game theory Archives - The Automatic Earth

That Yanis Varoufakis, the rakish Greek finance minister, would meet with senior European officials wearing a leather motorcycle jacket and open-collar shirt would probably have fascinated John F. Nash Jr., the Nobel prize -winning mathematician, game theorist and Princeton professor who was thrown from a taxi and killed last month. Is Mr. Varoufakis really a radical, or simply acting like one to increase Greece’s negotiating leverage — what game theorists mean when they say it can be rational to behave irrationally? Mr. Varoufakis is himself a noted game theorist, co-author of the textbook “Game Theory: a Critical Introduction” and a longtime admirer of Dr. Nash. The two met in Athens in June 2000 after Dr. Nash delivered a lecture on money.

After learning of Dr. Nash’s death, Mr. Varoufakis wrote on Twitter: “Reading your work was inspirational. Meeting you, and spending time together, was an unearned bonus, Farewell John Nash Jr.” The intense and hard-fought negotiations between Greece and its creditors, which have roiled global financial markets for months and appear to be nearing a climax, are the sort of high-stakes game that fascinated Dr. Nash, who won the Nobel in economic science, and lend themselves to the analysis he pioneered. On Thursday, markets were rattled when Greece deferred a payment to the IMF as it continued to seek a new debt deal. “It’s exactly the kind of game that Nash had in mind,” said Sylvia Nasar, author of the definitive Nash biography “A Beautiful Mind,” which was the basis for the Academy Award-winning movie. “There are more than two players. They have common as well as opposing interests. Not making a deal leaves everybody worse off.”

Unfortunately for the financial markets and the future of the European Union, that’s no guarantee that Greece and its creditors will reach a deal that averts the doomsday scenario — a debt default by Greece that could cause it to lose its membership in Europe’s currency union and set off another crisis. I asked Mr. Varoufakis this week how it felt to have the fate of the global economy to a large extent resting on him. “I don’t really feel the weight of the world economy,” he said. “I feel the weight of the Greek people resting on my shoulders. If little Greece, in order to survive, brings down the financial world, it can’t be our fault. It would be as if Delaware brought down the United States economy. That would be the fault of the U.S., not Delaware.”

Virtually everyone agrees that a default by Greece is the least desirable outcome for both Greece and its creditors — among them Germany and France; the European Central Bank; and the I.M.F. Yet one of Dr. Nash’s critical insights is that there may be many possible outcomes — so-called Nash equilibriums — that produce suboptimal results. A Nash equilibrium exists when each side’s strategy is optimal given what they believe to be the others’ strategy. For example, if Germany and other creditors don’t believe Greece’s threat to default, and underestimate the severity of such an outcome, they might see their optimal strategy as remaining firm in their demands for Greek fiscal austerity and structural reforms. If, on the other hand, Germany believes Mr. Varoufakis to be ideologically motivated to reject further austerity, it might well cave to Greek demands for leniency.

“In a strange way we are all breathing a sigh of relief. We were afraid of a bad deal that would split the party but this is so atrocious it makes life easier. None of us can accept it..”

• Greece Misses IMF Payment In Warning Shot, Showdown With Europe Escalates (AEP)

Greece is to take the drastic step of skipping a €300m payment to the IMF on Friday, invoking an obscure mechanism in abeyance since the 1970s to bundle all debts due in June and pay them at the end of the month. It is the first time that a developed country has ever missed a payment to the IMF since the creation of the Bretton Woods institutions at the end of the Second World War. The news broke after the Athens stock exchange had closed but a bloodbath is feared when the bourse opens on Friday. Yields on two-year Greek bonds spiked 63 basis points to 21.8pc amid mounting fears of a deposit run on Greek banks and the imposition of capital controls as soon as this weekend. The IMF said it had been notified by the Greek authorities that they would pay the entire €1.6bn due this month on June 30, dusting down a procedure last used by Zambia in the 1980s.

The shock move came as leaders of the ruling Syriza movement were locked in a series of emergency meetings to vent their fury over the latest austerity demands by the European creditor powers. Senior figures in the party lined up to denounce the “ultimatum” from Brussels as another wasted moment after four months of acrimonious talks. “It cannot form the basis of an agreement,” said Tassos Koronakis, the party secretary. Alexis Mitropoulos, the deputy speaker of parliament, called it “the most vulgar and murderous plan” that shattered hopes of a deal just as everybody was expecting a breakthrough. Others daubed their war paint and vowed angrily that there would be no “surrender”.

The skipped payment is the clearest sign to date that the crisis is escalating to a dangerous level as Syriza refuses to buckle. It will not be resolved without European statesmanship of a high order, so far lacking. While the authorities sought to play down the Greek decision, it was clearly intended as a warning shot. Syriza had the money at hand. It chose not to pay as a conscious political choice. The Greeks accuse the IMF of violating its own rules by colluding in an EMU-led policy that leaves the country with unsustainable debts. Athens is implicity threatening to escalate the situation all the way to a full default to the IMF, setting off a grave institutional and political crisis within the Fund itself.

Syriza leaders say they are unwilling to burn any more of the country’s dwindling cash reserves to pay creditors until there is a credible offer on the table, insisting that their priority is to pay pensions and salaries and avoid default to their own people. One cabinet minister told The Telegraph that the proposals by creditors seemed designed to bring about a deliberate rupture. “They want to force us into a position where we can’t sign,” he said. “In a strange way we are all breathing a sigh of relief. We were afraid of a bad deal that would split the party but this is so atrocious it makes life easier. None of us can accept it,” he said.

“..once President Harry Truman’s administration decided to rehabilitate Germany, there was no turning back.”

• A Speech of Hope for Greece (Yanis Varoufakis)

On September 6, 1946 US Secretary of State James F. Byrnes traveled to Stuttgart to deliver his historic “Speech of Hope.” Byrnes’ address marked America’s post-war change of heart vis-à-vis Germany and gave a fallen nation a chance to imagine recovery, growth, and a return to normalcy. Seven decades later, it is my country, Greece, that needs such a chance. Until Byrnes’ “Speech of Hope,” the Allies were committed to converting “…Germany into a country primarily agricultural and pastoral in character.” That was the express intention of the Morgenthau Plan, devised by US Treasury Secretary Henry Morgenthau Jr. and co-signed by the United States and Britain two years earlier, in September 1944.

Indeed, when the US, the Soviet Union, and the United Kingdom signed the Potsdam Agreement in August 1945, they agreed on the “reduction or destruction of all civilian heavy-industry with war potential” and on “restructuring the German economy toward agriculture and light industry.” By 1946, the Allies had reduced Germany’s steel output to 75% of its pre-war level. Car production plummeted to around 10% of pre-war output. By the end of the decade, 706 industrial plants were destroyed. Byrnes’ speech signaled to the German people a reversal of that punitive de-industrialization drive. Of course, Germany owes its post-war recovery and wealth to its people and their hard work, innovation, and devotion to a united, democratic Europe. But Germans could not have staged their magnificent post-war renaissance without the support signified by the “Speech of Hope.”

Prior to Byrnes’ speech, and for a while afterwards, America’s allies were not keen to restore hope to the defeated Germans. But once President Harry Truman’s administration decided to rehabilitate Germany, there was no turning back. Its rebirth was underway, facilitated by the Marshall Plan, the US-sponsored 1953 debt write-down, and by the infusion of migrant labor from Italy, Yugoslavia, and Greece. Europe could not have united in peace and democracy without that sea change. Someone had to put aside moralistic objections and look dispassionately at a country locked in a set of circumstances that would only reproduce discord and fragmentation across the continent. The US, having emerged from the war as the only creditor country, did precisely that.

Insane demands that they know will not be accepted: “..increasing value-added tax to 11% (from 6%) for items including drugs and 23% for items including electricity.”

• EU/IMF Lenders Demand Asset Sales, Pension Cuts In Greek Proposal (Reuters)

Greece’s EU/IMF lenders have asked Athens to commit to sell off state assets, enforce pension cuts and press on with labour reforms, two sources familiar with the plan said on Thursday, demands that would cross the Greek government’s “red lines”. If Greece were to accept the plan, lenders would aim to unlock €10.9 billion in unused bank bailout funds that were returned to the European Financial Stability Fund. This would enable Greece to cover its financial needs through July and August, the sources said. Meanwhile, a debate regarding progress of ongoing negotiations with Greece’s lenders would take place in Greek Parliament on Friday at 6 p.m. following a decision by premier Alexis Tsipras, it emerged on Thursday.

In a five-page proposal presented to Tsipras in Brussels on Wednesday, EU/IMF lenders asked Athens to reduce spending on pensions by 1% of gross domestic product and promise not to reverse any legislated reforms, the sources said. They also demanded Athens raise €1.8 billion – or 1% of GDP – by increasing value-added tax to 11% for items including drugs and 23% for items including electricity, the sources told Reuters. They want Greece to scrap a benefit for low income pensioners, called EKAS, to save €800 million by 2016 – a move that if accepted, would force Tsipras to violate his pledge to avoid any new pension cuts. The proposal also calls for a hike in healthcare contributions by Greeks and a cut in the fuel subsidy.

The lenders have also demanded Tsipras not make any unilateral move to restore collective bargaining rights and raise minimum wage level to pre-crisis levels – pledges he made before coming to power in January. The proposal also asks Athens to commit to privatising Grid operator ADMIE, Greece’s major ports in Piraeus and Thessaloniki, the former airport complex of Hellenikon, Greece’s biggest oil refinery Hellenic Petroleum and Greek telecoms operator OTE. Some of the asset sales mentioned – like ADMIE and Hellenikon – have been staunchly opposed by Tsipras’s Syriza party. The proposal does not make any mention of offering debt relief to Athens .

People have strange views. As soon as the IMF said Greece had the permission to delay, it was clear that they would unless a deal had been made. It doesn’t matter if they announce it at the last moment.

• Greece’s IMF Repayment Delay Smacks Of Both Desperation And Defiance (Guardian)

You could almost hear the gritted teeth through which the IMF issued its terse statement acknowledging that Athens planned to miss Friday’s deadline for making a €300m debt repayment. The Washington-based lender, which was always wary about being dragged into Europe’s debt crisis, didn’t condemn Greece’s actions, let alone suggest that deferring the payment was tantamount to default. It simply restated that in a little-known loophole adopted in the late 1970s, “country members can ask to bundle together multiple principal payments falling due in a calendar month”. But it was clear that the IMF had received little warning of Greece’s plans.

Yanis Varofakis, the country’s pugnacious finance minister, has long argued that the end of June, when the four-month extension to the country’s bailout programme the Syriza government won in February expires, is the real deadline for reaching an agreement. But the lastminute decision to delay the payment, just hours after IMF managing director, Christine Lagarde, said she fully expected it to arrive, smacked of both desperation and defiance. Greece’s stance is likely to infuriate the IMF, which doesn’t want to shoulder the blame for pushing Greece into default, but reportedly believes current plans for tackling its debt burden remain unrealistic.

Even with the rest of the month now apparently available to secure a deal, the distance between Greece and its creditors remains considerable, as leaked negotiating texts from both sides suggested on Thursday. Meanwhile, both the prime minister, Alexis Tsipras, who faces an uphill struggle selling any deal to his party, and Varoufakis, who has been sidelined from the talks but remains finance minister, have continued to make pungent public statements about the sacrifices of the Greek people.

In parliament. Wonder what the next step will be.

• Greek Finance Ministry: German WWII Debt €280 To €340 Billion (Kathimerini)

Members of a special committee at the Finance Ministry’s General Accounting Office told the parliamentary inquiry into Germany’s unpaid reparations to Greece that Athens is owed between €280 and €340 billion by Berlin. Five officials from the General Accounting Office appeared before the committee, which is chaired by Parliament Speaker Zoe Constantopoulou. The head of the Finance Ministry panel that investigated Germany’s war debt, Panayiotis Karakousis, said that his team found no evidence that Greece had waived its right to claim Second World War reparations. On a visit to Berlin earlier this year, Prime Minister Alexis Tsipras told German Chancellor Angela Merkel that her country had a moral duty to settle the matter but he did not refer to any specific figures.

Absolutely. Thar she blows.

• Stay Out Of Harm’s Way – The Casino Is Fixing To Blow (David Stockman)

Shock waves have been rumbling through the global bond market in the last few days. On April 17 the yield on the 10-year German bund pierced through the 5bps level, but yesterday it tagged 100bps. That amounted to a 20X move in 39 trading days. It also amounted to total annihilation if you were front running Mario Draghi’s bond buying campaign on 95% repo leverage and didn’t hit the sell button fast enough. And there were a lot of sell buttons to hit. The Italian 10-year yield has soared from a low of 1.03% in late March to 2.21% last night, and the yield on the Spanish bond has doubled in a similar manner. Needless to say, this is not by way of a lamentation in behalf of the euro-bond speculators who have had their heads handed to them in recent days.

After harvesting hundreds of billions of windfall gains since Draghi’s mid-2012 “whatever it takes ukase” they were overdue to get slapped around good and hard. Instead, what we have here is just one more striking demonstration that financial markets are utterly broken. The notion of honest price discovery might as well be relegated to the museum of financial history. The exact catalyst for yesterday’s panicked global bond sell-off, apparently, was Draghi’s public confession that although the ECB would stay the course on its $1.3 trillion QE program, it cannot prevent short-run “volatility” in the trading pits.

Why that should be a surprise to anyone is hard to fathom, but it does crystalize the “look ma, no hands” essence of today’s markets. The trading herd goes in the direction enabled by the central banks until a few dare devils finally fall off their bikes, causing an unexpected pile-up and inducing the pack to temporarily reverse direction. Thus, it is not surprising that a few traders got caught flat-footed in recent days. In the case of the insanely over-valued Italian 10 year bond, for instance, the price went straight up (and the yield straight down) for nearly 33 months.

Creating an even dumber generation.

• The Lawsuit Machine Going After Student Debtors (Bloomberg)

Student loans have eclipsed credit cards to become the second-largest source of outstanding debt in the U.S., after mortgages. Since 2007 the federal student loan balance has more than doubled, to almost $1.2 trillion from $516 billion. The Consumer Financial Protection Bureau estimates that students, former students, and their parents owe an additional $150 billion in loans from banks and other private lenders. With defaults climbing, lenders have turned to the courts to collect. Many of their suits are marred by missing documents and procedural errors, say consumer advocates and lawyers defending debtors. “Our office is seeing an uptick in abusive loan debt-collection tactics that leave no room for relief,” wrote Massachusetts Attorney General Maura Healey.

The paperwork problems echo the “robosigning” scandals that followed the housing bust. Like mortgages, student loans were bundled into packages and sold to investors. “This is robosigning 2.0 with student loans,” says Robyn Smith, a lawyer with the National Consumer Law Center, a nonprofit advocacy group. “You have securitized loans in these large pools; you have the sloppy record keeping,” as in the mortgage crisis.

“.. it might as well propose taxing churches to pay for sex reassignment surgeries on a moon base.”

• Bernie Sanders: Let’s Spend $5.5 Billion to Employ 1 Million Young People (BBG)

The Employ Young Americans Now Act is the sort of legislation that would have struggled even in a Democratic Congress. In a Capitol controlled by Republicans, it might as well propose taxing churches to pay for sex reassignment surgeries on a moon base. The legislation, introduced by Michigan Representative John Conyers, would create a $5.5 billion fund, $4 billion earmarked for the employment of people between 16 and 24, $1.5 billion for job training grants. There are no pay-fors. It would ask a Congress that is dead-set against “big government” to employ people, with the help of big government.

Yet the bill’s Senate sponsor is Vermont’s Bernie Sanders. That matters quite a lot in June 2015. On Thursday morning, Sanders joined Conyers on a visit to the H.O.P.E. Project in southeast Washington. The presidential candidate toured a small but busy office, located above a strip mall, that had successfully trained 375 people in the IT field, and seen 315 of those people get jobs that paid an average of $42,000—far above the median income locally. Ninety-three% of graduates were African-American, and when Sanders entered a computer room—pausing to greet every student—the only white faces belonged to journalists and staffers. The room was crowded with TV cameras and iPhones, some pointed at four words on the wall: “HARVARD OF THE HOOD.”

“In America now we spend nearly $200 billion on public safety, including $70 billion on correctional facilities each and every year,” said Sanders from the front of the room. “So, let me be very clear: in my view it makes a lot more sense to invest in jobs, in job training, and in education than spending incredible amounts of money on jails and law enforcement.”

And the rating agencies.

• Housing Bubble Was Built By JP Morgan, Barclays (MarketWatch)

If I had to depend on Wall Street or Washington for an explanation of what ails the U.S. financial economy, I’d probably pick neither one. My choice would be John Griffin, a cowboy boots-wearing University of Texas financial professor, who has been on something of a roll. Six years before Standard & Poor’s agreed to pay $1.4 billion to settle state and federal government lawsuits alleging it inflated credit ratings on securitized mortgage debt, Griffin revealed—with mathematical precision—how S&P degraded its own analytical model to issue puffed-up grades. Seven months before J.P. Morgan Chase agreed to pay $13 billion to resolve state and federal claims that it misled investors on toxic mortgage securities—the largest financial settlement with a single entity in U.S. history—Griffin showed how the bank had originated a disproportionate share of securitized mortgages flawed by undisclosed second liens (among other reporting problems).

Today, Griffin is advancing a new argument: that housing prices were more inflated—and the crash even more violent—in markets where lenders who misreported mortgages held concentrated market shares. He concludes that big banks with bad practices drove the credit bubble, and the misreporting deepened it. “I just want to know the truth,” says Griffin, 45, who grew up playing high school football in Texas and today delivers some of his hardest hits on Wall Street. In his latest forensic work, Griffin and co-author Gonzalo Maturana, an assistant professor of finance at Emory University in Atlanta, combed through 3.1 million mortgages originated between 2002 and the end of 2007. More than one-quarter of these loans subsequently defaulted.

While looking for inconsistencies in appraisal values and owner-occupancy status, the most interesting part of the investigation exposes how some mortgage securities were riddled with undisclosed second liens. These hidden debts reduced the borrowers’ incentive to repay their obligations. Griffin and Maturana found the gaps by comparing bank securities documents to county courthouse records. No fewer than 10.2% of the securitized mortgages in their sample contained an undisclosed second lien. Some lenders, such as Barclays and J.P. Morgan, produced nearly double the overall number of missing debts. This is startling for two reasons: first, loans with an unreported lien were 97% more likely to become seriously delinquent than were correctly reported loans; and second, the same lender originated both liens more than two-thirds of the time.

Minsky.

• The Real Reason Why There Is No Bond Market Liquidity Left (Zero Hedge)

Back in the summer of 2013, we first commented on what we called “Phantom Markets” – displayed quotes and prices, in not only equities, FX and commodities but increasingly in government bonds, without any underlying liquidity. The problem, which we first addressed in 2012, had gotten so bad, even the all important Treasury Borrowing Advisory Committee to the US Treasury had just sounded an alarm on the topic. Since then we have sat back and watched as our prediction was borne out, as bond market liquidity slowly devolved then sharply and dramatically collapsed recently to a level that is so unprecedented, not even we though possible, leading first to the October 15 bond flash crash and countless “VaR shock” events ever since.

And while we urge those few carbon-based life forms who still trade for a living to catch up on our numerous posts on market “liquidity” and lack thereof, here is a quick and dirty primer on just why there is virtually no bond market left, courtesy of the man who, weeks ahead of the Lehman collapse when nobody had any idea what is going on, laid out precisely what happens in 2008 and onward in his seminal note “Are the Brokers Broken?”, Citigroup’s Matt King. Here is the gist of his recent note on the liquidity paradox which is a must read for everyone who trades anything and certainly bonds, while for the TL/DR crowd here is the 5 word summary: blame central bankers and HFTs.

The more liquidity central banks add, the less there is in markets
• Water, water, everywhere — On many metrics, liquidity across markets seems abundant. Bid-offers are tight, if not always back to pre-crisis levels. Notional traded volumes in credit and rates have reached all-time highs. The rise of e-trading is helping to match buyers and sellers of securities more efficiently than ever before.
• Nor any drop to drink — And yet almost every institutional investor, in almost every market, seems worried about liquidity. Even if it’s here today, they fear it will be gone tomorrow. They say that e-trading contributes much volume, but little depth for those who need to trade in size. The growing frequency of “flash crashes” and “air pockets” – often without obvious cause – adds weight to their fears.
• Yes, street regulation has played a role — The most frequently cited explanation is that increased regulation has driven up the cost of balance sheet and reduced the street’s appetite for risk, and hence ability to act as a warehouser between buyers and sellers.
• But so too have the central banks — And yet this fails to explain why even markets like FX and equities, which do not consume dealers’ balance sheets, have been subject to problems. We argue that in addition to regulations, central banks’ distortion of markets has reduced the heterogeneity of the investor base, forcing them to be the “same way round” over the past four years to a greater extent than ever previously. This creates markets which trend strongly, but are then prone to sudden corrections. It also leaves investors more focused on central banks than ever before – and is liable to make it impossible for the central banks to make a smooth exit.

Record low productivity.

• US Workers Ask: Where’s My Raise? (WSJ)

The unemployment rate in metropolitan regions across the U.S. is below where it was when the financial crisis blew a hole in the U.S. economy in 2008. Now, many American workers are asking: Where’s my raise? Questions about the slow pace of wage growth aren’t only stumping workers, but also economists and policy makers at the Federal Reserve—with the answers weighing on households and the larger U.S. economy. When U.S. unemployment rates fall, conventional notions of supply and demand predict wages will go up as firms bid for increasingly scarce workers, and there are signs of that, for example, in building trades and restaurants.

“Basic economics hasn’t gone out the window,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said in an interview. “When employment grows, wages will start to grow.” But a Wall Street Journal analysis of Labor Department data points to persistent constraints on worker pay, even as the economy approaches full employment. The Journal found 33 U.S. metropolitan areas—from the small to the sizable—where unemployment rates and nonfarm payrolls last year returned to prerecession levels. In two-thirds of those cities—including Columbus; Houston; Oklahoma City; Minneapolis-St. Paul, Minn.; and Topeka, Kan.—wage growth trailed the prerecession pace. Among the reasons:

• Companies tapping pools of workers who have disappeared from the U.S. unemployment tallies, creating what economists describe as hidden slack in the economy. Until this invisible labor supply is spent, these men and women, including part-timers, temporary workers and discouraged labor-market dropouts, could hold wages down.

• The blunt force of overseas competition makes companies reluctant to raise pay over fears they will lose sales to cheaper-priced foreign firms.

• Lingering psychological scars of a recession long past. Robert Gordon, an economics professor at Northwestern University, said his research found that wages and inflation were subject to inertia. That means unemployment could drop well below 5.5% for years before wages go up much.

• Meager growth in productivity, which limits the incentive of companies to offer raises.

What the recovery looks like.

• Levels Of UK Household Debt At Record High (Independent)

Levels of household debt have soared to record highs and a new way of lending aimed at the poor is needed, according to a new released report by the Centre for Social Justice (CSJ). The right wing think tank, founded by Iain Duncan Smith, the work and pensions secretary, warns that household debt has risen by more than £34 billion in less than three years and is £1.47 trillion – the highest ever. Some 8.8 million people are “over-indebted.” And borrowing on credit cards, bank overdrafts, and pay day loans amounts to more than £170 billion – the highest in four years. Fifteen million Britons are going into debt just to cover their bills, says the report – based on research commissioned by JPMorgan Chase Foundation.

It argues that those on low incomes should have financial services and products specifically aimed at their needs. Writing in the preface, Dr Alex Burghart, policy director at the CSJ, says: “Without access to financial services that meet their needs, families are forced to take out expensive loans that they then struggle to pay off.” He argues that while more needs to be done to create jobs and improve pay, “there is also a need for financial services that serve the needs of low-income families.” Dr Burghart adds: “By helping to develop a new marketplace for socially responsible Alternative Financial Institutions (AFIs) we can build a new generation of financial services specifically tailored to meet the needs of low-income families.”

So the foreigners come in just as the facade topples over?!

• There’s a Big Decision Looming for Chinese Stocks (Bloomberg)

A New York-based company is getting ready to make a call on China that will determine whether billions of dollars flow into the nation’s world-beating stock market. The June 9 decision by MSCI Inc. on the possible inclusion of China’s locally traded shares in the index-provider’s equity benchmarks comes after a year of consultation with banks and funds. MSCI is faced with a situation where it’s getting harder to ignore the Chinese equity market, already the world’s second-largest with a total value of more than $9 trillion. Yet for most international investors, mainland-listed stocks remain out of reach due to limitations on their tradability.

Foreigners own only 5.9% of the yuan-denominated A shares because of regulatory restrictions even as the government moves to open up access to the exchanges in Shanghai and Shenzhen. MSCI, whose emerging-market gauge is tracked by $1.7 trillion of funds, could help change that. “It’s a big deal,” Sebastien Lieblich, Global Head of Index Management Research at MSCI, said by phone from Geneva. China’s market is “relatively untapped,” and an inclusion would suggest it be “elevated to be part of the major radar screen of international institutional investors,” he said. Being added to MSCI’s indexes would mark the integration of China’s locally traded stocks into the world’s financial markets after being largely off limits to foreigners until recently.

Patrick Smith and truth to power.

• We Are The Propagandists: US Turns Truth In Ukraine On Its Head (Salon)

A couple of weeks ago, this column guardedly suggested that John Kerry’s day-long talks in Sochi with Vladimir Putin and his foreign minister, Sergei Lavrov, looked like a break in the clouds on numerous questions, primarily the Ukraine crisis. I saw no evidence that President Obama’s secretary of state had suddenly developed a sensible, post-imperium foreign strategy consonant with a new era. It was force of circumstance. It was the 21st century doing its work. This work will get done, cleanly and peaceably or otherwise. Sochi, an unexpected development, suggested the prospect of cleanliness and peace. But events since suggest that otherwise is more likely to prove the case. It is hard to say because it is hard to see, but our policy cliques may be gradually wading into very deep water in Ukraine.

Ever since the 2001 attacks on New York and Washington, reality itself has come to seem up for grabs. Karl Rove, a diabolically competent political infighter but of no discernible intellectual weight, may have been prescient when he told us to forget our pedestrian notions of reality—real live reality. Empires create their own, he said, and we’re an empire now. The Ukraine crisis reminds us that the pathology is not limited to the peculiar dreamers who made policy during the Bush II administration, whose idea of reality was idealist beyond all logic. It is a late-imperial phenomenon that extends across the board. “Unprecedented” is considered a dangerous word in journalism, but it may describe the Obama administration’s furious efforts to manufacture a Ukraine narrative and our media’s incessant reproduction of all its fallacies.

At this point it is only sensible to turn everything that is said or shown in our media upside down and consider it a second time. Who could want to live in a world this much like Orwell’s or Huxley’s—the one obliterating reality by destroying language, the other by making historical reference a transgression? Language and history: As argued several times in this space, these are the weapons we are not supposed to have. Ukraine now gives us two fearsome examples of what I mean by inverted reason. One, it has been raining reports of Russia’s renewed military presence in eastern Ukraine lately. One puts them down and asks, What does Washington have on the story board now, an escalation of American military involvement? A covert op? Let us watch.

And we all pretend this is normal.

• Kiev Allows Foreign Armed Forces, ‘Potential Carriers Of Nukes’ In Ukraine (RT)

The Ukrainian parliament has adopted amendments to state law allowing “admission of the armed forces of other states on the territory of Ukraine.” The possible hosting of foreign weapons of mass destruction is also mentioned in the documents. Amendments to Ukrainian law were adopted on Thursday by the Verkhovna Rada, receiving a majority of 240 votes (the required minimum being 226). The bill was submitted to the parliament in May by PM Arseny Yatsenyuk. It focuses on the provision of “international peacekeeping and security” assistance to Ukraine at its request. Peacekeeping missions are to be deployed “on the basis of decision of the UN and/or the EU,” the bill published on the parliament’s official website says.

Previously, the presence of any international military forces on the territory of Ukraine not specifically sanctioned by state law was only possible by adopting a special law initiated by the president. Implementation of the new amendments “will create necessary conditions for deployment on the territory of Ukraine international peacekeeping and security” missions without the need for additional legal authorization, the explanatory note to the draft bill said. The presence of such armed forces in Ukraine “should ensure an early normalization of situation” in Donbass, the note added, saying that they would help “restore law and order and life, constitutional rights and freedoms of citizens” in the Donetsk and Lugansk regions.

In a comparative table, published among the accompanying documents to the bill, “potential carriers of nuclear and other types of weapons of mass destruction are permitted under international agreement with Ukraine for short-term accommodation,” with Kiev providing proper control during the period that such forces were stationed there.

US MO.

• US Knowingly Conceals Ceasefire Violations By Kiev (RT)

The US and its Western allies are well aware of all the ceasefire violations in eastern Ukraine but, deliberately turn a blind eye to Kiev’s actions, hackers said after obtaining the emails of top Ukrainian official overseeing the truce. The anti-Kiev hacktivist group, CyberBerkut, claims to have hacked the emails of Major-General Andrey Taran, Chief of the Joint Centre for Ceasefire Control and Coordination in Ukraine. The correspondence contained satellite images proving multiple violations of the Minsk peace agreements between Kiev and the rebels by the Ukrainian military, they said. The pictures, dating March, April and May 2015, showed Kiev’s heavy artillery stationed in the immediate vicinity of the borders of the Donetsk and Lugansk People’s Republics.

Ukrainian 100-millimeter field artillery guns, 122-millimeter D-30 and 2S1 Gvozdika howitzers, 152-millimeter Hyacinth-S howitzers and Grad multiple rocket launchers were placed less than 20 kilometers away from the contact line, CyberBerkut said. According to the Minsk ceasefire agreement signed in February, both sides were to pull-out of all heavy weapons and create a security zone from 50 to 140 kilometers, depending on the range of the guns. The hacktivists stressed that Washington knew of the violations by Kiev as the hacked emails came from a staff member of the US Embassy in Ukraine, Tetyana Podobinska-Shtyk.

“[I am] sending you pictures which can become a serious problem for you! Think about how you can explain them, if the [OSCE] monitoring mission obtains them. Consult the team leader and think about a possible action plan, how you can justify them or present them as fake,” Podobinska-Shtyk wrote in a hacked email.

The end of EU quota slams New Zealand. Which shouldn’t have all those cows to begin with.

• Global Dairy Costs Drop to 5-Year Low on Record Milk Output (Bloomberg)

An abundance of milk from New Zealand to Europe is driving global dairy costs to the lowest in five years. Prices have plunged almost 40% from a record in February 2014 as farmers ramped up production and Chinese demand slowed, according to a United Nations measure of dairy products. Global production of milk, cheese and butter will rise to records this year, according to the U.S. Department of Agriculture. European farmers are increasing output after the government ended production limits in April, while supply from New Zealand, the biggest milk powder exporter, has been better-than-expected during a drought, according to INTL FCStone, a commodities brokerage.

Average prices on New Zealand’s GlobalDairyTrade auction, the global benchmark, fell to $2,412 a metric ton on Tuesday, the lowest since August 2009. “Supply is relatively strong,” John Lancaster, a dairy analyst at FCStone in Dublin, said by phone Thursday. “With the quotas gone, there’s no restriction on farmers.” At the same time, there are signs of weaker demand. China may reduce purchases of whole milk powder this year, while imports of non-fat milk powder will grow at a slower rate than previous years, according to the USDA. China, which uses milk powder in infant formula, has been a driver of global demand in the past. The EU is also exporting less whole milk powder and cheese after Russia banned food imports from the region in retaliation for sanctions related to its policies in Ukraine.

Milk was 20% cheaper in April than a year ago, according to data released last week from the Dutch Federation of Agriculture and Horticulture, known as LTO. The FAO’s gauge of global dairy costs fell to 167.5 points in May, the lowest since October 2009. Milk futures in Chicago have dropped 22% in the past 12 months. Lower prices may pinch farmer profits, leading to less production later this year, Lancaster said. While they’ve benefited from lower feed costs, adverse weather, such as too much or too little rain, would hurt pasture growth and result in less milk production, he said. “If milk prices come down further in Europe, we’d expect to see some kind of a response from production side,” he said. “We could see more culling from herds, depending on how low prices go and potential cash flow issues.”

What a waste it would be if they don’t seize the opportunity to start growing their own food instead.

• Californians Urged To Rip Out Their Lawns (Guardian)

Would you rather give up your lawn or your shower habit? Can you deal with spray-painting your parched garden green? Can you see the beauty in a front yard filled with cacti and rocks? Low-flushing lavatories and recycled wastewater may not be subject matters you would usually associate with a generally more glamorous and decisively sexier California, but as the reality of drought hits urban areas, these are the questions millions of Californians are having to ask. On 1 April, following the announcement of a fourth year of drought, Governor Jerry Brown issued an executive order demanding a 25% reduction of water usage in urban areas statewide beginning 1 June. That meant that from Monday, around 90% of Californians were faced with reducing their water consumption by a quarter compared to 2013 levels.

In high-consumption areas, water companies have been given targets as high as 36%. Customers have been told they must reconsider their entire way of life. But how to achieve such a feat? Rules have been devised by local water boards, ranging from carrots (discounts on high-efficiency lavatories and washing machines) to sticks (fines for watering your lawn more than twice a week, or for watering the pavement). Residents have taken to drought-shaming one another, reporting water wasters to the authorities or on social media. In places like Sacramento, such finger-pointing has been encouraged – to great effect. But above all else, there is pressure to take things one step further and turn to lawns. More precisely, to the ripping out of them.

In his executive order, Brown called for the replacement of 50m sq ft of lawns with “drought-tolerant landscapes”, a goal to be achieved with the help of local subsidies and partial funding from the state’s water department. “Over 50% of household water usage is outdoors,” said Stephanie Pincetl, a professor and director of the California Center for Sustainable Communities at University of California, Los Angeles.

Nice Monbiot-supported plan, but what difference will it make?

• The Rewilding Plan That Would Return Britain To Nature (BBC)

Britain once looked very different. In place of sheep-strewn fields and treeless uplands, there were vast natural forests, glades and wild spaces. Within them, wolves, bears and lynx roamed the land. The first Britons lived alongside woolly mammoths, great auks and wild cows called aurochs. All that is now gone. Humans chopped down the trees to make space for farms, and hunted the large animals to extinction, leaving plant-eaters to decimate the country’s flora. Britain is now one of the few countries in the world that doesn’t have top predators. No matter how much we may think England’s green and pleasant countryside is “natural”, it is a pale shadow of what once was – and what could be again. If some conservationists have their way, parts of the UK could be restored to a truly wild state.

This “rewilding” would bring back animals and plants that have been lost, and allow them to roam freely. In these new wild spaces, people could reconnect with animals and plants in a way no park or zoo could ever manage. But it’s also a hugely controversial idea. There are various interpretations of rewilding. The word was coined in 1990 by an American environmentalist named Dave Foreman, who went on to found the Rewilding Institute. Then in 1998, Michael Soulé and Reed Noss set out the core ideas in an article for Wild Earth magazine. The key to rewilding is creating large protected areas in which animals and plants are left to their own devices. The new wildernesses have to be large to support top predators like wolves, which need space and lots of prey.

The top predators are crucial, because they keep down the populations of their prey. These are normally plant-eating animals like deer, which would otherwise run riot and decimate trees and other plant life – and in turn destroy the habitats for many other animals. By keeping plant-eaters in check, top predators allow many more species to flourish. These ripple effects are called “trophic cascades”. Soulé and Noss argued that ecosystems cannot function as they should without top predators or carnivores.

It’ll take horrible disasters for Brussels to act.

• Number of Migrants Trying to Reach Europe via Greece Has Surged by 500% (Vice)

The number of migrants and refugees crossing the Aegean Sea from Turkey to Greece has increased by 500% since last year, according to European border control agency Frontex. In comparison, the number of migrants attempting the perilous journey across of the Mediterranean to Italy has gone up just 5%, Frontex executive director Fabrice Leggeri said Wednesday. “When you close off a migration route, another one opens up elsewhere,” Thibaut Jaulin, a research fellow at the Center for International Studies and Research (CERI) at Sciences Po in Paris, told VICE News. European authorities have beefed up surveillance along the Libya-Italy migrant route in an effort to prevent the recurring tragedies in the Mediterranean.

In April, naval border monitoring operation Triton saw its budget tripled from €3 million to €9 million a month. The European Council is also considering launching a military operation in Libyan waters to destroy boats used by Libyan people smugglers. The EU is due to vote on the issue on June 22. The move will also need to be approved by Libya or by the UN Security Council. According to Frontex, the “Eastern Mediterranean Route” – described as “the passage used by migrants crossing through Turkey to the European Union via Greece, southern Bulgaria or Cyprus” – is not a new path for migrants. Since 2008, the route has become the second biggest “migratory hot spot” in the EU, and it was Europe’s “second largest area for detections of illegal border-crossings” in 2014.

Leggeri told French daily Les Échos on Wednesday that some 37,000 migrants had arrived on Europe’s shores through Italy since the beginning of 2015, versus 40,000 through Greece.

Debt Rattle May 29 2015

May 292015

May 29, 2015 Posted by Raúl Ilargi Meijer at 10:25 am Finance Tagged with: austerity, ECB, empire, FIFA, game theory, Greece, John Nash, migrants, oil, pensions 1 Response »

Walker Evans “Sidewalk scene in Selma, Alabama.” 1935

• ECB Fears ‘Abrupt Reversal’ For Global Assets On Fed Tightening (AEP)

• US And China Can Avoid Collision Course – If US Gives Up Its Empire (Guardian)

• The Economist Who Realized How Crazy We Are (Michael Lewis)

• Euro-Sclerosis (Alasdair Macleod)

• This Time It Is Different (Martin Armstrong)

• Austerity and Balanced Budgets Doomed To Fail (Rochon)

• John Nash’s Game Theory Doesn’t Bode Well For Greece (El-Erian)

• Stiglitz Tells EU to Admit Mistakes and Ease Up on Greece (Bloomberg)

• ‘Pots of Money’ to Be Found for Greece to Pay IMF, Roubini Says (Bloomberg)

• Greek Commerce Chief Slams Troika Over Bailouts (Kathimerini)

• Greece Owes Drugmakers $1.2 Billion – And Counting (Reuters)

• As Greece Leads The News, Italy’s Problems Mount On Eve Of Elections (CNBC)

• Everyone Is Fleeing Oil’s Biggest Fund (Bloomberg)

• British Women Disproportionately Affected By Austerity (Guardian)

• Borrowing to Replenish Depleted Pensions (NY Times)

• Wall Street Banks Are Being Drawn Into The FIFA Bribery Probe (MarketWatch)

• The Tar Sands Sell-Out (Guardian)

• African Migrants Risk All In Sahara To Reach Europe (Reuters)

• New Zealand, the Land of Disappearing Sheep (Bloomberg)

That’s precisely the risk.

• ECB Fears ‘Abrupt Reversal’ For Global Assets On Fed Tightening (AEP)

The global asset boom is an accident waiting to happen as the US prepares to tighten monetary policy and the Greek crisis escalates, the ECB has warned. The ECB’s financial stability report described a “fragile equilibrium” in world markets, with a host of underlying risks and the looming threat of an “abrupt reversal” if anything goes wrong. Europe’s shadow banking nexus has grown by leaps and bounds since the Lehman crisis and has begun to generate a whole new set of dangers, many of them beyond the oversight of regulators. While tougher rules have forced the banks to retrench, shadow banking has picked up the baton. Hedge funds have ballooned by 150pc since early 2008.

Investment funds have grown by 120pc to €9.4 trillion with a pervasive “liquidity mismatch”, investing in sticky assets across the globe while allowing clients to withdraw their money at short notice. This is a recipe for trouble in bouts of stress. “Large-scale outflows cannot be ruled out,” it said. The ECB warned that a rush for crowded exits could set off a wave of forced selling and quickly spin out of control. “Initial asset price adjustments would be amplified, triggering further redemptions and margin calls, thereby fueling such negative liquidity spirals,” it said. Adding to the toxic mix, the shadow banks are taking on large amounts of “implicit leverage” through swaps and derivatives contracts that are hard to track. The issuance of high-risk “leveraged loans” reached €200bn last year, nearing the extremes seen just the before the Lehman crisis.

Half of all issues this year had a debt/EBITDA ratio of five or higher, implying extreme leverage. The number of junk bonds sold reached a record pace of €60bn in the first quarter. “A deterioration in underwriting standards is evident in the increasing proportion of highly indebted issuers, below-average coverage ratios and growth in the covenant-lite segment,” the report said, warning that this nexus of debt is primed for trouble if there is an interest rate shock. While banks are in better shape than five years ago, their rate of return on equity has dropped to 3pc, far lower than their cost of equity. They remain damaged. The immediate trigger for any market rout is the nerve-racking crisis in Greece, with just a week left until the Greek authorities must repay the IMF €300m.

Vitor Constancio, the ECB’s vice-president, said it is impossible to rule out a default since Greek officials themselves have openly threatened to do so, and this in turn could set off bond market contagion across southern Europe. The ECB’s report said the former crisis states still have extremely high levels of public and private debt and have yet to clean up government finances. “Fiscal positions remain precarious in some countries,” it said. “Financial market reactions to the developments in Greece have been muted to date, but in the absence of a quick agreement, the risk of an upward adjustment of the risk premia on vulnerable euro area sovereigns could materialise,” it said.

Not going to happen.

• US And China Can Avoid Collision Course – If US Gives Up Its Empire (Guardian)

To avoid a violent militaristic clash with China, or another cold war rivalry, the United States should pursue a simple solution: give up its empire. Americans fear that China’s rapid economic growth will slowly translate into a more expansive and assertive foreign policy that will inevitably result in a war with the US. Harvard Professor Graham Allison has found: “in 12 of 16 cases in the past 500 years when a rising power challenged a ruling power, the outcome was war.” Chicago University scholar John Mearsheimer has bluntly argued: “China cannot rise peacefully.” But the apparently looming conflict between the US and China is not because of China’s rise per se, but rather because the US insists on maintaining military and economic dominance among China’s neighbors.

Although Americans like to think of their massive overseas military presence as a benign force that’s inherently stabilizing, Beijing certainly doesn’t see it that way. According to political scientists Andrew Nathan and Andrew Scobell, Beijing sees America as “the most intrusive outside actor in China’s internal affairs, the guarantor of the status quo in Taiwan, the largest naval presence in the East China and South China seas, [and] the formal or informal military ally of many of China’s neighbors.” (All of which is true.) They think that the US “seeks to curtail China’s political influence and harm China’s interests” with a “militaristic, offense-minded, expansionist, and selfish” foreign policy.

China’s regional ambitions are not uniquely pernicious or aggressive, but they do overlap with America’s ambition to be the dominant power in its own region, and in every region of the world. Leaving aside caricatured debates about which nation should get to wave the big “Number 1” foam finger, it’s worth asking whether having 50,000 US troops permanently stationed in Japan actually serves US interests and what benefits we derive from keeping almost 30,000 US troops in South Korea and whether Americans will be any safer if the Obama administration manages to reestablish a US military presence in the Philippines to counter China’s maritime territorial claims in the South China Sea.

People are not rational creatures. “To an economist, these findings are somewhere between puzzling and preposterous.”

• The Economist Who Realized How Crazy We Are (Michael Lewis)

For a surprisingly long time behavioral economics wasn’t much more than a bunch of weird observations made by Richard Thaler, more or less to himself. What he calls his “first heretical thoughts” occurred in graduate school, while writing his thesis. He’d set out to determine how to value a human life – so that, say, the government might decide how much to spend on some life-saving highway improvement. It sounds like a question without a clear answer but, as Thaler points out, people answer it clearly, if implicitly, every day, when they accept money for a greater chance of dying on the job. “Suppose I could get data on the death rates of various occupations, including dangerous ones like mining, logging and skyscraper window washing, and safer ones like farming, shop keeping and low rise window washing,” recalls Thaler.

“The risky jobs should pay more than the less risky ones: otherwise why would anyone do them?” Using wage data, and an actuarial table of mortality rates in those jobs, he was able to work out what people needed to be paid to risk their life. (The current implied value of an American life is $7 million.) Only he didn’t stop there. He got distracted by a funny idea. This willingness to allow oneself to be distracted from one’s assigned task would later turn out to be a chief characteristic of behavioral economists, along with a bunch of other traits not normally found in economists, though often found in children: a sense of wonder, a tendency to ask embarrassing questions, and a mistrust of grown-ups’ ideas about what’s worth spending time thinking about and what is not.

They’re the sort of people whose day is made when they discover that health club members are most likely to hit the gym the day after they have received their monthly bill, or that race track gamblers are a lot more likely to bet on the longshot the last race of the day than the first. At any rate, in addition to calculating the market’s price for a human life, Thaler got distracted by how much fun he might have if he asked actual human beings how much they needed to be paid to run the risk of dying. He began with his own students, telling them to imagine that by attending his lecture, they had exposed themselves to a rare fatal disease. There was a 1 in 1,000 chance they had caught it. There was a single dose of the antidote: How much would they be willing to pay for it?

Then he asked them the same question, in a different way: How much would they demand to be paid to attend a lecture in which there is a 1 in 1,000 chance of contracting a rare fatal disease, for which there was no antidote? The questions were practically identical, but the answers people gave to them were – and are – wildly different. People would say they would pay two grand for the antidote, for instance, but would need to be paid half a million dollars to expose themselves to the virus. “Economic theory is not alone in saying that the answers should be identical,” writes Thaler. “Logical consistency demands it. … To an economist, these findings are somewhere between puzzling and preposterous.”

To what extent are EU and ECB blind to the euro’s inherent weakness?

• Euro-Sclerosis (Alasdair Macleod)

if Greece defaults we would at least expect the validity of this relatively new euro to be challenged in the foreign exchange markets. Even if the ECB decided to rescue what it could from a Greek default by rearranging the order of bank creditors in its favour through a bail-in, it would still have to make substantial provisions from its own inadequate capital base. For this reason, rather than risk exposing the ECB as undercapitalised, it seems likely that Greece will be permitted to win its game of chicken against the Eurozone, forcing the other Eurozone states to come up with enough money to pay off maturing debt and cover public sector wages. So will that save the euro?

Perhaps it will, but if so maybe not for long. If the Eurozone’s finance ministers give in to Greece, it will be harder for other profligate nations to impose continuing austerity. Anti-austerity parties, such as Podemas in Spain, are increasingly likely to form tomorrow’s governments, and Spain faces a general election later this year. Prime Minister Renzi and President Hollande in Italy and France respectively are keen to do away with austerity and increase government spending as their route to economic salvation. Unfortunately for both the undercapitalised ECB and its young currency, they are increasingly likely to be caught in the crossfire between the Northern creditors and the profligate borrowers in the South.

Even if Greece is to be saved from default, the ECB will need to strengthen the Greek banks. This is likely to be done in two ways: firstly by forcing them to recapitalise with or without bail-ins, and secondly to restrict money outflows through capital controls and harsh limits on depositor withdrawals if need be. Essentially it is back to the Cyprus solution. Whichever way Greece is played, Eurozone residents will see themselves having a currency that is becoming increasingly questionable. The bail-in debacle that was Cyprus is still etched in depositors’ minds. Cyprus certainly has not been forgotten in Greece, where ordinary people are now resorting to buying mobile capital goods that can be easily sold, such as German automobiles, with the bank balances that cannot be withdrawn in cash and are otherwise at risk from a Cyprus-style bail-in.

Greek depositors have realised that euro balances held in the banks are not reliably money. Folding cash is still money, but that is all, and furthermore the folding stuff is rationed. The next blow for the euro could come from the exchange rate. If the euro continues to lose purchasing power on the foreign exchanges, it is likely to undermine confidence on the ground. And when that happens it will be increasingly difficult for the ECB to retrieve the situation and maintain the euro’s credibility as money. It just doesn’t seem sensible to take such enormous risks with a currency that has existed for only thirteen years.

“They may have no intention of defaulting, but very few government have ever paid off their debts in the end.”

• This Time It Is Different (Martin Armstrong)

For years, I have warned that we will face our worst nightmare – the collapse of socialism. In the death throes of this abomination that even the Ten Commandments listed as a serious sin, equal to “thou shalt not kill”, government will become the ugly beast that will devour society to retain power. Of course, they will never see themselves that way, but they will justify in their minds that stripping us of our freedom, rights, privileges, and immunities, is necessary to maintain socialism for the good of the people. Karl Marx, who sought to change society by sheer force, set all this in motion. What has taken place is really scary, for indeed they have altered society far more than anyone dares to ponder.

Why is this Sovereign Debt Crisis collapse different from 1931? When the governments of the world defaulted on their debts in 1931, there were no pension funds. Government has exempted itself from all prudent reason for you take the state operated pension funds, like Social Security in the USA, where 100% of the money is in government bonds. They may have no intention of defaulting, but very few government have ever paid off their debts in the end. Then there are states who regulate pension funds requiring more than 80% to be in government bonds. A Sovereign Debt Default this time around will wipe out socialism, yet the bulk of the people are clueless not merely about the risk, but the ramifications.

Younger generations do not save to support their parents for that was government’s job post-Great Depression. Socialism has altered thousands of years of family structure following the ranting of Karl Marx. This has been one giant lab experiment that ended badly in China and Russia and is coming to a local government near you. So this time it is SUBSTANTIALLY DIFFERENT. Government is now on the hook, which is part of the reason why they are moving to eliminate cash to prevent bank runs and to force society to comply with their demands.

This time it is very different. They have wiped out society placing the entire scheme of socialism as a terrible nightmare that will end badly, and they have ruined the social family structure disarming people that for thousands of years was our very means of self-sufficient survival. These clown have set the tone for wiping out the dreams they sold the elderly, all while hunting taxes and causing job creation to implode as the youth has been converted into the lost generation. All this with pretend good intentions. Can you imagine the damage to society if they had actually intended this mess? They have lied to themselves and to the people. We have to crash and burn – that part is inevitable. Only when the economy turns down will we then argue over solutions.

“It is a deliberate policy that aims to take away from the poor and give to the rich.”

• Austerity and Balanced Budgets Doomed To Fail (Rochon)

In its April budget, the federal government announced it had succeeded in balancing the budget. Such an achievement, however, will prove to be at best a Pyrrhic victory. History shows austerity and balanced budgets never work and only doom our economies to more misery. The Austerians, as American economist Rob Parenteau calls them, are clearly winning the policy war. In Canada, as in many other places around the world, governments are turning once again to austerity policies in order to reign in public spending believed to be out of control. These cuts, however, are usually done in vital social programs, such as health care, education, social housing and unemployment benefits. As is the case with other policies, austerity has both winners and losers.

The victims of austerian economics are often the disenfranchised and the unemployed, whereas those who benefit from austerity invariably tend to be wealthier Canadians, through reduced tax rates and, in Canada specifically, through a panoply of boutique tax policies such as the recent doubling of tax-free savings accounts and income splitting. In this sense, austerity is not a haphazard policy but a well-crafted approach to rewriting the Canadian social contract. It is a deliberate policy that aims to take away from the poor and give to the rich. Those who disagree with the statement have the burden to show how austerity is a success, but they will have great difficulty proving it. Academic research has come down against austerity. In fact, austerity has zero empirical support, and it has been completely discredited and proven to be the result of questionable research.

The most famous case was a landmark 2010 paper written by Carmen Reinhart and Kenneth Rogoff (both from Harvard University, no less), which argued debt-GDP ratios over 90% would result in considerable damage to national economies, notably a marked decline in economic growth. Their paper had a huge impact on policy and accounted in many respects for the great policy U-Turn of 2010 when countries reversed their previous Keynesian spending policies and reverted to austerity. This was a policy fiasco, with the inevitable result that our economies stalled and have remained in this zombie state ever since.

Yet, the paper was completely discredited. Nobel Laureate Paul Krugman went even further and stated unequivocally, “All of the economic research that allegedly supported the austerity push has been discredited. Widely touted statistical results were, it turned out, based on highly dubious assumptions and procedures – plus a few outright mistakes – and evaporated under closer scrutiny. It is rare, in the history of economic thought, for debates to get resolved this decisively.” Bucknell University economist Matias Vernengo has publicly called for the paper to be officially retracted or “unpublished.”

Uncooperative games.

• John Nash’s Game Theory Doesn’t Bode Well For Greece (El-Erian)

Economics and finance suffered two tragedies in the past week: the death of the Nobel laureate John Nash and his wife in a horrible car accident, and more delays from Greece and its creditors in reaching an agreement on a path out of the costly and protracted crisis. At first sight there seem to be little to link the two tragedies. Yet the game theory insights that John Nash pioneered – including the concept of a “cooperative game” – shed important light on what is happening in Greece, and help explain why the drama is unlikely to have a happy ending anytime soon. In a cooperative game, players coordinate to achieve better outcomes than the ones that would likely prevail in the absence of such coordination. If the game is played uncooperatively, however, the result is unfortunate for all players.

There are at least four ways to transform uncooperative games into cooperative ones. Unfortunately, these approaches would be ineffective in the case of Greece. One involves using two-sided and mutually supportive conditionality as the transformation agent: for example, by rewarding the implementation of economic reforms with the ready availability of external financing. This has been tried in Greece, but the results have fallen short, which has diminished the effectiveness of this tool. Specifically, Greece’s record on making good on its policy-reform promises has been far from perfect; and its creditors have been too hesitant in providing the extent of debt relief and cash the country needs.

A second way involves a decisive external impetus. In the case of Greece and its creditors, this role has been played by fear, particularly the fear that the Greek economy would implode, which would force it out of the euro zone. This has stoked the additional fear that such an outcome would destabilize other euro zone economies, threaten the integrity of the single currency group and disrupt the global economy. And fear is an inconsistent transformation agent because its impact is hard to sustain. As soon as it dissipates, all sides revert to uncooperative behavior. And this is what has happened in this case since at least 2010.

A third alternative involves the entry of new players that are willing and able to put aside uncooperative legacies. In today’s Europe, however, the political reality is that new players tend to be even more skeptical than their predecessors. The electoral victory of Syriza in Greece is a case in point. Finally, mutually beneficial developments could convince both sides to work together more closely. Regrettably, this hasn’t been the case of Greece and its European partners, given the limited progress on the ground. Assessing the Greek drama through the lens of game theory explains why the crisis – and the question of Greece’s continued euro-zone membership – are no closer to being resolved.

Applying Nash’s theory shows that the best we can realistically expect is yet another attempt to postpone painful decisions. But even this inadequate outcome is proving increasingly difficult to deliver, and if it materializes, the resulting delay will lead to an even more difficult situation, unless the players decide to stop their uncooperative game very soon.

Finally, some wise words. “When you make a mistake of this depth, the worst thing in the world is not to admit it and not to change it.”

• Stiglitz Tells EU to Admit Mistakes and Ease Up on Greece (Bloomberg)

Nobel laureate Joseph Stiglitz said the European Union should admit the mistake it made imposing austerity on Greece and soften its stance or bear the consequences if the country exits the euro area. “For the wellbeing of Europe and for the betterment of the world, I think the European Commission should soften,” Stiglitz said Tuesday in an interview in Split, Croatia. “Greece has done an enormous amount of work.” Stiglitz’s comments echo calls from economists including fellow Nobel laureate Paul Krugman for EU leaders to compromise to avoid a messy Greek exit from the euro that could send shock waves deeper through the currency bloc. “Europe bears a lot of responsibility as there were fundamental flaws in the design of the euro zone,” Stiglitz said.

“They created a system of divergence, not convergence, and when you combine that with austerity, that’s a recipe for the disaster we’ve seen.” The EU “should help Greece,” Stiglitz said, by starting “fundamental reforms” in the euro zone, shifting policy from austerity to promoting growth and allowing governments to temporarily assist struggling companies. As growth begins to be restored, governments should take actions to improve the efficiency of the public sector, he said. “Europe should admit that it made a mistake,” said Stiglitz, who was in the Croatian Adriatic resort town to receive an honorary degree from the University of Split. Croatia, which joined the European Union in 2013, “shouldn’t rush to the euro,” Stiglitz said.

While the country is set to exit a six-year recession this year, it’s under pressure from the EU to narrow its budget deficit and lower public debt now at 85% of output. “It doesn’t make sense to focus on the deficit when you are in recession,” Stiglitz said. Another option would be to devalue its currency, which is tied to the euro in a managed float, Stiglitz said. And while President Kolinda Grabar-Kitarovic said in an April interview that Croatia may join the euro zone by 2020, Stiglitz said the currency’s troubles had undermined the entire project. “If European voters 20 years ago were told what the consequences of the euro would be, would anybody have voted for it?” he asked. “I think the answer would be, knowing what they know now, that nobody would have voted for it.”

I agree. Plus, Greece can bundle its June IMF payments. It has just won an entire extra month.

• ‘Pots of Money’ to Be Found for Greece to Pay IMF, Roubini Says (Bloomberg)

Economist Nouriel Roubini said he expects “pots of money” to be found to allow Greece to meet its payment commitments to the IMF. “Radical decisions like capital controls, like deposit freezes, like IOUs that have a lot of collateral damage, not just financially but also economic, can be prevented,” Roubini, chairman of Roubini Global Economics, said in an interview in Dresden, Germany, where he’s attending a meeting of G-7 finance chiefs.

Greece is scheduled on June 5 to make the first of about €1.6 billion in IMF payments coming due in the next three weeks. Talks between Greek officials and the country’s international creditors over unlocking aid remain stalled. If Greece fails to meet its payments, “everybody realizes that’s the beginning of a Greek accident that has lots of other collateral damage, not just for Greece but potentially contagion also in financial markets,” Roubini said in the Bloomberg Television interview on Thursday.

“Korkidis told MPs taking part in the inquiry that IMF official Poul Thomsen had argued that Greeks should earn around €300 per month.”

• Greek Commerce Chief Slams Troika Over Bailouts (Kathimerini)

The head of the National Confederation of Commerce (ESEE), Vassilis Korkidis said on Thursday to a parliamentary committee investigating Greece’s bailouts that representatives of the troika had only spoken to the organization once since Athens signed its first bailout in 2010 and that during the discussion visiting officials suggested that Greek wages needed to drop to levels similar to other Balkan countries. Korkidis told MPs taking part in the inquiry that IMF official Poul Thomsen had argued that Greeks should earn around €300 per month. Korkidis was also critical of how previous governments handled the bailouts. “Some people rushed to get us involved in this ordeal, while others were in a rush to get us out,” he said.

“..the effect could be dramatic if it left the euro and prices in euro terms fell sharply.”

• Greece Owes Drugmakers $1.2 Billion – And Counting (Reuters)

Cash-strapped Greece has racked up mounting debts with international drugmakers and now owes the industry more than €1.1 billion, a leading industry official said on Wednesday. The rising unpaid bill reflects the growing struggle by the nearly bankrupt country to muster cash, and creates a dilemma for companies under moral pressure not to cut off supplies of life-saving medicines. Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations, told Reuters his members had not been paid by Greece since December 2014. They are owed money by both hospitals and state-run health insurer EOPYY.

Drugmakers and EU officials are now discussing options in the event Greece defaults on its debt or leaves the euro zone, disrupting imports of vital goods, including medicines. “We have started a conversation in Brussels with the European Commission,” Bergstrom said. “We want the Commission to know that our companies are in this for the long run and are committed to Greece.” There is a precedent for the pharmaceutical industry to agree exceptional supply measures during a financial crisis. It happened in Argentina in 2002, when some firms agreed to continue to supply drugs for a period without payment. But the situation is complicated in Europe, given EU competition rules. They mean the Commission would need to take the initiative in approving any special scheme.

Drugmakers want any emergency program to include steps to mitigate spillover effects on other markets, including curbs on re-exports of drugs and a block on other governments referencing Greek prices when setting their own drug prices. Although Greece represents less than 1% of world drugs sales, it can have a bigger impact because of such reference pricing – and the effect could be dramatic if it left the euro and prices in euro terms fell sharply. Some drugs imported into Greece are already re-exported to other European countries under EU free-trade rules. The drugs industry has been here before. Greece also ran up large debts for its medicines in 2010-12, although they have since been repaid, with some companies receiving payment in government bonds that were subsequently written down in value.

Beppe time.

• As Greece Leads The News, Italy’s Problems Mount On Eve Of Elections (CNBC)

While Greece has been hitting the headlines recently, Matteo Renzi has quietly had a tough few months. The Italian prime minister has had to tackle difficulties both abroad and at home – including a slow economic recovery. All this presents a difficult backdrop for Renzi as he faces 22 million voters with elections in 7 regions and over 1,000 municipalities this weekend. On the domestic front, we’ve seen protests over education reform and a court ruling that pension cuts were unconstitutional, a decision that will require €13 billion in repayments. On top of that, there are accusations of political corruption and organised crime links within Renzi’s Democratic Party (PD). When I spoke to Renzi earlier this year, he said he was declaring war on corruption.

That war hasn’t stopped criticism of how contracts were awarded at the Milan Expo, never mind the backlash over mounting costs and delayed completion. On the international scene, Renzi’s much-touted plan to deal with the EU migrant crisis suffered as several governments refused to participate. Awkward. Having said that, let’s not ignore the positives. Early efforts with labor and bank reform show progress and Italy’s economy is showing signs of life, expanding 0.3 percent in the first quarter – the first uptick since the third quarter of 2013 – as a weaker euro and lower oil prices help push the country out of its longest recession on record. The economic figures tie with recent business confidence data and yet unemployment is still ticking higher – hitting 13% in March. As one Italian worker told me in Milan: “If recovery is happening, it isn’t happening fast enough.”

Oil poised to take a big step down again. US production at record levels, OPEC to increase exports.

• Everyone Is Fleeing Oil’s Biggest Fund (Bloomberg)

The biggest U.S. exchange-traded fund that tracks oil is heading for the largest two-month outflow in six years, raising concern that crude’s 30% rally may stall. Holders of the United States Oil Fund, known as USO, have withdrawn almost $1 billion so far in April and May, according to data compiled by Bloomberg. Crude dropped about $12 a barrel after a $1.4 billion exodus from the fund in the two months ended June 2009. Oil has rebounded from a six-year low in mid-March on speculation that the falling number of drilling rigs will reduce output. U.S. crude stockpiles near the highest level in 85 years and OPEC’s refusal to cut production will continue to weigh on prices, according to Goldman Sachs, Deutsche Bank and Citigroup.

“The oil rebound has run out of gas and now you are seeing nervous investors with itchy trigger fingers bailing out of USO,” Eric Balchunas, a Bloomberg Intelligence analyst, said May 27. “They don’t want to get burned by another drop in oil.” Futures rallied 25% in April, the biggest monthly gain since May 2009, and have fallen 2.4% so far in May. Crude’s recovery has slowed this month. U.S. production climbed to 9.57 million barrels a day last week, the most in Energy Information Administration data going back to 1983.

Inventories were 479.4 million, 86 million above the previous year’s level. OPEC, which supplies about 40% of the world’s oil, meets June 5 in Vienna to discuss output policy. The group will maintain its production target, Mohammad Oun, Libya’s deputy vice prime minister for energy, said Thursday, joining Kuwait in predicting no policy change. “We do not think that the bulls have enough supporting fundamental factors to make a case for a higher oil price,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said Thursday. The supply surplus will push oil down to “$55 and then possibly lower,” he said.

Austerity is designed to target the weak.

• British Women Disproportionately Affected By Austerity (Guardian)

The UK risks widening gender inequality because of austerity policies that disproportionately affect women, a coalition of charities has warned. Cuts to social security, the public sector and legal aid will only worsen women’s position in British society, the charities say, while proposals for a five-year lock on tax raises will benefit men over women. Those factors in combination mean that women will bear the brunt of measures to pay off the deficit, they argue. The warning comes from A Fair Deal for Women, an umbrella group of 11 women’s rights charities, including Women’s Aid, the Fawcett Society, the Women’s Resource Centre, and Rape Crisis . They point out that last year Britain fell to 26th place on the World Economic Forum’s Gender Gap Index – lower than almost all its European neighbours.

“Without swift action to address women’s inequality in all areas, we could see the UK falling even lower,” said Florence Burton, a spokeswoman for the group. A Fair Deal for Women raised the alarm after Wednesday’s Queen’s speech launched the first stage of the Tories’ austerity agenda. Caroline Lucas, Green MP for Brighton Pavilion, said: “What we are increasingly seeing is that austerity perpetuates gender inequality. We ought to be tackling inequality head-on to build a strong, fair and successful economy; indeed equality and economic policy should go hand in hand. “Nobody who advocates the kinds of public-spending cuts we’ve been served up, with their disproportionately negative impact on women in particular, can justifiably claim to be an advocate of equal rights for men and women or of an economy that works for all.”

Money-saving proposals in the Queen’s speech included reducing the household benefits cap to £23,000 a year, freezing most benefits and tax credits for two years, and removing housing support from 18-to-21-year-olds. The government sweetened the pill with a five-year lock on tax rises including VAT, income tax and national insurance, as well as the extension of right to buy to housing association tenants. But Burton said the government had put forward economic policies that don’t work for women. “Putting a five-year lock on raising taxes is a policy that benefits men over women, whilst further austerity measures – like cutting benefits – are detrimental to women and their children, placing them in high risk of poverty,” she said.

Predictable. And stupid.

• Borrowing to Replenish Depleted Pensions (NY Times)

Facing a shortfall of more than $50 billion in his state’s pensions, and with no simple solution at hand, Gov. Tom Wolf of Pennsylvania is proposing to issue $3 billion in bonds, despite the role that such bonds have already played in the fiscal woes of other places. And he is not alone. Several states and municipalities are considering similar action as they struggle with ballooning pension costs. Interest in so-called pension obligation bonds is expected to intensify in the wake of a recent Illinois Supreme Court decision that rejected the state’s attempt to overhaul its severely depleted pension system. The court ruled unanimously that Illinois could not legally cut its public workers’ retirement benefits to lower costs, forcing lawmakers to scramble for the billions of dollars it will take to keep the system intact.

While the Illinois ruling is not binding on other states, analysts think it may influence lawmakers elsewhere to look to alternatives to cutting public pensions. The Illinois justices offered a list of all the times since 1917 that state lawmakers had ignored expert warnings and diverted pension money to other projects. They said, in effect, that the lawmakers had to restore the money. Pennsylvania and other states and cities fear similar restrictions. “My reaction was, ‘Yeah, that’s going to play here,’ “ said John D. McGinnis, a lawmaker in Pennsylvania, which has also been diverting money from its pension system, setting the stage for a crisis as more and more public workers retire. The state has no explicit constitutional mandate to protect public pensions, as Illinois does, but that is irrelevant, said Mr. McGinnis, a Republican and former finance professor at Pennsylvania State University.

“The judiciary in Pennsylvania has been solidly of the belief that there are ‘implicit contracts,’ and you can’t deviate from them,” he said. If lawmakers in Harrisburg were to unilaterally cut pensions now, he said, they could be taken to court and be dealt a stinging rebuke, like their counterparts in Illinois. Against that backdrop, pension obligation bonds may appear tempting, even though such deals have contributed to financial crises in Detroit, Puerto Rico, Illinois and other places. The deals are generally pitched to state and local officials as an arbitrage play: The government will issue the bonds; the pension system will invest the proceeds; and the investments will earn more, on average, than the interest rate on the bonds. The projected spread between the two rates makes it look as if the government has refinanced its pension shortfall at a lower interest rate, saving vast sums of money.

They fit the model. In fact, they probably are the model.

• Wall Street Banks Are Being Drawn Into The FIFA Bribery Probe (MarketWatch)

Major global banks — including Wall Street giants Citigroup and J.P. Morgan — could be drawn into the sweeping probe into alleged racketeering, wire fraud and corruption in the soccer world, as investigators trawl through evidence tied to the FIFA bribery scandal. A raft of banks have been named in the 164-page indictment that the U.S. Department of Justice released Wednesday, alleging that nine soccer officials from the sport’s top governing body, FIFA, and five sports executives were part of a 24-year corruption scheme involving more than $150 million in bribes. Among major financial institutions allegedly used to facilitate payments and wire transfers are J.P. Morgan, Citigroup, Bank of America, HSBC, UBS, and Julius Baer, according to indictment.

“Part of our investigation will look at the conduct of the financial institutions to see whether they were cognizant of the fact they were helping launder these bribe payments,” Kelly T. Currie, acting U.S. attorney for the Eastern District of New York, said. “It’s too early to say whether there’s any problematic behavior, but it will be part of our investigation.” None of the banks has been accused of wrongdoing. According to the FIFA indictment, the U.S. banking sector played a central role in the alleged bribery scheme. As early as the 1990s, but increasingly in the 2000s and 2010s, “the defendants and their co-conspirators relied heavily on the United States financial system,” the charges state. “This reliance was significant and sustained and was one of the central methods and means through which they promoted and concealed their schemes.”

Many of the transactions involved millions of dollars that would pass through U.S. bank accounts before allegedly being redirected to personal accounts. In one example, transactions totaling $10 million were alleged to have been wired from a FIFA account in Switzerland to a Bank of America account in New York to be credited to accounts held by the Caribbean Football Union (CFU) and CONCACAF, the continental confederation under FIFA headquartered in the United States.

Devastation on a planetary sclae.

• The Tar Sands Sell-Out (Guardian)

Amid the strip mines and steam plants sprawled across the northern Alberta wilderness, Fort McKay is just a tiny dot on the map. It is also one of the single biggest source sites of the carbon pollution that is choking the planet. This tiny First Nations community grew rich on oil, and was wrecked by oil. Local Cece Fitzpatrick grabbed what she saw as a last chance for Fort McKay and decided to run for chief, promising to stand up to the industry which came here 50 years ago. Within a 25-mile radius of Fort McKay, 21 projects with a capacity of up to 3.3m barrels a day have been approved or are in production. Another 20 with a combined capacity of about 1.6m barrels a day are in the planning stage, according to Fort McKay First Nation.

Locals can hear, smell, feel and taste the evidence of extraction, even inside their homes. On bad days, it smells like cat piss, according to Cece Fitzpatrick. The tar sands here are one of the single biggest source sites of the carbon pollution that is choking the planet. Mine out all the thick black petroleum, as the Canadian government proposes, ship it out by proposed pipelines such as the Keystone XL and oil trains, and abandon all hope of avoiding a climate catastrophe. Even with the drop in oil prices, Canadian crude exports hit an all-time high this year, and the government expects a significant increase in tar sands production.

While oil made some people here rich, it is also poisoning the waters of the Athabasca River. Researchers last year confirmed high rates of cervical cancers and a rare bile duct cancer among First Nations communities who fish from the Athabasca and hunt off the land. Which was why Cece decided to run for chief, challenging a leader in power almost continuously since 1986, and who long ago gave up trying to keep the industry out. The worst thing is my grandkids, Cece said. Enough is enough. When do we stop and say: ‘Let’s look at the future of our kids?’ Because really I don’t want people to have kids any more because our future here is so bleak. We don’t want to live here anymore.

As many die in the Sahara as do in the Mediterranean.

• African Migrants Risk All In Sahara To Reach Europe (Reuters)

Some 2,000 migrant deaths in Mediterranean waters between the Libyan and Italian coasts this year have prompted alarmed European governments to tighten maritime patrols to stem an influx of migrants in boats from Libya, which has been in widespread chaos since rebels toppled Muammar Gaddafi in 2011. Yet the International Organization for Migration (IOM) warns that at least as many migrants may die during the long desert crossing from Niger, the main staging post for West Africans seeking to cross the Mediterranean. Despite Niger’s passage of a tough new law against people trafficking, some 100,000 migrants fleeing desperate poverty at home in hopes of a better life in Europe are expected to cross the West African state’s borders this year. Many will pass through smugglers compounds known as “ghettos”.

“It’s a bit frightening but I have to deal with it because in life you have to be brave,” said migrant Fousseni Ismael, 16, wearing a blue headscarf to protect him from the sun as he waits to board a truck. As night falls, the pickup rolls out of the metal gates of the compound and snakes through the sandy backstreets of Agadez, passing groups of Muslim men knelt in the evening prayer. It drives unhindered past a police checkpoint on the outskirts of town and into the blackness of the vast desert. The risks are high. Mohamed, a driver, said he was attacked last week by Touareg bandits wielding AK-47 assault rifles who opened fire on his pickup when he refused to stop, wounding a migrant in the leg.

For protection, scores of trucks follow a military convoy that heads north each Monday toward the oasis town of Dirkou. The death of 92 migrants from thirst – mostly women and children – when their vehicle broke down en route to Algeria, to Libya’s west, in 2013 prompted Nigerien authorities to briefly crack down on the corridor — but the lucrative trade quietly returned. “The desert has always been a cemetery for immigrants, in silence and complete indifference. Travelers tell us they often find bodies – skeletons ravaged by the sands,” said Agadez Mayor Rhissa Feltou.

Cattle country.

• New Zealand, the Land of Disappearing Sheep (Bloomberg)

Once upon a time there were 20 sheep to every Kiwi. Now it’s more like seven to every New Zealander. Blame cows, which are now bringing home the bacon. Huge tracts of flatland once used for sheep farming were converted to dairy pastures as the global price for butter and cheese increased, while demand for sheep meat and wool waned, said Susan Kilsby, a dairy analyst at AgriHQ in Wellington. “Returns for dairy have been substantially better than for a traditional sheep and beef farming operation,” she said. There were other factors at play, too. The removal of subsidies for sheep farming in the mid-1980s exposed ranchers to market forces, explained Adrienne Egger, an agriculture analyst at Beef and Lamb New Zealand, an organization representing farmers.

New irrigation projects also made dairy farming possible for the first time in many parts of the country, AgriHQ’s Kilsby said (cows raised to produce milk are real water guzzlers). In the camp horror classic `Black Sheep’ a flock runs amok after some genetic engineering. The tagline read: “There are 40 million sheep in New Zealand and they’re PISSED OFF!” Fact is, there are far fewer sheep than that. What is true is that thanks to some genetic improvements, productivity has improved. For ranchers who stayed the course, it’s paying off.
Lamb prices at the farm-gate rose 85% in real terms and mutton prices more than doubled from 25 year ago. China, once a market for low-value cuts, has rapidly emerged as a major importer of Made in New Zealand — moving up from eighth place to second between 2008 and 2013. “In 2014, China was the largest single country market by volume of lamb,” Eggers said.