NPC K & W Tire Co. Rainier truck, Washington, DC 1919
“..the BBC News website ran an article entitled “How to spot a Russian bomber.” I printed the guide out and thanks to it I was able to rule out the possibility that the plane flying over my local playing fields was a Tupolev Tu-22M3 and was able to sleep easily in my bed that night..”
• Forget All Our Other Troubles – The Russians Are Coming! (Neil Clark)
The gap between the rich and the poor continues to grow. Train and bus fares continue to rise. Twice as many people are living in poverty than 30 years ago. And our National Health Service is being privatized before our very eyes. But hey – we Brits must forget about all those things – because there’s something far more important to worry about. The Russians are coming! That “sinister tyrant” Vladimir Putin, doesn’t’ just threaten the whole of Ukraine – and the Baltic States – but even poses a “threat” to Britain too! This simply must be true (says author, tongue firmly in cheek), because the claims are being made by prominent members of the British political and media establishment – you know the same bunch who in 2003 told us Iraq had WMDs, who in 2011 told us that toppling Gaddafi was a great idea, and who in 2013 wanted us to bomb Syria and topple a secular government that was fighting ISIS.
UK Defense Secretary Michael Fallon (who voted for the Iraq war in 2003), raised the specter last week of Putin targeting the Baltic States. “I’m worried about Putin. I’m worried about his pressure on the Baltics, the way he is testing NATO,” Fallon said. “It’s a very real and present danger,” the Minister went on, just in case we still didn’t appreciate the Russian ‘threat’. “He (Putin) flew two Russian bombers down the English Channel two weeks ago. We had to scramble jets very quickly to see them off. It’s the first time since the height of the Cold War; it’s the first time that’s happened.” Sir Adrian Bradshaw, the NATO Deputy Supreme Commander in Europe, went even further than Fallon, saying that “the threat from Russia” represented “an existential threat to our whole being.”
Meanwhile, the former Air Chief Marshall Lord Jock Stirrup raised the horrifying prospect that civilian planes containing holidaymakers could be brought down by Russian jets. In case these warnings weren’t enough to give us palpitations the so-called Russophobic hack pack – the group of mutually-adoring propagandists who obsess about Russia – weighed in to reinforce the message that we all ought to be jolly scared about Putin. [One] commenter provided useful advice on “How to stop Putin nuking us all” (which includes blocking RT). While ordinary people in Britain struggle to make ends meet, for theelite, the big burning question of the day is not “What can we do to reduce bus and train fares?” but “How can we can deal with the Russian ‘threat?’”.
“Can the UK handle the Bear threat from Russia? “asked the Independent. “With bad guys about, you can’t ignore defense” was the title of one comment piece in Rupert Murdoch’s Times. “Putin’s war on the West” was the cover story of the Economist. “As Ukraine suffers, it is time to recognize the gravity of the Russian threat – and to counter it.. The EU and NATO are Mr. Putin’s ultimate targets.” Very helpfully, amid all these concerns, the BBC News website ran an article entitled “How to spot a Russian bomber.” I printed the guide out and thanks to it I was able to rule out the possibility that the plane flying over my local playing fields was a Tupolev Tu-22M3 and was able to sleep easily in my bed that night.
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And now you know!
• What Is Money And How Is It Created? (Steve Keen)
[..] Only one person ever really did work out what money really is.—and no, it wasn’t Ayn Rand. It was Augusto Graziani, an Italian Professor of Economics, who died early last year. He understood what money is because he posed and correctly answered a simple question: how does a monetary economy differ from one in which trade occurs by barter? This ruled out gold being money, since gold is a commodity that anyone can produce for themselves with a bit of mining (and a lot of luck). So even though gold is really special and incredibly rare, it is in the end, a commodity: an economy using gold for trade is really a barter economy, not a monetary one. As Graziani put it:
a true monetary economy is inconsistent with the presence of a commodity money. A commodity money is by definition a kind of money that any producer can produce for himself. But an economy using as money a commodity coming out of a regular process of production, cannot be distinguished from a barter economy. A true monetary economy must therefore be using a token money, which is nowadays a paper currency. [He wrote this in 1989, before our modern electronic money system had developed]
That doesn’t rule out a world in which gold is used as the basis for commerce of course: it just says that that’s not a monetary economy. Those who say we’d be better off “going back to gold” are really saying that they don’t like a monetary economy, and reckon we would be better off in a barter economy instead. Identifying money as a paper token wasn’t enough, however, since there are some paper tokens—such as a “bill of exchange”—which are used in transactions, but leave a debt obligation between the buyer and the seller. An economy using bills of exchange was not a monetary economy, Graziani argued, but a credit economy:
If in a credit economy at the end of the period some agents still owe money to other ones, a final payment is needed, which means that no money has been used.
So to be money, the token given in exchange for a good must be accepted as a final payment—but this carried the danger that whoever produced the token might be able to “get something for nothing”. In an ideal system, this had to be ruled out as well.
This gave Graziani three basic conditions that had to be met for something to be called “money”:
a) money has to be a token currency (otherwise it would give rise to barter and not to monetary exchanges);
b) money has to be accepted as a means of final settlement of the transaction (otherwise it would be credit and not money);
c) money must not grant privileges of seignorage to any agent making a payment.
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“The euro is more than just money. It is talismatic for the Greeks. It was only when we joined the euro that we felt truly European. There was always a nagging doubt before.. ”
• Humiliated Greece Eyes Byzantine Pivot As Crisis Deepens (AEP)
Greece’s new currency designs are ready. The green 50 drachma note features Cornelius Castoriadis, the Marxisant philosopher and sworn enemy of privatisation. The Nobel poet Odysseus Elytis – voice of Eastward-looking Hellenism – honours the 200 note. The bills rise to 10,000 drachma, a wise precaution lest there is a hyperinflationary shock as Greece breaks out of its debt-deflation trap at high velocity. The amateur blueprints are a minor sensation in Greek artistic circles. They are only half in jest. Greece’s Syriza radicals have signed a fragile ceasefire with the eurozone’s creditor powers. Few think this can last as escalating deadlines reach their kairotic moment in June. Each side has agreed to a deception with equal cynicism, knowing that the interim deal evades the true nature of Greece’s crisis and cannot bridge the immense political divide.
They have bought time, but not much. “I am the finance minister of a bankrupt country,” says Yanis Varoufakis, the rap-artist Keynesian with a mission to correct all of Europe’s economic ills. First he has to deal with his own liquidity crisis. Tax arrears have reached €74bn, rising by €1.1bn a month. “This isn’t tax evasion. These are normal people who can’t pay because they are in distress,” he told the Telegraph. The Greek Orthodox Church is struggling to pick up the pieces. “The local councils can’t cope, so people come to us for food,” said Father Nicolaos of St Panourios parish in a working-class district of West Athens. “We’re feeding 270 people and it is getting worse every day. Today we discovered three young children going through rubbish bins for food. They are living in a derelict building and we have no idea who they are,” he said, sitting in a cramped office packed with bags of bread and supplies.
“We rely on donations from the local bakery. If we run out of beans or lentils, I put out a call, and everybody brings in what they can. There is this spirit of solidarity because nobody feels immune,” he said. His poor parish in Drapetsova was built by refugees from Smyrna and Pontus, victims of the “Catastrophe” in 1922, when ethnic cleansing extinguished the ancient Greek communities of Asia Minor. He lovingly showed me the historic icons and prayer books they hauled with them in wagons, now in the church basement. The utility companies have been cutting off the electricity as arrears rise – and sometimes the water too – leaving 300,000 Greeks in the dark. “They come and ask for candles. They can’t use their fridge. They can’t cook. Their children can’t do their homework,” he said. It is almost a description of a failed state.
Restoring electricity is the first order of business in Syriza’s “Thessaloniki programme”, along with food stamps, a halt to property foreclosures, and a month’s extra pension for the less affluent. Father Nicolaos urged Syriza to stand its ground. “Yes, we Greeks played our own part in our downfall, but Europe played its part too. We must not sell out at any cost, or sell our monuments to pay our debts. We must fight,” he said. Syriza has a peculiar mandate. The Greeks voted for defiance, and also to stay in the euro, two objectives that are hard to reconcile. Views are divided over which emotion runs deeper, therefore which way the inscrutable Alexis Tsipras will pivot. The boyish prime minister has yet to show his hand. “When it comes to the choice, I fear Tsipras will abandon our programme rather than give up the euro,” said one Syriza MP, glancing cautiously around in case anybody was listening as we drank coffee in the “conspiracy” canteen of the Greek parliament.
“The euro is more than just money. It is talismatic for the Greeks. It was only when we joined the euro that we felt truly European. There was always a nagging doubt before,” he said. “But you can’t fight austerity without confronting the eurozone directly. You have to be willing to leave. It is going to take a long time for the party to accept this bitter reality. I think the euro was a tremendous historic mistake, and the sooner they get rid of it, the better for all the peoples of Europe, but that is not the party view,” he said.
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“They’ve given us our voice back,” “For the first time there’s a feeling that we have a government that is defending our interests.”
• Poll Surge For Alexis Tsipras’ Syriza As Greeks Learn To Smile Again (Guardian)
Alexis Tsipras’ left-led government may be the bane of Europe’s political establishment, but in Greece support is soaring as Athens’ new political class negotiates the country’s economic plight. One month and three days after the tough-talking firebrand assumed power, Greeks of all political persuasions appear to like what they see. A Metron Analysis poll published on Saturday showed popularity ratings for the prime minister’s radical left Syriza party at an all-time high: from the almost 36% it won in snap polls on 25 January, support for Syriza has jumped to 47.6%, a record for a movement that only three years ago was on margins of Greek politics. In a triumphant address Tsipras attributed the surge to restored pride after five rollercoaster years of being humbled and humiliated by the debt-stricken nation’s worst economic crisis in modern times.
“The Greek people feels it is regaining the dignity that it has been doubted and denied,” the leader told Syriza’s central committee at the weekend. “From the very first day of the new [coalition] government, Greece stopped being a pariah, executing orders and enforcing memorandums,” he said, referring to the EU- and IMF-sponsored bailout accords Athens signed to keep afloat. On the street, optimism has returned. People worn down by gruelling austerity, on the back of unprecedented recession, are smiling. Government officials have taken to walking through central Athens, instead of ducking into chauffeur-driven cars to avoid protesters. Last week, finance minister Yanis Varoufakis – a maverick to many of his counterparts – was mobbed by appreciative voters as he ambled across Syntagma square.
“They’ve given us our voice back,” said Dimitris Stathokostopoulos, a prominent entrepreneur. “For the first time there’s a feeling that we have a government that is defending our interests. Germany needs to calm down. Austerity hasn’t worked. Wherever it has been applied it has spawned poverty, unemployment, absolute catastrophe.” The approval is all the more extraordinary, given the policy U-turns the anti-austerity government has been forced to make – concessions that have sparked fierce opposition within the ranks of Syriza. Faced with the reality of governing, Tsipras has dropped demands for a reduction of the country’s monumental debt; agreed to continued supervision by auditors at the EU, ECB and IMF (now named “the institutions” rather than the maligned “troika”); and abandoned pre-election pledges by promising not to take “unilateral” steps that might throw the budget off-balance.
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“We have not discussed anything with the Greek side,” a European official told Sunday’s Kathimerini..”
• Greece’s Lenders Skeptical On New Bills But Focus On Funding Needs (Kathimerini)
European officials have expressed concern that the Greek government has not consulted with its partners over its plans to bring new legislation to Parliament this week but the greatest focus appears to be on how Athens will cover its immediate funding needs. “We have not discussed anything with the Greek side,” a European official told Sunday’s Kathimerini after Prime Minister Alexis Tsipras announced on Friday night that four bills would be tabled in the House this week. In a televised address to his cabinet, Tsipras said that four draft laws would be unveiled this week in order to tackle the social impact of the crisis, to introduce a new payment scheme for overdue debts to the state, to protect primary residences from foreclosures and to reopen public broadcaster ERT.
At the Eurogroup on February 20, Greece and its lenders agreed that the government would not adopt any measures unilaterally that “would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.” It is not clear if Greece’s creditors believe that the bills due to be submitted to Parliament this week fall into this category but sources suggested that there is concern about the lack of of communication between Athens and its partners. However, the immediate problem that must be overcome is ensuring that the government can meet its funding needs over the next few months, starting with a €1.6 billion payment to the IMF in March.
On Saturday, Finance Minister Yanis Varoufakis went as far saying that Athens would try to negotiate the summer payment of €6.7 billion worth of Greek bonds held by the ECB. “Shouldn’t we negotiate this? We will fight it,” he told Skai TV. “If we had the money we would pay… They know we don’t have it.” Greece’s lenders, however, believe that they may be able to use this inability to pay to their advantage and pressure the government to carry out reforms before the country’s funding needs become less significant. “Now is the time that we can exercise pressure on the Greek government,” a European official told Kathimerini.
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“.. the ECB repayments are in a different league and we shall have to determine this in association with our partners and the institutions.”
• Greece To Prioritize IMF Repayments But Wants Talks On ECB-held Bonds (AP)
Greece will prioritize debt repayments to the International Monetary Fund, some of which come due in March, but repayments to the European Central Bank are «in a different league» and will need discussion with Greece’s creditors, the country’s finance minister said Saturday. In an interview with The Associated Press, Yanis Varoufakis also said Athens intends to start discussions with its creditors on debt rescheduling in order to make the country’s massive debt sustainable, at the same time as working on reform measures that need to be cemented by April, the finance minister said Saturday.
“The IMF repayments of course we are going to prioritize, we are not going to be the first country not to meet our obligations to the IMF,» the 53-year-old said, speaking in his office in the finance ministry overlooking Athens’ central square and the country’s parliament. “We shall squeeze blood out of stone if we need to do this on our own, and we shall do it.” However, “the ECB repayments are in a different league and we shall have to determine this in association with our partners and the institutions.” The ECB has always insisted on full repayment and it’s not clear they would accept a rescheduling.
Greece faces IMF repayments in March of about €1.5 billion, and about €6.7 billion to the ECB in the summer. But it is facing a cash crunch and will struggle with scheduled repayment of its debts. Athens wouldn’t ask for a delay in repayment in its ECB obligations, the minister noted, but rather something that would make the repayments easier to achieve. “I do not believe the ECB would accept a delay, but what we can do is we can package a deal that makes these repayments palatable and reasonably doable as part of our overall negotiation regarding the Greek debt, and the next … contract for growth for the Greek economy between us and the partners.”
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Almost kissed him.
• Schäuble Softens Tone On Greece and Varoufakis (AFP)
German Finance Minister Wolfgang Schaeuble said Sunday Greece’s new government needs «a bit of time» but is committed to implementing necessary reforms to resolve its debt crisis. “The new Greek government has strong public support,» Schaeuble said in an interview with German newspaper Bild am Sonntag. “I am confident that it will put in place the necessary measures, set up a more efficient tax system and in the end honour its commitments. “You have to give a little bit of time to a newly elected government,» he told the Sunday paper. «To govern is to face reality.”
Schaeuble also insisted that his Greek counterpart Yanis Varoufakis, despite their policy differences, had «behaved most properly with me» and had «the right to as much respect as everyone else». mIt was a marked change in tone for the strait-laced Schaeuble, who has repeatedly exchanged barbs with Varoufakis, his virtual opposite in both style and politics, since January’s watershed Greek elections brought in an anti-austerity government. Schaeuble last week sternly warned that Greece would not receive «a single euro» until it meets the pledges of its existing €240 billion bailout programme.
But he put his weight behind a four-month extension, to the end of June, approved overwhelmingly by the German parliament on Friday after a complex compromise reached between eurozone finance ministers and Athens. In exchange, Greece has pledged to implement reforms and savings. Schaeuble reiterated the ground rules for the aid programme extension, stressing that «Greece must meet its commitments. Only then will it receive the promised aid payments.” Asked about repeated comments from the new Greek government against austerity measures and for a debt haircut, Schaeuble said that «contracts are more important than statements».
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Technocrats are sore losers.
• Greek PM Accuses Spain, Portugal of Anti-Athens ‘Axis’ (Reuters)
Greece’s leftist Prime Minister Alexis Tsipras accused Spain and Portugal on Saturday of leading a conservative conspiracy to topple his anti-austerity government, saying they feared their own radical forces before elections this year. Tsipras also rejected criticism that Athens had staged a climbdown to secure an extension of its financial lifeline from the euro zone, saying anger among German conservatives showed that his government had won concessions. Greeks have directed much of their fury about years of austerity dictated by international creditors at Germany, the biggest contributor to their country’s €240 billion bailout.
But in a speech to his Syriza party, Tsipras turned on Madrid and Lisbon, accusing them of taking a hard line in negotiations which led to the euro zone extending the bailout program last week for four months. “We found opposing us an axis of powers … led by the governments of Spain and Portugal which for obvious political reasons attempted to lead the entire negotiations to the brink,” said Tsipras, who won an election on Jan. 25. “Their plan was and is to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries,” he said, adding: “And mainly before the elections in Spain.”
Spain’s new anti-establishment Podemos movement has topped some opinion polls, making it a serious threat to the conservative People’s Party of Prime Minister Mariano Rajoy in an election which must be held by the end of this year. Rajoy went to Athens less than a fortnight before the Greek election to warn voters against believing the “impossible” promises of Syriza. His appeal fell on deaf ears and voters swept the previous conservative premier from power. Portugal will also have elections after the summer but no anti-austerity force as potent as Syriza or Podemos has so far emerged there.
In an interview published before Tsipras made his speech, Prime Minister Pedro Passos Coelho denied that Portugal had taken a hard line in negotiations on the Greek deal at the Eurogroup of euro zone finance ministers. “There may have been a political intention to create this idea, but it is not true,” he told the Expresso weekly newspaper. Passos Coelho aligned himself with euro zone governments which have called for policies to promote economic growth but without trying to walk away from austerity as in Greece. “We were on the same side as the French government, with the Italian and Irish governments. I think it’s bad to stigmatize southern European countries,” he said.
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“It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming.”
• Eurozone Negative-Yield Bond Universe Expands to $1.9 Trillion (Bloomberg)
The European Central Bank’s imminent bond-buying plan has left $1.9 trillion of the euro region’s government securities with negative yields. Germany sold five-year notes at an average yield of minus 0.08% on Wednesday, a euro-area record, meaning investors buying the securities will get less back than they paid when the debt matures in April 2020. By the next day, German notes with a maturity out to seven years had sub-zero yields, while rates on seven other euro-area nations’ debt were also negative. While some bonds had such yields as far back as 2012, the phenomenon has gathered pace since the ECB’s decision to cut its deposit rate to below zero last year. Even when investors extend maturities, and move away from the region’s core markets, returns are becoming increasingly meager.
Ireland’s 10-year yield slid below 1% for the first time this week, Portugal’s dropped below 2%, while Spanish and Italian rates also tumbled to records. “It is something that many would not have pictured a year ago,” said Jan von Gerich at Nordea Bank in Helsinki. “It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming. People are holding on to these bonds and so you don’t have many willing sellers.” 88 of the 346 securities in the Bloomberg Eurozone Sovereign Bond Index have negative yields, data compiled by Bloomberg show. Euro-area bonds make up about 80% of the $2.35 trillion of negative-yielding assets in the Bloomberg Global Developed Sovereign Bond Index, the data show.
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Huge disgrace. But since when would the US government take that as an insult?
• US Cuts Off Student-Loan Collectors for Misleading Debtors (Bloomberg)
The U.S. Education Department, citing “inaccurate representations” to student-loan borrowers, will end debt-collection contracts with Navient and four other companies. Representatives of these companies, which pursue students who default on their loans, made misleading statements about programs that help borrowers get back on track, the agency said in a statement late Friday. The companies include Pioneer Credit Recovery, a unit of Navient, which was split off last year from SLM, commonly known as Sallie Mae, the largest U.S. education finance company. “Federal Student Aid borrowers are entitled to accurate information as they make critical choices to manage their debt,” Under Secretary Ted Mitchell said in a statement. “Every company that works for the Department must keep consumers’ best interests at the heart of their business practices by giving borrowers clear and accurate guidance.”
The government turns to 22 debt-collection companies to put the squeeze on borrowers who are defaulting on their loans. In 2012, Bloomberg News reported that the private contractors chasing these debts collected about $1 billion annually in commissions and faced growing complaints that they were insisting on stiff payments, even when borrowers’ incomes make them eligible for leniency. Pioneer said in a statement that the Education Department has conducted 17 exams since the beginning of 2014, listening to 600 phone calls, and had not raised concerns about the company’s rates of inaccurate or misleading information to borrowers. In April, it received written confirmation from the agency that its policies complied with regulation.
“We were blindsided by the Department of Education’s actions,” Pioneer said. Navient’s revenue from collecting for the Education Department totaled $65 million last year. The agency said it will “wind down” its contracts with the five companies and transfer their business to other agencies with contracts. The four other companies losing contracts are Coast Professional, Enterprise Recovery Systems, National Recoveries and West Asset Management, according to the statement. Those companies couldn’t be reached for comment after business hours. “This is a huge step forward for student loan borrowers who are too often the victims of dishonest debt-collection practices,” Maggie Thompson, campaign manager for Higher Ed, Not Debt, said in a statement. “We are happy the Department of Education protected borrowers by ending the contracts of some of the most abusive debt collectors in the business.”
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End of the Ponzi.
• Shadow Banking Shrinks to Least Since 2000 as Liquidity Declines (Bloomberg)
The financing markets that grease the wheels of most debt trading have contracted to the smallest in 15 years as liquidity declines, adding to concern U.S. economic stability is at risk. The amount, known as shadow banking, was $4.13 trillion last month, down from a peak of $7.61 trillion in March 2008, according to data compiled by the Center for Financial Stability, a nonpartisan research group. The CFS measure, which includes money-market funds, repurchase agreements and commercial paper, all adjusted for the impact of inflation, is at the lowest since January 2000.
“Market finance is suffering, and it has been inextricably linked to growth in the economy and financial stability,” Lawrence Goodman, president of CFS and author of the report, said. “The fact that we are seeing bumps in varying asset classes suggests that cracks are evident in the financial system. In part, this is a direct function of limited liquidity.” Global regulators have focused on reducing the footprint of shadow banking, which was viewed as a catalyst for the collapse of Lehman Brothers Holdings Inc. in 2008 that shook markets worldwide, accelerating the financial crisis. In the process, market finance has contracted to an “excessively steep” degree that “starves financial markets from needed liquidity and is detrimental to future growth,” according to a Feb. 25 report from the CFS.
Repurchase agreements, or repos, are a source of short-term finance for banks, allowing them to use securities as collateral for short-term loans from investors such as other banks or money-market mutual funds. The amount of securities financed through a part of the market known as tri-party repo fell to an average $1.58 trillion as of Jan. 12, from $1.96 trillion in December 2012, according to data compiled by the Federal Reserve. Tighter market liquidity and a resulting surge in volatility were both on display Oct. 15, when Treasuries suddenly careened through the biggest yield fluctuations in a quarter-century without being spurred by any concrete news. While that extreme loss of liquidity in Treasuries has faded, the day-to-day dealings in 10-year Treasuries have worsened this year, according to analysis by Deutsche Bank.
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“The people – those plain people who think economics is about supply and demand rather than complicated math formulas – deserve some level of sway over the Fed’s operations..”
• Fed Independence Is A Joke, So Why Not Audit? (Freedomworks)
If Janet Yellen didn’t resemble a bookwormish teetotaler, perhaps she’d join her colleagues in a toast to suppressing democratic accountability. For now, she’ll order a club soda while working vigorously to keep Congress, and thus the people, out of her business of running the country’s central bank. Yellen has only been Chair of the Federal Reserve for one year, but she’s already facing pressure to open the books from the new Congress. Leading the charge are two statesmen from Kentucky: Representative Thomas Massie and Senator Rand Paul. Both have introduced audit the Fed legislation in their respective chambers. Wall Street’s cadre of financial oligarchs are predictably up in arms over an audit of their free money machine.
Think tankers are antagonizing the campaign, with Jim Pethokoukis of the American Enterprise Institute asserting that Sen. Paul has “a poor understanding of what’s actually on the Fed balance sheet and how the bank operates.” It’s expected President Obama would veto an audit the Fed bill. Even local bankers are scaremongering over the prospect of the Fed losing autonomy. Yellen, for her part, isn’t about to let the nosy wolves in her henhouse. In a recent interview, she said she would stand “forcefully” against any audit measures. She justified her intransigence by citing the importance of “central bank independence” and being able to act without interference. Nothing says limited government and separation of powers like a bureaucracy unaccountable to the voice of the people! Then again, Yellen doesn’t care much for democratic oversight.
She’s a caricature of Randian libertarianism: someone who wants to do whatever, whenever, without rulers. The problem is Yellen isn’t operating a private railroad company. She’s the figurehead for a government institution created by Congress. If democracy means anything, it’s that voters have some measure of control over political bureaucracies. So apologies Janet, you don’t operate in a bubble (insert Fed pun here). The people – those plain people who think economics is about supply and demand rather than complicated math formulas – deserve some level of sway over the Fed’s operations. So why not an audit by the Government Accountability Office? Last I heard, President Obama was all about accountability. Yellen and company aren’t buying it. They don’t want anyone butting in on their micromanagement of the money supply. Outside observers would interfere with the Fed’s independence, which is a sacrament of the central bank.
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• China Factory Sector Still Shrinking, Official PMI Shows (Reuters)
Activity in China’s factory sector contracted for a second straight month in February on unsteady exports and slowing investment, an official survey showed on Sunday, reinforcing bets that more policy loosening is needed to lift the economy. The official Purchasing Managers’ Index (PMI) inched up to 49.9 in February from January’s 49.8, a whisker below the 50-point level that separates growth from contraction on a monthly basis. Analysts polled by Reuters had forecast a weaker reading of 49.7. A separate official services PMI, also released on Sunday, showed growth in the sector accelerated to 53.9, up from 53.7 in January. Accounting for 48% of China’s $10.2 trillion economy last year, the services sector has weathered the growth downturn better than factories, partly because it depends less on foreign demand.
The official PMIs were released shortly after China’s central bank cut interest rates late on Saturday, the latest effort to support the world’s second-largest economy as its momentum slows and deflation risks rise. The PMIs are the last official Chinese data to come out before the opening this week of the annual session of China’s legislature, where leaders will announce a growth target for 2015. The final February reading for the HSBC manufacturing PMI survey will be announced on Monday. The flash estimate showed factory growth edged up to a four-month high in February, but export orders shrank at their fastest rate in 20 months. To boost a sagging economy, China’s central bank lowered the reserve requirement – the ratio of cash that banks must set aside as reserves – in February for the first time in over two years.
That was after it had cut interest rates in November, also for the first time in more than two years. Despite the raft of stimulus moves, a newspaper owned by the central bank warned on Wednesday that China is dangerously close to slipping into deflation, highlighting the nervousness among policymakers about a sputtering economy that is not gaining speed. A housing slump, erratic growth in exports and a state-led slowdown in investment to help restructure China’s economy dragged growth to 7.4% last year – a level not seen since 1990. Reflecting China’s “new normal” of slower but better-quality growth, economists at state think-tanks with knowledge of policy discussions said the government is likely to lower its 2015 economic growth target to around 7%, from last year’s 7.5%.
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Ha. Ha.: “Customers are taking a cautious approach until there is more certainty as to when oil prices will recover..”
• Crude Price Shock Sends Canadian Oil Service Companies Into Whirlwind (RT)
The crude oil price collapse has forced some Canadian oil service companies to cut their workforces, budgets, and salaries, as their energy-producing customers have been struggling with their own budget cuts and market uncertainty. Calfrac Well Services and Trican Well Service, both based out of Calgary, are two of the most recent examples of companies showing signs of a struggle amid a slowdown in drilling activity across North America. Oilfield services and hydraulic fracturing company Calfrac announced on Wednesday that it will cut over $25 million from its general and administrative costs, as it released its fourth quarter revenue report. The firm will be slashing executive salaries by around 10% and directors’ pay by 20% starting in April. Calfrac was also forced to shut down its operations in Colombia.
“As a result of the decline in crude oil prices, the company’s customers in Canada and the United States have lowered their 2015 capital budgets in the order of 20 to 40 per cent from 2014,” Calfrac’s president and chief executive, Fernando Aguilar, told analysts. The biggest concern is how cheaper crude will impact equipment utilization and pricing in 2015. “Customers are taking a cautious approach until there is more certainty as to when oil prices will recover,” Aguilar added. One of Calfrac’s biggest competitors, Trican, announced similar cuts – including slashing salaries and costs – after cutting 600 positions. All Canadian and US employees will receive a 10% cut in average compensation, according to the firm’s press release.
Oil prices have plummeted by at least 50% since the summer. The situation was made worse when OPEC opted not to cut its daily output levels in November. In reaction to new oil price projections, the Bank of Canada (BoC) unexpectedly cut its interest rate to 0.75% in January, with markets pricing in another rate cut in March. The central bank also lowered its economic growth and inflation forecasts, warning of widespread negative effects of lower oil prices on the Canadian economy. Just last week, BoC Deputy Governor Agathe Cote stressed the significance of the oil-price shock. “This shock will delay the economy’s return to full capacity by undermining both investment in the oil sector and gross domestic income,” she said, noting that personal wealth is likely to be reduced and interprovincial trade affected.
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• Ukraine Pays Gazprom $15 Million For 24 Hours Worth Of Gas (RT)
Ukraine’s Naftogaz has paid Gazprom $15 million for gas delivery. At current levels, the prepayment covers one day’s gas consumption and will be spent by Tuesday, Gazprom spokesperson Sergey Kupriyanov said. “Today at 9:20am MSK Gazprom received a payment from Ukraine’s Naftogaz in the amount of $15 million. At the current level of supply this sum will be enough roughly for one day,” he said. “If Naftogaz paid for another 24 hours, it means the resources would last through Monday till Tuesday,” he said. The relatively small prepayment suggests Kiev is buying time before trilateral talks in Brussels on march 2nd. Russian energy minister Alexander Novak had warned Kiev’s failure to pre-pay would mean a cut-off.
In a letter sent to Gazprom late Wednesday, Naftogaz said it had a total of 206 million cubic meters of Russian gas pre-paid. “The concerns and worries are caused first of all by the fact that not much prepaid gas is left. If there is no money the supplies will stop starting from Tuesday,” Russian Energy Minister Alexander Novak said. “The payment should be completed Friday so that the gas is supplied starting from Tuesday,” Novak said. “If there is no payment there will be a break in gas supplies to Ukraine. The European consumers will fully receive gas.” “We are worried about the situation with the problem of prepayment for the gas delivery. On Friday morning, the rest of the gas, prepaid by Ukraine, accounted for 123.8 mln cubic meters.
Taking into consideration the fact that on the average we supply [Ukraine] with 42 mln cubic meters, without DPR and LPR [Donetsk People’s Republic and Lugansk People’s Republic], in fact, the remains of the gas will be enough only for Friday, Saturday, and Sunday,” Novak said, according to RIA-Novosti. In a new gas standoff, deliveries to the conflict-plagued Donbass region have become a new bone of contention between Russian and Ukraine. Last week Kiev suspended deliveries to the area, citing damage to the pipeline. Russia then launched a separate gas supply to Donbass, with President Vladimir Putin saying that cutting the war zone off gas “smells like genocide.” Gazprom said Thursday it was ready to separate gas supplies to Ukraine and Donbass.
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Europe better watch out.
• Mass Anti-Immigration Rally In Rome (BBC)
Thousands of supporters of Italy’s Northern League have poured into one of Rome’s biggest squares for a rally against immigration, the EU and Prime Minister Matteo Renzi’s government. League leader Matteo Salvini accused Mr Renzi of substituting the country’s interests to those of the EU. He also criticised the government’s record in dealing with Romanian truck drivers, tax, banks and big business. A large counter-demonstration against Mr Salvini was also held in Rome. Opinion polls suggest that Mr Salvini is rapidly gaining in popularity. They show him as being second only to Mr Renzi, prompting some to dub him as “the other Matteo”.
The Northern League was once a strong ally of former Prime Minister Silvio Berlusconi, but it has sought to find new allies as he struggles to shake off a tax fraud conviction that forced him out of parliament. Mr Salvini’s fiery rhetoric against the European Union, immigration and austerity politics had led to comparisons being drawn between him and French National Front leader Marine Le Pen. The counter-demonstration staged by an alliance of leftist parties, anti-racism campaigners and gay rights groups was held only a few hundred metres from the Northern League rally. Many protested under the banner “Never with Salvini”.
“The problem isn’t Renzi, Renzi is a pawn, Renzi is a dumb slave, at the disposal of some nameless person who wants to control all our lives from Brussels,” Mr Salvini told the rally at the Piazza del Popolo. He told his supporters that the prime minister was the “foolish servant” of Brussels. Mr Salvini spoke of a “different Europe, where banks count for less, and citizens and small businessmen count for more”. “I want to change Italy. I want the Italian economy to be able to move forward again, something that is obstructed by Brussels and mad European policies,” he said, describing the government’s immigration policies as “a disaster”.
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A fine man.
• Uruguay Bids Farewell To Jose Mujica, Its Pauper President (BBC)
Whatever your own particular “shade” of politics, it’s impossible not to be impressed or beguiled by Jose “Pepe” Mujica. There are idealistic, hard-working and honest politicians the world over – although cynics might argue they’re a small minority – but none of them surely comes anywhere close to the outgoing Uruguayan president when it comes to living by one’s principles. It’s not just for show. Mujica’s beat-up old VW Beetle is probably one of the most famous cars in the world and his decision to forego the luxury of the Presidential Palace is not unique – his successor, Tabare Vasquez, will also probably elect to live at home. But when you visit “Pepe” at his tiny, one-storey home on the outskirts of Montevideo you realise that the man is as good as his word.
Wearing what could best be described as “casual” clothes – I don’t think he’s ever been seen wearing a tie – Mujica seats himself down on a simple wooden stool in front of a bookshelf that seems on the verge of collapsing under the weight of biographies and mementoes from his political adversaries and allies. Books are important to the former guerrilla fighter who spent a total of 13 years in jail, two of them lying at the bottom of an old horse trough. It was an experience that almost broke him mentally and which shaped his transformation from fighter to politician. “I was imprisoned in solitary [confinement] so the day they put me on a sofa I felt comfortable!” Mujica jokes. “I’ve no doubt that had I not lived through that I would not be who I am today. Prison, solitary confinement had a huge influence on me. I had to find an inner strength. I couldn’t even read a book for seven, eight years – imagine that!”
Given his past, it’s perhaps understandable why Mujica gives away about 90% of his salary to charity, simply because he “has no need for it”. A little bit grumpy to begin with, Mujcia warms to his task as he describes being perplexed by those who question his lifestyle. “This world is crazy, crazy! People are amazed by normal things and that obsession worries me!” Not afraid to take a swipe at his fellow leaders, he adds: “All I do is live like the majority of my people, not the minority. I’m living a normal life and Italian, Spanish leaders should also live as their people do. They shouldn’t be aspiring to or copying a rich minority.”
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If only Al Capone had known.
• Why Iceland Banned Beer 100 Years Ago (BBC)
.. for much of the 20th Century it was unpatriotic – and illegal – to drink beer. When full prohibition became law 100 years ago, alcohol in general was frowned upon, and beer was especially out of favour – for political reasons. Iceland was engaged in a struggle for independence from Denmark at the time, and Icelanders strongly associated beer with Danish lifestyles. “The Danes were drinking eight times as much alcohol per person on a yearly basis at the time,” says historian Stefan Palsson, author of Beer: Around the World in 120 Pints. As a result, beer was “not the patriotic drink of choice”. The independence and temperance movements reinforced each other, and in 1908, four years after gaining home rule, Iceland held a referendum on a proposal to outlaw all alcohol from 1915. About 60% voted in favour. Women, who still didn’t have the vote, were vocal in their support.
“Prohibition was seen as progressive, like smoking [bans] today,” says Palsson. It didn’t take long for Prohibition to be undermined. Smuggling, home-brew and ambassadors lobbying for alcohol to oil the wheels of diplomacy all played a part. “Doctors started prescribed alcohol as medicine and they did so in huge quantities, for more or less everything. Wine if you had bad nerves, and for the heart, cognac,” says Palsson. But beer was never “what the doctor ordered”, despite the argument some put forward that it was a good treatment for malnourishment. “The head doctor put his foot down and said beer did not qualify as a medicine under any circumstances,” Palsson says.
There were other leaks in the Prohibition armour too. “Prohibition supporters complained that painters who never used to use spirits to clean their brushes were now getting litres and litres each year,” says Palsson. “So alcohol was flowing in from all directions.” Then the Spanish threatened to stop importing salted cod – Iceland’s most profitable export at the time – if Iceland did not buy its wine. Politicians bowed to the pressure and legalised red and rose wines from Spain and Portugal in 1921. Over time, support for prohibition dwindled. It had already been repealed by all the other European nations that had experimented with it (apart from the Faroe Islands) when in 1933 Icelanders voted to reverse course.
But even then the ban remained in force for beer containing more than 2.25% alcohol (about half the strength of an average-strength beer). As beer was cheaper than wines or spirits, the fear was that legalising it would lead to a big rise in alcohol abuse. The association of beer with Denmark also continued to tarnish its image in a country that only achieved full independence in 1944. However, beer remained accessible, just about, to those who really wanted it. “If you knew a fisherman, he may have had a few cases stashed in his garage – usually the cheapest and strongest beer available, often stored too long,” says Palsson Also popular, according to Ingvarsson, was tipping brennivin (burning wine), a potato-based vodka, into non-alcoholic beer – which tasted, as he puts it, “interesting and totally disgusting”.
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