices “abuses” rather than felony fraud for misleading, at the very least, investors and shareholders in a publicly traded mega-company that violates securities laws.

… but if not the Wells Fargo CEO, at least some people will go to jail…

• The Government Is Turning the Entire United States into a Debtors Prison (TAM)

Since the United States was founded, citizenship has represented a safe haven from oppressive regimes around the world. By preserving the principles of small government and free markets, those who were willing to work hard found success, and America became a magnet for innovation. But as the U.S. continues to erode personal and economic freedom, more people than ever before are handing over their U.S. passports to seek better opportunities abroad. The staggering amount of debt held by the American empire ensures the public will be working it off for generations to come. The government has already begun its campaign to make it more difficult to leave the country, and it has also begun to crack down on the finances of the eight million Americans living abroad.

Regardless of whether you’re a millionaire with multiple foreign bank accounts or a recent college graduate with a boatload of debt, the status of being a United States citizen brings with it a burden that will only grow heavier over time. Since 2008, the number of individuals giving up their citizenship has increased by almost 560%, setting new records each of the past three years. Some of these expats are motivated by the extra tax load paid when working abroad, while others are trying to avoid student loan debt. Others have just had enough of the encroaching police state. Every taxpayer left in the country now owes more than $149,000 of the national debt, so it’s no surprise the tide is beginning to turn. By hook or by crook, in the coming years, citizens will be fleeced of that money through higher taxes, savings that are inflated away, and an overall drop in their standard of living.

Many can see the writing on the wall and have become determined to protect themselves from the years of economic repression coming down the pipe. Draconian steps have already been taken to slow the rate of expatriation. For one, the IRS has broadened its reach into foreign bank accounts through the Foreign Account Tax Compliance Act. Through agreements with over 100 nations, the law is able to require all financial institutions abroad to report the account details of any American customers they have. With access to this new information, the IRS can revoke the passports of potential tax evaders and hinder their ability to travel using yet another additional power the agency was granted last year.

The gift that keeps on contaminating.

• Fukushima Has Contaminated The Entire Pacific Ocean, Going To Get Worse (TA)

What was the most dangerous nuclear disaster in world history? Most people would say the Chernobyl nuclear disaster in Ukraine, but they’d be wrong. In 2011, an earthquake, believed to be an aftershock of the 2010 earthquake in Chile, created a tsunami that caused a meltdown at the TEPCO nuclear power plant in Fukushima, Japan. Three nuclear reactors melted down and what happened next was the largest release of radiation into the water in the history of the world. Over the next three months, radioactive chemicals, some in even greater quantities than Chernobyl, leaked into the Pacific Ocean. However, the numbers may actually be much higher as Japanese official estimates have been proven by several scientists to be flawed in recent years.

If that weren’t bad enough, Fukushima continues to leak an astounding 300 tons of radioactive waste into the Pacific Ocean every day. It will continue do so indefinitely as the source of the leak cannot be sealed as it is inaccessible to both humans and robots due to extremely high temperatures. It should come as no surprise, then, that Fukushima has contaminated the entire Pacific Ocean in just five years. This could easily be the worst environmental disaster in human history and it is almost never talked about by politicians, establishment scientists, or the news. It is interesting to note that TEPCO is a subsidiary partner with General Electric (also known as GE), one of the largest companies in the world, which has considerable control over numerous news corporations and politicians alike.

Could this possibly explain the lack of news coverage Fukushima has received in the last five years? There is also evidence that GE knew about the poor condition of the Fukushima reactors for decades and did nothing. This led 1,400 Japanese citizens to sue GE for their role in the Fukushima nuclear disaster. Even if we can’t see the radiation itself, some parts of North America’s western coast have been feeling the effects for years. Not long after Fukushima, fish in Canada began bleeding from their gills, mouths, and eyeballs. This “disease” has been ignored by the government and has decimated native fish populations, including the North Pacific herring. Elsewhere in Western Canada, independent scientists have measured a 300% increase in the level of radiation.

It won’t stop Orban.

• Hungary’s Refugee Referendum Not Valid After Voters Stay Away (G.)

The Hungarian prime minister, Viktor Orbán, has failed to convince a majority of his population to vote in a referendum on closing the door to refugees, rendering the result invalid and undermining his campaign for a cultural counter-revolution within the European Union. More than 98% of participants in Sunday’s referendum sided with Orbán by voting against the admission of refugees to Hungary, allowing him to claim an “outstanding” victory. But more than half of the electorate stayed at home, rendering the process constitutionally null and void.

Orbán himself put a positive spin on the low turnout. He argued that while “a valid [referendum] is always better than an invalid [referendum]” the extremely high proportion of no-voters still gave him a mandate to go to Brussels next week “to ensure that we should not be forced to accept in Hungary people we don’t want to live with”. He argued that the poll would encourage a wave of similar votes across the EU. “We are proud that we are the first,” he said.

NOTE: Less than 2 weeks ago, the EU refused Greece permission to move the refugees to the mainland, because they might try to travel north.

“Athens will be overwhelmed, [as will] the mainland, people will be forced to live in fields, there will be scenes we’ll never have imagined.”

• Vulnerable Refugees To Be Moved From ‘Squalid’ Camps On Greek Islands (G.)

Greece is poised to transfer thousands of refugees from overcrowded camps on its Aegean islands to the mainland amid escalating tensions in the facilities and protests from irate locals. The government said unaccompanied minors, the elderly and infirm would be among the first to be moved as concerns mounted over the future of a landmark EU-Turkey deal to stem migrant flows. “The situation on the islands is difficult and needs to be relieved,” said deputy minister for European affairs Nikos Xydakis. “Accommodation on the mainland will be more suitable. We will start with transfers of those who are most vulnerable, always in the sphere of implementing and protecting the EU-Turkey agreement.”

The operation, expected to be put into motion this week, came as Ankara warned the pact would not hold if Brussels failed to honour its pledge to allow Turks visa-free travel to the bloc. In a fiery speech before the newly reconvened parliament at the weekend, Turkish president Erdogan gave his clearest signal yet that the six-month-old agreement was in danger of collapse because of slow progress over visa liberalisation. [..] Refugee flows, although rising again, have dropped by 90% since the deal was signed. [..] Western diplomats in the Greek capital raised the spectre of chaos if the agreement collapsed. “If it does, there will be an influx of a million or more and this country is totally unprepared,” one European ambassador confided. “Athens will be overwhelmed, [as will] the mainland, people will be forced to live in fields, there will be scenes we’ll never have imagined.”

[..] Acknowledging that camp conditions were far from ideal, Xydakis blamed the backlog in asylum applications on the EU’s failure to dispatch promised staff and push ahead with an agreed relocation scheme to other parts of the continent. “We were promised 400 experts in asylum procedures but so far only have around 29 on the islands. We are continuing to recruit and look for more staff but it is not easy,” he said. “The deal is not only in the hands of Turkey but Europe … some EU states are not respecting but neglecting their responsibilities.”

To reiterate what I said yesterday on this topic:

“It was Germany that last year declared Dublin null and void. They will say that was only temporaray, but regulations like this are not light switches that selected parties can flick on and off when it suits them.

What happens now is quite simply that both the refugees and Greece are the victims of Angela Merkel’s falling poll numbers. And that is insane. It’s cattle trade. Athens should take Berlin to court over this.

Greece is already little more than a greatly impoverished holding pen for the unwanted, and it threatens to fall much deeper into the trap. That’s why the Automatic Earth effort to support the poorest people is not just still needed, but more now than ever. We will soon start a new campaign to that end. In the meantime, please do continue to donate through our Paypal widget in amounts ending in $.99 or $.37.”

• Germany Wants Migrants Sent Back To Greece, Turkey (AFP)

Germany called Sunday for asylum seekers who entered the European Union via Greece to be forced to return there, while also urging Athens to send more migrants back to Turkey. In an interview with a Greek daily, German interior minister Thomas de Maiziere said he wants to reinstate EU rules which oblige asylum seekers to be sent back to Greece as the first EU country they reached. “I would like the Dublin convention to be applied again… we will take up discussions on this in a meeting with (EU) interior ministers” later in October, he told the Greek daily Kathimerini. The Dublin accord gives responsibility for asylum seekers’ application to the first country they reach – which put Greece on the frontline of more than a million migrants who arrived in the EU last year.

The accord also says asylum seekers should be sent back to the first country they arrived in if they subsequently reach another EU state before their case is examined. A huge proportion of the migrants ended up in Germany. But this clause was suspended for Greece in 2011 after the country lost an EU legal complaint which condemned the mistreatment of migrants seeking international protection. “Since then, the EU has provided substantial support, not only financially,” to Greece to improve its asylum seeker procedures, the German minister said. In an interview on German television Sunday evening, De Maiziere also criticised Athens for failing to fully implement an EU agreement with Turkey to return migrants there.

The EU reached a deal with Turkey in March to stop the influx to the Greek islands in return for financial aid and eased visa conditions for its citizens. But the deal has looked shaky in the wake of a coup attempt in Turkey in July. “Greece must carry out more expulsions,” he told the ARD television station.

Debt Rattle September 8 2016

Sep 082016

September 8, 2016 Posted by Raúl Ilargi Meijer at 9:27 am Finance Tagged with: bad loans, cash, ECB, FBI, Fed, Fukushima, Hanjin, jobless, P2P, recession, SOE Comments Off

Harris&Ewing The Post Office building in Washington DC 1911

• US Recession Jitters Stoke Fears of Impotent Fed and Fiscal Paralysis (AEP)

• One In Six Prime-Age American Men Has No Job (NPR)

• GDP – Even Less Than Meets The Eye (720 Global)

• It Won’t Be Long Now – The End Game Of Central Banking Is Nigh (Stockman)

• China’s $1 Trillion Makeover Of Bloated SOEs Attracts Skeptics (BBG)

• China’s Massive Infrastructure Investment Is A Model To Avoid (MW)

• P2P Lenders Push Chinese Students To Borrow At Exorbitant Rates (BBG)

• Collapse Of Hanjin Leaves $14 Billion Worth Of Goods Adrift (BBG)

• EU Regulators: Bad Loans Are Systemic Challenge for European Banks (BBG)

• America’s Quiet War on Cash (TAM)

• FBI Records on Financial Crisis Requested by U.S. Lawmaker (BBG)

• Clinton Foundation: False Philanthropy (Ortel)

• Former Japan PM Accuses Abe Of Lying Over Fukushima (G.)

Picture of failure.

• US Recession Jitters Stoke Fears of Impotent Fed and Fiscal Paralysis (AEP)

An ominous paper by the US Federal Reserve has become the hottest document in high finance. It was intended to reassure us that the world’s hegemonic central bank still has ample firepower to overcome the next downturn. But the author was too honest. He has instead set off an agitated debate, and rattled a lot of nerves. David Reifschneider’s analysis – ‘Gauging the Ability of the FOMC to Respond to Future Recessions’ – more or less concedes that the Fed has run out of heavy ammunition. The Federal Open Market Committee had to cut interest rates by an average of 550 basis points over the last nine recessions in order to break the fall and stabilize the economy. It could not possibly do so right now, or next year, or the year after.

QE in its current form cannot compensate, and nor can forward guidance. They are largely exhausted in any case. “One cannot rule out the possibility that there could be circumstances in the future in which the ability of the FOMC to provide the desired degree of accommodation using these tools would be strained,” he wrote. This admission is painfully topical as a plethora of data suggest that the US economy may have hit a brick wall in August. The ISM gauge of manufacturing plunged below the boom-bust line to 49.4, and the services index dropped to a six-year low, with new orders crashing nine points. My own tentative view is that these ISM readings are rogue surveys. The Atlanta Fed’s ‘GDPNow’ tracker points to robust US growth of 3.6pc in the third quarter. The New York Fed version is coming in at 2.8pc.

Yet the US expansion is already long in the tooth after 87 months, and late-cycle chemistry is notoriously unpredictable. Warning signs certainly abound. Corporate profits have been slipping for six quarters, the typical precursor to an abrupt slump in business spending. “The only thing keeping the US out of recession is the US consumer. If consumption stalls then we really are in trouble,” says Albert Edwards from Societe Generale. I am willing to bet against him for now. The M1 money supply – often a good leading indicator – has picked up after a weak patch earlier this year and is now surging at a rate of 10.1pc. This pace would normally signal burst of torrid growth a few months later. It is in stark contrast to the monetary contraction before the Lehman crisis.

My presumption is that the day of reckoning has been pushed well into 2017, but in the dead of the night I have a horrible sweaty feeling that Mr Edwards may be right. It is not a time to be chasing stock markets already at vertiginous levels. The Reifschneider paper argues that the Fed can probably muddle through, so long as it succeeds in pushing interest rates back up to 3pc or so before the next recession hits. Even then it might have to launch a further $4 trillion of QE and stretch its balance sheet to a once unthinkable $8.5 trillion.

” In the 1960s, nearly 100% of men between the ages of 25 and 54 worked..”

• One In Six Prime-Age American Men Has No Job (NPR)

At 4.9%, the nation’s unemployment rate is half of what it was at the height of the Great Recession. But that number hides a big problem: Millions of men in their prime working years have dropped out of the workforce — meaning they aren’t working or even looking for a job. It’s a trend that’s held true for decades and has economists puzzled. In the 1960s, nearly 100% of men between the ages of 25 and 54 worked. That’s fallen over the decades. In a recent report, President Obama’s Council of Economic Advisers said 83% of men in the prime working ages of 25-54 who were not in the labor force had not worked in the previous year. So, essentially, 10 million men are missing from the workforce.

“One in six prime-age guys has no job; it’s kind of worse than it was in the depression in 1940,” says Nicholas Eberstadt, an economic and demographic researcher at American Enterprise Institute who wrote the book Men Without Work: America’s Invisible Crisis. He says these men aren’t even counted among the jobless, because they aren’t seeking work. Eberstadt says little is known about the missing men. But there are factors that make men less likely to be in the labor force — a lack of college degree, being single, or being black. So, why are men leaving? And what are they doing instead?

“GDP as most commonly used can be a flawed measurement if one tries to infer that the size or growth of economic activity is well correlated to the prosperity of its people..”

• GDP – Even Less Than Meets The Eye (720 Global)

The most common statistic used to measure the size and growth rate of a nation’s economy is Gross Domestic Product (GDP). However, GDP as most commonly used can be a flawed measurement if one tries to infer that the size or growth of economic activity is well correlated to the prosperity of its people. Consider China and the United States for example. The U.S. has a GDP of approximately $16.5 trillion and a population of roughly 325 million while China has a GDP of nearly $11 trillion and a population of approximately 1.4 billion.

One could say that China’s economy is about two-thirds the size of the U.S. economy, however when one considers how that activity is spread amongst the citizens, China’s economy is only one-seventh that of the U.S. Accordingly, Chinese citizens are clearly less productive and prosperous than U.S. citizens GDP per capita (per citizen), as demonstrated above, is a valid way to measure the efficiency of one nation’s economic output versus another and is also an important statistic to gauge the productivity and prosperity trends in one country. We have frequently shown the declining trend in secular GDP growth in charts like those shown below.

Above, GDP is plotted on an absolute basis and does not take into account the amount of economic activity or economic growth per person. Below, we show the ten-year growth rate of GDP per capita.

As one easily notices GDP on a per capita basis is more worrisome than when viewed on a total basis as in the first two graphs. The economic growth rate per person is currently below one half of one%. More concerning, it is below levels seen during the great financial crisis in 2008 and it is still trending lower. This graph confirms our macroeconomic concerns and helps explain, in part, why so many U.S. citizens feel like they are being left behind. Factor in that many of the economic spoils are not evenly distributed, as assumed in this analysis, but are largely accruing to the wealthy, and the problem only worsens. As such, the growing social anxiety and trend towards populism, be it conservative or liberal leaning, will not likely dissipate if the aforementioned economic trends continue.

Centralization as a whole is going the way of the dodo.

• It Won’t Be Long Now – The End Game Of Central Banking Is Nigh (Stockman)

As Contra Corner readers recognize the only consistent way forward for America at this late stage of the game is a return to free markets, fiscal rectitude, sound money, constitutional liberty, non-intervention abroad, minimalist government at home and decentralized political rule. Unfortunately, that is not about to happen any time soon—–even if by some miracle Donald Trump is elected President. But what the book does claim is that the tide is turning against the failed Wall Street/Washington bipartisan consensus. I call this insurrection the “revolt of the rubes” in Flyover America. This uprising against the rule of the financial and political elites has counterparts abroad among those who voted for Brexit in the UK, against Merkel in the recent German elections in her home state, and among the growing tide of anti-Brussels sentiment reflected in polls throughout the EC.

Needless to say, the political upheaval now underway is largely an inchoate reaction to the policy failures and arrogant pretensions of the establishment rulers. Like Donald Trump himself, it does not reflect a coherent programmatic alternative. But my contention is that liberation from our current ruinous policy regime has to start somewhere—and that’s why the Trump candidacy is so important. He represents a raw insurgency of attack, derision, impertinence and repudiation. If that leads to throwing out the beltway careerists, pettifoggers, hypocrites, ideologues, racketeers, power seekers and snobs who have brought about the current ruin then at least the decks will be cleared.

So doing, the Trump candidacy—win or lose—is paving the way for an honest debate about the Fed’s war on savers and wage earners, the phony Bubble Finance prosperity it has bestowed on the bicoastal elites and Imperial Washington’s delusionary addiction to debt, war and special interest racketeering. In addition to the political revolt of the rubes, the establishment regime is now imperiled by another existential threat. To wit, the world’s central bankers have finally painted themselves into the mother of all corners. Literally, they dare not stop their printing presses because the front-runners and robo-traders have taken them hostage. Recent developments at all three major central banks, in fact, provide powerful evidence that the end of the current Bubble Finance regime is near.

Beijing control trumps efficiency, and that’s not going to change.

• China’s $1 Trillion Makeover Of Bloated SOEs Attracts Skeptics (BBG)

To grasp the scale of the challenges facing Chinese leaders in revamping their sprawling and inefficient state-owned enterprises, consider this: The combined revenue of 100-plus government-owned firms, spanning from train makers to banks and power companies, rivals Japan’s entire $4.1 trillion economy. China’s SOE sector, traditionally a source of political patronage and economic power for the Communist Party, accounts for about 40% of China’s industrial assets and 18% of total employment, according to Bloomberg Intelligence economists Fielding Chen and Tom Orlik. These government creations are also dragging down growth, with their return on assets in 2015 estimated to be at 2.8%, versus 10.6% for private sector-firms.

Cutting SOEs down to size and improving their profitability is critical to President Xi Jinping and Premier Li Keqiang’s signature economic policy of rebalancing the $10 trillion economy away from an over-reliance on debt-fueled infrastructure investment and exports to one powered more by services and consumer spending. One strategy has been to embrace mergers – about $1 trillion of asset combinations have been announced since late 2014. The broad government sector overhaul adds up to a major triage effort, keeping healthy or strategic state firms like banks, energy and telecoms under tight control while orchestrating supersized consolidation among ailing giants in shipping, cement and metals to improve efficiency and slash over-capacity. Without a major overhaul, China’s low labor productivity growth – now less than a tenth of European, Japanese and U.S. levels – isn’t likely to improve.

[..] Despite the pressure to turn around, there are about 50 or so “too-big-to-fail” state enterprises in energy, technology and defense that are deemed to be so strategic that they will continue to receive generous government support, according to Lin Boqiang, director of Xiamen University’s energy economics research center. For the rest, Xi’s SOE makeover will be a gradual process with progress coming in fits and starts. Combing two inefficient firms doesn’t necessarily create a healthy one without some forceful leadership to eliminate overlap and excess capacity, as could be the case in the steel industry. “When you combine BaoSteel and Wuhan Steel, two companies thousands of kilometers apart, I’m not sure what they could do together that they couldn’t do separately,” according to Lardy.

Too much wasted.

• China’s Massive Infrastructure Investment Is A Model To Avoid (MW)

Some leading U.S. politicians and economists including President Obama have admired China’s massive investment in new transportation projects and wished America could do the same. Yet a new research paper suggests China’s approach is “a model to avoid” and one that could trigger a global crisis unless dramatically altered. In a paper, four professors at Oxford University assert that a majority of large Chinese investment projects over the past three decades have underestimated costs, failed to deliver the promised benefits and played a smaller role than conventional wisdom suggests in making the country more prosperous.

“China is not a model to follow for other economies – emerging or developed – as regards infrastructure investing, but a model to avoid,” wrote professors Atif Ansar, Bent Flyvbjerg, Alexander Budzier and Daniel Lunn. Many Western lawmakers and economists have long praised China’s investment in new roads, rail, bridges and airports as means to improve the nation’s growth and reduce unemployment. Some have also suggested authoritarian governments are better able than democracies to get projects off the ground. “How do we sit back and watch China and Europe build the best bridges and high-speed railroads and gleaming new airports, and we’re doing nothing?” Obama complained in a speech several years ago urging Congress to spend more on infrastructure.

Jim Millstein, a former Treasury Department official from 2009-2011, makes a similar argument Wednesday, in a Washington Post column. “A well-designed program of new infrastructure spending can be just the catalyst the U.S. economy needs to get out of its rut,” he argued. Yet the Chinese approach is much costlier and less beneficial than it appears, the researchers contend. In many cases projects are subject to special-interest manipulation, poorly designed or shoddily implemented to meet political edicts. Quality, safety and environmental issues are not uncommon and the Chinese government is heavy-handed when obtaining land, even displacing masses of citizens from seized homes and property.

The power of shadow banks.

• P2P Lenders Push Chinese Students To Borrow At Exorbitant Rates (BBG)

Across college campuses in China, a small army of marketers is recruiting students to borrow money at interest rates many times that charged by the nation’s banks. Those without a credit history or parental approval can borrow money to buy a smartphone, pay for holidays, or get the latest sneakers through a raft of apps such as Fenqile. The market leader, whose name literally means Happy Installment Payments, has 50,000 part-time marketers across more than 3,000 universities and proudly touts the slogan “Wait no more; love what I love.” Welcome to the regulatory gray area where peer-to-peer lending meets e-commerce in China.

In the last three years, tens of millions of students have taken out micro-loans with the tap of a button to buy things. Once just the realm of startups, the sector has attracted heavy hitters in China’s online industry, including Alibaba’s finance affiliate and JD.com, which are pouring hundreds of millions of dollars into the lending model. In a nation with 37 million college students, the market is expected to reach $15 billion, according to the Beijing-based market research firm Analysys. While traditional banks, the biggest of which are state-owned, have long been regulated, such peer-to-peer lenders have not, though Fenqile at least says it welcomes more oversight.

Sounds like a huge global overcapacity. Which of course is in line with shrinking global trade.

• Collapse Of Hanjin Leaves $14 Billion Worth Of Goods Adrift (BBG)

Suppliers to companies such as Nike Inc. and Hugo Boss AG are scrambling to ensure their T-shirts and sneakers reach buyers in time for the year-end holiday season after the collapse of Hanjin Shipping Co. left an estimated $14 billion worth of goods adrift. Esquel Group, a Hong Kong-based manufacturer for fashion brands including Nike, Hugo Boss and Ralph Lauren, is hiring truckers to move four stranded containers of raw materials to its factories near Ho Chi Minh City as soon as they can be retrieved from ports in China. Liaoning Shidai Wanheng, a Chinese fabrics importer and a supplier to Marks & Spencer, has made alternative arrangements for shipments that were scheduled with Hanjin.

“Our production lines are waiting,” said Kent Teh, who runs Esquel’s Vietnam business. “We potentially have to take airfreight to deliver the garment items to clients in the U.S. and U.K.” Apparel, handbags, televisions and microwave ovens are among goods stranded at sea after Korea’s largest shipping company filed for bankruptcy protection last week, setting off a series of events that roiled the global supply chain. A U.S. Court on Tuesday provided a temporary reprieve, which may help vessels call on ports such as Los Angeles without the fear of getting impounded. Any major bottlenecks ahead of Thanksgiving and Christmas could put a dent in the two-month shopping season, which netted some $626 billion of sales last year in the U.S.

“The ratio varies widely, from close to 50% in Cyprus to around 1% in Sweden.” Italy is the big fish here.

• EU Regulators: Bad Loans Are Systemic Challenge for European Banks (BBG)

European regulators are sounding the alarm about the persistence of bad loans weighing on the balance sheets of banks in the region. In a report Wednesday on financial risks, the European Union agencies that set rules and technical standards for banks, insurers and markets called for a joint effort to tackle non-performing loans. “Insufficiently addressed asset quality concerns and persistent high level of NPLs are a significant driver of uncertainty in the EU banking sector,” they said. “Given the widespread, and thus systemic, nature of the significant challenges related to NPL, European supervisors, regulators and legislators should consider pursuing a coordinated, articulated and more decisive approach to this matter.”

Supervisors such as the European Central Bank need to raise pressure on banks to account for and reduce NPLs “in a more proactive and bold fashion,” the report says. Banks should adopt “a conservative provisioning policy, a prudent valuation of loans and collateral” and commit “to a NPL resolution plan with time-bound targets.” [..] European banks have the highest ratio of bad loans among developed countries, and progress to lower the share has been slow. According to the report, 5.7% of all loans were overdue on average in the first quarter, more than three times the ratio in the U.S. or Japan. The ratio varies widely, from close to 50% in Cyprus to around 1% in Sweden. High NPL levels are a capital constraint, hurt profits and limit new lending, according to the agencies.

In line with Nicole’s article series we’re currently running.

• America’s Quiet War on Cash (TAM)

Government campaigns of intimidation – like the wars on drugs, terror, and poverty – have been used to extort the public for decades. Despite the previous failures of institutional “wars,” a new war on cash is being waged that threatens freedom in a more subversive way than ever before. Banks and governments around the world are cracking down on the use of paper money, and in turn, eliminating any anonymity left in the current system. Through strict rules on cash transactions and civil asset forfeiture laws, for example, the system has already instituted penalties for using cash. But as payments evolve into a purely digital network, the consequences of this new paradigm are being brought into the spotlight.

The ability to track, record, and mediate transactions of all individuals is a power dictators throughout history could have only dreamed of. Those who value privacy are turning to alternatives like cash, cryptocurrencies, and precious metals, but these directly threaten central bank dominance. This ongoing tug-of-war in financial innovation will determine whether we enter an age of individual empowerment or centralized enslavement. As mundane as it may seem, the main reason for this push to go cashless is directly tied to what world central banks are doing to prop up their economies. The manipulation of interests rates to zero or even negative has left central banks no ammunition to fight off the next recession. Without the ability to cut interest rates even further, stimulating economic growth is nearly impossible.

The decisions made in response to the 2008 crisis have led to a perverted environment in which customers could be charged just for holding money in their accounts. As long as individuals have the ability to move their funds into paper currency and escape the losses, banks are still limited to how far they can push the envelope. Regardless, the federal government continues to pressure banks into issuing “Suspicious Activity Reports” for withdrawals of even as little as $5,000. That amount will undoubtedly decrease if and when more people resort to stuffing cash under their mattresses.

Perhaps a little late?

• FBI Records on Financial Crisis Requested by U.S. Lawmaker (BBG)

FBI files on the firms that contributed to the 2008 financial crisis should be released to help the public understand why no senior executives were charged, a U.S. congressman from New Jersey said. Democrat Bill Pascrell asked FBI Director James Comey for witness interview transcripts, notes, reports and memos from the agency’s probes into the crisis, according to a letter dated Tuesday. Pascrell said the FBI initiated criminal inquiries into at least 14 companies as part of its investigation into the origins of the crisis, which was ignited when prices of subprime-mortgage bonds plummeted after home-loan defaults soared. “Here we are eight years later – do you think the public knows how this happened? Do you think the public knows all of the recommendations made to the Justice Department?” Pascrell said Wednesday in an interview.

“Why are Hillary Clinton’s e-mails any more important?” The FBI earlier this month released a summary investigation and interview with Clinton to provide context on its recommendation that the Justice Department not prosecute Clinton or her aides for using a private e-mail system. The Democratic presidential nominee was interviewed by FBI agents and federal prosecutors for 3 1/2 hours on July 2 in Washington. Pascrell, who sits on both the budget and ways and means committees, said in many cases it would be too late to bring legal actions. Releasing the information would increase transparency and provide a public service, he said.

“..it is a case study in international charity fraud, of mammoth proportions…”

• Clinton Foundation: False Philanthropy (Ortel)

To informed analysts, the Clinton Foundation appears to be a rogue charity that has neither been organized nor operated lawfully from inception in October 1997 to date–as you will grow to realize, it is a case study in international charity fraud, of mammoth proportions. In particular, the Clinton Foundation has never been validly authorized to pursue tax-exempt purposes other than as a presidential archive and research facility based in Little Rock, Arkansas. Moreover, its operations have never been controlled by independent trustees and its financial results have never been properly audited by independent accountants.

In contrast to this stark reality, Bill Clinton recently continued a long pattern of dissembling, likening himself to Robin Hood and dismissing critics of his “philanthropic” post-presidency, despite mounting concerns over perceived conflicts of interest and irregularities. Normally, evaluating the efficacy of a charity objectively is performed looking closely into hard facts only -specifically, determining whether monies spent upon “program service expenditures” actually have furthered the limited, authorized “tax-exempt purposes” of entities such as the Bill, Hillary, and Chelsea Clinton Foundation, its subsidiaries, its joint ventures, and its affiliates (together, the “Clinton Charity Network”).

But, popular former presidents of the United States retain “bully pulpits” from which they certainly can spin sweet-sounding themes to a general audience and media that is not sufficiently acquainted with the strict laws and regulations that do, in fact , tether trustees of a tax-exempt organization to following only a mission that has been validly pre-approved by the Internal Revenue Service, on the basis of a complete and truthful application. This Executive Summary carries forward a process of demonstrating that the Clinton Foundation illegally veered from its IRS-authorized mission within days of Bill Clinton’s departure from the White House in January 2001, using publicly available information which, in certain cases, has been purposefully omitted or obscured in disclosures offered through the Clinton Foundation website, its principal public portal.

Fukushima is too big to be papered over. But that’s all that happens.

• Former Japan PM Accuses Abe Of Lying Over Fukushima (G.)

Japan’s former prime minister Junichiro Koizumi has labelled the country’s current leader, Shinzo Abe, a “liar” for telling the international community that the situation at the wrecked Fukushima Daiichi nuclear power plant is under control. Koizumi, who became one of Japan’s most popular postwar leaders during his 2001-06 premiership, has used his retirement from frontline politics to become a leading campaigner against nuclear restarts in Japan in defiance of Abe, a fellow conservative Liberal Democratic party (LDP) politician who was once regarded as his natural successor. Abe told members of the International Olympic Committee (IOC) in Buenos Aires in September 2013 that the situation at Fukushima Daiichi nuclear power plant was “under control”, shortly before Tokyo was awarded the 2020 Games.

IOC officials were concerned by reports about the huge build-up of contaminated water at the Fukushima site, more than two years after the disaster forced the evacuation of tens of thousands of residents. “When [Abe] said the situation was under control, he was lying,” Koizumi told reporters in Tokyo. “It is not under control,” he added, noting the problems the plant’s operator, Tokyo Electric Power (Tepco), has experienced with a costly subterranean ice wall that is supposed to prevent groundwater from flowing into the basements of the damaged reactors, where it becomes highly contaminated. “They keep saying they can do it, but they can’t,” Koizumi said. He went on to claim that Abe had been fooled by industry experts who claim that nuclear is the safest, cleanest and cheapest form of energy for resource-poor Japan.

“He believes what he’s being told by nuclear experts,” Koizumi said. “I believed them, too, when I was prime minister. I think Abe understands the arguments on both sides of the debate, but he has chosen to believe the pro-nuclear lobby.” After the Fukushima crisis, Koizumi said he had “studied the process, reality and history of the introduction of nuclear power, and became ashamed of myself for believing such lies”. [..] Koizumi, 74, has also thrown his support behind hundreds of US sailors and marines who claim they developed leukaemia and other serious health problems after being exposed to Fukushima radiation plumes while helping with relief operations

Debt Rattle March 13 2016

Mar 132016

March 13, 2016 Posted by Raúl Ilargi Meijer at 9:38 am Finance Tagged with: China, Fed, Fukushima, globalization, Greece, Iran, Merkel, oil, refugees, Turkey 2 Responses »

NPC Fred Haas, Rhode Island Avenue NE, Washington, DC 1924

• The Fed Caused 93% Of The Entire US Stock Market’s Move Since 2008 (Yahoo)

• ‘Negative Rates Confirm The Failure Of Globalization’ (DB)

• China Economic Data Paints Gloomy Picture (WSJ)

• China’s Restructuring Will Not Lead To Mass Layoffs: Regulator (Reuters)

• China ‘Won’t Bring Back Stock Market Circuit Breaker For Years’ (Reuters)

• Iran To Join Oil Freeze Talks Only After Raising Output To 4 mbpd (Reuters)

• Oil Prices Should Fall, Possibly Hard (Berman)

• Oil Crash Risks $19 Billion Wave of Junk Debt Defaults (BBG)

• Merkel Crosses Fingers Before German ‘Super Sunday’ Regional Polls (Reuters)

• US Too Racist And Violent To Criticize Others On Human Rights, Says China (Q.)

• Fukushima Radiation Kills Robots Too (Reuters)

• A Hope In The World Since Biblical Times Is Officially Over (Reuters)

• Majority in Spanish Congress Opposes EU-Turkey ‘Pact Of Shame’ (El Pais)

• Greece Says Turkish Observers Will Be Posted In Its Refugee Centers (Kath.)

• Turkish Guards Hit Refugee Boat With Sticks (BBC)

“..previous bull runs in the market lasting several years can also be explained by single factors each time.”

• The Fed Caused 93% Of The Entire US Stock Market’s Move Since 2008 (Yahoo)

The bull market just celebrated its seventh anniversary. But the gains in recent years – as well as its recent sputter – may be explained by just one thing: monetary policy. The factors behind that and previous bubbles can be illuminated using simple visual analysis of a chart. The S&P 500 doubled in value from November 2008 to October 2014, coinciding with the Federal Reserve Bank’s “quantitative easing” asset purchasing program. After three rounds of “QE,” where the Fed poured billions of dollars into the bond market monthly, the Fed’s balance sheet went from $2.1 trillion to $4.5 trillion. This isn’t just a spurious correlation, according to economist Brian Barnier, principal at ValueBridge Advisors and founder of FedDashboard.com.

What’s more, he says previous bull runs in the market lasting several years can also be explained by single factors each time. Barnier first compiled data on the total value of publicly-traded U.S. stocks since 1950. He then divided it by another economic factor, graphing the ratio for each one. If the chart showed horizontal lines stretching over long periods of time, that meant both the numerator (stock values) and the denominator (the other factor) were moving at the same rate. “That’s the beauty of the visual analysis,” he said. “All we have to do is find straight, stable lines and we know we’ve got something good.”

Scouring hundreds of different factors, Barnier ultimately whittled it down to just four factors: GDP data five years into the future, household and nonprofit liabilities, open market paper, and the Fed’s assets. At different stretches of time, just one of those was the single biggest driver of the market and was confirmed with regression analyses.

“Oversupply destroys capitalism in a natural way.” Interesting Deutsche analysis, that unfortunately ignores debt just about completely and instead sees ‘consumers delaying purchases of goods, hoarding money’. But that’s not what happens. Consumers have no money to hoard, they have debt instead.

• ‘Negative Rates Confirm The Failure Of Globalization’ (DB)

Understanding how negative rates may or may not help economic growth is much more complex than most central bankers and investors probably appreciate. Ultimately the confusion resides around differences in view on the theory of money. In a classical world, money supply multiplied by a constant velocity of circulation equates to nominal growth. In a Keynesian world, velocity is not necessarily constant – specifically for Keynes, there is a money demand function (liquidity preference) and therefore a theory of interest that allows for a liquidity trap whereby increasing money supply does not lead to higher nominal growth as the increase in money is hoarded. The interest rate (or inverse of the price of bonds) becomes sticky because at low rates, for infinitesimal expectations of any further rise in bond prices and a further fall in interest rates, demand for money tends to infinity.

In Gesell’s world money supply itself becomes inversely correlated with velocity of circulation due to money characteristics being superior to goods (or commodities). There are costs to storage that money does not have and so interest on money capital sets a bar to interest on real capital that produces goods. This is similar to Keynes’ concept of the marginal efficiency of capital schedule being separate from the interest rate. For Gesell the product of money and velocity is effective demand (nominal growth) but because of money capital’s superiority to real capital, if money supply expands it comes at the expense of velocity. The new money supply is hoarded because as interest rates fall, expected returns on capital also fall through oversupply – for economic agents goods remain unattractive to money. The demand for money thus rises as velocity slows.

This is simply a deflation spiral, consumers delaying purchases of goods, hoarding money, expecting further falls in goods prices before they are willing to part with their money. For an economy that suffers from deficient demand, lowering interest rates doesn’t work if it simply lowers expected returns on real capital through oversupply. The shale boom in the US is blamed on cheap money. As Gesell also argued, where Marx was wrong but Proudhon was right, is that to destroy capitalism you don’t need workers to strike and close the capitalists’ factories; instead the workers should organize and build another factory next to the capitalists. The means of the production are nothing more than capitalized labor. Oversupply destroys capitalism in a natural way. In this way the demise of positive interest rates may be nothing more than the global economy reacting to a chronic oversupply of goods through the impact of globalization including the opening up of formerly closed economies as well as ongoing technological progress.

“Too many companies make products that are pretty much the same..” Yeah, and that nobody wants to buy anymore either.

• China Economic Data Paints Gloomy Picture (WSJ)

Factories and retailers in China put in weaker-than-expected performances in the first two months of the year, as anemic demand and excess capacity continued to bear down on the world’s second-largest economy. Industrial production grew 5.4 % in January and February compared with a year earlier, down from December’s 5.9% pace, according to government data released Saturday, and just below the 5.6% forecast by economists polled by The Wall Street Journal. Meanwhile, retail sales clocked 10.2% growth in the two-month period, slower than December’s 11.1% increase. While industries have been battered by the economic slowdown, retail sales have been relatively buoyant, so the downtick surprised some economists, especially since it occurred around the Lunar New Year holiday when consumption is usually strong.

“Overall, the picture is still quite gloomy”, said Commerzbank Aeconomist Zhou Hao. “Normally, because of Chinese New Year, there’s a big drop and a big jump. This year there s only a big drop.” The government combines some economic data for January and February to minimize distortions tied to the Lunar New Year holiday, which falls during those two months. It was in early February this year. One area that did pick up was investment in factories, buildings and other fixed assets, which increased a faster-than-expected at 10.2 % year-over-year in January and February, compared with a 10% increase for all of 2015. Economists said that boost came largely from government spending on infrastructure and from investment in parts of the overbuilt property market.

Mostly, economists said, weak demand at home and abroad is weighing on industries and many factories continue to churn out unneeded goods. Jiang Yuan, an economist with China’s National Bureau of Statistics, said makers of steel, cement and tobacco reduced output in response to slack demand. “A recovery is still eluding China’s industrial sector,” Mizuho Securities Asia Ltd. said in a recent report, before the release of the data Saturday. Chen Zhenxing, sales manager with Zhejiang Lanxi Shanye Machinery Co., which produces hand carts and other logistics equipment in the eastern city of Jinhua, said his company faces ongoing problems raising capital and boosting prices. “Competition is cutthroat,” he said. “Too many companies make products that are pretty much the same, so the focus turns to lowering prices.”

“The foundations we have now are much stronger than before.” That is highly questionable in itself, but more importantly, debt is now much higher than before. That is what will drive China going forward.

• China’s Restructuring Will Not Lead To Mass Layoffs: Regulator (Reuters)

China’s economic restructuring will not lead to the kind of mass layoffs that took place in the 1990s, the country’s state assets regulator said on Saturday. China will focus on mergers and restructuring, not bankruptcies, Xiao Yaqing, the head of the State-owned Assets Supervision and Administration Commission (SASAC), told a news conference. As it tries to rejuvenate its economy, China aims to reduce the number of central government-managed enterprises and launch pilot programs that will allow more private investment in state-dominated sectors. It is also trying to slash overcapacity in the labor-intensive coal and steel sectors.

Reform plans have prompted fears that the country would face its fiercest unemployment pressures since the late 1990s, when about 28 million people were made redundant. “The situation in the 1990s was completely different,” Xiao told reporters. “The foundations we have now are much stronger than before.” “Protecting the interests of workers is an important aspect of the next stage of reforms, and there will be more mergers and restructurings, and as few bankruptcies as possible.” Sources have told Reuters that China is expecting to lay off 5 million to 6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution.

According to official estimates, layoffs from the coal and steel sectors alone are expected to reach 1.8 million as the country works to tackle price-sapping overcapacity and shut down so-called zombie enterprises – loss-making firms that cannot afford to continue operating but are propped up by local authorities. Xiao said 12 central government-run firms had been merged, bringing the total number of enterprises controlled by SASAC to 106. Profits at the firms fell 6.7% last year to 2.3 trillion yuan. Xiao said the main reason for the decline was the collapse in the prices of oil and steel. China has about 150,000 state-owned enterprises that manage more than 100 trillion yuan ($15.40 trillion) in assets and employ more than 30 million people, according to the official Xinhua news agency.

Wonder what they do if prices drop 10% or more in a day.

• China ‘Won’t Bring Back Stock Market Circuit Breaker For Years’ (Reuters)

China won’t reintroduce the circuit breaker mechanism in its stock markets in the next few years, Liu Shiyu, chairman of the China Securities Regulatory Commission, told reporters in Beijing on Saturday. A circuit breaker mechanism introduced in January by Liu’s predecessor Xiao Gang was dismantled after only a few days. The mechanism was blamed by investors for worsening a sharp selloff in Chinese stocks. China’s Shanghai and Shenzhen stock markets slumped as much as 40% in just a few months last summer. Liu, previously the chairman of the Agricultural Bank of China, was named the new chief of China’s top securities regulator in February. Earlier in February, Premier Li Keqiang offered a rare public criticism, stating regulators didn’t respond adequately, or react in a timely way to the stock market turmoil. Saturday’s press conference was the first occasion for the new securities regulator chief to answer questions from reporters.

So no talks. Or at least no freeze.

• Iran To Join Oil Freeze Talks Only After Raising Output To 4 mbpd (Reuters)

Oil Minister Bijan Zanganeh said Iran would join discussions between other producers about a possible freeze of oil production after its own output reached four million barrels per day (bpd), Iran’s ISNA news agency reported on Sunday. Zanganeh said Iran saw $70 per barrel as a suitable oil price, but would be satisfied with less, ISNA reported. Asked whether Russian Energy Minister Alexander Novak would try to convince Iran to join an oil output freeze during a visit this week, Zanganeh said Iran may join the freeze after its production reaches 4 million bpd. “They should leave us alone as long as Iran’s crude oil has not reached 4 million. We will accompany them afterwards,” Zanganeh was quoted as saying.

Iran has rejected freezing its output at January levels, put by OPEC secondary sources at 2.93 million barrels per day, and wants to return to much higher pre-sanctions production. It is working to regain market share, particularly in Europe, after the lifting of international sanctions in January. The sanctions had cut crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years. Iran’s oil exports are due to reach 2 million bpd in the Iranian month that ends on March 19, up from 1.75 million in the previous month, he said. A meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20, sources familiar with the matter said last week, as OPEC member Iran is yet to say whether it would participate in such a deal.

But who’s been propping up prices lately?

• Oil Prices Should Fall, Possibly Hard (Berman)

Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price. Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s. An OPEC-plus-Russia production cut would be a great step toward re-establishing oil-market balance. I believe that will happen later in 2016 but is not on the table today. In late February, Saudi oil minister Ali Al-Naimi stated categorically, “There is no sense in wasting our time in seeking production cuts. That will not happen.” Instead, Russia and Saudi Arabia have apparently agreed to a production freeze. This is meaningless theater but it helped lift oil prices 37% from just more than $26 in mid-February to almost $36 per barrel last week. That is a lot of added revenue for Saudi Arabia and Russia but it will do nothing to balance the over-supplied world oil market.

[..] It is a sign of how bad things have gotten in oil markets that we feel optimistic about $35 oil prices. It should also be a warning that the over-supply that got us here has not gone away. Oil storage volumes continue to grow and that is the surest indication that production has not declined enough yet to make a difference. It is impossible to imagine oil prices rising much beyond present levels until storage starts to fall. In fact, it is difficult to understand $35 per barrel prices based on any measure of oil-market fundamentals. The OPEC-plus-Russia production freeze is a cynical joke designed to increase their short-term revenues without doing anything about production levels. An output cut would make a difference but a freeze on current Saudi and Russian production levels means nothing.

It apparently made some investors feel better but it didn’t do anything for me. Iran got this one right by calling it ridiculous. No terrible economic news has surfaced in recent weeks but that does not change the profound weakness of a global economy that is burdened with debt and weak demand. The announcement last week by the People’s Bank of China that it sees room for more quantitative easing may have comforted stock markets but it only added to my anxiety about reduced oil consumption and future downward shocks in oil prices. I hope that oil prices increase but cannot find any substantive reason why they should do anything but fall. As market balance reality re-emerges in investor consciousness and the false euphoria of a production freeze recedes, prices should correct to around $30. A little bad economic or political news could send prices much lower.

An astonishingly low number.

• Oil Crash Risks $19 Billion Wave of Junk Debt Defaults (BBG)

Investors are facing $19 billion in energy defaults as the worst oil crash in a generation leaves drillers struggling to stay afloat. The wave could begin within days if Energy XXI, SandRidge and Goodrich fail to reach agreements with creditors and shareholders. Those are three of at least eight oil and gas producers that have announced missed debt payments, triggering a countdown to default. “Shale was a hot growth area and companies made the mistake of borrowing too much,” said George Schultze of Schultze Asset Management in New York, which has been betting against several distressed energy companies. “It’s amazing that so many people were willing to lend them money. Many are going to file for bankruptcy, and bondholders and equity are going to get wiped out en masse.”

Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than $17 billion, according to law firm Haynes and Boone. Fitch Ratings predicts $70 billion of energy, metal and mining defaults this year, and notes that $77 billion of energy bonds are bid below 50 cents, according to a note Thursday. “Absent a material improvement in oil and gas prices or a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection,” Energy XXI said in a March 7 public filing. Goodrich Petroleum is asking shareholders and bond investors to approve a restructuring deal that would convert its unsecured debt and preferred shares into common stock.

For the plan to work, shareholders must approve it at a March 14 meeting and enough bondholders need to participate by the March 16 exchange deadline. “Absent a successful completion of the recapitalization plan, the company will have no alternatives other than to seek protection through the bankruptcy courts,” Walter Goodrich, chairman and chief executive officer, said on a March 9 conference call.

Could be ugly.

• Merkel Crosses Fingers Before German ‘Super Sunday’ Regional Polls (Reuters)

Germans vote in three regional state elections on Sunday, with Chancellor Angela Merkel’s conservatives at risk of setbacks that would weaken her just as she tries to push through a deal to resolve Europe’s migrant crisis. Migration is the hot topic, as worry how Germany will cope with an influx, totaling more than a million last year alone, that has come to define Merkel’s leadership, and on which she has staked her reputation. Merkel’s conservative Christian Democrats (CDU) have been losing support to the anti-immigration Alternative for Germany (AfD) party, which has profited from the growing unease. Asked at a campaign rally on Saturday how she was preparing for Sunday’s results, Merkel said: “I’m crossing my fingers.”

Polls indicate that the CDU will remain the biggest party in Saxony-Anhalt, in former East Germany. In the west, it could be pipped by the Greens in Baden-Wuerttemberg, where it is currently the largest party. And in Rhineland-Palatinate, where the CDU came a close second last time, the race is too close to call. A failure to win at least two of the three states would be a blow for Merkel just as she is trying to use her status as Europe’s most powerful leader to push through an EU deal with Turkey to stem the tide of migrants. The chancellor alarmed many European leaders at a summit earlier this week by gambling on the last-minute draft deal with Turkey to stop the migrant flow, and demanding their support. Merkel still needs to seal the deal at another summit on March 17-18.

If her party performs poorly on Sunday, she will go into that meeting weakened. One of those draining support from Merkel’s CDU is the AfD. Already represented in five of Germany’s 16 regional parliaments, the anti-immigration party looks set to burst into three more on Sunday, campaigning on slogans such as “Secure the borders” and “Stop the asylum chaos”. Polls put the AfD’s support as high as 19% in Saxony-Anhalt, where the CDU and Social Democrats now govern in a ‘grand coalition’ that mirrors Merkel’s federal government. If the AfD performs as well as the polls indicate, the coalition partners may need to team up with a third party to assemble a majority – one of a number of potential ‘firsts’ for German politics as voter loyalties splinter.

The pot, the kettle and the kitchen sink.

• US Too Racist And Violent To Criticize Others On Human Rights, Says China (Q.)

The United Nations Human Rights Council is in the midst of a three-week meeting in New York, and sparks are flying between the US and China. After 12 nations, led by the US, denounced China’s “deteriorating human rights record,” including an apparent illegal abduction of five Hong Kong booksellers and the arrest of hundreds of lawyers and activists, China fired back at the US. Fu Cong, China’s ambassador to the UN, said: “The US is notorious for prison abuse at Guantanamo prison, its gun violence is rampant, racism is its deep-rooted malaise. The United States conducts large-scale extra-territorial eavesdropping, uses drones to attack other countries’ innocent civilians, its troops on foreign soil commit rape and murder of local people. It conducts kidnapping overseas and uses black prisons.”

Fu’s comments are an abbreviated version of China’s latest annual scathing report on human rights in the US, which Beijing has issued for 16 years in a row (and for no other country but the US). Last year’s report included a litany of problems that the US faces, from Detroit’s water crisis to the CIA’s use of torture to teen unemployment, and concluded that human rights in the US were “terrible,” and that, even worse, there appears to be no “intention to improve” them in Washington, DC. Who gets to lecture who on human rights is an increasingly political issue, as Quartz reported earlier. As other governments adjust to Beijing’s rising economic might, some have scaled back their criticism of China’s human rights abuses, even as those abuses have increased under Xi Jinping in recent years.

Beijing’s abduction of five Hong Kong booksellers is just the latest in a widespread crackdown on activists, lawyers, and free speech in China. Human rights experts believe the tit-for-tat criticism misses the bigger picture. “We reject idea that countries have to have a perfect human rights record to criticize other governments,” Nicholas Bequelin, Amnesty International’s director for East Asia, told Quartz earlier. “If we were to follow this road, human rights could never be discussed since no country has a perfect human rights record.”

“The fuel rods melted through their containment vessels in the reactors, and no one knows exactly where they are now.”

• Fukushima Radiation Kills Robots Too (Reuters)

The robots sent in to find highly radioactive fuel at Fukushima’s nuclear reactors have “died”; a subterranean “ice wall” around the crippled plant meant to stop groundwater from becoming contaminated has yet to be finished. And authorities still don’t know how to dispose of highly radioactive water stored in an ever mounting number of tanks around the site. Five years ago, one of the worst earthquakes in history triggered a 10-meter high tsunami that crashed into the Fukushima Daiichi nuclear power station causing multiple meltdowns. Nearly 19,000 people were killed or left missing and 160,000 lost their homes and livelihoods in the quake and tsunami.

Today, the radiation at the Fukushima plant is still so powerful it has proven impossible to get into its bowels to find and remove the extremely dangerous blobs of melted fuel rods, weighing hundreds of tonnes. Five robots sent into the reactors have failed to return. The plant’s operator, TEPCO, has made some progress, such as removing hundreds of spent fuel roads in one damaged building. But the technology needed to establish the location of the melted fuel rods in the other three reactors at the plant has not been developed. “It is extremely difficult to access the inside of the nuclear plant,” Naohiro Masuda, Tepco’s head of decommissioning said in an interview. “The biggest obstacle is the radiation.”

The fuel rods melted through their containment vessels in the reactors, and no one knows exactly where they are now. This part of the plant is so dangerous to humans, Tepco has been developing robots, which can swim under water and negotiate obstacles in damaged tunnels and piping to search for the melted fuel rods. But as soon as they get close to the reactors, the radiation destroys their wiring and renders them useless, causing long delays, Masuda said. Each robot has to be custom-built for each building.“It takes two years to develop a single-function robot,” Masuda said.

Like the angle, but the execution leaves to be desired. And the promised land saga predates the bible.

• A Hope In The World Since Biblical Times Is Officially Over (Reuters)

A “promised land” has been a constant hope in the world since the Lord promised what became Israel to Abraham, in the Book of Genesis (15:18). Some centuries later, the Lord told Moses (according to Numbers 34) to lead the Israelites out of Egypt to occupy a somewhat smaller space than he had outlined to Abraham — the land east from the Jordan River to the sea. Zionism was built on these promises, its fulfillment in modern times powered by the Holocaust’s message that defensible land was necessary for the continued existence of the Jews. It’s gone well and badly. In his 2013 book “My Promised Land,” a fine confrontation by an Israeli journalist of the grace and disgrace of his state, Ari Shavit writes: “Israel is the only nation of the West that is occupying another people. On the other hand, Israel is the only nation in the West that is existentially threatened… intimidation and occupation have become the twin pillars of our existence.”

That’s the condition of the “real” promised land. Others were less canonically blessed, but did deliver on some of their promise. The promised land for centuries — since the Pilgrims landed on Plymouth Rock, Massachusetts, in 1620 — has been North America. The United States promised freedom to the masses yearning to breathe free, or at least make a living. It’s the only country in the world that has, at what was once its main entry point, a statue which promises a welcome to all the huddled masses — a welcome which, in advances and retreats, has remained till now. Today that spirit of inclusion is waning. Figures from the Pew Research Center show that a majority of Republican voters want a strong barrier along the border with Mexico, and a rising minority doesn’t want automatic U.S. citizenship conferred on the immigrants’ children.

Democrats are different: a decade ago, a majority of Democrats and Republicans agreed that illegal immigration should be checked. Today the parties diverge sharply — with less than a third of Democrats holding to that belief, against nearly two-thirds of Republicans. Still, a solid bipartisan majority of 72% doesn’t want mass deportation of illegal immigrants if they meet certain requirements: perhaps realizing that to do so would need require the deployment of most of the army, and approach civil war. Yet popular views shift as elite positions do. When Donald Trump made the Mexican wall and forced repatriation centerpieces of his campaign last autumn, and began winning, his fellow Republican candidates slithered after him. Has Trump’s blunt demand that illegal immigrants be deported and Muslims kept out released popular frustrations and directed them at foreign targets – so that what had been relatively liberal views are now overturned, including among some Democrats?

Going to push it through regardless: “..he claims that an acting government is not subject to parliamentary control.”

• Majority in Spanish Congress Opposes EU-Turkey ‘Pact Of Shame’ (El Pais)

Acting Prime Minister Mariano Rajoy will go to the European Council on March 17 to defend a position that most of Spanish Congress radically rejects. Except for his own Popular Party (PP), all other congressional groups – 227 deputies out of a total of 350 – feel that the European Union’s deal with Turkey to expel refugees is illegal. Podemos leader Pablo Iglesias said on Twitter that he felt “ashamed of an EU that systematically violates human rights” Rajoy, who signed the agreement on Monday, has refused to appear before his own Congress to explain the deal and negotiate a common Spanish position on the subject of refugees. Instead, he will send a state secretary to do the explaining, as he claims that an acting government is not subject to parliamentary control.

Following an inconclusive election on December 20, Spain has yet to name a new prime minister, and could face a fresh vote in June if no progress is made in the coming weeks. Other parties are now seeking ways to force Rajoy to come before them ahead of the European Council date. This is the first time that a vast majority of Congress has rejected a deal subscribed to by the EU government. Socialist leader Pedro Sánchez said the European deal with Turkey was “immoral” and possibly even “illegal.” “We have a week to change this agreement. The European Council of March 17 and 18 cannot approve this pact of shame,” he said. But options are few, as Rajoy has no plans to appear in Congress before those dates, nor will the chamber have a chance to vote on initiatives like the one put forward by the Socialist Party, amending the whole of the EU-Turkey agreement.

The opposition feels that Rajoy has no right to go to the Council without first reaching domestic consensus, as he would be overstepping his own role as acting executive official. The deal, say critics, involves future budget increases and political decisions outside Rajoy’s current legal mandate. Podemos leader Pablo Iglesias said on Twitter that he felt “ashamed of an EU that systematically violates human rights.” The deal, he said, breaks asylum laws. Ciudadanos representative Miguel Ángel Gutiérrez described the agreement “as a symptom of weakness” because it was akin to “subcontracting the problem” to Turkey, a country that is “moving in an autocratic direction.”

The crazy consequences of that pact of shame.

• Greece Says Turkish Observers Will Be Posted In Its Refugee Centers (Kath.)

Alternate Minister for Citizens’ Protection Nikos Toskas on Saturday confirmed that Turkish officials will be posted to the Greek islands of the eastern Aegean to act as observers and oversee the relocation of migrants who are not eligible for protection from Greece back to Turkey. Speaking on Skai TV amid media reports that Turkish officials would be allowed into refugee documentation centers, Toskas said that this is part of a protocol he signed with his Turkish counterpart during a Greek government mission to Izmir earlier in the week in order to speed up relocations. “In this framework, it will be possible for Turkish observers to be admitted at Greek islands to speed up procedures so that migrants who are not eligible for protection are returned [to Turkey] within 48 hours,” Toskas said.

The observers, he said, will be responsible for checking identification and travel documents together with Greek officials, and signing the protocol for the return of non-refugees to Turkey. For the time being, he said, one Turkish observer will be assigned to the Moria camp on the island of Lesvos, with a view to expanding their presence to the other islands struggling with inflows. Turkey agreed at an emergency European Union summit last week to take back migrants from over-burdened Greece in exchange for more aid from the bloc. European leaders will meet with Turkish officials again next week to hammer out the details of the deal. “The big gamble that is being played out in light of the March 17 and 18 summit is the relocation of refugees from Greece to countries of the European Union and the readmission of ‘illegal’ migrants by Turkey,” Toskas said.

This and more is what we can expect. And this is with a camera present.

• Turkish Guards Hit Refugee Boat With Sticks (BBC)

The BBC has been given a video showing Turkish coastguard using sticks against a boat full of migrants as they sail to Greece in the Aegean Sea. The incident is said to have happened in Turkish waters as the migrants were on their way to the island of Lesbos. The migrants accused the coastguard of attacking them, but the coastguard say they were trying to stop the boat without harming the occupants. The EU and Turkey are discussing new moves to curb the flow of refugees. Europe is facing its biggest refugee crisis since World War Two. Last year, more than a million people entered the EU illegally by boat, mainly going from Turkey to Greece. More than 132,000 migrants have arrived by boat into Greece so far this year – a large increase on the same period last year.

The vast majority of coastguard patrols in the Aegean are professional, with Turkish and Greek personnel either towing migrant vessels back ashore or rescuing those that capsize. But there have been reports of attacks. Masked officials on the Greek side were filmed last year appearing to puncture inflatable dinghies with migrants on board – and now this, with the Turkish coastguard claiming they were merely trying to stop the engine and stop the boat advancing. It could be that these are individual coastguard officers acting on their own and not following orders, perhaps fuelled by machismo and even xenophobia. But it’s also possible that this is more than an isolated case, showing the Turkish authorities going to any length to stem the migration flow under renewed pressure from Brussels. Either way, it will worry EU leaders meeting later this week to finalise a plan with Turkey to reduce migrant numbers. Could these scenes be repeated as Turkey steps up patrols of Europe’s borders?

Debt Rattle March 6 2016

Mar 062016

March 6, 2016 Posted by Raúl Ilargi Meijer at 9:55 am Finance Tagged with: cash, China, DNA, earnings, EU, Fukushima, Growth, reform, refugees, Turkey 1 Response »

Harris&Ewing War-bond rally on Penn. Avenue, Washington DC 1918

• China Picks Growth Over Reform At Annual Congress (AFR)

• Hard Landing Fallacy “No Way” In China: Regulator (Xinhua)

• China Says Cuts In Overcapacity Won’t Cause Massive Layoffs (Reuters)

• China PM Predicts ‘Battle’ For Growth (BBC)

• US Weekly Earnings Drop Most On Record (ZH)

• Sunshine, Lollipops and… (Bill Gross)

• Sweden Begins 5 Year Countdown Until It Eliminates Cash (ZH)

• Confused By The Economic Modelling? That’s The Whole Idea (SMH)

• Mutations, DNA Damage Seen In Fukushima Forests (AFP)

• Zaman Newspaper: Defiant Last Edition As Turkey Police Raid (BBC)

• “EU ’Must’ Hand Turkey €7 Billion Per Year To Keep Out Refugees” (Reuters)

• Merkel Pressures Greece to Step Up Refugee Aid (BBG)

• Open Letter To Vienna From Austrian Expatriates In Greece (Observer)

• EU Refugee Crisis Leaves 10,000 Children Missing, Europol Says (BBG)

But wasn’t reform supposed to be crucial to growth itself? Pretty sure it still is. They should be careful not to start contradicting themselves.

• China Picks Growth Over Reform At Annual Congress (AFR)

China will put development above structural reform over the next five years, as it outlined an ambitious economic growth target higher than economists and international agencies are forecasting. While announcing only modest tax cuts and a smaller than expected increase in fiscal spending, the government indicated it stands ready to roll out out other stimulus measures to meet targeted growth of 6.5% between 2016 and 2020. “We must remain committed to economic development as our central task … and respond effectively to challenges so as to ensure that China’s economy, like a gigantic ship, breaks the waves and goes the distance,” said Premier Li Keqiang during his opening address to the National People’s Congress on Saturday.

In outlining the three main priorities for its 13th Five Year Plan, Mr Li said development ranked ahead of structural reform and efforts to recalibrate China’s economy to be more reliant on consumption rather than investment. “Development is of primary importance to China and is the key to solving every problem we face,” he said. Mr Li’s determination for China to grow its way out of trouble will see a budgeted fiscal deficit of 3% of GDP in 2016, up from 2.3% last year. While this was lower than many had expected, it does not account for off-budget items, which are likely to see China post an actual fiscal deficit of 3.5% in 2015 and could see that figure top 4% this year. “The majority of the increase in the fiscal deficit will be used for a cut in taxes and charges in order to reduce the burden on enterprises,” Mr Li said.

This will result in 500 billion yuan ($103 billion) of tax cuts this year, as China replaces sales tax with a Value Added Tax. China set an economic growth target of between 6.5% and 7% for 2016. While this is well down on the double-digit growth rates of last decade, Mr Li put it in context by saying each 1 percentage point of growth today was the same as 2.5 percentage points 10 years ago, as the economy was now significantly larger. He also said each 1 percentage point of growth created 1.9 million new jobs. However, he conceded the country would face “more and tougher challenges” for economic development this year and must be prepared to “fight a battle” as international trade was weak and geopolitical risks were rising. But he said the economy was resilient and there was ample room for growth.

[..] On structural reform, Mr Li said the issue of so called “zombie enterprises” – companies that are effectively bankrupt but still operating – would be addressed “proactively yet prudently”. Beijing has outlined plans for 1.8 million steel and coal workers to lose their jobs over the next five years and has set up a 100 billion yuan ($20 billion) fund for compensating employees and restructuring companies. However, Mr Li outlined few details on how this would be achieved, suggesting it would be more gentle than the brutal restructure of State Owned Enterprises in the late 1990s, which saw an estimated 25 million workers lose their jobs.

“China accounted for a quarter of the world’s economic growth in 2014, Xy said..” Tyler Durden wryly observes: “And accounted for 40% of all global new debt issuance since 2008..”

• Hard Landing Fallacy “No Way” In China: Regulator (Xinhua)

The hard landing fallacy on China’s economy will “no way” occur in China, a senior economic official said Sunday. The Chinese economy is so resilient with relatively strong abilities to resist risks, Xu Shaoshi, who heads the National Development and Reform Commission, said on the sidelines of the annual parliamentary session. “We are capable of keeping economic growth at rates within a reasonable range,” Xu said. “We are confident of achieving that end.” China set the growth target at a range of 6.5% to 7% this year, and an average annual growth of above 6.5% for the next five years.

It had seen, for a quarter of a century, the slowest expansion of 6.9% in 2015, amid its structural adjustment and a fragile global recovery. China’s economic growth remains relatively fast among world major economies. The 6.9% growth was hard won given the sluggish global recovery, Xu said. China accounted for a quarter of the world’s economic growth in 2014, Xu said, citing data from the World Bank and China’s National Bureau of Statistics.

We respectfully disagree.

• China Says Cuts In Overcapacity Won’t Cause Massive Layoffs (Reuters)

China’s plans to reduce industrial overcapacity are unlikely to result in large-scale layoffs, the country’s top economic planner said on Sunday. Xu Shaoshi, head of the National Development and Reform Commission (NDRC), told reporters at a briefing that economic growth will create more jobs and help offset the impact of capacity cuts. China aims to keep its economy growing by at least 6.5% over the next five years while pushing hard to create more jobs and restructure inefficient industries, Premier Li Keqiang said on Saturday.

“There was plenty of talk about “painful rebalancing”, the need to reform inefficient state owned enterprises and to cut overcapacity – but for many, this speech will look a lot like business as usual: a commitment to growth at all costs..”

• China PM Predicts ‘Battle’ For Growth (BBC)

China’s National People’s Congress has set the country’s growth target for 2016 at a lower range of 6.5%-7%. Premier Li Keqiang made the announcement in his opening speech, warning of a “difficult battle” ahead. The annual meeting in Beijing sets out to determine both the economic and political agenda for the country. It comes at a time when China struggles with slowing economic growth and a shift away from overreliance on manufacturing and heavy industry. The congress is also expected to approve a new five-year plan, a legacy of the communist command economy. “China will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle,” Mr Li told delegates on Saturday.

Last year, China’s goal was “about 7%”. The economy actually grew by 6.9% – the lowest expansion in 25 years. Mr Li also said that China was targeting consumer inflation at “around 3%” and unemployment “within 4.5%”. Meanwhile, the country’s defence spending will be raised by 7.6%, the state-run Xinhua news agency reports, citing a budget report. China’s congress is a highly choreographed, largely rubber stamp affair, but Premier Li’s opening address can at least be gleaned for clues about the overall direction of policy, the BBC’s John Sudworth in Beijing reports. There was plenty of talk about “painful rebalancing”, the need to reform inefficient state owned enterprises and to cut overcapacity – but for many, this speech will look a lot like business as usual: a commitment to growth at all costs, our correspondent adds.

Ugly.

• US Weekly Earnings Drop Most On Record (ZH)

The headline jobs number was certainly good, beating expectations and well higher than last month’s disappointing (and upward revised) 182K print. However, a quick look below the headline reveals an amazing statistic: while we already noted that average hourly earnings posted only their first decline since December 2014, and just the 6th in the past decade, declining by -0.1%, what is the real surprise is that average weekly hours worked also dropped substantially by 0.2 from 34.6 to 34.4. This, naturally, is the denominator in the average hourly earnings calculation, and for it drop drop with the average also sliding, means that weekly earnings must have dropped.

And drop they did: as the chart below clearly shows, based on the data which showed a whopping tumble in average weekly earnings from 878.15 to just 872.04, at -0.7%, this was the biggest monthly drop in the entire series history!

The drop confirms that the jump in earnings observed in January, and which led many to prematurely conclude that wage growth has finally arrived, was nothing but a headfake driven by the increase in minimum wages across various states, which has now been fully digested, and as a result wage growth is once again what it was before: non-existent. Finally, it goes without saying that in the middle of a ‘recovery’ this is not really supposed to happen.

Long article by Gross, worth a read.

• Sunshine, Lollipops and… (Bill Gross)

Our Sun – a rather tiny star in the galaxial scheme of things – seems inexhaustible. But 5 billion years from now, it will swallow, instead of nurture the Earth as it burns itself out – first contracting, then expanding like a flaming candle turned firecracker. Not to worry though. We won’t be around. It’s not that we are beyond worrying; it’s that our lives are much shorter and we needn’t think much about it. In the nearer term, there is global warming/climate change, and other such down to Earth problems as paying the bills and getting kids into the right colleges. Still – there are presumably inexhaustible things that deserve our attention in the here and now. One of them is finance-based capitalism and our assumption that the risk/ reward historically inherent in it will be sufficient to drive economic growth forward.

Unlike the Sun, whose fate and lifespan can be scientifically determined, there is little evidence that anything could ever change what has been until now a flawed, yet the best economic system conceivable. Capitalistic initiative married to an ever expanding supply of available credit has facilitated economic prosperity much like the Sun has been the supply center for energy/ food and life’s sustenance. But now with quantitative easing and negative interest rates, the concept of nurturing credit seems to have morphed into something destructive as opposed to growth enhancing. Our global, credit based economic system appears to be in the process of devolving from a production oriented model to one which recycles finance for the benefit of financiers. Making money on money seems to be the system’s flickering objective.

Our global financed-based economy is becoming increasingly dormant, not because people don’t want to work or technology isn’t producing better things, but because finance itself is burning out like our future Sun. What readers should know is that the global economy has been powered by credit – its expansion in the U.S. alone since the early 1970’s has been 58 fold – that is, we now have $58 trillion of official credit outstanding whereas in 1970 we only had $1 trillion. Staggering, is it not? But now, this expansion appears to be reaching an ending of sorts, at least in its current form. Private sector savers are growing leery of debt piled upon debt and government regulators have begun to build fences against further rampant creation.

In addition, the return offered on savings/investment whether it be on deposit at a bank, in Treasuries/Bunds, or at extremely low equity risk premiums, is inadequate relative to historical as well as mathematically defined durational risk. The negative interest rates dominating 40% of the Euroland bond market and now migrating to Japan like a Zika like contagion, are an enigma to almost all global investors. Why would someone lend money to a borrower with the certainty of getting less money back at a future date? Several years ago even the most Einsteinian-like economists would not have imagined such a state but now it seems an everyday occurrence, as central banks plumb deeper and deeper depths like drilling rigs expecting to strike oil, if only yields could be lowered another 10, 20, 50 basis points.

Some kind of currency will appear. Maybe the Swedes will start using dollars.

• Sweden Begins 5 Year Countdown Until It Eliminates Cash (ZH)

How much louder can the “ban cash” calls get? Recall it was just last year when we catalogued the growing cacophony of crazies for whom banning physical currency is the only way to ensure that depositors can’t simply reassert their economic autonomy under a low or zero rate regime.. Put simply, if interest rates get too low, depositors will simply take their money out the bank and put it in the mattress or the safe where, to quote WSJ from last week, “interest rates are always low no matter what central bankers do. Most recently, Larry Summers called for the abolition of the $100 bill in the US and in Europe the €500 note is to go the way of the dinosaurs. Perhaps the most telling sign that citizens are starting to panic is that in Japan, they’re selling out of safes. Literally.

“It shows a vague sense of unease,” one Japanese lawmaker who brought up the soaring safe sales in parliament on Monday remarked. Now, the excuse given for banning big bills is that it combats crime. And maybe it does. But in the end the rationale is simple: if there are no more physical banknotes, people have no economic autonomy. Let’s say consumer spending is stagnating. No problem, take rates to -20%. We bet they’ll start spending then – either that or see their deposits haircut by 20%. In short, no cash means no effective lower bound and with no lower bound, the economy can be completely centrally planned – for all intents and purposes. Consumers not spending? No problem. Just tax their excess account balance. Economy overheating? Again, no problem. Raise the interest paid on account holdings to encourage people to stop spending.

So with Citi, Harvard, Denmark and Peter Bofinger, member of the German Council Of Economic Experts, all onboard, we’re surprised to hear that Sweden (already one of the leaders in the cashless society movement) is looking to phase out a series of new bank notes it just introduced last year and moved ever closer to the cashless utopia. “Last year Sweden introduced a series of new banknotes replacing its old kronor notes. But figures suggest these too could be gone from circulation in half a decade if the development towards a cashless society continues,” The Local reports,” continuing that “cash transactions today represent no more than 2% of the value of all payments made in Sweden, [and that estimate] will drop to below 0.5% within the next five years. Some welcome the trend – credit card providers, for instances – others have reservations.

“It is happening at a furious rate. And it’s important to many older people to be able to use cash. I mean, today it is legal tender and you have to be able to use it until parliament decides otherwise,” Christina Tallberg, chairwoman of Swedish pensioners’ organization PRO, told Swedish Radio on Friday. Well, until parliament or perhaps more appropriately, until The Riksbank and Stefan Ingves decides it. Because at -0.55, it’s a “how much lower can you go type scenario.” Well, if you go kronor-less, that question ceases to make sense. The “problem” simply goes away. “Sometimes you have to learn new things. It’s a little awkward for a transitional period, but I think it’s going to be so simple that you pretty soon realize that this is a lot easier and better than having cash,” said working environment ombudsman Krister Colde of the Commercial Employees’ Union (Handels). Famous last words Krister.

Fun in Oz.

• Confused By The Economic Modelling? That’s The Whole Idea (SMH)

Politics is about trust. Prime Minister Malcolm Turnbull has been claiming for weeks that Labor’s plans for negative gearing would smash house prices. “The 70% of Australians who own houses will see the value of their single most important asset smashed to fulfil an ideological crusade,” he told parliament. His Attorney-General George Brandis has made it sound even worse. “There is one thing we know about the negative-gearing debate,” he told us. “If the Labor Party were to implement its policy, the value of most Australians’ homes would collapse”. His assistant treasurer Kelly O’Dwyer briefly said the opposite. Labor’s policy would “increase the cost of housing for all Australians; for those people who currently own a home and for those people who would like to get into the housing market”.

And then his treasurer Scott Morrison latched on to a “credible report” that said Labor’s policy would have “a significant impact on property values”. He latched on too quickly. The report, by BIS Shrapnel, said no such thing. Prices would continue to rise in all but two of the next 10 years under the scenario it modelled, just as they would if negative gearing was maintained. After a decade, they would have climbed 15%. That’s less than with full negative gearing, but its still an increase. The report explained that house prices are typically “sticky in a downwards direction,” unable to fall lower than the cost of construction plus a markup. When new attempts at negative gearing were temporarily suspended between 1985 and 1987 real estate prices continued to climb.

While new investors would be less keen to buy if Labor’s policy stopped them negatively gearing, existing investors would be also less keen to sell, because they could only continue to negative gear if they hung on to the properties they had. Prices wouldn’t be smashed. It’s all there in the report Morrison lauded as credible (because it said rents would rise), but appeared not to properly read. Certainly his eyes appeared to glaze over the howling error on page one. The report said Australia’s national income would average $190 billion over the next ten years when it meant $1.9 trillion. And they appeared not to be troubled by its suggestion that a measure that raised around $2 billion per year would shrink the economy by $19 billion per year.

That’s $9 of economic damage for every $1 collected, a sum so big as to be way out of the ballpark of anything his department has ever modelled. When Treasury modelled a range of taxes for its tax discussion paper, it found the worst of them, stamp duty, did 70 cents of economic damage for each dollar collected. Yet first thing Thursday morning on AM Morrison described as “credible” a report that found removing negative gearing would create multiples of the biggest damage his department could find The Grattan Institute’s John Daley says the finding doesn’t even pass the giggle test. Try it for yourself. Attempt to say: “a tax that raises $2 billion will shrink the economy by $19 billion” without laughing.

5 years later.

• Mutations, DNA Damage Seen In Fukushima Forests (AFP)

Conservation group Greenpeace warned on Friday that the environmental impact of the Fukushima nuclear crisis five years ago on nearby forests is just beginning to be seen and will remain a source of contamination for years to come. The March 11, 2011 magnitude 9.0 undersea earthquake off Japan’s northeastern coast sparked a massive tsunami that swamped cooling systems and triggered reactor meltdowns at the Fukushima Daiichi nuclear plant. Radiation spread over a wide area and forced tens of thousands of people from their homes – many of whom will likely never return – in the worst nuclear accident since Chernobyl in 1986. As the fifth anniversary of the disaster approaches, Greenpeace said signs of mutations in trees and DNA-damaged worms were beginning to appear, while “vast stocks of radiation” mean that forests cannot be decontaminated.

In a report, Greenpeace cited “apparent increases in growth mutations of fir trees… heritable mutations in pale blue grass butterfly populations” as well as “DNA-damaged worms in highly contaminated areas”, it said. The report came as the government intends to lift many evacuation orders in villages around the Fukushima plant by March 2017, if its massive decontamination effort progresses as it hopes. For now, only residential areas are being cleaned in the short-term, and the worst-hit parts of the countryside are being omitted, a recommendation made by the International Atomic Energy Agency. But such selective efforts will confine returnees to a relatively small area of their old hometowns, while the strategy could lead to re-contamination as woodlands will act as a radiation reservoir, with pollutants washed out by rains, Greenpeace warned.

Shame on Europe and the US.

• Zaman Newspaper: Defiant Last Edition As Turkey Police Raid (BBC)

Turkey’s biggest newspaper, Zaman, has condemned its takeover by the authorities in a defiant last edition published just before police raided it. Saturday’s edition said Turkey’s press had experienced “one of the darkest days in its history”.
Police raided Zaman’s Istanbul offices hours after a court ruling placed it under state control, but managers were still able to get the edition to print. Police later fired tear gas to disperse Zaman supporters. Water cannon was also used as about 500 people gathered in front of Zaman’s headquarters on Saturday. They chanted “Free press cannot be silenced!” A number of the journalists returned to work, but some of them tweeted that:
• they had lost access to internal servers and were not able to file articles
• they were not able to access their email accounts
• the newspaper’s editor-in-chief Abdulhamit Bilici and a leading columnist had been fired

One reporter, Abdullah Bozturk, said attempts were also under way to wipe the newspaper’s entire online archive. The European Union’s response has been to issue weak statements of concern, the BBC’s Mark Lowen says. It is accused of acting softly on Turkey as it needs the country’s support in managing the refugee crisis. The paper is closely linked to the Hizmet movement of influential US-based cleric Fethullah Gulen, which Turkey says is a “terrorist” group aiming to overthrow President Recep Tayyip Erdogan’s government. Mr Gulen was once an ally of Mr Erdogan but the two fell out. Many Hizmet supporters have been arrested.

The court ruled on Friday that Zaman, which has a circulation of some 650,000, should now be run by administrators. No explanation was given. Turkish Prime Minister Ahmet Davutoglu said the move was “legal, not political”. “It is out of the question for neither me nor any of my colleagues to interfere in this process,” he said in a television interview. The government in Ankara has come under increasing international criticism over its treatment of journalists. The EU’s diplomatic service said that Turkey “needs to respect and promote high democratic standards and practices, including freedom of the media”, while the US described the move as “troubling”.

They should find other allies, this is nuts. Erdogan is (mass-)murdering Kurds and closing down the press. And we’re helping him do it?!

• “EU ’Must’ Hand Turkey €7 Billion Per Year To Keep Out Refugees” (Reuters)

The EU may need to more than double financial aid already pledged to Turkey to help it keep millions of Syrian refugees on its soil, Germany’s EU Commissioner Guenther Oettinger was quoted as saying on Saturday. The European Commission on Friday announced the first payouts from a €3 billion ($3.3 billion) fund to help Turkey pay for the needs of some 2.5 million refugees. “Europe should hold out the prospect of further financial support to Turkey also beyond 2017,” Oettinger told German magazine Der Spiegel. “Taking over full costs of the services that Turkey is providing by accommodating and caring for the refugees, the bill could easily add up to six or seven billion euros per year,” said Oettinger, a senior member of Chancellor Angela Merkel’s center-right party Christian Democratic Union (CDU).

Austrian Chancellor Werner Faymann proposed a new EU fund to finance the additional costs. “In the migrant crisis, we need joint European solutions,” Faymann told the magazine. “Therefore I suggest a fund in which each EU member state pays in, similar to the bank bailout. The money should be used to cover the costs of providing for the asylum seekers.” European Council President Donald Tusk, who on Friday held talks with Turkish President Tayyip Erdogan, will chair an emergency EU summit with Turkey on Monday aimed at strengthening cooperation to stem the flow of migrants to Europe.

Emptier words were never spoken.

• Merkel Pressures Greece to Step Up Refugee Aid (BBG)

German Chancellor Angela Merkel boosted pressure on the Greek government to step up its capacity for sheltering refugees, pledging that the European Union will assist the country with the task. Greece fell short of its aim of setting up shelter for 50,000 asylum seekers fleeing Syria and the Middle East by the end of 2015, Merkel said in an interview with Bild am Sonntag. “The backlog needs to be made up posthaste,” Merkel told the German newspaper. “I know from my talks with Greek Prime Minister Alexis Tsipras that he wants that too, but that that he needs our help to do it.”

Thousands of refugees are stranded in Greece. Merkel in the Bild interview blamed the humanitarian crisis on other European states that tightened their borders against the influx, blocking passage north, where most asylum seekers have sought shelter in more accommodating countries such as Germany. The chancellor has said the blocked borders endanger Europe’s system of passport-free travel, known as Schengen. “Today we have a different situation, because Austria and the Balkan nations made unilateral decisions at their national borders that have unfortunately placed a burden on our partner and Schengen member Greece,” Merkel told Bild. The EU’s 28 leaders and the Turkish government will discuss the refugee crisis in Brussels on Monday.

Well put.

• Open Letter To Vienna From Austrian Expatriates In Greece (Observer)

This is the full text of a letter written by prominent émigrés to ministers in protest over the country’s role in border closures against refugees

Open letter to the Austrian government Austrians living and working in Greece, who feel deeply connected with this country, appeal to the Austrian government to take a more responsible position in dealing with the refugee crisis. Instead of putting on blinkers, pretending that by closing the borders the problem will go away, the situation has to be tackled head-on at a European level. The Austrian government needs to understand that individual, national approaches fail to produce results, also because solitary advances contradict the basic tenets of the European programme, which is meant to serve as the foundation for a new generation. Despite the temporary ceasefire, the war in Syria continues unabated, forcing the frightened civilian population, trapped between the fighting fronts, to keep seeking refuge by fleeing their country.

While the neighbours of Syria bear the brunt of the pressure, the callous reaction of the Austrian government, one of the richest countries in the world (ranked 11), puts us to shame. Austrian politicians have claimed that our country has accepted more refugees than most others. But a glance at the facts from Europe’s south proves this statement to be fatally wrong, misrepresenting the data. Pushing solutions to the refugee crisis that rely on increasing the pressure on Greece is counterproductive, unrealistic and irresponsible. The Austrian Minister of the Interior maintains that “that will put an end to perilous journeys across the Mediterranean.” No, Mrs Minister, it won’t!

Dozens of boats continue to arrive on Greece’s shores on a daily basis, often carrying over three thousand desperate people a day. The unspeakable horror of the war, hopelessness in the adjacent countries and the desire to reunite with family members are a strong motivation for those who have nothing to lose to risk the journey towards European destinations. What could stop them? Coast guards? Warships? Walls? Barbed wire fences? None of these measures will have any effect, unless the acts of war are put to an end. Otherwise, traumatised, terrorised people will continue to do anything to escape their misery.

The Europeans, who cannot see eye to eye among each other and do not even seem to share the most basic values, are busying themselves reinforcing their ominous fortress. As much as they try, it is not going to prevent war refugees from attempting to save their lives. Many more will come, hoping to make it somehow, at all cost, as hope dies last. Europe has no choice but to face the catastrophic situation in the war-torn countries of the near and Middle East responsibly and make every effort to help these people rebuild their lives. This will require foresight, wisdom and the will to convince the doubters (and the constituencies). Otherwise, we will be faced with a generation growing up in war-torn nations in who cannot but feel deepest frustration and animosity towards Europe and its “values”.

Nobody cares. All they care about is that refugees stop coming.

• EU Refugee Crisis Leaves 10,000 Children Missing, Europol Says (BBG)

More than 10,000 child refugees have disappeared after arriving in Europe, according to crime-fighting agency Europol, as the region faces its worst migrant crisis since World War II. “This is something European police services and governments should be worried about,” Europol Chief Rob Wainwright said in an interview Saturday with French newspaper Le Figaro. “Not all are exploited for criminal purposes – illegal labor or sexual slavery. Some have left shelters to reunite with their families, but we have no proof of that.” Of the 1.2 million refugees who arrived in the European Union last year, a quarter were minors, and 85,000 were unaccompanied by an adult, Wainwright said.

More than 135,000 asylum seekers have made their way to Europe this year, compared with about 376,000 in October and November, according to UNHCR, the United Nations refugee agency. European leaders are struggling to develop an alternative for the patchwork of unilateral border controls imposed by national governments to stem the flow of migrants fleeing war and poverty. The European Commission, the EU’s executive arm, proposed on Friday to lift internal border border checks and restore passport-free travel by the end of the year.

Debt Rattle October 11 2015

Oct 112015

October 11, 2015 Posted by Raúl Ilargi Meijer at 9:53 am Finance Tagged with: central banks, China, collapse, Fed, Fukushima, IMF, inventories, NIRP, refugees, TTIP, VW 4 Responses »

Marjory Collins Window of Jewish religious shop on Broome Street, New York Aug 1942

• The World Economic Order Is Collapsing And There Seems No Way Out (Observer)

• Central Bank Cavalry Can No Longer Save The World (Reuters)

• Quantitative Frightening (Economist)

• Beijing’s Market Rescue Leaves China Stocks Stuck in the Doldrums (WSJ)

• Fed Officials Seem Ready To Deploy Negative Rates In Next Crisis (MarketWatch)

• IMF: Keep Interest Rates Low Or Risk Another Crash (Guardian)

• Last Time This Ratio Soared Like This Was After Lehman Moment (WolfStreet)

• Why We Shouldn’t Borrow Money From The Future (John Kay)

• Euro Superstate Won’t Save Dysfunctional Single Currency: Ex-IMF Chief (Telegraph)

• The Real Fight To Win The International Currency Wars (Telegraph)

• When Pension Funds Go Empty, All Bets Are Off (NY Post)

• US Probes Second VW Emissions Control Device It Has Failed To Disclose (BBG)

• Germany Readies For More Woe As Scandal And Slowdown Hit Economy (Observer)

• Ex-CEO Of Anglo Irish Bank In US Custody Facing Extradition (Guardian)

• China’s Monetary-Policy Choice (Zhang Jun)

• Hundreds Of Thousands Protest EU-US TTiP Trade Deal in Berlin (Reuters)

• Tepco Expects To Begin Freezing Ice Wall At Fukushima No. 1 By Year-End (BBG)

• UK Home Office Bans ‘Luxury’ Goods For Syrian Refugees (Observer)

• World Will Pass Crucial 2ºC Global Warming Limit (Observer)

“..the hundreds of billions of dollars fleeing emerging economies, from Brazil to China, don’t come with images of women and children on capsizing boats. Nor do banks that have lent trillions that will never be repaid post gruesome videos. ”

• The World Economic Order Is Collapsing And There Seems No Way Out (Observer)

Europe has seen nothing like this for 70 years – the visible expression of a world where order is collapsing. The millions of refugees fleeing from ceaseless Middle Eastern war and barbarism are voting with their feet, despairing of their futures. The catalyst for their despair – the shredding of state structures and grip of Islamic fundamentalism on young Muslim minds – shows no sign of disappearing. Yet there is a parallel collapse in the economic order that is less conspicuous: the hundreds of billions of dollars fleeing emerging economies, from Brazil to China, don’t come with images of women and children on capsizing boats. Nor do banks that have lent trillions that will never be repaid post gruesome videos. However, this collapse threatens our liberal universe as much as certain responses to the refugees.

Capital flight and bank fragility are profound dysfunctions in the way the global economy is now organised that will surface as real-world economic dislocation. The IMF is profoundly concerned, warning at last week’s annual meeting in Peru of $3tn (£1.95tn) of excess credit globally and weakening global economic growth. But while it knows there needs to be an international co-ordinated response, no progress is likely. The grip of libertarian, anti-state philosophies on the dominant Anglo-Saxon political right in the US and UK makes such intervention as probable as a Middle East settlement. Order is crumbling all around and the forces that might save it are politically weak and intellectually ineffective. The heart of the economic disorder is a world financial system that has gone rogue.

Global banks now make profits to a extraordinary degree from doing business with each other. As a result, banking’s power to create money out of nothing has been taken to a whole new level. That banks create credit is nothing new; the system depends on the truth that not all depositors will want their money back simultaneously. So there is a tendency for some of the cash banks lend in one month to be redeposited by borrowers the following month: a part of this cash can be re-lent, again, in a third month – on top of existing lending capacity. Each lending cycle creates more credit, which is why lending has always been carefully regulated by national central banks to ensure loans will, in general, be repaid and sufficient capital reserves are held. .

The emergence of a global banking system means central banks are much less able to monitor and control what is going on. And because few countries now limit capital flows, in part because they want access to potential credit, cash generated out of nothing can be lent in countries where the economic prospects look superficially good. This provokes floods of credit, rather like the movements of refugees.

Never could. Only thing they could do was to make things much worse. Mission accomplished.

• Central Bank Cavalry Can No Longer Save The World (Reuters)

In 2008 central banks, led by the Federal Reserve, rode to the rescue of the global financial system. Seven years on and trillions of dollars later they no longer have the answers and may even represent a major risk for the global economy. A report by the Group of 30, an international body led by former ECB chief Jean-Claude Trichet, warned on Saturday that zero rates and money printing were not sufficient to revive economic growth and risked becoming semi-permanent measures. “Central banks have described their actions as ‘buying time’ for governments to finally resolve the crisis… But time is wearing on, and (bond) purchases have had their price,” the report said. In the United States, the Fed ended its bond purchase program in 2014, and had been expected to raise interest rates from zero as early as June 2015.

But it may struggle to implement its first hike in almost 10 years by the end of the year. Market pricing in interest rate futures puts a hike in March 2016. The Bank of England has also delayed, while the ECB looks set to implement another round of quantitative easing, as does the Bank of Japan which has been stuck in some form of quantitative easing since 2001. Reuters calculates that central banks in those four countries alone have spent around $7 trillion in bond purchases. The flow of easy money has inflated asset prices like stocks and housing in many countries even as they failed to stimulate economic growth. With growth estimates trending lower and easy money increasing company leverage, the specter of a debt trap is now haunting advanced economies, the Group of Thirty said.

The Fed has pledged that when it does hike rates, it will be at a slow pace so as not to strangle the U.S. economic recovery, one of the longest, but weakest on record in the post-war period. Yet, forecasts by one regional Fed president shows he expects negative rates in 2016. Most policymakers at the semi-annual IMF meetings this week have presented relatively upbeat forecasts for the world economy and say risks have been largely contained. The G30, however, warned that the 40% decline in commodity prices could presage weaker growth and “debt deflation”. Rates would then have to remain low as central banks would be forced to maintain or extend their bond programs to try and bolster growth and the price of financial assets would fall.

The liquidity squeeze is universal.

• Quantitative Frightening (Economist)

A defining feature of the world economy over the past 15 years was the unprecedented accumulation of foreign-exchange reserves. Central banks, led by those in China and the oil-producing states, built up enormous hoards of other countries’ currencies. Global reserves swelled from $1.8 trillion in 2000 to $12 trillion by mid-2014. That proved to be a high point. Since then reserves have dropped by at least $500 billion. China, whose reserves peaked at around $4 trillion, has burnt through a chunk of its holdings to prop up the yuan, as capital that had once gushed in started to leak out. Other emerging markets, notably Russia and Saudi Arabia, have also called on their rainy-day stashes. This has sparked warnings that the world faces a liquidity squeeze from dwindling reserves.

When central banks in China and elsewhere were buying Treasuries and other prized bonds to add to their reserves, it put downward pressure on rich-world bond yields. Running down reserves will mean selling some of these accumulated assets. That threatens to push up global interest rates at a time when growth is fragile and financial markets are skittish. Analysts at Deutsche Bank have described the effect as “quantitative tightening”. In principle, rich-world central banks can offset the impact of this by, for instance, additional QE, the purchase of their own bonds with central-bank money. In practice there are obstacles to doing so.

That one country’s reserves might influence another’s bond yields was expressed memorably in 2005 by Ben Bernanke, then a governor at the Federal Reserve and later its chairman, in his “global saving glut” hypothesis. Large current-account surpluses among emerging markets were a reflection of excess national saving. The surplus capital had to go somewhere. Much of it was channelled by central banks into rich-world bonds held in their burgeoning reserves. The growing stockpiles of bonds compressed interest rates in the rich world. Controlling for the range of things that influence interest rates, from growth to demography, economists have attempted to gauge the impact of reserve accumulation.

Francis and Veronica Warnock of the University of Virginia concluded that foreign-bond purchases lowered yields on ten-year Treasuries by around 0.8 percentage points in 2005. A recent working paper by researchers at the ECB found a similar effect: increased foreign holdings of euro-area bonds reduced long-term interest rates by about 1.5 percentage points during the mid-2000s. Yet there are doubts about how tightly reserves and bond yields are coupled. Claudio Borio of the Bank for International Settlements and Piti Disyatat of the Bank of Thailand have noted that Treasury yields tended to rise in 2005-07 even as capital flows into America remained strong, and that rates then fell when those inflows slackened. The link has been rather weak this year, too. Reserves have been run down but bond yields in both America and Europe have also fallen.

The ‘rescue’ has chased many ‘investors’ out.

• Beijing’s Market Rescue Leaves China Stocks Stuck in the Doldrums (WSJ)

Six weeks after the Chinese stock market hit a floor following a sustained selloff, Beijing can claim credit for halting the decline—but not much else. The Chinese government, which some analysts estimate has spent hundreds of billions of yuan buying stocks to stop the crash, is now left with a market in the doldrums. Shares are languishing near their lows, trading volume is down by about 70% from a peak in June, and volatility has fallen by more than half since July’s record. Valuations in some parts of the market remain among the most expensive anywhere. “Low volume, low volatility and a tight trading range” are hallmarks of a market getting stuck, said Hao Hong, managing director at Bank of Communications Co. If history is a guide, the market could be stuck for some time.

Shanghai’s largest selloff on record, which lasted more than four months during the global financial crisis, knocked 50% off the market’s value. After the benchmark rallied in 2009, it languished for years thereafter. In the heat of this summer’s selloff, Beijing promised that brokerages would buy shares as long as the Shanghai Composite Index remained under the 4500 level. But authorities appear to have given up. After plunging as much as 41% from June to its low point on Aug. 26, the benchmark settled into a tight trading range for more than a month. The Shanghai index rose 4% in the two trading days the past week, after the market reopened on Thursday following a weeklong holiday. It closed up 1.3% on Friday at 3183, still 41% away from the 4500 level.

The weeks of late-day stock surges—indications of intervention by state-backed funds—have been absent recently. Shares of resource-investment company Guangdong Meiyan Jixiang Hydropower surged as much as 153% after disclosing in early August that government agency China Securities Finance Corp. had become its largest shareholder. They have since plummeted 38%. By late September, trading volume for China’s domestic stock market thinned to below 30 billion shares in a single session. That compares with a record of more than 100 billion shares in early June. The average daily volume last month was at its lowest since February.

Give them a shot at making things worse, and they won’t disappoint.

• Fed Officials Seem Ready To Deploy Negative Rates In Next Crisis (MarketWatch)

Fed officials now seem open to deploying negative interest rates to combat the next serious recession even though they rejected that option during the darkest days of the financial crisis in 2009 and 2010. “Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday. The Fed under former chairman Ben Bernanke considered using negative rates during the financial crisis, but rejected the idea. “We decided – even during the period where the economy was doing the poorest and we were pretty far from our objectives – not to move to negative interest rates because of some concern that the costs might outweigh the benefits,” said Dudley.

Bernanke told Bloomberg Radio last week he didn’t deploy negative rates because he was “afraid” zero interest rates would have adverse effects on money markets funds – a concern they wouldn’t be able to recover management fees – and the federal-funds market might not work. Staff work told him the benefits were not great. But events in Europe over the past few years have changed his mind. In Europe, the European Central Bank, the Swiss National Bank and the central banks of Denmark and Sweden have deployed negative rates to some small degree. “We see now in the past few years that it has been made to work in some European countries,” he said. “So I would think that in a future episode that the Fed would consider it,” he said.

He said it wouldn’t be a “panacea,” but it would be additional support. In fact, Narayana Kocherlakota, the dovish president of the Minneapolis Fed, projected negative rates in his latest forecast of the path of interest rates released last month. Kocherlakota said he was willing to push rates down to give a boost to the labor market, which he said has stagnated after a strong 2014. Although negative rates have a “Dr. Strangelove” feel, pushing rates into negative territory works in many ways just like a regular decline in interest rates that we’re all used to, said Miles Kimball, an economics professor at the University of Michigan and an advocate of negative rates.

But to get a big impact of negative rates, a country would have to cut rates on paper currency, he pointed out, and this would take some getting used to. For instance, $100 in the bank would be worth only $98 after a certain period. Because of this controversial feature, the Fed is not likely to be the first country that tries negative rates in a major way, Kimball said. But the benefits are tantalizing, especially given the low productivity growth path facing the U.S. With negative rates, “aggregate demand is no longer scarce,” Kimball said.

That’s the same as saying a crash is inevitable.

• IMF: Keep Interest Rates Low Or Risk Another Crash (Guardian)

The IMF concluded its annual meeting in Lima with a warning to central bankers that the world economy risks another crash unless they continue to support growth with low interest rates. The Washington-based lender of last resort said in its final communiqué that uncertainty and financial market volatility have increased, and medium-term growth prospects have weakened. “In many advanced economies, the main risk remains a decline of already low growth,” it said, and this needed to be supported with “continued accommodative monetary policies, and improved financial stability”. The IMF’s managing director, Christine Lagarde, said there were risks of “spillovers” into volatile financial markets from central banks in the US and the UK increasing the cost of credit.

The IMF has also urged Japan and the eurozone to maintain their plans to stimulate their ailing economies with an increase in quantitative easing. But she urged policymakers in Japan and the eurozone to boost their economies with an expansion of lending banks and businesses via extra quantitative easing. But the policy of cheap credit and the $7 trillion of quantitative easing poured into the world economy since 2009 has become increasingly controversial. A quartet of former central bank governors responded to the IMF’s message with a warning to current policymakers that they risked sowing the seeds of the next financial crisis by prolonging the period of ultra-low interest.

In a study launched in Lima to coincide with the IMF’s annual meeting, the G30 group of experts said keeping the cost of borrowing too low for too long was leading to a dangerous buildup in debt. The study was written by four ex-central bank governors, including Jean-Claude Trichet, former president of the European Central Bank, and Axel Weber, previously president of the German Bundesbank, and now chairman of UBS.

The inventory-to-sales ratio.

• Last Time This Ratio Soared Like This Was After Lehman Moment (WolfStreet)

This was a data set we didn’t need. Not one bit. It mauled our hopes. But the US Census Bureau dished it up anyway: wholesales declined again, inventories rose again, and the inventory-to-sales ratio reached Lehman-moment levels. In August, wholesales dropped to $445.4 billion, seasonally adjusted. Down 1.0% from July and down 4.7% from August last year. It was ugly all around. Wholesales of durable goods dropped 1.2% for the month, and 1.9% year over year. The standouts: Computer and computer peripheral equipment and software plunged 5.1% for the month and 6.2% year-over-year. Machinery sales dropped 2.7% from July and 3.5% year-over-year. Both are the signature of our ongoing phenomenal white-hot high-tech investment boom in corporate America, focused more on financial engineering than actual engineering.

Wholesales of non-durable goods fell 0.7% for the month and plunged 7.2% year-over year! Standouts: petroleum products (-36.6% year-over-year) and farm products (-12.4% year-over-year). They’ve gotten hammered by the commodities rout. But the pharmaceutical industry is where resourcefulness shines. At $52 billion in wholesales, drugs are the largest category, durable or non-durable. And sales rose another 0.9% for the month and jumped 14% from a year ago! Price increases in an often monopolistic market can perform stunning miracles. Without them, wholesales would have looked a lot worse! Falling sales are bad enough. But ominously, inventories continued to rise from already high levels to $583.8 billion and are now 4.1% higher than a year ago.

Durable goods inventories rose 0.3% for the month and 4.2% year-over-year, with automotive inventories jumping 13.5% year-over-year. Non-durable goods inventories are now 4.0% higher than a year ago, with drugs (+5.4%), apparel (+11.6%), and chemicals (+7.9%) leading the way. But petroleum products inventories dropped 21.9% year-over-year. The crucial inventory-to-sales ratio, which shows how long merchandise gets hung up before it is finally sold, has been getting worse and worse. In July last year, it was 1.17. It hit 1.22 in December. Then it spiked. In August, it rose to 1.31, the level it had reached just after the Lehman moment in 2008:

What future do we have left?

• Why We Shouldn’t Borrow Money From The Future (John Kay)

More than a half-century ago, John Kenneth Galbraith presented a definitive depiction of the Wall Street Crash of 1929 in a slim, elegantly written volume. Embezzlement, Galbraith observed, has the property that “weeks, months, or years elapse between the commission of the crime and its discovery. This is the period, incidentally, when the embezzler has his gain and the man who has been embezzled feels no loss. There is a net increase in psychic wealth.” Galbraith described that increase in wealth as “the bezzle.” In a delightful essay, Warren Buffett’s business partner, Charlie Munger, pointed out that the concept can be extended much more widely. This psychic wealth can be created without illegality: mistake or self-delusion is enough. Munger coined the term “febezzle,” or “functionally equivalent bezzle,” to describe the wealth that exists in the interval between the creation and the destruction of the illusion.

From this perspective, the critic who exposes a fake Rembrandt does the world no favor: The owner of the picture suffers a loss, as perhaps do potential viewers, and the owners of genuine Rembrandts gain little. The finance sector did not look kindly on those who pointed out that the New Economy bubble of the late 1990s, or the credit expansion that preceded the 2008 global financial crisis, had created a large febezzle. It is easier for both regulators and market participants to follow the crowd. Only a brave person would stand in the way of those expecting to become rich by trading Internet stocks with one another, or would deny people the opportunity to own their own homes because they could not afford them.

The joy of the bezzle is that two people – each ignorant of the other’s existence and role – can enjoy the same wealth. The champagne that Enron’s Jeff Skilling drank when the US Securities and Exchange Commission allowed him to mark long-term energy contracts to market was paid for by the company’s shareholders and creditors, but they would not know that until ten years later. Households in US cities received mortgages in 2006 that they could never hope to repay, while taxpayers never dreamed that they would be called on to bail out the lenders. Shareholders in banks could not have understood that the dividends they received before 2007 were actually money that they had borrowed from themselves.

Right. It won’t help, but it should be done anyway?!

• Euro Superstate Won’t Save Dysfunctional Single Currency: Ex-IMF Chief (Telegraph)

The euro will be consigned to a permanent state of malaise as deeper integration will bring no prosperity to the crisis-hit bloc, according to the former chief economist of the IMF. In a stark warning, Olivier Blanchard – who spent eight years firefighting the worst global financial crisis in history – said transferring sovereignty from member states to Brussels would be no “panacea” for the ills of the euro. The comments – from one of the foremost western economists of the last decade – pour cold water on grandiose visions for an “EU superstate” being hailed as the next step towards integration in the currency bloc Following this summer’s turmoil in Greece, leaders from France’s Francois Hollande, the European Commission’s Jean-Claude Juncker, and ECB chief Mario Draghi, have spearheaded the drive to create new supra-national institutions such as a eurozone treasury and parliament.

The plans are seen as essential in finally “completing” economic and monetary union 15 years after its inception. But Mr Blanchard, who departed the IMF two weeks ago, said radical visions for a full-blown “fiscal union” would not solve fundamental tensions at the heart of the euro. “[Fiscal union] is not a panacea”, Mr Blanchard told The Telegraph. “It should be done, but we should not think once it is done, the euro will work perfectly, and things will be forever fine.” Although pooling common funds, giving Brussels tax and spending powers, and creating a banking union were “essential” reforms, they would still not make the “euro function smoothly even in the best of cases”, said the Frenchman.

Any mechanism to transfer funds from strong to weak nations – which has been fiercely resisted by Germany – would only mask the fundamental competitiveness problems that will always plague struggling member states, he said. “Fiscal transfers will help you go through the tough spot, but at the same time, it will decrease the urge to do the required competitiveness adjustment.” The creation of a “United States of Europe” has been seen as a necessary step to insulate the eurozone from the financial contagion that bought it to its knees after 2010. It is a view shared by Mr Blanchard’s successor at the IMF, American Maurice Obstfeld, who has championed deeper eurozone integration as the best way to plug the institutional gaps in EMU. Mr Blanchard, however, said no institutional fixes would bring back prosperity back to the single currency.

Without the power to devalue their currency, peripheral economies would forever be forced to endure “tough adjustment”, such as slashing their wages, to keep up with stronger member states, he said. In this vein, Mr Blanchard dismissed any talk of a growth “miracle” in Spain – which has been hailed as a poster child for Brussels’ austerity diktats. He added he was “surprised” that sluggish eurozone economies were not doing better in the face of a cocktail of favourable economic conditions. “When people talk about the Spanish miracle, I react. When you have 23pc unemployment and 3pc growth, I don’t call this a miracle yet.” “I thought that the zero interest rate, the decrease in the price of oil, the depreciation of the euro, the pause in fiscal consolidation, would help more than they have”, he said.

It makes no difference what IMF and World Bank say. Or do.

• The Real Fight To Win The International Currency Wars (Telegraph)

The IMF and World Bank are divided over the question of currency depreciations as a tool of economic warfare. So who is really right? China’s decision to tweak its exchange rate peg with the dollar in August provoked reactionary howls of derision – from the US to India – that Beijing was gearing up for a new wave of international currency warfare. But do currency wars really work? Ahead of its bi-annual World Economic Outlook in Peru this week, the IMF has waded into the debate. It published a comprehensive set of findings confirming that weaker currencies are still an effective tool for economies to grow their way out of trouble. An exchange rate depreciation of around 10pc, said the IMF, results on average, in a rise in exports that will add 1.5pc to an economy’s output. But both the research and the timing are not uncontroversial.

China’s renminbi revaluation was nowhere near this 10pc magnitude, but its 3pc weakening was still the single biggest move in the exchange rate for more than twenty years. The intervention was seen by some as the opening gambit in another global “race to the bottom”. It sparked concern that China’s neighbouring economies would respond with retaliatory action in a desperate bid to boost flagging growth. The Fund’s research also seemed to confirm an intuitive principle of economics. Weaker currencies mean a country’s export goods are more attractive to external markets by making them cheaper for foreign buyers. Thus, devaluations have a direct and substantial impact in boosting GDP. History also shows that weakening exchange rates are a tried and tested resort for struggling nations trying to artificially boost their competitiveness, protect export shares, and undercut rivals.

But for all its apparent effectiveness, “competitive easing” runs counter to the IMF’s recommendation’s for the world’s economic policymakers. Exchange rate manipulation is a “cheat’s method”. It allows government’s to bypass painful “structural reforms” such as freeing up labour markets, reforming tax policies, and boosting investment – the holy grail of economic policy, long championed by the IMF. The Fund’s findings also put its research department at odds with its sister organisation – the World Bank. Three months before the IMF analysis, the Bank produced its own set of findings which trashed the notion that currency wars still work. Studying 46 countries over 16 years, researchers found that in the wake of the financial crisis, episodes of “large depreciation appeared to have had little impact on exports.”

Instead, the move towards more complex and inter-connected supply chains – spanning countries, continents and currencies – has muddied the relationship between lower exchange rates and cheaper goods. Over a third of all global trade is now made up of export goods whose components are are no longer solely produced in a single economy – or “global value chains” in economist speak. Currency depreciation, in this analysis, is a dud tool for policymakers. The benefits of devaluation in one country can be offset by currency strength in partner economies who make up the chain.

Big problems for big funds. Just starting.

• When Pension Funds Go Empty, All Bets Are Off (NY Post)

Some 407,000 Teamsters are learning a painful lesson: Their private-sector pensions aren’t as safe as they once thought. Pay attention, government workers -and taxpayers- in New York and New Jersey. Last week, letters informed these Teamsters they’re facing cuts in benefits of up to 60%. Why? Because their pension fund is going broke. The Central States Pension Fund covers workers from more than 1,500 trucking, construction and other companies in 37 states. Thanks to trucking deregulation, declining union rolls, aging workers and weak stock-market returns, the fund is now paying out $3.46 in benefits for every $1 it takes in. That’s $2 billion a year in red ink.

At that rate, doom arrives in 2026, sinking Central States and maybe even the federal fund that’s supposed to insure such private-sector pensions. Retirees would get even lower benefits — or maybe nothing at all. Which is why Congress and President Obama last year gave “multi-employer” funds like Central States the green light to restructure if necessary — and slice benefits. At least a few big pension systems are sure to follow Central States. And so the retirement security countless workers have long counted on went poof. Government pensions aren’t immune. Yes, many state constitutions bar pension cuts — and if the funds sink, politicians would find it easier to hit up taxpayers in a crunch than anger unions and their members by trimming benefits.

Easier at first, anyway. But when the well runs dry, what’ll happen? That’s the nut New Jersey governments have been grappling with in recent years. New York’s situation is better — but it, too, faces a reckoning. That’s even though Jersey’s funds need a whopping $200 billion to make good on their pension promises, while Empire State funds need $308 billion. Driving the shortfalls: Too many retirees for each current worker, as with Central States; overly generous pension promises pols made to please unions — and governments’ habit of not paying what they should into the funds.

Ouch. The plot thickens and deepens. They still didn’t come clean. “Investors are traumatized by past events, they will be paralyzed if VW’s current diesel line-up has questionable software on board..”

• US Probes A Second VW Emissions Control Device, Failure To Disclose (BBG)

The EPA is investigating a second emissions-control software program in Volkswagen AG cars that were rigged to pass pollution tests, one that the automaker may have failed to properly disclose. The computer program is on the EA 189 diesel engines used since 2009 that are also fitted with software that the automaker has admitted was designed to fool emissions tests, according to a person familiar with the matter who asked not to be named because the information is private. “VW did very recently provide EPA with very preliminary information on an auxiliary emissions control device that VW said was included in one or more model years,” EPA spokesman Nick Conger said. The agency, as well as its California counterpart, “are investigating the nature and purpose of this recently identified device.”

The possibility of a second device under scrutiny will make it harder for Volkswagen to emerge from the crisis. Already, VW faces criminal and civil liability as a company, including more than 250 class-action lawsuits. Some of its executives also face individual charges, and investigators and prosecutors are trying to figure out just how widespread the cheating was. The device was disclosed in applications to regulators for the 2.0 liter turbo diesel engine models to be sold next year, the company said Saturday in an e-mailed statement from Wolfsburg, Germany. The EPA and the California Air Resources Board are reviewing the device, which VW said serves to warm up the engine, and additional information is being submitted, according to the statement.

Automakers are required to point out if engines have special operating modes that can affect the way pollution-control equipment works. Such programs aren’t necessarily prohibited, and don’t by themselves indicate an attempt to cheat, though carmakers are supposed to disclose them so regulators can adjust their tests to be sure the vehicles still meet standards. Volkswagen has withdrawn applications for EPA certification of diesel vehicles for the 2016 model year. The company decided the newly disclosed technology qualified as an emissions-control device that the EPA needed to review, Michael Horn, the president and chief executive officer of Volkswagen of America, told Congress Thursday.

The crumbling walls of Berlin.

• Germany Readies For More Woe As Scandal And Slowdown Hit Economy (Observer)

When the German football team lost 1-0 to the Republic of Ireland on Thursday night in a European championship qualifying match, it capped a grim week for national pride. The shock defeat on the football field followed the ritual grilling of Michael Horn, the US boss of disgraced car-maker Volkswagen, by the US Congress; record losses at the country’s biggest bank, Deutsche Bank; and a clutch of dire economic figures, including the sharpest drop in exports since 2009. Suddenly, the health of Germany’s economy, powerhouse of the 19-member eurozone, is under question, just as the slowdown in emerging markets, including China, starts to take its toll. Volkswagen, for decades the ultimate symbol of lean, beautifully engineered German industry, is a byword for shoddy corporate practices since it admitted to deceiving regulators over emissions from its diesel cars.

Horn apologised during the bruising congressional hearing, and was forced to concede that it was “very hard to believe” that the scandal was the work of a few rogue engineers. Ben May of consultancy Oxford Economics says it is not yet clear how the Volkswagen scandal will affect the wider German economy, but it could have a considerable impact if it undermines confidence in diesel cars generally. “Diesel cars are the speciality of European manufacturers,” he says. “If you start to see buyers ditch diesel, or policymakers put in place regulations that mean it’s harder to produce cheap, compliant diesel cars, you might see Japanese and American producers gaining a bigger share of the European market.”

Meanwhile Frankfurt-based Deutsche Bank, which is being reshaped by its new boss, John Cryan, announced its largest-ever loss, more than €6bn, in the third quarter. Shareholders welcomed the announcement as a signal that Cryan was taking an aggressive approach to turning Deutsche Bank around, and would not be asking them to contribute more capital. But news that another pillar of the German corporate establishment looked shaky added to the sense of uncertainty. Germany’s economic model is heavily dependent on exports, including to fast-growing emerging economies, a specialism that has served it well in recent years. But analysts say the sharp decline in exports – they fell by more than 5% in August – could be the first solid evidence that the downturn in emerging markets has started to hit home in Europe.

“..charges to be prepared against Drumm on up to 30 different offences.”

• Ex-CEO Of Anglo Irish Bank In US Custody Facing Extradition (Guardian)

US marshals in Massachusetts have arrested David Drumm – the former chief executive of Anglo Irish Bank who is seen as a culprit in Ireland’s banking crisis – on an extradition warrant, according to the US attorney’s office in the state. A spokeswoman for the the US attorney in the District of Massachusetts, Christina DiIorio-Sterling, said: “I can confirm that Mr Drumm was arrested by US Marshals in Massachusetts on an extradition warrant. He will remain in custody until his hearing in federal court in Boston on Tuesday.” It was reported in January that Ireland had sent an extradition file to the US government, outlining charges to be prepared against Drumm on up to 30 different offences.

The Irish office of public prosecutions, which has brought other Anglo Irish Bank executives to trial, requested in July that a parliamentary inquiry into Ireland’s banking crisis not publish a statement Drumm had issued to it. Drumm stepped down from the one-time stock market titan in December 2008, a month before it was nationalised. He filed for bankruptcy in his new home of Boston two years later, owing his former employer more than $11m from loans he had been given. A Boston court dismissed his application as not remotely credible earlier in 2015, saying he had lied and acted in a fraudulent manner in his bid to be declared bankrupt in the United States.

Bailing out the failed bank that Drumm ran from 2005 to 2008 cost taxpayers around €30bn, close to one-fifth of Ireland’s annual output. It was seen as the heart of a banking crisis that forced Ireland itself into a 2010 international bailout. In July an Irish court sentenced three former employees of Anglo Irish Bank to between 18 and 36 months in prison, the first bankers to be jailed since the country’s financial crash.

“..it is doubtful that China can achieve the consumption-driven rebalancing that it seeks. After all, no high-performing East Asian economy has achieved such a rebalancing in the past, and China has a similar growth model…”

• China’s Monetary-Policy Choice (Zhang Jun)

Since assuming office in 2013, Premier Li Keqiang’s government has chosen not to loosen the previous government’s rigorous macro policies, instead hoping that the resulting pressure on existing industries might help to stimulate the authorities’ sought-after structural shift toward household consumption and services. Economists welcomed this ostensibly reasonable approach, which would slow the expansion of credit that had enabled a massive debt build-up in 2008-2010. China’s lower growth trajectory was dubbed the “new normal.” But, for this approach to work, GDP growth would have had to remain steady, rather than decline sharply. And that is not what has happened. Indeed, although structural adjustment continues in China, the economy is facing an increasingly serious contraction in demand and continued deflation.

The consumer price index (CPI) has remained below 2%, and the producer price index (PPI) has been negative, for 44 months. In a country with a huge amount of liquidity – M2 (a common measure of the money supply) amounts to double China’s GDP – and still-rising borrowing costs, this makes little sense. The problem is that the government has maintained a PPI-adjusted benchmark interest rate that exceeds 11%. Interest rates reach a ludicrous 20% in the shadow banking sector, and run even higher for some private lending.
The result is excessively high financing costs, which have made it impossible for firms in many manufacturing industries to maintain marginal profitability. Moreover, the closure of local-government financing platforms, together with the credit ceiling imposed by the central government, has caused local capital spending on investment in infrastructure to drop to a historic low.

And tightening financial constraints have weakened growth in the real-estate sector considerably. With local governments and companies struggling to make interest payments, they are forced into a vicious cycle, borrowing from the shadow banking sector to meet their obligations, thereby raising the risk-free interest rate further. If excessively high real interest rates are undermining the domestic demand that China needs to reverse the economic slowdown, one naturally wonders why the government does not take steps to lower them. The apparent answer is the government’s overriding commitment to shifting the economy away from investment- and export-led growth. But it is doubtful that China can achieve the consumption-driven rebalancing that it seeks. After all, no high-performing East Asian economy has achieved such a rebalancing in the past, and China has a similar growth model.

Most western media headlines say “Thousands protest…”. Regardless, you’d need millions to have any effect.

• Hundreds Of Thousands Protest EU-US TTiP Trade Deal in Berlin (Reuters)

At least 150,000 people marched in Berlin on Saturday in protest against a planned free trade deal between Europe and the United States that they say is anti-democratic and will lower food safety, labor and environmental standards. Organizers – an alliance of environmental groups, charities and opposition parties – said 250,000 people had taken part in the rally against free trade deals with both the United States and Canada, far more than they had anticipated. “This is the biggest protest that this country has seen for many, many years,” Christoph Bautz, director of citizens’ movement Campact told protesters in a speech. Police said 150,000 people had taken part in the demonstration which was trouble free. There were 1,000 police officers on duty at the march.

Opposition to the so-called Transatlantic Trade and Investment Partnership (TTIP) has risen over the past year in Germany, with critics fearing the pact will hand too much power to big multinationals at the expense of consumers and workers. “What bothers me the most is that I don’t want all our consumer laws to be softened,” Oliver Zloty told Reuters TV. “And I don’t want to have a dictatorship by any companies.” Dietmar Bartsch, deputy leader of the parliamentary group for the Left party, who was taking part in the rally said he was concerned about the lack of transparency surrounding the talks. “We definitely need to know what is supposed to be being decided,” he said. Marchers banged drums, blew whistles and held up posters reading “Yes we can – Stop TTIP.”

The level of resistance has taken Chancellor Angela Merkel’s government by surprise and underscores the challenge it faces to turn the tide in favor of the deal which proponents say will create a market of 800 million and serve as a counterweight to China’s economic clout. In a full-page letter published in several German newspapers on Saturday, Economy Minister Sigmar Gabriel warned against “scaremongering”. “We have the chance to set new and goods standards for growing global trade. With ambitious, standards for the environment and consumers and with fair conditions for investment and workers. This must be our aim,” Gabriel wrote.

For the 2020 Olympics?!

• Tepco Expects To Begin Freezing Ice Wall At Fukushima No. 1 By Year-End (BBG)

Tokyo Electric Power Co. expects to begin freezing a soil barrier by the end of the year to stop a torrent of water entering the wrecked Fukushima nuclear facility, moving a step closer to fulfilling a promise the government made to the international community more than two years ago. “In the last half-year we have made significant progress in water treatment,” Akira Ono, chief of the Fukushima No. 1 plant, said Friday during a tour of the facility northeast of Tokyo. The frozen wall, along with other measures, “should be able to resolve the contaminated water issues before the (2020) Olympic Games.” Solving the water management problems will be a major milestone, but Tepco is still faced with a number of challenges at the site.

The company must still remove highly radioactive debris from inside three wrecked reactors, a task for which no applicable technology exists. The entire facility must eventually be dismantled. Currently, about 300 tons of water flow into the reactor building daily from the nearby hills. Tepco has struggled to decommission the reactors while also grappling with the buildup of contaminated water. Even four years after the meltdowns and despite promises from policymakers, water management remains one of Tepco’s biggest challenges in coping with the fallout of Japan’s worst nuclear disaster.

The purpose of the ice wall — a barrier of soil 30 meters (98 feet) deep and 1,500 meters (0.9 mile) long which is frozen to -30 degrees Celsius (-22 Fahrenheit) — is to prevent groundwater from flooding reactor basements and becoming contaminated. “As the radiation levels decrease via natural decay, water management becomes the main issue,” Dale Klein, an independent adviser for Tepco and a former chairman of the U.S. Nuclear Regulatory Commission, said by e-mail. “It is a very important issue for the public, and good water management is needed for Tepco to restore the public’s trust.”

Yeah, don’t give them TVs or radios. Who knows what they might do.

• UK Home Office Bans ‘Luxury’ Goods For Syrian Refugees (Observer)

The Home Office warned councils against providing Syrian refugees with “luxury” items days before the home secretary, Theresa May, delivered an uncompromising speech limiting the right to claim asylum in Britain. Local authorities were sent new draft guidance on refugee resettlement in the week before May’s anti-immigration speech on Tuesday, rhetoric that critics said articulates the government’s increasingly hostile attitude towards refugees and asylum seekers. The Home Office guidance states that councils should not offer white or brown goods that might be deemed nonessential to resettled Syrians as part of the vulnerable persons resettlement scheme. Items that appear not to be allowed include fridges, cookers, radios, computers, TVs and DVDs.

Charities expressed concern, saying that the government should be concentrating on setting minimum standards for all Syrians seeking sanctuary in the UK instead of stating what they should not be allowed. “Child refugees aren’t coming here for our services, they are coming for our protection. We should give it gladly,” said Kirsty McNeill, campaigns director for charity Save the Children. The head of refugee support at the British Red Cross, Alex Fraser, said that all accommodation provided should afford “dignity and safety”. “People fleeing violence and persecution have been forced to endure the most appalling ordeals, and when they arrive in the UK they should be given the best possible start,” he said. Lisa Doyle, head of advocacy at the Refugee Council, said: “Resettling refugees in Britain shouldn’t just be about basic survival: everyone needs to be given the tools to build a life.”

The government has been accused of an inadequate response to the Syrian refugee crisis in recent months. In early September, under considerable pressure, David Cameron pledged that the UK would accept 20,000 refugees from camps bordering Syria over the next five years, and that the resettlement programme would prioritise vulnerable children and orphans. One local authority, Islington council in north London, confirmed it had received new draft guidance that permitted provision of “food storage, cooking and washing facilities” but it said that accommodation “should not include the provisions of other white goods and brown goods which could be considered luxury items”.

All upcoming attention for the Paris talks will be wasted or worse.

• World Will Pass Crucial 2ºC Global Warming Limit (Observer)

Pledges by nations to cut carbon emissions will fall far short of those needed to prevent global temperatures rising by more than the crucial 2C by the end of the century. This is the stark conclusion of climate experts who have analysed submissions in the runup to the Paris climate talks later this year. A rise of 2C is considered the most the Earth could tolerate without risking catastrophic changes to food production, sea levels, fishing, wildlife, deserts and water reserves. Even if rises are pegged at 2C, scientists say this will still destroy most coral reefs and glaciers and melt significant parts of the Greenland ice cap, bringing major rises in sea levels.

“We have had a global temperature rise of almost 1C since the industrial revolution and have already seen widespread impacts that have had real consequences for people,” said climate expert Professor Chris Field of Stanford University. “We should therefore be striving to limit warming to as far below 2C as possible. However, that will require a level of ambition that we have not yet seen.” In advance of the COP21 United Nations climate talks to be held in Paris from 30 November to 11 December, every country was asked to submit proposals on cutting use of fossil fuels in order to reduce their emissions of greenhouses gases and so tackle global warming. The deadline for these pledges was 1 October.

A total of 147 nations made submissions, and scientists have since been totting up how these would affect climate change. They have concluded they still fall well short of the amount needed to prevent a 2C warming by 2100, a fact that will be underlined later this week when the Grantham Research Institute releases its analysis of the COP21 submissions. This will show that the world’s carbon emissions, currently around 50bn tonnes a year, will still rise over the next 15 years, even if all the national pledges made to the UN are implemented. The institute’s figures suggest they will reach 55bn to 60bn by 2030.

Debt Rattle October 19 2014

Oct 192014

October 19, 2014 Posted by Raúl Ilargi Meijer at 10:50 am Finance Tagged with: ebola, eurozone, Fukushima, Germany, inequality, loneliness, mortgages, oil, OPEC, Orwell, wildlife 1 Response »

Edwin Rosskam Service station, Connecticut Ave., Washington, DC Sep 1940

• Low Oil Price Means High Anxiety For OPEC As US Flexes Its Muscles (Observer)

• Germany’s Tough Medicine Risks Killing Off The European Project (Observer)

• Why The Eurozone’s Woes Have Become The World’s Problem (Observer)

• Under-30s Being Priced Out Of The UK (Observer)

• Britain’s Five Richest Families Worth More Than Poorest 20% (Guardian)

• UK Mortgage Battle Hots Up As Banks Prepare To Slash Rates (Guardian)

• Why Abenomics Failed: There Was A “Blind Spot From The Outset” (Zero Hedge)

• Richard Feynman On The Social Sciences (Tavares)

• Orwell Was Only Wrong About The Date (Scott Stantis)

• Struggle Against Extinction: The Pictures That Capture The Story (Observer)

• The Age Of Loneliness Is Killing Us (Monbiot)

• Human Extinction? Not So Much (Ecoshock)

• White Rhino Dies In Kenya: Only Six Animals Left Alive In The World (Observer)

• Radiation Levels At Fukushima Rise To Record Highs After Typhoon (RT)

• Oxfam Calls For Troops In Africa As Ebola Response Is Criticized (Observer)

• Ebola Deaths In Liberia ‘Far Higher Than Reported’ (Observer)

Saudi Arabia vs its former partners, but still with the US, in a long established protection racket.

• Low Oil Price Means High Anxiety For OPEC As US Flexes Its Muscles (Observer)

During a week of turmoil on the global stock markets, the energy sector played out a drama that could have even bigger consequences: a standoff between the US and the Opec oil-producing nations. While pension holders and investors watched aghast as billions of pounds were lost to market gyrations, a fossil-fuel glut and a slowing global economy have driven the oil price down to a level that could save the world $1.8bn a day on fuel costs. If this is some consolation for households everywhere after last week’s hit on stock market wealth, it means pain for the Opec cartel, composed mainly of Middle East producers. Opec’s 12-member group has largely controlled the global price of crude oil for the past 40 years, but the US’s discovery of shale oil and gas has dramatically shifted the balance of power, to the apparent benefit of consumers and the discomfort of petrostates from Venezuela to Russia.

The price of oil has plummeted by more than a quarter since June but will Opec, which holds 60% of the world’s reserves and 30% of supplies, cut its own production to try to lift prices? Or will the cartel allow a further slide from the current price – in the mid-$80s per barrel – in the hope of making it impossible for US drillers to make a profit from their wells, and so driving them out of business? Saudi Arabia – Opec powerhouse and traditional ally of Washington – and other rich Gulf nations have been building up their cash reserves and have shown themselves willing to slash prices in a bid to retain market share in China and the rest of Asia. The US, the world’s biggest oil consumer, has relied in the past on Saudi to keep Opec price rises relatively low. But now it has the complicating factor of protecting its own huge shale industry.

Even US oil producers see the political benefits of abundant shale resources and the resultant downward pressure on prices. Rex Tillerson, chief executive of Exxon Mobil, the biggest US oil company, said recently that his country had now entered a “new era of energy abundance” – meaning it is no longer dependent on the politically unstable Middle East. So there will be understandable tension next month when the ruling Opec body meets in Vienna and its member states fight over what to do. The cartel would like to reassert its authority over oil prices but some producing countries, such as Saudi, can withstand lower crude values for much longer than others, and the relative costs of production vary wildly between nations.

That’s what I’m hoping for.

• Germany’s Tough Medicine Risks Killing Off The European Project (Observer)

Beppe Grillo, the comedian-turned-rebel leader of Italian politics, must have laughed heartily. No sooner had he announced to supporters that the euro was “a total disaster” than the currency union was driven to the brink of catastrophe once again. Grillo launched a campaign in Rome last weekend for a 1 million-strong petition against the euro, saying: “We have to leave the euro as soon as possible and defend the sovereignty of the Italian people from the European Central Bank.” Hours later markets slumped on news that the 18-member eurozone was probably heading for recession. And there was worse to come. Greece, the trigger for the 2010 euro crisis, saw its borrowing rates soar, putting it back on the “at-risk register”. Investors, already digesting reports of slowing global growth, were also spooked by reports that a row in Brussels over spending caps on France and Italy had turned nasty.

With China’s growth rate continuing to slow, and US data showing the world’s largest economy was not as immune to the turmoil as many believed, it was time to head for the hills. Wall Street slumped and a month of falls saw the FTSE 100 lose 11% of its value. In the wake of the 2008 global financial crisis, voters backed austerity and the euro in expectation of a debt-reducing recovery. But as many Keynesian economists warned, this has proved impossible. More than five years later, there are now plenty of voters willing to call time on the experiment, Grillo among them. And there seems to be no end to austerity-driven low growth in sight. The increasingly hard line taken by Berlin over the need for further reforms in debtor nations such as Greece and Italy – by which it means wage cuts – has worked to turn a recovery into a near recession.

Given Europe’s size, they always were.

• Why The Eurozone’s Woes Have Become The World’s Problem (Observer)

Forget the economic threat posed by Ebola. Pay scant heed to the risk that the Chinese property bubble is about to be pricked. Take with a pinch of salt the risk that an imminent rise in US interest rates will trigger a wave of disruption across the fragile markets of the emerging world. In the end, the explanation for last week’s plunge on global financial markets comes down to one word: Europe. That’s not to say none of the other factors matter. Global pandemics, all the way back to the Black Death in the 14th century, have always been economically catastrophic. The knock-on effects of America starting to jack up the cost of borrowing are uncertain, but potentially problematical. The dangers facing policymakers in China as they seek to move the economy towards lower but better balanced growth are obvious. But it is the worsening condition of the eurozone that has spooked markets in the past couple of weeks.

The problem can be broken down into a number of parts. The first problem is that recovery in Europe appears to have been aborted. A tentative recovery began in the middle of 2013, but appears to have run into the sand. Technically, the eurozone has been in and out of recession since 2008. In reality, the story of the past six years has been of a deep slump followed by half a decade of flatlining. Until now, markets have been able to comfort themselves with the fact that the core of the eurozone – Germany – has been doing fine. Recent evidence has shown that the slow growth elsewhere in Europe, in countries such as France and Italy, is now having an effect on Germany. Exports and manufacturing output are suffering, not helped by the blow to confidence caused by the tension in Ukraine. That’s problem number two.

Until now, opposition from Berlin and the still influential Bundesbank in Frankfurt has made it impossible for the European Central Bank to fire its last big weapon: quantitative easing. The slowdown in Germany should make it easier for the ECB’s president, Mario Draghi, to begin cranking up the electronic printing presses, but are markets impressed? Not really. They are coming to the view that monetary policy – using interest rates and QE to regulate the price and quantity of money – is maxed out. The third facet of the problem is concern that Draghi’s intervention will be too little, too late, and that Europe is condemned to years of nugatory growth.

This is as crazy and disgraceful as the over 50% youth unemployment in southern Europe.

• Under-30s Being Priced Out Of The UK (Observer)

Britain is on the verge of becoming permanently divided between tribes of haves and have-nots as the young increasingly miss out on the opportunities enjoyed by their parents’ generation, the government’s social mobility tsar claim. The under-30s in particular are being priced out of owning their own homes, paid lower wages and left with diminishing job prospects, despite a strong economic recovery being enjoyed by some. Those without the benefits of wealthy parents are condemned to languish on “the wrong side of the divide that is opening up in British society”, according to Alan Milburn, the former Labour cabinet minister who chairs the government’s Commission on Social Mobility. In an illustration of how the less affluent young have been abandoned, Milburn notes that even the Saturday job has become a thing of the past. The proportion of 16- to 17-year-olds in full-time education who also work has fallen from 37% to 18% in a decade.

Milburn spoke out in an interview with the Observer as tens of thousands of people, including public sector workers such as teachers and nurses opposed to a below-inflation 1% pay offer from the government, protested in London, Glasgow and Belfast about pay and austerity on Saturday. The TUC, which organised the protests under the slogan “Britain Needs a Pay Rise”, said that between 80,000 and 90,000 people took part in the London march. Speaking on the eve of the publication of his final annual report on social mobility to ministers before the general election, Milburn demanded urgent action by the state and a change in direction by businesses. He said that only a radical change would save a generation of Britons buffeted by an economic downturn and condemned by a fundamental change in the labour market that left them without hope of better lives.

In a strikingly downbeat intervention, Milburn said: “It is depressing. The current generation of young people are educated better and for longer than any previous one. But young people are losing out on jobs, earnings and housing. “This recession has been particularly hard on young people. The ratio of youth to adult unemployment rates was just over two to one in 1996, compared to just under three to one today. On any definition we are nowhere near the chancellor’s objective of “full employment” for young people. Young people are the losers in the recovery to date.”

Britain as a mirror to the world.

• Britain’s Five Richest Families Worth More Than Poorest 20% (Guardian)

The scale of Britain’s growing inequality is revealed by a report from a leading charity showing that the country’s five richest families now own more wealth than the poorest 20% of the population. Oxfam urged the chancellor George Osborne to use Wednesday’s budget to make a fresh assault on tax avoidance and introduce a living wage in a report highlighting how a handful of the super-rich, headed by the Duke of Westminster, have more money and financial assets than 12.6 million Britons put together. The development charity, which has opened UK programmes to tackle poverty, said the government should explore the possibility of a wealth tax after revealing how income gains and the benefits of rising asset prices had disproportionately helped those at the top. Although Labour is seeking to make living standards central to the political debate in the run-up to next year’s general election, Osborne is determined not to abandon the deficit-reduction strategy that has been in place since 2010.

But he is likely to announce a fresh crackdown on tax avoidance and measures aimed at overseas owners of high-value London property in order to pay for modest tax cuts for working families. The early stages of the UK’s most severe post-war recession saw a fall in inequality as the least well-off were shielded by tax credits and benefits. But the trend has been reversed in recent years as a result of falling real wages, the rising cost of food and fuel, and by the exclusion of most poor families from home and share ownership. In a report, a Tale of Two Britains, Oxfam said the poorest 20% in the UK had wealth totalling £28.1bn – an average of £2,230 each. The latest rich list from Forbes magazine showed that the five top UK entries – the family of the Duke of Westminster, David and Simon Reuben, the Hinduja brothers, the Cadogan family, and Sports Direct retail boss Mike Ashley – between them had property, savings and other assets worth £28.2bn.

The most affluent family in Britain, headed by Major General Gerald Grosvenor, owns 77 hectares (190 acres) of prime real estate in Belgravia, London, and has been a beneficiary of the foreign money flooding in to the capital’s soaring property market in recent years. Oxfam said Grosvenor and his family had more wealth (£7.9bn) than the poorest 10% of the UK population (£7.8bn). Oxfam’s director of campaigns and policy, Ben Phillips, said: “Britain is becoming a deeply divided nation, with a wealthy elite who are seeing their incomes spiral up, while millions of families are struggling to make ends meet. “It’s deeply worrying that these extreme levels of wealth inequality exist in Britain today, where just a handful of people have more money than millions struggling to survive on the breadline.”

Chasing the last few suckers left.

• UK Mortgage Battle Hots Up As Banks Prepare To Slash Rates (Guardian)

The battle to tempt mortgage customers with attractive deals is heating up again as major lenders put more rate cuts into action. Barclays is preparing to offer what it said are some of its lowest ever rates, including a three-year fixed rate at 2.29%, a five-year fix at 2.85% and a 10-year fix at 3.49%. All of these deals are aimed at people with 40% deposits and come with a £999 fee. Barclays is also cutting the rate on its innovative family springboard mortgage, which helps people with only a 5% deposit get on the property ladder by allowing their parents to put some money into a savings account which is then linked to the mortgage. The savings money is later released back to their parents with interest, provided that the mortgage payments are kept up to date. The rate on a three-year fixed family springboard deal, which has no application fee, is to be slashed from 3.79% to 2.99%.

The bank is also cutting rates on deals aimed at people with deposits of 10%, 15%, 20% and 30% in what will be the seventh consecutive round of reductions to its range. Barclays said its “never seen before” rate cuts will come into place early this week and they are likely to be around for only a limited period. Meanwhile, a new 0.99% deal from HSBC will be launched on Monday. HSBC has said the product, which is available for borrowers with a 40% deposit, has the lowest rate it has ever offered. The 0.99% deal is in effect a 2.95% discount off HSBC’s 3.94% standard variable rate (SVR), which lasts for two years. In theory, HSBC could decide to increase its SVR within the two-year discount period, which would mean the rate would move above 0.99% but the borrower would still get a rate of 2.95% below whatever the new SVR rate was for the two years after initially taking out the deal.

Exactly what I’ve always said all the time about Abenomics. It should be held up as an example for all of our stimulus measures.

• Why Abenomics Failed: There Was A “Blind Spot From The Outset” (Zero Hedge)

Ever since Abenomics was announced in late 2012, we have explained very clearly that the whole “shock and awe” approach to stimulating the economy by sending inflation into borderline “hyper” mode in a country whose main problem has to do with an aging population demographic cliff and a global market that no longer thinks Walkmen and Sony Trinitrons are cool and instead can find all of Japan’s replacement products for cheaper and at a higher quality out of South Korea, was doomed to failure. Very serious sellsiders, economists and pundits disagreed and commended Abe on his second attempt at fixing the country by doing more of what has not only failed to work for 30 years, but made the problem worse and worse.

Well, nearly two years later, or roughly the usual delay before the rest of the world catches up to this website’s “conspiratorial ramblings”, the leader of the very serious economist crew, none other than Goldman Sachs, formally admits that Abenomics was a failure, and two weeks after Goldman also admitted that now Japan is informally (and soon officially) in a triple-drip recession, begins the scapegoating process when in a note by its Naohiko Baba, it says that Abenomics failed because all along it was based on two faulty “misconceptions and miscalculations.” Ironically, the same “misconceptions and miscalculations” that frame the Keynesian “recovery” debate in every insolvent developed world country which is devaluing its currency to boost its exports and economy, when in reality all it is doing is propping up its stock market, allowing the 1% of the population to cash out and leaving the 99% with the economic collapse that inevitably follows.

So what happened with Abenomics, and why did Goldman, initially a fervent supporter and huge fan – and beneficiary because those trillions in fungible BOJ liquidity injections made their way first and foremost into Goldman year end bonuses – change its tune so dramatically?

Bit of a loose argument, since Feynman never specifically talked about economics, but point taken.

• Richard Feynman On The Social Sciences (Tavares)

Looking back at his own experience, Feynman was keenly aware of how easy our experiments can deceive us and thus of the need to employ a rigorous scientific approach in order to find the truth. Because of this, he was highly critical of other sciences which did not adhere to the same principles. The social sciences are a broad group of academic disciplines concerned with the study of the social life of human groups and individuals, including anthropology, geography, political science, psychology and several others. Here is what he had to say about them in a BBC interview in 1981:

“Because of the success of science, there is a kind of a pseudo-science. Social science is an example of a science which is not a science. They follow the forms. You gather data, you do so and so and so forth, but they don’t get any laws, they haven’t found out anything. They haven’t got anywhere – yet. Maybe someday they will, but it’s not very well developed. “But what happens is, at an even more mundane level, we get experts on everything that sound like they are sort of scientific, expert. They are not scientists. They sit at a typewriter and they make up something like ‘a food grown with a fertilizer that’s organic is better for you than food grown with a fertilizer that is inorganic’. Maybe true, may not be true. But it hasn’t been demonstrated one way or the other. But they’ll sit there on the typewriter and make up all this stuff as if it’s science and then become experts on foods, organic foods and so on. There’s all kinds of myths and pseudo-science all over the place.

“Now, I might be quite wrong. Maybe they do know all these things. But I don’t think I’m wrong. See, I have the advantage of having found out how hard it is to get to really know something, how careful you have about checking your experiments, how easy it is to make mistakes and fool yourself. I know what it means to know something. “And therefore, I see how they get their information. And I can’t believe that they know when they haven’t done the work necessary, they haven’t done the checks necessary, they haven’t done the care necessary. I have a great suspicion that they don’t know and that they are intimidating people by it. I think so. I don’t know the world very well but that’s what I think.”

Amen. Word.

• Orwell Was Only Wrong About The Date (Scott Stantis)

Wildlife Photographer of the Year exhibition.

• Struggle Against Extinction: The Pictures That Capture The Story (Observer)

Toshiji Fukuda went to extraordinary lengths to photograph an Amur tiger, one of the world’s rarest mammals, in 2011. He built a tiny wooden hut overlooking a beach in Russia’s remote Lazovsky nature reserve, on the Sea of Japan, and spent the winter there. Fukuda was 63 at the time. “Older people have one advantage: time passes more quickly for us than the young,” he said later. Possession of such resilience was fortunate because Fukuda had to wait seven weeks for his only glimpse of an Amur tiger, which resulted in a single stunning image of the animal strolling imperiously along the beach below his hide. “It was as if the goddess of the Taiga had appeared before me,” he recalled.

In recognition of the photographer’s efforts, Fukuda was given a key award at the 2013 Wildlife Photographer of the Year exhibition, an annual event that has showcased the best images taken of the planet’s rarest animals and habitats and which has taken on an increasingly important role in recording their fates. This year’s exhibition, which opens on Friday, is the 50th such exhibition – to be held, as usual, at the Natural History Museum – and a recent study of past winning images has revealed the unexpected twists of fortune that have affected the world’s wildlife. Some animals, which appeared to be doing well, have plummeted towards extinction. Others, which seemed to be doomed, have bounced back. “It still seems to be very much a matter of hit or miss whether a threatened species recovers or instead continues to dwindle towards extinction,” said the museum’s curator of mammals, Roberto Portela Miguez.

” … a life-denying ideology, which enforces and celebrates our social isolation. The war of every man against every man – competition and individualism, in other words – is the religion of our time…”

• The Age Of Loneliness Is Killing Us (Monbiot)

What do we call this time? It’s not the information age: the collapse of popular education movements left a void filled by marketing and conspiracy theories. Like the stone age, iron age and space age, the digital age says plenty about our artefacts but little about society. The anthropocene, in which humans exert a major impact on the biosphere, fails to distinguish this century from the previous 20. What clear social change marks out our time from those that precede it? To me it’s obvious. This is the Age of Loneliness. When Thomas Hobbes claimed that in the state of nature, before authority arose to keep us in check, we were engaged in a war “of every man against every man”, he could not have been more wrong. We were social creatures from the start, mammalian bees, who depended entirely on each other. The hominins of east Africa could not have survived one night alone. We are shaped, to a greater extent than almost any other species, by contact with others. The age we are entering, in which we exist apart, is unlike any that has gone before.

Three months ago we read that loneliness has become an epidemic among young adults. Now we learn that it is just as great an affliction of older people. A study by Independent Age shows that severe loneliness in England blights the lives of 700,000 men and 1.1m women over 50, and is rising with astonishing speed. Ebola is unlikely ever to kill as many people as this disease strikes down. Social isolation is as potent a cause of early death as smoking 15 cigarettes a day; loneliness, research suggests, is twice as deadly as obesity. Dementia, high blood pressure, alcoholism and accidents – all these, like depression, paranoia, anxiety and suicide, become more prevalent when connections are cut. We cannot cope alone.

Yes, factories have closed, people travel by car instead of buses, use YouTube rather than the cinema. But these shifts alone fail to explain the speed of our social collapse. These structural changes have been accompanied by a life-denying ideology, which enforces and celebrates our social isolation. The war of every man against every man – competition and individualism, in other words – is the religion of our time, justified by a mythology of lone rangers, sole traders, self-starters, self-made men and women, going it alone. For the most social of creatures, who cannot prosper without love, there is no such thing as society, only heroic individualism. What counts is to win. The rest is collateral damage. British children no longer aspire to be train drivers or nurses – more than a fifth say they “just want to be rich”: wealth and fame are the sole ambitions of 40% of those surveyed.

Why anyone would want to do Guy McPherson the honor of talking about his loony tunes is beyond me, but here goes. Nicole gets mentioned.

• Human Extinction? Not So Much (Ecoshock)

The case against going extinct soon due to extreme climate change & human impacts.

The sadness is unspeakably deep.

• White Rhino Dies In Kenya: Only Six Animals Left Alive In The World (Observer)

An endangered northern white rhino has died in Kenya, a wildlife conservancy has said, meaning only six of the animals are left alive in the world. Suni, a 34-year-old northern white, and the first of his species to be born in captivity, was found dead on Friday by rangers at the Ol Pejeta Conservancy near Nairobi. While there are thousands of southern white rhinos in the plains of sub-Saharan Africa, decades of rampant poaching has meant the northern white rhino is close to extinction. Suni was one of the last two breeding males in the world as no northern white rhinos are believed to have survived in the wild. Though the conservancy said Suni was not poached, the cause of his death is currently unclear. Suni was born at the Dvur Kralove Zoo in Czech Republic in 1980. He was one of the four northern white rhinos brought from that zoo to the Ol Pejeta Conservancy in 2009 to take part in a breeding programme.

Wildlife experts had hoped the 90,000-acre private wildlife conservancy, framed on the equator and nestled between the snow capped Mount Kenya and the Aberdare mountain range, would offer a more favourable climate for breeding. The conservancy said in a statement: “The species now stands at the brink of complete extinction, a sorry testament to the greed of the human race. “We will continue to do what we can to work with the remaining three animals on Ol Pejeta in the hope that our efforts will one day result in the successful birth of a northern white rhino calf.” Suni’s father, Suit, died in 2006 of natural causes, also aged 34.

” … levels of the radioactive isotope cesium are now at 251,000 becquerels per liter, three times higher than previously-recorded levels.”

• Radiation Levels At Fukushima Rise To Record Highs After Typhoon (RT)

The amount of radioactive water near the Fukushima Daiichi nuclear plant has risen to record levels after a typhoon passed through Japan last week, state media outlet NHK reported on Wednesday. Specifically, levels of the radioactive isotope cesium are now at 251,000 becquerels per liter, three times higher than previously-recorded levels. Cesium, which is highly soluble and can spread easily, is known to be capable of causing cancer. Meanwhile, other measurements also show remarkably high levels of tritium – another radioactive isotope of hydrogen. Samples from October 9 indicate that there are 150,000 becquerels of tritium per liter in the groundwater near Fukushima, according to Japan’s JIJI agency. Compared to levels recorded last week, that’s an increase of more than 10 times.

Additionally, “materials that emit beta rays, such as strontium-90, which causes bone cancer, also shattered records with a reading of 1.2 million becquerels, the utility said of the sample,” JIJI reported. Officials blamed these increases on the recent typhoon, which resulted in large amounts of rainfall and injured dozens of people on Okinawa and Kyushu before moving westward towards Tokyo and Fukushima. While cesium is considered to be more dangerous than tritium, both are radioactive substances that authorities would like to keep from being discharged into the Pacific Ocean in high quantities. For now, extra measures to contain the issue are not on the table, since “additional measures have been ruled out since the depth and scope of the contaminated water leaks are unknown, and TEPCO already has in place several measures to control the problem, such as the pumping of groundwater or walls to retain underground water,” according to the IANS news service.

A shocking number: “There are some 3,700 Ebola orphans.”

• Oxfam Calls For Troops In Africa As Ebola Response Is Criticized (Observer)

Anger is growing over the “inadequate” response to the Ebola epidemic this weekend with the World Health Organisation’s Africa office accused of incompetence and world governments of having failed. Aid charities and the president of the World Bank are among the critics, declaring that the fight against the virus is in danger of being lost. On Saturday Oxfam took the unusual step of calling for troops to be sent to west Africa, along with funding and medical staff, to prevent the Ebola outbreak becoming the “definitive humanitarian disaster of our generation”. It accused countries that did not commit military personnel of “costing lives”. The charity said that there was less than a two-month window to curb the spread of the virus but there remained a crippling shortfall in logistical support. Several African countries have for the last decade been suffering severe shortages of homegrown medics thanks to a “brain drain” to countries such as Britain, which rely on foreign workers.

The executive director of frontline medical charity Médecins Sans Frontières, Vickie Hawkins, said national and global health systems had failed. “We are angry that the global response to this outbreak has been so slow and inadequate. “We have been amazed that for months the burden of the response could be carried by one single, private medical organisation, while pleading for more help and watching the situation get worse and worse. When the outbreak is under control, we must reflect on how health systems can have failed quite so badly. But the priority for now must remain the urgent fight against Ebola – we simply cannot afford to fail.” The worst outbreak on record has claimed 4,500 lives, out of 8,914 recorded cases since the start of the year, mostly in Liberia, Sierra Leone and Guinea. The true number is agreed to be higher. There are some 3,700 Ebola orphans.

There should be no doubt about this. Too many reasons for too many people to play it down.

• Ebola Deaths In Liberia ‘Far Higher Than Reported’ (Observer)

The true death toll from the Ebola epidemic is being masked by chaotic data collection and people’s reluctance to admit that their loved ones had the virus, according to one of west Africa’s most celebrated film-makers. Sorious Samura, who has just returned from making a documentary on the crisis in Liberia, said it is very clear on the ground that the true number of dead is far higher than the official figures being reported by the World Health Organisation. Liberia accounts for more than half of all the official Ebola deaths, with a total of 2,458. Overall, the number of dead across Liberia, Sierra Leone and Guinea has exceeded 4,500. Samura, a television journalist originally from Sierra Leone, said the Liberian authorities appeared to be deliberately downplaying the true number of cases, for fear of increasing alarm in the west African country.

“People are dying in greater numbers than we know, according to MSF [Médecins sans Frontières] and WHO officials. Certain departments are refusing to give them the figures – because the lower it is, the more peace of mind they can give people. The truth is that it is still not under control.” WHO has admitted that problems with data-gathering make it hard to track the evolution of the epidemic, with the number of cases in the capital, Monrovia, going under-reported. Efforts to count freshly dug graves had been abandoned. Local culture is also distorting the figures. Traditional burial rites involve relatives touching the body – a practice that can spread Ebola – so the Liberian government has ruled that Ebola victims must be cremated. “They don’t like this burning of bodies,” said Samura, whose programme will air on 12 November on Al Jazeera English. “Before the government gets there they will have buried their loved ones and broken all the rules.”

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