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“Without any evidence, the probability of millions of people being infected with bullshit is higher than the probability of two people being infected with a toxic agent.”

• The Art of (Cold) War (Claire Connelly)

Here’s what we know so far: • UPDATE I: Former spy and double agent, Sergey Skripal and his daughter, Julia were allegedly poisoned. • Initial reports claimed the culprit was a chemical which falls under the category of ‘novichoks’, a collection of nerve agents developed by the Soviet Union in the 1970s and 1980s, there has been no official medical or scientific confirmation of these claims. The doctor that was allegedly one of the first people on the scene of the Skripals’ poisoning asked to remain anonymous. • No pictures or footage of the victims have been provided. • Skripal’s daughter, Julia, is a member of the Russian Federation but has been denied consular access by the British government.

• The Russian Embassy officially requested the Foreign Office provide information on Sergey and Julia Skripal’s health and details of investigation the day after the poisonings occured on March 5th. Almost two weeks have passed and it still has received no confirmation from the UK government, nor granted access to the alleged victims. • Skripal received at least $100,000 for sharing Russian state secrets with British intelligence. • Skripal was feeding secrets to MI6 at the time Christopher Steele was an MI6 officer in Moscow. • Skripal’s handler was British MI6 agent, Pablo Miller who was previously involved as a suspect in a criminal case against Skripal who in 2006 was sentenced to 13 years in prison for spying for Britain.

Russia is not alone in the development of novichok nerve agents. Former British Ambassador Craig Murray revealed that similar nerve agents are manufactured by the British Government in Porton Down, just 8 miles from where Skripal was poisoned. • Porton Down scientists are not able to identify the nerve gas as being of Russian manufacture. • The official British government story is that these nerve agents are only manufactured “To help develop effective medical countermeasures and to test systems”. • Israel also has a chemical and biological weapons program that manufactures similar poisons. A 1983 CIA intelligence estimate revealed that US spy satellites had uncovered a chemical nerve agent production facility in the Negev Desert the year prior. This fact was censored by the CIA before a version was released to the National Archives in 2009. The information would likely not have come to light were it not for the discovery of the redacted document by a researcher at the Ronald Reagan Presidential Library.

• Russia has never killed a swapped spy before. • Miller had a Salisbury address, according to his LinkedIn account which has since been deactivated. He specialised in the former Soviet Union, Russia and Eastern Europe and his diplomatic postings included Tallinn, Estonia. • Both Steele and Miller were members of Orbis Intelligence, the same firm that produced the sensational Steele Dossier which alleged Trump’s links with Russia, including a certain episode involving Russian prostitutes and golden showers.

There are quite a few tales about how the victims were supposedly infected with Novichok. Powder or liquid, in Russia or Britain.

• Killing Diplomacy (Dmitry Orlov)

• May claimed that the nerve agent was Novichok, developed in the USSR. In order to identify it, the UK experts had to have had a sample of it. Since neither the USSR, nor Russia, have ever been known to export it, we should assume that it was synthesized within the UK. The formula and the list of precursors are in the public domain, published by the scientist who developed Novichok, who has since moved to the US. Thus, British scientists working at Porton Down could have synthesized it themselves. In any case, it is not possible to determine in what country a given sample of the substance was synthesized, and the claim that it came from Russia is not provable.

• It was claimed that the victims—Mr. Skripal and his daugher—were poisoned with Novichok while at a restaurant. Yet how could this have been done? The agent in question is so powerful that a liter of it released into the atmosphere over London would kill most of its population. Breaking a vial of it open over a plate of food would kill the murderer along with everyone inside the restaurant. Anything it touched would be stained yellow, and many of those in the vicinity would have complained of a very unusual, acrid smell. Those poisoned would be instantaneously paralyzed and dead within minutes, not strolling over to a park bench where they were found. The entire town would have been evacuated, and the restaurant would have to be encased in a concrete sarcophagus by workers in space suits and destroyed with high heat. None of this has happened.

• In view of the above, it seems unlikely that any of what has been described in the UK media and by May’s government has actually taken place. An alternative assumption, and one we should be ready to fully test, is that all of this is a work of fiction. No pictures of the two victims have been provided. One of them—Skripal’s daughter—is a citizen of the Russian Federation, and yet the British have refused to provide consular access to her. And now it has emerged that the entire scenario, including the Novichok nerve gas, was cribbed from a US/UK television drama “Strike Back.” If so, this was certainly efficient; why invent when you can simply plagiarize.

• This is only one (and not even the last) in a series of murders and assumed but dubious suicides on former and current Russian nationals on UK soil that share certain characteristics, such the use of exotic substances as the means, no discernible motive, no credible investigation, and an immediate, concerted effort to pin the blame on Russia. You would be on safe ground if you assumed that anyone who pretends to know what exactly happened here is in fact lying. As to what might motivate such lying—that’s a question for psychiatrists to take up.

Imagine the outrage.

• Russia’s EU Ambassador Says UK Lab Could Be Nerve Agent Source (BBC)

Russia’s EU ambassador has suggested a UK research laboratory could be the source of the nerve agent used in the attack on an ex-spy and his daughter. Vladimir Chizhov told the BBC’s Andrew Marr Show that Russia had “nothing to do” with the poisoning in Salisbury of Sergei Skripal and his daughter Yulia. He said Russia did not stockpile the poison and that the Porton Down lab was only eight miles (12km) from the city. The government dismissed his comments as “nonsense.” Retired military intelligence officer Mr Skripal, 66, and Yulia, 33, remain critically ill in hospital after being found slumped on a bench in Salisbury city centre on 4 March.

Theresa May had told MPs that personnel from the Defence Chemical Biological Radiological and Nuclear Centre at Porton Down in Wiltshire had identified the substance used on them as being part of a group of military-grade nerve agents developed by Russia known as Novichok. Mr Chizhov told the BBC that Mr Skripal could “rightly be referred to as a traitor” but “from the legal point of view the Russian state had nothing against him”. Asked how the nerve agent came to be used in Salisbury, he said: “When you have a nerve agent or whatever, you check it against certain samples that you retain in your laboratories.

“And Porton Down, as we now all know, is the largest military facility in the United Kingdom that has been dealing with chemical weapons research. And it’s actually only eight miles from Salisbury.” But pressed on whether he was suggesting Porton Down was “responsible” for the nerve agent in the attack, Mr Chizhov said: “I don’t have evidence of anything being used.” He added: “I exclude the possibility of any stockpiles of any chemical weapons fleeing Russia after the collapse of the Soviet Union but there were certain specialists, including some scientists who today claim to be responsible for creating some nerve agents, that have been whisked out of Russia and are currently residing in the United Kingdom.”

But of course.

• NATO Must Improve Defences Against ‘More Aggressive’ Russia – Stoltenberg (G.)

Nato must improve its defensive capabilities and willingness to act in the wake of increasingly aggressive and unpredictable actions by Russia, the head of the transatlantic alliance said in a German newspaper interview published on Sunday. The Nato secretary general, Jens Stoltenberg, said he expected the German chancellor, Angela Merkel, and other Nato leaders to revamp their approach at the next Nato summit this summer, given a risk that Russia could gradually give more weight to nuclear weapons in its doctrine, exercises and new military capabilities. “I think Chancellor Merkel and her colleagues will face new decisions at the Nato summit in July in Brussels. We must be alert and resolute,” Stoltenberg was quoted saying by Welt am Sonntag.

The Nato leader last week accused Russia of trying to destabilise the west with new nuclear weapons, cyber attacks and covert action, including the poisoning of a Russian former double agent and his daughter in the British town of Salisbury. “We can always do more and must reflect on that now. Salisbury follows, by all appearances, a pattern we’ve observed for some years – Russia is becoming more unpredictable and more aggressive,” he said. Russia denies any involvement and says it is the US-led transatlantic alliance that is a risk to peace in Europe. “Russia must not miscalculate,” Stoltenberg told the newspaper. “We are always ready to respond when an ally is attacked militarily. We want credible deterrence. We don’t want any war. Our goal is de-escalation.“

The curious valuations of Amazon and its profitless prosperity.

• Goldilocks, R. I. P. – Part 3 (David Stockman)

The first law of Bubble Finance is that stock market crashes trigger recessions, not vice versa. That stands your grandfather’s macroeconomics on its ahead, yet the casual chain from which it arises is straight forward. To wit, in a world of Peak Debt ($230 trillion globally), central bank money pumping mainly inflates financial bubbles. Such bubbles eventually reach blow-off extremes and then burst, thereby sending stock (option) obsessed corporate C-suites into paroxysms of restructuring and downsizing designed to appease the trading gods of Wall Street. The main street sacrificial lambs thus tossed overboard – workers, inventories, plants, stores, warehouses, other “redundant” fixed assets and CapEx outlays – are what we are pleased to call recessions nowadays.

Needless to say, you can’t see these bouts of C-suite mayhem coming if your dashboard is still cluttered with your grandfather’s macro-monitors. That is, the junk data from the BLS and Commerce Department. By the same token, you will most surely espy Goldilocks prancing through these incoming data reports because at this late stage of the business cycle they are really nothing more than a read-out on capitalism’s inherent impulse to trudge forward until it is monkey-hammered by the central bank and its imploding bubbles. That is to say, the next recession is embedded in the stock charts because they are the Bubble tracker in plain sight. And here is the leading indicator at the present moment – the utterly lunatic trading metrics for Amazon (AMZN).

As the current bubble metastized after the immediate post-recession rebound in the stock market, the momo crowd piled into AMZN because the “price action” was just plain awesome. Between the March 2009 bottom and January 2017, the stock soared from $65 to $750 per share or by nearly 1100%. And it did so without any regard for AMZN’s profitless prosperity—perhaps signified by its 170X PE multiple at the end of 2016. Then again, when it comes to miracle stocks and the Great Disrupters, profits are–apparently–a matter of will, not performance. If Jeff Bezos wanted profits, the true believers insist, he would will them. Simple. Still, since the beginning of 2017, even the willpower meme has begun to get way in front of its skis.

During the past 14 months, Amazon’s market cap exploded by $400 billion – rising from $360 billion in January 2017 to $760 billion at present. At the same time, its LTM operating free cash flow plunged from a meager $9.5 billion ( on $136 billion of sales) to just $6.5 billion during the year ending in December. Since the rules of arithmetic apparently have not yet been “disrupted”, AMZN’s implied multiple on operating free cash flow has erupted from an already frisky 39X to a completely absurd 120X. Needless to say, a 24-year old company with virtually no cumulative profits and free cash flow to show for itself should not trade at anything remotely close to a triple digit multiple – and that’s to say nothing of one that’s essentially in the books, schmatta, gadgets and food sourcing, moving, storage and moving business.

The Brexit mayhem hides behind the Russia story for now.

• UK Brexit Committee In Bitter Row Over Plan To Delay EU Withdrawal (Ind.)

An influential Commons committee has become mired in a bitter row after Leave members refused to back its report recommending a potential delay to Brexit and extending the transition period afterwards. After they fell out with Remain backing members of the Brexit Committee, the group was forced to publish two sets of recommendations on Sunday. Prominent Conservative Jacob Rees-Mogg, who is a member, attacked others in the group as the “high priests of Remain”, claiming they had attempted to force through a “partisan” document. The committee’s Labour chair Hilary Benn said the divisions demonstrated just how difficult achieving an agreement on Brexit will be.

The group was set to call for an “extension to the Article 50 time”, which dictates the UK will formally leave the EU in March 2019, in order to ensure a comprehensive agreement can be reached. Their report was also due to back a provision in withdrawal arrangements to allow the transition period after departure, to be extended beyond the 21 months currently set, “if necessary”. Mr Benn highlighted that the extension would likely be needed because with just seven months left to reach an agreement, a host of highly complex issues remain. He said: “While the committee welcomes the progress that has been made in some areas, the Government faces a huge task when the phase two talks actually begin.

“The Government must now come forward with credible, detailed proposals as to how it can operate a ‘frictionless border’ between Northern Ireland and the Republic of Ireland because at the moment, the committee is not persuaded that this can be done at the same time as the UK is leaving the single market and the customs union.”

“There was a time when everyone in the bubble spoke French..”

• French Language Eyes ‘Le Comeback’ After Brexit (AFP)

Once upon a time speaking French was easy in Brussels, but things have changed. Bruno Le Maire, France’s finance minister, felt that keenly during a recent panel event with European steel-makers after several hours of speaking English with EU counterparts. “Maybe one in French if possible, otherwise I will run the risk of being criticised,” Le Maire, who speaks perfect English, said as he scanned the audience for questions. But raised hands quickly dropped away, leaving just one from a journalist, who asked the question in English anyway. Such is the fate of the speaker of French in today’s EU bubble, that small world of European decision-making where the language of Catherine Deneuve and Moliere was once essential.

Even after the shock vote of Brexit, English – or at least that simplified, beat-up version known as Globish – is firmly rooted as the lingua franca of the Brussels elite. “In the last 20 years, English has become completely dominant. French is not going to replace English in any way,” said Nicolas Veyron, one of the most respected economists in Brussels, who spends most of his day speaking English although he is French. That reality stings for French-speaking veterans of the Brussels bubble who remember a time when the top echelon of Europe was a coterie of francophones.

“The retreat of French has been catastrophic,” said Jean Quatremer, the longtime EU correspondent for French daily Liberation who has championed holding the line against the advance of English. “There was a time when everyone in the bubble – commissioners, officials, spokespeople, even (Brexit-backing British foreign minister) Boris Johnson, who was a journalist here – spoke French,” said AFP’s Christian Spillman, who first came to Brussels as a corespondent in 1991.

Whenever Europe talks about peace, remember this.

• Arms Deals Between Turkey And Germany Are Like A Well-Oiled Machine (Region)

Even after Turkey’s offensive in northern Syria’s Afrin, the German government has approved the supply of millions of euros in armaments to its partner, Turkey. The situation is revealed by a response from the Ministry of Economic Affairs to a request by the Green MP Omid Nouripour. In the first five and a half weeks of Turkey’s so-called “Operation Olive Branch” against the Kurdish militia YPG, and unfortunately civilians, in Afrin, 20 export authorisations for German armaments worth 4.4 million euros were granted. This is even more than the average value of the previous year for the same period (14 permits worth 3.6 million euros). Despite the strong opposition of German public opinion and media, arms sales to Turkey aren’t disrupted.

The type of armaments is unclear. In addition to weapons such as rifles, tanks or missiles, for example, unarmed military vehicles or reconnaissance armaments are possibly on the list. Foreign Minister Sigmar Gabriel (SPD), who resigned on Wednesday, had repeatedly assured in February, since the beginning of the Syrian offensive, that there is a complete export ban for all armaments to Turkey. “We did not deliver any armaments because of the conflict in northern Syria. That is forbidden in Germany, even to supply military armaments to a NATO partner like Turkey, “he said to the media on 16 February, the day of release of the journalist Deniz Yucel. Gabriel added, “Before this conflict, we would have been willing to deliver armaments that are not weapons. But that too has been stopped because of the conflict in Syria. And we can not and do not want to change that. ”

State Secretary Matthias Machnig (SPD), however, now writes in his reply to the request that the Federal Government has issued export licenses “in individual cases” even after the beginning of Turkey’s offensive. “These are either in connection with international arms cooperation, in which Germany is bound by contractual obligations to other EU and NATO partners, or they serve the NATO Alliance defence.” “The Federal Government has lied publicly and systematically to the public,” Nouripour told the media. “Permits, given despite the disproportionate assaults of the Turkish forces in northern Syria, cause heavy damage on the credibility of the new federal government and unmask their commitment to a restrictive arms export policy as empty promises.”

Mere numbers.

• At Least 15 Refugees Die As Boat Sinks Near Greek Island In Aegean Sea (R.)

Fifteen people, including at least five children, drowned on Saturday when the small boat they were travelling on capsized in the Aegean Sea, Greek coast guard officials said. The incident occurred off Greece’s Agathonisi island, which is close to the Turkish coast. The identity and nationality of the victims was not immediately known. “At least four more [migrants] were unaccounted [for],” a coast guard official told Reuters. Three others were rescued. Saturday’s incident was thought to be the highest death toll of migrants trying to reach outlying Greek islands in months.

Greek authorities said they believed there were 22 people on the boat. Greek coast guard vessels assisted by two helicopters were searching for more survivors. “We can’t tolerate losing children in the Aegean Sea … the solution is to protect people, to implement safe procedures and safe routes for migrants and refugees, to hit the human trafficking circuits,” Greek migration minister Dimitris Vitsas said in a press release.

Because man is smarter than nature.

• Billion-Dollar Polar Bio-Engineering ‘Needed To Slow Melting Glaciers’ (G.)

Scientists have outlined plans to build a series of mammoth engineering projects in Greenland and Antarctica to help slow down the disintegration of the planet’s main glaciers. The controversial proposals include underwater walls, artificial islands and huge pumping stations that would channel cold water into the bases of glaciers to stop them from melting and sliding into the sea. The researchers say the work – costing tens of billions of dollars a time – is urgently needed to prevent polar glaciers melting and raising sea levels. That would lead to major inundations of low-lying, densely populated areas, such as parts of Bangladesh, Japan and the Netherlands.

Flooding in these areas is likely to cost tens of trillions of dollars a year if global warming continues at its present rate, and vast sea-wall defences will need to be built to limit the devastation. Such costs make glacier engineering in polar regions a competitive alternative, according to the team, which is led by John Moore, professor of climate change at the University of Lapland. “We think that geoengineering of glaciers could delay much of Greenland and Antarctica’s grounded ice from reaching the sea for centuries, buying time to address global warming,” the scientists write in the current issue of Nature. “Geoengineering of glaciers has received little attention in journals. Most people assume that it is unfeasible and environmentally undesirable. We disagree.”

Ideas put forward by the group specifically target the ice sheets in Greenland and Antarctic because these will contribute more to sea rise this century than any other source, they say. Their proposals include: • Building a 100-metre high wall on the seabed across a 5km wide fjord at the end of the Jakobshavn glacier in western Greenland. This would reduce influxes of warming sea water which are eroding the glacier’s base; • Constructing artificial islands in front of glaciers in Antarctica in order to buttress them and limit their collapse as their ice melts due to global warming; • Circulating cooled brine underneath glaciers such as the Pine Island glacier in Antarctica – in order to prevent their bases from melting and sliding towards the sea.

In each case, the team – which includes scientists in Finland and the US – acknowledges that costs would be in the billions. Construction is also likely to cause considerable disruption. For example, building a dam across the Jakobshavn fjord could affect ecology, fisheries and tourism, and large numbers of workers would have to be shipped in to complete the project. Similarly, building artificial islands in front of glaciers would mean importing about six cubic kilometres of material, a task that would be immensely difficult in stormy Antarctic waters. And drilling through ice that is kilometres thick to pump down cooled water would also stretch the capabilities of engineers.

Debt Rattle February 17 2018

Feb 172018

February 17, 2018 Posted by Raúl Ilargi Meijer at 10:42 am Finance Tagged with: bitcoin, dicamba, fear, Germany, King Dollar, Monsanto, Mueller, Oxfam, rape, Russians, stress, Trump, victim 11 Responses »

Gilles Mostaert Sodom and Gomorrah 1597

• Kudlow: Trump Needs A Return To ‘King Dollar’ (CNBC)

• The Stock Market’s $3 Trillion Trauma (BBG)

• Why Today’s Low Financial Stress Should Stress You Out (Colombo)

• US Government Is Nowhere Close To Regulating Bitcoin (CNBC)

• Banks Told They’re Lagging On Response To Climate Change Risks (BBG)

• Monsanto Loses Bid To Stop Arkansas Ban On Weed Killer Dicamba (R.)

• Yet Another Year of Magical Thinking (Jim Kunstler)

• The End Of Germany’s Big-Tent Parties (Spiegel)

• ‘Absurd’ Meddling Claims & Indictment Of Russians Show New US Policy (RT)

• Oxfam Told Of Aid Workers Raping Children In Haiti A Decade Ago (Ind.)

• Oxfam Boss: ‘Anything We Say Is Being Manipulated. We’ve Been Savaged’ (G.)

Weak dollars make weak economies. Or is it the other way around?

• Kudlow: Trump Needs A Return To ‘King Dollar’ (CNBC)

The Trump Administration and the Republicans in Congress have passed one of the best pro-growth tax bills ever. The Tax Cuts and Jobs Act ranks in the all-time hall of fame of legislation, along with Ronald Reagan’s 1981 and 1986 Tax Acts and John F. Kennedy’s posthumous tax cuts of 1964. The announcements by Apple, FedEx, ATT, Fiat Chrysler and over 300 companies with multi-billion dollar investments in the U.S. are early indicators of good things to come from the tax rate cuts. When this is combined with President Donald Trump’s deregulation agenda, we see no reason why the economy cannot grow for a sustained period at 3 to 4% growth — up from 1.6% in Obama’s last year. But there is still a missing pillar of prosperity in the Trump economic agenda, and that is a sound dollar strategy.

The dollar weakened in 2017 and we want it stabilized. There’s little in this world that can bring our economy to its knees faster than a weak dollar in the foreign exchange markets. Just ask people who served in the administrations of Nixon, Ford, Carter, Bush 2 and Barack Obama’s first term. All of them were undone by a weak and depreciating dollar, surging inflation, spiking interest rates, plus financial or commodity bubbles. Meanwhile, under Reagan the U.S. dollar increased by 67% in value on foreign exchange markets through 1985. The price of gold, interest rates, and inflation all fell as well from double-digit inflationary highs, while the American economy reignited and the stock market launched its 18 year bull market.

Or, go back further in time. In May of 1962, President Kennedy’s Revenue Act was passed and he reaffirmed that the U.S. dollar was as good as gold — thus launching the incredible boom called the ‘Go-Go Sixties’. A strong dollar is an essential pillar of economic prosperity with minimal inflation, but we worry that the White House has not adopted this strategy. So we urge the Trump administration to return to the successful “King Dollar” policies that worked in the 60’s, 80’s and 90’s.

When $3 trillion is almost nothing.

• The Stock Market’s $3 Trillion Trauma (BBG)

Want a neat narrative? There isn’t one. Stocks buckled, $3 trillion was lost, then just as quickly, roughly half of it came back. Nothing quite explains every little twist and turn. Much of it remains a blur. But there are clues to be gleaned from the behavior of buyers and sellers. Several key facts stand out. One: a very large sum of money was plowed into equities amid January’s euphoria. Two: even more was yanked out as shares plunged. Three: corporate buyers showed up in force at the bottom. Combined, the flows are a framework for understanding — not a grand theory of everything, but an account of how money moved during the most tumultuous stretch in two years. They show how fast things change during a late-stage bull market, a rally that got back on track with this week’s 4.3% rebound.

“There was a technical correction but we saw some fear and some panic and some investors getting burned,” said Andrew Adams, a strategist at Raymond James Financial. “By no means did anyone expect that this selloff would be of this swiftness and magnitude.” Whatever the role of computers and automated traders as markets bucked and recovered, the events had a recognizable human ring. Investors – many of them of them newly christened, going by account data at discount brokerages – sent $16.4 billion to U.S. stock mutual funds and ETFs between Jan. 2 and the market peak of Jan. 26, EPFR data show. It was a decision they quickly reconsidered. Spooked by signs of inflation, shocked by the sight of traders unwinding bets against volatility, clients pulled almost $27 billion from the same set of funds in the next nine sessions.

One security, the SPDR S&P 500 ETF Trust, saw $23.6 billion withdrawn in one week. What made the selloff stop is anyone’s guess. It happened at a chart level, the S&P 500’s average price over the last 200 days, that half the world was watching a week ago Friday. But who the buyers were is less of a mystery. The Goldman Sachs unit that executes share repurchases for clients saw 4.5 times its average daily volume last week, its busiest ever. “Retail investors were fearful immediately after the selloff, but not the companies,” said Aidan Garrib, macro strategist at Pavilion Global Markets. “Companies have buyback policies that get reconsidered every quarter, so if you told shareholders that you’re going to buy back stock, and then a market blow-up that had no impact on your fundamentals made the price fall more than expected, maybe it’s not a bad thing to step in.”

Any and all low financial stress should stress you out. Because there should be a balance between greed and fear. Because stability breeds instability.

• Why Today’s Low Financial Stress Should Stress You Out (Colombo)

In this piece, I will discuss a little-followed, but valuable market indicator called the “St. Louis Fed Financial Stress Index.” According to the St. Louis Fed, this indicator was created in 2010 after economists sought a better way to track U.S. financial system stress in the wake of the 2008 financial crisis. This index uses 18 weekly data series: seven interest rate series, six yield spreads and five other indicators (mostly sentiment-related indicators). When the index is very high (such as in 2008), it means that the U.S. financial system is experiencing a great amount of stress. When the index is low (such as during an economic expansion and bull market), it means that the financial system is experiencing a low amount of stress. According to the chart below, U.S. financial system stress is currently at record lows:

According to the chart below (with my comments added in red), dangerous economic bubbles form during relative troughs in the St. Louis Fed Financial Stress Index. The late-1990s Dot-com bubble formed when the index was at a relative low, as did the mid-2000s U.S. housing and credit bubble, and I believe that the “Everything Bubble” is forming during the current trough. The “Everything Bubble” is a bubble that is inflating in numerous global assets and sectors (including tech startups, U.S. equities, global bonds, some segments of the U.S. property market, property in China, emerging markets, Australia, Canada, and more) as a result of unprecedented central bank stimulus since the global financial crisis.

The U.S. Federal Reserve has manipulated interest rates by keeping them extremely low, which has led to the inflation of bubbles throughout the economy. As the chart below shows, bubbles form during periods of low interest rates. In this case, “low” is all relative because interest rates have been trending lower since the early-1980s, which is why asset and credit bubbles are becoming more extreme than in the past. Most people are unaware of how extreme our current bubble is, but it will certainly be another case of “only when the tide goes out do you discover who’s been swimming naked” (to quote Warren Buffett).

Not much need right now.

• US Government Is Nowhere Close To Regulating Bitcoin (CNBC)

There’s a long way to go before the U.S. government starts regulating bitcoin, Rob Joyce, special assistant to the president and White House cybersecurity coordinator, told CNBC on Friday. Speaking at the Munich Security Conference in Germany, Joyce emphasized the need to better understand the cryptocurrency’s risks and benefits before embarking on any sort of regulatory regime. “I think we’re still absolutely studying and understanding what the good ideas and bad ideas in that space are,” he said when asked about the potential for government regulation. “So, I don’t think it’s close.” Bitcoin is a decentralized cryptocurrency, meaning that unlike fiat currencies such as the dollar, it’s not backed by a central authority. Critics have said that this gives the currency, which saw huge price gains in 2017, no inherent value.

As transactions are completely anonymous, bitcoin has been accused of making it easier for those engaged in illicit activities to hide their money. “We are worried. There are benefits to the bitcoin concept — digital cash, digital currencies,” Joyce said. “But at the same time, if you look at the way bitcoin works after there is a criminal act that takes place, you can’t rewind the clock and take back that currency.” Joyce described the inherent problem with this lack of a trail, noting that in the case of credit card theft, for instance, individuals or companies can contact their banks and purchases can be undone and the cash retrieved. “With the current instantiation of bitcoin and other cryptocurrencies, we haven’t figured that out yet. So it’s a problem,” he said.

Someone comes up with some arbitrary set of numbers (Paris) and expects banks to comply. We got nothing.

• Banks Told They’re Lagging On Response To Climate Change Risks (BBG)

Fewer than half the world’s biggest banks are doing enough to forestall climate change that poses risks to their markets and economies. Most lenders still aren’t producing firm targets for low-carbon financial products that will aid efforts to keep temperatures from rising, according to a survey of 59 banks conducted by Boston Common Asset Management. Even the strongest banks in the survey, including Goldman Sachs, still struggle to define a climate strategy at the heart of their business, according to the report published Thursday and backed by more than 100 institutional investors. Scientists predict higher frequencies of floods, famines and superstorms unless the world keeps temperature rises well below 2 degrees Celsius (3.6 degrees Fahrenheit) this century.

Goldman Sachs was cited as a leader in the report after the investment bank set a 2025 target of $150 billion in clean energy financing and investing. It also released a clean energy impact report in 2016 that examined the impact of the $41 billion in green investments. Almost half of the groups have put in place climate risk assessments and 61% haven’t restricted the financing of coal. The global banking sector provided $600 billion in financing for the top 120 coal plant developers between 2014 and September 2017, according to the report. Boston Common called for all banks to disclose climate risk in line with the Taskforce on Climate-related Financial Disclosures. They should also set clear targets to promote low carbon products and publish strategy reports aligned with the Paris Agreement, according to the recommendations.

“Since 2005, when Goldman Sachs established its Environmental Policy Framework, harnessing market-based solutions to address environmental challenges has become increasingly core to our business,” said Kyung-Ah Park, head of the Environmental Markets Group at Goldman Sachs. “Our $150 billion target of financing and investing in companies that promote clean technology and renewable energy is an example of our commitment to addressing climate change.”

Because the state cannot be made a defendant in court.

• Monsanto Loses Bid To Stop Arkansas Ban On Weed Killer Dicamba (R.)

An Arkansas judge on Friday dismissed a Monsanto lawsuit aiming to stop Arkansas from blocking the use of a controversial farm chemical the company makes, dealing a blow to its attempts to increase sales of genetically engineered seeds. Monsanto, which is being acquired by Bayer, filed the lawsuit last year in a bid to halt the state’s ban on sprayings of the weed killer known as dicamba from the period spanning April 16 to Oct. 31. Growers across the U.S. farm belt said last summer that dicamba drifted away from where it was sprayed, damaging millions of acres of crops that could not tolerate the herbicides. St. Louis-based Monsanto, the biggest U.S. seed company, said it was disappointed with the judge’s decision and would consider additional legal action.

In the ruling, Pulaski County Circuit Court Judge Chris Piazza cited a recent Arkansas Supreme Court decision that the state cannot be made a defendant in court, according to the Arkansas Agriculture Department. Dicamba, also sold by BASF and DowDuPont, is meant to be used during the summer growing season on soybeans and cotton that Monsanto engineered to resist the chemical. Monsanto is banking on the herbicide and its dicamba-resistant soybean seeds to dominate soybean production in the United States, the world’s second-largest exporter. The company says dicamba, which it sells under the name XtendiMax with VaporGrip, is safe when used properly.

The Arkansas ban hurts Monsanto’s ability to sell dicamba-tolerant seed in the state and has caused “irreparable harm” to the company, according to Monsanto’s lawsuit. The state also limited use of Monsanto’s dicamba herbicide in 2017 but allowed sales of products by other companies. David Wildy, an Arkansas farmer who served on a state task force that recommended the ban, said he supported Friday’s ruling. He said his soybeans suffered damage from the herbicide last year and that it threatens plants ranging from flowers to vegetables and peanuts when it drifts away from where it is sprayed. “If we can’t keep products on target, then there’s not a place for them in agriculture,” Wildy said in an telephone interview.

If all the money and energy spent on Mars attacks were used to ameliorate life on earth, perhaps we’d have a shot.

• Yet Another Year of Magical Thinking (Jim Kunstler)

There’s absolutely nothing that might make Mars a “sustainable” habitat for human beings, or probably any other form of Earthly life. The journey alone would destroy human bodies. If you think that living in Honolulu is expensive, with most daily needs of the population shipped or flown in, imagine what it would be like sending a cargo of provisions (Doritos? Pepperoni sticks? Mountain Dew? Fabreeze?) to a million “consumers” up on Mars. Or do you suppose the colonists will “print” their food, water, and other necessities? Elon Musk’s ventures have reportedly vacuumed in around $5 billion in federal subsidies. Mr. Musk is doing a fine job of keeping his benefactors entertained. Americans are still avid for adventures in space, where just about every other movie takes place.

I suppose it’s because they take us away from the awful conundrums of making a go of it here on Earth, a planet that humans were exquisitely evolved for (or designed for, if you will), and which we are in the process of rendering uninhabitable for ourselves and lots of other creatures. This is our home. Can we talk about the necessary adjustments and arrangements we have to make in order to continue the human project here? Just based on our performance on this blue planet, we are not qualified to infect other parts of the solar system.

German politics is descending into chaos.

• The End Of Germany’s Big-Tent Parties (Spiegel)

The country is slipping into a crisis and Germany, the bastion of stability in Europe, is becoming politically unstable. And every month the country continues to be run by a provisional government is another month that Germany doesn’t have a voice in Europe or the world.This is by no means purely a domestic development. The party system is currently being turn upside down across Western democracies. Owing to Germany’s prosperity and the sedative power of its chancellor, it long appeared that Merkel had been spared by the international development. But the torturous wrangling to create a new government has now dashed that hope.

In France, the two parties that once dominated the country now hold only just over a quarter of the seats in the national parliament. In Italy, the Five Star Movement, which doesn’t seem to stand for much other than the desire for change and its loathing of the status quo and is led by a former TV comedian, appears to have strong chances of winning the election there in March. In Germany, the old establishment parties are also struggling to maintain political stability. Combined support for the SPD and the conservatives has dropped from over 90% at the beginning of the 1970s to just 49% today. Their decline, which had previously been a slow and creeping process, has rapidly accelerated in recent months.

The party system in Germany is splintering, with seven parties now represented in national parliament. When it is no longer possible to form governments with two or three parties, it will necessarily become increasingly difficult to build stable governments. Italy already provides an example of what that can mean. The country is constantly swapping out its prime minister and holding snap elections. Italy has had almost 30 prime ministers and a total of 61 cabinets since 1946. In the same period, Germany has been governed by eight chancellors.

Echo chambers just keep getting louder. Not much of substance. So why not RT’s comment? The Russians did it anyway.

• ‘Absurd’ Meddling Claims & Indictment Of Russians Show New US Policy (RT)

US indictment of 13 Russian nationals and three entities over alleged meddling in American elections in 2016 has been labelled absurd by the Russian Foreign Ministry spokesperson, Maria Zakharova. “Turns out, there’ve been 13 people, in the opinion of the US Justice Department. 13 people interfered in the US elections? 13 against billions budgets of special agencies? Against intelligence and counterespionage, against the newest technologies? Absurd? – Yes.” Zakharova said in a Facebook post. The indictment, however, is the “modern American political reality,” Zakharova added, jokingly suggesting that the number 13 was picked due to its negative associations.

One of the indicted, Russian businessman Evgeny Prigozhin, said he was not really upset by the accusations. “The Americans are very emotional people, they see what they want to see. I have great respect for them. I am not at all upset that I am on this list. If they want to see the devil, let them,” Prigozhin told RIA Novosti. The entities and individuals were indicted by a US federal grand jury on Friday of “supporting the presidential campaign of then-candidate Donald J. Trump…and disparaging Hillary Clinton.” However, there are “no allegations” that the suspected activities of the Russian nationals somehow affected the polls, according to the US Deputy Attorney General Rod Rosenstein.

On Friday, Russian Foreign Minister Sergey Lavrov said that supporting Donald Trump has never been an official Russian policy, even if some Russians did express their backing of the new US leader. The Minister has expressed his discontent with the apparently continuing nosedive in the US-Russia relations. “It’s a pity that under Donald Trump, for more than a year of his presidency, our relations have not improved compared to the period of the Democratic administration. Even worsened to a certain extent,” Lavrov told Euronews.

Close it down. It can’t be saved. You can’t send Oxfam people anywhere in the world anymore.

• Oxfam Told Of Aid Workers Raping Children In Haiti A Decade Ago (Ind.)

Aid agencies including Oxfam were warned that aid workers were sexually abusing children in Haiti a decade ago, The Independent can reveal. Children as young as six were being coerced into sex in exchange for food and necessities, according to a damning report by Save the Children, which called for urgent action including the creation of a global watchdog. Its research exposed abuse linked to 23 humanitarian, peacekeeping and security organisations operating in Haiti, Ivory Coast and what was then Southern Sudan. “Our own fieldwork suggests that the scale of abuse is significant,” the report concluded. “Every agency is at risk from this problem … existing efforts to keep children safe from sexual exploitation and abuse are inadequate.”

It identified “every kind of child sexual abuse and exploitation imaginable”, including rape, prostitution, pornography, sexual slavery, assaults and trafficking. One 15-year-old girl in Haiti told how “humanitarian men” exposed themselves and offered her the equivalent of £2 to perform a sex act. “The men call to me in the streets and they ask me to go with them,” said another Haitian girl. “They do this will all of us young girls.” A six-year-old girl described being sexually assaulted and a homeless girl was given a single US dollar by a “man who works for an NGO” before being raped and severely injured, while boys were also reportedly raped. When asked why the abuse was not reported, children said they feared losing aid, did not trust local authorities, did not know who to go to, felt powerless or feared stigma and retaliation. “The people who are raping us and the people in the office are the same people,” said one girl in Haiti.

See? Oxfam is the victim, not te raped children. That this guy still has a job there says more than enough.

• Oxfam Boss: ‘Anything We Say Is Being Manipulated. We’ve Been Savaged’ (G.)

Oxfam has been reeling since the Times reported last week that several of the charity’s aid workers – including the country director, Roland van Hauwermeiren, had used prostitutes in Haiti while providing humanitarian work, following the 2011 earthquake. The men involved lost their jobs, but Oxfam is accused of covering up the scandal. Further revelations of sexual abuse in Oxfam shops, some against volunteers as young as 14, have emerged, engulfing the charity in a crisis unprecedented in its 76-year history. Many things have been said about Goldring and Oxfam this week, but the charge that they have failed to grasp the gravity of the situation seems absurd. Yet he came close to cancelling this interview, justifiably fretting that his words would be wilfully twisted to do Oxfam yet more damage. “Anything we say is being manipulated: ‘Oxfam’s still making excuses, still trying to justify itself.’

I went on the Today programme on the first day and tried to explain and it totally failed. All it did was fuel the fire.” Every explanation he’s tried to offer has been branded an excuse “and just failed in the court of public opinion. We’ve been savaged.” Even apologies only make matters worse. “I said on TV: ‘Yes, we could have done some things faster,’ and all of a sudden we’ve got two former ministers calling for my resignation. What I felt really clearly is many people haven’t wanted to listen to explanations.” To try again is a risk Goldring worries he may regret, but no one can doubt the courage it took. He talks to me alone, unchaperoned by press officers, and is unguarded and candid. The impression I form is of someone telling the truth: if Goldring has been guilty of anything, I think it might be naivety about the vulnerability of almost any organisation in the febrile public mood of distrust.

Debt Rattle December 27 2017

Dec 272017

December 27, 2017 Posted by Raúl Ilargi Meijer at 10:18 am Finance Tagged with: Apple, bitcoin, China, debt, Germany, home prices, refugees, rich, Russiagate, spending, wealth 11 Responses »

Vincent van Gogh Landscape with snow 1888

• World’s Wealthiest Became $1 Trillion Richer in 2017 (BBG)

• The Rich Are Getting So Much Richer So Fast Their Spending Can’t Keep Up (CNN)

• Germany – A Most Dangerous And Ridiculous Nation (Bilbo)

• Britons Borrow An Average £452 Each On Credit Cards At Christmas (G.)

• Bitcoin’s Rally Has Taken A Pause (BBG)

• Case-Shiller 20-Home Price Index Just Shy Of 2006 Bubble Peak (Mish)

• China Bets on More State Control for 2018 (Balding)

• Eight Lawsuits Over Apple Defrauding iPhone Users By Slowing Devices (R.)

• From Snowden To Russia-gate – The CIA And The Media (Moon of A.)

• Italy Rescues More Than 250 Migrants In Mediterranean (R.)

They won’t be able to keep doing this without facing pitchforks.

• World’s Wealthiest Became $1 Trillion Richer in 2017 (BBG)

The richest people on earth became $1 trillion richer in 2017, more than four times last year’s gain, as stock markets shrugged off economic, social and political divisions to reach record highs. The 23% increase on the Bloomberg Billionaires Index, a daily ranking of the world’s 500 richest people, compares with an almost 20% increase for both the MSCI World Index and Standard & Poor’s 500 Index. Amazon.com founder Jeff Bezos added the most in 2017, a $34,2 billion gain that knocked Microsoft co-founder Bill Gates out of his spot as the world’s richest person in October. Gates, 62, had held the spot since May 2013, and has been donating much of his fortune to charity, including a $4.6 billion pledge he made to the Bill & Melinda Gates Foundation in August.

Bezos, whose net worth topped $100 billion at the end of November, currently has a net worth of $99.6 billion compared with $91.3 billion for Gates. George Soros also gave away a substantial part of his fortune, revealing in October that his family office had given $18 billion to his Open Society Foundations over the past several years, dropping the billionaire investor to No. 195 on the Bloomberg ranking, with a net worth of $8 billion. By the end of trading Tuesday, Dec. 26, the 500 billionaires controlled $5.3 trillion, up from $4.4 trillion on Dec. 27, 2016. “It’s part of the second-most robust and second-longest bull market in history,” said Mike Ryan, chief investment officer for the Americas at UBS Wealth Management, on Dec. 18. “Of all the guidance we gave people over the course of this year, the most important advice was staying invested.”

It’s curious to see that so many people are so blind to the notion of economies and societies needing a minimum level of balance. When that balance is destroyed, a reaction must automatically and inevitably follow. The rich could have gone on enjoying their privileges for a long time, but greed got in the way.

• The Rich Are Getting So Much Richer So Fast Their Spending Can’t Keep Up (CNN)

It’s never a bad year to be rich, exactly. But 2017 turned out to be a particularly good one. Rich people are doing so well these days that their spending on luxury goods isn’t even keeping up. Luxury spending rose 5% globally in 2017, the management consulting firm Bain & Company found. But that is a fraction of the 40% rise in net worth that people in America’s top-tenth of income earners saw between 2013 and 2016, according to the Federal Reserve. “We used to see that the growth of luxury was closely correlated with the stock market,” said Milton Pedraza, chief executive officer of the Luxury Institute, a consulting firm for high-end brands. “The stock market and real estate have gone up so much that nobody wants to spend all that money. It’s impossible.”

The big increase in wealth has exacerbated a long-evolving financial split between those at the very top and those at the bottom, even as the robust economy has lifted many working people with jobs and higher wages. Here are some examples. The S&P 500 Index has risen 20% since the beginning of the year and the Dow Jones Industrial Average is up 25%, fattening portfolios and boosting dividends. To a certain extent, the benefits are shared through ownership of 401(k) accounts. But only about half of Americans participate in an employer-sponsored retirement fund, according to the Pew Research Center, and a much smaller 18.7% of Americans own stock directly. In both cases, market participation is skewed toward those with higher incomes, which means that the wealthy disproportionately benefit from Wall Street’s boom.

Home prices reached all-time highs, according to the Case-Shiller home price index. That’s especially the case in hot markets like Seattle and San Francisco, where many working people are already unable to afford ownership. Although homeownership is a source of middle class wealth, homeowners generally tend to be higher-income. According to the Census Bureau, 78.4% of families making more than the median income own homes, compared to 49.5% of those making less.

Just another chapter in the ‘Rich Getting Richer’ files. This too will evoke a response.

• Germany – A Most Dangerous And Ridiculous Nation (Bilbo)

Germany’s domination of the EMU is clear both in political and economic terms. The current political impasse within Germany will not change that. Once resolved the on-going government will continue in the same vein – running excessive fiscal surpluses and huge external surpluses. It can sustain those positions because it dominates European policy and can force the adjustment to these overall ‘unsustainable’ positions onto both its own citizens (lowering their material living standards), and, more obviously, onto citizens of other EMU nations, most noticeably Spain and Greece. If it couldn’t bully nations like Greece, Italy, Spain and even France, Germany’s dangerous domestic strategy would be less effective. If all EMU nations followed Germany’s lead – then there would be mass Depression throughout Europe. This dangerous and ridiculous nation is a blight.

Only by exiting the Eurozone and floating their currencies against the currency that Germany uses can these beleaguered EMU nations gain some respite. When the Europhile Left come to terms with that obvious conclusion things might change within Europe. The following graph (using IMF WEO data) shows the sectoral balances for Germany from 1991 to 2017 (the last year is estimated). It is an extraordinary graph really in the context of Germany’s integral role in the Economic and Monetary Union (EMU). Germany is part of a currency union and its outcomes are much more closely tied to the fortunes of its EMU partners than say a nation, such as Australia, which has its own currency and floats it on international markets. What you see are two distinct EMU periods, when Germany was in gross violation in one way or another of the Treaty rules (laws).

It is not overstating the case to say that the increased poverty and hardship for citizens within Europe is directly related to the German government’s obsession with fiscal and external surpluses and its intransigence when confronted about this. Germany has become a dangerous yet ridiculous nation. While the Financial Times article (Dec 22, 2017) – The fiscal surplus that Germany should spend – referred to “Germany’s fiscal surplus” as an: ..a chronic embarrassment of riches.. I would prefer to refer to it as an embarrassing example of policy vandalism and an illegal assault on the rules that Germany has signed up to follow. Why illegal? Because it is directly related to Germany’s violation of the Macroeconomic Imbalance Procedure, which specifies under its so-called Scoreboard Indicators that the “major source of macroeconomic imblances” includes a: “3-year backward moving average of the current account balance as% of GDP, with thresholds of +6% and -4%”.. So the upper warning threshold (for an external surplus) is 6% of GDP.

Nicely put: “January should be a time for looking ahead but up and down the country millions of Brits will be looking over their shoulder at the cost of their festive spending..”

• Britons Borrow An Average £452 Each On Credit Cards At Christmas (G.)

The Christmas spending hangover means that Britons who splurged on plastic will start 2018 owing an average of more than £450 on their credit cards – with many fearful the debt will still be haunting them by next Christmas. Nearly £8.5bn has been loaded on to cards to cover the cost of gifts and entertaining, according to research by the price comparison service uSwitch, which found nearly a fifth of consumers had exceeded their Christmas budget as they grappled with rising living costs. “January should be a time for looking ahead but up and down the country millions of Brits will be looking over their shoulder at the cost of their festive spending,” said Tashema Jackson, money expert at uSwitch.com which polled 4,000 consumers.

The survey found Britons had borrowed an average of £452 to cover the cost of the festivities. One annual survey found that the UK’s cheapest supermarket Christmas dinner cost 18% more than last year, as the impact of inflation and Brexit-related commodity costs made its way to the festive family table. Half of the respondents told uSwitch they were worried they would still be trying to clear the debt in December 2018. Nearly one in 10 were still paying off debts dating back to last Christmas.

If you bought at $19,000 and used leverage, does this still feel like a pause?

• Bitcoin’s Rally Has Taken A Pause (BBG)

Bitcoin’s rally took a pause Wednesday, suggesting it isn’t about to make another run at its record reached last week. The fervor that propelled the digital currency past $19,000, prompted in part by regulated U.S. derivatives exchanges starting to trade contracts based on the unit this month, has yet to return. Bitcoin traded around $15,947 as of 10:31 a.m. Tokyo time Wednesday, according to composite prices on Bloomberg, up 0.1% from late Tuesday though below that day’s high. “Nobody knows the ultimate value of this underlying asset,” Edward Stringham, president of the American Institute for Economic Research, said on Bloomberg Television. “We cannot predict whether it’s going to be zero or one million dollars or anything in between.”

For skeptics doubting whether individuals and businesses will truly start using bitcoin as a medium of exchange – as opposed to some officially backed digital currency – the short-lived rebound from the past week’s selloff portends further declines. “It’s much more likely once you’ve made a big downward movement like the one we made last week that you have a bigger and more complex correction,” Ric Spooner, a Sydney-based analyst at CMC Markets, told Bloomberg Television. “Once a market like this one locks into those patterns it becomes pretty good” to follow via chart-based analysis, he said. Spooner said it’s possible bitcoin could drop to $5,700 or $8,700 in coming months.

“Congratulations. The Fed re-blew the housing bubble. In the misguided way in which the Fed calculates inflation, none of this is considered inflationary. Few new buyers can afford to buy.”

• Case-Shiller 20-Home Price Index Just Shy Of 2006 Bubble Peak (Mish)

The Case-Shiller national home price index surged past the pre-recession high last year. The city composites lag. Steady gains continue in the Case-Shiller Home Price Indexes.

Case-Shiller Year-Over-Year Summary
• The National Home Price NSA Index reported a 6.2% annual gain in October, up from 6.1% in the previous month.
• The 10-City Composite annual increase came in at 6.0%, up from 5.7% the previous month.
• The 20-City Composite posted a 6.4% year-over-year gain, up from 6.2% the previous month.
• Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In October, Seattle led the way with a 12.7% year-over-year price increase, followed by Las Vegas with a 10.2% increase, and San Diego with an 8.1% increase.

Nine cities reported greater price increases in the year ending October 2017 versus the year ending September 2017.

Case-Shiller Month-Over-Month Summary
• Before seasonal adjustment, the National Index, 10-City and 20-City Composites all posted a month-over-month gain of 0.2% in October.
• After seasonal adjustment, the National Index, 10-City and 20-City Composites all recorded a 0.7% month-over-month increase in October.
• Eleven of 20 cities reported increases in October before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.

Xi cannot afford to even allow teh suggestion that he loses control; at the same time he needs to generate growth. He may well find the two contradict each other.

• China Bets on More State Control for 2018 (Balding)

First, watch the data, not the New Year’s resolutions. While China touts deleveraging efforts, the data is mixed. The debt-to-GDP ratio in China is only up slightly from 2016 to 260%, though it is expected to top out at 327% in 2022. The moderation was due not to slowing debt growth, but a jump in commodity prices that pushed up nominal GDP. Watch debt growth in 2018: Prices are expected to fall again, raising debt-to-GDP. China still has not given up its debt habit. Second, the Federal Reserve rate hikes last year were likely to play a big role in Chinese policy. In retrospect, they did and did not. Interest rates in China are up sharply, with even interbank rates over one month up 1.5% since January 2017. Money market rates are up to 6.39% for 14-day repurchases.

Rate increases are putting pressure on Chinese corporate bonds given the overwhelmingly short-term nature of borrowing, which constantly resets rates. Oddly, even as U.S. interest rates increased, the dollar fell, with indexes down 9%. Though it is unclear why the dollar fell, if the Fed hikes four times as predicted by Goldman Sachs, this could cause the currency to reverse course. A strong dollar and rising U.S. rates will pressure China. Third, heading into the National Congress, I said watch out for Chinese politics. Though Premier Li Keqiang remains in office, Beijing clearly swept away any vestiges of market adherence. The installation of Party committees over the board of directors in foreign firms and major state-owned enterprises laid bare Beijing’s ambition. Communist Party strength would take priority over everything.

As we look into 2018, some of these themes carry forward, but with a twist. Beijing is solidifying its control over all aspects of the economy. The Party released new rules on overseas investments by firms and has enforced rules mandating that banks balance their foreign exchange transactions. After the Fed recently raised rates by 0.25%, the People’s Bank of China followed with a hike of only 0.05%, confident it can tame any potential outflows. If the Fed hikes another three times and the dollar does not drop another 10%, this would push interest rates in China for debt over six months close to an intolerable 8% and reduce foreign exchange reserves beneath the $3 trillion level.

What a curious mistake.

• Eight Lawsuits Over Apple Defrauding iPhone Users By Slowing Devices (R.)

Apple defrauded iPhone users by slowing devices without warning to compensate for poor battery performance, according to eight lawsuits filed in various federal courts in the week since the company opened up about the year-old software change. The tweak may have led iPhone owners to misguided attempts to resolve issues over the last year, the lawsuits contend. All the lawsuits – filed in U.S. District Courts in California, New York and Illinois – seek class-action to represent potentially millions of iPhone owners nationwide. A similar case was lodged in an Israeli court on Monday, the newspaper Haaretz reported. The company acknowledged last week for the first time in detail that operating system updates released since “last year” for the iPhone 6, iPhone 6s, iPhone SE and iPhone 7 included a feature “to smooth out” power supply from batteries that are cold, old or low on charge.

Phones without the adjustment would shut down abruptly because of a precaution designed to prevent components from getting fried, Apple said. The disclosure followed a Dec. 18 analysis by Primate Labs, which develops an iPhone performance measuring app, that identified blips in processing speed and concluded that a software change had to be behind them. One of the lawsuits, filed Thursday in San Francisco, said that “the batteries’ inability to handle the demand created by processor speeds” without the software patch was a defect. “Rather than curing the battery defect by providing a free battery replacement for all affected iPhones, Apple sought to mask the battery defect,” according to the complaint.

[..] The problem now seen is that users over the last year could have blamed an aging computer processor for app crashes and sluggish performance – and chose to buy a new phone – when the true cause may have been a weak battery that could have been replaced for a fraction of the cost, some of the lawsuits state.

“Bezos and Omidyar obviously helped the NSA to keep more than 95% of the Snowden archive away from the public…”

• From Snowden To Russia-gate – The CIA And The Media (Moon of A.)

The promotion of the alleged Russian election hacking in certain media may have grown from the successful attempts of U.S. intelligence services to limit the publication of the NSA files obtained by Edward Snowden. In May 2013 Edward Snowden fled to Hongkong and handed internal documents from the National Security Agency (NSA) to four journalists, Glenn Greenwald, Laura Poitras, and Ewen MacAskill of the Guardian and separately to Barton Gellman who worked for the Washington Post. Some of those documents were published by Glenn Greenwald in the Guardian, others by Barton Gellman in the Washington Post. Several other international news site published additional material though the mass of NSA papers that Snowden allegedly acquired never saw public daylight.

In July 2013 the Guardian was forced by the British government to destroy its copy of the Snowden archive. In August 2013 Jeff Bezos bought the Washington Post for some $250 million. In 2012 Bezos, the founder, largest share holder and CEO of Amazon, had already a cooperation with the CIA. Together they invested in a Canadian quantum computing company. In March 2013 Amazon signed a $600 million deal to provide computing services for the CIA. In October 2013 Pierre Omidyar, the owner of Ebay, founded First Look Media and hired Glenn Greenwald and Laura Poitras. The total planned investment was said to be $250 million. It took up to February 2014 until the new organization launched its first site, the Intercept. Only a few NSA stories appeared on it. The Intercept is a rather mediocre site.

Its management is said to be chaotic. It publishes few stories of interests and one might ask if it ever was meant to be a serious outlet. Omidyar has worked, together with the U.S. government, to force regime change onto Ukraine. He had strong ties with the Obama administration. Snowden had copies of some 20,000 to 58,000 NSA files. Only 1,182 have been published. Bezos and Omidyar obviously helped the NSA to keep more than 95% of the Snowden archive away from the public. The Snowden papers were practically privatized into trusted hands of Silicon Valley billionaires with ties to the various secret services and the Obama administration.

The EU is actively assisting Libya’s slave trade. That is quite something to close off the year with.

• Italy Rescues More Than 250 Migrants In Mediterranean (R.)

More than 250 migrants were rescued in the central Mediterranean during the night between Monday and Tuesday, Italy’s Coast Guard said. A statement said the migrants, in one large rubber dinghy and two small boats, were rescued in three missions by two ships, one from a non-governmental organization. Migrant arrivals to Italy have fallen by two-thirds year on year since July after officials working for the U.N.-backed government in Tripoli put pressure on people smugglers in the Libyan city of Sabratha to stop boats leaving. Italy is also bolstering the Libyan coast guard’s ability to turn back boats. Last week, the United Nations began bringing African refugees to Italy from Libya, evacuating them from detention centers whose conditions have been condemned by rights groups as inhumane.

Debt Rattle February 27 2017

Feb 272017

February 27, 2017 Posted by Raúl Ilargi Meijer at 9:39 am Finance Tagged with: avalanche, Bannon, bloodbath, deflation, Germany, Greece, hopium, pillage, Trump 3 Responses »

Wyland Stanley Indian guides and Nash auto at Covelo stables., Mendocino County CA 1925

• The World’s Most Radical Experiment in Monetary Policy Isn’t Working (WSJ)

• Giant Fiscal Bloodbath Coming Soon – David Stockman (USAW)

• Marc Faber Warns Investors An ‘Avalanche’ Could Be Coming (CNBC)

• What Does Steve Bannon Want? (NYT)

• Where Did Steve Bannon Get His Worldview? From My Book.. (Howe)

• Of Bread And Circuses (Admiral Ben Moreell, January 1, 1956)

• Dijsselbloem Comes Out Fighting as Wilders Holds Dutch Poll Lead (BBG)

• EU Lawmakers Call For ‘Federal Union’ Of European States (RT)

• EU Lawmakers, In Unusual Move, Pull The Plug On Racist Talk (AP)

• No Debt Relief For Greece, Germany’s Deputy Finance Minister Says (R.)

• Germany Announces The Final Pillage Of Greece (RI)

Policies that achieve the opposite of what’s intended. Scaring people does that. Lower consumer spending = lower money velocity = Deflation.

• The World’s Most Radical Experiment in Monetary Policy Isn’t Working (WSJ)

Keita Kameyama, a 30-year-old civil servant in Kagawa, a rural province, has been saving around 25% of his $40,000 salary each year to eventually marry his longtime girlfriend. He lives at home with his mother, drives an old Honda and rarely shops. The central bank’s stimulus measures had no effect on Mr. Kameyama’s spending. He still salts away his money in plain-vanilla bank accounts. He fears Japan’s long stagnation will wipe out his pension, and worries he won’t have enough money to care for his mother—a growing concern in a country with twice as many people over 60 than between 20 and 34. He sees bank accounts, which offer minuscule interest rates on deposits despite negative short-term rates, as the only way to save. Hyakujushi Bank, Ltd. the biggest in Kagawa, pays only 0.05% on deposits and has paid less than 1% since 1995.

“People in Kagawa love to save,” says Mr. Kameyama. “I have heard [the Bank of Japan] is trying very hard to get people to spend their money, but I don’t think I will be opening my wallet.” Many young Japanese economize because they simply don’t have enough money. More are working low-paying and temporary jobs with no benefits. “Companies aren’t growing, and they have aging workforces that they can’t fire,” says Takuji Okubo at the Japan Macro Advisors research group. “So there’s no room to hire young people.” Automobile, beer and cosmetics firms have slashed young-adult advertising and market to retirees instead, says Yohei Harada at Tokyo ad agency Hakuhodo. “The role of parents and children is getting reversed, where the parents from the bubble generation still act like children and want to buy the fancy car, while their children in the post-bubble generation worry about their parents’ spending,” he says.

“There will not be Obama Care repeal and replace. There will be no tax cut. There will be no infrastructure stimulus. There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.”

• Giant Fiscal Bloodbath Coming Soon – David Stockman (USAW)

Former Reagan Administration White House Budget Director David Stockman says financial pain is a mathematical certainty. Stockman explains, “I think we are likely to have more of a fiscal bloodbath rather than fiscal stimulus. Unfortunately for Donald Trump, not only did the public vote the establishment out, they left on his doorstep the inheritance of 30 years of debt build-up and a fiscal policy that’s been really reckless in the extreme. People would like to think he’s the second coming of Ronald Reagan and we are going to have morning in America. Unfortunately, I don’t think it looks that promising because Trump is inheriting a mess that pales into insignificance what we had to deal with in January of 1981 when I joined the Reagan White House as Budget Director.”

So, can the Trump bump in the stock market keep going? Stockman, who wrote a book titled “Trumped” predicting a Trump victory in 2016, says, “I don’t think there is a snowball’s chance in the hot place that’s going to happen. This is delusional. This is the greatest suckers’ rally of all time. It is based on pure hopium and not any analysis at all as what it will take to push through a big tax cut. Donald Trump is in a trap. Today the debt is $20 trillion. It’s 106% of GDP. . . Trump is inheriting a built-in deficit of $10 trillion over the next decade under current policies that are built in. Yet, he wants more defense spending, not less. He wants drastic sweeping tax cuts for corporations and individuals. He wants to spend more money on border security and law enforcement. He’s going to do more for the veterans. He wants this big trillion dollar infrastructure program. You put all that together and it’s madness. It doesn’t even begin to add up, and it won’t happen when you are struggling with the $10 trillion of debt that’s coming down the pike and the $20 trillion that’s already on the books.”

Then, Stockman drops this bomb and says, “I think what people are missing is this date, March 15th 2017. That’s the day that this debt ceiling holiday that Obama and Boehner put together right before the last election in October of 2015. That holiday expires. The debt ceiling will freeze in at $20 trillion. It will then be law. It will be a hard stop. The Treasury will have roughly $200 billion in cash. We are burning cash at a $75 billion a month rate. By summer, they will be out of cash. Then we will be in the mother of all debt ceiling crises. Everything will grind to a halt. I think we will have a government shutdown. There will not be Obama Care repeal and replace. There will be no tax cut. There will be no infrastructure stimulus. There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.”

“Very simply, the market starts to go down. As it goes down, it will start triggering selling, and then it will be like an avalanche..”

• Marc Faber Warns Investors An ‘Avalanche’ Could Be Coming (CNBC)

The man often hailed as the original ‘Dr. Doom’ is warning investors that the U.S. stock market is vulnerable to a seismic sell-off—one that could start any time in a very unassuming way. Marc Faber, the editor of “The Gloom, Boom & Doom Report,” predicted the rally’s disruption won’t be caused by any single catalyst. His argument: Stocks are very overbought and sentiment is way too bullish for the so-called Trump rally to continue. “Very simply, the market starts to go down. As it goes down, it will start triggering selling, and then it will be like an avalanche,” said Faber recently on “Futures Now.” “I would underweight U.S. stocks.” Faber, a supporter of President Donald Trump, isn’t blaming the new administration for his bearish forecast. “One man alone, he cannot make ‘America great again.’ That you have to realize,” he said.

“Trump, unlike Mr. Reagan, is facing huge, huge headwinds — including a debt to GDP that is gigantic, as it is in other countries.” Faber lists interest rates going up, as well as earnings and margins at record levels, as additional risks to the historic rally. The Dow Jones Industrial Average registered its eleventh record close in a row on Friday. And, if you take a look at just the S&P 500 in February, it’s on track to see the fewest declines in any month since May 1990. [..] There are areas overseas which are in much better shape than the United States, according to the notoriously bearish investor. “China looks quite attractive,” said Faber. “For the next three months, money can flow into China. The economy, surprisingly, has begun to do quite well. We see that in retail in Hong Kong. We see that in the hotel industry, and we see that in the demand for commodities.”

According to Faber, resource commodities such as copper and gold could also give investors solid profits this year. “When you look at Trump and his administration, and the way the budget is, I think further money printing down the line is inevitable,” he said — a policy which would could lift commodities even higher.

Two Bannon articles today. Not because I’m a fan, as some people undoubtedly like to think. Just better to know something.

• What Does Steve Bannon Want? (NYT)

[..] some of the roots of Mr. Bannon’s ideology, like the roots of Mr. Trump’s popularity, are to be found in the disappointed hopes of the global economy. But Mr. Bannon, unlike Mr. Trump, has a detailed idea, an explanation, of how American sovereignty was lost, and of what to do about it. It is the same idea that Tea Party activists have: A class of regulators in the government has robbed Americans of their democratic prerogatives. That class now constitutes an “administrative state” that operates to empower itself and enrich its crony-capitalist allies. When Mr. Bannon spoke on Thursday of “deconstructing the administrative state,” it may have sounded like gobbledygook outside the hall, but it was an electrifying profession of faith for the attendees. It is through Mr. Bannon that Trumpism can be converted from a set of nostalgic laments and complaints into a program for overhauling the government.

Mr. Bannon adds something personal and idiosyncratic to this Tea Party mix. He has a theory of historical cycles that can be considered elegantly simple or dangerously simplistic. It is a model laid out by William Strauss and Neil Howe in two books from the 1990s. Their argument assumes an 80- to 100-year cycle divided into roughly 20-year “highs,” “awakenings,” “unravelings” and “crises.” The American Revolution, the Civil War, the New Deal, World War II — Mr. Bannon has said for years that we’re due for another crisis about now. His documentary about the 2008 financial collapse, “Generation Zero,” released in 2010, uses the Strauss-Howe model to explain what happened, and concludes with Mr. Howe himself saying, “History is seasonal, and winter is coming.”

What’s striking is that both Bannon articles are mild. Even if they’re from NYT and WaPo.

• Where Did Steve Bannon Get His Worldview? From My Book.. (Howe)

The headlines this month have been alarming. “Steve Bannon’s obsession with a dark theory of history should be worrisome” (Business Insider). “Steve Bannon Believes The Apocalypse Is Coming And War Is Inevitable” (the Huffington Post). “Steve Bannon Wants To Start World War III” (the Nation). A common thread in these media reports is that President Trump’s chief strategist is an avid reader and that the book that most inspires his worldview is “The Fourth Turning: An American Prophecy.” I wrote that book with William Strauss back in 1997. It is true that Bannon is enthralled by it. In 2010, he released a documentary, “Generation Zero,” that is structured around our theory that history in America (and by extension, most other modern societies) unfolds in a recurring cycle of four-generation-long eras.

While this cycle does include a time of civic and political crisis — a Fourth Turning, in our parlance — the reporting on the book has been absurdly apocalyptic. I don’t know Bannon well. I have worked with him on several film projects, including “Generation Zero,” over the years. I’ve been impressed by his cultural savvy. His politics, while unusual, never struck me as offensive. I was surprised when he took over the leadership of Breitbart and promoted the views espoused on that site. Like many people, I first learned about the alt-right (a far-right movement with links to Breitbart and a loosely defined white-nationalist agenda) from the mainstream media. Strauss, who died in 2007, and I never told Bannon what to say or think. But we did perhaps provide him with an insight — that populism, nationalism and state-run authoritarianism would soon be on the rise, not just in America but around the world. Because we never attempted to write a political manifesto, we were surprised by the book’s popularity among certain crusaders on both the left and the right.

[..] The cycle begins with the First Turning, a “High” which comes after a crisis era. In a High, institutions are strong and individualism is weak. Society is confident about where it wants to go collectively, even if many feel stifled by the prevailing conformity. Many Americans alive today can recall the post-World War II American High (historian William O’Neill’s term), coinciding with the Truman, Eisenhower and Kennedy presidencies. Earlier examples are the post-Civil War Victorian High of industrial growth and stable families, and the post-Constitution High of Democratic Republicanism and Era of Good Feelings.

The Second Turning is an “Awakening,” when institutions are attacked in the name of higher principles and deeper values. Just when society is hitting its high tide of public progress, people suddenly tire of all the social discipline and want to recapture a sense of personal authenticity. Salvation by faith, not works, is the youth rallying cry. One such era was the Consciousness Revolution of the late 1960s and 1970s. Some historians call this America’s Fourth or Fifth Great Awakening, depending on whether they start the count in the 17th century with John Winthrop or the 18th century with Jonathan Edwards.

The Third Turning is an “Unraveling,” in many ways the opposite of the High. Institutions are weak and distrusted, while individualism is strong and flourishing. Third Turning decades such as the 1990s, the 1920s and the 1850s are notorious for their cynicism, bad manners and weak civic authority. Government typically shrinks, and speculative manias, when they occur, are delirious.

Finally, the Fourth Turning is a “Crisis” period. This is when our institutional life is reconstructed from the ground up, always in response to a perceived threat to the nation’s very survival. If history does not produce such an urgent threat, Fourth Turning leaders will invariably find one — and may even fabricate one — to mobilize collective action. Civic authority revives, and people and groups begin to pitch in as participants in a larger community. As these Promethean bursts of civic effort reach their resolution, Fourth Turnings refresh and redefine our national identity. The years 1945, 1865 and 1794 all capped eras constituting new “founding moments” in American history.

Admiral Ben Moreell (1892 – 1978) was the chief of the U.S. Navy’s Bureau of Yards and Docks and of the Civil Engineer Corps. Best known to the American public as the Father of the Navy’s Seabees, Moreell’s life spanned eight decades, two world wars, a great depression and the evolution of the United States as a superpower. He was a distinguished Naval Officer, a brilliant engineer, an industrial giant and articulate national spokesman.

• Of Bread And Circuses (Admiral Ben Moreell, January 1, 1956)

A twentieth-century repetition of the mistakes of ancient Rome would be inexcusable.Rome was eight and a half centuries old when the poet, Juvenal, penned his famous tirade against his degenerate countrymen. About 100 A.D. he wrote: “Now that no one buys our votes, the public has long since cast off its cares; the people that once bestowed commands, consulships, legions and all else, now meddles no more and longs eagerly for just two things, bread and circuses.” (Carcopino, Daily Life in Roman Times [New Haven, Yale University Press, 1940], p. 202.) Forty years later, the Roman historian, Fronto, echoed the charge in more prosaic language: “The Roman people is absorbed by two things above all others, its food supplies and its shows.” (Ibid.)

Here was a once-proud people, whose government had been their servant, who had finally succumbed to the blandishments of clever political adventurers. They had gradually relinquished their sovereignty to government administrators to whom they had granted absolute powers, in return for food and entertainment. And the surprising thing about this insidious progression is that, at the time, few realized that they were witnessing the slow destruction of a people by a corruption that would eventually transmute a nation of self-reliant, courageous, sovereign individuals into a mob, dependent upon their government for the means of sustaining life.

There are no precise records that describe the feelings of those for whom the poet, Juvenal, felt such scorn. But using the clues we have, and judging by our own experience, we can make a good guess as to what the prevailing sentiments of the Roman populace were. If we were able to take a poll of public opinion of first and second century Rome, the overwhelming response would probably have been—“We never had it so good.” Those who lived on “public assistance” and in subsidized rent-free or low-rent dwellings would certainly have assured us that now, at last, they had “security.”

Those in the rapidly expanding bureaucracy—one of the most efficient civil services the world has ever seen—would have told us that now government had a “conscience” and was using its vast resources to guarantee the “welfare” of all of its citizens; that the civil service gave them job security and retirement benefits; and that the best job was a government job! Progressive members of the business community would have said that business had never been so good, that the government was their largest customer, which assured them a dependable market, and that the government was inflating currency at about 2 per cent a year, which instilled confidence and gave everyone a sense of well-being and prosperity.

These ‘people’ are actually proud of themselves. An opposition politician in Holland seriously suggested to let Dijjsselbloem stay on as FinMin and Eurogroup head even if he loses the March 15 election, ‘because he’s such a success’. His party stands to lose 2/3 of its votes…

• Dijsselbloem Comes Out Fighting as Wilders Holds Dutch Poll Lead (BBG)

Dutch Finance Minister Jeroen Dijsselbloem said his Labor Party is fighting for every seat as populist Geert Wilders maintained a poll lead less than three weeks before general elections. Dijsselbloem, who has served as finance minister in a coalition government with Prime Minister Mark Rutte’s Liberal Party since 2012, is campaigning for his political future in the March 15 elections. Dijsselbloem also leads the group of euro-area finance ministers, and a poor showing that cost Labor its coalition slot could put his post in doubt. “I am optimistic, we have had highs and lows, we will just need to keep on fighting,” Dijsselbloem, who is third on the Labor Party’s list of candidates, said at an event in Amsterdam on Sunday. “At home and relaxed, I get somber, but as long as I remain busy I get the feeling we are getting an extra seat.”

Wilders’s anti-Islam Freedom Party would place first with 29 out of the 150 seats in parliament compared to 25 seats for Rutte’s Liberal Party, according to a poll published by Peil.nl on Sunday. While that’s the same four-seat lead as last week’s Peil.nl survey, an Ipsos poll published Friday showed the Liberals overtaking the Freedom Party, with 28 seats to 26 seats. The Labor Party under Deputy Prime Minister Lodewijk Asscher’s leadership would take 12 seats in Sunday’s poll. Labor, which currently holds 38 seats, lost support after it formed a coalition with the Liberals. Though the parties differ in their ideology, they managed to agree on a broad range of reform measures.

Starting in the middle of the economic crisis, the coalition passed a €22 billion austerity package that included cost cuts in elderly care and healthcare, an increase in the pension age and a reform of the housing market. Rutte’s second cabinet will be the first government to complete a full term since Prime Minister Wim Kok’s first ended in 1998. “It has been a journey through the desert, but we are now the most competitive economy of Europe and also one of the fastest growing, with the largest drop in unemployment in 10 years,” Rutte said in an interview in Het Financieele Dagblad on Saturday. “So that’s quite an achievement.”

Please let them try to do more things that people don’t want.

• EU Lawmakers Call For ‘Federal Union’ Of European States (RT)

The leaders of the lower chambers of parliament of Germany, Italy, France, and Luxembourg have called for a European “Federal Union” in an open letter published in Italian newspaper La Stampa on Sunday. In the letter, four representatives of EU governments – Claude Bartolone of the French National Assembly, Laura Boldrini of the Italian Chamber of Deputies, Norbert Lammert of the German Bundestag, and Mars Di Bartolomeo of the Luxembourg Chamber of Deputies – say that closer cooperation is essential for dealing with problems that no one EU state can tackle on its own, such as immigration, terrorism, and climate change. “Now is the moment to move towards closer political integration — the Federal Union of States with broad powers. We know that the prospect stirs up strong resistance, but the inaction of some cannot be the paralysis of all. Those who believe in European ideals, should be able to give them a new life instead of helplessly observing its slow sunset,” the letter read.

The letter’s authors also warn that the European integration project is currently more at risk than ever before, with high unemployment and immigration problems driving populist and nationalist movements. The EU must also come to grips with the fact that, last June, the United Kingdom decided to leave the union after holding a national referendum, aka Brexit, becoming the first member nation to opt out of the bloc. On Sunday, a number of EU states, including Germany, France and Italy, called for the UK to pay a hefty price as a “divorce settlement.” The letter was published in the run-up to a meeting of parliamentary leaders in Rome on March 17 to mark the 60th anniversary of the Treaty of Rome, which established the European Economic Community (EEC). The treaty’s signing by six countries– Belgium, France, Italy, Luxembourg, West Germany and the Netherlands – in 1957 eventually paved the way for the Maastricht Treaty and the European Union in 1991.

In September of 2015, Lammert, Bartolone, Boldrini and di Bartolomeo also signed a declaration calling for deeper and faster European integration. However, greater European integration is being increasingly challenged by a number of Eurosceptic parties around the continent, including the Alternative for Germany, the National Front in France, and the Party for Freedom in the Netherlands. Upcoming elections could bring these parties closer to power. According to the European Parliament’s chief Brexit negotiator, Guy Verhofstadt, the EU must reform, or it risks disappearing under a barrage of internal and external attacks. Late last year Noam Chomsky also warned that the surge in right-wing and anti-establishment sentiment stemming from Europe’s failed neo-liberal policies is likely to lead to the EU’s collapse, adding that “it would be a tragic development” if the bloc fell apart.

Silent censorship. What’s not to like?

• EU Lawmakers, In Unusual Move, Pull The Plug On Racist Talk (AP)

At the European Parliament, where elections are due in 2019, many say the need for action against hate speech, and strong sanctions for offenders, is long overdue. The assembly— with its two seats; one in the Belgian capital of Brussels, and the other in Strasbourg in northeast France – is often the stage for political and sometimes nationalist theater. Beyond routine shouting matches, members occasionally wear T-shirts splashed with slogans or unfurl banners. Flags adorn some lawmakers’ desks. Yet more and more in recent years, lawmakers have gone too far. “There have been a growing number of cases of politicians saying things that are beyond the pale of normal parliamentary discussion and debate,” said British EU parliamentarian Richard Corbett, who chaperoned the new rule through the assembly.

“What if this became not isolated incidents, but specific, where people could say: ‘Hey, this is a fantastic platform. It’s broad, it’s live-streamed. It can be recorded and repeated. Let’s use it for something more vociferous, more spectacular,'” he told The Associated Press. In a nutshell, rule 165 of the parliament’s rules of procedure allows the chair of debates to halt the live broadcast “in the case of defamatory, racist or xenophobic language or behavior by a member.” The maximum fine for offenders would be around 9,000 euros ($9,500). Under the rule, not made public by the assembly but first reported by Spain’s La Vanguardia newspaper, offending material could be “deleted from the audiovisual record of proceedings,” meaning citizens would never know it happened unless reporters were in the room. Weingaertner said the IPA was never consulted on that.

A technical note seen by the AP outlines a procedure for manually cutting off the video feed, stopping transmission on in-house TV monitors and breaking the satellite link to halt broadcast to the outside world. A videotape in four languages would be kept running to serve as a legal record during the blackout. A more effective and permanent system was being sought. It is also technically possible to introduce a safe-guard time delay so broadcasts appear a few seconds later. This means they could be interrupted before offending material is aired. But the system is unwieldy. Lawmakers have the right to speak in any of the European Union’s 24 official languages. An offending act could well be over before the assembly’s President Antonio Tajani even has a chance to hit the kill switch. Misunderstandings and even abuses could crop up.

During a debate in December, Gerolf Annemans, from Belgium’s Flemish independence party Vlaams Belang, expressed concern that the rule “can be abused by those who have hysterical reactions to things that they qualify as racist, xenophobic, when people are just expressing politically incorrect views.”

What a decade of fake news can achieve.

• No Debt Relief For Greece, Germany’s Deputy Finance Minister Says (R.)

Greece must not be granted a “bail in” that would involve creditors taking a loss on their loans, Germany’s deputy finance minister said in an interview broadcast on Sunday, reiterating the German government’s opposition to debt relief for Athens. “There must not be a bail-in,” Jens Spahn told German broadcaster Deutschlandfunk, according to a written transcript of the interview. “We think it is very, very likely that we will come to an agreement with the IMF that does not require a haircut,” he said, referring to losses that Greece’s creditors would have to take if debt was written off. The IMF has called for Greece to be granted substantial debt relief, but this is opposed by Germany, which makes the largest contribution to the budget of the European Stability Mechanism (ESM), the euro zone’s bailout fund.

Greece and its creditors agreed on Monday to further reforms by Athens to ease a logjam in talks with creditors that has held up additional funding for the troubled euro zone country. Inspectors from the European Commission, the ESM, the IMF and the European Central Bank are due to return to Athens this week. Spahn, a senior member of Chancellor Angela Merkel’s conservatives, said Greece’s problem was a lack of growth rather than debt and giving Athens debt relief would upset other euro zone countries such as Spain that had to deliver tough reforms. “Our Spanish friends, for example, say: ‘Hang on – that wouldn’t be fair: we carry out reforms and get no haircut and now you’re talking about giving Greece one?!'” Spahn said Germany was campaigning hard to keep the IMF on board in Greece’s bailout because of its expertise in helping countries that need to deliver reforms in return for aid.

Manfred Weber, who leads the conservative bloc in the European Parliament, said this month that if the IMF insisted on debt relief for Greece, it should no longer participate in the bailout, breaking ranks with Berlin’s official line that the program would end if the IMF pulled out.

Much more in the article. On how all public assets are forcibly sold at firesale prices etc.

• Germany Announces The Final Pillage Of Greece (RI)

It’s official: The Germans will not allow debt relief for Greece. Instead, Berlin wants to send in the repo man. The untold story of the Greek “bailouts” is that it wasn’t a “bailout” — it was an auction of Greek assets. Real, tangible things with real, tangible value were seized in exchange for pieces of paper that guarantee Athens will be chained to Berlin and Brussels for the foreseeable future. It’s your basic extortion racket. As one rather gloomy (but intriguing) analysis puts it:

The debt problem continues to erode the European Union from within – it is already impossible to hide, and Greek tragedy, for example, is growing. Against this background, Germany seems to have a consensus about how to get rid of Greece with its debts and inefficient economy. The scheme of this careless schoolboy by the ear from the class, it seems, differs only in details: either to expel or allow suffering – to provoke the Maidan in Athens, and then to expel in any case.

Bavaria’s 50-year-old finance minister and CSU politician Markus Soeder became the declarant of this ‘plan B’, who stated about the necessity of ‘a plan B’. “New billions should only flow when Athens implemented all the reforms. Even then, however, aid should only be given against a pledge “in the form of cash, gold or real estate”,” Soeder stated.

In his own way, he’s right – all conditions have been created for Maidan in Athens. Previously, the EU and the ECB assessed all the Greece’s public property at 50 billion euro that does not even cover the necessary new loans on debt payments of this country (80-90 billion euro). Therefore, the collateral should be gathered from private funds through the expropriation of gold and real estate. Implementation of reforms will lead to the final death of the Greek small and medium businesses after bringing the taxation to “European standards”, and namely such steps of the Ukrainian government have led to the Maidan in Kiev in 2013 with the collapse of the ruling regime in February 2014.

A bit too melodramatic? We forgot — we are supposed to use the friendly neoliberal term for this policy of national enslavement and communal suicide: “voluntary privatization.” Yes, we know. The poor, altruist Germans had to save irresponsible Greece. They did a fine job of it too.

Debt Rattle January 13 2017

Jan 132017

January 13, 2017 Posted by Raúl Ilargi Meijer at 10:28 am Finance Tagged with: Assange, China, cold war, extradition, Fiat, Germany, Greece, Manning, Obama, trade, Trump, zombies 4 Responses »

Edgar Degas Dancers in Blue 1895

• Assange Agrees To Extradition If US Releases Chelsea Manning (AFP)

• China Posts Worst Export Fall Since 2009 As Fears Of US Trade War Loom (R.)

• Fiat Chrysler Shares Plunge 13% After EPA Cheat Software Accusation (CNBC)

• Wages For Lowest-Paid UK Men Have Been Stagnant For Two Decades (Ind.)

• Abolish Central Banks And Slay The Zombies (Planet Ponzi)

• WHO Warns Of Outbreak Of Virulent New ‘Economic Reality’ Virus (Steve Keen)

• The Utter Stupidity Of The New Cold War (SCF)

• Obama’s “Farewell To Arms” As War Presidency Ends (SCF)

• Massive Security Preparations Under Way For Inauguration (Fox)

• Germany’s Schaeuble Urges ECB To Start Unwinding Stimulus This Year (CNBC)

• Germany To Return New Asylum Seekers To Greece From March (AFP)

• Greece’s Healthcare System: Train Wreck In Slow Motion (Occupy)

• Weitergeleiteter Spendenaufruf für Griechenland (Das Gelbe Forum)

What does it say about us if our best and brightest feel compelled to sacrifice themselves? Where is this going to leave us? Where would we be without Assange, Snowden and Manning? Certainly not in a better place.

• Assange Agrees To Extradition If US Releases Chelsea Manning (AFP)

WikiLeaks founder Julian Assange will agree to be extradited to the United States if President Barack Obama grants clemency to the former US soldier Chelsea Manning, jailed for leaking documents, the company said on Thursday. “If Obama grants Manning clemency Assange will agree to US extradition despite clear unconstitutionality of DoJ (US Department of Justice) case,” WikiLeaks wrote on Twitter. Assange has been living in the Ecuadoran embassy in London since June 2012 to avoid extradition to Sweden to face sexual assault allegations. The Australian former computer hacker said he fears Stockholm will in turn extradite him to the US, where he angered Washington over WikiLeaks’ publication of thousands of US military and diplomatic documents leaked by former US soldier Manning.

Manning is currently serving a 35-year sentence in solitary confinement for handing over the 700,000 sensitive documents from the US State Department. Supporters of the transgender soldier are putting their hopes in a pardon by Obama before he leaves office later this month, although the White House has said the president will not be granting her clemency. Manning has already made two suicide attempts and currently has an appeal pending before a military court. Washington has maintained the threat of prosecuting Assange over the 2010 leak, though no charges have been filed. WikiLeaks’ post on Twitter was accompanied by a letter addressed to US Attorney General Loretta Lynch, in which Assange’s lawyer Barry Pollack argues there is no legitimate basis for continuing the investigation into the WikiLeaks founder.

“The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of this trend..”

• China Posts Worst Export Fall Since 2009 As Fears Of US Trade War Loom (R.)

China’s massive export engine sputtered for the second year in a row in 2016, with shipments falling in the face of persistently weak global demand and officials voicing fears of a trade war with the United States that is clouding the outlook for 2017. In one week, China’s leaders will see if President-elect Donald Trump makes good on a campaign pledge to brand Beijing a currency manipulator on his first day in office, and starts to follow up on a threat to slap high tariffs on Chinese goods. Even if the Trump administration takes no concrete action immediately, analysts say the specter of deteriorating U.S.-China trade and political ties is likely to weigh on the confidence of exporters and investors worldwide.

The world’s largest trading nation posted gloomy data on Friday, with 2016 exports falling 7.7% and imports down 5.5%. The export drop was the second annual decline in a row and the worst since the depths of the global crisis in 2009. It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China’s exports due to greater protectionist measures, the country’s customs agency said on Friday. “The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of this trend,” customs spokesman Huang Songping told reporters. “We will pay close attention to foreign trade policy after Trump is inaugurated president,” Huang said.

China’s trade surplus with the United States was $366 billion in 2015, according to U.S. customs data, which Trump could seize on in a bid to bring Beijing to the negotiating table to press for concessions, economists at Bank of America Merrill Lynch said in a recent research note. A sustained trade surplus of more than $20 billion against the United States is one of three criteria used by the U.S. Treasury to designate another country as a currency manipulator. China is likely to point out that its own data showed the surplus fell to $250.79 billion in 2016 from $260.91 billion in 2015, but that may get short shrift in Washington. “Our worry is that Trump’s stance towards China’s trade could bring about long-term structural weakness in China’s exports,” economists at ANZ said in a note.

And now for the rest…

• Fiat Chrysler Shares Plunge 13% After EPA Cheat Software Accusation (CNBC)

Shares of Fiat Chrysler fell Thursday after the U.S. Environmental Protection Agency accused the automaker of using software that allowed excess diesel emissions in about 104,000 vehicles. The U.S.-listed shares of Fiat Chrysler plunged as much as 19% Thursday after Reuters first reported the news. The automaker’s stock was briefly halted after the EPA made the announcement. The stock later recovered some of those losses and ended the day about 10% lower. The agency alleged Fiat Chrysler violated the Clean Air Act by installing and failing to disclose “engine management software in light-duty model year 2014, 2015 and 2016 Jeep Grand Cherokees and Dodge Ram 1500 trucks with 3.0 liter diesel engines sold in the United States.”

The undisclosed software results increased nitrogen oxide emissions from the vehicles, the EPA said. The Justice Department is reportedly working with the EPA on this issue. The company could be liable for civil penalties and injunctive relief for the alleged violations, the EPA said. It said it is also investigating whether the auxiliary emission control devices constitute “defeat devices,” which are illegal. On Thursday, Attorney General Eric Schneiderman said in a statement he was deeply troubled by the evidence the EPA presented. “My office was proud to take a leading role in the multi-state investigation of Volkswagen that uncovered flagrant abuses of New York’s environmental laws and, in the case of VW, a culture of corruption that enabled blatantly illegal conduct to persist over many years,” he said.

Huge move towards part-time work.

• Wages For Lowest-Paid UK Men Have Been Stagnant For Two Decades (Ind.)

Pay for the poorest fifth of men has been flat for twenty years, according to a new report for the Institute for Fiscal Studies. At the same time the proportion of this low-paid group working part time, rather than full time, has shot up from 10% to 25% over the same period. The research helps explain what has become something of an inequality puzzle in the UK, in which official headline gauges have shown flat-lining income inequality since the early 1990s and yet there is simultaneously a widespread impression that inequality has been rising strongly.

The IFS research shows that average inflation-adjusted annualised weekly pay growth for the lowest fifth of the male income distribution was zero or less between 1994-95 and 2014-15, while for men further up the income distribution real weekly pay has grown. And while part-time work among the lowest paid men has ballooned, rates have not changed for better paid men. This all means that among working men wage inequality has increased over the past two decades. “The rise in household earnings inequality has been the product of a complex set of interactions between trends in hours and wages for men and women, but it is largely due to a rise in male earnings inequality,” said the IFS report.

Mitch with the obvious.

• Abolish Central Banks And Slay The Zombies (Planet Ponzi)

Have the [BOE]-enabled grotesque bubbles in the bond, stock and property markets or the eight years of “temporary emergency measures” and zero-interest-rate policies created infrastructure investment? Job creation? Savings? No, no and no. It has killed savers, students and seniors while generating record bonuses for chief executives. While earnings may have peaked almost 18 months ago, stock prices keep bubbling and wealth inequality continues to surge to record highs — along with homelessness and underemployment. Will Carney blame Brexit, Putin or Trump for the upcoming problems? Why not? Certainly, extreme valuations enabled by the Bank recklessly allowing debt, credit and leverage to skyrocket out of this universe had nothing to do with the coming collapse — nothing to see here, look away.

It is not only the UK but also global central bank policies that have broken our financial system beyond repair. The world’s oldest bank, Banca Monte dei Paschi di Siena, founded in 1472, is now an insolvent zombie bank thanks to the handiwork of JPMorgan, Deutsche Bank and Nomura. They sold Monte billions of dollars of derivative trades it did not understand. These predictably exploded, leaving the bank bust. JPMorgan, Deutsche and Nomura made a fortune — and Monte’s shareholders and depositors, and EU taxpayers, will get slammed with the massive bailout tab. The new normal is apparently a world of financial fraud where the only rules which apply are too big to fail, bail or jail and too connected to prosecute —steal all you can, while you can, with impunity.

After the financial crisis, I wrote extensively exposing the toxic “culture of fraud” at Deutsche, JPMorgan, Goldman Sachs, RBS, Lloyds and Barclays. So what was done? Can you guess the number of staff at these banks jailed for the numerous frauds committed during the Great Financial Crises? Zero. That’s not capitalism! Capitalism doesn’t have zero accountability or zero transparency. This is ethically, financially and socially wrong. Much of it is also, in my opinion, illegal and should be punished by long jail terms. No need for new regulation — we need to enforce existing rules rather than repeatedly turning a blind eye.

Market manipulation by central banks has destroyed price discovery in every asset class and market. This has crushed the basic concept of capitalism. Central banks now pick winners and losers rather than letting free markets decide. The Swiss National Bank holds $140 billion in stocks, including shares in Apple, Google and Amazon. Valuations, growth projections and normal business cycles are all unnecessary. The central banking bubble factory forces investors to chase yields resulting in zombie corporations and zombie banks that inhibit growth, infrastructure spending and the creation of productive assets.

‘The WHO therefore recommends complete avoidance of “Reality” as the only effective strategy for those wishing to remain as Mainstream Economists’.

• WHO Warns Of Outbreak Of Virulent New ‘Economic Reality’ Virus (Steve Keen)

The WHO today warned of a virulent new virus affecting vulnerable groups in the Mid-West and Eastern USA. The outbreak, which began in the Mid-West’s extensive Great Lakes ‘Freshwater’ river system, has recently jumped the ‘Saltwater’ barrier, meaning that the entire population of its target species – ‘Mainstream’ economists – is now at risk. Speaking on behalf of the WHO, Dr Cahuc explained that the virus works by turning off the one genetic marker that distinguishes this species from the rest of its genus, the Human Race. This is the so-called ‘Milton’ gene (Friedman 1953), which goes dormant in other Humans as they pass through puberty. Its inactivity reduces their imaginative capacity, making it impossible for them to continue believing in such endearing infantile fantasies as the Tooth Fairy and Santa Claus. While regrettable, this drop in imagination is necessary to prepare Humans for the adult phase of their existence.

‘Professor Milton Friedman found a way to re-activate this gene during PhD training, using his “as if” gene splicing technique’, Dr Zylberberg elaborated. ‘This enabled a wonderful outpouring of imaginative beliefs by Mainstream Economists, which gave birth to concepts like NAIRU, Money Neutrality, Rational Expectations, and eventually even DSGE models. This wealth of imagination was regarded by Mainstream Economists as a more than sufficient compensation for returning to the child-like phase of the Human species.’ The Milton gene conferred other advantages on Mainstream Economists, which have been highly important to their success in competition against their rival species, the Heterodox Economists. ‘Being endowed with a child-like nature, the arguments of Mainstream Economists were treated with the low level of critical evaluation that adult humans normally reserve for conversations with their infant stage’, said Dr Cahuc.

‘This made their policy recommendations much more likely to be adopted, instead of the more complicated proposals put forward by their niche rivals’, he said. The new virus – named ‘Reality’ – de-activates the Milton gene once more. ‘Consequently’, Dr Cahuc warned, ‘the very beliefs that define this unique species are at risk. Unless we are very careful, it may become extinct!’. Unfortunately, there is as yet no known cure to this virus. ‘The WHO therefore recommends complete avoidance of “Reality” as the only effective strategy for those wishing to remain as Mainstream Economists’, Dr Cahuc concluded. However, this strategy is made extremely difficult by one cunning characteristic of the Reality virus: after an initial phase of disorientation and distress, its sufferers begin to experience pleasure, and actually want to pass the virus on to others. ‘Its transmission mechanism is a particularly insidious aspect of this disease’, Dr Cahuc lamented.

Amen.

• The Utter Stupidity Of The New Cold War (SCF)

It seems so strange, twenty-seven years after the fall of the Berlin Wall, to be living through a new Cold War with (as it happens, capitalist) Russia. The Russian president is attacked by the U.S. political class and media as they never attacked Soviet leaders; he is personally vilified as a corrupt, venal dictator, who arrests or assassinates political opponents and dissident journalists, and is hell-bent on the restoration of the USSR. (The latter claim rests largely on Vladimir Putin’s comment that the dissolution of the Soviet Union was a “catastrophe” and “tragedy” – which in many respects it was. The press chooses to ignore his comment that “Anyone who does not miss the Soviet Union has no heart, while anyone who wants to restore it has no brain.” It conflicts with the simple talking-point that Putin misses the imperial Russia of the tsars if not the commissars and, burning with resentment over the west’s triumph in the Cold War, plans to exact revenge through wars of aggression and territorial expansion.)

The U.S. media following its State Department script depicts Russia as an expansionist power. That it can do so, so successfully, such that even rather progressive people—such as those appalled by Trump’s victory who feel inclined to blame it on an external force—believe it, is testimony to the lingering power and utility of the Cold War mindset. The military brass keep reminding us: We are up against an existential threat! One wants to say that this — obviously — makes no sense! Russia is twice the size of the U.S. with half its population. Its foreign bases can be counted on two hands. The U.S. has 800 or so bases abroad. Russia’s military budget is 14% of the U.S. figure. It does not claim to be the exceptional nation appointed by God to preserve “security” on its terms anywhere on the globe.

Since the dissolution of the USSR in 1991, the U.S. has waged war (sometimes creating new client-states) in Bosnia (1994-5), Serbia (1999), Afghanistan (2001- ), Iraq (2003- ), Libya (2011), and Syria (2014- ), while raining down drone strikes from Pakistan to Yemen to North Africa. These wars-based-on-lies have produced hundreds of thousands of civilian deaths, millions of refugees, and general ongoing catastrophe throughout the “Greater Middle East.” There is no understating their evil. The U.S. heads an expanding military alliance formed in 1949 to confront the Soviet Union and global communism in general. Its raison d’être has been dead for many years. Yet it has expanded from 16 to 28 members since 1999, and new members Estonia and Latvia share borders with Russia. (Imagine the Warsaw Pact expanding to include Mexico. But no, the Warsaw Pact of the USSR and six European allies was dissolved 26 years ago in the idealistic expectation that NATO would follow in a new era of cooperation and peace.)

And this NATO alliance, in theory designed to defend the North Atlantic, was only first deployed after the long (and peaceful) first Cold War, in what had been neutral Yugoslavia (never a member of either the Warsaw Pact nor NATO), Afghanistan (over 3000 miles from the North Atlantic), and the North African country of Libya. Last summer NATO held its most massive military drills since the collapse of the Soviet Union, involving 31,000 troops in Poland, rehearsing war with Russia. (The German foreign minister Frank-Walter Steinmeier actually criticized this exercise as “warmongering.”)

it’s time to let this sink in. Tearful goodbyes or not.

• Obama’s “Farewell To Arms” As War Presidency Ends (SCF)

Eight straight years of warmongering come to an end as US President Barack Obama bows out with his «farewell to the nation» speech this week, as fawning American media dubbed his valediction. In reality, Obama’s outgoing address should have been billed as a «farewell to arms» made by arguably one of the most belligerent presidents to ever have occupied the White House. Only in exceptionally delusional America could such a pernicious paradox be presented as something honorable and sentimental. Obama, the 44th US president, may have been the first black president and winner of a Nobel peace prize during his first year in office in 2009. But apart from those dubious accolades – championed by supposedly liberal Hollywood celebrities and media pundits – his actual record in office is one of blood-soaked disgrace.

Instead of ending American overseas wars as he had promised back in 2008, Obama expanded on his predecessor George W Bush’s criminal foreign interventions. At least seven countries – Iraq, Afghanistan, Pakistan, Libya, Syria, Yemen and Somalia – have been routinely bombed under Obama’s watch as the US Commander-in-Chief. That’s one repugnant record. Last year alone, the US military reportedly dropped over 26,000 bombs around the world killing countless thousands of people, the exact number buried under official secrecy and American mainstream media indifference. At that rate, American anti-war campaigner Medea Benjamin estimates that US forces deployed three bombs every hour of every day for the whole of 2016. This death from the skies included Obama’s personal ordering of drone assassinations during his weekly Terror Tuesday briefings from Pentagon chiefs, the use of which increased 10-fold under his command, killing thousands of innocent civilians as «collateral damage».

Could be quite the party.

• Massive Security Preparations Under Way For Inauguration (Fox)

The stage is set for President-elect Donald Trump’s inauguration – not just the traditional swearing-in platform on Capitol Hill, but a massive security presence amid protest plans to “shut down” the nation’s capital. Most crowd estimates for the Jan. 20 festivities are far short of the record-setting 1.8 million visitors for President Obama’s historic 2009 inauguration. But the throngs of spectators and protesters alike are enough to create transit, security and hospitality challenges. “Security is my greatest concern,” Missouri GOP Sen. Roy Blunt, chairman of the Joint Congressional Committee on Inaugural Ceremonies, recently said. “No question that on inaugural day, this would be the most appealing target in the world.” He suggested the city could have as many as 750,000 demonstrators alone.

More than three-dozen law enforcement agencies are working together on security and safety plans in anticipation, including the Capitol Police, FBI, Secret Service and National Guard. Roughly 7,500 Guardsmen from across the country will come to Washington, along with about 3,000 police officers from various states, with the Secret Service taking the lead on security. Essentially everybody involved already is rehearsing for the big weekend, which kicks off next Friday morning with the swearings-in on the Capitol’s West Front, followed by official events including the traditional parade on Pennsylvania Avenue to the White House and the inaugural balls. The Joint Task Force – National Capital Region – 58th Presidential Inauguration has held several “table top” sessions in which agencies plot strategy over a large-scale, three-dimensional map.

“It’s a rehearsal, but in the military we call it a drill,” Navy Cmdr. Jonathan Blyth, the group’s spokesman, told FoxNews.com on Wednesday. “We’ve been preparing for this since the last inauguration. We’re focused to protecting and honoring a new commander in chief.” The task force and its Capitol Hill counterpart are holding a “dress rehearsal” this weekend for the swearings-in, the Presidential Review of troops and the parade along the roughly 2.5-mile stretch of Pennsylvania Avenue. Several protest groups planning large-scale demonstrations have permits in place and have already held organizational meetings, among them the collaborative DisruptJ20. “We’re planning a series of massive, direct actions that will shut down the inauguration ceremonies and any related celebrations,” the group says. “We’re also planning to paralyze the city.”

“Schaeuble and other German lawmakers have warned the ECB risks fuelling support for eurosceptic parties..” No, it’s Schaeuble who fuels that support.

• Germany’s Schaeuble Urges ECB To Start Unwinding Stimulus This Year (CNBC)

The ECB should start unwinding its ultra-loose monetary policy this year, German Finance Minister Wolfgang Schaeuble said in an interview to be published on Friday, adding that it would not be easy. “The ECB will have the tough task of getting out of the ultra-expansionary monetary policy,” Schaeuble told the Sueddeutsche Zeitung newspaper. “It would presumably be right if the ECB dared to exit this year”. Schaeuble added it was “possible and necessary” for the next government to lower taxes after Germany’s general election in September. He said forecasts that inflation could reach 3% in Germany this year would exacerbate concerns about current low interest rates. While admitting he was no fan of the ECB’s monetary policy, he added, “The ECB has a mandate for the eurozone, and it carries it out well.”

Schaeuble said the core issue was that a number of eurozone countries had not been able to boost competitiveness as required. “The problem is the weakness of the other countries, not Germany’s strength,” he said. The conservative minister said it would take a great effort to convince German citizens that the common currency provided more employment, social and business benefits than risks and negative consequences. To help Germany make the argument, he said it was essential that Italy and other countries stuck to the agreed rules. Schaeuble’s deputy Jens Spahn told Reuters last week that a “prudent start to the exit” of the ECB’s expansive monetary policy was desirable. The ECB aims for inflation of just under 2%, but it has undershot its target for years. To fight off deflation, the central bank has cut interest rates to zero and launched a massive but controversial bond-buying programme. Schaeuble and other German lawmakers have warned the ECB risks fuelling support for eurosceptic parties if it does not change course soon.

There are new lows to be achieved out there. But go ahead, this too will make the EU crumble.

• Germany To Return New Asylum Seekers To Greece From March (AFP)

Germany will begin returning asylum seekers to Greece from mid-March, an interior ministry spokesman told AFP on Thursday, essentially lifting a five-year suspension on such transfers because of poor conditions there. Under the EU’s so-called Dublin rules, would-be refugees must file for asylum in the first member-state of the bloc they enter, often the Mediterranean nations of Greece and Italy. If asylum seekers have travelled on to other EU nations, they are to be returned to their first port of call. But that requirement had been halted for Greece, which together with Italy has been the main point of entry for the more than one million immigrants who have entered the bloc since 2015 fleeing war and poverty in the Middle East and Africa.

A German interior ministry spokesman told AFP that Germany would reinstate the Dublin rule in two months’ time and return newly arrived asylum seekers to their first EU port of call. “In line with the recommendation from the European Commission, Germany believes that such transfers will be possible from March 15th,” said the spokesman, Tobias Plate. The EU recommended on December 8th that member states resume sending asylum seekers back to Greece from March next year, after such transfers were halted since 2011. Athens has criticized the EU’s assessment, with Migration Minister Yannis Mouzalas saying the current legal framework was “unable to respond to the historic migration flows and leaves the burden to the member states that migrants first arrive in”.

German refugee relief group Pro Asyl has also raised concerns, warning that the measure would put the asylum system in Greece, a country still recovering from a deep debt and economic crisis, under further pressure. Photos of refugees living in tents amid heavy snowfall in Greece caused outrage recently, and the European Commission on Monday called such conditions “untenable”.

This is just too sad.

• Greece’s Healthcare System: Train Wreck In Slow Motion (Occupy)

In 2014, the Greek health department cut off its cancer screening prevention program, despite a number of warnings issued by professionals both within the country and abroad that such an action would lead to an explosion in otherwise preventable cases turning serious. According to a statement by Evgenia Thanou, general manager for Doctors of the World, “There are people with tumors who can’t afford the cost of chemotherapy, which costs €2,500 for a single dose. As a result there are people who have died because they have not been able to get the correct treatment from the point of diagnosis.” The rationale was that the budget cutbacks, in the range of 55%, would only take place on a short term basis, just long enough to allow for the country to recuperate from recently imposed austerity measures.

Charges for outpatient visits were also increased by 50% per visit, and almost 200 medicines were de-stocked by pharmacies. A further consequence was the artificial drug shortage, caused by companies like Novo Nordisk, which halted insulin shipments to Greece unless the retail prices were raised in a supposed effort to curb hoarding and black market export by professionals. Almost three years later, this policy is still in effect. The result was the gradual closure of 850 medical clinics, both in the capital Athens as well as in the countryside. Ten thousand beds have been shut down across the country, and 30,000 healthcare professionals removed from frontline positions. Those who remained saw their wages cut by at least 50%.

Among 11 hospitals that have shut down, three are psychiatric while the rest include rural clinics in remote parts of the country, leaving locals without access to a professional in the event of an emergency. The crisis led to the creation of numerous volunteer healthcare organizations in 2015, but their contributions couldn’t put a dent in the number of patients unable to afford any healthcare options. That same year saw the mass migration of thousands of recently graduated or established Greek healthcare professionals across Europe, with almost 4,000 headed for Germany and the Nordic countries seeking steadier employment in a more welcoming professional environment. The results of the brain drain haven’t yet been entirely felt, but experts agree the long-term effects could cripple the country’s prospects for decades to come.

Taking my Automatic Earth for Athens fund directly to Germany.

• Weitergeleiteter Spendenaufruf für Griechenland (Das Gelbe Forum)

Raul Ilargi Meijer von The Automatic Earth ist wieder in Athen und versucht, die schwierigen Bedingungen zu erleichtern, die in Griechenland bestehen. Die Aufmerksamkeit der Medien und der Welt ist abgelenkt, obwohl sich selbst diese Bedingungen zunehmend verschlechtern. Akute Probleme ziehen kollektive Aufmerksamkeit an, chronische aber leider nicht. Griechenland steckt tief in volkswirtschaftlicher Depression mit ausgewachsenem Liquiditätsengpass, Kapitalkontrollen, Massenarbeitslosigkeit, fehlender medizinischer Versorgung, Hungerepidemien und vielen anderen Schwierigkeiten.

Die von außen bereitgestellten Resourcen fließen zum größten Teil durch offizielle Kanäle, aber die Körperschaften, die mit der Auslieferung der Hilfen beauftragt sind, sind oft zu groß um zu erkennen, wo die wahren Bedürfnisse liegen, um dann rechtzeitig darauf zu reagieren, oder um die Mittel effektiv und effizient einzusetzen. Einfach gesagt neigen große Organisationen dazu, bürokratisch zu sein, und einen großen administrativen Wasserkopf zu haben, der viele Resourcen intern verschlingt. Als Außenseiter fehlen ihnen auch oft die kulturellen Verbindungen, welche notwendig sind um informelle Brücken zu bauen und Hilfmittelverteilung zu lenken. Die Regeln, welche die intitutionalisierte Hilfsindustrie befolgen muß, zum Beispiel die Bedingung für Hungernde, sich auszuweisen, bevor man berechtig ist, Lebensmittel zu erhalten, kann zu großen Hindernissen führen.

Debt Rattle September 9 2016

Sep 092016

September 9, 2016 Posted by Raúl Ilargi Meijer at 8:57 am Finance Tagged with: BoJ, China, coal, debt, deflation, ECB, exports, Fraud, Germany, parity, wilderness Comments Off

NPC Daredevil John “Jammie” Reynolds, Washington DC 1917

• ECB’s Mario Draghi Has Run Out Of Magic As Deflation Closes In (AEP)

• ECB Stands Pat on Stimulus as Draghi Defends Policy (WSJ)

• German July Exports, Imports Plunge (Street)

• Goldman Calculates True Growth Rate Of China’s Debt: 40% of GDP Per Year (ZH)

• China’s Reviving the American Heartland – One Low Wage at a Time (BBG)

• Bank of Japan Risk: Running Out of Bonds to Buy (WSJ)

• Australia, New Zealand Housing Booms Set Currencies On Course For Parity (BBG)

• Coal Rises From the Grave to Become One of Hottest Commodities

• Historic Tax Fraud Rocks Denmark As Loss Estimates Keep Growing (BBG)

• Goldman Sachs Just Launched Project Fear in Italy (DQ)

• Humans Have Destroyed A Tenth Of Earth’s Wilderness In 25 Years (G.)

Why does it seem so normal to use the word ‘magic’ in this context? When did that start?

• ECB’s Mario Draghi Has Run Out Of Magic As Deflation Closes In (AEP)

Large parts of the eurozone are slipping deeper into a deflationary trap despite negative interest rates and €1 trillion of quantitative easing by the ECB, leaving the currency bloc with no safety buffer when the next global recession hits. The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle. Mario Draghi, the ECB’s president, said there are limits to monetary policy and called on the rest of the eurozone to act “much more decisively” to lift growth, with targeted spending on infrastructure.

“It is abundantly clear that Draghi is played out and we’re in the terminal phase of QE. The eurozone needs a quantum leap in the nature of policy and it has to come from fiscal policy,” said sovereign bond strategist Nicholas Spiro. Mr Draghi dashed hopes for an expansion of the ECB’s monthly €80bn programme of bond purchases, and offered no guidance on whether the scheme would be extended after it expires in March 2017. There was not a discussion on the subject. “The bar to further ECB action is higher than widely assumed,” said Ben May from Oxford Economics. The March deadline threatens to become a neuralgic issue for markets given the experience of the US Federal Reserve, which suggests that an abrupt stop in QE stimulus amounts to monetary tightening and can be highly disruptive.

The ECB has pulled out all the stops to reflate the economy yet core inflation has been stuck at or below 1pc for three years. Officials are even more worried about the underlying trends. Data collected by Marchel Alexandrovich at Jefferies shows that the percentage of goods and services in the inflation basket currently rising at less than 1pc has crept up to 58pc. This is a classic precursor to deflation and suggests that the eurozone is acutely vulnerable to any external shock. The figure has spiked to 67pc in Italy, and is now significantly higher that it was when the ECB launched QE last year. The eurozone should have reached economic “escape velocity” by now after a potent brew of stimulus starting last year: cheap energy, a cheaper euro, €80bn a month of QE, and the end of fiscal austerity. [..] “The euro is far stronger than they want, and stronger than the economy deserves, but they don’t know how to weaken it. This is exactly what happened to the Japanese,” said Hans Redeker, currency chief at Morgan Stanley.

Draghi’s starting to come down on Germany, but it’s too late: their exports just fell 10%.

• ECB Stands Pat on Stimulus as Draghi Defends Policy (WSJ)

The ECB left its €1.7 trillion stimulus unchanged at a policy meeting Thursday, brushing off concerns over economic shock waves from Britain’s vote to leave the EU and disappointing investors expecting the ECB to act again soon. The decision to stand pat, even as new forecasts showed the ECB missing its inflation target for years, underlines how central banks are approaching the limits of what they can achieve without support from other policy areas, notably governments. In China earlier this month, Group of 20 leaders warned that monetary policy alone can’t fix the world’s economic ills, and pledged to boost spending and adopt overhauls aimed at boosting growth.

At a news conference here, ECB President Mario Draghi said he was concerned about persistently low eurozone inflation, which has fallen short of the ECB’s near-2% target for more than three years. Fresh ECB staff forecasts, published Thursday, showed inflation rising very gradually, to 1.2% next year and 1.6% in 2018. Despite that, Mr. Draghi said policy makers didn’t even discuss fresh stimulus, and praised the effectiveness of the bank’s existing policy measures, which include negative interest rates and €80 billion a month of bond purchases. He also aimed an unusually direct rebuke at Germany, criticizing Berlin for not boosting spending to support the economy. “Countries that have fiscal space should use it,” Mr. Draghi said. “Germany has fiscal space.”

Germany looks a lot like Japan and China.

• German July Exports, Imports in Shock Plunge (Street)

German imports and exports unexpectedly shrunk in July, with a sharp export contraction causing a surprise narrowing in Germany’s trade balance. Federal Statistical Office data showed seasonally adjusted exports fell by 2.6% – analysts had expected about 0.3% growth – whereas imports fell by 0.7%, as against expectations for a 0.8% rise. On the year exports slumped by 10% and imports shriveled by 6.5%. The foreign trade balance shrunk to €19.4 billion from €21.4 billion in June, as against expectations for a balance of €22 billion. The Federal Statistical Office said the pace of German exports to other EU countries fell by 7% in July, while imports from the region fell by 4.5%. The falls were slightly narrower for trade with other eurozone countries.

German trade outside the 28-nation EU fared worse, with exports plunging by 13.8% and imports by 10.1%. Faltering German exports amid lackluster worldwide growth and emerging-market volatility has long been a drag on German growth. But the sharper-than-expected export fall challenges expectations of a second-half pickup in German trade with the rest of the world, and the surprise – albeit small -import decline suggests domestic demand isn’t robust enough to step into the breach. The trade data come in a week that the statistics office reported weaker-than-expected industrial output and manufacturing production for July. But the euro held firm against the dollar after the figures and was recently up 0.11% at $1.1272.

“..some time around 2019, China’s total Debt/GDP will be over 400%, an absolutely ridiculous number, and one which assures a banking, if not global, financial crisis.”

• Goldman Calculates True Growth Rate Of China’s Debt: 40% of GDP Per Year (ZH)

For a long time when it came to Chinese loan creation, analysts would only look at the broadest reported aggregate: the so-called Total Social Financing. And, for a long time, it was sufficient – TSF showed that in under a decade, China had created over $20 trillion in new loans, vastly more than all the “developed market” QE, the proceeds of which were used to kickstart growth after the 2009 global depression, to fund the biggest capital misallocation bubble the world has ever seen and create trillions in nonperforming loans. However, a problem emerged about a year ago, when it was revealed that not even China’s TSF statistic was sufficient to fully capture the grand total of total new loan creation in China.

[..] according to Goldman, “a substantial amount of money was created last year, evidencing a very large supply of credit, to the tune of RMB 25tn (36% of 2015 GDP).” This massive number was 9% higher than the TSF data, which implied that “only” a quarter of China’s 2015 GDP was the result of new loans. As Goldman further noted, the “divergence from TSF has been particularly notable since Q2 last year after a major dovish shift in policy stance.” In short, in addition to everything else, China has also been fabricating its loan creation data, and the broadest official monetary aggregate was undercutting the true new loan creation by approximately a third. The reason for this is simple: China does not want the world – or its own population – to realize just how reliant it is on creating loans out of thin air (and “collateralized” by increasingly more worthless assets), as it would lead to an even faster capital outflow by the local population sensing just how unstable the local banking system is.

Here is the good news: compared to late 2015, the record credit creation has slowed down fractionally, and the gap with the TSF total has shrunk. The smaller gap seems to be in line with recent reports that listed banks’ “investment receivables” expanded less rapidly in 2016 H1, and it might partly reflect the regulators’ tougher stance against shadow lending in recent months. And now, the bad news: this “tougher stance” has not been nearly tough enough, because as the following chart shows on a 1-year moving average, nearly 40% of China’s “economic growth” is the result of new credit creation, or in other words, new loans. What this really means, is that China’s debt/GDP, estimated most recently by the IIF at 300%…

… is now growing between 30% and 40% per year, when one accounts for the unaccounted for “shadow” credit conduits. Here is how Goldman concludes this stunning observation: “The PBOC appears to have shifted to a less dovish, though still supportive, policy bias in the last few months. However, given the prospective headwinds from slower housing construction and tighter on-budget fiscal stance in the coming months, there remains a clear need to sustain a high level of infrastructure investment, which is credit intensive, to achieve the minimum 6.5% full-year growth target. This poses constraints on how much further the PBOC can keep reining in credit, in our view.”

Translating Goldman, some time around 2019, China’s total Debt/GDP will be over 400%, an absolutely ridiculous number, and one which assures a banking, if not global, financial crisis.

The resounding success of globalization.

• China’s Reviving the American Heartland – One Low Wage at a Time (BBG)

For six years, the General Motors factory that used to make Chevy Trailblazers in Moraine, Ohio, sat abandoned, a rusting monument to the decline of the American auto industry. These days, the plant is humming again, fueled by a resurgent U.S. consumer – but now under Chinese management. On the shop floor, Chinese supervisors in sky-blue uniforms that carry the logo of the new owners, Fuyao Glass, teach American employees how to assemble windshields. Drive along Interstate 75, through America’s industrial heartland, and you’ll find no shortage of Chinese-owned firms like Fuyao. They’re setting up shop in states such as Ohio and Michigan, key voter battlegrounds in November, where traditional manufacturing has been hollowed out – in many cases, by trade. With China.

[..] Fuyao acquired roughly half the old GM plant in 2014, spending $450 million to buy and remodel it. For a company that started out as a small producer of covers for water-meters and is now the world’s second-biggest auto-glass supplier, the acquisition capped a decade-long push into U.S. markets. For the Dayton area, it meant employment: the city, hometown of the Wright brothers, was hit hard by the shutdown of the GM plant two days before Christmas in 2008. [..] “Hey, 1,700 jobs is 1,700 jobs,” said Shawn Kane, a 28-year-old chef shopping at the Kroger grocery store in Moraine last month. “At least it’s not sitting empty anymore.” They’re jobs that tend not to pay as well as factory work once did, though – and there probably aren’t as many of them.

To keep its production in the U.S. viable, Fuyao uses more automation than it does in China, said John Gauthier, president of Fuyao Glass America. “Our customers, all they care about is that their cost doesn’t increase,” he said. A line worker at Fuyao starts at $12 per hour, equivalent to an annual salary of about $25,000. GM workers at the old Moraine plant could make at least twice that, topped off by perks like defined-benefit pensions, according to union officials and former employees. “When you don’t have enough protections for American workers, and when you’ve got a globalized economy, this is what happens,” said Chris Baker, a 40-year-old sales rep based near Moraine. “This is the new normal. It’s very sad.”

WHen will they start buying people’s homes? Cars perhaps?

• Bank of Japan Risk: Running Out of Bonds to Buy (WSJ)

Japan’s central bank is facing a new problem: It could be running out of government bonds to buy. The Bank of Japan is snapping up the equivalent of more than $750 billion worth of government debt a year in an effort to spur inflation and growth. At that rate, analysts say, banks could run out of government debt to sell within the next 18 months. The looming scarcity is a powerful sign of the limits central banks face as they turn to ever-more aggressive means of stimulating their economies. The problem is mirrored in Europe, where self-imposed rules limit how many eurozone government bonds the ECB can buy from individual governments. Facing a diminishing supply of sovereign bonds, the ECB started buying corporate debt in June.

Some economists have even called for the ECB to start buying stocks. The central bank left its bond-buying program and interest-rate policy unchanged at its meeting Thursday. The Japanese central bank has fewer options if the country’s banks, which have to hold a certain amount of safe debt to use as collateral in everyday transactions, ever become unwilling to sell more of their holdings. Its most obvious alternatives—pushing rates deeper into negative territory or buying other types of assets—have practical limitations. Meanwhile, the BOJ’s economic goals remain out of reach: Inflation is stubbornly low, and the yen has strengthened about 18% this year.

Does nobody have any common sense down under?

• Australia, New Zealand Housing Booms Set Currencies On Course For Parity (BBG)

Housing booms in New Zealand and Australia could be putting the neighbors’ currencies on course to reach parity for the first time ever. Both nations have seen house prices surge in recent years, but the underlying causes are fundamentally different, according to Deutsche Bank analysis. Australia’s boom is largely home-grown, whereas New Zealand’s is being fueled by record immigration. That’s affecting the countries’ current accounts differently. While Aussies are feeling richer due to house-price gains, prompting them to spend more on imports and boosting their current account deficit, New Zealand is sucking more offshore capital into its housing market, narrowing its current account gap. Currencies are sensitive to trends in the current account – a country’s balance with the rest of the world – because they are a gauge of risk for investors.

“The nature of the real estate boom in Australia should have bearish currency implications because it leads to deterioration in the basic balance,” Robin Winkler, a London-based strategist for Deutsche Bank, said in a research note. “This is not the case in New Zealand and adds to our conviction that AUD/NZD should drop to parity.” The two currencies have never converged in the free-floating era that began in the 1980s. They came close in April last year, when the kiwi briefly reached 99.79 Australian cents or, to express it the other way, the Aussie dollar fell below NZ$1.01. The New Zealand dollar was worth 96.8 Australian cents at 12:35p.m. in Wellington Friday.

Burn baby burn.

• Coal Rises From the Grave to Become One of Hottest Commodities

For all the predictions about the death of coal, it’s now one of the hottest commodities in the world. The resurrection may have further to run. A surge in Chinese imports to compensate for lower domestic production has seen European prices jump to near an 18-month high, while Australia’s benchmark is set for the first annual gain since 2010. At the start of the year, prices languished near decade lows because of waning demand from utilities seeking to curb pollution and amid the International Energy Agency’s declaration that the fuel’s golden age in China was over. Now, traders are weighing the chances of extreme weather hitting major producers and China further boosting imports as factors that could push prices even higher.

“It’s a commodity that’s been on a slippery slide for the past four years and it’s making a remarkable recovery,” said Erik Stavseth, an analyst at Arctic Securities in Oslo, who’s tracked the market for almost a decade. “There’s a strong pulse.” What could light up the market further is the occurrence of a La Nina weather pattern later this year. Last time it happened in 2010 and 2011, heavy rains flooded mines in Australia and Indonesia, the world’s two largest exporters. While some meteorologists have toned down their predictions for the weather phenomenon forming, “another strong forecast” would cause prices to rise further, according to Fitch’s BMI Research.

Still don’t think I know what exactly the fraud was. Though I read the piece twice.

• Historic Tax Fraud Rocks Denmark As Loss Estimates Keep Growing (BBG)

About two weeks after Denmark revealed it had lost as much as $4 billion in taxes through a combination of fraud and mismanagement, the minister in charge of revenue collection says that figure may need to be revised even higher. Speaking to parliament on Thursday, Tax Minister Karsten Lauritzen said he “can’t rule out” that losses might be bigger than the most recent public estimates indicate. It would mark the latest in a string of revisions over the past year, in which Danes learned that losses initially thought to be less than $1 billion somehow ended up being about four times as big. The embarrassment caused by the tax fraud, which spans about a decade of successive administrations, has prompted Lauritzen to consider debt collection methods not usually associated with Scandinavian governments.

Denmark has long had one of the world’s highest tax burdens – government revenue as a percentage of GDP – and a well-functioning tax model is essential to maintaining its fabled welfare system. “We’re entertaining new ideas, considering more new measures,” Lauritzen told Bloomberg. Danish officials are now prepared to pay anonymous sources for evidence from the same database that generated the Panama Papers. Jim Soerensen, a director at Denmark’s Tax Authority, says the first batch of clues obtained using this method is expected by the end of the month.

Project Fear didn’t work in Britain either.

• Goldman Sachs Just Launched Project Fear in Italy (DQ)

Project Fear began two years ago in the run up to Scotland’s national referendum. It then spread to the rest of the UK in the lead up to this summer’s Brexit referendum. But it keeps on moving. Its latest destination is Italy, where the campaign to instill fear and trepidation in the hearts and souls of Italy’s voters was just inaugurated by the world’s most influential investment bank, Goldman Sachs. It just released a 14-page report warning about the potentially dire consequences of a “no” vote in Italy’s upcoming referendum on the government’s proposed constitutional reforms. The reforms seek, among other things, to streamline Italy’s government process by dramatically restricting the powers of the senate, a major source of political gridlock, while also handing more power to the executive.

The polls in Italy are currently neck and neck, though the momentum belongs to the reform bill’s opponents. If the Italian public vote against the bill, the response of the markets could be extremely negative, warns Goldman, putting in jeopardy the latest attempt to rescue Italy’s third largest and most insolvent bank, Monte dei Paschi di Siena. The rescue is being led by JP Morgan Chase and Italian lender Mediobanca, and includes the participation of a select group of global megabanks that are desperate to prevent contagion spreading from Italy’s banking system to other European markets, and beyond. In the event of a “no” vote, MPS’ planned €5 billion capital increase would have to be put on ice, while investors wait for the political uncertainty to clear before pledging further funds.

This being Italy, the wait could be interminable and the delay fatal for Monte dei Paschi and other Italian banks, Goldman warns. It also points out that Italy is the only European country where a substantial portion of its bank bonds are held in household portfolios (about 40% according to data from Moody’s, four times more than Germany and eight times more than France and Spain). In other words, things could get very ugly, very fast, if those bank bonds collapse! As for Italian government bonds and Europe’s broader debt markets, they would be insulated from any fallout by former Goldmanite Mario Draghi’s bond binge buying.

We are unstoppable.

• Humans Have Destroyed A Tenth Of Earth’s Wilderness In 25 Years (G.)

Humans have destroyed a tenth of Earth’s remaining wilderness in the last 25 years and there may be none left within a century if trends continue, according to an authoritative new study. Researchers found a vast area the size of two Alaskas – 3.3m square kilometres – had been tarnished by human activities between 1993 and today, which experts said was a “shockingly bad” and “profoundly large number”. The Amazon accounted for nearly a third of the “catastrophic” loss, showing huge tracts of pristine rainforest are still being disrupted despite the Brazilian government slowing deforestation rates in recent years. A further 14% disappeared in central Africa, home to thousands of species including forest elephants and chimpanzees.

The loss of the world’s last untouched refuges would not just be disastrous for endangered species but for climate change efforts, the authors said, because some of the forests store enormous amounts of carbon. “Without any policies to protect these areas, they are falling victim to widespread development. We probably have one to two decades to turn this around,” said lead author Dr James Watson, of the University of Queensland and Wildlife Conservation Society. The analysis defined wilderness as places that are “ecologically largely intact” and “mostly free of human disturbance”, though some have indigenous people living within them. The team counted areas as no longer wilderness if they scored on eight measures of humanity’s footprint, including roads, lights at night and agriculture.

Debt Rattle August 20 2016

Aug 202016

August 20, 2016 Posted by Raúl Ilargi Meijer at 9:13 am Finance Tagged with: black swan, Brexit, buybacks, Canada, cars, debt, DoD, Fonterra, Germany, Yemen 1 Response »

William Henry Jackson New Orleans, “Canal Street from the Clay monument” 1890

• A Black Swan The Size Of World War I (IBT)

• Canadian Debt Slaves Pile it on (WS)

• Things Keep Getting Worse For EU Banks (CNBC)

• Brexit Armageddon Was A Terrifying Vision – But It Simply Hasn’t Happened (G.)

• Over 500,000 UK First-Time Buyers Let Down By ‘Help To Buy’ Scheme (Sun)

• A Dairy Firm at the End of the Earth Is Trying to Rule the World (BBG)

• Does Motorola Need To Go To Rehab? (CCB)

• Finance is Not the Economy (Hudson/Bezemer)

• Saudi Arabia Kills Civilians, the US Looks the Other Way (NYT)

• US Withdraws Staff From Saudi Arabia Dedicated To Yemen Planning (R.)

• US Army Fudged Its Accounts By Trillions Of Dollars (R.)

• Netherlands On Brink Of Banning Sale Of Petrol-Fuelled Cars (Ind.)

“The saving grace would have been to invest in Detroit startups or other investments that successfully straddled wars, Russian revolution, crises..”

• A Black Swan The Size Of World War I (IBT)

To illustrate a strategic gap common to today’s portfolio managers, George Sokoloff, PhD, founder and CIO at Carmot Capital, proposes an interesting thought experiment – a breakdown of a typical, well-diversified investment strategy in 1912. Teetering on the cusp of revolution, war and depression, Sokoloff’s point is that, even following a modern portfolio management strategy, the manager would stand to lose the vast majority of their assets. People tend to rely on historically stable relationships between bonds and stocks, and when that relationship breaks down – as often happens in a liquidity event – even complicated strategies involving some arbitrage, essentially blow up. Imagine being a wealth manager out of Geneva in 1912, trying to create a nice diversified portfolio of developed market bonds, and emerging market bonds, says Sokoloff.

Say 39% of client assets would be split between stocks of Great Britain, France, German Empire, Austria-Hungary and Italy: truly mature, developed markets. Some 21% of assets would go into stocks of the two fastest growing economies: Russian Empire and North American United States. The wealth manager might also put a smidge into emerging economies like Argentina, Brazil or Japan. In bonds, allocation would be somewhat similar. Gilts with sub-3% yield would be the benchmark, with the rest of developed and emerging bonds trading at a spread. Alternatives investment could be in anything ranging from arable land in central Russia or the Great Plains, to shares of new automotive or aeroplane startups in Europe and America, to Japanese manufacturing ventures.

This well-intentioned, balanced portfolio would be in for a wild ride in the next decade and possibly drawdowns of as much as 80%. The saving grace would have been to invest in Detroit startups or other investments that successfully straddled wars, Russian revolution, crises and the technological boom of the early 20th century. Sokoloff told IBTimes UK: “That thought experiment is really frightening to me. You followed very sound modern portfolio management advice back then and still in ten years your portfolio is gone. I don’t think we are really learning the lessons of history, especially now that the global economy is so much more interconnected than it was before.”

Scary.

• Canadian Debt Slaves Pile it on (WS)

Consumer debt in Canada’s debt-fueled economy rose to a new record of C$1.67 trillion in the second quarter, according to Equifax. That’s up 3.0% from the prior quarter and 6.3% from a year ago. Excluding mortgages, consumer debt rose 3.4%, to C$21,878 per borrower on average. Folks 65 and over splurged the most with money they didn’t have and ended up increasing their debt by 8.2%. But Millennials had trouble. Their debts barely rose, and their delinquency rates have begun to jump. Equifax Canada, which based this report on its 25 million consumer credit files, doesn’t appear to capture the full extent of Canadian household debt: Statistics Canada’s most recent quarterly report pegged “total household credit market debt,” which includes mortgages, at a record C$1.933 trillion, up 5% year-over-year.

This gives Canadian households one of the highest debt-to-income ratios in the world. The ratio started soaring relentlessly 15 years ago, supporting the housing boom that barely took a breather during the Financial Crisis – a boom that now has turned into one of the globe’s most phenomenal and riskiest housing bubbles. Piling on debt to move the economy and the housing bubble forward was encouraged by record low borrowing rates. So at the end of the first quarter, the level of consumer debt was 165.3% of disposable income. It’s so high that it’s regularly subject of ineffectual hand-wringing in Canada’s central bank circles:

“..investment banking in Germany, for example, is down 45%…”

• Things Keep Getting Worse For EU Banks (CNBC)

European Union banks just can’t catch a break. Many of them are still slogging uphill to recoup share price losses incurred from the Brexit vote in the U.K. European investment banking revenue overall is down 23% this year compared with the same period in 2015, according to data tracker Dealogic. And all are lagging behind U.S. banks for wallet share, or how much revenue they take in from dealmaking compared to competitors. JPMorgan Chase tops every bank in the EU for wallet share, with 7.3% of deals, according to data from Dealogic this week. It’s followed by Goldman Sachs, which has 6.2% of deals, and only then, in third place, is an EU bank: Deutsche Bank has 5% of revenue on European mergers and acquisitions.

But European banks (and their American counterparts) are fighting off a rising tide of boutique banks that have taken a growingpercentage of M&A revenue from them over the last decade. Around the world, M&A levels have declined from recent record highs. But the pain is exacerbated in Europe, where big banks experienced a steeper drop off in revenue. Dealogic data show that investment banking in Germany, for example, is down 45%. Globally, European deals account for just 22% of banking revenue, the lowest margin since Dealogic began tracking investment banking wallet share. That comes in the wake of banks being hit especially hard on concerns about elevated loan losses, especially those coming from oil and gas assets.

For the love of Brexit.

• Brexit Armageddon Was A Terrifying Vision – But It Simply Hasn’t Happened (G.)

Unemployment would rocket. Tumbleweed would billow through deserted high streets. Share prices would crash. The government would struggle to find buyers for UK bonds. Financial markets would be in meltdown. Britain would be plunged instantly into another deep recession. Remember all that? It was hard to avoid the doom and gloom, not just in the weeks leading up to the referendum, but in those immediately after it. Many of those who voted remain comforted themselves with the certain knowledge that those who had voted for Brexit would suffer a bad case of buyer’s remorse. It hasn’t worked out that way. The 1.4% jump in retail sales in July showed that consumers have not stopped spending, and seem to be more influenced by the weather than they are by fear of the consequences of what happened on 23 June.

Retailers are licking their lips in anticipation of an Olympics feelgood factor. The financial markets are serene. Share prices are close to a record high, and fears that companies would find it difficult and expensive to borrow have proved wide of the mark. Far from dumping UK government gilts, pension funds and insurance companies have been keen to hold on to them. City economists had predicted an immediate rise in the claimant count measure of unemployment in July. That hasn’t happened either. This week’s figures show that instead of a 9,000 rise, there was an 8,600 drop.

Some caveats are in order. It is still early days. Hard data is scant. Survey evidence is still consistent with a slowdown in the economy in the second half of 2016. Brexit may be a slow burn, with the impact only becoming apparent in the months and years to come. But it is obvious that the sky has not fallen in as a result of the referendum, and those who said it would look a bit silly. By now, Britain was supposed to be reeling from the emergency budget George Osborne said would be necessary to fill a £30bn black hole in the public finances caused by a plunging economy. The emergency budget is history, as is Osborne.

Nobody should be buying a home in Britain.

• Over 500,000 UK First-Time Buyers Let Down By ‘Help To Buy’ Scheme (Sun)

The much-trumpeted Help to Buy Isa was branded a scandal last night as it emerged that first-time buyers will not be able to use it for a deposit. More than 500,000 savers opened accounts after George Osborne claimed it would provide ‘direct Government support’. But it has been revealed that a flaw in the scheme means a 25% Government bonus on savings will not be paid out until a house purchase has been completed. Experts said those struggling to find the money to buy a home would have to look to their parents for loans. The Help to Buy Isas, which launched last year, let customers save £200 a month, to which the Government adds £50, up to a final total of £15,000. Buyers are usually required to provide a 10% deposit when they exchange contacts.

But the small print shows the bonus cannot be used for the initial deposit and only spent as part of the purchase cost. So far, fewer than 1,500 people have used the Isas to help buy a home as the limit on how much can be paid in means they have only just got a realistic amount to put toward a deposit. Andrew Boast of SAM Conveyancing said: “It is a scandal. Unsuspecting first-time buyers are finding that they can’t use the bonus as part of the deposit.” Danny Cox of Hargreaves Lansdown financial advisers said: “Hundreds of thousands of Help to Buy Isa savers risk finding a last-minute hole in their finances.” A Treasury spokesman said: “It has always been the case that money saved in a Help to Buy Isa is for an exchange deposit, with the bonus of up to £3,000 per Isa going toward the total funds available for the property transaction.”

Fonterra was never going to last. Illusions of grandeur only go so far.

• A Dairy Firm at the End of the Earth Is Trying to Rule the World (BBG)

In the shadow of a snow-dusted volcano on a corner of New Zealand’s North Island, a sprawling expanse of stainless steel vats, chimneys and giant warehouses stands as a totem of the tiny nation’s dominance in the global dairy trade. The Whareroa factory was until recently the largest of its kind, churning out enough milk powder, cheese and cream to fill more than three Olympic-sized swimming pools a week. The plant has helped make owner Fonterra Cooperative Group the world’s top dairy exporter and its farmer-suppliers among the greatest beneficiaries of China’s emerging thirst for milk. Now, faced with reduced Chinese demand that’s eroded milk prices and helped drag 80% of New Zealand’s dairy farmers into the red, the 44-year-old factory has come to symbolize Fonterra’s struggle to climb the value chain.

While a global shift toward more natural foods has spurred even Coca-Cola to develop new milk products, Fonterra’s business remains largely wedded to commodities traded on often-volatile international markets. That’s frustrated the ranks of the cooperative’s 10,500 farmer-shareholders, who are set to receive the lowest return in nine years for the milking season just ended, and turned Fonterra’s strategy into the subject of national debate. “Fonterra hasn’t taken the opportunity to put itself in a position to really weather these storms as well as they should be able to,” said Harry Bayliss, 63, a former Fonterra director who still supplies the cooperative from farms about 30 kilometers west of the Whareroa factory. “What the board has focused on in the last 10 years haven’t been areas that have created real ongoing value for the shareholders or the company.”

Motorola borrows heavily to buy its own shares. If that isn’t liquidating your company, what is? “It’s a much weaker company than it was two or three years ago..”

• Does Motorola Need To Go To Rehab? (CCB)

How does Motorola Solutions CEO Greg Brown keep his company’s stock rising despite declining revenue and profit? Volume—of share repurchases. Since splitting off its mobile phone business in 2011, Motorola Solutions has spent $11.5 billion buying back stock. Earlier this month, the provider of products and services for government communications systems authorized another $2 billion in repurchases. The buybacks have reduced total share count by more than half, bolstering earnings per share even as actual profit declined to $613 million in 2015 from $1.16 billion in 2011. And because investors price shares on the basis of EPS, Motorola Solutions shares increased 90% in value over that period, to $75.99 yesterday, outpacing a 72% rise for the Standard & Poor’s 500 market.

Of course, Motorola Solutions is far from alone in gobbling its own shares as an antidote to sluggish growth. Companies in the Standard & Poor’s 500 repurchased a record amount in the 12 months through March 31. Still, Motorola ranks in the top 10% in terms of the percentage of outstanding shares repurchased over five years, according to Birinyi Associates. Buybacks are becoming more controversial as they consume a growing share of capital. Critics say companies are artificially burnishing their results rather than investing in business activities that would generate real long-term growth. Defenders say buybacks make sense for companies that generate more cash than they can reinvest profitably.

But Motorola Solutions has spent far more than excess cash flow on buybacks. Since the spinoff, the now Chicago-based maker of two-way radio systems has produced $2.7 billion in operating cash flow and collected $3.4 billion in proceeds from selling its enterprise business to Zebra Technologies in 2014. That $6.1 billion total represents a little more than half of Motorola’s buyback outlay. Brown has financed the rest with borrowed money, tripling long-term debt to $5 billion since the spinoff. Cash on hand dropped to $1.5 billion as of June 30, from $3.1 billion a year earlier. “It’s a much weaker company than it was two or three years ago,” says analyst David Novosel of Gimme Credit, a research firm in Chicago.

“When the financial bubble bursts, negative equity spreads as asset prices fall below the mortgages, bonds, and bank loans attached to the property.“

• Finance is Not the Economy (Hudson/Bezemer)

Analysis of private sector spending, banking, and debt falls broadly into two approaches. One focuses on production and consumption of current goods and services, and the payments involved in this process. Our approach views the economy as a symbiosis of this production and consumption with banking, real estate, and natural resources or monopolies. These rent-extracting sectors are largely institutional in character, and differ among economies according to their financial and fiscal policy. (By contrast, the “real” sectors of all countries usually are assumed to share a similar technology.)

Economic growth does require credit to the real sector, to be sure. But most credit today is extended against collateral, and hence is based on the ownership of assets. As Schumpeter (1934) emphasized, credit is not a “factor of production,” but a precondition for production to take place. Ever since time gaps between planting and harvesting emerged in the Neolithic era, credit has been implicit between the production, sale, and ultimate consumption of output, especially to finance long- distance trade when specialization of labor exists (Gardiner 2004; Hudson 2004a, 2004b). But it comes with a risk of overburdening the economy as bank credit creation affords an opportunity for rentier interests to install financial “tollbooths” to charge access fees in the form of interest charges and currency-transfer agio fees.

Most economic analysis leaves the financial and wealth sector invisible. For nearly two centuries, ever since David Ricardo published his Principles of Political Economy and Taxation in 1817, money has been viewed simply as a “veil” affecting commodity prices, wages, and other incomes symmetrically. Mainstream analysis focuses on production, consumption, and incomes. In addition to labor and fixed industrial capital, land rights to charge rent are often classified as a “factor of production,” along with other rent-extracting privileges. Also, it is as if the creation and allocation of interest-bearing bank credit does not affect relative prices or incomes.

Not exactly. The US is not some innocent bystander. Having the NYT write this up is maybe a sign, but it’s also double tongued.

• Saudi Arabia Kills Civilians, the US Looks the Other Way (NYT)

In the span of four days earlier this month, the Saudi Arabia-led coalition in Yemen bombed a Doctors Without Borders-supported hospital, killing 19 people; a school, where 10 children, some as young as 8, died; and a vital bridge over which United Nations food supplies traveled, punishing millions. In a war that has seen reports of human rights violations committed by every side, these three attacks stand out. But the Obama administration says these strikes, like previous ones that killed thousands of civilians since last March, will have no effect on the American support that is crucial for Saudi Arabia’s air war.

On the night of Aug. 11, coalition warplanes bombed the main bridge on the road from Hodeidah, along the Red Sea coast, to Sana, the capital. When it didn’t fully collapse, they returned the next day to destroy the bridge. More than 14 million Yemenis suffer dangerous levels of food insecurity — a figure that dwarfs that of any other country in conflict, worsened by a Saudi-led and American-supported blockade. One in three children under the age of 5 reportedly suffers from acute malnutrition. An estimated 90 percent of food that the United Nation’s World Food Program transports to Sana traveled across the destroyed bridge.

Too much publicity lately?

• US Withdraws Staff From Saudi Arabia Dedicated To Yemen Planning (R.)

The U.S. military has withdrawn from Saudi Arabia its personnel who were coordinating with the Saudi-led air campaign in Yemen, and sharply reduced the number of staff elsewhere who were assisting in that planning, U.S. officials told Reuters. Fewer than five U.S. service people are now assigned full-time to the “Joint Combined Planning Cell,” which was established last year to coordinate U.S. support, including air-to-air refueling of coalition jets and limited intelligence-sharing, Lieutenant Ian McConnaughey, a U.S. Navy spokesman in Bahrain, told Reuters. That is down from a peak of about 45 staff members who were dedicated to the effort full-time in Riyadh and elsewhere, he said.

The June staff withdrawal, which U.S. officials say followed a lull in air strikes in Yemen earlier this year, reduces Washington’s day-to-day involvement in advising a campaign that has come under increasing scrutiny for causing civilian casualties. A Pentagon statement issued after Reuters disclosed the withdrawal acknowledged that the JCPC, as originally conceived, had been “largely shelved” and that ongoing support was limited, despite renewed fighting this summer. “The cooperation that we’ve extended to Saudi Arabia since the conflict escalated again is modest and it is not a blank check,” Pentagon spokesman Adam Stump said. U.S. officials, speaking on condition of anonymity, said the reduced staffing was not due to the growing international outcry over civilian casualties in the 16-month civil war that has killed more than 6,500 people in Yemen, about half of them civilians.

The DoD simply does no accounting.

• US Army Fudged Its Accounts By Trillions Of Dollars (R.)

The United States Army’s finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced.The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up. As a result, the Army’s financial statements for 2015 were “materially misstated,” the report concluded. The “forced” adjustments rendered the statements useless because “DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions.”

Disclosure of the Army’s manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades. The report affirms a 2013 Reuters series revealing how the Defense Department falsified accounting on a large scale as it scrambled to close its books. As a result, there has been no way to know how the Defense Department – far and away the biggest chunk of Congress’ annual budget – spends the public’s money. The new report focused on the Army’s General Fund, the bigger of its two main accounts, with assets of $282.6 billion in 2015. The Army lost or didn’t keep required data, and much of the data it had was inaccurate, the IG said. “Where is the money going? Nobody knows,” said Franklin Spinney, a retired military analyst for the Pentagon and critic of Defense Department planning.

It’ll take a lot more than that to make cities liveable. How about a deep financial crisis?

• Netherlands On Brink Of Banning Sale Of Petrol-Fuelled Cars (Ind.)

Europe appears poised to continue its move towards cutting fossil fuel use as the Netherlands joins a host of nations looking to pass innovative green energy laws. The Dutch government has set a date for parliament to host a roundtable discussion that could see the sale of petrol- and diesel-fuelled cars banned by 2025. If the measures proposed by the Labour Party in March are finally passed, it would join Norway and Denmark in making a concerted move to develop its electric car industry. It comes after Germany saw all of its power supplied by renewable energies such as solar and wind power on one day in May as the economic powerhouse continues to phase out nuclear energy and fossil fuels.

And outside Europe, both India and China have demanded that citizens use their cars on alternate days only to reduce the exhaust fume production which is causing serious health problems for the populations of both nations. The consensus-oriented parties of the Netherlands are set to consider a total ban on petrol and diesel cars in a debate on 13 October. Richard Smokers, principle adviser in sustainable transport at the Dutch renewable technology company TNO, said the Dutch government was committed to meeting the Paris climate change agreement to reduce greenhouse emissions to 80% less than the 1990 level. The plan requires the majority of passenger cars to be run on CO2-free energy by 2050.

“Dutch cities still have some problems to meet existing EU air quality standards and have formulated ambitions to improve air quality beyond these standards,” he told The Independent, adding that the government had at the same time been reluctant to implement strict policies on the environment. “The current government embraces long term targets and strives at meeting EU requirements, but is hesistant about proposing ‘strong’ policy measures. “Instead it prefers to facilitate and stimulate initiatives from stakeholders in society.” If the law to ban the sale of new fossil-fuel cars by 2025 passes, a significant move will have been made towards phasing out all petrol and diesel cars by 2035, added Dr Smokers.

“Incredibly Stupid” Juncker Opens Pandora’s Box

Jul 062016

July 6, 2016 Posted by Raúl Ilargi Meijer at 10:56 am Finance Tagged with: CETA, EU, France, Germany, Grillo, Juncker, Merkel, referendum, TTIP 12 Responses »

LOOK Detroit’s 1960 look. Sneak preview of the new models. Dodge Polara 1959

Remember the referendum in April in which voters in the Netherlands rejected the EU-Ukraine trade deal? Seems forever ago, doesn’t it? But to date nothing has been done with the outcome of the vote, even though Dutch law requires a government to implement referendum outcomes as swiftly as possible.

PM Mark Rutte told parliament this week that ‘changing’ the deal would be very difficult, and that talks on the topic in the European Council ‘don’t make him happy’. Since one of the things Rutte has demanded from the EU is a pledge that Ukraine will not become an EU member, none of this should be surprising.

But more importantly, the Dutch didn’t vote for Rutte to renegotiate the deal, they outright rejected it. Ergo, Rutte is playing fast and loose with the integrity and credibility of the Dutch legal and political systems as much as the FBI does with America’s in the Clinton email sleight of hand, and as later today Britain will do with its credibility following the Chilcot report on Tony Blair et al.

As if the Brexit fall-out hasn’t done enough damage to that credibility. One might get the distinct impression that the powers-that-be could get awfully annoyed with the riff-raff out there wanting a say in their own lives. But the riff-raff don’t just want a say anymore, they are getting mighty annoyed with the powers-that-be too.

And that is guaranteed to increase if more ‘incidents’ happen like FBI director Jim Comey’s announcement yesterday that Hillary won’t be charged. At some point credibility must come with accountability, or else. The Hillary files bring the US awfully close to that point, as well as to ‘or else’.

Eric Zuesse explains very well why that is:

In Clinton Case, Obama Administration Nullifies 6 Criminal Laws

There can be no excuse for Obama’s depriving the public, via a grand jury decision, of the right to determine whether a full court case should be pursued in order to determine in a jury trial whether Hillary Clinton’s email system constituted a crime (or several crimes) under U.S. laws. The Obama Administration’s ‘finding’ that “clearly intentional and willful mishandling of classified information” would need to have been proven, in order for her to have been prosecuted under any U.S. criminal law, is a flagrant lie..

[..] anyone who in the future would be charged with violating any one of those six laws could reasonably cite the precedent that Ms. Clinton was not even charged, much less prosecuted, for actions which clearly fit the description provided in each one of those U.S. criminal laws. Anyone in the future who would be charged under any one of these six laws could prove discriminatory enforcement against himself or herself.

It is highly irresponsible for any government to play such games, and it’s skating on the edge of the law, something a government should always attempt to avoid. That is essential.

Someone who’s not known to be overly bothered by accountability or integrity is everybody’s favorite wino, European Commission President Jean-Claude Juncker. But Juncker, whatever else may be wrong with him, is not a stupid man. And unless I’m gravely mistaken, he has just saddled the European Union with a problem that could well trigger its undoing.

What happened was that at some point last week, reports started coming out that several parties, especially in Germany, were planning to oust Juncker from his plush job. He read them too, of course. And he may have gotten other signals as well in Brussels backrooms.

Then, Germany and France began to clamor for their parliaments to have a say in the ratification of CETA, the Comprehensive Economic and Trade Agreement between the EU and Canada. And Juncker must have seen his chance for revenge. Because yesterday he announced that all 27 parliaments of EU member nations get to have a crack at CETA.

That is Pandora’s box, and I don’t believe for a second that Juncker is not aware of it. Here’s what Deutsche Welle had to say:

EU Commission: CETA Should Be Approved By National Parliaments

European Commission chief Jean-Claude Juncker is expected to scrap plans to fast-track a trade agreement with Canada through the EU. After pressure from Germany and France, Juncker appears to be backtracking. Juncker will reportedly propose a mixed agreement – one that requires both the approval of the European parliament and national legislatures – at an European Commission meeting on Tuesday. Last week he was reported saying he “personally couldn’t care less” whether lawmakers get to vote on the deal. A report in the Financial Times noted that Germany and France wanted their national parliaments to be involved, which would inevitably lengthen the process.

That Juncker quote indicates something had been brewing for a while. Given the position he’s in, it’s quite funny, though

The deal was scheduled to be signed at the end of October during a summit in Brussels with Canadian Prime Minister Justin Trudeau, and it was due to be implemented in 2017. Trade ministers in Germany, France, Italy, the Netherlands and UK have reportedly said they will support the Comprehensive Economic and Trade Agreement, or CETA. CETA is similar to the agreement under negotiation between the EU and US and has drawn strong criticism in EU countries. Canadian and EU leaders concluded CETA in 2014, but implementation was delayed due to last-minute objections in Europe. This was related to an investment protection system to shield companies from government intervention.

Yes, CETA is TTiP on a smaller scale. A sort of test. The nonsensical audacity of ‘an investment protection system to shield companies from government intervention’ says it all.

With opposition to the EU’s impending free trade deal with Canada apparently growing, German Chancellor Angela Merkel said recently that the German parliament should be consulted on the EU’s free trade deal with Canada. “It is a highly political agreement that has been widely discussed,” said Merkel, adding that the “Bundestag is allowed to be involved of course… in national decisions”. German Economy Minister Sigmar Gabriel told the Tagesspiegel daily that Juncker’s comment was “incredibly stupid” and “would stoke opposition to other free trade deals,” including with the US. German media has also described Juncker’s position as badly timed given the growing skepticism among European voters about the EU.

What Gabriel actually said was that Juncker was “unglaublich töricht”, I looked it up. And it wasn’t his reaction to a ‘comment’, but to Juncker’s initial decision to NOT let national parliaments get their say on CETA. It’s brilliant and hilarious, isn’t it? I think I think quite a bit higher of Juncker now.

Because it was Germany itself that insisted they wanted the Bundestag to get involved (under domestic pressure). But they thought that would be it, that and the French parliament. And Jean-Claude threw it right back in their faces. Since they were going to get rid of him anyway, he decided to leave them the perfect parting gift, the ultimate poisoned chalice.

Getting back to the Dutch referendum on EU and Ukraine, one of the things to know about how this works is that the Dutch can ask for a referendum not on any topic, but only on bills the government sends to parliament to discuss. CETA will now be such a case, and a referendum looks at least quite possible.

I don’t know what comparable legislation is in other EU countries, but no doubt in many countries it’s enough to have their parliaments discuss the issue, to cause havoc. That will mean huge delays and/or worse (just what Juncker initially sought to prevent).

The ‘worse’ in this regard -in the eyes of the politicians- is the possibility of referendums, on CETA, and then on TTiP. And before you know it somewhere in Europe such a referendum will be combined with the question whether the country where it’s held should Remain in the EU or Leave it. It seems for all intents and purposes, inevitable.

How the EU can be kept together is a behemoth conundrum already, even without all these new issues. But now we can be absolutely sure that Brexit is only the beginning.

Beppe Grillo’s Five Star Movement (M5S) came out as no. 1 in a poll in Italy yesterday. When I visited Beppe almost 5 years ago in Genoa he was still torn over the EU and the euro, but he has since made up his mind: he’s determined to take Italy out of the unholy Union. Europe’s powers-that-be are in for troubled times.

And Jean-Claude Junker will be sitting somewhere in the world in a beach chair by one of his luxurious summer homes, with a big smile on his face and a stiff drink in his hand.

Debt Rattle May 13 2016

May 132016

May 13, 2016 Posted by Raúl Ilargi Meijer at 8:26 am Finance Tagged with: boom, bubble, bust, Congressman X, drought, Europol, Germany, iron ore, middle class, refugees, surplus 1 Response »

Jack Delano AT&SF Railroad locomotive shops, San Bernardino, CA 1943

• Iron Ore Goes From Boom To Bust In Just Three Weeks (BBG)

• With $100 Billion In Debt, Glencore Emerges As The Next Lehman (ZH)

• China Bubble Set To Rock Global Markets (CNBC)

• The Biggest Source Of Global Growth In 2016 Is About To Hit A Brick Wall (ZH)

• Middle Class Shrinks In 9 Of 10 American Cities As Incomes Fall (AP)

• Congressman X: ‘Screw The Next Generation’ (DM)

• Nassim Taleb Compares Monetary Policy to Novocaine (BBG)

• Yellen Says Won’t Completely Rule Out Negative Rates (R.)

• Dear Homeowner, What Exactly Do You “Own”? (CH Smith)

• IMF Under Pressure From Germany Over Greece (WSJ)

• The German Current Account Surplus Requires Deficits Elsewhere (Harrison)

• Ideas For Reducing The Debt Burden (Economist)

• ‘Death Awaits’: Africa Faces Worst Drought in Half a Century (Spiegel)

• Europol To Send Experts To Greek Islands To ‘Identify Terrorists’ (Kath.)

• EU Mission ‘Failing’ To Disrupt Mediterranean People-Smugglers (BBC)

So predictable one must wonder what Xi was/is thinking. A lot of money is being lost in China, and much of it by mom and pop. They’re not going to like it.

• Iron Ore Goes From Boom To Bust In Just Three Weeks (BBG)

Don’t say there wasn’t any warning. Iron ore’s gone from boom to bust in the space of just three weeks, fulfilling predictions for a slump in prices that were jacked up to unsustainable levels by a short-lived speculative frenzy in China. The SGX AsiaClear contract for June settlement in Singapore sank as much as 3.5% to $48.64 a metric ton in Singapore [..] It’s collapsed 12% this week, the most since December, after losing 11% the week before. In Dalian, iron ore futures plunged on Friday to the lowest since February as steel in Shanghai headed for the biggest weekly loss on record.

Iron ore and steel are buckling once again after widespread predictions that the trading frenzy in China that had propelled prices upward in April wouldn’t endure as regulators clamped down and the rallies themselves induced higher production. Iron ore stockpiles at ports in China have expanded to near 100 million tons, while mills produced more steel than ever in March. Lower steel prices erode mills’ margins, cutting their ability to restock on iron ore, according to China Merchants Futures. “As steel profits have dropped sharply recently, the desire to replenish iron ore stocks is not strong,” said Zhao Chaoyue, an analyst at China Merchants, said in a note on Friday. “Supplies of steel are recovering as demand weakens. Steel prices remain vulnerable.”

Among those that foresaw a retracement, Goldman Sachs said on April 22 that iron ore’s rally was unsustainable, and a tight steel market in China was a “temporary distraction” from fundamentals. Days later, Fitch said the surge in steel prices wouldn’t last. And at the end of last month, Brazil’s Itau Unibanco said iron would soon drop by $10, describing the speculation as a short-term issue. Spot iron ore with 62% content delivered to Qingdao fell 0.9% to $55.05 a dry ton on Thursday, according to Metal Bulletin. Prices have sunk 22% since they peaked at more than $70 last month.

China’s commodity casino starts to spread its losses…

• With $100 Billion In Debt, Glencore Emerges As The Next Lehman (ZH)

One week ago, in a valiant attempt to defend the stock price of struggling commodity trading titan Glencore, one of the company’s biggest cheerleaders, Sanford Bernstein’s analyst Paul Gait (who has a GLEN price target of 450p) appeared on CNBC in what promptly devolved into a great example of just how confused equity analysts are when it comes to analyzing highly complex debt-laden balance sheets. In the clip below, starting about 2:30 in, CNBC’s Brian Sullivan gets into a heated spat with Gait over precisely how much debt Glencore really has, with one saying $45 billion the other claiming it is a whopping $100 billion. The reason for Gait’s confusion is that he simplistically looked at the net debt reported on Glencore’s books… just as Ivan Glasenberg intended.

However, since Glencore – like Lehman – is first and foremost a trading operation, one also has to add in all the stated derivative exposure (something we did ten days ago), in addition to all the unfunded liabilities, off balance sheet debt, bank commitments and so forth, to get a true representation of just how big, or rather massive, Glencore’s true risk is to its countless counterparties. Conveniently for the likes of equity analysts such as Gait and countless others who still have GLEN stock at a “buy” rating, Bank of America has done an extensive analysis breaking down Glencore’s true gross exposure. Here is the punchline:

“We consider different approaches to Glencore’s debt. Credit agencies, such as S&P, start with “normal” net debt, i.e. gross debt less cash and then deduct some share (80% in the case of S&P of “RMIs” – Readily Marketable Inventories. These are considered to be “cash like” inventories (working capital) in the marketing business. At the last results, RMIs were about US$17.7 bn. Giving full credit for RMIs plus a pro-forma for the equity raise and interim dividend we derive a “Glencore Adjusted Net Debt” of c. US$28 bn.

On the other hand, from discussions with our banks team, we believe the banks industry (and ultimately regulators) may look at the number i.e. gross lines available (even if undrawn) + letters of credit with no credit for inventories held. On this basis, we estimate gross exposure (bonds, revolver, secured lending, letters of credit) at c. $100 bn. With bonds at around $36 bn, this would still leave $64 bn to the banks’ account (assuming they don’t own bonds).”

Never listen to people predicting black swans.

• China Bubble Set To Rock Global Markets (CNBC)

For the moment, the following is the shock NOT heard ’round the world … at least not yet. Rampant speculation in China’s commodities markets could very well be the next “black swan” event that rocks global markets and possibly the global economy. Though very little attention has been paid to this recent action, speculative excesses in China’s commodity markets have taken traders and investors on a wild ride, which may likely soon spill over to the rest of the world. Trading volumes and volatility have been so extreme they make the recent swings in Shanghai and Shenzhen’s stock markets look mild by comparison. Chinese speculators have driven up, and then down, the prices of everything from iron ore to steel, and from soybeans to egg futures.

Prices in most of these commodities have fallen back to earth after massive, but relatively brief, spikes in prices. But, that’s not to say more damage hasn’t been done to China’s already fragile market system and economy. One truly astonishing feature of this bout of speculation is that the average holding period of a commodity futures contract was just three hours in April, according to Bloomberg. That makes other speculative trading episodes look like long-term investing. It also suggests a massive appetite for risk, which in and of itself, is potentially destabilizing, both in China and, by extension, elsewhere in the world. Why do we care? Well, first of all, the recent rebound in commodity prices, here at home, and the affiliated rebound in raw materials stocks, could have been driven, at least in part, by those very speculative excesses in China.

It also means that the rebound in inflation expectations could be a false signal, which on its face, reads as an indicator of a rebound in demand for raw materials, or a sign that the global economy could be stabilizing and re-accelerating. That’s the type of false signal that could convince the Fed that inflation is accelerating, causing them to mistakenly raise rates. While that hasn’t happened yet, it is a risk that bears watching. The “fake-out breakout” also could have suggested that supply of, and demand for, raw materials is coming back into balance in a world burdened by a commodity glut. That, too, appears to be have been a diversion. There is still more cotton, more copper, more steel and more soybeans than the world demands. The market-based signaling matrix appears to be broken thanks to this bout of speculative excess.

This is the Wild Wild East of markets these days. After speculating excessively in real estate a few years ago, in stocks last year, driven by heavy margin buying and then a crash, Chinese investors and traders have quickly moved on to commodities. These rolling bubbles are making the Chinese economy more and more unstable and more susceptible to a much-feared “hard landing” in the economy. That has implications for the Mild Mild West, where growth has been hard to come by and could be upended by another deceleration in Chinese economic activity.

Yup. China again.

• The Biggest Source Of Global Growth In 2016 Is About To Hit A Brick Wall (ZH)

After issuing a record $1 trillion in combined bank and shadow loans in the first quarter which just like during the financial crisis provided a short-term boost to global growth (while sending China’s debt/GDP to all time highs), China’s dramatic debt issuance binge is about to hit a brick wall. According to MarketNews, Chinese bank loan growth is expected to slow sharply in April compared with March as the pillar of bank lending, mortgage loans, slowed as the property market cooled. Citing bank officials, the news service said that robust first-quarter lending almost depleted their resources, making it difficult to find good targets to lend to, which also hurt loan growth. It also means that suddenly the credit impulse that drove both Chinese and global growth for the past two months is about to evaporate.

How big is the drop? Sources familiar with the loan number told MNI that combined new loans in April by the Big Four state-owned banks were more than halved from March’s level. As a reminder, the Big Four banks lent out CNY402 billion in March, according to the People’s Bank of China. While there is no preview of how bit (or small) the combined TSF number will be, it is safe to assume it will be a far smaller total than the CNY2.34 trillion in total social financing that flooded the Chinese economy in March. The slowdown mainly came from moderating mortgage growth, which has been the key driving force behind loan growth so far this year. In the city of Shanghai, mortgage loans hit a record high of CNY36.1 billion in March, beating the previous record of CNY34.6 billion set in January, according to PBOC data.

The PBOC said the country’s total outstanding mortgage loan was up 25.5% y/y at the end of March, much faster than the 14.7% of average outstanding loan growth. But that mortgage strength in the first quarter failed to continue into April as property sales growth slowed sharply on government tightening measures. According to Essence Securities, new residential house sales in tier one cities, namely Beijing, Shanghai, Guangzhou and Shenzhen, fell 21.2% on month in April and only edged up 0.5% from a year ago, including a 38.6% m/m and 30.8% y/y plunge in the city of Shenzhen, which leads the current round of property rebound. But if April was bad, May was a disaster: “it appears the situation is even worse into May. Shenzhen saw house sales in the first week of May plummet another 49% when compared with the previous week, dragging year-to-date sales into a 1% drop in terms of floor space.”

More on the Rew report. It warrants attention, lots of it. It paints the real picture of America. And that’s with Pew’s perhaps somewhat distorting definition of ‘middle class’, which includes 3-person households with incomes of up to $125,000. This may be statistically correct if you try hard enough, but an awful lot of people living on $40,000 or less will not agree.

• Middle Class Shrinks In 9 Of 10 American Cities As Incomes Fall (AP)

In cities across America, the middle class is hollowing out. A widening wealth gap is moving more households into either higher- or lower-income groups in major metro areas, with fewer remaining in the middle, according to a report released Wednesday by the Pew Research Center. In nearly one-quarter of metro areas, middle-class adults no longer make up a majority, the Pew analysis found. That’s up from fewer than 10% of metro areas in 2000. That sharp shift reflects a broader erosion that occurred from 2000 through 2014. Over that time, the middle class shrank in nine of every 10 metro areas, Pew found. The squeezing of the middle class has animated this year’s presidential campaign, lifting the insurgent candidacies of Donald Trump and Bernie Sanders.

Many experts warn that widening income inequality may slow economic growth and make social mobility more difficult. Research has found that compared with children in more economically mixed communities, children raised in predominantly lower-income neighborhoods are less likely to reach the middle class. Pew defines the middle class as households with incomes between two-thirds of the median and twice the median, adjusted for household size and the local cost of living. The median is midway between richest and poorest. It can better capture broad trends than an average, which can be distorted by heavy concentrations at the top or bottom of the income scale.

By Pew’s definition, a three-person household was middle class in 2014 if its annual income fell between $42,000 and $125,000. Middle class adults now make up less than half the population in such cities as New York, Los Angeles, Boston and Houston. “The shrinking of the American middle class is a pervasive phenomenon,” said Rakesh Kochhar, associate research director for Pew and the lead author of the report. “It has increased the polarization in incomes.”

‘We spend money we don’t have and blithely mortgage the future with a wink and a nod. Screw the next generation..’ [..] ‘Nobody here gives a rat’s a** about the future and who’s going to pay for all this stuff we vote for. That’s the next generation’s problem. It’s all about immediate publicity, getting credit now, lookin’ good for the upcoming election.’

• Congressman X: ‘Screw The Next Generation’ (DM)

A new book threatens to blow the lid off of Congress as a federal legislator’s tell-all book lays out the worst parts of serving in the House of Representatives – saying that his main job is to raise money for re-election and that leaves little time for reading the bills he votes on. Mill City Press, a small Minnesota-based ‘vanity press’ publisher describes ‘The Confessions of Congressman X’ as ‘a devastating inside look at the dark side of Congress as revealed by one of its own.’ ‘No wonder Congressman X wants to remain anonymous for fear of retribution. His admissions are deeply disturbing.’ The 84-page exposé is due in bookstores in two weeks, and Washington is abuzz with speculation about who may be behind it.

The book, a copy of which DailyMail.com has seen, discloses that the congressman is a Democrat – but not much else. The anonymous spleen-venter has had a lot to say about his constituents, however. Robert Atkinson, a former chief of staff and press secretary for two congressional Democrats, took notes on a series of informal talks with him – whoever he is – and is now publishing them with his permission. ‘Voters claim they want substance and detailed position papers, but what they really crave are cutesy cat videos, celebrity gossip, top 10 lists, reality TV shows, tabloid tripe, and the next f***ing Twitter message,’ the congressman gripes in the book. ‘I worry about our country’s future when critical issues take a backseat to the inane utterings of illiterate athletes and celebrity twits.’

Much of what’s in the book will come as little surprise to Americans who are cynical about the political process. ‘Fundraising is so time-consuming I seldom read any bills I vote on,’ the anonymous legislator admits. ‘I don’t even know how they’ll be implemented or what they’ll cost.’ ‘My staff gives me a last-minute briefing before I go to the floor and tells me whether to vote yea or nay. How bad is that?’ And on controversial bills, he says, ‘I sometimes vote “yes” on a motion and “no” on an amendment so I can claim I’m on either side of an issue.’ ‘It’s the old shell game: if you can’t convince ’em, confuse ’em.’

“There is no evidence that 0% is better than 3%. Show me the evidence.”

• Nassim Taleb Compares Monetary Policy to Novocaine (BBG)

Nassim Taleb, distinguished scientific advisor at Universa Investments and New York University professor of risk engineering, discusses monetary policy. He speaks with Erik Schatzker from the SALT Conference in Las Vegas, Nevada on “Bloomberg Markets.”

As Taleb says in the video above, Yellen is a very smart person but one who’s only recently found out that she’s stuck.

• Yellen Says Won’t Completely Rule Out Negative Rates (R.)

Fed Chair Janet Yellen said on Thursday that while she “would not completely rule out the use of negative interest rates in some future very adverse scenario,” the tool would need a lot more study before it could be used in the United States. Yellen, in responses to written questions from U.S. Congressman Brad Sherman following her February testimony on Capitol Hill, said the Fed plans to raise interest rates gradually, given its expectations that the economy will continue to strengthen and inflation will move back up to the Fed’s 2% goal. She also said that if the economy unexpectedly takes a turn for the worse, the Fed will adjust its stance. Central banks in Europe and Japan have used negative interest rates to try to stimulate their economies, and Yellen said the Fed is attempting to learn as much as it can from their experiences. Before using negative rates at home, she said, policymakers would need to consider a number of issues, “including the potential for unintended consequences.”

Charles revisits a theme Nicole and I talked a lot about in the past: “.. in effect, anyone “owning” a home with high property taxes is leasing the property from the local government for the “right” to gamble that a new housing bubble is underway.” As Nicole puts it: “..renting is paying somone else to carry the risk of owning..”.

• Dear Homeowner, What Exactly Do You “Own”? (CH Smith)

We’re constantly told ours is an ownership society in which owning a home is the foundation of household wealth. The concept of ownership may appear straightforward, but consider these questions: 1. If the house is mortgaged, what does the homeowner “own” when the bank has the senior claim to the property? 2. If the homeowner owes local government $13,000 a year in property taxes, what does the homeowner “own” once they pay $260,000 in property taxes over 20 years? The answer to the first question: the homeowner only “owns” the homeowners’ equity, the market value of the home minus the the mortgage and closing costs. In a housing bubble, homeowners’ equity can soar as the skyrocketing value accrues to the homeowner, as the mortgage is fixed (in conventional mortgages). But when bubbles pop and housing prices return to reality-based valuations, the declines also accrue to the homeowner’s equity.

If the price declines below the mortgage due the lender, the homeowners’ equity vanishes and the property is underwater. The property may still be worth (say) $400,000, but if the mortgage(s) total $400,000, the owner owns nothing but the promise to pay the mortgage and property taxes and the right to claim a tax deduction for the mortgage interest paid. To answer the second question, let’s consider an example. In areas with high property taxes (California, New Jersey, New York, Illinois, etc.), annual bills in excess of $10,000 annually are not uncommon. If we take $13,000 annually as a typical total property tax in these areas (property taxes can include school taxes, library taxes, and a host of special assessments on top of the “official” base rate), the homeowner “owns” the obligation to pay local tax authorities $130,000 per decade for the right to “own” the house.

In states without Prop 13-type limits on how much property taxes can be raised, there is no guarantee that property taxes won’t jump higher in a decade, but for the sake of simplicity, let’s assume the rate is unchanged. In 20 years of ownership, the homeowner will pay $260,000 in property taxes.Let’s compare that with the rise in their homeowners’ equity. Since home values are high in high-tax regions, let’s assume a $400,000 purchase price with an $80,000 down payment and a conventional 4% 30 year mortgage of $320,000. In 20 years of mortgage and tax payments, the homeowners paid about $197,500 in interest to the bank (deductible from their income taxes), and about $170,000 in mortgage principle, leaving them total homeowner’s equity of the $80,000 down payment and the $170,000 in principle, or a total of $250,000. Since they paid $260,000 in property taxes in the period, have they gained anything?

If we look at the property as merely leased from the local government for the annual fee of $13,000, then was “ownership” a good deal for the local government or for the homeowner? If the homeowner subtracts the lease fee (i.e. property taxes) from their equity, they are underwater by $10,000. The real estate industry answer is that “ownership” is great because the skyrocketing appreciation accrues to the homeowner. If the house doubles in value from $400,000 to $800,000 in a decade, who cares about the $130,000 in property taxes paid? If we subtract this $130,000 lease fee, the homeowner would still pocket a hefty profit: $800,000 sales price minus the $400,000 purchase price, the $130,000 in property taxes, the costs of 10 years of maintaining the home and the selling commission and closing fees. So in effect, anyone “owning” a home with high property taxes is leasing the property from the local government for the “right” to gamble that a new housing bubble is underway.

Greece has a major payment to the ECB coming in July. Something will be found, but it will not be advantageous to Athens.

• IMF Under Pressure From Germany Over Greece (WSJ)

In Europe’s battle with the IMF over Greece, Germany has a way to win. Germany, Europe’s dominant economic power, is leaning heavily on the IMF to accept hypothetical assurances that Greece’s debt burden will be addressed in the future if needed, rather than the definite and far-reaching debt relief that the IMF wanted, according to people familiar with the talks. Berlin believes the IMF will have to accept what’s on offer, even if IMF staff are unhappy about it, these people say. The IMF is also under heavy European pressure to accept Greek austerity policies that are less specific than the cuts the IMF wanted. An accord hasn’t been reached yet, and some warn it could take several weeks. The IMF’s Achilles’ heel: Its board is controlled by Germany, other European Union countries, and the U.S., none of whom want a new crisis over Greece.

That power reality weakens the IMF’s threat to pull out of the Greek bailout if it is unsatisfied. The EU currently faces multiple challenges that threaten to unravel the 60-year-old project of European integration, including the U.K.’s referendum on leaving the bloc, the migration crisis, and the rise of EU-skeptic populist parties. Germany and other European governments have no appetite for another round of brinkmanship over Greece like in 2015, and want a deal in coming weeks that settles Greece’s future—at least for now. Any deal is nevertheless likely to include some important concessions to the IMF. German Finance Minister Wolfgang Schäuble -who until recently adopted the hard-line stance in public that Greece needs no debt relief at all- has already permitted discussions to start this week about how eurozone loans to Greece might be restructured in the future.

A deal, which many European officials are now confident of reaching in late May or early June, is expected to include a promise by Germany and other eurozone countries to keep Greece’s debt burden below a certain threshold. That promise would entail easing the terms of Greece’s loans “if necessary.” Crucially for Berlin, however, any decision to restructure the loans would be delayed until 2018—after Germany’s 2017 elections. Mr. Schäuble and his boss, Chancellor Angela Merkel, are determined to avoid, for now, any material change to Greece’s bailout plan that would force them to hold an awkward debate in Germany’s parliament, the Bundestag, according to people familiar with their thinking.

An accord on Greek debt and austerity would allow Athens to stay afloat this summer, when large bonds fall due. But it is unlikely to resolve the country’s seven-year-old debt crisis. Participants in the troubled bailout are braced for further drawn-out negotiations in coming years about Greece’s fiscal and other overhauls. The main source of this year’s re-escalation of the Greek debt saga is Germany’s insistence that it cannot release any further bailout funds unless the IMF agrees to resume its own lending to Athens. IMF lending has been in limbo since last July, when IMF staff stated that “Greece’s public debt has become highly unsustainable.”

One day perhaps more people will start to understand this. Germany is blowing up the eurozone. And the EU. The Q1 2016 growth announced today more than doubled, and that just makes it that much worse.

• The German Current Account Surplus Requires Deficits Elsewhere (Harrison)

With the periphery’s downturn came austerity and internal devaluation. And this has meant two adjustments. First, the EU as a whole has moved from a roughly balanced external position to a net creditor position as the German and Dutch export-led model is forced onto the periphery via internal devaluation used to achieve export competitiveness. Second, the Germans and Dutch have been forced to turn elsewhere to maintain their mercantilist trading stance. And they have found willing buyers in Asia and the emerging markets writ large.

The thing to realize about multilateral trade is that the imbalances do not necessarily build up as bilateral imbalances between two countries. Rather, imbalances build multilaterally, with some countries – particularly the reserve-currency holding US – taking on the net debtor position. And we see that now, with the UK showing record trade deficits at the same time Germany is sporting huge surpluses. The IMF faults Germany for the surplus. Martin Wolf faults Germany for this too. Irrespective, there is no mechanism in the current global currency system to correct these imbalances except through balance of payments crisis and the rise of protectionist populist politicians.

And so my conclusion here is that these imbalances will only shift in a crisis – like the one we experienced within the eurozone. Except next time, the crisis will be global. It would be nice to think that world leaders would understand that dangerous imbalances are building that feed a populist and violent political response. Alas, there is no indication that the Germans or any other net surplus country gets this. And while the Swiss and the Dutch are small trading nations, Germany is a global behemoth. Like China, it will attract negative attention when the economy turns down. And the Germans will get the blame when the trade barriers go up. Right now, it seems only a matter of when not if.

In which the Economist is found short of ideas.

• Ideas For Reducing The Debt Burden (Economist)

DEBT levels grew spectacularly in the rich world from 1982 to 2007. When the financial crisis broke, worries about the ability of borrowers to repay or refinance that debt caused the biggest economic downturn since the 1930s. It could have been worse. The danger was that, as private-sector borrowers scrambled to reduce their debts, the resulting contraction in credit would drive the world into depression. Fortunately, this outcome was averted. First, the governments of rich countries allowed their debts to rise, offsetting the reduction in private debt. In addition, emerging markets (notably China) continued to borrow. So there was no global deleveraging; quite the reverse. Central banks also helped, slashing interest rates to zero and below.

Although lower policy rates have not always resulted in cheaper borrowing costs (in Greece, for example), debt-servicing costs have fallen in most developed countries. Although this approach has staved off disaster, it has not got rid of the problem, as a research note from Manoj Pradhan, an economist at Morgan Stanley, makes clear. “High debt forces interest rates to stay low, which encourages yet more debt,” Mr Pradhan writes. Central banks dare not push interest rates up too quickly for fear of causing another crisis; hence the stop-start nature of the Federal Reserve’s statements on monetary policy. The developed world seems stuck with sluggish growth and low rates. In health terms, the disease is chronic, not acute.

A lurch into another global crisis, Mr Pradhan reckons, would require three ingredients. First, the assets financed by the debt build-up would need to fall sharply in price or prove uneconomic. Second, the debtors would have to be concentrated in big, globalised economies. Lastly, global investors would have to be heavily exposed to the debt in question. All this was the case in 2007-08, as debt secured by American housing turned bad, raising doubts about the health of the Western banking system. This time round the debtors are in different places. Some of them are emerging-market governments and commodity producers. But, except for China, none of these is crucial to the world economy. And China’s debts are mainly in domestic hands, rather than widely dispersed in the portfolios of international banks, pension funds and insurance companies.

“..more than 50 million people in Africa are acutely threatened by famine..”

• ‘Death Awaits’: Africa Faces Worst Drought in Half a Century (Spiegel)

Herdsman Ighale Utban used to be a relatively prosperous man. Three years ago, he owned around a hundred goats. Now, though, all but five of them have died of thirst at a dried-up watering hole, victims of the worst drought seen in Ethiopia and large parts of Africa in a half-century. Utban, a wiry man of 36 years, belongs to a nomadic people known as the Afar, who spend their lives wandering through the eponymously named state in northeastern Ethiopia. “This is the worst time I’ve experienced in my life,” he says. On some days, he doesn’t know how to provide for himself and his seven-member family. “We can no longer wander,” Utban says, “because death awaits out there.” For now, he’ll have to remain in Lii, a scattered little settlement in which several families have erected their makeshift huts. Lii means “scorching hot earth.”

Since time immemorial, shepherds have wandered with their animals through the endless expanses of the Danakil desert. They live primarily off of meat and milk, and it was always a meagre existence. But with the current drought, which has lasted for over a year, their very existence is threatened. “First the livestock die, then the people,” Utban says. The American relief organization USAID estimates that in Afar alone, over a half million cattle, sheep, goats, donkeys and camels have perished. Reservoirs are empty, pastures dried up, feed reserves nearly exhausted. With no rain, grass no longer grows. Many nomads are selling their emaciated livestock, but oversupply has led to a 50% decline in prices. Currently, millions of African farmers and herders are suffering similar fates to Utban’s. The UN estimates that more than 50 million people in Africa are acutely threatened by famine.

After years of hope for increased growth and prosperity, the people are once again suffering from poverty and malnutrition. The governments of Malawi, Mozambique, Zimbabwe, Lesotho and Swaziland have already declared states of emergency, and massive crop losses have caused food prices to explode in South Africa. Particularly hard stricken are the countries in the southern part of the continent as well as around the Horn of Africa, Somalia, Djibouti, Eritrea and especially Ethiopia. Meteorologists believe the natural disaster is linked to a climate phenomenon that returns once every two to seven years known as El Niño, or the Christ child, a disruption of the normal sea and air currents that wreaks havoc on global weather patterns. The El Niño experienced in 2015-2016 has been particularly strong.

Summing it up. Europe doesn’t send help to relieve the conditions refugees live in. They send policemen instead. 200 of them.

• Europol To Send Experts To Greek Islands To ‘Identify Terrorists’ (Kath.)

Europol, the European Union’s law enforcement agency, is soon to deploy 200 officers to refugee centers on the Greek islands and mainland to help identify potential terrorists. The officers, specially trained experts in immigration and terrorism, will not be in charge of border protection but will examine individuals deemed to be suspicious. After several weeks of reduced inflows of migrants from neighboring Turkey, Thursday saw an increase in arrivals with 130 people arriving on Greek shores in one day, amid growing concerns about the fate of an agreement between Turkey and the European Union to curb migration.

The total number of migrants in Greece on Thursday stood at 54,542, according to the spokesman for the government’s coordinating committee for refugees, Giorgos Kyritsis. Of this total, nearly 10,000 are living in squalid conditions at a makeshift camp near the village of Idomeni close to the border with the Former Yugoslav Republic of Macedonia. Kyritsis said the Idomeni camp would be evacuated but did not specify when. The situation at the camp is tense and local residents are running out of patience, with the head of the Idomeni community on Wednesday lodging a legal suit against Citizens’ Protection Minister Nikos Toskas for a “complete absence of state control” at the camp.

Oh my, what a surprise.

• EU Mission ‘Failing’ To Disrupt Mediterranean People-Smugglers (BBC)

The EU naval mission to tackle people smuggling in the central Mediterranean is failing to achieve its aims, a British parliamentary committee says. In a report, the House of Lords EU Committee says Operation Sophia does not “in any meaningful way” disrupt smugglers’ boats. The destruction of wooden boats has forced the smugglers to use rubber dinghies, putting migrants at even greater risk, the document says. Operation Sophia began in 2015. It was set up in the wake of a series of disasters in which hundreds of migrants died while trying to cross from Libya to Italy. The EU authorised its vessels to board, search, seize and divert vessels suspected of being used for people smuggling.

The report states that “the arrests made to date have been of low-level targets, while the destruction of vessels has simply caused the smugglers to shift from using wooden boats to rubber dinghies, which are even more unsafe”. It says that there are also “significant limits to the intelligence that can be collected about onshore smuggling networks from the high seas. “There is therefore little prospect of Operation Sophia overturning the business model of people smuggling,” the document concludes. It adds that the mission is still operating out in international waters, and not – as originally intended – in Libyan waters.

Debt Rattle May 11 2016

May 112016

May 11, 2016 Posted by Raúl Ilargi Meijer at 7:47 am Finance Tagged with: arctic, austerity, debt, Germany, Greece, infrastructure, NATO, oil, surplus 5 Responses »

Jack Delano Engineer at AT&SF railroad yard, Clovis, NM 1943

• ‘Miracle’ Needed To Save The World, Because Central Banks Can’t (SMH)

• “Anonymous Voice” Signals Big Policy Change In China (ZH)

• The Triggers For A New Financial Crisis (Das)

• US: Neglected Nation (FT)

• Big Oil Abandons $2.5 Billion in US Arctic Drilling Rights (BBG)

• Germany Posts Record Current-Account Surplus (BBG)

• Germany is the Eurozone’s Biggest Problem (Wolf)

• London Is Building More Offices Than Ever (BBG)

• NATO Is Much Worse Than A Cold War Relic (FFF.Org)

• Greece Faces Its Toughest Austerity Measures Yet (G.)

Make it easier to pay off debt and we’ll all go deeper into debt.

• ‘Miracle’ Needed To Save The World, Because Central Banks Can’t (SMH)

The Bank of Japan and the ECB are printing billions in a “useless” attempt at stimulating demand as a “crisis of confidence” erupts over central banks and their diminishing influence. And for the same reason, the Reserve Bank of Australia may find itself powerless in trying to defeat low inflation by cutting interest rates to fresh record lows. That is the view of Vimal Gor, who is head of income and fixed interest at BT Investment Management. Mr Gor is the latest expert to question the wisdom of RBA rate cuts. “The theory says yes, but in practice it’s unclear as RBA monetary policy has no influence over commodity prices or overcapacity in Chinese and Japanese markets. This takes us back to the question of central bank credibility in being able to deliver on their objectives,” he said.

“Take negative rates any further and central banks risk putting the financial system at risk.” Inflation expectations implied by long-dated inflation swaps suggest markets are not convinced that central banks can lift prices through easy policy settings. “It is clear markets are giving up on central banks to fulfil their mandate in the inflation fighting arena.” Helicopter money, which Mr Gor agrees is a “ridiculous” idea, might be tested, but there is another idea worth exploring. “The other option is to abandon the inflation targeting mantra which has been pervasive over the last 25 years,” he says. Instead, central banks could come up with “a per capita measure of economic activity”. This would limit the pressure to keep lowering interest rates.

“The reality remains that the world is overwhelmed with debt, so that would suggest that we would need to have low rates to make repayment easier, and to discourage saving. “Ironically low rates spur further adoption of debt because of asset prices that are shooting skywards, and actually encourage more saving because income levels from the existing savings pile are too small to live on.”

Xi doesn’t have the guts to come out and say it.

• “Anonymous Voice” Signals Big Policy Change In China (ZH)

Overnight the People’s Daily published an interview with “anonymous authorities” on the topic of China’s economy. It’s a very important article as the “anonymous authorities” is considered to be Mr. Liu He, who is the economy brain of President Xi Jinping. The interview sends strong signals that China policy will shift from its aggressive easing in Q1 to a conservative position which focus on structural reforms. People’s Daily also published the “anonymous authorities” interviews in May 2015 and Jan 2016, which led to the subsequent collapse in the China A share market, because Mr. Liu (and President Xi’s camp) has been promoting structure reforms and risk controls.

For a credit driven China economy and the associated highly leveraged equities/commodities/properties markets, these’re the bad news. The A share market and China domestic commodities market had a big fall last night. Many overseas investors may think last night’s chaos is driven by the weak April import/export data announced during the weekend. I can tell you that it’s not. The local Chinese take the “anonymous authorities” article seriously and his opinion will have much deeper impact for China in the coming quarters. In general, the interview denied the “demand driven” stimulus policy adopted by China in Q1. Like other governments in the world, the CCP party and Chinese government have different sub-parties internally holding different views of the economy.

They believe their own claims are the best for China and advocate their ideas when the reality cling to them. For example, when the economy is really bad, the pro-growth camp will have upper hands and is able to push for their demand driven policies. That’s why we see China swings between structural reform and demand stimulus in the last two years. China pumped $1tn credit in Q1 to stop the falling knife, and this really cross the line of structural reform camp, so that’s why we see the article comes out right now. As the Politburo economy meeting just finished in the end of April, I believe the article delivers the consensus message agreed in the meeting.

One overriding trigger: debt.

• The Triggers For A New Financial Crisis (Das)

There are a number of potential triggers to a new crisis. The first potential trigger may be equity prices. The US stock market runs into trouble. A stronger dollar affects US exports and foreign earnings. Emerging market weakness affects businesses in the technology, aerospace, automobile, consumer products and luxury product industries. Currency devaluations combined with excess capacity, driven by debt fuelled over-investment in China, maintain deflationary pressures reducing pricing power. Lower oil prices reduce earnings, cash flow and asset values of energy producers. Overinflated technology and bio-tech stocks disappoint. Earnings and liquidity pressures reduce merger activity and stock buybacks which have supported equity values. US equity weakness flows into global equity markets.

The second potential trigger may be debt markets. Heavily indebted energy companies and emerging market borrowers face increased risk of financial distress. According to the Bank of International Settlements, total borrowing by the global oil and gas industry reached US$2.5 trillion in 2014, up 250% from US$1 trillion in 2008. The initial stress will be focused in the US shale oil and gas industry which is highly levered with borrowings that are over three times gross operating profits. Many firms were cash flow negative even when prices were high, needing to constantly raise capital to sink new wells to maintain production. If the firms have difficulty meeting existing commitments, then decreased available funding and higher costs will create a toxic negative spiral.

A number of large emerging market borrowers, such as Brazil’s Petrobras, Mexico’s Pemex and Russia’s Gazprom and Rosneft, are also vulnerable. These companies increased leverage in recent years, in part due to low interest rates to finance significant operational expansion on the assumption of high oil prices. These borrowers have, in recent years, used capital markets rather than bank loans to raise funds, cashing in on demand from yield hungry investors. Since 2009, Petrobras, Pemex and Gazprom (along with its eponymous bank) have issued US$140 billion in debt. Petrobras alone has US$170 billion in outstanding debt. Russian companies such as Gazprom, Rosneft and major banks have sold US$244 billion of bonds. The risk of contagion is high as institutional and retail bond investors worldwide are exposed.

A nation on its way to becoming a sinkhole.

• US: Neglected Nation (FT)

The American Society of Civil Engineers yesterday projected a $1.44tn investment funding gap between 2016 and 2025, warning of a mounting drag on business activity, exports and incomes. Politicians are demanding action. Hillary Clinton, the Democratic frontrunner, has called for a $275bn spending blitz, including the creation of an infrastructure bank, recalling past glories such as the interstate highway system and Hoover Dam. Donald Trump, the presumptive Republican presidential nominee, is bucking anti-spending dogma within the party by promising major programmes to renew infrastructure and create jobs — albeit without putting forward any detail on how to pay for them.

Without radical surgery, the decay in tunnels, railways and waterways will cost the US economy nearly $4tn in lost GDP by 2025 as costs rise and productivity is impeded, according to estimates from the ASCE, dragging on a recovery in output that is the shallowest since the end of the second world war. Faced with crimped public resources, President Barack Obama’s administration and some states have tried to fill infrastructure gaps by luring in private investment, including from public-private partnerships or P3s. A number of states and municipalities have lifted petrol taxes to pay for roads and bridges, even as the federal petrol tax that serves as the backbone of transport spending nationwide has remained frozen since 1993. Many argue that the recent fall in oil prices presented the perfect moment to raise petrol taxes.

Even in the heart of Washington, Memorial Bridge, a symbolic link between the north and the south of the US, might have to be closed to traffic early in the next decade if major repairs are not carried out. Around the country more than 61,000 bridges were deemed structurally deficient in 2014. Last year US public capital investment, which includes infrastructure, was just 3.4% of GDP, or $611bn, according to the president’s Council of Economic Advisers — the lowest in more than 60 years. In the White House, the inability to do more to improve roads, bridges and other infrastructure is seen as one of the major policy failures since the crisis. Mr Obama last month bemoaned the absence of a major infrastructure programme from 2012 to 2014, when borrowing costs were low and the construction industry was short of jobs.

The administration included so-called shovel-ready infrastructure projects in its $800bn stimulus bill after Mr Obama took office, but the spending fell short of what was needed for repairs and to galvanise the economy. Critics see it as a squandered opportunity. However, Jason Furman, chairman of the council, says Mr Obama made repeated attempts to get more money into infrastructure and was rebuffed. “Congress has been unwilling to substantially expand infrastructure investment — it is as simple as that,” he says.

Price discovery.

• Big Oil Abandons $2.5 Billion in US Arctic Drilling Rights (BBG)

After plunking down more than $2.5 billion for drilling rights in U.S. Arctic waters, Royal Dutch Shell, ConocoPhillips and other companies have quietly relinquished claims they once hoped would net the next big oil discovery. The pullout comes as crude oil prices have plummeted to less than half their June 2014 levels, forcing oil companies to cut spending. For Shell and ConocoPhillips, the decision to abandon Arctic acreage was formalized just before a May 1 due date to pay the U.S. government millions of dollars in rent to keep holdings in the Chukchi Sea north of Alaska. The U.S. Arctic is estimated to hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas, but energy companies have struggled to tap resources buried below icy waters at the top of the globe.

Shell last year ended a nearly $8 billion, mishap-marred quest for Arctic crude after disappointing results from a test well in the Chukchi Sea. Shell decided the risk is not worth it for now, and other companies have likely come to the same conclusion, said Peter Kiernan, the lead energy analyst at The Economist Intelligence Unit. “Arctic exploration has been put back several years, given the low oil price environment, the significant cost involved in exploration and the environmental risks that it entails,” he said. All told, companies have relinquished 2.2 million acres of drilling rights in the Chukchi Sea – nearly 80% of the leases they bought from the U.S. government in a 2008 auction. Oil companies spent more than $2.6 billion snapping up 2.8 million acres in the Chukchi Sea during that sale, on top of previous purchases in the Beaufort Sea.

Bloomberg relates this to the US, but that’s not the point. It’s what the surplus does to the rest of the EU that counts.

• Germany Posts Record Current-Account Surplus (BBG)

Germany posted a record current-account surplus just days after being placed on a U.S. watchlist for countries that may have an unfair foreign-exchange advantage. The current-account gap climbed to €30.4 billion in March, up from €21.1 billion the previous month, data from the Federal Statistics Office showed on Tuesday. The nation’s trade surplus, a narrower measure that only counts imports and exports of goods and services, widened to €26 billion, also a record. The U.S. put Germany, China, Japan, South Korea and Taiwan on a new currency watchlist on April 29, saying their foreign-exchange practices bear close monitoring to gauge whether they provide an unfair trade advantage over America. The economies met two of the three criteria used to judge unfair practices under a February law that seeks to enforce U.S. trade interests.

Meeting all three would trigger action by the president to enter discussions and seek potential penalties, including being cut off from some U.S. development financing and exclusion from U.S. government contracts. While Germany has no direct influence over the value of its currency, being just one member of the 19-nation euro area, it was cited because of its current-account and trade surpluses. Taiwan made the list because of its current-account surplus and persistent intervention to weaken the currency, according to the Treasury. Germany’s excess savings could be used to boost growth in the euro area, the Treasury said at the time. A report by the IMF on Monday said the current-account surplus will probably stay near record levels this year.

The euro weakened by more than 10% against the dollar in each of 2014 and 2015, though it has strengthened this year. The single currency traded at $1.1383 at 9:04 a.m. Frankfurt time. It was at almost $1.40 in mid-2014, before the European Central Bank started an unprecedented monetary-stimulus drive that includes negative interest rates and bond purchases.

Germany and Holland prey on Europe’s poor.

• Germany is the Eurozone’s Biggest Problem (Wolf)

Why is conventional German thinking on macroeconomics so peculiar? And does it matter? The answer to the second question is that it matters a great deal. A part of the answer to the first is that Germany is a creditor. The financial crisis has given it a dominant voice in eurozone affairs. This is a matter of might, not right. Creditors’ interests are important. But they are partial, not general, interests. Recent complaints have focused on the European Central Bank’s monetary policies, especially negative interest rates and quantitative easing. Wolfgang Schauble, Germany’s finance minister, even claimed that the ECB bore half of the responsibility for the rise of the Alternative for Germany, an anti-euro party. This is an extraordinary attack.

Criticism of ECB policies is wide-ranging: they make it unnecessary for recalcitrant members to reform; they have failed to reduce indebtedness; they undermine the solvency of insurance companies, pension funds and savings banks; they have barely kept inflation above zero; and they foment anger with the European project. In brief, ECB policy has become a big threat to stability. All this accords with a conventional German view. As Peter Bofinger, an heretical member of Germany’s council of economic experts argues, the tradition goes back to Walter Eucken, the influential father of postwar ordoliberalism. In this approach, ideal macroeconomics has three elements: a balanced budget at (almost) all times; price stability (with an asymmetric preference for deflation); and price flexibility.

This is a reasonable approach for a small, open economy. It is workable for a larger country, such as Germany, with highly competitive tradeable industries. But it cannot be generalised to a continental economy, such as the eurozone. What works for Germany cannot work for an economy three times as large and far more closed to external trade. Note that in the last quarter of 2015, real demand in the eurozone was 2% lower than in the first quarter of 2008, while US demand was 10% higher. This severe weakness in demand is missing from most of the German complaints. The ECB is rightly trying to prevent a spiral into deflation in an economy suffering from chronically weak demand. As Mario Draghi, ECB president, insists, the low interest rates set by the bank are not the problem. They are instead “the symptom” of insufficient investment demand.

Following the MO of China’s ghost cities.

• London Is Building More Offices Than Ever (BBG)

Developers started a record number of central-London office projects in the six months through March as they tried to capitalize on rising rents. Construction work began on 51 office buildings during the period, Deloitte LLP said in a report on Tuesday. About 14 million square feet (1.3 million square meters) of space is now under construction, 28% more than the previous six months and the highest since March 2008, according to the report. “In just 18 months, we have seen activity nearly double,” Deloitte said in the report, which it started publishing in 1996. “This is perhaps the first survey in a long time where we are able to point to the pendulum swinging away from landlords and back toward tenants.”

About 42% of the space under construction has already been leased and vacancy rates remain at a record low of less than 4%, Deloitte said. The “tight market conditions” are likely to continue for a few more years, according to Tim Leckie at JP Morgan. “There is a risk of the cycle turning first in the City from 2018 as new supply comes online,” he said in an e-mail.

It’s war machine.

• NATO Is Much Worse Than A Cold War Relic (FFF.Org)

Whatever else might be said about Donald Trump, the fact is that he has provided a valuable service in producing a national and international discussion of NATO, the old Cold War organization whose mission was to protect Western Europe from an attack from the Soviet Union, which had been America’s partner and ally during World War II. The obvious question arises: Given that NATO was a Cold War institution, why didn’t it go out of existence when the Cold War ended, as its counterpart, the Warsaw Pact, did? Indeed, let’s not forget that that’s precisely what U.S. officials assured Soviet officials would happen as the Cold War was ending. Shut down the Warsaw Pact and we’ll shut down NATO. But U.S. officials double-crossed the Russians. Even though the Warsaw Pact, which consisted of the Soviet Union and Eastern European countries, dismantled, NATO didn’t.

[Recently], the New York Times said reminded readers that former Defense Secretary Robert Gates had expressed a concern back in 2011 that young Americans would have no memory of the Cold War and would consider NATO to be just an artifact. If only NATO was only an artifact, one in which people just sat around collecting tax-funded paychecks. Instead, after double-crossing the Russians, it continued operating as if the Cold War had never ended, moving ever close to Russia’s border by absorbing former members of the Warsaw Pact. When NATO forces ultimately reached Ukraine, which is on Russia’s border, how could anyone be surprised over Russia’s reaction? The U.S. would have reacted the same way. In fact, it did in 1961, when the Soviets installed defensive missiles in Cuba.

There is no way U.S. national-security state officials could have been shocked over Russia’s reaction to NATO’s plan to absorb Ukraine. U.S. officials had to know from the get-go that Russia would never permit NATO to take control over its longtime military base in Crimea, which is precisely what would have happened if NATO had absorbed Ukraine. The same New York Times article quotes Gen. Philip M. Breedlove, former supreme allied commander for Europe: “The United States absolutely needs NATO — a NATO that is strong, resilient and united.” According to the article, “Five members of the Joint Chiefs of Staff made a similar set of arguments at the Council on Foreign Relations on Tuesday, also avoiding any mention of Mr. Trump’s name.”

Well, duh! Of course, they favor NATO! What better way to ignite more crises and more Cold War than with NATO? After all, what if Americans demand that U.S. troops come home from the Middle East, thereby eliminating any more threat of anti-American terrorism? What better new official enemy than the old Cold War official enemy, Russia? What better way to keep the entire national-security establishment in high cotton with ever-increasing budgets? The Times article also expressed the concern among many that Trump intends to establish good relations with Russian President Vladimir Putin. Heaven forbid! Why, that’s heresy to any advocate of the national-security state! Everyone knows that Putin is a former KGB official. Everyone knows that the KGB was composed of communists. Everyone knows that a communist can never be trusted. The war on communism is on, once again.

Allegedly to make sure the country can rebuild its economy. But there’s nothing left to rebuild with.

• Greece Faces Its Toughest Austerity Measures Yet (G.)

In his tiny shop in downtown Athens, Kostis Nakos sits behind a wooden counter hunched over his German calculator. The 71-year-old might have retired had he been able to make ends meets but that is now simply impossible. “All day I’ve been sitting here doing the maths,” he sighs, surrounded by the undergarments and socks he has sold for the past four decades. “My income tax has just gone up to 29%, my social security payments have gone up 20%, my pension has been cut by 50 euros; they are taxing coffee, fuel, the internet, tavernas, ferries, everything they can, and then there’s Enfia [the country’s much-loathed property levy]. Now that makes me mad. They said they would take that away!” A mild man in milder times, Nakos finds himself becoming increasingly angry.

So, too, do the vast majority of Greeks who walked through his door on Monday. “Everyone’s outraged, they’ve been swearing, insulting the government, calling [prime minister] Alexis Tsipras a liar,” he exclaims after parliament’s decision on Sunday night to pass yet more austerity measures. “And they’re right. Everything he said, everything he promised, was a fairy tale.” Until the debt-stricken country’s financial collapse, shops like this were the lifeblood of Greece. For small-time merchants, the pain has been especially vivid because, like everyone Nakos knows, he voted for Tsipras and his leftist Syriza party. Now the man who was swept to power on a platform to eradicate austerity has passed the toughest reforms to date – overhauling the pension system, raising taxes and increasing social security fund contributions as the price of emergency bailout aid.

As MPs voted inside the red-carpeted 300-seat chamber on Sunday, police who had blocked off a large part of the city centre deployed teargas and water cannon against the thousands of anti-austerity demonstrators amassed outside. It was a world away from the day the tieless, anti-austerity leftists first assumed office, tearing down the barricades outside the sandstone parliament building. The latest measures – worth €5.4bn (£4.3m) in budget savings – mark a new era. After nine months of wrangling with the international creditors keeping the country afloat, Athens must apply policies that until now had been abstract concepts for a populace who have suffered as unemployment and poverty rates have soared.

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