Jun 102017
 
 June 10, 2017  Posted by at 9:22 am Finance Tagged with: , , , , , , , , ,  


Marshall Hirsh Rue de Steinkerque, Paris 1950

 

Central Banks Have Bought A Record $1.5 Trillion In Assets In 2017 (ZH)
Central Banks Are Poised to Start Rowing in One Direction Again (BBG)
US Household Net Worth Climbs to Record $94.8 Trillion (WSJ)
Trump Lawyer Doubles Down On Comey Perjury Accusation (ZH)
Britain’s Credit Rating At Risk After General Election Outcome (RT)
Jeremy Corbyn: 1, British Mainstream Media: 0 (McDonald)
Tories turn on Theresa (G.)
Who is the DUP? A Brief History of UK Parliament’s New Kingmaker (RT)
5 Things To Know About DUP Politicians And Science (New Scientist)
Without Glass-Steagall America Will Fail (PCR)
Breaking Up the Banks Is Easier Than You Might Think (Nomi Prins)
Australian Households’ Share Of National Economic Pie Nears 50-Year Low (G.)
How Germany’s Three-Tiered Banking System Works (HandelsBlatt)
Greek Pensions Not Enough To Cover Costs Of Medicines, Bills And Food (K.)

 

 

The crime of our times. There’s nobody to stop it.

Central Banks Have Bought A Record $1.5 Trillion In Assets In 2017 (ZH)

One month ago, when observing the record low vol coupled with record high stock prices, we reported a stunning statistic: central banks have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, “the largest CB buying on record” according to Bank of America. Today BofA’s Michael Hartnett provides an update on this number: he writes that central bank balance sheets have now grown to a record $15.1 trillion, up from $14.6 trillion in late April, and says that “central banks have bought a record $1.5 trillion in assets YTD.”

The latest data means that contrary to previous calculations, central banks are now injecting a record $300 billion in liquidity per month, above the $200 billion which Deutsche Bank recently warned is a “red-line” indicator for risk assets.

This, as we said last month, is why “nothing else matters” in a market addicted to what is now record central bank generosity. What is ironic is that this unprecedented central bank buying spree comes as a time when the global economy is supposedly in a “coordinated recovery” and when the Fed, and more recently, the ECB and BOJ have been warning about tighter monetary conditions, raising rates and tapering QE. To this, Hartnett responds that “Fed hikes next week & “rhetorical tightening” by ECB & BoJ beginning, but we fear too late to prevent Icarus” by which he means that no matter what central banks do, a final blow-off top in the stock market is imminent. He is probably correct, especially when looking at the “big 5” tech stocks, whose performance has an uncanny correlation with the size of the consolidated central bank balance sheet.

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There are actually still people who claim central banks have solved problems. They only made them worse, but with a time-lag.

Central Banks Are Poised to Start Rowing in One Direction Again (BBG)

[..] The shift has been gradual and often subtle, yet it marks a sea change. Largely in unison, central banks employed unprecedented, unconventional easing to force their economies back into gear after the global financial crisis spurred widespread unemployment and a decade of sub-par growth. In many, that involved large-scale asset purchase programs. In the euro area and Japan, it included negative rates. The Fed has been reducing accommodation on its own since December 2015. Now, others are beginning to discuss unwinding their policies, restoring a sense of togetherness. “We’re talking about a change from a situation where the central banks were basically pedal to the metal, full throttle, as much monetary stimulus as you could conceivably do,” said Jacob Funk Kirkegaard at the Peterson Institute for International Economics.

“Now, central banks in advanced economies are reacting to a recovering economy.” As hiring hums along and central banks tip-toe toward the exit, the Fed stands to benefit. The dollar has seen upward pressure as the U.S. central bank hikes and other monetary authorities ease, and a strong greenback means cheaper imports and lower inflation. The Fed’s preferred price index continues to undershoot its 2 percent goal. “You don’t want it falling out of bed, but dollar depreciation would lead to higher inflation in the U.S.,” Bryson said. “Frankly, I think the Fed wouldn’t be that unhappy to see higher inflation.” The change is also good news for the nations turning toward the exit, as it signals that business confidence is picking up, more people are working, and the specter of another economic dip is fading from view. “None of the big global central banks is looking to loosen policy,” said Andrew Kenningham at Capital Economics in London. “What has changed is that the fear of outright deflation, or entrenched low inflation, has now faded.”

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That’s not worth or wealth. That’s a bubble.

US Household Net Worth Climbs to Record $94.8 Trillion (WSJ)

The total net worth of U.S. households climbed by $2.3 trillion in the first quarter of 2017, reaching a record $94.8 trillion as the stock market soared and home prices climbed in many parts of the country. Household wealth in the stock market climbed by $1.3 trillion in the quarter, showing just how much the market’s climb to Dow 20000 and beyond has created a swell of wealth on American’s investment statements that is helping underpin consumer confidence. The figures are from a quarterly Federal Reserve report, known as the Flow of Funds, that tracks the aggregate wealth of all U.S. households and nonprofit organizations.

The report showed that the value of household real estate rose by about $500 billion in the quarter, reflecting a continuing increase in national home prices. The sum Americans held in savings accounts rose by about $100 billion in the quarter. Household debts increased by about $46 billion in the quarter. The $2.3 trillion increase, though large, isn’t without precedent. Such large increases were seen in the late 1990s when the stock market was also climbing rapidly, and in 2004 when both markets and home prices were climbing. The last time wealth increased so rapidly was late 2013.

During the 2007-09 recession, when the housing market and stock market both fell, households lost nearly $12 trillion in wealth. But in recent years, households in aggregate have regained that wealth and more as first the stock market, and then the housing market, began to rebound. The U.S. has about 126 million households, meaning the average net worth of U.S. households is about $750,000. The report provides no details of how that wealth is distributed between households. The figures aren’t adjusted for inflation.

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Always risky to tangle with top lawyers.

Trump Lawyer Doubles Down On Comey Perjury Accusation (ZH)

Yesterday, the Twittersphere lit up when Julie Davis of the New York Times sent out a tweet suggesting that Trump’s personal attorney, Marc Kasowitz, had potentially made a serious blunder in mixing up his timeline of when Comey first leaked details of his meetings with Trump to the Times. Here is what Kasowitz said yesterday: Although Mr. Comey testified he only leaked the memos in response to a tweet, the public record reveals that the New York Times was quoting from these memos the day before the referenced tweet, which belies Mr. Comey’s excuse for this unauthorized disclosure of privileged information and appears to entirely retaliatory. Davis, and most of the media, assumed that Kasowitz was referring to an article published on May 16th by the New York Times entitled “Comey Memo Says Trump Asked Him to End Flynn Investigation.”

Of course, given that Trump’s tweet about the Comey tapes was sent 4 days prior, it couldn’t have possibly been triggered by the the NYT’s May 16th story, as Kasowitz suggested, which led Ms. Davis of the Times to publish her ‘gotcha’ tweet. Unfortunately for Davis and the New York Times, Kasowitz has just released a clarifying statement which points out that he was never referring to the May 16th article in his statement yesterday, but rather an article published on May 11, the day before Trump’s tweet, entitled “In a Private Dinner, Trump Demanded Loyalty. Comey Demurred,” which seems to discuss, in detail, the same facts presented in Comey’s now infamous memos. Here is the full statement from Kasowitz:

Statement of Marc Kasowitz, Attorney to President Donald J. Trump:

“Numerous press stories have misreported that our statement yesterday incorrectly claimed that the New York Times was reporting details from Mr Comey’s memos the day before President Trump’s May 12, 2017 Tweet because, according to these reports, the first New York Times story to mention the memos specifically was May 16, 2017, which was after the Tweet. Our statement was accurate and was not referring to the May 16, 2017 story. Rather, Mr. Comey’s written statement, which he testified he prepared from his written memo, describes the details of the January dinner in virtually verbatim language as the New York Times May 11, 2017 story describing the same dinner. That story was the day before President Trump’s Tweet. It is obvious that whomever was the source for the May 11, 2017 New York Times story got that information from the memos or from someone reading or who had read the memos. This makes clear, as our statement said, that Mr Comey incorrectly testified that he never leaked the contents of the memo or details of the dinner before President Trump’s May ’12. 2017 Tweet.”

Meanwhile, a quick review of the New York Times’ May 11 story does seem to suggest that Kasowitz has a point as the language describing Trump’s January dinner with Comey is almost identical to the testimony he presented to Congress yesterday. Therefore, whoever supplied this ‘leak’ to the NYT’s was either in possession of Comey’s memos or had been read them verbatim shortly before they were relayed to the Times.

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A world of pain.

Britain’s Credit Rating At Risk After General Election Outcome (RT)

International rating agencies, closely monitoring the situation in the UK, have warned the country’s creditworthiness faces a downgrade after the Conservative Party’s failure to win a majority in Thursday’s general election. According to the agencies, the UK’s election result could delay negotiations with the European Union over its exit from the bloc and throws the future path of its economic policy into doubt. “In our view, the lack of a majority for any party is likely to delay Brexit negotiations, scheduled to start very soon,” said S&P in a statement, adding it doesn’t “exclude the possibility of another snap election.” “These considerations are reflected in our current negative outlook on the long-term ratings,” added the agency. S&P currently rates the UK at AA, with a negative outlook. The country was stripped of its triple-A rating immediately after the Brexit referendum last year. The negative outlook means Britain is at risk of future downgrades.

S&P’s sovereign chief ratings officer Moritz Kraemer told CNBC the assessment will depend “pretty much on the further outcome of the Brexit negotiations and the reality that the UK will face outside the EU, which is still uncertain.” Brexit negotiations are supposed to begin in less than two weeks. The UK holds the second highest rating Aa1 from another agency, Moody’s. It had held the rating since 2013 when it was downgraded from AAA due to sluggish growth prospects and fiscal challenges. The agency’s lead UK sovereign analyst Kathrin Muehlbronner said on Friday, “Moody’s is monitoring the UK’s process of forming a new government and will assess the credit implications in due course.” “As previously stated, the future path of the UK sovereign rating will be largely driven by two factors: first, the outcome of the UK’s negotiations on leaving the EU and the implications this has for the country’s growth outlook. Second, fiscal developments, given the country’s fiscal deficit and rising public debt,” she said.

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Very much the Guardian too.

Jeremy Corbyn: 1, British Mainstream Media: 0 (McDonald)

From it’s “The Sun Wot Won It” to a vacuum. The Labour Party’s surge this Thursday spells the end of the popular press’ ability to manipulate the outcome of elections. It also proves the relevance of alternative media in the internet age. It was June, 2015. And RT UK’s Afshin Rattansi was interviewing a man in a beige blazer about his unlikely bid to lead British Labour. His name was Jeremy Corbyn, and he spoke a lot of sense. Too much of it to win the leadership contest, it immediately appeared. Over the following weeks, Corbyn’s support increased, and the Labour-leaning mainstream media became more-and-more opposed to his candidacy. Particularly the Guardian, a newspaper which professes to be a leftist organ, but, in reality, will always favor liberal causes over those affecting the poor. [..] Here’s a selection of Guardian comment headlines from the past 24 months or so.

30 July 2015 – Michael White – “If Labour elects Jeremy Corbyn as leader, it will be the most reckless move since choosing the admirable but unworldly pacifist, George Lansbury, in 1932.”

25 June 2016 – Polly Toynbee – “Dismal, spineless, Jeremy Corbyn let us down again.”

28 June 2016 – Editorial – “The question is no longer whether his (Corbyn’s) leadership should end because at Westminster it already has. The challenge for the Labour left is to rescue something from it.”

14 December 2016 – Rafael Behr – “Jeremy Corbyn may be unassailable, but he is not leading Labour.”

11 January 2017 – Suzanne Moore – “Labour’s Corbyn reboot shows exactly why he has to go.”

1 March 2017 – Owen Jones – “Jeremy Corbyn says he is staying. That’s not good enough.”

5 May 2017 – Jonathan Freedland – “No more excuses: Jeremy Corbyn is to blame for this meltdown.” (almost a month before polling day).

Also, 5 May 2017 – Nick Cohen – “Corbyn & (John) McDonnell could limit a Tory landslide by resigning now. That they would rather die, shows the far left is an anti-Labour movement.” (ditto)

And let’s not forget The New Statesman, where Jason Cowley suggested, only on Tuesday, that Corbyn could be leading his party to “its worst defeat since 1935.” Two days before he delivered Labour’s biggest vote share increase since 1945.

And that was the election where Labour’s greatest ever chief, Clement Attlee, stunned a victorious Winston Churchill in the aftermath of World War Two. Or Cowley’s colleague, George Eaton, who told us in March: “Jeremy knows he can’t do the job…. senior figures from all parties discuss the way forward: a new Labour leader, a new party or something else?” Also, worth a mention in this social media era, are Twitter “freelancers” like the author JK Rowling. In September of last year, she described Corbyn as “Utterly deluded,” saying “I want a Labour govt (sic), to help people trapped where I was once trapped. Corbyn helps only Tories.”

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Turning on a dime. Lust for power does that.

Tories turn on Theresa (G.)

Theresa May is fighting for her future as prime minister, according to Britain’s newspapers, which have issued damning verdicts on the Conservatives’ failure to win a majority in the general election. The Sun and the Daily Mail, which heavily supported May and criticised Jeremy Corbyn in the runup to the election, said senior Conservatives had turned on the prime minister and that she could be forced to step down within six months. The Sun’s front page headline, over a photo of May eating chips, was “She’s had her chips”, while the Daily Mail said, “Tories turn on Theresa”. The Mail described the prime minister’s election campaign as “disastrous” and said the Conservatives had been “plunged into civil war”.

The Daily Telegraph and the Times, which, like the Sun and Mail, supported the Conservatives before the election, also warned that May’s future was at risk. The Times’ front page said: “May stares into the abyss.” The Guardian, which backed Labour, said May and the Conservatives had gone from “hubris to humiliation” during the election campaign. May was also criticised for looking to strike a deal with the DUP of Northern Ireland in order to form a government. The Daily Mirror accused May of forming a “Coalition of crackpots” and pointed out that the Northern Irish party opposes gay marriage and abortion. May’s setback will raise questions about the influence of newspapers on the electorate, given that the majority strongly backed her and the Conservatives.

The Guardian reported last week that some of the most shared articles on social media about the general election were from partisan blogs such as Another Angry Voice, The Canary and Evolve Politics, which backed Labour. The Sun had urged its readers not to “chuck Britain in the Cor-bin” in its last edition before the election, provoking a backlash on social media, while on Wednesday the Daily Mail devoted 13 pages to attacking Labour, Corbyn, Diane Abbott and John McDonnell under the headline “Apologists for terror”. The Sun is owned by Rupert Murdoch’s News Corp. John Prescott, the former deputy leader of Labour, tweeted on Thursday night that he had heard from a “very good source” that Murdoch had “stormed out” of the Times’s election party after seeing the exit poll, which predicted that the Conservatives would fail to win a majority.

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Theresa May’s desperate hunger for power endangers the peace process.

Who is the DUP? A Brief History of UK Parliament’s New Kingmaker (RT)

The Democratic Unionist Party (DUP) holds the key to Theresa May remaining in Downing Street but what do we know about this Protestant party drawn from the pro-union side of Northern Ireland’s deeply sectarian political spectrum? As Britons scramble to learn about the party that will prop up May’s mandate to execute Brexit, a swathe of the online conversation has focused on the party’s past comments on homophobia, Islam and creationism. The DUP was at the center of a bloody sectarian divide during Northern Ireland’s Troubles – a conflict involving rival paramilitary groups and the British Army which claimed more than 3,000 lives over 30 years. The Conservatives and the DUP won’t form a formal coalition government but the latter will support the government regardless.

“We want there to be a government. We have worked well with May. The alternative is intolerable. For as long as Corbyn leads Labour, we will ensure there’s a Tory PM,” a DUP source was cited as saying in by the Guardian. The party is the creation of firebrand Protestant Evangelical Minister Ian Paisley. Reverend Paisley also founded the Free Presbyterian Church of Ulster and was characterized by his entrenched Unionist views and his hostile opposition to the Catholic Church. In its early years, the party was heavily involved in a campaign against homosexuality and fiercely opposed gay rights. Paisley, who was famed for his extraordinarily fiery speeches, routinely preached against homosexuality and the party picketed gay rights events as part of their ‘Save Ulster from Sodomy’ campaign.

The campaign was ultimately unsuccessful as homosexuality was decriminalized in 1982. Paisley became infamous in 1988 when, as a member of the European Parliament for Northern Ireland, he caused uproar by interrupting an address by Pope John Paul II. During his protest he shouted: “I refuse you as Christ’s enemy and Antichrist with all your false doctrine,” while brandishing posters reading: “Pope John Paul II ANTICHRIST.”

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Backwaters.

5 Things To Know About DUP Politicians And Science (New Scientist)

Having failed to win an overall majority in the UK’s general election, Theresa May’s Conservative party is hoping to foster an informal coalition with Northern Ireland’s Democratic Unionist Party (DUP). Members of the party have taken controversial stances on everything from climate change to evolution, with one assembly member being unaware that heterosexual people can contract HIV. Here are five things you need to know when it comes to science and the DUP

Climate change The party has a history of speaking out against climate change. Senior member Sammy Wilson has called climate change a “con”, and described the Paris Agreement as “window dressing for climate chancers”. During his time as Northern Ireland’s environment minister, he said that people would eventually “look back at this whole climate change debate and ask ourselves how on Earth we were ever conned into spending billions of pounds” on the issue. It isn’t just Wilson though – in 2014, DUP ministers tried to oppose proposals to introduce local measures against climate change in Northern Ireland.

Abortion Northern Ireland remains the only part of the UK where women cannot access abortion unless their life is endangered by pregnancy – a legal situation that is incompatible with the European Convention on Human Rights, according to a Belfast High Court ruling in 2015. But on taking leadership of the party in 2016, Arlene Foster promised to block any attempt to change these laws, telling reporters “I would not want abortion to be as freely available here as it is in England.” Foster did, however, say she might consider an amendment in cases of rape. But the DUP’s Jim Wells – formerly the health minister for Northern Ireland – opposes abortion even in these circumstances.

Evolution DUP assembly member Thomas Buchanan has previously called for creationism to be taught in schools. In 2016, he voiced support for an evangelical Christian programme that offers “helpful practical advice on how to counter evolutionary teaching”. He has expressed a desire to see every school in Northern Ireland teaching creationism, describing evolution as a “peddled lie”. Buchanan told the Irish News “I’m someone who believes in creationism and that the world was spoken into existence in six days by His power,” adding that children had been “corrupted by the teaching of evolution”.

Green energy The DUP’s leader narrowly survived a no-confidence motion following a disastrous attempt to bolster green energy in Northern Ireland by providing subsidies for wood burners. Arlene Foster introduced the scheme in 2012 when she was head of the Department of Enterprise, Trade and Investment. The original budget was £25 million, but a lack of price controls meant that, over five years, almost £500 million went up in smoke.

HIV Last year, DUP assembly member Trevor Clarke admitted that he had thought only gay people could be infected with HIV, until a charity explained otherwise. He made the comments during a parliamentary debate around a campaign to “promote awareness and prevention” of HIV in Northern Ireland and to increase support for those living with HIV.

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“That any corporation is too big to fail is a contradiction of the justification of capitalism.”

Without Glass-Steagall America Will Fail (PCR)

Not only must Glass-Steagall be restored, but also the large banks must be reduced in size. That any corporation is too big to fail is a contradiction of the justification of capitalism. Capitalism’s justification is that those corporations that misuse resources and make losses go out of business, thus releasing the misused resources to those who can use them profitably. Capitalism is supposed to benefit society, not be dependent on society to bail it out. I was present when George Champion, former CEO and Chairman of Chase Manhattan Bank testified before the Senate Banking Committee against national branch banking. Champion said that it would result in the banks becoming too large and that the branches would suck savings out of local communities for investment in traded financial assets. Consequently, local communities would be faced with a dearth of loanable funds, and local businesses would die or not be born from lack of loanable funds.

I covered the story for Business Week. But despite the facts as laid out by the pre-eminent banker of our time, the palms had been greased, and the folly proceeded. As Assistant Secretary of the US Treasury in the Reagan Administration, I opposed all financial deregulation. Financial deregulation does nothing but open the gates to fraud and sharp dealing. It allows one institution, even one individual, to make a fortune by wrecking the lives of millions. The American public is not sufficiently sophisticated to understand these matters, but they know when they are hurting. Few in the House and Senate are sufficiently sophisticated to understand these matters, but they do know that to understand them is not conducive to having their palms greased. So how do the elected representatives manage to represent those who vote them into office? The answer is that they seldom do.

The question before Congress today is whether they will take the country down for the sake of campaign contributions and cushy jobs if they lose their seat, or will they take personal risks in order to save the country. America cannot survive if excessive risks and financial fraud can be bailed out by taxpayers. US Representatives Walter Jones and Marcy Kaptur and members of the House and staff on both sides of the aisle, along with former Goldman Sachs executive Nomi Prins and leaders of citizens’ groups, have arranged a briefing in the House of Representatives on June 14 about the importance of Glass-Steagall to the economic, political, and social stability of the United States. Let your representative know that you do not want the financial responsibility for the reckless financial practices of the big banks. Let your representative know also that you do not want big banks that dominate the financial arena. Let them know that you want the return of Glass-Steagall.

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“..a fresh bubble is inflating. This time, it’s not US subprime mortgages at the heart of a budding banking crisis, but $51 trillion in corporate debt in the form of bonds, loans, and related derivatives.”

Breaking Up the Banks Is Easier Than You Might Think (Nomi Prins)

Today, a fresh bubble is inflating. This time, it’s not US subprime mortgages at the heart of a budding banking crisis, but $51 trillion in corporate debt in the form of bonds, loans, and related derivatives. The credit ratings agency S&P Global Ratings has predicted that such debt could rise to $75 trillion by 2020 and the defaults on it are starting to increase in pace. Banks have profited by the short-term creation and trading of this corporate debt, propagating even greater risk. Should that bubble burst, it could make the subprime mortgage bubble of 2007 look like a relatively small-scale event. On the positive side, there’s a growing bipartisan alliance in Congress and outside it on restoring Glass-Steagall.

This increasingly wide-ranging consensus reaches from the AFL-CIO to the libertarian Mises Institute, in the Senate from John McCain to Elizabeth Warren, Bernie Sanders, and Maria Cantwell, and in the House of Representatives from Republicans Walter Jones and Mike Coffman to Democrats Marcy Kaptur and Tulsi Gabbard. In fact, just this week, Kaptur and Jones announced an amendment to the pending Financial Choice Act in the House of Representives, that would represent the first genuine attempt to bring to a vote the possibility of resurrecting the Glass-Steagall Act since its repeal. So, Donald, here’s the question: Where do you—the man who, in the course of a few weeks, embraced Middle Eastern autocrats, turned relations with key NATO allies upside down, and to the astonishment of much of the world, withdrew the United States from the Paris climate agreement—stand?

In just a few months in office, you’ve turned the White House into an outpost for your family business, but when it comes to the financial wellbeing of the rest of us, what will you do? Will you, in fact, protect us from another future meltdown of the financial system? It wouldn’t be that hard and you were clear enough on this issue in your election campaign, but does that even matter to you today? I noticed that recently, in an Oval Office interview with Bloomberg News, when asked about breaking up the banks, you said, “I’m looking at that right now. There’s some people that want to go back to the old system, right? So we’re going to look at that.”

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“..the downward trend in labour’s share of GDP over the past 40 years has been more marked in Australia than in those other economies, apart from New Zealand.”

Australian Households’ Share Of National Economic Pie Nears 50-Year Low (G.)

The share of national income going to Australian households is close to a 50-year low, and now “lies towards the bottom of the international ladder”, an economist has warned. Bureau of Statistics data show labour’s share of gross domestic product has fallen to 51.5%, down from 54.2% in the third quarter of last year. At the same time, the profit share of GDP has risen from 24.5% to a five-year high of 27.5%. Paul Dales from Capital Economics said Australian households had not seen “one cent” of the extra income generated by recent soaring commodity prices because “it’s all gone into the pocket of business”. He said the share of national income going to households was now “within a whisker” of a 50-year low and a meaningful cyclical or structural upturn in that share of income was “very unlikely” if jobs growth and wages growth remained so low.

“The share of the economic pie that households currently enjoy isn’t just small by Australia’s own standards, it’s also small by international standards,” Dales wrote in a note to clients. “As a share of GDP, the compensation of Australian employees lies towards the bottom of the international ladder. That’s not always been the case. “Back in 1975, Australia households received a bigger share of the economic pie than households in the US, France and New Zealand. Only in the UK did the compensation of employees account for a larger share of GDP. “But the downward trend in labour’s share of GDP over the past 40 years has been more marked in Australia than in those other economies, apart from New Zealand.” This trend in most economies was mainly because of structural changes that had reduced the bargaining power of employees, including globalisation, the increased flexibility of the labour market and technical innovation, which had flattened firms’ cost curves, Dales said.

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Source of stability?!

How Germany’s Three-Tiered Banking System Works (HandelsBlatt)

[..] In Germany today some 18 million people, or one in four adults, belong to a credit union. And the idea has spread. Some 800 million people around the world belong to cooperatives, and there are even about 6,000 scattered around the United States. Reinhard Siebel of Frankfurt’s Goethe University says that German credit unions have also inspired today’s micro-financing projects in developing countries. The savings banks in the second tier have been copied less and remain more uniquely German, although Cuba and Ireland are interested in importing the concept. They’re sometimes compared to savings-and-loans in the United States. But the difference is that Germany’s savings banks are publicly-owned – either by municipal governments in the case of local Sparkassen or by federal states in the case of the regional Landesbanken.

Credit unions and savings banks have a few things in common. Both are part of networks of cross-guarantees to protect savers in the event that one of them goes bust. And both have mandates that emphasize maximizing the welfare of their members or stakeholders rather than making profit. In the case of savings banks, this means giving back to the municipality that owns the bank. Savings banks typically sponsor local festivals, finance local hospitals and universities and so forth. All this might sound like a leftist dream – putting communities or democratically elected governments in charge of money-lending rather than greedy private bankers. Creating an altruistic financial system was indeed part of the founders’ motivation. But it hasn’t always played out in practice.

Take the 2008 financial crisis. Some of the culprits were private banks like Commerzbank and Deutsche Bank. But the state-backed Landesbanken had also strayed beyond their allegedly conservative remits, investing in shady American mortgage-backed securities and pouring money into Greece, Spain and Portugal during their boom years. Those exposures were considered risks to the whole banking system and therefore required billions in taxpayer bailouts. So being public instead of private didn’t make them better banks. In fact, it may have made them worse, argues Wilhelm Schmundt, a German financial analyst for the consultancy Bain & Company. He thinks the Landesbanken got in trouble precisely because they were being watched over by public officials who had no real expertise in banking.

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“There are pensioners whose original supplementary pensions came to €585.20 per month and today amount to just €138.80. This signifies a reduction of 78%.”

Greek Pensions Not Enough To Cover Costs Of Medicines, Bills And Food (K.)

Three in every four pensioners already find themselves financially crippled, while upcoming cuts to pensions combined with bailout interventions in their allowances are expected to lead to a total reduction of pensioners’ incomes by up to 70%. This is the conclusion of a survey conducted by the United Pensioners network, which paints a picture of pensioners today as poor, demoralized and disappointed. It adds that the pension most retirees receives doesn’t even cover the costs of spending on medications, bills and food. The head of the network, Nikos Hatzopoulos, notes that “the reductions that pensioners’ incomes have suffered are huge. It’s not just the cuts, it’s also the [social security] contribution hikes, tax hikes and all the levies that have impoverished the veterans of the work force.

Pensions corresponding to revenues withheld from a lifetime’s work have been turned into a mere gratuity through the bailout agreement regulations.” The network’s data are quite staggering: Some 1.5 million pensioners with annual incomes up to €4,500 have sunk into poverty while new cuts to current pension will in 2019 have led to a total loss of income of 70% since Greece entered the bailout mechanism in 2010. New main pensions will not exceed €655 per month for average-paid workers. At the same time supplementary pensions have been savaged, as the seven rounds of cuts inflicted on them average at 50% in total. There are pensioners whose original supplementary pensions came to €585.20 per month and today amount to just €138.80. This signifies a reduction of 78%. Of the total figure of 2.89 million pensioners, 2.15 million (or 74%) have to make ends meet on monthly pensions that do not exceed €1,000.

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Apr 072017
 
 April 7, 2017  Posted by at 9:24 am Finance Tagged with: , , , , , , , , , , ,  


Fred Stein Times Square at Night 1947

 

Eyewitness Says Syrian Military Anticipated US Raid (ABC)
The Biggest Stock Bubble In US History (IRD)
The Unavoidable Pension Crisis (Roberts)
Americans Are Taking Out The Largest Mortgages On Record (MW)
Global Debt Explodes At ‘Eye-Watering’ Pace To Hit £170 Trillion (Tel.)
Wall Street Doubts Trump Wants to Split Up Biggest US Banks (BBG)
Fed’s Asset Shift To Pose New Test Of Economy’s Recovery, Resilience (R.)
M5S Plans To ‘Revolutionize Democracy’ With Online Voting, E-petitions (LI)
Arms Sales Becoming France’s New El Dorado, But At What Cost? (F24)
Guns Are The True Cause Of Hunger And Famine (G.)
Greece’s Dark Age: How Austerity Turned Off The Lights (R.)
On Dimitris Christoulas: ‘He Is A Part Of History Now’ (AlJ)

 

 

“I think Secretary of Defense [General] James Mattis gave the president a list of options, this being the smallest…”

Eyewitness Says Syrian Military Anticipated US Raid (ABC)

Syrian military officials appeared to anticipate Thursday’s night raid on Syria’s Shayrat airbase, evacuating personnel and moving equipment ahead of the strike, according to an eyewitness to the strike. Dozens of Tomahawk missiles struck the airbase near Homs damaging runways, towers and traffic control buildings, a local resident and human rights activist living near the airbase told ABC News via an interpreter. U.S. officals believe the plane that dropped chemical weapons on civilians in Idlib Province on Tuesday, which according to the Syrian Observatory for Human Rights killed 86 people, took off from the Shayrat airbase. The attack lasted approximately 35 minutes and its impact was felt across the city, shaking houses and sending those inside them fleeing from their windows. Both of the airport’s major runways were struck by missiles, and some of its 40 fortified bunkers were also damaged.

Local residents say the Russian military had used the airbase in early 2016 but have since withdrawn their officers, so the base is now mainly operated by Syrian and Iranian military officers. There is also a hotel near the airport where Iranian officers have been staying, though it was not clear whether it was damaged. The eyewitness believes human casualties, at least within the civilian population, were minimal, as there was no traffic heading toward the local hospital. [..] Former National Security Adviser and ABC News contributor Richard Clarke said this attack, one of the quickest displays of force by a new president in recent history, is largely “symbolic.”

Following a 2013 chemical weapons attack that killed more than 1400 people outside of Damascus which a U.S. government intelligence assessment concluded likely used a nerve agent, the Obama administration threatened retaliation but ultimately called off planned airstrikes after Assad agreed to turn over the majority of his chemical weapons arsenal to an international watchdog group. Trump has attempted to blame Obama’s “weakness” for the worsening violence in Syria. “This attack on one air base seems more symbolic,” Clarke said. “I think Secretary of Defense [General] James Mattis gave the president a list of options, this being the smallest. It was a targeted attack not designed to overwhelm the Syrian military … I think the president was trying to differentiate himself from his predecessor.”

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“Tesla has never made money and never will make money. Next to Amazon, it’s the biggest Ponzi scheme in U.S. history.”

The Biggest Stock Bubble In US History (IRD)

Please note, many will argue that the p/e ratio on the S&P 500 was higher in 1999 than it is now. However, there’s two problems with the comparison. First, when there is no “e,” price does not matter. Many of the tech stocks in the SPX in 1999 did not have any earnings and never had a chance to produce earnings because many of them went out of business. However – and I’ve been saying this for quite some time and I’m finally seeing a few others make the same assertion – if you adjust the current earnings of the companies in SPX using the GAAP accounting standards in force in 1999, the current earnings in aggregate would likely be cut at least in half. And thus, the current p/e ratio expressed in 1999 earnings terms likely would be at least as high as the p/e ratio in 1999, if not higher. (Changes to GAAP have made it easier for companies to create non-cash earnings, reclassify and capitalize expenses, stretch out depreciation and pension funding costs, etc).

We talk about the tech bubble that fomented in the late 1990’s that resulted in an 85% (roughly) decline on the NASDAQ. Currently the five highest valued stocks by market cap are tech stocks: AAPL, GOOG, MSFT, AMZN and FB. Combined, these five stocks make-up nearly 10% of the total value of the entire stock market. Money from the public poured into ETFs at record pace in February. The majority of it into S&P 500 ETFs which then have to put that money proportionately by market value into each of the S&P 500 stocks. Thus when cash pours into SPX funds like this, a large rise in the the top five stocks by market cap listed above becomes a self-fulfilling prophecy. The price rise in these stocks has nothing remotely to do with fundamentals. Take Microsoft, for example (MSFT). Last Friday the pom-poms were waving on Fox Business because MSFT hit an all-time high.

This is in spite of the fact that MSFT’s revenues dropped 8.8% from 2015 to 2016 and its gross margin plunged 13.2%. So much for fundamentals. In addition to the onslaught of retail cash moving blindly into stocks, margin debt on the NYSE hit an all-time high in February. Both the cash flow and margin debt statistics are flashing a big red warning signal, as this only occurs when the public becomes blind to risk and and bet that stocks can only go up. As I’ve said before, this is by far the most dangerous stock market in my professional lifetime (32 years, not including my high years spent reading my father’s Wall Street Journal everyday and playing penny stocks).

Perhaps the loudest bell ringing and signaling a top is the market’s valuation of Tesla. On Monday the market cap of Tesla ($49 billion) surpassed Ford’s market cap ($45 billion) despite the fact that Tesla delivered 79 thousand cars in 2016 while Ford delivered 2.6 million. “Electric Jeff” (as a good friend of mine calls Elon Musk, in reference to Jeff Bezos) was on Twitter Monday taunting short sellers. At best his behavior can be called “gauche.” Musk, similar to Bezos, is a masterful stock operator. Jordan Belfort (the “Wolf of Wall Street”) was a small-time dime store thief compared to Musk and Bezos. Tesla has never made money and never will make money. Next to Amazon, it’s the biggest Ponzi scheme in U.S. history. Without the massive tax credits given to the first 200,000 buyers of Tesla vehicles, the Company would likely be out of business by now.

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And to think even without demographics pensions look screwed too, just from financial engineering and insane debt levels.

The Unavoidable Pension Crisis (Roberts)

There is a really big crisis coming. Think about it this way. After 8 years and a 230% stock market advance the pension funds of Dallas, Chicago, and Houston are in severe trouble. But it isn’t just these municipalities that are in trouble, but also most of the public and private pensions that still operate in the country today. Currently, many pension funds, like the one in Houston, are scrambling to slightly lower return rates, issue debt, raise taxes or increase contribution limits to fill some of the gaping holes of underfunded liabilities in their plans. The hope is such measures combined with an ongoing bull market, and increased participant contributions, will heal the plans in the future. This is not likely to be the case. This problem is not something born of the last “financial crisis,” but rather the culmination of 20-plus years of financial mismanagement.

An April 2016 Moody’s analysis pegged the total 75-year unfunded liability for all state and local pension plans at $3.5 trillion. That’s the amount not covered by current fund assets, future expected contributions, and investment returns at assumed rates ranging from 3.7% to 4.1%. Another calculation from the American Enterprise Institute comes up with $5.2 trillion, presuming that long-term bond yields average 2.6%. With employee contribution requirements extremely low, averaging about 15% of payroll, the need to stretch for higher rates of return have put pensions in a precarious position and increases the underfunded status of pensions. With pension funds already wrestling with largely underfunded liabilities, the shifting demographics are further complicating funding problems.

One of the primary problems continues to be the decline in the ratio of workers per retiree as retirees are living longer (increasing the relative number of retirees), and lower birth rates (decreasing the relative number of workers.) However, this “support ratio” is not only declining in the U.S. but also in much of the developed world. This is due to two demographic factors: increased life expectancy coupled with a fixed retirement age, and a decrease in the fertility rate. In 1950, there were 7.2 people aged 20–64 for every person of 65 or over in the OECD countries. By 1980, the support ratio dropped to 5.1 and by 2010 it was 4.1. It is projected to reach just 2.1 by 2050. The table below shows support ratios for selected countries in 1970, 2010, and projected for 2050:

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Happy days!

Americans Are Taking Out The Largest Mortgages On Record (MW)

For the past few years, the housing market has been unbalanced. Strong demand and lean supply keep pushing prices higher and higher. On Wednesday, a fresh piece of data confirmed that trend. The Mortgage Bankers Association’s weekly purchase loan data showed that the average size of a home loan was the largest in the history of its survey, which goes back to 1990. Higher prices have a few different effects on the market. Buyers have to make tradeoffs on the kinds of homes they can afford, or may be shut out of ownership altogether. They may also adjust their borrowing. Larger mortgage sizes may reflect not just more expensive properties, but also more leveraged ones.

The 20% down payment is a relic: the median down payment in 2016 was 10%. For first-time buyers, it was 6%. First-timers and other buyers of less-expensive homes are more leveraged now than they were at the height of the housing bubble a decade ago. Home loan sizes aren’t the only things that have changed in the years since MBA started its survey. Back at the start of the survey, the median mortgage size was only about 3.3 times the median annual income. It’s now over five times as big – though buyers get bigger homes and lower interest rates.

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Over $70 trillion since 2008.

Global Debt Explodes At ‘Eye-Watering’ Pace To Hit £170 Trillion (Tel.)

Global debt has climbed at an “eye-watering” pace over the past decade, soaring to a fresh high of £170 trillion last year, according to the Institute of International Finance (IIF). The IIF said total debt levels, including household, government and corporate debt, climbed by more than $70 trillion over the last 10 years to a record high of $215 trillion (£173 trillion) in 2016 – or the equivalent of 325pc of GDP. It said emerging markets posed “a growing source of concern” to financial stability and the global economy as debt burdens in these countries climb at a rapid pace. The IIF data showed the increase was partly driven by a “spectacular rise” in emerging markets, where total debt stood at $55 trillion at the end of 2016, or 215pc of total emerging market GDP.

Debt has risen from $16 trillion in 2006 and $7.4 trillion in 1996. The body, which represents the world’s top financial institutions, said a wave of maturing debt this year presented a “growing refinancing risk”. It estimates that more than $1.1 trillion of emerging market bonds and loans will mature this year, with dollar-denominated debt accounting for a fifth of all redemptions. It said China faced around $40bn of dollar-denominated redemptions this year, while Russia faced redemptions of $20bn. International bodies including the IMF and OECD have warned that rising interest rates in the US could bring an end to an emerging market corporate debt binge as companies in these countries see their debt servicing costs rise in local currency terms. “While risks associated with currency mismatches may not be as acute as during past emerging market debt crises, the overall emerging market debt burden – particularly as global interest rates head higher – is a growing source of concern,” the IIF said in a note.

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Goldman is not a consumer bank. They might actually profit from this.

Wall Street Doubts Trump Wants to Split Up Biggest US Banks (BBG)

President Donald Trump and his advisers have vowed to bring back a Depression-era law that would cleave the biggest U.S. lenders in half by separating commercial and investment banking operations. Wall Street doesn’t expect that to happen. After chief economic adviser Gary Cohn reiterated the administration’s stance toward the Glass-Steagall Act in a private meeting with lawmakers on Wednesday, analysts said they viewed any radical regulatory changes as unlikely. Shares of Bank of America and JPMorgan Chase, which would be most affected by the rule, rose Thursday after Bloomberg first reported on Cohn’s comments. Reinstating Glass-Steagall, which was created after the banking crises of the 1930s and repealed in 1999, would require a rewriting of U.S. banking rules. The Dodd-Frank Act took more than a year of work by Congress.

The Trump administration hasn’t put forward a detailed plan and the revisions proposed by House Republicans don’t involve the return of Glass-Steagall. “Anything resembling Glass-Steagall is so far from happening that it’s hard to envision,” said Ian Katz, an analyst at Capital Alpha. “It simply isn’t a priority issue in Congress.” The Republicans who control the House and the Senate want to loosen banking regulations, not make them stricter, Katz wrote. The Republican Party made restoring Glass-Steagall part of its platform, and Trump sometimes criticized the big banks during the campaign, saying “I’m not going to let Wall Street get away with murder.” Since taking office, he’s appointed Cohn and several other former Goldman Sachs bankers to top posts, and said that he’ll look to JPMorgan CEO Jamie Dimon for advice about regulatory reform.

Treasury Secretary Steven Mnuchin said during his confirmation hearing that he opposes the old Glass-Steagall, but supports a “21st Century” version. He didn’t elaborate on what he meant. “If you’ve listened to all the rhetoric on regulation, we’ve no real guidance on where we are going,” said Christopher Wheeler, an Atlantic Equities analyst in London. “The uncertainty is immense and what you have to believe is that things will continue as they are.” The regulation might not mean that commercial and investment banks have to be separated, Cowen Group analyst Jaret Seiberg wrote in a report. Instead, the government could require that broker-dealers be subsidiaries of holding companies, rather than banks, he said. That would mean that the brokerage arm would have to be separately funded. “Cohn was the most likely obstacle within the Trump White House,” Seiberg wrote. “With him supporting Glass-Steagall’s restoration, there is no one in the inner circle left to fight it.”

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More uncharted territory. We tend to forget, but for 10 years now they’re grasping in the dark. They have no idea what they do, all they have to go on are outdated textbooks that were flawed to begin with. Time to audit the Fed and then close it.

Fed’s Asset Shift To Pose New Test Of Economy’s Recovery, Resilience (R.)

The Federal Reserve’s coming decision to reduce its massive asset holdings will set off a complex dance with global investors and the U.S. Treasury as it tries to put a final end to policies used to fight the 2007 financial crisis without upending the economy along the way. It is a feat with no clear precedent, according to analysts and officials involved in the process: a central bank trying to squeeze trillions of dollars out of markets it has supported for a decade, and in the process likely pushing up the cost of home buying, corporate finance and an array of other activities. Though final decisions have not been made, the Fed may shift policy as soon as the end of this year, and over 2018 begin pulling anywhere from $20 billion to $60 billion a month out of bond markets, according to a review of current Fed asset holdings.

For several years during the crisis, the Fed added to its holdings of U.S. Treasury bonds and securities backed by home mortgages to the tune of $85 billion a month before the program was slowed. The purchases were an emergency measure made necessary because the Fed’s short-term interest rate – its primary tool to encourage people and businesses to spend and invest – had already been cut to zero. With the economy still in freefall, the asset purchases added to demand for financial securities, and are thought to have held down long-term interest rates in general, a boost to the home-building and other industries in particular. The central bank is already raising its short-term interest rate and has managed a series of increases without slowing the economy. When it starts to scale back the size of its $4.5 trillion stockpile of Treasury bonds and mortgage-backed securities – essentially reversing the purchases it made during the crisis – it will pose a stiff new test of the economy’s resilience.

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This was always the plan. Use technology to strengthen democracy.

M5S Plans To ‘Revolutionize Democracy’ With Online Voting, E-petitions (LI)

Italy’s anti-establishment Five Star Movement party plans to introduce online voting and public referendums to increase “democracy and transparency” in the country’s capital. Five Star councillors presented the draft resolution at Rome’s city hall on Monday, where it will be debated. They claimed the proposed ideas would take the city “from Mafia Capitale [the ongoing corruption scandal which has seen dozens of Rome politicians and businessmen put on trial] to direct democracy and transparency in five years”. The ideas suggested included online consultations and participatory budgeting. The latter process would give citizens more say in how Rome money is spent, and has already been introduced by Five Star-led local authorities in some areas, including Mira and Ragusa.

In a blog post, leader Beppe Grillo said that within a year, a Five Star government would introduce public petitions which can be created online and sent directly to the Italian parliament for discussion – a system which already exists in the UK, for example. “It should be the citizens and the local community who govern cities through the Internet, using collective intelligence,” said Grillo. “The web is revolutionizing the relationship between citizens and institutions making direct democracy feasible, as applied in ancient Greece.” Angelo Sturni, one of the councillors behind the proposal, said: “We also want to experiment with electronic voting in referendums, using the American model.” Discontent over widespread corruption in Rome, as revealed in the Mafia Capitale trial, was one of the main factors in Five Star candidate Virginia Raggi’s victory in mayoral elections last June.

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UK, France, Germany, Holland, Belgium: merchants of death. Government sponsored murder.

Arms Sales Becoming France’s New El Dorado, But At What Cost? (F24)

When Qatar agreed to buy 24 French Rafale fighter jets in a €6.3 billion contract at the end of April, it represented yet another major success for France’s arms industry, coming hot on the heels of further multi-billion euro sales of Rafales to Egypt and India. The deals have been hailed by Hollande and his government. According to France’s Minister of Defence Jean-Yves Le Drian, in comments made to the Journal du Dimanche newspaper Sunday, the Qatar contract brought the value of the country’s arms exports to more than €15 billion this year so far. That sum is already more than the €8.06 billion for the whole of 2014, which itself was the highest level seen since 2009 – suggesting a continued upward trajectory for the French arms trade and one that is providing a much-needed salve to the country’s economic woes.

But some of these deals have raised more than a few eyebrows, with anti-arms trade campaigners critical of France’s willingness to sell weapons to countries with less than stellar human rights records. These concerns are only set to rise when Hollande heads first to Doha on Monday and then Saudi Arabia’s capital of Riyadh the day after, where furthering the recent success of the French arms industry is likely to be one of his top priorities. Saudi Arabia has already proved a lucrative trading partner for French arms manufacturers, most recently in a deal signed in November that saw the kingdom buy $3 billion-worth (€2.7 billion) of French weapons and military equipment to supply the Lebanese army. The oil-rich country is currently on something of an arms spending spree. Last year, the Saudis surpassed India to become the world’s biggest arms importer, upping its spending by 54% to €5.8 billion, according to a report by industry analyst IHS.

France, thanks to some adept diplomatic manoeuvering in recent years, is well placed to take advantage of the Saudi cash cow. Paris has been an increasingly close ally of Riyadh ever since it was among the most vocal in backing military intervention against Syria’s President Bashar al-Assad, a key ally of Shiite Iran – one of Sunni Saudi Arabia’s main regional rivals. “You’re seeing political fractures across the region, and at the same time you’ve got oil, which allows countries to arm themselves, protect themselves and impose their will as to how they think the region should develop,” Ben Moores, author of the IHS report, told AP in March. France, of course, is not alone in striking lucrative arms deals in the region. The US remains the biggest arms exporter to the Middle East, with $8.4 billion (€7.5 billion) worth of weapon sales in 2014, while the UK and Germany are also major players.

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And this is what the merchants of death leave behind.

Guns Are The True Cause Of Hunger And Famine (G.)

Last year, the World Bank revised its position on conflict – upgrading it from being one of many drivers of suffering and poverty, to being the main driver. In Somalia, despite some political progress the conflict has put more than half the population in need of assistance, with 363,000 children suffering acute malnutrition. In north-east Nigeria, conflict with Boko Haram has left 1.8m people still displaced, farmers unable to grow crops, and 4.8 million people need food. In Yemen, an escalation in conflict since 2015 has worsened a situation already made dire by weak rule of law and governance. Now more than 14 million people need food aid. Only if we understand conflict can we understand hunger. South Sudan is another example. I worked there for two years following the signing of the comprehensive peace agreement in 2005.

Right now a place called Koch, where Mercy Corps works, is in what the famine early warning systems network calls a “level 4 emergency phase”. This means that people will start to die of hunger in a matter of months if they don’t receive enough aid. Until recent years, Koch was a thriving community with fertile land. It has been destroyed in armed clashes since conflict broke out in South Sudan in December 2013. Families have had to move time and time again and disease is rampant due to the lack of clean water. As one father of five told our team in Koch: “My house was burnt, everything was looted and I do not know how to rebuild my life.” Across the places where we work and where people are facing starvation, the pattern is the similar.

Hunger is not some freak environmental event; it is human-made, the result of a deadly mix of conflict, marginalisation and weak governance. Yet watching some of the news and the crisis appeals, one could be forgiven for thinking that what we need is another Live Aid song and airdrops of food. Red Nose Day has been criticised for portraying Africa as a place where “nothing ever grows”. A recent social media campaign to send a plane filled with food to Somalia gathered support: a noble gesture, but not a long-term solution. Mercy Corps’ own emergency response is not the long-term answer either.

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It’s easy to label something ‘theft’, but for Greeks it’s either go illegal or sit in the dark, freeze etc. Still can’t believe this is the European Union.

Greece’s Dark Age: How Austerity Turned Off The Lights (R.)

Kostas Argyros’s unpaid electricity bills are piling up, among a mountain of debt owed to Greece’s biggest power utility. His family owe €850 to the Public Power Corporation (PPC), a tiny fraction of the state-controlled firm’s 2.6 billion euros ($2.8 billion) in unpaid bills. Argyros picks up only occasional work as an odd-job man. “When you only work once a week, what will you pay first?” said the 35-year-old, who lives in a tiny apartment in an Athens suburb with his unemployed wife and four small children. The Argyros family are emblematic of deepening poverty in Greece following seven years of austerity demanded by the country’s international creditors. They burn wood to heat their home in winter, food is cooked on a small gas stove, and hot water is scarce.

The only evening light is the blue glare of a TV screen, for fear of racking up more debt. Five-watt lightbulbs provide a dim glow and Argyros worries about the effect on their eyesight. More than 40% of Greeks are behind on their utility bills, higher than anywhere else in Europe. People in poor neighborhoods are also increasingly turning to energy fraud, meaning that the problem for PPC is much higher than the mountain of unpaid bills suggests. Power theft is costing PPC around €500-600 million a year in lost income, an industry official said, requesting anonymity because he was not authorized to divulge the numbers. Public disclosures by the Hellenic Electricity Distribution Network Operator HEDNO, which checks meters, show that verified cases of theft climbed to 10,600 last year, up from 8,880 in 2013 and 4,470 in 2012.

Authorities believe theft is far higher than the cases verified by HEDNO, another official said, declining to be named. Households in the country are equipped with analog meters, which are easy to hack. One of the most common tricks is using magnets, which slow down the rotating coils to show less consumption than the real amount, a HEDNO official said. Some websites even offer consumers tips and tricks on power fraud. For households who have had their electricity cut off, a group of activists calling themselves the “I Won’t Pay” movement have taken it upon themselves to reconnect the supply. The group says it has done hundreds this year. PPC, which has a 90% share of the retail market and 60% of the wholesale market, is supposed to reduce this dominance to less than 50% by 2020 under Greece’s third, 86 billion euro bailout deal.

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It’s time to make this personal. Against Schäuble and Dijsselbloem, Merkel and Rutte and Hollande. They are killing people. There’s nothing innocent about that. Making it personal is the only thing that’ll work. Bring it to their doorstep. Literally to their doorstep.

On Dimitris Christoulas: ‘He Is A Part Of History Now’ (AlJ)

On the morning of April 4, 2012, a gunshot sounded amid the city’s hustle and bustle. As passers-by rushed to work through Syntagma Square in central Athens, Dimitris Christoulas had taken his life with a shotgun a few metres from the Greek parliament. The 77-year-old pensioner, a former pharmacist, had left a note in his pocket. “The occupation government literally annihilated my ability to survive,” he wrote. “I depended on my decent pension, which I alone and without the support of the state, paid for 35 years.” His only daughter, Emmy Christoula, had known nothing about his plans. But, speaking as the fifth anniversary of his death approached, she confidently described her father’s public suicide as a political act. Her father woke up in the morning, got dressed, and wrote two identical notes – putting one in his pocket and leaving the other on his kitchen table for his daughter to read.

He took the subway to the square, site of the country’s most important protests for more than a century. When Dimitris arrived at Syntagma, he texted his daughter – “It’s the end, Emmy,” he wrote – and switched off his phone. Greek morning television talk shows broke the news of Christoulas’s suicide a few minutes after it happened. Hundreds soon gathered to pay their respects. Flowers, letters and notes of resistance were left by the tree where he chose to take his life. Spaniards wrote songs of his resistance. Irish poets wrote odes to him. His funeral turned into a rally against the austerity measures imposed on Greece, when the country’s debt payments became too onerous to pay amid the worldwide recession. The country’s creditors called for harsh spending cuts and steep tax increases so that Athens could make the payments. Protests and riots became a staple of life in Athens in the years that followed.

Five years on from Christoulas’ suicide, the crisis has only grown deeper. Greece’s debt is 175% of its GDP. Greek officials have cut retirees’ pensions 17 times to around half of their value before the recession, according to the Greek Association of Pensioners. Budget cuts have also been implemented in education, health, and welfare services. Lenders must improve most government decisions. Unemployment stands at more than 23%. A fourth bailout agreement is expected soon. According to the Greek Statistical Service, suicides have increased by 68% since 2008, the first year Greek economic growth stagnated. “I’m of a certain age and don’t have the power of dynamically reacting,” wrote Christoulas in his suicide note. “I can’t find another solution to a dignified end, as soon I’d have to start scavenging through the garbage to find my own food.”

Christoulas’ suicide became a symbol of the devastating effects of austerity on the Greek people. Until then, the majority of the stories published in the international media on the issue were about lazy Greeks who deserved their comeuppance for living off debt for so many years. “[My father] taught me that you shouldn’t just follow history, you should write it,” said Emmy, adding that she has accepted her father’s decision but still aches from his absence. Emmy describes her father as a wiry and lean man who had long participated in public life. Her first childhood memories include sitting on his shoulders at pro-democracy rallies against Greece’s military government in the 1970s. The police brutality didn’t deter father and daughter from participating.

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Apr 062017
 
 April 6, 2017  Posted by at 8:38 am Finance Tagged with: , , , , , , , , ,  


DPC Oyster luggers along Mississippi, New Orleans 1906

 

Euro Saves Germany, Slaughters the PIGS, & Feeds the BLICS (Hamilton)
Greece Wants Eurozone Summit If Deal On Bailout Doesn’t Happen Soon (AP)
Half Of American Working Families Are Living Paycheck To Paycheck (MW)
Trump Top Economic Adviser Cohn Backs Split Of Lending, Investment Banks (BBG)
IMF Explains How To Subvert Resistance Against Elimination Of Cash (Häring)
Precursors to the ’08 Crisis are Repeating Now (Nomi Prins)
Former Fed Advisor Says Central Bank Shouldn’t Comment On Equities (CNBC)
Is the Fed’s Balance Sheet Headed for the Crapper? (DiMartino Booth)
Toronto House Price Bubble Goes Nuts (WS)
Interest-Only Loans ‘To End In Tears’ (Aus.)
China Is More Fragile than You Realize (DR)
Syria Gas Attack: Assad’s Doing…Or False Flag? (Ron Paul)
Reports In Unmasking Controversy Were Detailed (Fox)
We Are Heading For The Warmest Climate In Half A Billion Years (Conv.)

 

 

Absolutely brilliant by Chris Hamilton. Many more graphs in the article. h/t Tyler

Euro Saves Germany, Slaughters the PIGS, & Feeds the BLICS (Hamilton)

Germany was well aware of it’s post WWII collapsing birth rate and the impact of this on economic growth as this shrinking population of young made it’s way into the Core.  Consider Germany’s Core population peaked in 1995 and it’s domestic consumer base has been shrinking since, now down over 3.3 million potential consumers (about a 9% Core decline…remember a depression is a 10% decline in economic activity, which a 9% and growing decline in German consumers would have almost surely induced).

GERMANY

The chart below shows Germany’s Core population from 1950–>2040…but understand this is no guestimate through 2040.  This is simply taking the existing 0-24yr/old population (plus anticipated immigration) and sliding them into the Core through 2040.  Germany’s Core population is set to fall by over 30% or 10+ million by 2040 (far more than the 7 million Germans of all ages who died in WWII).

 

But Germany had a plan.  With the advent of the EU and Euro just as Germany’s Core began shrinking, Germany was able to avoid the pitfalls of a shrinking domestic consumer base, circumvent the strong German currency, and effectively quadruple it’s effective export market across Europe.  German exports, as a % of GDP, have essentially doubled since the advent of the Euro (22% in ’95 to almost 50% in ’16).  The chart below highlights Germany’s shrinking Core vs. rising GDP (primarily via exports) since 1995.

[..] the German motivation for the EU and Euro are fairly plain as are the resultant economic transfusion from South to North.  But for Germany to be a winner, there had to be a loser in this shrinking pie game.  Hello PIGS (Portugal, Italy, Greece, Spain), you lost.  As the old poker adage goes, when you don’t know who the sucker at the table is…it’s you.  Particularly when you “win big” at first and it all seems so easy…but then it all turns.

PIGS

The chart below shows the PIGS Core population peaking about 15 years later than in Germany but likewise clearly rolling over.  By 2040, the PIGS Core population will be back at it’s 1960 levels…down from the 2010 peak by 17 million or about a 30% decline.

But if we look at the PIGS combined GDP and Core population…we see a very different picture than in Germany.  The chart below shows the PIGS GDP turned down ahead of the Core population peak.  The rise in GDP in these nations was a credit bubble premised on cheap EU wide interest rates more appropriate for Germany.  Exports as a % of GDP (which were higher than Germany’s in ’95) have risen less than half of Germany’s increase (rising as a % primarily due to declining PIGS GDP).  Low German wage increases and high quality German goods helped displace PIGS domestic manufacturing base.

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The logical consequence of the article above. Economic warfare. Tsipras complains about the Troika “moving the goalposts”, but that’s exactly the game, Alexis.

Greece Wants Eurozone Summit If Deal On Bailout Doesn’t Happen Soon (AP)

Top Greek and European officials indicated Wednesday that it’s possible to reach a breakthrough in the country’s difficult bailout talks over the next two days. Greece’s prime minister said that if a deal on paying Athens the next bailout installment fails to materialize, the eurozone should hold a special summit. Alexis Tsipras said negotiators are “just a breath away” from an agreement at Friday’s scheduled meeting in Malta of the so-called eurogroup, the gather of finance ministers from countries that use the euro. But Tsipras blamed unnamed negotiators among Greece’s European creditors and the IMF for “moving the goalposts” each time Greece was getting close to meeting approval conditions for the bailout. “We are not playing games here … that must stop,” he said, after talks in Athens with EU Council President Donald Tusk.

Greece has to agree on budget measures to get access to its loans. But the talks have dragged on for months, freezing the latest loan payout and hurting chances of a Greek economic recovery after years of recession and turmoil. Without the bailout payment, Greece would struggle to make a debt payment in July, raising anew the prospect of default. Tsipras’ left-led government is pushing for a comprehensive deal that would cover more than just spending cuts and harsh reforms by Greece, but also alleviate the country’s debt burden and ease its access later this year to international bond markets. “If the eurogroup is not in a position to (reach an agreement) on Friday, I have asked President Tusk to convene a eurozone summit to achieve an immediate agreement,” Tsipras said. “I don’t think that will be needed, because there will be a result on Friday, but these delays cannot continue.”

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Is it just me, or do we see similar surveys once a week these days? How can anyone maintain that the US economy is doing fine?

Half Of American Working Families Are Living Paycheck To Paycheck (MW)

More than seven years after the Great Recession officially ended, there is yet more depressing research that at least half of Americans are vulnerable to financial disaster. Some 50% of people is woefully unprepared for a financial emergency, new research finds. Nearly 1 in 5 (19%) Americans have nothing set aside to cover an unexpected emergency, while nearly 1 in 3 (31%) Americans don’t have at least $500 set aside to cover an unexpected emergency expense, according to a survey released Tuesday by HomeServe USA, a home repair service. A separate survey released Monday by insurance company MetLife found that 49% of employees are “concerned, anxious or fearful about their current financial well-being.”

One explanation: Americans are crippled under the same amount of debt as they had during the recession. The New York Federal Reserve on Monday predicted that total household debt will reach its previous peak of $12.68 trillion in 2017. The last time it reached that level was in the third quarter of 2008, during the depths of the Great Recession. Indeed, it’s already close: Total household debt in the fourth quarter of 2016 was $12.58 trillion. Fewer borrowers have housing-related debt in 2017 and, instead, have taken on auto and student loans.

One illness can push people to the brink of financial ruin. Wanda Battle, a registered nurse for four decades, was recently hit with a $100,000 medical bill. She has visited her local emergency room on more than one occasion due to severe migraines and mini-strokes. Battle, who is based near Nashville, Tenn., managed to reduce her latest hospital bill to $32,000 based on her relatively low income, but still faces $650 monthly payments for a previous $22,000 medical bill. “There were times I couldn’t work,” she told MarketWatch. “I have not held a job that is continuous.”

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Glass Steagall. Interesting.

Trump Top Economic Adviser Cohn Backs Split Of Lending, Investment Banks (BBG)

In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge of the matter. Cohn, the ex-Goldman Sachs executive who is now advising President Donald Trump, said he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup primarily issued loans, according to the people, who heard his comments. The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business.

Yet Cohn’s comments echo what Trump and Republican lawmakers have previously said about wanting to bring back the Glass-Steagall Act, the Depression-era law that kept bricks-and-mortar lending separate from investment banking for more than six decades. In the years after the law’s 1999 repeal, banks such as Citigroup, Bank of America and JPMorgan Chase gobbled up rivals and pushed into all sorts of new businesses, becoming one-stop-shopping financial behemoths. Many banking executives believed that the inclusion of former finance executives like Cohn in Trump’s White House would temper major changes such as a Glass-Steagall return. But his Wednesday remarks suggest he could be a wildcard should Congress get serious about reinstating the law. White House officials haven’t said what an updated version of Glass-Steagall might look like.

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They actually wrote a manual.

IMF Explains How To Subvert Resistance Against Elimination Of Cash (Häring)

The IMF has published a Working Paper on “de-cashing”. It gives advice to governments who want to abolish cash against the will of their citizenry. Move slowly, start with harmless seeming measures, is part of that advice. In “The Macroeconomics of De-Cashing”, IMF-Analyst Alexei Kireyev recommends in his conclusions:

“Although some countries most likely will de-cash in a few years, going completely cashless should be phased in steps. The de-cashing process could build on the initial and largely uncontested steps, such as the phasing out of large denomination bills, the placement of ceilings on cash transactions, and the reporting of cash moves across the borders. Further steps could include creating economic incentives to reduce the use of cash in transactions, simplifying the opening and use of transferrable deposits, and further computerizing the financial system. The private sector led de-cashing seems preferable to the public sector led decashing. The former seems almost entirely benign (e.g., more use of mobile phones to pay for coffee), but still needs policy adaptation.

The latter seems more questionable, and people may have valid objections to it. De-cashing of either kind leaves both individuals and states more vulnerable to disruptions, ranging from power outages to hacks to cyberwarfare. In any case, the tempting attempts to impose de-cashing by a decree should be avoided, given the popular personal attachment to cash. A targeted outreach program is needed to alleviate suspicions related to de-cashing; in particular, that by de-cashing the authorities are trying to control all aspects of peoples’ lives, including their use of money, or push personal savings into banks. The de-cashing process would acquire more traction if it were based on individual consumer choice and cost-benefits considerations.”

Note, that the author is not talking about unreasonable objections and imagined disadvantages: He does count it among the advantages of de-cashing in the very next paragraph that personal savings are pushed into banks and he also does count total control of all aspects of financial life under the pros, as in the last sentence of the last quote below.

“As de-cashing gives incentives to economies’ agents to convert their currency in bank deposits, the deposit base of the banking system will increase, which can help reduce the lending rates and expand credit.”

And finally the advice to do it together:

“Coordinated efforts on de-cashing could help enhance its positive effects and reduce potential costs. At least at the level of major countries and their currencies, the authorities could coordinate their de-cashing efforts. Such coordinated efforts are, in particular, important in the decisions to phase out large denomination bills for all major currencies, to use ceilings and other restrictions on cash transactions, and to introduce the reporting requirements for cash transactions or their taxation. For currency areas, a single decashing policy would be clearly preferable to a national one. Finally, consensus between the public and the private sector and outreach on the advantages and modalities of gradual decashing should be viewed as key preconditions for its success.”

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They’re all over the place.

Precursors to the ’08 Crisis are Repeating Now (Nomi Prins)

The biggest banks are still as dangerous as they were before the last crisis, even as they push for less regulation. The big six banks U.S. banks are JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley. Despite their belly-aching about heinous Dodd-Frank Act regulations cramping their betting style, they have all done damn good recently. Since Trump was elected and started talking about deregulation, the big six bank stock values have collectively skyrocketed 33.5% (as of March 10th). Bank of America tops that rise with an eye-popping increase of 48.8% in three months. Goldman Sachs and Morgan Stanley shares shot up 36.6%. Of course, most stocks have been moving up since the election. But keep in mind that the S&P 500 rose just 10.9% during that same period.

Beyond a few extra capital requirements (mostly in the form of a set of rules called Basel III coming from Europe), the need to establish a “living will” in case of another financial emergency, and some limitations on risky trading, not much has changed for these banks. Since the 2008 financial crisis, the big six banks’ total assets have increased by 21%. The big four by 25%. Yet, of the total Global Derivatives Notional amount of $544 trillion, the big six U.S. banks carry $168 trillion of it. Comparing that figure to their total assets, we get a leverage amount of 24 times. To put that in perspective, that’s only slightly less than the leverage their derivatives positions before the 2008 crisis. The biggest banks are still the ones most at risk, and most threatening to anyone with money in the stock market. Cracks have started popping up that make it clear to us that the next financial crisis is just around the corner.

[..] The Fed’s data shows bank lending to businesses has been strong, perhaps too strong. That’s why it’s just now starting to trail off. We’ve had an epic credit expansionary cycle on the back of cheap, central bank fabricated money and ultra-loose monetary policy — what I call “artisanal” money. But defaults and distressed credit activity is rising. Last year, corporates posted their fifth-highest yearly default volume. According to Forbes, “62 companies defaulted on $59.3 billion in debt — 57% higher than the $37.7 billion of defaults in 2015.” That’s an ominous trajectory.

Bank of America just revealed that its 30-90 day consumer credit delinquencies are rising significantly again. So are delinquencies at Wells Fargo. The bank card default rate is at a 42 month high. U.S. subprime auto loan losses are at their highest level since the ’08 crisis. Banks that had been offering more commercial real estate loans now say they will tighten standards. Fears are rising that a greater%age will become delinquent just as they did in the lead up to the last financial crises. A downturn is inevitable. It’s a matter of when, not if.

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Of course it shouldn’t.

Former Fed Advisor Says Central Bank Shouldn’t Comment On Equities (CNBC)

Federal Reserve officials commented on the stock market in March, as minutes from the Federal Open Market Committee meeting revealed the central bank is working to reduce its $4.5 trillion in bonds on its balance sheet this year. Danielle DiMartino Booth, a former Dallas Fed advisor and president of Money Strong, said on CNBC’s Power Lunch on Monday, “It always makes me uncomfortable,” when the central bank comments on U.S. equities. In the summary of the March meeting, Fed members “commented that the recent increase in equity prices might in part reflect investors’ anticipation of a boost to earnings from a cut in corporate taxes or more expansionary fiscal policy, which might not materialize.

They also expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook for such policy initiatives.” “I don’t think it’s necessarily the purview of central bankers to comment on this,” DiMartino Booth said. She said the Fed’s comments on the market shows “they are also verbally concerned about financial instability,” and may consider it when the Fed makes fiscal policy decisions, in addition to labor and inflation mandates. David Nelson, chief strategist at Belpointe Asset Management, agreed, “I don’t think the Fed should be commenting on stock prices.”

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“..getting from Point A ($4.5 trillion) to Point B ($2 trillion based on balance sheet contracting just over a tenth the size of the country’s GDP) will take at least five years.”

Is the Fed’s Balance Sheet Headed for the Crapper? (DiMartino Booth)

The good news, for those fearing having to enter monetary rehab, is that it’s going to take a mighty long time to shrink the balance sheet. The fine folks over at Goldman Sachs figure that getting from Point A ($4.5 trillion) to Point B ($2 trillion based on balance sheet contracting just over a tenth the size of the country’s GDP) will take at least five years. (An aside for you insomniacs out there: Have a look back at Mind the Cap, penned back on December 16, 2015, released hours before the Fed hiked rates for the first time in order to raise the cap on the Reverse Repo Facility (RRP) to $2 trillion. (Mind The Cap via DiMartinobooth.com) Come what may, you can consider Goldman’s estimate of the terminal value of a $2 trillion balance sheet and the size of the RRP to be anything but coincidental.)

In any event, things change. As per Goldman, by 2022, “…changes in Fed leadership, regulation, Treasury issuance policy, or macroeconomic conditions could alter both the near-term path and the intended terminal size of the balance sheet.” Indeed. It is entertaining to watch market pundits shift in their skivvies trying to assure the masses that a shrinking balance sheet will be welcomed by risky assets. It was downright comical to read that the Fed’s strategically allowing only long-dated Treasuries to expire and not be replaced would prevent the yield curve from inverting, thus staving off recession. Pardon the interruption, but domestic non-financial sector debt stood at about 140% of GDP in 1980. Today, it’s crested 250% of GDP and keeps rising.

Interest rate sensitivity, especially in commercial real estate, household finance and junk bonds is particularly acute. Oh, and by the way, monetary policy is a global phenomenon. At last check, the European periphery and emerging market corporate bond market were not in the best position to weather a rising rate environment. The best performance, though, was delivered by Chair Janet Yellen herself. In the spirit of giving credit its due, Business Insider’s Pedro da Costa highlighted this delightful nugget from testimony Yellen presented to Congress in February: “Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting the financial markets and pushing the economy into recession.” Isn’t the rapidly flattening yield curve communicating that ‘removing accommodation’ today is one and the same with ‘pushing the economy into recession’?

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Better do something, Justin. This is going to blow up in YOUR face.

Toronto House Price Bubble Goes Nuts (WS)

Residential property sales in Greater Toronto soared 17.7% year-over-year to 12,077 homes, according to the Toronto Real Estate Board (TREB). New listings jumped 15.2% to 17,052. Prices for all types of homes, based on the MLS Home Price Index Composite “Benchmark,” soared 28.6%. The “average” selling price soared 33.2%! That average selling price of C$916,567 is up from C$688,011 a year ago. Over the past five years, it has doubled! The heavenly manna was spread across the spectrum. For condos, the average price in Greater Toronto soared 33.1% to C$518,879; for townhouses it soared 32.9% to C$705,078; for semi-detached houses, 34.4% to C$858,202; and for detached houses, 33.4% to C$1,214,422. Even the house price bubble in Beijing cannot compete with this sort of miracle; new house prices there increased only 22% year-over-year in February.

And Sydney’s fabulous house price bubble just flat out pales compared to the spectacle transpiring in Toronto, with prices up only 19% in March. Vancouver has its own housing bubble to deal with. But there, the government of British Columbia has tried to tamp down on wild speculation with various measures, including a transfer tax aimed squarely at foreign non-resident investors, with “mixed” success. Now the great fear in Toronto’s real estate circles is that the government of Ontario might impose similarly cruel and unusual punishment on the participants in this spectacle. Some measures are on the table, with folks wondering how to stop the bubble from inflating further and causing even greater harm to the real economy when it deflates, as all bubbles eventually do.

They’re reluctant. It seems they want to see how BC’s measures are washing out in Vancouver. The central government too is trying to fine-tune some macroprudential measures, but they’ve had absolutely no effect on Toronto’s housing bubble. And the Bank of Canada, which has been fretting about the housing bubble for a while – always couched in its very careful terms – refuses to raise rates. Everyone is talking. No one dares to do anything real about Toronto’s house price bubble. In Toronto, according the real estate folks, it’s all based on fundamentals. It’s based on supply and demand and very rational calculated thinking, and there is no bubble in sight, lenders are just fine, and if Canadians are locked out of the housing market, so be it, it’s just a shortage of housing, really.

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We’re supposed to believe Australia never got the memo? Get real.

Interest-Only Loans ‘To End In Tears’ (Aus.)

Former National Australia Bank boss Don Argus has added to warnings about the overreliance of interest-only loans, declaring it is going to “lead to tears” as interest rates eventually move higher. After a widely expected decision by the Reserve Bank to leave its official cash rate unchanged at a record low 1.5% at its monthly board meeting yesterday, Mr Argus declared that borrowers had “forgotten” the cyclical nature of interest rates. “You can only hope that some of these dizzy values that you see people paying for houses now, you hope that they stand up on any correction, any economic correction”, Mr Argus told The Australian. Backing a tightening of so-called macroprudential controls on home lending announced by the Australian Prudential Regulation Authority last week, Mr Argus, a former BHP Billiton chairman, said the capacity of borrowers to repay loans “was always a primary concern in housing loans of yesteryear”.

“If you progressed to just an interest-only environment, that’s only going to lead to tears.” However, in a speech given in Melbourne last night, RBA governor Philip Lowe took aim at banks and other lenders for making overly generous serviceability assessments. “Despite the focus on this area over recent times, too many loans are still made where the borrower has the skinniest of income buffers after interest payments”, Dr Lowe said. “In some cases, lenders are assuming that people can live more frugally than in practice they can, leaving little buffer if things go wrong. So APRA quite rightly has said lenders can expect a strong supervisory focus on loans with a very low net income surplus.” Dr Lowe also noted that the prevalence of interest-only lending was “unusual” globally.

“A reduced reliance on interest-only loans in Australia would be a positive development and would help improve our resilience. With interest rates so low, now is a good time for us to move in this direction,” he said. Almost 40% of residential mortgage lending in Australia is interest-only, where the borrower pays off the interest rather than the principal.

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“It is about regime survival for a Chinese Communist Party that faces existential risk if they stumble.”

China Is More Fragile than You Realize (DR)

China’s economy is not just about providing jobs, goods and services. It is about regime survival for a Chinese Communist Party that faces existential risk if they stumble. Given the systemic problems inherent in trying to run an economy in the absence of the accurate price signals only free markets provide (a problem for both Chinese socialism and the West’s corrupt crony markets), their challenges are worsening every day. Malinvestments the size of ghost cities are not lost on the world’s central bankers who fear a systemic collapse of China’s economy, nor on the brilliant investors who are betting on China’s collapse like they bet against the corrupt banking products in the U.S. housing bubble. Before the 2008 financial crisis, the Chinese debt-to-GDP ratio was 147%; now, it is at about 250%.

Quietly, the Chinese leadership has begun to lower growth expectations but even those numbers should be taken with skepticism. The methodology used to calculate their GDP figures is not publicly known but uses economic data that can be manipulated for sake of appearances. Declining growth impacts China’s financial market as well. Local banks are struggling with non-performing debt rapidly increasing. Non-bank financial institutions referred to as the “shadow banking system” are spreading, with little regulation or recognition of the risks. The government’s attempts to better regulate the system is stymied by local corruption where exaggerated assets and little documentation mask a wave of malinvestments. Like the appearance of no-doc “liar” loans in the U.S. in 2004-2006, the entire shadow banking system is signalling risk of systemic collapse.

Another source of malinvestment is the real estate market. Commercial real estate bubbles are breathtaking and residential real estate values have begun to fall. This seriously threatens social unrest as many Chinese families have put their life savings into real estate believing well intended but nonsensical government assurances of support to an ever increasing housing market. As is typical with most countries, the Chinese government tries to mask the ravages of inflation by adjusting their public measurement downwards. Doing so conceals the impact it has on households. But when values collapse wiping out the entire family savings for their old age, there will be a terrifying political backlash.

Yet another concern is that the 2008 Lehman bankruptcy marked a plateau in world trade. This has been particularly difficult for China as exports accounted for more than 40% of their GDP. With reduced global trade, China began to lose competitiveness in the market place. Inflation of the money supply in the Chinese economy required higher wages to offset rising prices. In turn, China tried to move into higher value exports by manufacturing more technologically advanced and complicated products. Unfortunately, in the transition, quality suffered and foreign markets began to look for alternatives to Chinese components.

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Good to see I’m not the only one who questions the narrative (see Any of this Sound Familiar?).

Syria Gas Attack: Assad’s Doing…Or False Flag? (Ron Paul)

Just days after the US Administration changed course on Syrian President Assad, saying he could stay, an alleged chemical weapon attack that killed dozens of civilians has been blamed on the Syrian government. Did Assad sign his own death warrant with such an attack…or does some other entity benefit?

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“Sort of like in a divorce case where lawyers are hired, investigators are hired just to find out what the other person is doing from morning until night and then you try to piece it together later on.”

Reports In Unmasking Controversy Were Detailed (Fox)

The intelligence reports at the center of the Susan Rice unmasking controversy were detailed, and almost resembled a private investigator’s file, according to a Republican congressman familiar with the documents. “This is information about their everyday lives,” Rep. Peter King of New York, a member of the House Intelligence committee said. “Sort of like in a divorce case where lawyers are hired, investigators are hired just to find out what the other person is doing from morning until night and then you try to piece it together later on.” On the House Intelligence Committee, only the Republican chairman, Devin Nunes of California, and the ranking Democrat Adam Schiff, also of California, have personally reviewed the intelligence reports. Some members were given broad outlines.

Nunes has consistently stated that the files caused him deep concern because the unmasking went beyond the former national security adviser Mike Flynn, and the information was not related to Moscow. Schiff said in a statement, “I cannot comment on the content of these materials or any other classified documents, and nothing should be inferred from the fact that I am treating classified materials the way they should be treated – by refusing to comment on them. Only the Administration has the power to declassify the information and make it available to the public.” Former National Security Adviser Rice is under scrutiny after allegations she sought to unmask the identities of Trump associates caught up in surveillance – such as phone calls between foreign intelligence targets. Rice denies ever having sought such information for political purposes and has defended her requests as routine.

[..] During his March 20 testimony before the House Intelligence Committee, NSA director Admiral Mike Rogers said only 20 individuals within the agency are authorized to approve those requests. “They receive specific training, there are specific controls put in place in terms of our ability to disseminate information out of the databases associated with U.S. persons,” Rogers said at the time. What it appears to suggest is that the NSA itself agreed that the instances in which Rice requested unmasking warranted that action. FBI Director James Comey was less direct. “I don’t know for sure. As I sit here, surely more, given the nature of the FBI’s work,” he testified.

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What’s a 100 million more or less?

We Are Heading For The Warmest Climate In Half A Billion Years (Conv.)

Carbon dioxide concentrations are heading towards values not seen in the past 200m years. The sun has also been gradually getting stronger over time. Put together, these facts mean the climate may be heading towards warmth not seen in the past half a billion years. A lot has happened on Earth since 500,000,000 BC – continents, oceans and mountain ranges have come and gone, and complex life has evolved and moved from the oceans onto the land and into the air. Most of these changes occur on very long timescales of millions of years or more. However, over the past 150 years global temperatures have increased by about 1ºC, ice caps and glaciers have retreated, polar sea-ice has melted, and sea levels have risen.Some will point out that Earth’s climate has undergone similar changes before. So what’s the big deal?

Scientists can seek to understand past climates by looking at the evidence locked away in rocks, sediments and fossils. What this tells us is that yes, the climate has changed in the past, but the current speed of change is highly unusual. For instance, carbon dioxide hasn’t been added to the atmosphere as rapidly as today for at least the past 66m years. In terms of geological time, 1ºC of global warming isn’t particularly unusual. For much of its history the planet was significantly warmer than today, and in fact more often than not Earth was in what is termed a “greenhouse” climate state. During the last greenhouse state 50m years ago, global average temperatures were 10-15ºC warmer than today, the polar regions were ice-free, palm trees grew on the coast of Antarctica, and alligators and turtles wallowed in swamp-forests in what is now the frozen Canadian Arctic.

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Jul 202016
 
 July 20, 2016  Posted by at 9:09 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing Newsie, Washington DC 1920

To the Mattresses: Cash Levels Highest In Nearly 15 Years (CNBC)
The Financial System Is Breaking Down At An Unimaginable Pace (Black)
This ‘Market’ Discounts Nothing Except Monetary Cocaine (Stockman)
These Sicilian Mortgages Show How Hard It Is to Rescue Italian Banks (BBG)
Deal With Canada On The Brink as German Party Sues EU Over CETA (Exp.)
The Long, Sad, Corrupted Devolution Of The GOP (Intercept)
The World Is Taking Revenge Against Elites. When Will America’s Wake Up? (G.)
The Secret History of Glass-Steagall (WSJ)
We Need More Borders And More States (Mises Inst.)
June 2016 Was 14th Consecutive Month Of Record-Breaking Heat (G.)
This Year’s Record Arctic Melt Is a Problem For Everybody (Stone)

 

 

Breaking point.

To the Mattresses: Cash Levels Highest In Nearly 15 Years (CNBC)

Despite the post-Brexit market rally, fund managers have gotten even more wary of taking risks. The S&P 500 has jumped about 8.5% since the lows hit in the days after Britain’s move to leave the EU, but that hasn’t assuaged professional investors. Cash levels are now at 5.8% of portfolios, up a notch from June and at the highest levels since November 2001, according to the latest BofA Merrill Lynch Fund Manager Survey. In addition to putting money under the mattress, investors also are looking for protection, with equity hedging at its highest level in the survey’s history. Indeed, fear is running high as investors believe that global financial conditions are tightening, despite nearly $12 trillion of negative-yielding debt around the world and the U.S. central bank on hold perhaps until 2017.

In fact, fear is running so high that BofAML experts think that it’s helping fuel the recent market rally. “Record numbers of investors saying fiscal policy is too restrictive and the first underweighting of equities in four years suggest that fiscal easing could be a tactical catalyst for risk assets going forward,” Michael Hartnett, chief investment strategist, said in a statement. Positioning changed, with a rotation from euro zone, banks and insurance companies shifting to the U.S., industrials, energy, technology and materials stocks. Fund managers believe that so-called helicopter money will become a reality, with 39% now anticipating the move compared to 27% in June.

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“..the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.”

The Financial System Is Breaking Down At An Unimaginable Pace (Black)

Now it’s $13 trillion. That’s the total amount of government bonds in the world that have negative yields, according to calculations published last week by Bank of America Merrill Lynch. Given that there were almost zero negative-yielding bonds just two years ago, the rise to $13 trillion is incredible. In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion. A year later in February 2016 it had nearly doubled to $7 trillion. Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago. Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.

Just like subprime mortgage bonds from ten years ago, these bonds are also toxic securities, since many of are issued by bankrupt governments (like Japan). Instead of paying subprime home buyers to borrow money, investors are now paying subprime governments. And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm. We’ll probably see $15 trillion, then $20 trillion, worth of negative-yielding subprime government debt within the next few months. So this trend will continue to grow for now, until, just like in 2008, the bubble bursts in cataclysmic fashion. It took several years for the first subprime bubble to pop. This one may take even longer. But even still, we can already see the consequences today.

A few months ago I told you about the remarkable $3.4 trillion funding gap in the US pension system. Remember, we’re not talking about Social Security– that has its own $40+ trillion shortfall. I’m talking about private companies’ retirement pensions, or public service worker pensions at the city and state level. (By the way, this is NOT strictly a US phenomenon. Europe suffers its own $2 trillion pension shortfall.) There’s zero mathematical probability that these pensions will be able to meet their obligations. They’re already underfunded. And the problem is getting worse, thanks in part to this plague of low and negative interest rates.

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“Regardless of whether the November winner is Hillary or the Donald, there is one thing certain. There will be no functioning government come 2017.”

This ‘Market’ Discounts Nothing Except Monetary Cocaine (Stockman)

[..]..whether the central banks buy public debt from the inventories of the 23 prime dealers and other market speculators or directly from the US treasury makes no technical difference whatsoever. The end state of “something for nothing” finance is the same in both cases. In fact, “helicopter money” is just a desperate scam emanating from the world’s tiny fraternity of central bankers who have walked the financial system to the brink, and are now trying to con the casino into believing they have one more magic rabbit to pull out of the hat. They don’t. That’s because it takes two branches of the state to tango in the game of helicopter money.

The unelected monetary central planners can run the digital printing presses at whim, and continuously “surprise” and gratify the casino gamblers with another unexpected batch of the monetary drugs. That has been exactly the pattern of multiple rounds of QE and the unending invention of excuses to prolong ZIRP into its 90th month. The resulting rises in the stock averages, of course, were the result of fresh liquidity injections and the associated monetary high, not the discounting of new information about economics and profits. By contrast, helicopter money requires the peoples’ elected representatives to play.

That is, the Congress and White House must generate large incremental expansions of the fiscal deficit—so that the central bankers can buy it directly from the US treasury’s shelf, and then credit the government’s Fed accounts with credits conjured from thin air. To be sure, the cynics would say – no problem! When have politicians ever turned down an opportunity to borrow and spend themselves silly, and to than be applauded, not chastised, for the effort? But that assumes we still have a functioning government and that today’s politicians have been 100% cured of their atavistic fears of the public debt. Alas, what is going to cause helicopter money to be a giant dud – at least in the US – is that neither of these conditions are extant.

Regardless of whether the November winner is Hillary or the Donald, there is one thing certain. There will be no functioning government come 2017.

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Rewriting the law to save your banks?

These Sicilian Mortgages Show How Hard It Is to Rescue Italian Banks (BBG)

Down the cobbled streets of Palermo, past baroque churches and gothic palaces, a lesson is lurking for Italy’s government as it hatches a plan to save the country’s banks. Sicily’s biggest city is the focal point of a 2007 securitization of non-performing loans, or NPLs, that shows just how long it can take to resolve soured loans in the country. The deal, known as Island Refinancing, should also act as a warning for investors of the dangers of buying similar securities as Italian banks gear up to sell more of them. The Island bonds are backed by two portfolios of NPLs originated by a Sicilian bank that’s now a subsidiary of UniCredit SpA. Just under half of the loans originated in the 1990s and they include residential mortgages as well as loans financing hotels and industrial buildings.

Unlike other asset-backed securities where interest and principal are paid through cash flows from mortgage or auto credit borrowers, investors in NPL securitizations depend on getting money back from soured loans – typically through the courts. And that’s where the problem lies. A court may auction the loan collateral and use the proceeds to pay the bonds, but that is a slow process. Italy is almost as well known these days for its sluggish and cumbersome insolvency procedures as it is for the Leaning Tower of Pisa or the AC Milan soccer club. Italian bankruptcy proceedings last an average of 7.8 years, compared to an average of just over two years for the rest of Europe.

Efforts are currently being made to speed up the process, with Prime Minister Matteo Renzi saying recent reforms to insolvency laws will shorten recovery times on NPL collateral to as little as six months. Still, the thus-far glacial pace of cash collections from NPLs has resulted in multiple credit ratings downgrades for the Island Refinancing deal, which will expire in 2025.

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The time for trade deals is over.

Deal With Canada On The Brink as German Party Sues EU Over CETA (Exp.)

Centre-left Die Linke has launched legal action to block the controversial Comprehensive Economic and Trade Agreement (CETA) pact, saying it is unconstitutional under German law. The party’s attempt to torpedo the hated deal is just the latest in a series of devastating trade blows for the EU, which is unravelling following the Brexit vote. And it reveals once more the cavernous differences opening up between different member states which have effectively rendered the European project unworkable. Earlier this month Canada’s despairing Trade Minister Chrystia Freeland asked: “If the EU cannot do a deal with Canada, I think it is legitimate to say who the heck can it do a deal with?”

But now there is a very real prospect that CETA will be torpedoed before it has even left port in a development which will throw the future of a much bigger deal with America into serious doubt. Negotiations over the Transatlantic Trade and Investment Partnership (TTIP) have ground to a halt, with impatient American officials warning Brussels to stop dragging their heels. The US chief negotiator said the proposed deal was nowhere near as enticing to Washington now that Britain has left the bloc, comparing a Europe without the UK to an America without California. Britain will not be affected by either calamity after voting to leave the EU, and is now free to begin informal talks on sealing its own trade deals with Canada, the US and the rest of the world.

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Lincoln, too, was a Republican.

The Long, Sad, Corrupted Devolution Of The GOP (Intercept)

In August 1956, the Republican Party gathered in San Francisco to re-nominate President Dwight D. Eisenhower as its candidate in the upcoming presidential election. The party that year adopted a platform that emphasized that the GOP was “proud of and shall continue our far-reaching and sound advances in matters of basic human needs.” This included boasting that Eisenhower had overseen a hike in the federal minimum wage that raised incomes for 2 million Americans while expanding Social Security to 10 million more people and increasing benefits for 6.5 million others.

Today’s Republican Party has made weakening labor unions a priority, but the 1956 platform noted that under Eisenhower, “workers have gained and unions have grown in strength and responsibility, and have increased their membership by 2 millions.” It also touted an increase in federal funding for hospital construction and expanded federal aid for health care for the poor and public housing. The platform also pointed out that Eisenhower had asked for “the largest increase in research funds ever sought in one year” to tackle ailments like cancer and heart disease. Rather than opposing self-governance for Washington, D.C., 1956’s Republicans encouraged it, saying they “favor self-government national suffrage and representation in the Congress of the United States” for those living there.

The platform also asked Congress to submit a constitutional amendment establishing “equal rights for men and women.” The platform boasted proudly of the African-Americans who had been appointed to positions in Eisenhower’s administration, and of ending racial discrimination in federal employment. At no point did the document call for any restrictions on immigration; rather, by contrast, it asked Congress to consider an extension of the 1953 Refugee Act, which brought tens of thousands of war-weary European refugees to American shores. Dwight D. Eisenhower was the face of the Republican Party in the 1950s. He had served as the supreme commander of the Allied forces as they retook Europe from fascist militaries in the decade before.

Experiencing two global wars shaped Eisenhower’s worldview, turning him into an advocate of peace. Eisenhower cut the military budget by 27% following the Korean War, and used his bully pulpit to highlight the trade-offs of military spending. “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed,” he said in a 1953 speech. In his farewell address on January 17, 1961, he highlighted the rise of what he called a “military-industrial complex” — a war industry that he cautioned could exert “undue influence” on the government.

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When indeed?

The World Is Taking Revenge Against Elites. When Will America’s Wake Up? (G.)

A snapshot of America in the middle of June 2016. It is several days before the first great shock of the summer, the Brexit vote, and here in America, all is serene. The threat posed by Senator Bernie Sanders has been suppressed. The Republicans have chosen a preposterous windbag to lead them; the consensus is that he will be a pushover. For all the doubts and dissent of the last year, the leadership faction of the country’s professional class seem to have once again come out on top, and they are ready to accept the gratitude of the nation. And so President Barack Obama did an interview with Business Week in which he was congratulated for his stewardship of the economy and asked “what industries” he might choose to join upon his retirement from the White House.

The president replied as follows: “… what I will say is that – just to bring things full circle about innovation – the conversations I have with Silicon Valley and with venture capital pull together my interests in science and organization in a way I find really satisfying.” In relating this anecdote, I am not aiming to infuriate because the man we elected in 2008 to get tough with high finance and shut the revolving door was now talking about taking his own walk through that door and getting a job in finance. No. My object here is to describe the confident, complacent mood of the country’s ruling class in the middle of last month. So let us continue. On the morning after British voters chose to leave the EU, Obama was in California addressing an audience at Stanford University, a school often celebrated these days as the pre-eminent educational institution of Silicon Valley.

The occasion of the president’s remarks was the annual Global Entrepreneurship Summit, and the substance of his speech was the purest globaloney, flavored with a whiff of vintage dotcom ebullience. Obama marveled at the smart young creative people who start tech businesses. He deplored bigotry as an impediment that sometimes keeps these smart creative people from succeeding. He demanded that more power be given to the smart young creatives who are transforming the world. Keywords included “innovation”, “interconnection”, and of course “Zuckerberg”, the Facebook CEO, who has appeared with Obama on so many occasions and whose company is often used as shorthand by Democrats to signify everything that is wonderful about our era.

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“The law was seen as protecting the specialized securities firms from having to compete with large national banks..”

The Secret History of Glass-Steagall (WSJ)

The Republican party platform calls for a revival of the Glass-Steagall Act, a depression-era banking law repealed in 1999. Glass-Steagall was the brainchild of Sen. Carter Glass (D-VA), best known as the principal architect of the Federal Reserve system. It erected a firewall between deposit-taking/loan-making banks and securities activities such as underwriting and trading. Its original goal was to prevent three things: purchasing of risky securities with government-insured deposits, extending bad loans to shaky companies owned by a bank, and pushing underwritten securities onto naïve bank customers. The provision became law when the Banking Act of 1933 was passed within days of President Franklin Roosevelt taking office in March 1933 in an effort to restore public confidence in the banking system.

The same act created the Federal Deposit Insurance Corp., which insures bank deposits, as well as the Federal Open Market Committee, the monetary policy making board of the Federal Reserve. The act also banned banks from paying interest on checking accounts and granted the Fed authority to put ceilings on interest rates offered for other deposits. Far from resisting Glass-Steagall, Wall Street securities firms embraced and became its most vocal supporters. The law was seen as protecting the specialized securities firms from having to compete with large national banks funded by cheap retail and commercial deposits.

The law was strengthened by a 1956 law that put bank holding companies under the purview of the Federal Reserve and made it clear they could not control both a commercial bank and an investment bank. As the years passed, however, the wall separating securities firms and banks developed cracks—primarily because of pressure from banks wanting to expand into securities dealing. Banks won regulatory approval for their affiliates to underwrite government securities, mortgage-backed securities and commercial paper. They were allowed to provide brokerage services to customers and market insurance. Banks began providing advice and assistance on mergers, acquisitions and financial planning. All this occurred without the law being changed.

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The perks of decentralization.

We Need More Borders And More States (Mises Inst.)

In the context of trade and immigration, borders are often discussed as a means of excluding foreign workers and foreign goods. In one way of thinking, borders provide an opportunity for states to exclude private actors such as workers, merchants, and entrepreneurs. On the other hand, borders can also serve a far more endearing function, and this is found in the fact that borders represent the limits of a state’s power. That is, while borders may exclude goods and people, a state’s borders also often exclude other states. For example, East Germany’s border with West Germany represented the limits of the East German police state, beyond which the power of the Stasi to kidnap, torture, and imprison peaceful people was far more limited than it was within its native jurisdiction.

The West German border acted to contain the East German state. Similarly, the borders of Saudi Arabia delineate a limit to the Saudi regime’s ability to behead people for sorcery or for making critical remarks about the blood-soaked dictators known as the House of Saud. Even within a single nation-state, borders can illustrate the benefits of decentralization, as in the case of the Colorado-Nebraska border. On one side of the border (i.e., Nebraska) state police will arrest you and imprison you for possessing marijuana. They may kill you if you resist. On the other side of the border, the state’s constitution prohibits police from prosecuting marijuana users. The Colorado border contains Nebraska’s war on drugs.

Certainly, there are ways for regimes to extend their power even beyond their borders. This can be done by cozying up with the regimes of neighboring countries (or intimidating them), or through the organs of international quasi-state organizations. Or, as in the case of the US and EU, imposing broader policies upon a number of supposedly sovereign states. Nevertheless, thanks to the competitive nature of states, many states will often find it difficult to project their power into neighboring states, and thus borders represent a very-real impediment to a state’s power. This can then open the door to greater freedom, and even save lives as certain states impoverish or make war on their own citizens.

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When this streak is over everyone will think we’re safe.

June 2016 Was 14th Consecutive Month Of Record-Breaking Heat (G.)

As the string of record-breaking global temperatures continues unabated, June 2016 marks the 14th consecutive month of record-breaking heat. According to two US agencies – Nasa and Noaa – June 2016 was 0.9C hotter than the average for the 20th century, and the hottest June in the record which goes back to 1880. It broke the previous record, set in 2015, by 0.02C. The 14-month streak of record-breaking temperatures was the longest in the 137-year record. And it has been 40 years since the world saw a June that was below the 20th century average.

The string of record-breaking monthly temperatures began in April 2015, and was pushed along by a powerful El Niño, where a splurge of warm water spreads across the Pacific Ocean. But the effects of El Niño have receded, and the effects of global warming are clear, said Nasa’s Gavin Schmidt. “While the El Niño event in the tropical Pacific this winter gave a boost to global temperatures from October onwards, it is the underlying trend which is producing these record numbers,” he said.

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“..a Texas-sized chunk of sea ice has disappeared from our planet’s north pole between the early 1980s and today.”

This Year’s Record Arctic Melt Is a Problem For Everybody (Stone)

If your life has felt like a hot mess this year, you’re not alone. Same goes for the Arctic, which month after month has seen its ice cover contract to new lows. By late September, Arctic sea ice may reach its lowest extent since satellite record-keeping began. And that’s got scientists in a tizzy, because if there’s one thing geologic history has taught us, it’s that sudden drops in Arctic ice cover are often the tip of the proverbial iceberg for a whole slew of planetary feedbacks. It’s difficult to keep up with all the climate-related records our world has been smashing, so here’s a quick recap of what’s been happening up north.

At the close of 2015 (currently the hottest year in recorded history, but not for long), the Arctic was already sweating iceberg-shaped bullets, thanks to freakishly warm weather brought on by a combination of a monster El Niño and the underlying global warming trend. Then 2016 burst on the scene, with temperatures at the North Pole rising some fifty degrees Fahrenheit above normal. The Arctic stayed exceptionally hot through January and February. By the time March rolled around, the atmosphere was loaded with heat, and Arctic sea ice was already starting to look thin. NASA confirmed that it was indeed the smallest wintertime Arctic sea ice extent on the record books, peaking at some 5.6 million square miles (14.5 million square km).

Then, the Arctic started to melt. And it kept going, and going, and going, smashing record after record, month after month. As of this writing, we’ve just come off the fifth record-low sea ice month this year. Every month except March has marked an all-time monthly low, with June sea ice maxing out a full 100,000 square miles (260,000 square kilometers) below the previous record low, set in 2010. June sea ice was also 525,000 square miles (1.36 million square km) below the 1981-2010 average. Put another way, a Texas-sized chunk of sea ice has disappeared from our planet’s north pole between the early 1980s and today.

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Jul 192016
 
 July 19, 2016  Posted by at 8:56 am Finance Tagged with: , , , , , , , ,  


Russell Lee Tracy, California. Gasoline filling station 1942

Republican Platform Calls For Return Of Glass-Steagall (MW)
Calpers Targets 7.5% Investment Return, Earns Just 0.6% In Latest FY (BBG)
Oil Prices Fall On Oversupply Concerns Despite Output Cuts (R.)
Alberta Is In The Midst Of Its Worst Recession On Record (BBG)
China’s Local Debt Problem Goes Global (BBG)
Middle-Income Families In UK Resemble The Poor Of Years Past (G.)
Brexit Could Cut London House Prices By 30-50%: SocGen (G.)
New Zealand to Rein in Housing Boom (BBG)
‘NZ First-Home Buyers Should Benefit From Central Bank Proposal’ (Stuff)
Greek Pensioners Protest Cuts At Top Constitutional Court (Kath.)
There Will Be No Second American Revolution (Whitehead)
Britain’s Part In Torture And Rendition Is Still Kept Hidden (Conv.)
Hans-Hermann Hoppe: “Put Your Hope In Radical Decentralization” (Mises Inst.)

 

 

“Opponents of the return of Glass-Steagall were swift to react. “Glass-Steagall is dumb politics and dumb economics…”

Republican Platform Calls For Return Of Glass-Steagall (MW)

Republicans and Democrats are both bending over backwards to show that they are not beholden to Wall Street. The Republican Party platform, released late Monday, calls for the return of Glass-Steagall restrictions on banks. Paul Manafort, campaign manager for presumptive GOP nominee Donald Trump, told reporters earlier Monday the language would be included. “We believe that the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is one of the reasons why you see all the Wall Street money going to [Hillary Clinton],” Manafort said.

Glass-Steagall was a Depression-era measure restricting commercial banks from the investment-banking business. The measure was repealed in 1999. Some critics contend that loosening of the banking rules played a role in the subsequent financial crisis. Manafort’s comments suggest Republicans hope to use the issue against Clinton, the presumptive Democratic nominee. The measure was a major point of contention between Bernie Sanders and Clinton in the Democratic primary. The Democratic platform also includes language calling for a modern version of Glass-Steagall. Party platforms have no teeth. But having Glass-Steagall in both platforms suggests Congress will likely consider the issue next year.

Opponents of the return of Glass-Steagall were swift to react. “Glass-Steagall is dumb politics and dumb economics … returning to Glass-Steagall would be destructive and unworkable,” said Tony Fratto, managing partner in Washington at Hamilton Place Strategies, a lobbying firm that represents large banks. Brian Gardner, an analyst at Keefe, Bruyette & Woods, said the market may be underestimating the likelihood of a forced breakup of big banks. “There is an unappreciated risk that Glass-Steagall might be reimposed in 2017 or 2018, especially if Congress seriously looks at changes to the Dodd-Frank Act. We think this is the case regardless of who wins the presidential election,” he said in a note to clients.

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And Calpers is not some outlier.

Calpers Targets 7.5% Investment Return, Earns Just 0.6% In Latest FY (BBG)

The California Public Employees’ Retirement System, the largest U.S. public pension fund, earned a return of 0.6% on its investments last fiscal year, trailing its long-term target as holdings in stocks and forestland lost money. The pension’s public equity portfolio lost 3.4% in the year through June 30 and forestland assets declined 9.6%, Chief Investment Officer Ted Eliopoulos said Monday. Fixed-income holdings rose 9.3% and infrastructure investments gained 9%. “The longer-term returns of the fund – the three-, five-, 10-, 15- and 20-year total returns of the fund – are now below the assumed rate of 7.5% for the fund,” Eliopoulos said. “That’s a significant policy issue for us.”

The system must average at least 7.5% a year to match its assumed rate of return or turn to taxpayers to make up the difference. Calpers’s annualized returns were 6.9% for the last three years, 5.1% for the last 10 years and 7% over 20 years, according to a presentation to the board. It is among U.S. pensions under pressure to boost investment returns as funding shortfalls increase amid an aging population and low interest rates. In fiscal 2015, Calpers earned 2.4%. The pension lost a quarter of its value in 2009. Two years later, it earned a record 20.7% only to see the gain drop to 1% one year later. Since the recession, the fund has sought to better gauge its risks from market volatility.

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One day even Reuters will have to admit that demand is way down…

Oil Prices Fall On Oversupply Concerns Despite Output Cuts (R.)

Oil prices eased on Tuesday as concerns over a crude and refined fuel glut outweighed an expected cut in U.S. shale production and a probable further draw in U.S. crude inventories. Crude prices fell more than 1% in the previous session after worries about potential supply disruptions stemming from an attempted coup in Turkey proved unfounded. “Prices are a bit softer in the Asian trading period – traders and investors are torn which way prices are going to break. It’s a knife edge between optimism and pessimism,” said Ben Le Brun, market analyst at Sydney’s OptionsExpress. The market is waiting for U.S. crude stocks data on Tuesday and Wednesday to help give direction to prices, he said.

Brent crude slipped 11 cents to $46.85 a barrel as of 0657 GMT after finishing the previous session down 65 cents, or 1.4%. U.S. crude, known as West Texas Intermediate (WTI), fell 11 cents to $45.13 a barrel after settling 71 cents, or about 1.6%, lower in the previous session. Fuel inventories in the United States, Europe and Asia are brimming despite this being the peak summer driving season, leading traders to store diesel on tankers at sea amid wilting demand growth. With landed oil product storage nearly full as well, there is little support for any sustained recovery in crude prices even as output tapers. U.S. shale oil production is expected to fall in August for a tenth straight month, by 99,000 barrels per day (bpd) to 4.55 million bpd, according to a U.S. drilling productivity report on Monday.

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And here’s the result of the demand collapse:

Alberta Is In The Midst Of Its Worst Recession On Record (BBG)

Alberta, the home of Canada’s oil sands, is going through its worst downturn in activity on record as a prolonged period of low oil prices and the wildfires earlier this year buffet the provincial economy. According to Toronto-Dominion Bank’s economics team, the cumulative annual%age contraction in real output projected for 2015 to 2016 exceeds even the financial crisis, as well as the last supply-side driven crash in oil prices in the mid-1980s, in magnitude. While the recent episode seems poised to be the worst single recession on record, the two recessions in the 1980s mean that stretch is still likely to be regarded as the most challeng≠ing period in the post-war period in Alberta, says a TD team led by Deputy Chief Economist Derek Burelton.

However, TD s team notes that labor market indicators point to a more mild downturn. Periods of boom followed by bust are no strangers to an econ≠omy that is tied to the vagaries of the global oil market, write the economists. The current recession is expected to yield a cumulative annual decline in real GDP of around 6.5%, which is more than twice that of the average of past downturns. While economic activity appeared to be picking up earlier this year, the wildfires that wreaked havoc in the region and disrupted oil operations threw a wrench in the province s nascent comeback story. The economists note that the softness in the Canadian dollar and low interest rates helped Alberta s economy escape an even worse fate.

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Buying into the last stages of a bubble.

China’s Local Debt Problem Goes Global (BBG)

A very local problem in China is being exported at an alarming rate.Debt from special-purpose vehicles linked to municipal and provincial governments — leverage that central authorities are trying (unsuccessfully) to extinguish — is becoming more common in overseas markets. What’s worse, lately it’s been the weakest cities and provinces panhandling to international investors.Since June, as many as six local government financing vehicles have sold dollar bonds, bringing the total issued by such entities to at least $4 billion this year, just shy of the record $4.1 billion logged in all of 2015. Three offerings were scored below investment grade by Fitch, whereas prior to 2016, only one junk security of its kind had surfaced internationally.

Investors should ask why these localities are going abroad when all their revenue is onshore. Could it be that they’re having a harder time raising funds domestically?That wasn’t always the case.After a 1994 law banned regional authorities from issuing bonds directly, LGFVs were set up in their thousands in China to fund infrastructure projects like roads and bridges. Beijing lost track of how big the liabilities were and deployed about 50,000 auditors across the country in 2014. That crackdown culminated in authorities’ decision last year to open the municipal debt spigots and use funds raised that way to repay local governments’ off-balance-sheet debt. As a result, provincial and municipal governments issued an unprecedented 3.8 trillion yuan ($567 billion) directly last year, and may sell as much as 5 trillion yuan this year.

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In case people still don’t get where Brexit came from.

Middle-Income Families In UK Resemble The Poor Of Years Past (G.)

Plunging levels of homeownership and an increased reliance on state benefits to top up salaries have meant that Britain’s middle-income families increasingly look like the poor households of the past, according to one of the UK’s leading thinktanks. A report from the Institute for Fiscal Studies showed that the old link between worklessness and child poverty had been broken, with record levels of employment leading to a drop in the number of poor children living in homes where no adult works. However, the study found that by 2014-15, two-thirds of children classified as living below the poverty line had at least one parent who was working. If Theresa May wanted to take forward David Cameron’s “life chances” strategy, the IFS said, the prime minister needed to focus on lifting the incomes of working households.

“In key respects, middle-income families with children now more closely resemble poor families than in the past,” the IFS said. “Half are now renters rather than owner-occupiers and, while poorer families have become less reliant on benefits as employment has risen, middle-income households with children now get 30% of their income from benefits and tax credits, up from 22% 20 years ago.” The report divided the population into five groups according to income and found that for the middle 20% of children, half were living in an owner-occupied house, down from 69% two decades ago. It also found that mothers’ earnings were increasingly important for households with children. More than 25% of the incomes of middle-income households came from mothers in 2014-15, up from less than 20% in 1996, while this figure doubled from 7% to 15% for the poorest group over the 20-year period.

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“We see a classic housing bubble in London and Brexit as the trigger for the correction..”

Brexit Could Cut London House Prices By 30-50%: SocGen (G.)

London property prices could fall by more than 30% in the wake of Britain’s vote to leave the EU and may halve in the most expensive parts of the city, according to analysts at the French bank Société Générale. Brexit may be the trigger to end London’s seven-year house-price boom as companies move employees out of the UK, forcing sales of high-end properties, the company’s real estate analyst Marc Mozzi said in a note to clients. Commercial property has been at the centre of post-Brexit fears as investors have tried to get their money out of property funds, but residential real estate could be hit harder, Société Générale said. “While in recent stress tests the major UK banks were assessed with declines of about 30% in commercial real estate prices, we fear that London residential could experience an even more severe downturn,” it said.

Prices are already falling on properties previously valued at £1m or more, and may have further to go, particularly in the priciest parts of town. London’s highly paid investment bankers and hedge fund managers congregate in boroughs such as Hammersmith and Fulham as well as Kensington and Westminster. Société Générale added: “We see a classic housing bubble in London and Brexit as the trigger for the correction … Given the current ratio of prices to incomes in London, a price correction of even 40-50% in the most expensive London boroughs does not seem impossible.” London property prices have more than doubled since they began to recover from the financial crisis in 2009. Last month, the average London house price was £472,000 – 12 times average London earnings compared with a long-term average of six times, Société Générale said.

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Too late. Way.

New Zealand to Rein in Housing Boom (BBG)

New Zealand’s central bank is moving to quell the country’s housing boom by restricting the amount of money property investors can borrow, paving the way for another cut in interest rates. The Reserve Bank will require investors across New Zealand to have a deposit of at least 40%, it said in a statement Tuesday in Wellington. The new rule, which tightens an existing requirement that investors in Auckland have at least a 30% deposit, will be introduced Sept. 1, the RBNZ said. New Zealand’s dollar fell as markets bet Governor Graeme Wheeler will now be free to respond to persistently weak inflation by cutting the official cash rate to a record-low 2% on Aug. 11.

He has been reticent to lower borrowing costs for fear of stoking housing demand. The proposed new lending rules remove the distinction between Auckland and the rest of the country, Wheeler said in the statement. Since November, the RBNZ has required most investors buying Auckland properties to have a 30% deposit, but that has prompted many to look at opportunities in other centers. In the North Island city of Hamilton, house prices rocketed 29% in the year through June. [..] “A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country,” Wheeler said. “A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy.”

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New Zealand politics as a whole built this bubble. And now comes the time to blame each other for it. It will take a long time for the country to live this down.

‘NZ First-Home Buyers Should Benefit From Central Bank Proposal’ (Stuff)

The Reserve Bank made the “right decision” to impose new lending rules on property investors, says Prime Minister John Key. Proposed restrictions announced on Tuesday would require banks to lend only a small fraction of their loans to investors with less than a 40% deposit. Key said “in theory” the restrictions would help first-home buyers get into the market by making it more difficult and “less economic” for investors to buy a property. “What the Reserve Bank’s trying to do here is not be forced to increase interest rates, while at the same time trying to take a little bit of steam out of the housing market,” he said. “It’s got a fine line to walk here and I think it’s walking it about right.”

The Labour Party accused National of being “stuck in denial mode” over the housing crisis, but Key said it was up to everyone – central government, the Reserve Bank and councils – to stem the rate of increase in house prices. Key said the new rules would not lead to a drop in house values. “I don’t think anyone’s really arguing that house prices should dramatically fall, other than probably (economist) Arthur Grimes and Don Brash, and that’s not a view supported by the Government.” Labour and the Greens both supported the bank’s proposal. Labour’s finance spokesperson Grant Robertson said it was “the right thing to do” as nearly half of property purchases in Auckland were made by speculators and there were signs of house price increases spreading to other regions.

However, Robertson said the bank was openly calling on the Government to “step up and fix the crisis”. “Labour’s plan to fix the housing crisis includes banning offshore speculators from buying residential properties, an extension of the bright line test to five years and consulting on ending the practice of negative gearing,” he said. “It is clear that the only way to bring stability to the housing market and give first home buyers a fair go is to change the government.” [..] NZ First leader Winston Peters did not think the lending rules would have much of an effect on the housing market. “Given the way house financing is constructed from offshore, foreign investors will carry on as usual whilst New Zealand investors will simply have to stump up a greater deposit. “Accordingly, for a short time longer the house price bubble will just get greater before the inevitable crash.”

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Futile. The EU has willed it. But devastating too.

Greek Pensioners Protest Cuts At Top Constitutional Court (Kath.)

The new law on social security brings fresh cuts to new pensions that could reach up to €722 per month, generating more concern among citizens who are close to retirement. The law introduced by Labor Minister Giorgos Katrougalos provides for adjustments to pensions that have not yet been issued of between €11.38 and €722.09, prompting a group known as the Single Network of Pensions to oppose it at the Council of State, the country’s top constitutional court. The pensioners argue that the law introduces cuts that violate the constitution.

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Redefining ‘police state’.

There Will Be No Second American Revolution (Whitehead)

America is a ticking time bomb. All that remains to be seen is who – or what – will set fire to the fuse. We are poised at what seems to be the pinnacle of a manufactured breakdown, with police shooting unarmed citizens, snipers shooting police, global and domestic violence rising, and a political showdown between two presidential candidates equally matched in unpopularity. The preparations for the Republican and Democratic national conventions taking place in Cleveland and Philadelphia—augmented by a $50 million federal security grant for each city—provide a foretaste of how the government plans to deal with any individual or group that steps out of line: they will be censored, silenced, spied on, caged, intimidated, interrogated, investigated, recorded, tracked, labeled, held at gunpoint, detained, restrained, arrested, tried and found guilty.

For instance, anticipating civil unrest and mass demonstrations in connection with the Republican Party convention, Cleveland officials set up makeshift prisons, extra courtrooms to handle protesters, and shut down a local university in order to house 1,700 riot police and their weapons. The city’s courts are preparing to process up to 1,000 people a day. Additionally, the FBI has also been conducting “interviews” with activists in advance of the conventions to discourage them from engaging in protests. Make no mistake, the government is ready for a civil uprising. Indeed, the government has been preparing for this moment for years. A 2008 Army War College report revealed that “widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security.”

The 44-page report goes on to warn that potential causes for such civil unrest could include another terrorist attack, “unforeseen economic collapse, loss of functioning political and legal order, purposeful domestic resistance or insurgency, pervasive public health emergencies, and catastrophic natural and human disasters.” Subsequent reports by the Department of Homeland Security to identify, monitor and label right-wing and left-wing activists and military veterans as extremists (a.k.a. terrorists) have manifested into full-fledged pre-crime surveillance programs. Almost a decade later, after locking down the nation and spending billions to fight terrorism, the DHS has concluded that the greater threat is not ISIS but domestic right-wing extremism.

Meanwhile, the government has been amassing an arsenal of military weapons for use domestically and equipping and training their “troops” for war. Even government agencies with largely administrative functions such as the Food and Drug Administration, Department of Veterans Affairs, and the Smithsonian have been acquiring body armor, riot helmets and shields, cannon launchers and police firearms and ammunition.

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Are there perhaps more important discussions to be had than who’s to blame for Brexit?

Britain’s Part In Torture And Rendition Is Still Kept Hidden (Conv.)

Even as the Chilcot Report lays bare the sad story of the UK’s decision to join in the 2003 invasion of Iraq, a veil is still drawn over another dark aspect of Britain’s partnership with George W Bush’s administration. For years now, the British state has barely acknowledged its alleged deep involvement in the abuse of terror suspects, and there has been very little in the way of justice for the victims of torture and “rendition” – the practice of abducting suspects without due legal process and transferring them to other countries or territories for interrogation. Nonetheless, my colleague Ruth Blakeley and I have found that this involvement was direct, deep and longstanding. Moreover, most official channels have been closed to keep the extent of the UK’s co-operation from coming to light.

An aborted judge-led inquiry into British involvement in prisoner mistreatment uncovered more than 200 separate allegations of abuse, at least 40 of which were significant enough to warrant detailed investigation. Some of these cases have led to civil action against the British government in the UK courts, others have led to police investigations and criminal inquiry. In response, however, the government has maintained its innocence in every individual case while simultaneously working to block the release of relevant information. There have been attempts to withhold publication of key documents in open court, such as those which demonstrate that British intelligence knew about the torture of prisoners by the CIA before participating directly in their interrogation.

Where British courts have refused to accept government attempts to hold hearings in camera, the government has offered substantial payouts without any admission of liability. Indeed, the 2013 Justice and Security Act, which introduced so-called “closed material procedures” into the main civil courts, gave the state the legal ability to keep details of British involvement in torture out of the public record.

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One of my ‘pet’ themes. Not sure Hoppe understands this is an economic phenomenon, in that centralization depends one-on-one on a growing economy. He seems to think it’s political.

Hans-Hermann Hoppe: “Put Your Hope In Radical Decentralization” (Mises Inst.)

Can one say, then, that the politicians running the EU are even worse than the politicians running national affairs? No, and yes. On the one hand, all democratic politicians, with almost no exception, are morally uninhibited demagogues. One of my German books is titled The Competition of Crooks, which captures what democracy and democratic party politics are really all about. There is in this regard little if any difference between the political elites of Berlin, Paris, Rome, etc., and those running the show in Brussels. In fact, the EU elites are typically political has-beens, with the same mentality as their domestic counterparts, on the lookout for the super-lavish salaries, benefits, and pensions doled out by the EU. On the other hand, the EU elites are worse than their political cronies at home, of course, in that their decisions and rulings always affect a far larger number of people.

What do you predict, then, will be the future of the EU? The EU and the ECB are a moral and economic monstrosity, in violation of natural law and the laws of economics. You cannot continuously punish productivity and success and reward idleness and failure without bringing about the disaster. The EU will slide from one economic crisis to the next and ultimately break apart. The Brexit, that we have just experienced, is only the first step in this inevitable process of devolution and political decentralization.

Is there anything that an ordinary citizen can do in this situation? For one, instead of swallowing the high-sounding blabber of politicians about “freedom,” “prosperity,” “social justice,” etc., people must learn to recognize the EU for what it really is: a gang of power-lusty crooks empowering and enriching themselves at other, productive people’s expense. And secondly, people must develop a clear vision of the alternative to the present morass: not a European Super-State or even a federation of nation States, but the vision of a Europe made up of thousands of Liechtensteins and Swiss cantons, united through free trade, and in competition with one another in the attempt of offering the most attractive conditions for productive people to stay or move.

Can you give a comparative assessment of the USA and the situation in Europe? The difference between the situation in the US and Western Europe is much smaller than is generally surmised on either side of the Atlantic. For one, the developments in Europe since the end of World War II have been closely watched, steered and manipulated, whether through threats or bribes, by the political elites in Washington DC. In fact, Europe has essentially become a dependency, a satellite or vassal of the US. This is indicated on the one hand by the fact that US troops are stationed all across Europe, by now all the way right up to the Russian border. And on the other hand, this is indicated by the steady pilgrimage, performed more regularly and dutifully than any Muslim’s pilgrimage to Mecca, of the European political elites and their intellectual bodyguards to Washington DC, in order to receive their masters’ blessings.

Especially the German political elite, whose guilt complex has meanwhile assumed the status of some sort of mental illness, stands out in this regard by its cowardice, submissiveness, and servility. As for US domestic affairs, both Europeans and Americans have it typically wrong. Europeans still frequently view the US as the “land of the free,” of rugged individualism, and of unhampered capitalism. Whereas Americans, insofar as they know or claim to know anything about the world outside the US at all, frequently view Europe as a place of unhinged socialism and collectivism, entirely alien to their own “American way.” In fact, there exists no principal difference between the so-called “democratic capitalism” of the US and Europe’s “democratic socialism.”

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Jun 052016
 
 June 5, 2016  Posted by at 8:28 am Finance Tagged with: , , , , , ,  


Unknown General Patrick’s headquarters, City Point, Virginia 1865

World Faces Pensions Crisis, Warns OECD (Tel.)
The Case For A Super Glass-Steagall (David Stockman)
Payday Loans a Crony Capitalist Target (WSJ)
What Makes this Jobs Report so Truly Ugly (WS)
Americans Not In The Labor Force Soar To Record 94.7 Million (ZH)
Higher Australian Household Debt Mounts To ‘Unsustainable’ Levels (Aus.)
A Guaranteed Income for Every American (WSJ)
Italy And France Are Urging Caution Over Bank Capital (R.)
Self-Harming Taxation, Or The Liquidation Of The Kulaks (Georganas)

The OECD is late to the game, and fails to comprehend the scale and urgency of that crisis.

World Faces Pensions Crisis, Warns OECD (Tel.)

The global pensions crisis has been laid bare by new analysis that shows people retiring today can expect half the income of those who became pensioners at the start of the millennium. The stark findings by the OECD will be presented in a report this week that highlights the impact of ultra-low interest rates on global retirement incomes. It shows that a person buying an annuity today who saved 10pc of their wages into a pension for 40 years can expect just over half the earnings of someone who saved the same amount but retired 15 years ago. The think-tank’s analysis of defined contribution schemes, where the value of pension pots can rise or fall depending on how investments perform, highlights the challenge faced by many pension providers in the current low growth and low inflation environment

Pension funds invest around 40pc of their assets in fixed income securities, according to the OECD, including lower yielding government bonds. “We’ve had more than half a decade of very low interest rates and that means someone who has been putting money into a savings account or into a pension fund – the value of their lifetime retirement is about half the value of someone who retired in 2000,” said Catherine Mann, the OECD’s chief economist. Tom McPhail, head of pensions research at Hargreaves Lansdown, said the OECD’s findings were consistent with its UK research. “Someone that started putting money in a pension in the 1960s was investing at a time when baby boomers were entering the workforce. But the last 16 years and the financial crisis have had an extremely negative impact on asset prices.”

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Sometime down the line, the big banks will be broken up. But it’s not something the politicial system can achieve with a few votes. Because it is owned by those same banks.

The Case For A Super Glass-Steagall (David Stockman)

Donald Trump can instantly get to the left of Hillary with respect to Wall Street and the one percenters by embracing Super Glass-Steagall. The latter would cap U.S. banks at $180 billion in assets (<1% of GDP) if they wished to have access to the Fed’s discount window and have their deposits backed by FDIC insurance. Such Federally privileged institutions would also be prohibited from engaging in trading, underwriting, investment banking, private equity, hedge funds, derivatives and other activities outside of deposit taking and lending. Instead, these latter inherently risky economic functions would be performed on the free market by at-risk banks and financial services companies.

The latter could never get too big to fail or to manage because the market would stop them first or they would be disciplined by the fail-safe institution of bankruptcy. No taxpayer would ever be put in harms’ way of trades like those of the London Whale. By embracing this kind of Super Glass-Steagall Trump would consolidate his base in the flyover zones and reel in some of the Bernie Sanders throng, too. The latter will never forgive Clinton for her Goldman Sachs speech whoring. And that’s to say nothing of her full-throated support for the 2008 bank bailouts and the Fed’s subsequent giant gifts of QE and ZIRP to the Wall Street gamblers. Besides, breaking up the big banks and putting Wall Street back on a free market based level playing field is the right thing to do.

Today’s multi-trillion banks are simply not free enterprise institutions entitled to be let alone. Instead, they are wards of the state dependent upon its subsidies, safety nets, regulatory protections and legal privileges. Consequently, they have gotten far larger, more risky and dangerous to society than could ever happen in an honest, disciplined market. Foremost among these artificial props is the Fed’s discount window. The latter provides cheap, unlimited funding at a moment’s notice with no questions asked. The purpose is to insure banking system liquidity and stability and to thwart contagion, but it also nullifies the essential bank management discipline and prudence that comes from fear of depositor flight.

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The big boys smell big profits.

Payday Loans a Crony Capitalist Target (WSJ)

To voters living comfortably in Cambridge, Mass., or the suburbs of Seattle, the payday lending crackdown sounds just right: Those storefront entrepreneurs of dubious extraction are preying upon the poor. They should be banned. But for the Consumer Financial Protection Bureau, the creation of Dodd-Frank which has been busy demonstrating the dangers of an unrestrained regulatory state, a slogan that polls well with liberal voters is only a starting point. The end result of its new payday rules, like all Obama regulatory endeavors, is to concentrate more power in the hands of Washington lobbyists and politicians and the companies that can afford to pay for them.

CFPB director Richard Corday’s 1,300-page regulatory edict will require payday lenders, an industry largely made up of thousands of storefront operators, to run full credit checks on prospective borrowers (average loan $392) to test their sources of income, need for the loan, and ability to keep financing their living expenses while paying it back. Perversely, this will make it hard or impossible to serve those customers who use the payday lending service most appropriately—who borrow when pinched but then promptly repay and don’t roll over their debt. The industry will become more focused on retaining habitual users, those who take out loans many times a year and get caught in “debt traps,” continually rolling over what are supposed to be short-term, high-margin loans.

The massive record-keeping and data requirements that Mr. Corday is foisting on the industry will have another effect: It will drive out the small, local players who have dominated the industry in favor of big firms and consolidators who can afford the regulatory overhead. It will also favor companies that can substitute big data for local knowledge like, like . . . Well, like LendUp, the Google-backed venture that issued a statement Thursday applauding the CFPB rules. Google’s self-interest has become a recurrent theme in Obama policy making, not surprising considering a study in April that found that 250 Googlers had come or gone from administration employment, and Google lobbyist visits to the Obama White House vastly outnumbered those of any other company.

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“Something has to give – and it’s starting to..”

What Makes this Jobs Report so Truly Ugly (WS)

[..] ..we suspected that the March jobs report, released in early April, would be a debacle. We based this on an analysis of the divergence over time between the reports issued by payroll processing company ADP and the jobs reports issued by the Bureau of Labor Statistics. That divergence had been going on for months. Eventually it reverts to the mean. We postulated that March would be that month. Instead, it happened two months behind schedule, so to speak, as today’s jobs report was precisely that sort of debacle. This is what was “expected”: The Labor Department was expected to report, according to Wall Street economists, a “moderate” gain of 158,000 jobs in May, “moderate” given that the Verizon strike kept 35,000 workers off their jobs. The “whisper number” was around 200,000 jobs.

And this is what we got: The BLS reported that the economy had added 38,000 jobs, the lowest since September 2010. Furthermore, the April job gains of 160,000 were chopped down by 37,000 and the March job gains of 208,000 were chopped down by 22,000. Hence, with 59,000 jobs revised away, and with only 38,000 jobs “created” in May, the net total in today’s report was a net loss of 21,000 jobs. We haven’t seen that since the Financial Crisis. A number of sectors, including manufacturing, shed jobs, and the labor participation rate dropped for the second month in a row, to 62.6%. Just about the only good number was the magic headline unemployment rate, which fell sharply, from 5% in April to 4.7%, the lowest since the Great Recession began, leaving some folks scratching their heads and searching for answers.

[.] Staffing agencies are cutting back because companies no longer need that many workers. Total business sales in the US have been declining since mid-2014. Productivity has been crummy and getting worse. Earnings are down for the fourth quarter in a row. Companies see that demand for their products is faltering, so the expense-cutting has started. The first to go are the hapless temporary workers. This is the reality for businesses: The chart below shows the gaping disconnect between declining total business sales (all businesses, not just the S&P 500 companies) and total nonfarm employment. Something has to give – and it’s starting to:

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Anything else is just noise. Unemployment stats become illusionary.

Americans Not In The Labor Force Soar To Record 94.7 Million (ZH)

So much for that much anticipated rebound in the participation rate. After it had managed to rise for 5 months in a row through March, hitting the highest level in one year, the disenchantment with working has returned, and the labor force participation rate promptly slumped in both April and May, sliding 0.4% in the past two months to 62.60%, just shy of its 35 year low of 62.4% hit last October.

This can be seen in the surge of Americans who are no longer in the labor force, who spiked by 664,000 in May, hitting an all time high of 94.7 million. As a result of this the US labor force shrank by over 400,000 to 158,466K, down from 158,924K a month ago, and helped the unemployment rate tumble to 4.7%, the lowest level since 2007. Adding the number of unemployed workers to the people not in the labor force, there are now over 102 million Americans who are either unemployment or no longer looking for work.

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Cooked.

Higher Australian Household Debt Mounts To ‘Unsustainable’ Levels (Aus.)

‘If something cannot go on forever, it will stop’, said Herbert Stein, economic adviser to presidents Nixon and Ford. Stein was mocking concerns about the “unsustainable” US current account and budget deficits in the late 1980s. He had a point, both grew much larger. Calling things unsustainable is often a cover for expressing disapproval for other reasons. The federal budget has been in surplus in fewer than 20 of the 116 years since Federation, so deficits are clearly sustainable. What isn’t sustainable is a rising stock of public debt (and interest payments) as a share of national income. Both main political parties are rightly and routinely admonished for doing little to stem the rising tide of federal and state government debt, which has tripled to about 34% of GDP over the past 10 years.

But the spectacular ascent of private debt, which has doubled to about 160% of GDP over the past 20 years, hasn’t rated a mention by either side of politics in this election. Public debt peaked above 170% of GDP during the Great Depression but private, and in particular household, debt has never been remotely close to its present proportion. Its previous peak of just over 60% occurred in the 1880s property boom, and we know what happened after that. Almost all the increase in private debt since the 1990s has entailed households borrowing to buy houses to live in and (increasingly) to rent out. Ever lower interest rates and financial deregulation have fuelled a mutually reinforcing explosion of dwelling prices and debt.

Finance textbooks teach that banks lend to businesses, which reinvest the funds in the economy. But the reality is that they lend to households to buy and invest in houses. In the past 20 years the stock of business credit, $852 billion in April, has dropped from half to a third of the total lending. Australian households overtook the Swiss as the world’s most indebted this year, with outstanding debt equivalent to 125% of GDP and no let up in sight. Combined owner-occupier and investor loans outstanding have risen from $1.2 trillion to $1.6 trillion in the past five years. While the national accounts this week showed gross national income shrank 0.4% over the year to March, housing credit increased 7.2%.

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A conversation that must and will be conducted. This from Charles Murray is not all that bad.

A Guaranteed Income for Every American (WSJ)

First, my big caveat: A UBI will do the good things I claim only if it replaces all other transfer payments and the bureaucracies that oversee them. If the guaranteed income is an add-on to the existing system, it will be as destructive as its critics fear. Second, the system has to be designed with certain key features. In my version, every American citizen age 21 and older would get a $13,000 annual grant deposited electronically into a bank account in monthly installments. Three thousand dollars must be used for health insurance (a complicated provision I won’t try to explain here), leaving every adult with $10,000 in disposable annual income for the rest of their lives. People can make up to $30,000 in earned income without losing a penny of the grant.

After $30,000, a graduated surtax reimburses part of the grant, which would drop to $6,500 (but no lower) when an individual reaches $60,000 of earned income. Why should people making good incomes retain any part of the UBI? Because they will be losing Social Security and Medicare, and they need to be compensated. The UBI is to be financed by getting rid of Social Security, Medicare, Medicaid, food stamps, Supplemental Security Income, housing subsidies, welfare for single women and every other kind of welfare and social-services program, as well as agricultural subsidies and corporate welfare. As of 2014, the annual cost of a UBI would have been about $200 billion cheaper than the current system. By 2020, it would be nearly a trillion dollars cheaper.

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After bringing down Greek banks, they now try to keep their own standing.

Italy And France Are Urging Caution Over Bank Capital (R.)

Excessive capital requirements can backfire, Italy’s economy minister said on Saturday, defending a joint French-Italian proposal to cap the amount of reserves that euro zone banks should have to wipe out before they can be rescued. Rules in force since the beginning of this year require euro zone banks to respect a minimum requirement for their own funds and eligible liabilities (MREL) in order to qualify for access to a bank-financed rescue fund in case of failure, and avoid full liquidation. In a joint paper, seen by Reuters, Paris and Rome raised doubts on the rationale of introducing a floor for MREL and urged instead a cap that should not exceed 8% of banks’ debt. IEconomy Minister Pier Carlo Padoan told an economic conference on Saturday there was a risk banks could be asked to raise too much capital too quickly, which would leave them vulnerable if tough markets made it hard to raise funds.

“Instead of stronger banks we end up with weaker ones,” he said. “The French-Italian initiative at this very delicate stage of the creation of a banking union is a voice calling for caution. We’re all going in the same direction, a stronger banking system, let’s do so at the right pace, let’s not exaggerate please.” Following the euro zone debt and banking crisis, EU countries have designed a banking union meant to strengthen lenders’ financial stability, but have not yet brought the plan to completion. Germany, the dominant power in the euro zone, is dragging its feet on a European bank deposit guarantee scheme, widely regarded as a missing link in the project. “If we don’t accept risk-sharing why are we wasting our time with the euro?,” Padoan said.

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A hilarious example of where EU-induced Greek tax measures can and do lead.

Self-Harming Taxation, Or The Liquidation Of The Kulaks (Georganas)

[..] Even the infamous case of the VAT in Greece (which has risen to be among the highest in the EU) does not yield a clear negative fiscal effect. Of course it’s not enough to show that VAT revenues fell after the rates rose, since at the same time, many other factors changed, harming the Greek economy. It is notoriously hard to isolate the effect of every change, the same way as it’s hard to predict what the effect of smaller fiscal deficits in the middle of a multidimensional crisis will be (by the way that’s the issue at the heart of the whole fiscal multipliers debate, involving the IMF, Greece and the EU).

In the recent Ryanair case though, economic investigators would probably be able to find a smoking gun. Because of a €12 tax per passenger, the no-frills airline recently decided to reduce its flights to Greece. The total damage for the country due to lower visitor numbers is clearly higher than the benefit of the tax revenue. This is an extreme case of a long bureacratic tradition in Greece, agencies taking measures with a. a very narrow own-receipts goal, which is also viewed b. in a very myopic sense, ignoring second-level effects (what we call general equilibrium effects) Typically, an agency or ministry that wants to be able to boast of “results” takes a measure with immediate benefit for itself, that could however be causing a net loss for the country as a whole, or even its own government.

A classic example is the “voluntary exit”: civil servants at government agencies or utilities being let go to lower the salary item on the agency’s budget (as the government has requested), but increasing the burden for pension funds, that again is covered by the same government, often at greater cost. In the tourism sector, the €12 per capita tax is negligible next to the more than €700 that the average European summer visitor spends in the country (that’s why in Hania, for example, hoteliers have allied to subsidize Ryanair’s activity). Even if the government ignores the country’s benefit and only cares about its tax revenues, it seems to be ignoring the €300 of additional VAT and income tax that every tourist brings.

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Jul 192015
 


Harris&Ewing “Congressional Union for Woman Suffrage” 1916

China’s $16.1 Trillion Corporate Debt Threat (Reuters)
Chinese Investors Flock To Sell Properties, Cancel Contracts (Nikkei)
Regulators Cannot Eliminate Volatility In China’s Stock Markets (Pettis)
Greece Should Turn To China To Break Debt Spiral – Economic Hit Man (ABC.au)
‘Plan B’ Needed As Euro One Recession Away From Implosion – David McWilliams (GC)
Deeper Eurozone Integration Would Be A ‘Huge Mistake’ (Telegraph)
Built To Foster Friendship, The Euro Is Manufacturing Misery (Economist)
Greece Is Being Taxed To Death (Politico)
Greece: Death Spiral Ahead (James K. Galbraith)
Greece Reforms ‘Will Fail’ – Varoufakis (BBC)
Dr Schäuble’s Plan for Europe: Do Europeans Approve? (Yanis Varoufakis)
Dublin, Lisbon And Madrid Beat The Bailout. It’s No Comfort To Athens (Guardian)
Alexis Tsipras Has Shown Greeks He Can Save Them (Spiegel)
Stiglitz Meets With Greek Government Officials (GR)
Greece’s Lesson For Russia – and China (Paul Craig Roberts)
Europe’s Best And Brightest Need To Head For Greece (Helene Rey)
Hillary Clinton and Glass-Steagall (Robert Reich)
Don Quixote Airport Cost €1bn – It Could Sell To China For €10,000 (Guardian)
Lunch with Beppe Grillo (FT)

China borrows itself into oblivion.

China’s $16.1 Trillion Corporate Debt Threat (Reuters)

Beijing may have averted a crisis in its stock markets with heavy-handed intervention, but the world’s biggest corporate debt pile – $16.1 trillion and rising – is a much greater threat to its slowing economy and will not be so easily managed. Corporate China’s debts, at 160% of GDP, are twice that of the United States, having sharply deteriorated in the past five years, a Thomson Reuters study of over 1,400 companies shows. And the debt mountain is set to climb 77% to $28.8 trillion over the next five years, credit rating agency Standard & Poor’s estimates. Beijing’s policy interventions affecting corporate credit have so far been mostly designed to address a different goal – supporting economic growth, which is set to fall to a 25-year low this year.

It has cut interest rates four times since November, reduced the level of reserves banks must hold and removed limits on how much of their deposits they can lend. Though it wants more of that credit going to smaller companies and innovative areas of the economy, such measures are blunt instruments. “When the credit taps are opened, risks rise that the money is going to ‘problematic’ companies or entities,” said Louis Kuijs, RBS chief economist for Greater China. China’s banks made 1.28 trillion yuan ($206 billion) in new loans in June, well up on May’s 900.8 billion yuan.

The effect of policy easing has been to reduce short-term interest costs, so lending for stock speculation has boomed, but there is little evidence loans are being used for profitable investment in the real economy, where long-term borrowing costs remain high, and banks are reluctant to take risks. Manufacturers’ debts are increasingly dwarfing their profits. The Thomson Reuters study found that in 2010, materials companies’ debts were 2.8 times their core profit. At end-2014 they were 5.3 times. For energy companies, indebtedness has risen from 1.1 to 4.4 times core profit. For industrials, from 2.5 to 4.2.

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It’s all just starting. The margin calls will come in fast and furious. From the shadow banking system. Will we see a ban on selling real estate too?

Chinese Investors Flock To Sell Properties, Cancel Contracts (Nikkei)

Turbulence on China’s equity market is starting to rock the country’s property market. Investors are quickly pulling their cash out of housing they purchased to cover losses incurred by stock investments. Some have begun offering discounts on property due to difficulties with finding buyers. Continued turmoil on the stock market looks as though it will have a heavy impact on the country’s real estate market. China’s stock market rally also helped drive up sales of domestic homes. The Shanghai Composite Index surged 60% from its low of around 3,200 in early March, rising to 5,166 logged on June 12. China Securities Depository and Clearing said that the number of accounts opened to trade yuan-denominated A-shares reached 980,000 in May in Shenzhen, where property prices are climbing faster than other areas.

The figure accounted for roughly 80% of the total 1170,000 accounts in Guangdong Province, where large numbers of such account holders reside. Many newbie investors, who have just jumped into the stock market, likely gave a fresh impetus to the property market. China’s share price upswing prompted investors to reach out for new investments, including houses and other properties. A property analyst at major Chinese brokerage Guotai Junan Securities said that sales of luxury properties worth over 10 million yuan ($1.61 million) each for the first half of the year topped annual sales last year in Shanghai and Beijing. After this, Chinese stocks began to crumble. In early July, the Shanghai Composite Index dropped more than 30%, after hitting a seven-year high in mid-June.

Investors who suffered big losses on the stock market were forced to sell property and cancel real estate purchase agreements. The Hong Kong Economic Times said that consumers are increasingly asking real estate firms for grace periods on down payments for mortgage loans, as they run out of cash because of weak stocks. Some canceled home purchase contracts, while others canceled mortgage loans, according to China’s largest property developer China Vanke, which has a strong foothold in Shenzhen. Local media reported that an official at China Vanke is concerned about massive numbers of cancellations in the future.

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“It’s not just that markets are about volatility. It is that volatility can never be eliminated.”

Regulators Cannot Eliminate Volatility In China’s Stock Markets (Pettis)

For now I think we can safely say the panic is finally over, but none of the fundamental questions have been resolved and I expect continued volatility. Because I also think the market remains overvalued, however, I have little doubt that we will see at least one more very nasty bear market. Either way the panic and the policy responses have opened up a ferocious debate on China’s economic reforms and Beijing’s ability to bear the costs of the economic adjustment. Among these costs are volatility. Rebalancing the economy and withdrawing state control over certain aspects of the economy, especially its financial system, will reduce Beijing’s ability to manage the economy smoothly over the short term but it may be necessary in order to prevent a very dangerous surge in volatility over the longer term. Sunday’s Financial Times included an article with the following:

Critics of the measures unleashed by Beijing last week argue that they point to a fundamental tension at the heart of China’s political economy that a free-floating renminbi would test even more severely. The ruling Chinese Communist party, they argue, is ultimately incapable of surrendering control of crucial facets of the country’s economic and financial system. As one person close to policymakers in Beijing puts it: “The problem with this system is that it cannot tolerate volatility and markets are all about volatility.”

It’s not just that markets are about volatility. It is that volatility can never be eliminated. Volatility in one variable can be suppressed, but only by increasing volatility in another variable or by suppressing it temporarily in exchange for a more disruptive adjustment at some point in the future. When it comes to monetary volatility, for example, whether it is exchange rate volatility or interest rate and money supply volatility, central banks can famously choose to control the former in exchange for greater volatility in the latter, or to control the latter in exchange for greater volatility in the former.

Regulators can never choose how much volatility they will permit, in other words. At best, they might choose the form of volatility they least prefer, and try to control it, but this is almost always a political choice and not an economic one. It is about deciding which economic group will bear the cost of volatility.

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China is two-faced being. Economic collapse at home, aid offers abraod.

Greece Should Turn To China To Break Debt Spiral – John Perkins (ABC.au)

A prominent economist says China’s banks are circling debt-stricken countries like Greece, offering an alternative to the brutal austerity measures proposed by the IMF and EU. Former adviser to the IMF and the World Bank, John Perkins, told the ABC’s The Business that China’s Asian Infrastructure Investment Bank (AIIB) and the BRICS bank were courting countries like Greece. Mr Perkins said he believed China had sent people to Greece to offer an alternative bailout deal. “If I were the finance minister running the system I would seriously be looking at that alternative. I think that the Chinese are presenting a competitive edge here,” he said.

Mr Perkins revealed in his international bestseller, Confessions of an Economic Hit Man, how international organisations like the IMF and the World Bank enslave countries like Greece by offering crippling and unsustainable loans which never deliver the economic growth they promise. He said he believed Greece and the other European countries in similar positions should turn to China as a means of breaking the debt spiral. “These austerity programs are not the right program, even the IMF said recently there has to be more debt forgiveness we have to readjust the debt and the Europeans don’t seem willing to do this,” he said. Mr Perkins was surprised by the IMF’s public criticism of the eurozone’s bailout deal this week and said it shows the growing influence of China’s banks.

“I think the motivation may have been the Chinese because the Chinese have stepped in before, in Ecuador and several other countries, and we now have these very powerful banks that the Chinese are heading up,” he said. Mr Perkins said the growing strength of the banks will result in a major shift of power away from the United States and European Union. He conceded that there is nothing to stop China from becoming another “economic hit man” but said the Chinese have a good record so far, particularly in South American countries like Ecuador. “I recently met with a minister of Ecuador – and he said ultimately that he has no idea what China will do but we do know that the IMF, the World Bank, the Europeans and the US have screwed us over,” he said. “They’ve put military bases around here and threatened us and China hasn’t done that, so right now we trust China more than the US.”

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“Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians.”

‘Plan B’ Needed As Euro One Recession Away From Implosion – David McWilliams (GC)

Europe’s next recession will “kill the euro” according to economist, writer and journalist David McWilliams. McWilliams, who is among the best economics commentators from the only Anglophone nation in the euro – Ireland, warns that we only have a few months to plan an alternative to the disastrous consequences on peripheral nations of what he sees as German hegemony. He describes the mismanagement of the euro currency as “both laughable and terrifying”. Marathon negotiation sessions are not conducive to clear headed, rational decision making on the future of a nation or the eurozone. Indeed, it smacks of coercion. He lambasts the suggestion offered that Greece could have a “temporary euro”, adding, “If the board and management of a public company dealt with problems like this, the share price would collapse. There is quite simply no corporate governance within the euro”.

David McWilliams believes that Germany is out control. France is no longer strong enough to offer a counterweight and Britain is happy to allow the circus to continue as they focus on potentially getting out of the EU. He describes last weekends negotiations in Brussels as a “teutonic kangaroo court”. Should Britain successfully navigate its way out of the EU, other countries will likely follow rather than exist as provinces of Germany. Norway and Switzerland have coped just as well from the outside as their EU neighbours. He makes the obvious, though seldom heard assertion that “when economic negotiations stop making economic sense, you should begin to question the motives of the EU”. Pointing to the plundering of Greek state assets to pay off creditors whilst forcing further austerity on the Greek people.

Each previous round of austerity has caused the economy to contract further – thus forcing Greece into a debt trap from which it cannot escape. We believe this is a crucial point. While Germany have played a major role it in the subjugation of Greece it is worth asking who truly benefits from economic negotiations that have stopped making economic sense. Could it be the large banks who, following a similar model imposed on countries in Latin America, Southeast Asia and Africa since the 1970’s, continue to extract wealth from the poorest people on earth? Has not almost every development in the EU in the past ten years served to consolidate the power of financial institutions at the expense of the citizenry?

McWilliams highlights the dramatic u-turn in policy where membership of the EU is now conditional. When Mario Draghi initiated the “whatever-it-takes” mass purchase of bonds of peripheral nations the message was clear – the euro is forever. Now, however, countries must bend to Germany’s demands which are the demands of politicians who want to keep their electorate happy if they are to be re-elected. “Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians. The banking system is the soft underbelly and the Germans are prepared to orchestrate bank runs in member states to get their way. This is not only new, it is outrageous.”

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Amen.

Deeper Eurozone Integration Would Be A ‘Huge Mistake’ (Telegraph)

Deeper fiscal integration in the eurozone is a “huge mistake” that could end up tearing the bloc apart, Sweden’s former finance minister has warned. Anders Borg said forcing countries to cede sovereignty could trigger a right-wing backlash across Europe, as he predicted that countries such as Sweden and Poland, which are obliged to join the euro, would not adopt the single currency for “decades”. “If you go for tighter co-operation that basically brings higher taxes to the north to subsidise the south, you build in a political divide that is not sustainable in the long term,” he said. Mr Borg, who stepped down in October 2014, said that while the current structure of the eurozone was problematic, the only way to secure a broad-based recovery across the bloc without creating a political rift was to focus on competitiveness.

“We’re not talking about good and bad outcomes here, we are talking about only very problematic alternatives. If you push for further fiscal integration, moving more decisions to Brussels, taxing northern European countries more heavily and subsidising countries with long-term competitive issues and deep problems in the south you would obviously have a strong Right-wing reaction that would undermine the political support for that direction and create a less open, less liberal and less dynamic Europe,” he said. “I think there are great risks in connection to the course that we now hear from political integration. There is no voter base for that and it’s not certain either that you’re dealing with the right focus.”

Mr Borg said the eurozone and the wider EU area, which includes the UK, should focus on policies such as “completing the single market, voting for free trade co-operation with the US and increasing infrastructure investment”. “[Countries] are under-spending on infrastructure. We are under-spending in education. Our labour markets are over-regulated and we have tax levels for investment and work that are too high, so we need to do fundamental tax reforms and we need to fix our expenditure so that we are concentrating on the areas where public expenditures have most return.” Mr Borg, who voted for Sweden to join the euro in 2003, said the country’s membership was unlikely for “decades”. “It’s very difficult to argue today to your population that it’s a well functioning system,” he said.

Mr Borg, who predicted in 2012 that Greece would leave the euro, welcomed the news that the eurozone had opened the door to a third Greek bail-out package to begin. He said he was in “full agreement” with the IMF that creditors needed to write off some of the country’s debt “substantially”. “There is a need to establish a credible long-term programme for financing Greece. There is serious rethinking that has to be done on the Greek side but also on the creditors’ side. I would hope that people are ready to do this because the alternative is catastrophic for Greece. It’s clear that we’re not out of the woods yet,” he said.

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Shouldn’t have left it in the hands of sociopaths.

Built To Foster Friendship, The Euro Is Manufacturing Misery (Economist)

Unravelling the tangled logic of Greece’s bail-out talks, Charlemagne has learned, is a little like trying to explain the rules of cricket to an American. How to make sense of a process in which Greek voters loudly spurn a euro-zone bail-out offer in a referendum, only to watch Alexis Tsipras, their prime minister, immediately seek a worse deal that is flatly rejected by the euro zone, which in turn presses a yet more stringent proposal to which Mr Tsipras humbly assents? Better, perhaps, not to try. After six months of this nonsense, little wonder everyone is depressed. The immediate danger of Grexit has at least been averted, after Mr Tsipras and his fellow euro-zone heads of government pulled a brutal all-nighter in Brussels this week.

But it comes at the price of a vast taxpayer-funded bail-out for Greece, worth up to €86 billion over three years, and a humiliating capitulation by Mr Tsipras. Greece’s economy is in tatters, its creditors are fuming and Europe’s institutions are in despair. Much to Britain’s disgust even non-euro countries have been sucked into the nightmare: a bridge loan designed to keep Greece afloat while the bail-out talks proceed looks set to tap a fund to which all EU countries have contributed. But wasn’t this week’s agreement a triumph for the shock troops of austerity? Hardly. Finland’s coalition, formed only two months ago, tottered at the prospect of funding a third Greek bail-out. The Dutch prime minister, Mark Rutte, has admitted that it would violate an election pledge he made in 2012.

One euro-zone diplomat says that 99% of her compatriots would say “no” to the bail-out if offered a Greece-style referendum. Even Angela Merkel, Germany’s chancellor and Mr Tsipras’s chief tormentor, is damaged. The deal, crafted largely by Mrs Merkel, Mr Tsipras and François Hollande, France’s president, has exposed the German chancellor to competing charges: of cruelty abroad and of leniency at home, notably among Germany’s increasingly irritable parliamentarians, who must vote twice on the Greek package. Europe’s single currency, designed to foster unity and ease trade between its members, has thus become a ruthless generator of misery for almost all of them.

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“Looked at separately, each of these suffocating tax rates might appear almost reasonable. Looked at together, they are totally unreasonable.”

Greece Is Being Taxed To Death (Politico)

More than five years have passed since May 2010, when Greece was enticed to borrow €73 billion from the IMF, EC and ECB with painful strings attached. That 2010 program, said the IMF, “had two broad aims: to make fiscal policy and the fiscal and debt position sustainable, and to improve competitiveness.” There was no emphasis on improving domestic economic growth or employment — just “competitiveness” in trade. The IMF speculated that “restoring confidence” would “lead to a growth recovery” in 2012. When that didn’t happen, another €154 billion in loans was provided. And the IMF blamed the bad “investment climate” on a “lack of confidence,” rather than any lack of after-tax income.

Prominent U.S. economists blame the seven-year depression in Greece on savage cutbacks in government spending. “The contraction in government spending has been predictably devastating,” wrote Joseph Stiglitz in February. And Paul Krugman later criticized the period “from 2009 to 2013, the last year of major spending cuts” in Southern Europe. In reality, however, Greek government spending rose from 44.9% of GDP in 2006 to 53.7% from 2009 to 2012 and to 60.1% in 2013. That 2009-2013 “fiscal stimulus” was precisely when the economy contracted — by 4.4% in 2009, 5.4% in 2010, 8.9% in 2011, 6.6% in 2012 and 3.9% in 2013. By contrast, the economy grew slightly in 2014 when government spending was “only” half of GDP.

That is, the economy fell when government’s share rose, and the economy rose when government’s share fell. What is rarely or never mentioned in the typically one-sided misperception of spending “austerity” is the other side of the budget — namely, taxes. The latest Greek efforts to appease creditors would raise corporate tax again to 28%, raise the 5% “solidarity surcharge” on personal incomes, and discourage tourism by raising the VAT on restaurants and island shopping. Looked at separately, each of these suffocating tax rates might appear almost reasonable. Looked at together, they are totally unreasonable.

To offer a Greek employee an extra €100 requires that €42 be first subtracted for Social Security tax, and then up to €46 more subtracted for income tax. Out of the original €100 of marginal labor cost, the remaining €14 of after-tax income going to a skilled worker could only buy about €10 worth of goods after value-added tax is paid. The tax wedge between what employers pay for labor and what workers have left to spend, after taxes, is 43.4% for a Greek family of four with average earnings — the highest in the OECD and more than double the comparable U.S. wedge of 20.6%. This demoralizing tax wedge, which grows even larger at higher incomes, clearly depresses hiring and working in the formal economy. It also helps explain why a third of the Greek labor force is self-employed (making tax avoidance easier).

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“..an economic death spiral — contraction leading to banking failure, banking failure leading to contraction — first in Greece and, later on, elsewhere in Europe.”

Greece: Death Spiral Ahead (James K. Galbraith)

The Greek parliament has now voted to surrender control of the Greek state to platoons of bureaucrats from Brussels, Frankfurt and Berlin, who will now re-impose the full policy regime against which Greeks rebelled in January 2015 — and which they again rejected, by overwhelming majority, in the referendum of July 5. The orders from Brussels will impose strict new rules on the Greek people in the interest of paying down Greece’s debt. In return, the Europeans and the IMF will put up enough new money so that they themselves can appear to be repaid on schedule — thus increasing Greece’s debt — and the ECB will continue to prop up the Greek banking system. A hitch has already appeared in the plan: the IMF, whose approval is required, has pointed out — correctly — that the Greek debt cannot be paid, and so the Fund cannot participate unless the debt is restructured.

Now Germany, Greece’s main creditor, faces a new decision: either grant debt relief, or force Greece into formal default, which would cause the ECB to collapse Greece’s banks and force the Greeks out of the Euro. There are many ways to rewrite debt, and let’s suppose the Germans find one they can live with. The question arises: What then? An end to the immediate crisis is likely to have some good near-term effect. The Greek banks will “reopen,” likely on Monday, and the European Central Bank will raise the ceiling on the liquidity assistance on which they rely for survival. The ATMs will be filled, although limits on cash withdrawals and on electronic transfers out of the country will likely remain. There will be some talk of new public investment, funded by the EU; perhaps some stalled road projects will restart.

With these measures, it is not impossible that the weeks ahead will see a small uptick of economic life, and certainly, any such will make big news. It’s also possible that even without good news, Greece may limp along in stagnation, within the euro. ut if you walk through the requirements of Greece’s new program, there is another possibility. That possibility is an economic death spiral — contraction leading to banking failure, banking failure leading to contraction — first in Greece and, later on, elsewhere in Europe.

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“This programme is going to fail whoever undertakes its implementation.” Asked how long that would take, he replied: “It has failed already.”

Greece Reforms ‘Will Fail’ – Varoufakis (BBC)

Former Greek Finance Minister Yanis Varoufakis has told the BBC that economic reforms imposed on his country by creditors are “going to fail”, ahead of talks on a huge bailout. Mr Varoufakis said Greece was subject to a programme that will “go down in history as the greatest disaster of macroeconomic management ever”. The German parliament approved the opening of negotiations on Friday. The bailout could total €86bn in exchange for austerity measures. In a damning assessment, Mr Varoufakis told the BBC’s Mark Lobel: “This programme is going to fail whoever undertakes its implementation.” Asked how long that would take, he replied: “It has failed already.”

Mr Varoufakis resigned earlier this month, in what was widely seen as a conciliatory gesture towards the eurozone finance ministers with whom he had clashed frequently. He said Greek Prime Minister Alexis Tsipras, who has admitted that he does not believe in the bailout, had little option but to sign. “We were given a choice between being executed and capitulating. And he decided that capitulation was the optimal strategy.” Mr Tsipras has announced a cabinet reshuffle, sacking several ministers who voted against the reforms in parliament this week. But he opted not to bring in technocrats or opposition politicians as replacements. As a result, our correspondent says, Mr Tsipras will preside over ministers who, like himself, harbour serious doubts about the reform programme.

Greece must pass further reforms on Wednesday next week to secure the bailout. Germany was the last of the eurozone countries needing parliamentary approval to begin the talks. But the head of the group of eurozone finance ministers, Jeroen Dijsselbloem, has warned that the process will not be easy, saying he expected the negotiations to take four weeks. On Saturday, the Greek government ordered banks to open on Monday following three weeks of closures. Separately, the European Council approved the €7bn bridging loan for Greece from an EU-wide emergency fund. The loan was approved in principle by eurozone ministers on Thursday and now has the go-ahead from all non-euro states. It means Greece will now be able to repay debts to two of its creditors, the ECB and IMF, due on Monday.

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Another very transparent essay from Yanis.

Dr Schäuble’s Plan for Europe: Do Europeans Approve? (Yanis Varoufakis)

The avalanche of toxic bailouts that followed the Eurozone’s first financial crisis offers ample proof that the non-credible ‘no bailout clause’ was a terrible substitute for political union. Wolfgang Schäuble knows this and has made clear his plan to forge a closer union. “Ideally, Europe would be a political union”, he wrote in a joint article with Karl Lamers, the CDU’s former foreign affairs chief (Financial Times, 1st September 2014). Dr Schäuble is right to advocate institutional changes that might provide the Eurozone with its missing political mechanisms. Not only because it is impossible otherwise to address the Eurozone’s current crisis but also for the purpose of preparing our monetary union for the next crisis. The question is: Is his specific plan a good one? Is it one that Europeans should want?

How do its authors propose that it be implemented? The Schäuble-Lamers Plan rests on two ideas: “Why not have a European budget commissioner” asked Schäuble and Lamers “with powers to reject national budgets if they do not correspond to the rules we jointly agreed?” “We also favour”, they added “a ‘Eurozone parliament’ comprising the MEPs of Eurozone countries to strengthen the democratic legitimacy of decisions affecting the single currency bloc.” The first point to raise about the Schäuble-Lamers Plan is that it is at odds with any notion of democratic federalism. A federal democracy, like Germany, the United States or Australia, is founded on the sovereignty of its citizens as reflected in the positive power of their representatives to legislate what must be done on the sovereign people’s behalf.

In sharp contrast, the Schäuble-Lamers Plan envisages only negative powers: A Eurozonal budget overlord (possibly a glorified version of the Eurogroup’s President) equipped solely with negative, or veto, powers over national Parliaments. The problem with this is twofold. First, it would not help sufficiently to safeguard the Eurozone’s macro-economy. Secondly, it would violate basic principles of Western liberal democracy. Consider events both prior to the eruption of the euro crisis, in 2010, and afterwards. Before the crisis, had Dr Schäuble’s fiscal overlord existed, she or he might have been able to veto the Greek government’s profligacy but would be in no position to do anything regarding the tsunami of loans flowing from the private banks of Frankfurt and Paris to the Periphery’s private banks.

Those capital outflows underpinned unsustainable debt that, unavoidably, got transferred back onto the public’s shoulders the moment financial markets imploded. Post-crisis, Dr Schäuble’s budget Leviathan would also be powerless, in the face of potential insolvency of several states caused by their bailing out (directly or indirectly) the private banks. In short, the new high office envisioned by the Schäuble-Lamers Plan would have been impotent to prevent the causes of the crisis and to deal with its repercussions. Moreover, every time it did act, by vetoing a national budget, the new high office would be annulling the sovereignty of a European people without having replaced it by a higher-order sovereignty at a federal or supra-national level.

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Ireland: “30% of people live in deprivation conditions – 40% of children..”

Dublin, Lisbon And Madrid Beat The Bailout. It’s No Comfort To Athens (Guardian)

They used to be pejoratively labelled the “Pigs”: Portugal, Ireland, Greece and Spain, the “peripheral” countries carried into the eurozone on a wave of prosperity that were all forced to go cap in hand to their neighbours – and the IMF – when the financial crash came. Yet while Greece’s plight has only worsened over the five years since it was first rescued, the other three bailed-out countries have managed to return to growth, and send the inspectors from the International Monetary Fund back to Washington. Ireland graduated from its bailout programme in 2013. Spain – which never had a full-blown rescue, but received aid to prop up its ailing banks – did so in January last year; Portugal followed suit shortly afterwards.

As Greece attempts to rebuild its shattered economy with the aid of last week’s controversial bailout, it will be encouraged to take heart, and learn the lessons, from these success stories. Yet these countries have taken their own, tough paths back to economic growth – and the pain is still being felt. Ireland, which experienced an extraordinary property boom in the runup to the crisis and a deep downturn when the reckoning came, is expected to see GDP growth of around 5% this year. But its economic output is artificially boosted by the enthusiasm of multinationals for the country’s rock bottom 12.5% corporation tax rate — part of a long-term industrial strategy.

Ireland was also in a very different position to Greece when entering the crisis: until the country’s politicians chose to bail out its fragile banks, the public finances were in a relatively healthy state, with government debt at around 40% of GDP. Nevertheless, Michael Taft of the Unite trade union in Ireland says the deep spending cuts imposed as part of the post-crisis settlement have left long-term scars. “30% of people live in deprivation conditions – 40% of children,” he says. He adds that the fact that parties on both sides of the political divide shared a commitment to spending cuts meant it was hard for a Syriza-style, anti-austerity narrative to take hold: “The debate has been like the sound of one hand clapping.” However, more recently there was a noisy public revolt when the government considered imposing charges for water.

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The view from Germany.

Alexis Tsipras Has Shown Greeks He Can Save Them (Spiegel)

At the moment it appears that Tsipras the pragmatist has knocked out Tsipras the ideologue. “He’s finally putting his country before his party,” one opposition politician said on Wednesday, expressing relief. But Tsipras didn’t have any other choice. If Tsipras hadn’t reached an agreement in Brussels, Greece would have collapsed. The banks would have collapsed; even more businesses would have gone under. And Tsipras would have been the one responsible for it all. But with his U-turn, he also showed that he is ultimately a politician and not a gambler. The latest summit in Brussels lasted 17 hours, during which Tsipras abandoned one position after the other. He repeatedly left the room, where he was negotiating with Angela Merkel, François Hollande and EC President Donald Tusk.

Outside, he telephoned with his people back in Athens. In the end, he did succeed in keeping the fund for privatizing state-owned assets — that was to be based in Luxembourg and used as collateral for the loans — under Athens’ control. The fact that the fund is unlikely to ever bring in the €50 billion expected hardly mattered. Tsipras needed the victory. It is virtually a certainty that this won’t be the only element in the new bailout deal that will not get implemented. Tsipras knows that and so do Greece’s international creditors. Greece will never be able to pay back its debts — the InMF isn’t the only party to have come to this conclusion.

Despite all the broken promises, despite the “no” vote on the austerity diktat that Tsipras would transform into a “yes” vote only a few days later, like some magician pulling a rabbit out of the hat, surveys showed 70% of Greeks supporting the deal, which they consider to be “necessary and without alternative.” 68% say they would vote for Tsipras again if there were new elections. Polls also suggest he would be able to govern without a coalition partner. Those are astonishing figures for a prime minister under whose watch the banks had to be shuttered because they were threatened with collapse. Under whom capital controls had to be introduced, limiting daily withdrawals by Greeks to €60.

Furthermore, the Greek economy hasn’t been in this bad a shape at any other point since the start of the crisis five years ago. After one and a half years of consolidation, the economy has fallen back into recession and is shrinking rapidly. The fact that he isn’t being loudly criticized and that he managed to get 61% of Greeks to back him in the July 5 referendum is Tsipras’ political masterpiece. He had pitted “democracy against the Troika” as he often stated. It was a demonstration of power and at the same time a slap in the face of the Europeans. It’s possible they underestimated Tsipras because he had always come across as being so polite and reserved. But Tsipras also tested the limits and had no qualms about crossing the line.

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No, Stiglitz is not a scientist. Economics is NOT a science. See Popper and falsifiability.

Stiglitz Meets With Greek Government Officials (GR)

Former World Bank chief economist and Nobel Prize winner Joseph Stiglitz expressed his serious concerns over the economic rationale behind Greece’s rescue agreement during his meetings with Greek government officials in Athens on Friday. He reassured, however, that both he and a large number of eminent scientists from Europe and America are willing to assist the Greek government in any way possible during its agonizing efforts to end the harsh austerity tantalizing the country and its people. The American economist has been opposed to the tactics of the IMF and the structure of the current financial system, defending Greece and the attempts of Greek Prime Minister Alexis Tsipras during his country’s negotiations with creditors, exerting harsh criticism toward Germany. “Germany has shown no common sense regarding the European economy, nor compassion,” he stressed, disapproving the measures imposed to Greece by European forces, and suggested a “brave” haircut to the Greek debt.

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“It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed..”

Greece’s Lesson For Russia – and China (Paul Craig Roberts)

The termination of Greece’s fiscal sovereignty is what is in store for Italy, Spain, and Portugal, and eventually for France and Germany. As Jean-Claude Trichet, the former head of the European Central Bank said, the sovereign debt crisis signaled that it is time to bring Europe beyond a “strict concept of nationhood.” The next step in the centralization of Europe is political centralization. The Greek debt crisis is being used to establish the principle that being a member of the EU means that the country has lost its sovereignty. The notion, prevalent in the Western financial media, that a solution has been imposed on the Greeks is nonsense. Nothing has been solved. The conditions to which the Greek government submitted make the debt even less payable. In a short time the issue will again be before us.

As John Maynard Keynes made clear in 1936 and as every economist knows, driving down consumer incomes by cutting pensions, employment, wages, and social services, reduces consumer and investment demand, and thereby GDP, and results in large budget deficits that have to be covered by borrowing. Selling pubic assets to foreigners transfers the revenue flows out of the Greek economy into foreign hands. Unregulated naked capitalism, has proven in the 21st century to be unable to produce economic growth anywhere in the West. Consequently, median family incomes are declining. Governments cover up the decline by underestimating inflation and by not counting as unemployed discouraged workers who, unable to find jobs, have ceased looking.

By not counting discouraged workers the US is able to report a 5.2% rate of unemployment. Including discouraged workers brings the unemployment rate to 23.1%. A 23% rate of unemployment has nothing in common with economic recovery. Even the language used in the West is deceptive. The Greek “bailout” does not bail out Greece. The bailout bails out the holders of Greek debt. Many of these holders are not Greece’s original creditors. What the “bailout” does is to make the New York hedge funds’ bet on the Greek debt pay off for the hedge funds. The bailout money goes not to Greece but to those who speculated on the debt being paid. According to news reports, Quantitative Easing by the ECB has been used to purchase Greek debt from the troubled banks that made the loans, so the debt issue is no longer a creditor issue.

China seems unaware of the risk of investing in the US. China’s new rich are buying up residential communities in California, forgetting the experience of Japanese-Americans who were herded into detention camps during Washington’s war with Japan. Chinese companies are buying US companies and ore deposits in the US. These acquisitions make China susceptible to blackmail over foreign policy differences. The “globalism” that is hyped in the West is inconsistent with Washington’s unilateralism. No country with assets inside the Western system can afford to have policy differences with Washington. The French bank paid the $9 billion fine for disobeying Washington’s dictate of its lending practices, because the alternative was the close down of its operations in the United States. The French government was unable to protect the French bank from being looted by Washington.

It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed.

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Oh good god, she means tax collectors… Greece “needs” German tax collectors…. What, to revive biblical times?

Europe’s Best And Brightest Need To Head For Greece (Helene Rey)

Last weekend’s negotiations were painful, but the Greeks were not entirely without friends. Amid the conflict and antagonism, France helped Athens draft its proposals and François Hollande, the French president, battled to avoid Grexit while keeping Germany and others on board. European solidarity looked exhausted. But contrary to some reports, it was not dead. The deal to keep Athens in the single currency, despite all its undesirable aspects, remains vastly preferable to Grexit. Now that the tricky business of implementation is about to begin, it is time that Greece received a little more help from its European friends. Admittedly, generosity was not Mr Hollande’s only motive. Grexit would have spelt still more hardship for Greek people and risked creditors losing all their money.

But it would also have imperilled the European project itself. It would have bolstered the likes of the Nationl Front’s Marine Le Pen in France, who is keen to see the euro disintegrate, and Vladimir Putin, Russian president, who has made clear his desire for European fragmentation. Mr Hollande’s actions were also well received by the ruling Socialist party’s disaffected leftwingers, who harbour sympathy for Greece’s Syriza-led government. But this is not enough of an effort, either on Greece’s part or that of its partners. The agreement comes in the wake of massive austerity in Greece, amid deteriorating economic and fiscal conditions and in an environment where elementary pro-growth reforms have yet to be made. The danger is that the deal, and what should be a healing process in Europe, will be derailed.

One huge issue is implementation: the Greek government needs to improve the judicial system, write a new civil code, fight cartels in product markets and reform public administration very quickly. Such reforms should improve the country’s wellbeing, but enacting them speedily would be a tall order for even the best-organised administration. And it is here that the rest of Europe can and should help out. The fabled École nationale d’administration might offer a few tips, but this is not a question of énarques — as its graduates are known — parachuting into Athens, or of more European overlords appearing in Greece. It is instead one of using European know-how to provide technical assistance in areas where Greece needs it and where Syriza, like its predecessor governments, has failed to deliver.

Goals such as more efficient tax collection (particularly from the rich) and fighting clientelism are part of the agreement and are vital. But they come bundled with other measures, such as value added tax increases, that will stifle any recovery. Hence the need for more solidarity to help the Greeks move fast.

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Reich is right, of course. But why did he stay on in Bill Clinton’s cabinet when he disagreed so much on the repeal?

Hillary Clinton and Glass-Steagall (Robert Reich)

For more than six decades after 1933, Glass-Steagall worked exactly as it was intended to. During that long interval few banks failed and no financial panic endangered the banking system. But the big Wall Street banks weren’t content. They wanted bigger profits. They thought they could make far more money by gambling with commercial deposits. So they set out to whittle down Glass-Steagall. Finally, in 1999, President Bill Clinton struck a deal with Republican Senator Phil Gramm to do exactly what Wall Street wanted, and repeal Glass-Steagall altogether. What happened next? An almost exact replay of the Roaring Twenties. Once again, banks originated fraudulent loans and sold them to their customers in the form of securities. Once again, there was a huge conflict of interest that finally resulted in a banking crisis.

This time the banks were bailed out, but millions of Americans lost their savings, their jobs, even their homes. [..] To this day some Wall Street apologists argue Glass-Steagall wouldn’t have prevented the 2008 crisis because the real culprits were nonbanks like Lehman Brothers and Bear Stearns. Baloney. These nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements. If the big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble. And why were the banks able to give them easy credit on bad collateral? Because Glass-Steagall was gone. Other apologists for the Street blame the crisis on unscrupulous mortgage brokers. Surely mortgage brokers do share some of the responsibility. But here again, the big banks were accessories and enablers.

The mortgage brokers couldn’t have funded the mortgage loans if the banks hadn’t bought them. And the big banks couldn’t have bought them if Glass-Steagall were still in place. I’ve also heard bank executives claim there’s no reason to resurrect Glass-Steagall because none of the big banks actually failed. This is like arguing lifeguards are no longer necessary at beaches where no one has drowned. It ignores the fact that the big banks were bailed out. If the government hadn’t thrown them lifelines, many would have gone under. Remember? Their balance sheets were full of junky paper, non-performing loans, and worthless derivatives. They were bailed out because they were too big to fail. And the reason for resurrecting Glass-Steagall is we don’t want to go through that ever again.

As George Santayana famously quipped, those who cannot remember the past are condemned to repeat it. In the roaring 2000’s, just as in the Roaring Twenties, America’s big banks used insured deposits to underwrite their gambling in private securities, and then dump the securities on their customers. It ended badly. This is precisely what the Glass-Steagall Act was designed to prevent – and did prevent for more than six decades. Hillary Clinton, of all people, should remember.

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All borrowed money anyway. Can someone please hold Brussels accountable?

Don Quixote Airport Cost €1bn – It Could Sell To China For €10,000 (Guardian)

It cost €1bn (£694m) to build and was on sale for a knockdown price of €40m, but now looks set to be sold for just €10,000. Ciudad Real airport, one of the most notorious emblems of Spain’s economic crash, has found a buyer. A Chinese-led consortium has emerged as the only bidder for the deserted site 100 miles south of Madrid, for an apparent bargain price after no one met the much reduced valuation. Its facilities include a runway long enough to land an Airbus A380, the world’s largest passenger plane, along with a passenger terminal that could handle 10m travellers per year. It is also in pristine condition because it has barely been used, having opened to international flights in 2010 as the eurozone crisis raged, only to shut two years later.

Appropriately for such a vainglorious project, the La Mancha airport was previously named after the region’s most famous, and deluded, literary export: Don Quixote. But Tzaneen International, a Chinese company set up in March with just €4,000 in capital, believes it can succeed where others have failed. Its bid – the only offer – succeeded at a public auction. Its initial €10,000 outlay buys all the land and most of the buildings, including the runway and control tower. Tzaneen says it also wants to acquire the terminal building and the car parks and is prepared to invest up to €100m in the project because “there are several Chinese companies that want to make the airport the European point of entry for cargo”.

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“I am sure that if they take back the drachma, they’ll have a year of trouble but then they will become paradise on earth with 10m people.“

Lunch with Beppe Grillo (FT)

[..] when I ask him directly what he thinks of the deal, he seems more discouraged than angry. “I don’t know, it’s always the same story. Every nation has lost its sovereignty.” This leads into the first of many tangents. “We’ve delegated politics to bankers. The ECB is inside Deutsche Bank and Deutsche Bank is inside the Bundesbank,” he says before moving on to mention Japanese “just-in-time” manufacturing and Britain’s zero-hour labour contracts. “They trick all the statistics because, if you work one hour, it means you’re employed.” As we nibble on pane carasau, a traditional Sardinian flatbread, I try to reel him back to the main question. A week earlier, Grillo had showed his support for Greece by making the trip to Athens’ Syntagma Square, after Tsipras had unexpectedly called a referendum on earlier bailout terms proposed by Brussels. The “No” vote — backed by Tsipras — won a resounding victory that night.

Now that plebiscite of defiance seems to have been pointless. Greece still needed funds to avoid default, and Tsipras had been forced to cave on many points to get it. So was it worth it, I ask? Grillo, who has been vocal about his desire for Italy to hold its own referendum on the euro, hesitates. “I think it helped clear up the notion that these decisions should be taken by the people, not others,” he says. As for Tsipras, he says: “If he sells out the country, that’s exactly what the Greeks don’t want.” The food arrives and the best of my antipasto is the seared tuna with peach, and the marinated salmon. Grillo loads his salad up with salt and that seems to rev him up a notch. He starts attacking “those people” who have a stranglehold on Europe’s economy.

“They have a kind of illness, it’s called alexithymia, which means difficulty recognising the emotions of others: pain, pleasure, joy,” he says. Does he mean people like Merkel and Jean-Claude Juncker, president of the European Commission? “Yes,” he responds. “They don’t care if they have to put tens of millions of people into hunger to balance an account, it’s collateral damage. We’ve entrusted our lives to people who know nothing about life,” he adds. I suggest that a referendum on euro membership might not appeal to Italians, given the scenes of economic distress they have witnessed in Athens in the past few weeks. But Grillo tells me I’m wrong because Italy’s experience with the single currency has been awful.

The Italian economy has only just started growing again — by 0.3% in the first quarter of this year, after a bruising triple-dip recession. Unemployment remains high — at 12.4% — and for the country’s youth that figure is more than 40%. “We entered monetary union from one day to the next, and they said it was for our own good,” he says. “Since then, all our economic, social and financial indicators have got worse.” The chaos in Athens has, he says, been wildly overstated. “I went there with bread, cheese and nylon socks, to help. I thought there would be people on the ground, screaming, ‘Aaaaaah!’ Instead, I found a splendid city, the restaurants were full. There were many tourists. You ate well — with €18 or €20. It was clean. I am sure that if they take back the drachma, they’ll have a year of trouble but then they will become paradise on earth with 10m people.”

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Jan 182015
 
 January 18, 2015  Posted by at 11:53 pm Finance Tagged with: , , , , , , ,  


DPC Longacre Square, soon to be Times Square 1904

I’ve said before, and quite a while ago too, – more than once-, that the world of investing as we’ve come to know it is over. It’s still as true as it was then, and I can only hope that more people today understand why it is true, and why I said it in the past. The basic underlying argument then and now is that financial markets have been distorted to such an extent by the activities, the interventions, of central banks – and governments -, that they can no longer function, period.

What we’ve seen since 2008 – not that things were fine and rosy before that – is that all ‘private’ losses were taken over by the public sector, just so the private sector didn’t have to fess up to what it lost, and the appearance of a functioning market system could be upheld. And those who organized this charade were dead on in thinking that as long as Dow and S&P numbers would look good, and they said ‘recovery’ in the media often enough, people would believe there still was a functioning financial marketplace. And they did. But those days are over. Or at least, they soon will be.

What I mean by that is that the functioning marketplace is long gone, and only now people’s beliefs, too, about it are changing, being forced to change, and soon quite radically. The entire idea that ruled the world of finance and kept it -seemingly – standing upright is crumbling fast. And we’re going to have to find a way to deal with that. As of today, we have none, we come up zero. The overriding narrative – which overrides every other thought – is that we’re on our way back to recovery. And then we’ll get back to becoming ever richer, live in ever bigger homes and drive ever bigger, smarter and faster cars. Or something in that vein.

The downfall of finance can be traced back to all sorts of points in history. Think Nixon the gold standard in 1971, for example. But the repeal of Glass-Steagall in 1998, under Bill Clinton, is undoubtedly one of the major ones. Once deposit-taking banks were -again – allowed to use those deposits to ‘invest’ – read: gamble with -, it was only a matter of time before the train went off the tracks in spectacular fashion.

It now seems to stupid to be true, but Alan Greenspan, Bob Rubin and Larry Summers, the guys who had pushed so hard for the repeal – and got it -, were once featured on the cover of TIME as The Men Who Saved The World. While what they did was the exact opposite: they threw the world into a financial abyss. It took a while, sure, but then, 16-17 years is not all that long. Plus, it took just 2 years for the dotcom bubble to burst, and 6-7 more for Bear Stearns, AIG and Lehman to be whack-a-moled.

The rest would have followed, but then the central banks stepped in. And now, 6 years and $50 trillion later, their omnipotence is being exposed as impotence. Which means there’s nothing left to keep up appearances. We’ll all have to leave the theater of dreams and step out into the blinding cold faint light of another morning. No choice. And we’ll figure out at some point that we’ve paid all we had just to watch the show.

No. 1) The Swiss National Bank this week threw in the towel, bankrupted a lot of foreign exchange brokers and investors and destroyed a few hundred thousand Swiss jobs in the process. And that was not the first sign that the game was up, the oil price collapse started it. Or, to be precise, made the collapse visible for the first time to most – even if they didn’t recognize it for what it was-. Central banks are pushing on a string, a concept long predicted: they have become powerless to stop financial markets events from taking their natural course of boom and bust.

No. 2) The Bank of Japan. From Asian Nikkei:

Japan’s Central Bankers Mull Diminishing Returns From Bond Buying

Some in the Bank of Japan are growing anxious about continuing its massive purchases of government bonds, confronted with the program’s negative side effects. [..] The BOJ’s buying of huge amounts of Japanese government bonds has pushed long-term interest rates to unprecedented lows. This has made it impossible for insurance companies to generate sufficient returns on JGB investments to pay benefits to policyholders.

The longer ultralow interest rates continue, the more likely other insurers are to take similar steps. Household finances would suffer. Money reserve funds, used for parking individual stock investors’ unused funds, are another financial product hit by ultralow interest rates. MRFs put money into short-term government bonds and other safe investments. Generating positive returns on the bonds is becoming nearly a lost cause [..]

The BOJ has discussed these costs at its policy board. When the board took up additional easing measures in a late-October meeting, some members raised the specter of hurting earnings at financial institutions and giving the impression that the bond-purchasing program is actually a scheme to enable deficit spending. The board decided to step up the program anyway, judging the benefits to outweigh the costs.

“Since nominal interest rates are already at historically low levels, the marginal impact of more easing aimed at putting upward pressure on consumer prices is not strong,” policy board member Takehiro Sato said in a speech last month, explaining why he opposed additional easing in October. “We have caused tremendous trouble for the financial industry,” a BOJ official says. “I hope we will be able to scale back monetary easing soon by achieving the price stability target as projected.”

All the BOJ can do by now, all that’s left to do, is get out of the way. As it should have done right off the bat, before it started intervening 20 years ago. All central banks should have gotten, and stayed, out of the way. Butt out. They have no role to play in financial markets, and should never have been allowed to assume one. They can only do harm. Free markets may not be ideal, but central bank intervention is a certified lot worse.

No. 3) The Fed:

Yellen Signals She Won’t Babysit Markets in Turmoil

Janet Yellen is leaving the Greenspan “put” behind as she charts the first interest-rate increase since 2006 amid growing financial-market volatility. The Federal Reserve chair has signaled she wants to place the economic outlook at the center of policy making, while looking past short-term market fluctuations. To succeed, she must wean investors from the notion, which gained currency under predecessor Alan Greenspan, that the Fed will bail them out if their bets go bad – just as a put option protects against a drop in stock prices.

“The succession of Fed puts over the years has led to a wide range of distortions in financial markets ,” said Lawrence Goodman, president of the Center for Financial Stability. “There have been swollen asset values followed by sharp declines. This is a very good time for the Fed to move away.”

“Let me be clear, there is no Fed equity market put,” William C. Dudley, president of the New York Fed, the central bank’s watchdog on financial markets, said in a Dec. 1 speech in New York. “Because financial-market conditions affect economic activity only slowly over time, this suggests that we should look through short-term volatility.”

The concept of a Fed put took hold under Greenspan, who in 1998 cut the benchmark federal funds rate three times in response to market stress arising from a Russian bond default and the failure of hedge fund Long-Term Capital Management. The economy expanded 5% that year and 4.7% in 1999, and critics say the rate cuts helped extend a bubble in technology stocks. The Nasdaq rose 40% in 1998 and 86% in 1999 before plunging almost 40% in 2000. Greenspan said in an interview that he regarded the notion of a Fed put as a “joke.”

Bernanke told Fed officials in an Aug. 16, 2007, conference call as they prepared to cut the discount rate, according to transcripts. Bernanke recommended resisting a cut in the fed funds rate “until it is really very clear from economic data and other information that it is needed. I’d really prefer to avoid giving any impression of a bailout or a put, if we can.”

“The put is there – it is just further out of the money,” said Michael Gapen, chief U.S. economist at Barclays. As the central bank raises rates, “there could be more volatility and the Fed could be OK with it.”

No. 4) The ECB. Which is supposed to come with a $1 trillion or so QE package this week. Which has long been priced in by the markets and will have no other effect than to bring down the euro further. QE everywhere is always only a game that shifts wealth from the public to the private sector, which is another way of saying from the poor to the rich. But then you end up with the poor getting so much poorer, you don’t have a functioning real economy anymore, and therefore no functioning financial markets either.

The problem today is not one of lending, but of borrowing. Banks, even if they would want to, cannot lend to people too poor to borrow. Or spend, for that matter. And if people in the real economy, which accounts for 60-70% of GDP in developed nations, don’t spend, because they simply either don’t have the money or have no expectations of getting any, deflation sets in and central bankers are revealed as the impotent old farts they are.

But that will by no means conclude the story. The effects of the ill-fated megalomaniac central bank policies will reverberate through our societies for decades, if only because $50 trillion is a lot of money. Much of it may have gone somewhere, in some zero sum game, but most of it just went up in the thin air of wagers like the ones the forex trade is made of. People keep asking where did the money go, well, nowhere, or rather it went back to the virtual state it came from.

The difference between the past 6 years and today is that central banks can and will no longer prop up the illusionary world of finance. And that will cause an earthquake, a tsunami and a meteorite hit all in one. If oil can go down the way it has, and copper too, and iron ore, then so can stocks, and your pensions, and everything else.

Perhaps Yellen et al are not all that crazy for cutting QE, and soon raising interest rates. Perhaps that’s the only sane thing left to do, as sane as the Swiss cutting their euro-peg. That doesn’t mean the Fed understands what’s going to happen to the US economy because of it, but it may just mean they have an inkling of the lack of alternatives.

Japan is gone, it’s borrowed itself into oblivion. China’s ‘miracle’ was debt-financed to a much larger degree than anyone wishes to admit. Europe will end up seeing its union falling apart, because it could only ever be held up in times of plenty, and those times are gone. And the US won’t make it too long either on people making a ‘living’ flipping their neighbor’s burgers.

But the central bank bills will still come due all over. That’s the bummer about deflation: your wealth evaporates, but your debt does not.

Dec 212014
 
 December 21, 2014  Posted by at 1:13 pm Finance Tagged with: , , , , , , ,  


Frances Benjamin Johnston “Courtyard at 1133-1135 Chartres Street, New Orleans” 1937

Saudi Arabia and UAE Blame Non-OPEC Producers For Oil Price Slide (FT)
Calculating The Breakeven Price For The Median Bakken Shale Well (Zero Hedge)
How Oil Price Fall Will Affect Crude Exporters – And The Rest Of Us (Observer)
UAE Urges All World’s Oil Producers Not To Raise Output In 2015 (Reuters)
Goldman Sees Little Systemic Risk For Banks From Oil Price Drop (MarketWatch)
Russian Crisis Kills Big German Gas Deal (CNNMoney)
ECB’s Constancio Sees Negative Inflation Rate In Months Ahead (Reuters)
For Rome, All Roads Seem To Lead Away From A Single Currency (Observer)
Poll Shows Majority Of Brits Want To Quit EU (RT)
Retirement Index Shows Many Still At Risk (MarketWatch)
Despite Job Growth, Native US Employment Still Below 2007 (HA)
Go West, Young Han (Asia Times)
The Fed’s Too Clever By Half (Guy Haselmann, Scotiabank)
Women To Take Brunt Of UK Welfare Cuts (RT)
Derivatives And Mass Financial Destruction (Alasdair Macleod)
How To Get Ahead At Goldman Sachs (Jim Armitage)
David Stockman Interview: The Case For Super Glass-Steagall (Gordon T. Long)
There Is Hope In Understanding A Great Economic Collapse Is Coming (Snyder)

The dog ate my homework?!

Saudi Arabia and UAE Blame Non-OPEC Producers For Oil Price Slide (FT)

The oil ministers of Saudi Arabia and the United Arab Emirates have blamed the oil price rout on producers outside of OPEC and reaffirmed their stance to keep output at current levels. Ali al-Naimi, Saudi Arabia’s oil minister, said a lack of co-operation from countries outside the cartel was a key contributor to the near 50% slide in crude oil prices since the middle of June. “The kingdom of Saudi Arabia and other countries sought to bring back balance to the market, but the lack of co-operation from other producers outside OPEC and the spread of misleading information and speculation led to the continuation of the drop in prices,” he said at an energy conference in Abu Dhabi on Sunday, according to Reuters. “Let the most efficient producers produce,” he added.

Speaking at the same gathering, Suhail bin Mohammed al-Mazroui, the UAE energy minister, said one of the principal reasons for the price falls was “the irresponsible production of some producers from outside OPEC”. The comments from the two Gulf producers underline their commitment to production targets that stand at 30m barrels day, despite calls from some poorer OPEC members to reduce output to bolster prices. OPEC’s production policy and concerns about a supply glut have seen the price of Brent crude — the international oil benchmark — fall below $60 a barrel, hitting its lowest level in more than five years last week. At the conference, Mr Al-Mazrouei echoed a previous statement, saying “OPEC is not a swing producer” and “it’s not fair that we correct the market for everyone else”.

The UAE is thought to have the closest views to Saudi Arabia, a Gulf ally as well as the cartel’s largest producer and de facto leader. Ahead of last month’s OPEC meeting in Vienna, Mr Al-Mazrouei told the Financial Times: “Yes, there is an oversupply but that oversupply is not an OPEC problem.” He also said that non-OPEC countries and high-cost production – such as oil from US shale fields – should play a role in balancing the market. He says lower prices would help cut excess supplies from more expensive oilfields while preserving the share of lower-cost OPEC producers. The “market will fix it”, he said in November.

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Too optimistic. To do this kind of calculation, you have to look at where financing came from, and how it’s leveraged and hedged.

Calculating The Breakeven Price For The Median Bakken Shale Well (Zero Hedge)

A lot of data has been thrown around recently concerning the Bakken shale wells of North Dakota in an attempt to figure out the necessary oil price required to break even on the investment. In order to get a clearer picture of the financial situation in Bakken, it is necessary to develop a financial model of the median Bakken well. With a discount rate of 15%, the median well has a profitability index of 1.02 (after federal income tax) if $66 per barrel is used. (A profitability index of 1.0 indicates a break even situation at the discount rate that was used in the model). This means that at $66 per barrel, half the wells are uneconomic. If oil prices settle out at this price it can be expected that the number of wells drilled should be reduced by about half. The median Bakken well has the following attributes:

If the current oil price of $55 per barrel is used, the initial production rate has to be increased to 800 BPD in order to break even. According to the J.D. Hughes data, 25% of the wells have an initial production rate of 1000 BPD or more. Accordingly, if oil prices settle out at the current price, the number of wells drilled will be about a quarter of the present number. Some people have stated that this shale industry exists only due to abnormally low interest rates. If we use $100 per barrel and increase the discount rate to 20%, the median well has a profitability index of 1.6, which is profitable. The well is still making over 200 BPD after payout. My conclusion is that the shale development would still be profitable in a normal interest rate environment. The production data used in this model are from only 4 counties, Dunn, McKenzie, Mountrail, and Williams. Very few wells have been economic outside of these 4 counties. Therefore, when these 4 counties become saturated with wells, the Bakken play is over.

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Not an overly impressive sum-up.

How Oil Price Fall Will Affect Crude Exporters – And The Rest Of Us (Observer)

John Paul Getty’s formula for success was to rise early, work hard and strike oil. But a dependence on the black stuff can create its own problems, especially when the price tumbles as it has over the last few months. The price of a barrel of Brent crude has almost halved from $115 in the summer to stabilise around $60 last week. Most forecasters expect the cost of oil to remain low well into next year. Getty became a billionaire oil magnate after four years of speculative drilling in the Saudi Arabian desert proved to be worth the risk. Now the house of Saud appears willing to wait almost as long for its own victory. The plan, agreed with OPEC, maintains output, ignoring demands for cuts to push the price back up again.

As the dominant OPEC member, and keen to protect its own market share, the Saudis have forced the others to take the long view with a strategy that aims to put out of business all those producers that have flooded the market in the last few years and dragged the price lower. US fracking firms, where production costs are high, should be the first to feel the financial pain. But there will be collateral damage to others too. Iran may find itself running out of cash. And then there is Russia, which is heading for a deep recession next year as gas prices follow oil to lows not seen in 10 years. There will be winners too. The UK, now a net importer of oil, has already benefited by an estimated £3m-a-day reduction in fuel costs. Businesses will gain from cheaper energy, and cheaper petrol in effect puts more cash in consumers’ pockets. Taken in the round, global GDP could rise by 0.2% to 0.5% as the wheels of trade are lubricated a little more.

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If you yourself can’t hike your ourput, it’s easy to tell others not to do it either.

UAE Urges All World’s Oil Producers Not To Raise Output In 2015 (Reuters)

The United Arab Emirates oil minister urged all of the world’s producers on Sunday not to raise their oil output next year, saying this would quickly stabilize prices. “We invite everyone to do what OPEC did and take a step to balance the market through not offering additional products in 2015, and if everyone abides by (the) OPEC decision, the market will stabilize and it will stabilize quickly,” Suhail Bin Mohammed al-Mazroui said. He was speaking to reporters on the sidelines of a meeting of ministers of the Organisation of Arab Petroleum Exporting Countries (OAPEC) in Abu Dhabi. OPEC’s decision late last month to leave its output ceiling unchanged,rather than cutting it, was followed by a fresh plunge of oil prices. Iranian Oil Minister Bijan Zangeneh said last week that the continuing price slide was a “political conspiracy”; Iran needs a high oil price to ease pressure on its state finances. But Mazroui said on Sunday: “There is no conspiracy, there is no targeting of anyone. This is a market and it goes up and down.”

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Hey, well, if Goldman says it …

Goldman Sees Little Systemic Risk For Banks From Oil Price Drop (MarketWatch)

A larger share of lending to the energy sector came from high-yield debt rather than through traditional bank loans and as a result there is little scope for systemic risk to the U.S. banking system from a drop in oil prices, according to a research note from Goldman Sachs economist team. Government data puts energy-related loans on commercial banks at a bit more than $200 billion, the team said Friday in a note, a modest share of the sector’s $14.3 trillion in assets. However, regional banks have a disproportionate exposure to energy-related loans could find the recent drop in prices more challenging, the report said.

Fed Chairwoman Janet Yellen said last week that oil’s nearly 50% drop from its summers highs remains a net positive for the economy. She played down risk to the U.S. banking sector. Robert Brusca, chief economist at FAO Economics, said hedge fund players have already taken some big hits since energy was such a prevalent theme in the sector. “If the oil price continues to weaken and stays low for an extended period we could see problems emerge,” Brusca said in a note to clients. He noted a separate study by Goldman’s investment research unit that shows that $1 trillion in oil investment projects planned for the next year globally are no longer profitable with Brent crude below $70 a barrel. The analysis excluded U.S. shale.

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Germany’s industry will not take much more of this.

Russian Crisis Kills Big German Gas Deal (CNNMoney)

Fallout from the Russian crisis continues to spread with the cancellation of a big gas deal with Germany. BASF said it had dropped plans to hand full control of its gas storage and trading business to Russia’s Gazprom in exchange for stakes in two Siberian gas fields. State-controlled Gazprom is the leading supplier of natural gas to western Europe and has been looking to develop its marketing and distribution activities in the region. The chill in relations between Germany and Russia killed the asset swap deal, which covered BASF businesses with €12 billion ($14.6 billion) in sales. Sanctions imposed on Russia over its behavior in Ukraine place restrictions on new energy projects and equipment, and also prevent Russian companies borrowing in Western financial markets.

The cancellation has forced the German chemicals company to restate its accounts for last year, and to mark down profits in 2014, at a combined cost of €324 million ($395 million). BASF and Gazprom have worked together for more than 20 years, and will continue to operate the gas trading business as a joint venture. Other big energy deals have already fallen victim to the deterioration in relations with the West. President Vladimir Putin announced earlier this month that Gazprom had scrapped plans to build a new $40 billion gas pipeline to southern Europe, bypassing Ukraine. With Russia unable to raise new finance from European and U.S. investors, Gazprom may have struggled to fund construction of the pipeline. Some EU states were also nervous that the project would make them even more dependent on Russian gas at a time when they’re looking to diversify their energy supplies.

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But no, that’s not deflation … After all, it’s all about semantics.

ECB’s Constancio Sees Negative Inflation Rate In Months Ahead (Reuters)

European Central Bank Vice President Vitor Constancio said in a magazine interview he expected the euro zone inflation rate to turn negative in the coming months but that if this was just a temporary phenomenon, he did not see a risk of deflation. Annual inflation in the euro zone slowed to 0.3% in November as energy prices fell, putting it well below the ECB’s target for inflation close to but just below 2%. In early December the ECB had forecast 0.7% inflation for 2015 but Constancio told Germany’s WirtschaftsWoche oil prices had fallen by an extra 15% since then and that, while this should support growth and so drive up inflation in the longer term, it created a tricky situation in the short-term.

“We now expect a negative inflation rate in the coming months and that is something that every central bank has to look at very closely,” Constancio was quoted as saying in an interview due to be published on Monday. But he said that several months of negative inflation would not translate into deflation: “You’d need negative inflation rates over a longer period for that. If it’s just a temporary phenomenon, I don’t see a danger.” Constancio said the euro zone was not in deflation and there was also not a risk of this for every country in the single currency bloc. He added that rising productivity in countries like Ireland and Spain could, for example, create scope for wage rises, which would counter deflation dangers.

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“.. while the social democrats think big, Italy’s rightwing parties are declaring the whole thing unaffordable. Not just the Olympics, but the foreign wars, what’s left of the foreign aid budget and, most pressingly, the euro.”

For Rome, All Roads Seem To Lead Away From A Single Currency (Observer)

When Italian prime minister Matteo Renzi confirmed last week that Rome would enter a bid to host the 2024 summer Olympic Games, it was a moment that divided the nation. How could the country afford the £10bn, or even £20bn-plus bill to stage the Olympics when the Italian economy has failed to grow in every quarter since 2011 and the national income is the same as it was in 1997? Renzi dismissed his critics, saying: “Our country too often seems hesitant. It’s unacceptable not to try… or to renounce playing the game.” What he meant was that Italy is a premiership team and should therefore be prepared to compete with the best. Yet while the social democrats think big, Italy’s rightwing parties are declaring the whole thing unaffordable. Not just the Olympics, but the foreign wars, what’s left of the foreign aid budget and, most pressingly, the euro. Silvio Berlusconi’s Forza Italia, Beppe Grillo’s Five Star Movement and the Northern League all agree that Italy cannot hope to compete with northern European rivals inside the same currency zone.

Between them they represent almost 45% of the Italian electorate, rising to almost 50% once Eurosceptic parties are included. These three parties hate each other almost as much as they loathe Renzi’s Democrats. But, still, this discontent with the euro, and the almost intuitive understanding of the single currency’s ability to set Italian workers against German and Austrian rivals with only one obvious loser – Rome – illustrates how the euro project is crumbling. Only a couple of years ago, Italy would have stood aside from all the hand-wringing about the euro. Middle-income Italians were solidly in favour of a project of which they saw themselves as founding members. And more importantly, their vast savings and property values were in euros. Any attempt to withdraw would almost certainly entail a devaluation of 50% or more and the destruction of 50 years of scrimping.

Roberto D’Alimonte, professor of politics at Rome’s Luiss university, says growing discontent with the euro is still an emotional response to domestic austerity cuts and could not be translated into an outright vote against the euro. He says a referendum calling for a withdrawal would be lost. So for the time being, a splintered rightwing opposition and an incoherent response to the euro allow Renzi to forge ahead. But D’Alimonte warns that the resurgence of the Northern League is a sign of growing discontent. An opinion poll earlier this month gave the 41-year-old party leader, Matteo Salvini, a personal popularity of 26% and his party 10%. D’Alimonte says these polls underestimate the powerful surge enjoyed over recent months by the Northern League, which has also reached out to discontented southerners. Salvini calls the euro a “criminal currency” and wants to demolish a Brussels consensus he says is strangling European politics.

The successor to party founder Umberto Bossi, who was brought down by a financial scandal, Salvini is also an admirer of Vladimir Putin and friend of French National Front leader Marine Le Pen. To the shock of many on the left, he has overtaken Grillo as the cheerleader for an Italy that accepts demotion to the second division. “The Europe of today cannot be reformed, in my opinion,” he told the Foreign Press Association in Rome. “There’s nothing to be reformed in Brussels. It’s run by a group of people who hate the Italian people and economy in particular.” When asked whether he worried about spooking the financial markets with his radical plans to withdraw from the euro, impose a single flat tax rate of 15% and deport illegal immigrants, he said: “I don’t want to reassure anyone at all.”

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Those numbers should be much higher.

Poll Shows Majority Of Brits Want To Quit EU (RT)

Among the six European states participating in the poll questioning EU membership, the British appeared most certain of all that they want to leave the union with only 37% against breaking ties. The French OpinionWay poll showed that 42% of British respondents want to leave the EU, while 37% are for staying in the union and the rest 21% are not sure of the answer, Le Figaro reported on Friday. Britain’s PM Davis Cameron promised last year to hold a vote on Europe in a referendum by the end of 2017 if the Conservatives win the next general election. Cameron has been under domestic pressure from politicians to quit the EU sooner. The second place among the six European states surveyed was taken by the Netherlands with 39% for breaking the relationship with EU and 41% of responders against leaving European partnership. The least eager ones to say goodbye were the Spanish with 67% against the notion and only 17% for EU exit.

Among the 3,500 respondents, the French were 22% for and 55 against, while the Germans were 22% and 64 respectively. Most of Italy’s respondents said they would stay in the union – 58%, only 30 were against. Amid the ongoing Eurozone crisis that started in 2009, the member states have cut government spending to try and reduce their budget deficits. EU member countries pushed by austerity policing Germany have been struggling to come out of the crisis. Last week German Chancellor Angela Merkel criticized France and Italy for taking insufficient reforms to curb spending. “The European Commission has drawn up a calendar according to which France and Italy are due to present additional measures” Merkel said to newspaper Die Welt adding that she agrees with the commission. In November the EU commission approved two countries’ budgets which guaranteed that they would impose more austerity measures in 2015.

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And many more than MarketWatch lets on.

Retirement Index Shows Many Still At Risk (MarketWatch)

Every three years, with the release of the Federal Reserve’s Survey of Consumer Finances (SCF), we update our National Retirement Risk Index (NRRI). The NRRI shows the share of working-age households who are “at risk” of being unable to maintain their pre-retirement standard of living in retirement. Constructing the NRRI involves three steps: 1) projecting a replacement rate—retirement income as a share of pre-retirement income—for each member of the SCF’s nationally representative sample of U.S. households; 2) constructing a target replacement rate that would allow each household to maintain its pre-retirement standard of living in retirement; and 3) comparing the projected and target replacement rates to find the percentage of households “at risk.” The NRRI was originally created using the 2004 SCF and has been updated with the release of each subsequent survey.

Our expectation was that the NRRI would improve sharply in 2013; it certainly felt like a better year than 2010. The stock market was up, and housing values were beginning to recover. But the ratio of wealth to income had not bounced back from the financial crisis, more households would face a higher Social Security Full Retirement Age, and the government had tightened up on the percentage of housing equity that borrowers could extract through a reverse mortgage. On balance, then, the Index level for 2013 was 52%, only slightly better than the 53% reported for 2010. This result means that more than half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65—which is above the current average retirement age—and annuitize all their financial assets, including the receipts from a reverse mortgage on their homes. The NRRI clearly indicates that many Americans need to save more and/or work longer.

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Strange use of the word ‘native’.

Despite Job Growth, Native US Employment Still Below 2007 (HA)

Additional findings:
• The BLS reports that 23.1 million adult (16-plus) immigrants (legal and illegal) were working in November 2007 and 25.1 million were working in November of this year — a two million increase. For natives, 124.01 million were working in November 2007 compared to 122.56 million in November 2014 — a 1.46 million decrease.
• Thus BLS data indicates that what employment growth there has been since 2007 has all gone to immigrants, even though natives accounted for 69% of the growth in the +16 population.
• The number of immigrants working returned to pre-recession levels by the middle of 2012, and has continued to climb. But the number of natives working remains almost 1.5 million below the November 2007 level.
• However, even as job growth has increased in the last two years ( November 2012 to November 2014), 45% of employment growth has still gone to immigrants, though they comprise only 17% of the labor force.
• The number of natives officially unemployed (looking for work in the prior four weeks) has declined in recent years. But the number of natives not in the labor force (neither working nor looking for work) continues to grow.
• The number of adult natives 16-plus not in the labor force actually increased by 693,000 over the last year, November 2013 to November of 2014.
• Compared to November 2007, the number of adult natives not in the labor force is 11.1 million larger in November of this year.
• In total, there were 79.1 million adult natives and 13.5 million adult immigrants not in the labor force in November 2014. There were an additional 8.6 million immigrant and native adults officially unemployed.
• The percentage of adult natives in the labor force (the participation rate) did not improve at all in the last year.
• All of the information in BLS Table A-7 indicates there is no labor shortage in the United States, even as many members of Congress and the president continue to support efforts to increase the level of immigration, such as Senate bill S.744 that passed in the Senate last year. This bill would have roughly doubled the number of immigrants allowed into the country from one million annually to two million.
• It will take many years of sustained job growth just to absorb the enormous number of people, primarily native-born, who are currently not working and return the country to the labor force participation rate of 2007. If we continue to allow in new immigration at the current pace or choose to increase the immigration level, it will be even more difficult for the native-born to make back the ground lost in the labor market.

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Problem is: who’s going to buy all that stuff?

Go West, Young Han (Asia Times)

November 18, 2014: it’s a day that should live forever in history. On that day, in the city of Yiwu in China’s Zhejiang province, 300 kilometers south of Shanghai, the first train carrying 82 containers of export goods weighing more than 1,000 tons left a massive warehouse complex heading for Madrid. It arrived on December 9. Welcome to the new trans-Eurasia choo-choo train. At over 13,000 kilometers, it will regularly traverse the longest freight train route in the world, 40% farther than the legendary Trans-Siberian Railway. Its cargo will cross China from East to West, then Kazakhstan, Russia, Belarus, Poland, Germany, France, and finally Spain. You may not have the faintest idea where Yiwu is, but businessmen plying their trades across Eurasia, especially from the Arab world, are already hooked on the city “where amazing happens!” We’re talking about the largest wholesale center for small-sized consumer goods – from clothes to toys – possibly anywhere on Earth.

The Yiwu-Madrid route across Eurasia represents the beginning of a set of game-changing developments. It will be an efficient logistics channel of incredible length. It will represent geopolitics with a human touch, knitting together small traders and huge markets across a vast landmass. It’s already a graphic example of Eurasian integration on the go. And most of all, it’s the first building block on China’s “New Silk Road”, conceivably the project of the new century and undoubtedly the greatest trade story in the world for the next decade. Go west, young Han. One day, if everything happens according to plan (and according to the dreams of China’s leaders), all this will be yours – via high-speed rail, no less. The trip from China to Europe will be a two-day affair, not the 21 days of the present moment. In fact, as that freight train left Yiwu, the D8602 bullet train was leaving Urumqi in Xinjiang Province, heading for Hami in China’s far west.

That’s the first high-speed railway built in Xinjiang, and more like it will be coming soon across China at what is likely to prove dizzying speed. Today, 90% of the global container trade still travels by ocean, and that’s what Beijing plans to change. Its embryonic, still relatively slow New Silk Road represents its first breakthrough in what is bound to be an overland trans-continental container trade revolution. And with it will go a basket of future “win-win” deals, including lower transportation costs, the expansion of Chinese construction companies ever further into the Central Asian “stans”, as well as into Europe, an easier and faster way to move uranium and rare metals from Central Asia elsewhere, and the opening of myriad new markets harboring hundreds of millions of people. So if Washington is intent on “pivoting to Asia,” China has its own plan in mind. Think of it as a pirouette to Europe across Eurasia.

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What did it say, exactly?

The Fed’s Too Clever By Half (Guy Haselmann, Scotiabank)

Yesterday I received an email from a well-known hedge fund manager which in its entirety read as follows: “At the end of the day, the Fed is confused and confusing, so if you spend too much time addressing their comments you end up confusing as well”. In this light, I will detail one observation in this note that leaves me to conclude that the post-FOMC market reaction is farcical. Bear with me while I explain. The FOMC meeting was slightly hawkish for two simple reasons.

1) The Fed slightly moved forward its time frame for the first rate hike to the April-June time frame when Yellen stated, “It is unlikely the Federal Open Market Committee will raise rates for at least the next couple of meetings”. This statement is indeed wishy-washy enough as to allow the Fed flexibility around the comment; nonetheless, the center point for ‘lift-off’ was moved forward.

2) Yellen said the drop in the price of oil would have a transitory effect on inflation and was seen as “tax cut” for the consumer and businesses.

These were the only new pieces of information that emerged from the meeting. How would a day-trader have reacted in normal markets? The US dollar would have risen. Oil would have fallen despite the rise in the dollar. The front end of the Treasury market would have dropped (i.e. higher yields). And, equities would have gone down. All of these occurred except for equities which exploded higher in wild grab-fest fashion. Why? The explanation centers around the fact that the Fed left the words “considerable period” in the statement, even though the Fed changed how it used those words. Many headlines read, “Fed kept considerable period”. This is misleading. The FED did NOT say that it “expects to maintain the target range for the federal funds rate for a consider time”. Rather, the Fed kept the original language that it expects to maintain the target…..for a considerable time following the end of its asset purchase program in October. There is a big difference between the two.

Why make it backward looking? Using the statement in this manner is no different than saying, ‘we still believe what we said at the last meeting’. The markets already knew the Fed expected rates to be maintained after the end of QE, but what about its assessment from today forward? They actually even changed how the words “considerable time” were used to make them completely meaningless. They wanted to emphasize the word “patient” (even though the market already knew it would be patient). In order to keep the “considerable time” words, the FOMC said its patience is consistent with that earlier statement of “consider time”. If they did not do this in order to purposefully make sure those exact words were in the statement, then the entire sentence is completely meaningless.

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Women and children first, Cameron’s favorite victims.

Women To Take Brunt Of UK Welfare Cuts (RT)

New analysis has shown that women will suffer the most from a freeze in tax credits and benefits that the Chancellor, George Osborne, has said will be introduced if the Tories win the general election. Labour commissioned the research from the House of Commons Library after Osborne announced in September that he would save £3 billion a year by freezing working age benefits, which Labour say would hit 10 million households. Labour has consistently said that freezes and cuts to working age benefits hit women the hardest as large numbers of women are in part time work and because of child care they have to rely more on tax credits.

The analysis showed that Osborne’s plan would save up to £3.2 billion by 2018 and that £2.4 billion of these savings will be provided by women compared to just £800 million by men. “These figures show how, once again, women will bear the brunt of David Cameron’s and George Osborne’s choices. This follows four years of budgets, which have taken six times more from women than men – even though women earn less than men,” said the Labour shadow chancellor, Ed Balls. Balls said that 3 million working people will be worse off because of the proposed cut in tax credits; in reality the freeze will cost a one-breadwinner family £500 a year. Labour is pushing hard to convince voters that their way of dealing with the deficit is fairer and less damaging than the Tories.

They have said consistently that the deficit must be tackled but not in a way that hits the working poor. They have also said that the wealthy must do more and have said the 50p higher rate of income tax would be restored if they win the election. Labour’s announcement comes after a report compiled in September that called on the government to produce a “plan F” to tackle the deficit after it found that women were bearing a disproportionate amount of the burden. The Women’s Budget Group (WBG) found that single parents and single pensioners had lost the most from cuts that were being made to benefits and public services.

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Be an asshole.

How To Get Ahead At Goldman Sachs (Jim Armitage)

The Christmas break approaches but a select handful of Goldman Sachs rainmakers are counting down the clock to New Year’s Day – and a life of prosperity of which they only dared to dream. For these are the Goldmanites who have just been told they have made the grade as partners – a near-Olympian status that they take on from 1 January. There are 78 of them this year – 78 of the brightest, most ambitious and most driven men and women in the financial world. Goldman’s partnership-selection process is the stuff of legend in the City and on Wall Street. Once every two years, a pool of potentials is selected, then the candidates are evaluated by every partner with whom they have worked around the world in a process known as “crossruffing” – named after a cunning cardplayer’s move in bridge. The evaluations are, of course, completely confidential. Partnership selection is one of the secret ingredients that give Goldman its edge – that and paying the biggest bonuses on the block, of course.

As far as I’m aware, details of the testimonials from partners about their candidates have never been seen outside the firm. So it was quite a rarity to unearth an internal note of one the other week. It’s from a few years back – the 2008 partnership selection to be precise – but the process has remained the same for decades. So thrusting young Goldman executives aspiring to make the grade like CEO Lloyd Blankfein did all those years ago, read on. The bank stresses that selections are made according to candidates’ leadership qualities, teamwork, appreciation of “the significance of clients” – the usual stuff. But the testimonial memo makes the core message clear: this guy is great because he has an unnerving ability to make money for Goldman Sachs. Big money. And he makes this cash off the backs of the pension funds of the likes of you and me.

The banker, who is a well-known figure in his niche of the City, joined Goldman in the late 1990s, going on to be promoted to work in various divisions along the way. “Notable transactions”, the testimonial memo says, included making a killing (my words, not theirs) in helping to reorganise the pension-fund investments of WH Smith and Rolls-Royce not long before the global financial crisis hit. In the case of WH Smith, the memo says, he helped switch its pension pot from being invested in “cash equity and bonds” to “almost 100% synthetics” – derivatives contracts mainly of the type known as swaps. The trade was aimed at making the pension fund’s value less prone to being boosted or slashed by the vagaries of the financial markets. At the time, the deal was pretty famous – “innovative” was how pension fund trustees put it. It was certainly an innovation in the amount of money our banker helped Goldman make arranging the trade: “a total P&L [profit] exceeding $70m”, the memo says.

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The Citi-written legislation passed this week.

Derivatives And Mass Financial Destruction (Alasdair Macleod)

Globally systemically important banks (G-SIBs in the language of the Financial Stability Board) are to be bailed-in if they fail, moving the cost from governments to the depositors, bondholders and shareholders. There are exceptions to this rule, principally, small depositors who are protected by government schemes, and also derivatives, so the bail-in is partial and bail-out in these respects still applies. With oil prices having halved in the last six months, together with the attendant currency destabilisation, there have been significant transfers of value through derivative positions, so large that financial instability may result. Derivatives are important, because their gross nominal value amounted to $691 trillion at the end of last June, about nine times the global GDP. Furthermore, the vast bulk of them have G-SIBs as counterparties.

The concentration of derivative business in the G-SIBs is readily apparent in the US, where the top 25 holding companies (banks and their affiliated businesses) held a notional $305.2 trillion of derivatives, of which just five banks held 95% between them. In the event of just one of these G-SIBs failing, the dominoes of counterparty risk would probably all topple, wiping out the financial system because of this ownership concentration. To prevent this happening two important amendments have been introduced. Firstly ISDA, the body that standardises over-the-counter (OTC) derivative contracts, recently inserted an amendment so that if a counterparty to an OTC derivative contract fails, a time delay of 48 hours is introduced to enable the regulators to intervene with a solution. And secondly, derivatives, along with insured deposits, are to be classified as “excluded liabilities” by the regulators in the event of a bail-in.

This means a government that is responsible for a G-SIB’s banking license has no alternative but to take on the liability through its central bank. If it is only one G-SIB in trouble, for example due to the activities of a rogue trader, one could see the G-SIB being returned to the market in due course, recapitalised but with contractual relationships in the OTC markets intact. If, on the other hand, there is a wider systemic problem, such as instability in a major commodity market like energy, and if this instability is transmitted to other sectors via currency, credit and stock markets, a number of G-SIBs could be threatened with insolvency, both through their lending business and also through derivative exposure. In this case you can forget bail-ins: there would have to be a coordinated approach between central banks in multiple jurisdictions to contain systemic problems. But either way, governments will have to stand as counterparty of last resort.

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Stockman on that same legislation.

David Stockman Interview: The Case For Super Glass-Steagall (Gordon T. Long)

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This should resound with many of you.

There Is Hope In Understanding A Great Economic Collapse Is Coming (Snyder)

If you were about to take a final exam, would you have more hope or more fear if you didn’t understand any of the questions and you had not prepared for the test at all? I think that virtually all of us have had dreams where we show up for an exam that we have not studied for. Those dreams can be pretty terrifying. And of course if you were ever in such a situation in real life, you probably did very, very poorly on that test. The reason I have brought up this hypothetical is to make a point. My point is that there is hope in understanding what is ahead of us, and there is hope in getting prepared. Since I started The Economic Collapse Blog back in 2009, there have always been a few people that have accused me of spreading fear.

That frustrates me, because what I am actually doing is the exact opposite of that. When a hurricane is approaching, is it “spreading fear” to tell people to board up their windows? Of course not. In fact, you just might save someone’s life. Or if you were walking down the street one day and you saw someone that wasn’t looking and was about to step out into the road in front of a bus, what would the rational thing to do be? Anyone that has any sense of compassion would yell out and warn that other person to stay back. Yes, that other individual may be startled for a moment, but in the end you will be thanked warmly for saving that person from major injury or worse. Well, as a nation we are about to be slammed by the hardest times that any of us have ever experienced.

If we care about those around us, we should be sounding the alarm. Since 2009, I have published 1,211 articles on the coming economic collapse on my website. Some people assume that I must be filled with worry, bitterness and fear because I am constantly dealing with such deeply disturbing issues. But that is not the case at all. There is nothing that I lose sleep over, and I don’t spend my time worrying about anything. Yes, my analysis of the global financial system has completely convinced me that an absolutely horrific economic collapse is in our future. But understanding what is happening helps me to calmly make plans for the years ahead, and working hard to prepare for what is coming gives me hope that my family and I will be able to weather the storm.

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