Aug 262019
 


Joan Miro The farmer’s wife 1923

 

In Jackson Hole on Friday, Bank of England’s outgoing governor Mark Carney talked about a Synthetic Hegemonic Currency (SHC) that the world ‘must’ create, and I thought: that sounds as creepy as anything Halloween. Now, Carney is a central banker as well as a former Giant Squid partner, hence a certified cultist, but still.

He even mentioned Facebook’s Libra ‘currency’ as some sort of example for something that should replace the US dollar internationally. And that replacement is allegedly needed because countries are hoarding dollars. And/or “protecting themselves by racking up enormous piles of dollar-denominated debt.” Whichever comes first, I guess?!

I’ve read quite a few comments on Carney’s speech, but far as I’ve seen they all ignore one aspect of it: the current shape and form of globalization. See, Carney can see only one thing: more centralization, more things moving more in the same direction. Remember, he’s the man who with Michael Bloomberg in 2016 wrote “How To Make A Profit From Defeating Climate Change”. Aka things are worth doing only if they make you richer.

It’s a state of mind that works fine when you’re inside a system and an echo chamber, when you’re a central banker or a corporate banker. But there’s nothing that indicates it’s a useful state of mind when the system you’re serving must undergo change. What is as true when it comes to climate change as it is for changing the entire global economy. Carney’s got blinders on.

 

World Needs To End Risky Reliance On US Dollar: BoE’s Carney

Carney [..] said the problems in the financial system were encouraging protectionist and populist policies. [..] Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes in the banking system. As a first step to reorder the world’s financial system, countries could triple the resources of the IMF to $3 trillion as a better alternative to countries protecting themselves by racking up enormous piles of dollar-denominated debt.

In other words, to reorder the world’s financial system, you must put a ton of money into a fund that has served (and failed) to uphold the old system. Really?

“While such concerted efforts can improve the functioning of the current system, ultimately a multi-polar global economy requires a new IMFS (international monetary and financial system) to realize its full potential,” Carney said. China’s yuan represented the most likely candidate to become a reserve currency to match the dollar, but it still had a long way to go before it was ready. The best solution would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.

There is no doubt that the present system is a little off balance, that the USD’s role in the financial system is way bigger then America’s share of global trade. But the yuan is completely unfit as a reserve currency because it’s not freely traded. And whether “technology” could “provide a diversified multi-polar financial system” (quite the statement) is very much in question. Perhaps that is true in theory, but Carney’s claims are not only about theory -anymore-.

Facebook’s Libra was the most high-profile proposed digital currency to date but it faced a host of fundamental issues that it had yet to address. “As a consequence, it is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies,” Carney said.

 

The most fundamental issue about Libra would appear to be that it doesn’t exist. Then there are a whole slew of other issues, like why should Facebook and its partners play any role at all in finance. Because they’re such benign enterprises who focus on guarding your privacy? Why Carney would present it as a potential ‘solution’ is totally unclear, other than Libra is something that could fit inside his echo chamber.

I’m still nervous about crypto, too many things still go wrong, too many thefts, too many things too many people don’t understand. But I would support Bitcoin over Carney’s “network of central bank digital currencies” any day. Because that’s the creepiness of this “Synthetic Hegemonic Currency” in all its infamy.

Carney and his echo chamber banker mates seek control, we get it. But that doesn’t mean we want them to have it. Look at the present system, which they created, and the failure of which necessitates the creation of yet another system. And then they want to control that one too?

 

But that’s still all a bit of a sideshow. I’m thinking Carney is not just wearing blinders, he’s simple too late. The globalization that his proposals might serve is already past its peak. He may not be able to see beyond it, but we should.

Globalization is a process, it’s something that moves, it can’t stand still. And now that it’s fully reached China, there’s nowhere else for it to go. Sure, there are some smaller countries that might be willing to produce at even lower prices, like Vietnam or Cambodia, but they could never do it at the same scale as China has.

The same goes for Africa. Moving the entire manufacturing capacity to Africa that was transferred from the west to China starting 20-30 years ago, would be such a logistical nightmare nobody would seriously consider it, And so we have come to a standstill. Globalization can no longer move, because it has nowhere to move to. The world is as fully globalized as it ever will be. But globalization is a process.

Perhaps counterintuitively, the only thing it can really do is to move back. For a number of different reasons, I think that’s exactly what will happen. And I don’t think that’s all that bad. Trump is of course already preparing part of that move with his tariffs war. But it can, and I’m quite sure will, go much further.

If globalization only means, and is restricted to, the transfer of manufacturing anything and everything from the US and Europe to China, and that’s what it appears to mean, the drawback for the former(s) is painfully obvious. So is the one for the planet.

 

It may make sense to produce high end products, like intricate complex electronics, in one location in the world, but why on earth should China produce our underwear? Yeah, they can do it cheaper, sure, but the main effect of that is it kills our jobs. The narrative about this over the past few decades has been that we were building a ‘knowledge economy’ or a ‘service economy’, but that’s a whole lot of BS.

Not only do we now depend on China to make our underwear, all those panties and shorts and shirts have to be hauled halfway across the planet by fossil-fuel-powered behemoth container ships. While we could make them right where we live, pay people a living wage to do it, and lower pollution in the process. Not a hard choice, even if your boxers would cost a dollar more.

And whether you worry about the planet and climate and species extinction or not, enough people do to make it an ever growing factor in decision making on these topics. And there’s more. Henry Ford understood it: people must be paid enough to afford your products if your business is to be successful. The whole “globalization” towards lower wage countries has not only lowered prices in the US and Europe, but also wages.

And that in turn has opened the way towards higher pay for executives, higher stock prices and dividends etc., in other words towards more inequality. Very few people understand the mechanics that drive this, but more of them will and must as their wages become the same as those in China.

 

So anyway, Mark Carney’s grand Synthetic Hegemonic plans are too little too late. Not that that will keep him from blabbing about them, he represents the ruling classes after all, which are doing just fine and would like to be doing even finer. But even he, and they, cannot deny that globalization is like a shark that dies when it can no longer move. Scary movie title: Globalization Never Sleeps…

And Trump plays his role in this just dandy. Not that he’s the smartest guy around, far from it, but he does recognize how globalization hurts America. And that China, a third world country not long ago, is now perhaps the world’s largest economy and will have to be subject to entirely different rules and scrutiny than in, say, 1980.

China must open up its economy to US and EU products, or the latter must close theirs to what China produces. That’s what the trade war, and/or the currency war, the whole enchilada, is about. And perhaps it needed an elephant like Trump to say it, but that’s not important. The entire world economy has reached the limits of its lopsided-ness , and the imbalance must be fixed. Simple stuff.

I’ve been using underwear as an example, but we all know -or we could- how much of what we purchase daily comes from China. Well, that, too, like globalization, and because of it, has reached its peak. We will make our own underwear again. It that a bad thing? How? Henry Ford would have understood it is not, even if he might have been the first to move his production lines to Shenzhen if he would have had the option.

Ford understood the link between prices and wages, but that knowledge appears to be gone. Except perhaps in China, but their model relies exclusively on exports and that can’t last either. Ford sought to sell his cars to his own workers. Which is just about the very opposite of what today’s financial elites are after, and why Carney wants a -belated- Synthetic Hegemonic Currency.

See the point? I predict Carney and his ilk will propose a cloud-based world currency soon, ‘guaranteed’ by -probably- the IMF’s Special Drawing Rights (SDR), but that is totally unfit for the role they have in mind.

Because you don’t need such a currency to pay for the underwear that’s produced by your neighbors just down the road. You only need it for the underwear that comes from China.

 

 

 

 

Aug 082019
 


Piet Mondriaan New York City I 1942

 

Globalization As We Know It Will Not Survive Trump (G.)
The Technological Revolution Devours its Children (Dmitry Orlov)
Donald Trump More Popular Today Than In 2016 (Raw)
New York Times Stock Price Has Soared During Trump’s Presidency (R.)
MMT May Be Democrats’ Economic Cure, But Only Trump Got The Memo (R.)
New Rebel Bid To Halt No-Deal Brexit Amid Fury At PM’s Enforcer (G.)
Deal Or No Deal? It’s Not Really Up To Dominic Cummings (G.)
The Super-Rich Have Made Britain Into A Nation Of Losers (G.)
Airlines Complain Boeing’s Production Standards ‘Way Below Acceptable’ (BI)
An Open Invitation to Tyranny (PCR)
Chelsea Manning Jailed For a YEAR For Refusing To Testify Against Assange (RT)
Tightening Nickel Supply Threatens Electric Vehicle Boom (SH)
Apocalypse Now: Final Cut (G.)
Explosion of Toxic Pesticide Use Causes Insect Apocalypse in US (CD)

 

 

“And That’s A Good Thing..”

Globalization As We Know It Will Not Survive Trump (G.)

The significance of the trade war between China and the US goes well beyond the impact of tit-for-tat tariffs, or which of two self-styled strongmen wins the bragging rights. As was the case in the 1930s, the seemingly inexorable drift towards protectionism is part of a deeper crisis of the international status quo. When Beijing this week accused the US of “deliberately destroying the international order”, it was really saying that US hegemony will no longer go unchallenged. Globalisation as we have known it is coming to an end and that’s by no means unwelcome.

Hailed as the ultimate in human progress, a model based on loosening the controls on capital and the construction of global supply chains has spawned recurrent financial crises, fostered corrosive inequality and worsened the climate emergency. True, millions of people have been lifted out of poverty in the past 25 years, but most of them live in a country – China – that has kept the market at arm’s-length. The world’s stock markets see things differently. They tremble every time Donald Trump tweets a paean to protectionism. Likewise, multinational corporations fret about the possible damage that trade barriers might cause to global supply chains. It is clear that those who have done best out of globalisation tend to be the rich and powerful, and they are not going to give up their privileges without a fight. Nothing in this is new.

Throughout history there have been successive waves of globalisation followed by a backlash when the model over-reached itself. This is one of those occasions and all the ingredients are in place for a struggle between the defenders of the status quo and those who say that recent trends in politics, technology and the climate point to the need for a new world order focused more on local solutions, stronger nation states and a reformed international system. It’s quite a stretch to imagine that Trump has this in mind when he is bashing China, but the economic crisis of the 1930s – of which protectionism was one part – led eventually, albeit after the war, to reforms that made the world a sounder and safer place.


Illustration: Thomas Pullin

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“..once your savings are depleted and your debts are maxed out, you are cast out into the howling wilderness roamed by various troglodytes—those the information revolution has already eaten as well as those who were never on the menu.”

The Technological Revolution Devours its Children (Dmitry Orlov)

As the famous movie quote goes, “If you can’t spot the sucker in your first half hour at the table, then you are the sucker” (From John Dahl’s 1988 film Rounders). Another famous quote, all the way back from the French Revolution, is “The revolution, like Saturn, devours its own children” (said by Danton at his trial). If you can’t spot the resource for your next technological revolution, then you are the resource. Look at all the previous technological revolutions. In each case, a new technology opened up for exploitation a new, superabundant resource: agriculture—arable land; mechanical spinning and weaving—water power; steam engine and steelmaking—coal; internal combustion engine—oil; artificial intelligence-based robonanobiotronics—still oil?

Sorry, that’s no longer overabundant by any stretch of the imagination. (If you said “renewable energy” then think again: wind turbines, solar panels and battery banks can’t be made or maintained without oil and natural gas.) Technology without a superabundant resource it can tap into is as useful as a spoon if your bowl is empty. The logic is simple: spot the resource; if you can’t, it’s probably you. Let’s focus on what’s supposed to be the main pillar of the next technological revolution: information technology. Most of us have smartphones, laptops, store our data in the cloud and make use of abundant and free information resources—all the free apps you want, free blogging, free Youtube videos, etc. But what new resource has all this technology opened up for you, the user?

The hardware costs you money (the average iPhone now costs around 800 USD) and the time you spend fiddling around with it is subtracted from all the other, potentially useful and gainful activities. You could try arguing that having an iPhone makes you more efficient because you have all the information and communications technology you could possibly need right at your fingertips. That point is hard to deny. I recently recorded a radio interview for a radio station in upstate New York while strolling about among the potato blossoms on my field in the Novgorod region of Russia via the internet and a 4G connection via a tower in the neighboring village. That’s nothing short of miraculous, and it’s certainly efficient (my smartphone is 7 years old, fully amortized a long time ago and still as good as new now that I’ve replaced every single mechanical component, sometimes twice). But is it effective?

The smartphones are generally effective in making their users spend money that they may or may not have on things they may or may not need. All of the free access to information is paid for by collecting data on users (spying, basically) and using it to create targeted ads that turn users into online shoppers. Everything is highly customized: women look at pictures of shoes; men look at pictures of power tools. Both the shoes and the power tools, if purchased, will be used a few times a year at most, but the money will be gone forever. The limiting factor here, of course, is the resource, which is you: once your savings are depleted and your debts are maxed out, you are cast out into the howling wilderness roamed by various troglodytes—those the information revolution has already eaten as well as those who were never on the menu.

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Depends on who you ask.

Donald Trump More Popular Today Than In 2016 (Raw)

President Donald Trump’s administration has been mired in controversy after controversy, from his racist remarks to the Mueller report–which stopped short of clearing him of obstruction of justice. His policies, such as child separation at the border and his trade wars with China, are divisive. Yet, new numbers seem to show that he’s actually more popular today than he was in 2016, according to polling expert Nate Cohn. “The share of Americans who say they have a favorable view of him has increased significantly since the 2016 election,” Cohn writes. “And over the last few months, some of the highest-quality public opinion polls, though not all, showed the president’s job approval rating — a different measure from personal favorability — had inched up to essentially match the highest level of his term.”

This doesn’t guarantee Trump re-election. “The increase in his support since 2016, and the possibility that it continues to move higher, does not necessarily make him a favorite to win re-election. His job approval ratings remain well beneath 50 percent, and have never eclipsed it.” It should be noted that Cohn is relying on two polls, Gallup and YouGov, which show that he is more popular today than in 2016. And according to the website fivethirtyeight.com, which aggregates polling data, only 42.2 percent of Americans polled approve of Donald Trump, while 53.1 disapprove.

But, Trump’s surge in popularity since 2016 is clearly something his democratic challengers need to keep in mind. Of course, Democrats might benefit from a more popular candidate than they had in 2016,” Cohn writes. “Hillary Clinton was an unusually unpopular candidate, surpassed only by Mr. Trump in this regard in the modern era of polling. But an analysis that freezes the president’s standing in 2016 but assumes an improvement for the Democratic nominee would be misleading.”

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Cui bono. Inventing Russiagate out of thin air has paid off handsomely.

New York Times Stock Price Has Soared During Trump’s Presidency (R.)

Lieutenant Colonel Bill Kilgore concludes his “Apocalypse Now” soliloquy about the smell of napalm in the morning wistfully: “Someday this war’s gonna end.” The remark suggests the officer played by Robert Duvall is enjoying the conflict in Vietnam. Despite some recent friendly fire, New York Times commander-in-chief Mark Thompson could be forgiven for feeling similarly about his newspaper’s combat with U.S. President Donald Trump. Few companies have so directly benefitted from Trump’s tumultuous first term in office as the Times. Thanks to a boom in digital-subscription sales linked to the paper’s aggressive coverage of the administration’s many foibles, its shares have outperformed those of nearly every company investors pegged as those likely to suffer or benefit from a Trump presidency.

From around $11 at the time of his election, Times stock has soared to more than $35. That trumped the runup in Wall Street firms, such as Goldman Sachs and Morgan Stanley, whose bottom lines were fattened by tax cuts. Times shares even dusted those of Facebook, the bête noire of all traditional publishers. As of Tuesday, the Manhattan-based company’s $5 billion market value was greater than the combined worth of America’s two biggest for-profit prison operators, whose fortunes were meant to soar under a law-and-order presidency. This background helps in interpreting a set of lousy second-quarter results, and a kerfuffle this week over a poorly conceived front-page headline. The Times added 197,000 net new digital-only subscriptions – bringing total subscribers to 4.7 million, nearly halfway to its 2025 goal of 10 million.

A shortfall in revenue, though, and a warning of greater challenges ahead, took nearly 20% off the Times share price on Wednesday. That came days after amending a headline related to the president’s response to two mass shootings over the weekend failed to stop a barrage of criticism, much of it from Trump’s Democratic opponents, and calls on social media to cancel subscriptions. The top-line miss had nothing to do with the headline skirmish, whose impact would appear in this quarter. But they are not unrelated. The risk for the Times is that any whiff of normalizing its coverage of the president might damage the brand that has fueled its subscription drive since 2016. One dopey headline is survivable, so long as the war shows no sign of ending.

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MMT is not going to go away.

MMT May Be Democrats’ Economic Cure, But Only Trump Got The Memo (R.)

From her home overlooking Setauket Harbor on Long Island’s North Shore, a motorboat bobbing at the dock, Stephanie Kelton hopes to revolutionize how the U.S. government manages the economy. It isn’t always a pleasant task. A key figure in the “Modern Monetary Theory” economic camp, her assertions that the federal government could spend freely for things like a jobs guarantee or Green New Deal without risking runaway inflation, a debt default or a clubbing by global creditors have been Twitter-bombed by mainstream economists as left-wing free lunchism. Proponents of MMT have been called fanciful for the notion that the U.S. Congress, which typically struggles to pass an annual budget, could with smart budgeting and regulation take over the Federal Reserve’s job of controlling inflation.


And even Kelton, an economics professor at Stony Brook University in New York and an adviser to Senator Bernie Sanders’ presidential campaign, is a bit thrown by the fact that the person who appears closest to accepting her argument is President Donald Trump, whose Republican Party has traditionally touted an adherence to fiscal discipline. Trump and Republicans in Congress, she said, “did not allow perceived budget constraints to stand in their way” of a $1.5 trillion tax cut package which was passed in late 2017 and pushed the federal debt beyond $22 trillion. Democrats now seem ready to get in the game. Lawmakers from both parties recently reached a federal spending deal that is expected to raise the federal deficit by $2 trillion over the next two years, and Democrats lining up to run against Trump in 2020 have largely avoided talk of fiscal restraint so far in the campaign.

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Told ya: “One Conservative insider said that Cummings had in effect demanded control over Johnson’s operation as his price for entering government..”

New Rebel Bid To Halt No-Deal Brexit Amid Fury At PM’s Enforcer (G.)

Rebel MPs are working on a plan to thwart Boris Johnson pursuing a no-deal Brexit on 31 October that involves forcing parliament to sit through the autumn recess, amid growing outrage about the power and influence of his controversial aide, Dominic Cummings. The cross-party group of MPs is looking at legislative options with mounting urgency because of the hardline tactics of Cummings, who one Conservative insider described as running a “reign of terror” in No 10 aimed at achieving Brexit on 31 October at any cost. Three MPs have told the Guardian that one method under discussion is for members to amend the motion needed for parliament to break for party conferences in mid-September.

This could give MPs another three weeks of sitting time to stop a no-deal and potentially open the door for days to be set aside for rebels to control parliamentary business. The ultimate aim would be to pass a bill forcing the government to request an extension to article 50 from Brussels. Since joining Johnson’s administration, Cummings has told government advisers that No 10 stands ready to do whatever is necessary to bring about Brexit on 31 October – deal or no deal. This could include proroguing parliament, or ignoring the result of any no-confidence vote in Johnson and calling a “people v politicians” general election – to be held after the UK had left the EU.

However, it is understood that alarm is mounting within No 10, among some special advisers and Tory MPs about the scale of Cummings’ influence and willingness to defy parliament. One Conservative insider said that Cummings had in effect demanded control over Johnson’s operation as his price for entering government and proceeded to sideline more moderate advisers, such as ex-City Hall stalwart Sir Eddie Lister, while installing a team of “true believers” in hard Brexit largely from the former Vote Leave campaign.

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Are you sure?

Deal Or No Deal? It’s Not Really Up To Dominic Cummings (G.)

Yet it would be as much of a mistake to dismiss Cummings as to exaggerate his mastery. He has certainly brought two weeks of focus to the Johnson government by making the Halloween deadline a non-negotiable centrepiece. He has changed the political conversation from Brexit or people’s vote to deal or no deal. Depending on events in the early autumn, he is clearly gearing up for a possible general election shortly afterwards. But Cummings does not control events. He is not Prospero, able to conjure up a tempest that delivers his enemies into his hands. He is having a good run, but he is helped by the most irresponsible parliamentary summer recess of modern times.

Even now MPs should be aiming to get back to Westminster and hold the government to account before the planned return on 3 September. They should scrap this year’s party conferences too. Cummings is also only one player. The idea that he pulls all the strings is lazy and wrong. The Brexit outcome depends on a tangled web of interests and influences beyond his control. These include everything from the role of the Queen to the hoarding of toilet rolls. In particular, it depends on events in the real economy, in parliament, in the courts, in Northern Ireland, Scotland and the Irish Republic, in the EU and in Johnson’s own head.

Those who take a Cummings-fixated view of the options find it is easier to forget this. They say the government’s aim is to crash out with no deal on 31 October and nothing will stand in the way. But that is not quite what Johnson and some of his ministers say. They say, still, that a deal is one possibility, perhaps a remote one, and that the UK government is even now looking for a deal with the EU in the next 12 weeks.

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“..people whose incomes sit a few zeroes above their value to society.”

The Super-Rich Have Made Britain Into A Nation Of Losers (G.)

Think of a football stadium. Not one of the vast caverns like Old Trafford or Wembley, but somewhere rather smaller and more bijou. Somewhere like Fulham’s Craven Cottage, which, once its new stand is completed, will pack in only about 30,000 fans. Now imagine this stadium of 30,000 souls rising up into the air and hovering unnoticed over central London. Thirty thousand men in late middle-age living the high life with the capital at their feet – and there, stuck way below on terra firma are their 66 million fellow Britons, tearing lumps out of each other. Congratulations: you’ve just pictured the central problem stalking the UK today. Not Brexit. Not the breakdown in civil debate. Not the dark money contaminating Westminster.

These are urgent and vitally important, but there is one big factor that forms a large part of the backdrop to all of them. It can be summed up by that gulf between a mid-sized football stadium of super-rich men in their 50s, and the rest of us spread out across our suburbs, our towns, our unpretty stretches of urban sprawl. That football stadium represents the top 0.1% of earners in the UK. To join their ranks, numbering just 31,000, you’d need a taxable income of at least £650,000 a year – £12,500 per week. In less than a fortnight, you would easily pull in more than the average Briton makes as taxable income over a whole year. But then, those drudges are the earthbound while you, as the old song out of Mary Poppins puts it, live in an entirely different realm: “Up to the highest height! … Up through the atmosphere! / Up where the air is clear!”

The stratospherically rich are among the subjects of a new report by the Institute for Fiscal Studies. An analysis of the tax returns of the highest earning Britons, it shows in uncompromising detail just how our money has ended up in fewer and fewer hands based in less and less of the country. Almost half the super-rich live in London and nearly 90% of them are men. What’s more, they often end up paying a lower tax rate than the pay-as-you-earn mugs like you and me. The generous breaks given by politicians to encourage entrepreneurship, innovation and risk-taking are instead exploited by partners in City law firms and big accountancies and at hedge funds – people whose incomes sit a few zeroes above their value to society.

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It’s not just the 737 MAX. It’s Boeing itself.

Airlines Complain Boeing’s Production Standards ‘Way Below Acceptable’ (BI)

Airlines flying Boeing’s 787-10 Dreamliner have complained to the plane maker about “unacceptable” production mistakes and inconsistent quality. The problems center around Dreamliners built at Boeing’s North Charleston, South Carolina, factory, according to a report from The Post and Courier. Issues at the North Charleston plant were reported in April in a comprehensive New York Times investigation, which found evidence of shoddy production, poor oversight, and a culture that “made speed a priority over safety.” The report came a month after Boeing’s 737 Max jet was grounded worldwide after the second fatal crash in five months. The Department of Justice expanded an inquiry into the 737 Max to include issues at the North Charleston factory in June.


The new report surfaced complaints from a global cadre of airlines that fly the jet and have received orders from the South Carolina plant, one of two locations where the Dreamliner is assembled — other orders are built at Boeing’s Everett, Washington, factory. While the issues are not limited to either the South Carolina plant or the 787 — similar problems have been raised in Everett with both 787s and military tankers — the complaints surfaced by The Post and Courier focus on recent deliveries of Boeing’s newest and largest variant of the Dreamliner, the 787-10. It was not immediately clear whether the airlines made similar complaints about other variants of the plane, including the 787-8 and 787-9.

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Paul Craig Roberts on an FBI document that talks about “official” and “prevailing” explanations of events.

“What the FBI report does, intentionally or unintentionally, is to define a conspiracist as a person who doubts official explanations.”

An Open Invitation to Tyranny (PCR)

The FBI document says that conspiracy theories “are usually at odds with official or prevailing explanations of events.” Note the use of “official” and “prevailing.” Official explanations are explanations provided by governments. Prevailing explanations are the explanations that the media repeats. Examples of official and prevailing explanations are: Saddam Hussein’s weapons of mass destruction, Assad’s use of chemical weapons, Iranian nukes, Russian invasion of Ukraine, and the official explanation by the US government for the destruction of Libya. If a person doubts official explanations such as these, that person is a “conspiracy theorist.”

Official and prevailing explanations do not have to be consistent with facts. It is enough that they are official and prevailing. Whether or not they are true is irrelevant. Therefore, a person who stands up for the truth can be labeled a conspiracy theorist, monitored, and perhaps pre-emptively arrested. [..] Consider Russiagate. Here we have an alleged conspiracy between Trump and Russia that was the official prevailing explanation. Yet, to believe in the Russiagate conspiracy did not make one a conspiracy theorist as this conspiracy was the official prevailing explanation. But to doubt the Russiagate conspiracy did make one a conspiracy theorist.

What the FBI report does, intentionally or unintentionally, is to define a conspiracist as a person who doubts official explanations. In other words, it is a way of preventing any accountability of government. Whatever the government says, no matter how obvious a lie, will have to be accepted as fact or we will be put on a list to be monitored for preemptive arrest. In effect, the FBI’s document reduces the First Amendment, that is, free speech, to the right to repeat official and prevailing explanations. Any other speech is a conspiratorial belief that can lead to the commission of a crime.

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The judge says she can pay the fines, but he’s the only one who thinks that.

Chelsea Manning Jailed For a YEAR For Refusing To Testify Against Assange (RT)

Refusal to testify against WikiLeaks is costing whistleblower Chelsea Manning over $400,000 in fines and another year in jail, after a federal judge ruled that she must pay for what he called contempt of court. Manning was jailed for refusing the subpoena to testify before a federal grand jury seeking additional charges against WikiLeaks and its co-founder Julian Assange, currently imprisoned in the UK. To compel testimony, the government also fined the whistleblower $500 a day, going up to $1000 after 60 days. Judge Anthony Trenga of the federal district court in Alexandria, Virginia shot down Manning’s motion to reconsider sanctions on Monday, the final chance to contest the steep fines.

After a review of “a substantial number of financial records documenting her assets, liabilities, and current and future earnings,” the court found “that Ms. Manning has the ability to comply with the Court’s financial sanctions,” Trenga wrote in his ruling. Though Manning is now deeply in debt and unable to work while in jail, the judge nonetheless concluded the fines were payable and therefore amounted to “coercive” sanctions allowed to compel cooperation or testimony, rather than being a purely punitive measure. “I am disappointed but not at all surprised. The government and the judge must know by now that this doesn’t change my position one bit,” Manning said in response.

She insisted that the fines were in fact punitive, because her inability and unwillingness to pay rendered any “coercive” aspect moot. She has already spent 147 days behind bars and owes $38,000 in fines as of August 7. If she remains jailed for another year, Manning could end up owing $441,000 to the government.

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Not everything scales up.

Tightening Nickel Supply Threatens Electric Vehicle Boom (SH)

For Tesla and its chief competitors in the race for global domination of electric vehicle sales, it ain’t all about lithium ion. There are other valuable metals needed to make the battery packs do what’s asked of them, with nickel being essential. Tesla and its battery producer partners, and other automakers and their suppliers, are worried about the longer-term supply of nickel according to a new study by BloombergNEF. The study predicts that EV makers will be driving demand for nickel about 16 times to 1.8 million tons in the next years. Class-one nickel, a high-purity material used in batteries, is expected to see demand greatly outstrip supply in the next few years. That will be fueled by meeting the large Chinese EV market, and other global markets where demand is expected to grow.


That need for class-one nickel will outstrip supply within five years, according to the study. One problem has been a lack of real investment in new mines for materials including nickel, Tesla’s global supply manager of battery metals, Sarah Maryssael, said at a Washington meeting in May. That could drive up prices as battery demand increases greatly. Tesla CEO Elon Musk is concerned about having enough economically viable — and available — metal to continue meeting its growing electric car demand. That will take off even more as the company taps into China’s booming markets. “They are getting ready to have the new factory in China, and are at full capacity in North America,’’ Peter Bradford, chief executive officer of nickel producer Independence Group NL, said. “They recognize the biggest risk from a strategic supply point of view is nickel.’’

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Kind of mad that this didn’t stop America from sending its young people to be killed and maimed in more jungles and deserts.

Apocalypse Now: Final Cut (G.)

‘Someday this war’s gonna end,” is the sage comment from surf-crazed Wagner enthusiast Lieutenant Colonel Kilgore, brusquely played by Robert Duvall. In fact, when Francis Ford Coppola’s grandiose epic masterpiece Apocalypse Now was first unveiled in 1979, the Vietnam war had only ended four years previously, and the succeeding Cambodian-Vietnamese war (where the film’s climax is set) was in full swing. Coppola’s bad trip into south-east Asia was co-written by John Milius with narration written by Michael Herr. It was inspired by Joseph Conrad’s novel Heart of Darkness, Herr’s own Vietnam reportage-memoir Dispatches and maybe at one further remove by Rudyard Kipling’s lines about the US taking up the white man’s imperial burden.


It was famously an ordeal for all concerned. The production involved a filming expedition in the Philippines that felt hardly less colossal and traumatic to the participants than the actual war, though it became commonplace in Hollywood’s Vietnam for the anguish of American soldiers, not that of the Vietnamese people themselves, to be seen as important. (The nearest that Vietnamese people get to actual importance in Apocalypse Now is the four South Vietnamese intelligence officers, executed by ColKurtz as Communist spies, whose ID cards we briefly see.) Like Lawrence of Arabia, moreover, this is a film without women – or mostly.


Marlon Brando in Apocalypse Now. Photograph: Allstar/United Artists

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“The study found that American agriculture has become 48 times more toxic to insects over the past 25 years and pinned 92 percent of the toxicity increase on neonicotinoids..”

Explosion of Toxic Pesticide Use Causes Insect Apocalypse in US (CD)

The rapid and dangerous decline of the insect population in the United States—often called an “insect apocalypse” by scientists—has largely been driven by an increase in the toxicity of U.S. agriculture caused by the use of neonicotinoid pesticides, according to a study published Tuesday in the journal PLOS One. The study found that American agriculture has become 48 times more toxic to insects over the past 25 years and pinned 92 percent of the toxicity increase on neonicotinoids, which were banned by the European Union last year due to the threat they pose to bees and other pollinators. Kendra Klein, Ph.D., study co-author and senior staff scientist at Friends of the Earth, said the United States must follow Europe’s lead and ban the toxic pesticides before it is too late.


“It is alarming that U.S. agriculture has become so much more toxic to insect life in the past two decades,” Klein said in a statement. “We need to phase out neonicotinoid pesticides to protect bees and other insects that are critical to biodiversity and the farms that feed us.” “Congress must pass the Saving America’s Pollinators Act to ban neonicotinoids,” Klein added. “In addition, we need to rapidly shift our food system away from dependence on harmful pesticides and toward organic farming methods that work with nature rather than against it.” According to National Geographic, neonics “are used on over 140 different agricultural crops in more than 120 countries. They attack the central nervous system of insects, causing overstimulation of their nerve cells, paralysis, and death.” With insect populations declining due to neonic use, “the numbers of insect-eating birds have plummeted in recent decades,” National Geographic reported. “There’s also been a widespread decline in nearly all bird species.”

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Amazon: ~2,700,000 sq mi (7,000,000 km2)

Contiguous US: ~3,100,000 sq mi (8,000,000 km2)

 

 

 

 

 

Sep 092018
 


Vincent van Gogh A Restaurant at Asnieres 1887

 

The ‘Most Striking Development’ In 40 Years Of The US Economy (BI)
This Insider Betrayal Is A Sorry Precedent (Observer ed.)
Argentina, Turkey, Mexico … Fear Of Contagion Haunts Emerging Markets (G.)
No-Deal Brexit Could Lead To “Military On The Streets” (Ind.)
Brexit Talks At Risk Of Collapse (Ind.)
Bombshell Poll Reveals Heavy Union Backing For Second Brexit Vote (G.)
YouGov Poll Shows Support For A People’s Brexit Vote Is Solid (G.)
Fresh From End Of Bailout, Greek PM Announces Tax Breaks (R.)
Protect Assange From US Extradition, Amnesty International Tells UK (RT)
The Latest Incarnation of Capitalism (Jacobin)
What’s The Biggest Influence On The Way We Think? (G.)

 

 

This is going spectacularly wrong. Somone better stop it.

The ‘Most Striking Development’ In 40 Years Of The US Economy (BI)

French economist Thomas Piketty is one of the world’s leading researchers of global income and wealth inequality, and became well-known in the United States when the English translation of his book “Capital in the 21st Century” became a surprise bestseller. For the past year, Piketty has been speaking about the 2018 World Inequality Report, published by the Paris School of Economics’ World Inequality Lab last December. Piketty coauthored the report alongside Facundo Alvaredo, Lucas Chancel, Emmanuel Saez, and Gabriel Zucman. In his talks in the US, Piketty has paid special attention to the following chart, which shows what he and his coauthors called “perhaps the most striking development in the United States economy over the last four decades.”

The authors write that “the incomes of the top 1% collectively made up 11% of national income in 1980, but now constitute above 20% of national income, while the 20% of US national income that was attributable to the bottom 50% in 1980 has fallen to just 12% today.” Further, “while average pre-tax income for the bottom 50% has stagnated at around $16,000 since 1980, the top 1% has experienced 300% growth in their incomes to approximately $1,340,000 in 2014. This has increased the average earnings differential between the top 1% and the bottom 50% from 27 times in 1980 to 81 times today.”

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The Guardian/Observer, leading anti-Trump voice, has a piece ‘Unfit for President, but…” Look, just like the NYT, you no longer are a voice, because you’ve spent two years 24/7 denouncing the man with rumors and half-truths -like you did with Corbyn being anti-semite. You can’t now turn around and be a voice for democracy. You’re done.

This Insider Betrayal Is A Sorry Precedent (Observer ed.)

[..] the president’s discomfort, and his detractors’ glee, should not obscure more serious issues raised by this affair and by similarly critical revelations contained in a new exposé by the celebrated Watergate reporter Bob Woodward. Whatever one’s opinion of Trump, it is a matter of concern that unelected, unnamed officials are apparently willing and able to act in ways contrary to an elected president’s stated wishes and calculated to thwart his policies. Trump’s worst instincts must undoubtedly be resisted, as Barack Obama, rejoining the fight last week, has declared. The best way to achieve that, as ever in a democracy, is through public scrutiny and open debate. Every leader needs candid advisers.

But who are these self-described “adults in the room” to clandestinely decide what is in the best interests of the country? Their motives may be sound, but their illicit actions, boasted of publicly, set a worrisome precedent. They have also gifted Trump a golden opportunity to peddle his favourite narrative of an establishment conspiring against him, aided and abetted by media organisations – which he terms “enemies of the people”. Speaking in Montana on Thursday, he seized his chance. “Unelected, deep state operatives who defy the voters to push their own secret agendas are truly a threat to democracy itself,” he declared.

The anonymous writer tried to provide reassurance that things in the White House are not as bad as they seem. Woodward’s new book, Fear, suggests the exact opposite: they are worse. It describes a “Crazytown” of tantrums, endless crises, serial lying, unhinged behaviour, and an administration in a recurring state of nervous breakdown.

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It’s not so much dominoes falling one by one, it’s the USD that crashes down everything.

Argentina, Turkey, Mexico … Fear Of Contagion Haunts Emerging Markets (G.)

In the past six months, some of the world’s fastest-growing economies have found themselves flat on the floor, gasping for breath and, in one case, seeking help from the global financial rescue centre otherwise known as the IMF. Argentina’s $50bn bailout by the Washington-based lender of last resort is the most extreme event so far, but it sits alongside the dramatic collapse of the Turkish lira, a recession in South Africa and dire economic predictions for the Philippines, Indonesia and Mexico. Making matters worse, the US is poised to slap tariffs as high as 25% on as much as $200bn worth of Chinese goods. If the US goes ahead, Beijing has already threatened to retaliate, which would only incense President Donald Trump further.

This tit-for-tat might only end when tariffs are applied to the entire $500bn of Chinese goods imported by America each year. In response, the stock markets of many developing nations have slumped in value, leaving investors to ask themselves whether they are witnessing an emerging-markets meltdown akin to the Asian crisis of 1997: a panic that wrecked the finances of several hedge funds and proved to be an hors d’oeuvre before the dotcom crash of 1999 and the global financial crisis of 2008. Investors have run for safety to such an extent that the MSCI Emerging Markets index, which measures the value of shares in emerging economies, has tumbled by more than 20% since the beginning of the year.

That slump appeared to be over in July, when Turkey and Argentina were seen as being isolated, and more importantly ringfenced, economic trouble spots. But figures last week showing that the US economy is steaming along like a runaway train – underlining the likelihood of more US interest rate rises – have sent the currencies and stock markets of most emerging-market economies tumbling again. Lukman Otunuga, research analyst at currency dealer FXTM, says that a sense of doom is lingering in the financial markets as fears of contagion from the “brutal emerging-market sell-off” rattle investor confidence. “More pain seems to be ahead for emerging markets as the combination of global trade tensions, prospects of higher US interest rates and overall market uncertainty haunt investor attraction,” he says.

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Now we’re talking.

No-Deal Brexit Could Lead To “Military On The Streets” (Ind.)

A no-deal Brexit could lead to the “real possibility” of police calling upon the military to help with civil disorder, a leaked document claims. Contingency plans are being drawn up by police chiefs if there is chaos on the streets due to shortages of goods, food and medicine, The document prepared by the National Police Co-ordination Centre (NPoCC) warns of traffic queues at ports with “unprecedented and overwhelming” disruption to the road network. Concerns around medical supplies could “feed civil disorder”, while a rise in the price of goods could also lead to “widespread protest”, the document obtained by the Sunday Times said.

The potential for a restricted supply of goods raised concerns of “widespread protest which could then escalate into disorder”. It could also trigger a rise in non-Brexit-related acquisitive crime such as theft. The document, set to be considered by the National Police Chiefs’ Council (NPCC) later this month, also sets out concerns of increased data costs, loss of warrant cards and queues at ports and docks around the country. Shadow police minister Louise Haigh lashed out at the Government’s handling of the situation. “This is the nightmare scenario long feared; according to the UK’s most senior police officers a no-deal Brexit could leave Britain on the brink,” she said.

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May keeps pushing the same button after it’s failed 1000 times. The EU won’t give.

Brexit Talks At Risk Of Collapse (Ind.)

Brexit talks are at risk of collapse as a planned EU compromise on the critical question of the Irish border has been branded “unacceptable” by British cabinet ministers. The Independent has learnt that EU officials believe they have struck upon “the only way” to bring the two sides together on the Irish border in a bid to secure a withdrawal agreement later this year. But their proposal has already been outright rejected by at least two cabinet ministers, with one going further and branding the EU’s suggestion “bollocks”. The impasse over the Irish border threatens to bring the talks crashing down with Theresa May’s beleaguered Chequers proposal already lacking support both in Europe and among her own MPs in Westminster.

The Independent now understands that the EU will try to break the deadlock in negotiations by offering the UK a vague political declaration on the future UK-EU relationship in return for a deal on the Irish border. A well-placed Brussels source said: “This may well prove the only way to respect the EU’s red lines and allow Theresa May to win approval for a deal in the UK parliament. “The political declaration holds the key to reaching a deal.” Since the start of Brexit talks Brussels has insisted the UK sign up to a legally binding “backstop”, which would come into play if no arrangement to avoid a hard border in Northern Ireland is found before Brexit day. It would see Northern Ireland effectively remain in the EU’s customs union and single market, creating a customs border down the Irish sea – something both Ms May and her DUP partners say is unacceptable.

[..] The strength of opposition indicates Ms May could face a further round of cabinet resignations if she were to consider agreeing to such a proposal, with Boris Johnson and David Davis having already quit earlier this year. A government spokesman said: “We don’t comment on speculation. The proposals we have put forward for our future relationship would allow both sides to meet our commitments to the people of Northern Ireland in full and we are working hard to get a deal on that basis. “But we are clear the EU backstop proposals are unacceptable.”

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The Tories are thinking: we got rid of unions, didn’t we?

Bombshell Poll Reveals Heavy Union Backing For Second Brexit Vote (G.)

Members of Britain’s three biggest trade unions now support a new referendum on Brexit by a margin of more than two to one, according to a bombshell poll that will cause political shockwaves on the eve of the party conference season. The survey of more than 2,700 members of Unite, Unison and the GMB by YouGov, for the People’s Vote campaign, also finds that a clear majority of members of the three unions now back staying in the EU, believing Brexit will be bad for jobs and living standards. The poll comes as union delegates gather in Manchester for the annual TUC conference, where Brexit will be debated on Monday, and two weeks before the Labour party conference in Liverpool, where delegates are expected to debate and vote on Brexit policy. They will also consider calls to keep open the option of a fresh referendum on any deal Theresa May may strike on the UK’s exit from the EU.

In an interview with the Observer before the poll findings were released, shadow chancellor John McDonnell said his preferred option was still for voters to be offered a say on the government’s handling of Brexit – and any deal brought back from Brussels by May – in a general election. But he said that if Labour was unable to force one in the coming months, he wanted to “keep all options open”, including supporting a new referendum. McDonnell said he was sure there would be a full debate, and votes, on Brexit at the Labour conference. And he went out of his way to praise the People’s Vote campaign, which he said had been very “constructive” and had made clear that its attempts to influence Labour policy should not be seen “as an attack on Jeremy Corbyn or positioning around the leadership. It should be a constructive debate and that is right.”

The poll found that members of Unite, the country’s biggest union, and Labour’s largest financial backer, now support a referendum on the final Brexit deal by 59% to 33% and support staying in the EU by 61% to 35%. GMB’s members support putting the issue back to the people by 56% to 33% and its members want the UK to stay in the EU by 55% to 37%. Unison members back another referendum by 66% to 22% and would opt to stay in the EU by 61% to 35%.

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That second vote will come, or else…

YouGov Poll Shows Support For A People’s Brexit Vote Is Solid (G.)

Thirty years ago this week, Jacques Delors came to Bournemouth to urge Britain’s trade unions to change their stance on Europe. The president of the European commission told TUC delegates that the EU was good for workers’ jobs, workers’ rights and workers’ living standards. It was a decisive moment in the union movement’s relationship with Brussels. This week could be equally decisive for the TUC – perhaps even more so – given the precarious balance of forces at Westminster. And the clear message from YouGov’s poll of more than 2,700 members of the TUC’s three biggest unions is that most trade union members think Brexit is bad for jobs; they want a fresh public vote and the chance to keep the UK in the EU.

Can we be sure that YouGov’s figures are right? Do the people it polled accurately reflect the views of all the members of the three big unions? I recall the same questions being asked when YouGov first showed Jeremy Corbyn well ahead in the race for the Labour leadership three years ago. Nonsense, said the critics. YouGov’s respondents, they claimed, were hopelessly biased towards leftwing activists. When it came to it, Corbyn won by almost precisely the majority reported in the final poll. And the methods YouGov used in the latest union survey are essentially the same as it used in Labour’s leadership election three years ago.

It’s not that trade union members are indulging in gesture politics or ideological breast-beating. They are worried about the impact of Brexit on jobs, taxes, living standards and the NHS. They fear a Brexit Britain would find it harder to sell products and services abroad. Their attitudes to immigration are especially significant. In the 2016 referendum, one of the arguments for Brexit was that immigrant workers were undercutting the pay of low-paid British workers. Brexit, so the argument ran, would allow Britain to stop this. As a result, there would be more, and better-paid, jobs for British workers.

Many Unite, Unison and GMB members earn below-average wages. They might be expected to support that part of the Brexit agenda. They don’t. Overwhelming majorities, ranging from 74% to 85%, want EU citizens either to have complete freedom of movement to come to the UK, or the freedom to settle here if they have a job or university place lined up.

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Tsipras is trying to create the impression that he decides and is bold. He has no say at all.

Fresh From End Of Bailout, Greek PM Announces Tax Breaks (R.)

Greek Prime Minister Alexis Tsipras on Saturday unveiled plans for tax cuts and pledged spending to heal years of painful austerity, less than a month after Greece emerged from a bailout program financed by its EU partners and the IMF. Tsipras, who faces elections in about a year’s time, used a keynote policy speech in the northern city of Thessaloniki to announce a spending spree that he said would help fix the ills of years of belt-tightening, and help boost growth. But he said Athens was also committed to sticking to the fiscal targets and reforms promised to its lenders. Greece has agreed to maintain an annual primary budget surplus – which excludes debt servicing costs – of 3.5 percent of GDP up to 2022.

So far, it has outperformed on fiscal goals and the economy has returned to growth. “We will not allow Greece to revert to the era of deficits and fiscal derailment,” he told an audience of officials, diplomats and businessmen. He said would beat its primary surplus target again this year and, following a debt relief deal in June, he could “safely plan its post-bailout future”. Government officials have put this year’s fiscal room at 800 million euros. Tsipras promised a phased reduction of corporate tax to 25 percent from 29 percent from next year, as well as an average 30 percent reduction in a deeply unpopular annual property tax on homeowners, rising to 50 percent for low earners.

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Amnesty’s Aussie branch. Timing?!

Protect Assange From US Extradition, Amnesty International Tells UK (RT)

Amnesty International has backed calls to not extradite WikiLeaks founder Julian Assange to the United States, arguing that this would put his human rights at serious risk of abuse. The statement, issued Friday by the group’s Australian branch, backed Assange’s lawyers and supporters’ claim that if he is sent to the US, “he would face a real risk of serious human rights violations due to his work with WikiLeaks.” Amnesty said that Assange could face several human rights violations in the event that he is extradited to the US, including: violation of his right to freedom of expression; right to liberty; right to life if the death penalty were sought; and being held in conditions that would violate his right to humane treatment.

While Amnesty said it took “no position” on Ecuador’s decision to grant, and then withdraw, Assange’s diplomatic asylum, it did call on the UK government to recognize the “need for international protection vis-a-vis the USA” in relation to the whistleblower’s case. Amnesty has joined several other humanitarian organizations by backing Assange and denouncing any extradition attempt. These include the UN Human Rights office, Human Rights Watch, and the Inter-American Court of Human Rights.

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How cheap money saved and doomed the world at the same time.

The Latest Incarnation of Capitalism (Jacobin)

Financialization — “the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy” — is a process that began in the 1980s with the removal of barriers to capital mobility. Global capital flows rose from about 5 percent of world GDP in the mid-1990s to about 20 percent in 2007. This is about three times faster than world trade flows. Increases in capital mobility helped facilitate the emergence of large imbalances between creditor countries with large current account surpluses and debtors with large current account deficits. According to textbook economic theory, these imbalances should be self-correcting.

When a country runs a deficit, currency is flowing out of the country. If this currency does not return in the form of capital inflows, the resulting increase in supply will exert downward pressure on the currency. A less valuable currency makes your exports cheaper to international consumers and should therefore increase demand for those exports. Played out over the scale of the global economy, this should lead to equilibrium. In the lead-up to the crisis, the fact that this equilibrium was not forthcoming puzzled some economists. Deficit countries should have been experiencing large currency depreciations, given the size of their current account deficits. These depreciations should, in turn, then have increased the competitiveness of their goods.

Ben Bernanke, then chairman of the Fed, accused a number of emerging economies of “hoarding” savings to protect themselves from future crises, preventing the global economy from reaching equilibrium. In fact, deficit countries were able to maintain strong currencies because, even though there was relatively little demand for their goods, there was strong demand for their assets — particularly financial assets. The main reason for the high demand for UK and US assets was the financial deregulation undertaken by neoliberal governments in these states in the 1980s, which facilitated a dramatic expansion in the provision of private credit to individuals, businesses, and financial institutions.

In the UK, consumer debt — primarily composed of mortgage lending — reached 148 percent of household disposable incomes in 2008, the highest it has ever been. While UK banks’ lending to the non-financial economy rose 50 percent between 2005-8, their lending to other financial institutions rose by 260 percent. Capital from the rest of the world flowed into banks in the UK and the US, which were generating significant returns from this lending.

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Google shapes are thought and we have no idea.

What’s The Biggest Influence On The Way We Think? (G.)

Google search is in a different league from earlier tools, and so the consequences of being dependent on it are more serious and far-reaching – for two inter-related reasons. The first is that it can influence what you think you know and shape the way you think because it knows more about you than you realise. And secondly, it’s not a passive tool that you own and control, but the property of a huge corporation that has acquired strange – and in some ways unprecedented – powers. Ten years ago, Nicholas Carr published a striking article – “Is Google Making Us Stupid?” – in the Atlantic. The title was misleading because the thrust of the piece was actually about how the internet might be messing with our brains, and in that sense Carr was using Google as a proxy for the technology in general.

Which is a pity because there are plenty of important questions to be asked about Google’s impact on the way we think. Its search results, for example, are heavily influenced by how many websites it finds that are supposedly relevant to a query. Sometimes, that’s fine. But sometimes it’s toxic – yet many people think it provides the “truth”. And because people’s search queries can sometimes be very revealing, the company knows more about people’s innermost secrets, fears and fantasies than even their friends or partners. We ask Google questions that we would not breathe to any living soul.

So Google, as philosopher Benjamin Curtis points out, is anything but a passive cognitive tool. Its current offerings, boosted by machine learning algorithms, are increasingly suggestive. Its Maps not only provide navigational help but give us “personalised location suggestions that it thinks will interest us”. Gmail makes helpful suggestions about what to type in a reply and Google News highlights stories that it believes we will find interesting. “All of this,” says Curtis, “removes the very need to think and make decisions for ourselves.” It “fills gaps in our cognitive processes, and so fills gaps in our minds”.

In two short decades, therefore, Google has gone from being a geeky delight to something that influences the way we think. All of which brings to mind something that John Culkin, a buddy of Marshall McLuhan, said many years ago: “We shape our tools and then our tools shape us.” Amen to that. And you can Google him to check the quote.

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Jul 282018
 


Henri Matisse Window at Tangiers 1912

 

The Big Adjustments in “Real” GDP (WS)
China-US Trade War Would Wipe 20% Off The S&P 500 – UBS (CNBC)
Trump Tariffs: Turning Point In History, End Of Globalisation – Duncan (SCMP)
Julian Assange’s Fate Rests On Death Penalty Assurances -Moreno (CNN)
‘Assange’s Days In Ecuadorian Embassy In London Are Numbered’ – Correa (RT)
Twitter Share Price Drops 17% As Q2 Results Released (Ind.)
Facebook Is Sued After Stock Plunge ‘Shocked’ Market (R.)
Millions Could Be Affected By ‘No-Deal’ Brexit Medicines Shortages (PJ)
Yulia Skripal to Return to Russia When Her Father Gets Better (Sp.)
United Airlines Donates Flights To Reunite Immigrant Families (SFBT)
Greek Overtaxation Hurts Private Consumption (K.)
HRW Slams ‘Appalling’ Conditions Of Migrant Camps In Northern Greece (K.)

 

 

The last hurrah.

The Big Adjustments in “Real” GDP (WS)

What the Bureau of Economic Analysis released today as part of its GDP report was a huge pile of revisions and adjustments going back years. It included an adjustment to the tune of nearly $1 trillion in “real” GDP. And it lowered further its already low measure of inflation. Based on this revised data, second-quarter “real” GDP (adjusted for inflation) increased at a seasonally adjusted annual rate of 4.1% from the prior quarter. Annual rate means that if GDP continues to increase for four quarters in a row at the current rate, the 12-month GDP growth would be 4.1%. This was the highest growth rate since Q3 2014:

The above measure of “real” GDP – the change from prior quarter, but at an annualized rate – is the most volatile measure, producing the biggest-looking results, both up and down, as you can see in the above chart with a plunge of -8.4% in Q4 2008. Few or no other major countries use this measure for that reason. A less volatile measure and producing less big-looking results is the 12-month change in “real” GDP, which the BEA’s data set also provides. This is the inflation adjusted, seasonally adjusted annual rate of GDP growth – in other words, how GDP did over the past 12 months. For the 12 months ending in Q2, it rose 2.8%.

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And then more would follow.

China-US Trade War Would Wipe 20% Off The S&P 500 – UBS (CNBC)

Investors could see steep drops in global stock markets if tensions between China and the United States escalate into a full-blown trade war, analysts at UBS said in a note Friday. Assuming virtually all trade between U.S.-China is affected by tariffs and other protectionist policies, the Swiss bank calculated that profits for S&P firms would take a 14.6% hit, with U.S. and global growth being 245 and 108.5 basis points lower, respectively. However, the bank noted there would also be second-order effects. These “would be larger, with U.S. multinationals doing business in China also likely to be hurt by China retaliation.” Thus, in terms of company valuations, these would take an additional 9.1% hit, bringing a total downside of 21.3% for the U.S. benchmark after some further adjustments by UBS analysts.

So far this year, President Donald Trump has imposed new tariffs on Chinese solar panels, washing machines, steel and aluminum, as well as on other imported goods for intellectual property theft. China has retaliated every time. However, there are more potential tariffs on the way, with Trump threatening to impose new levies worth as much as $200 billion. David Riley, the chief investment strategist at BlueBay Asset Management, told CNBC’s “Street Signs” Friday: “If I was sitting in Beijing, I would be pretty worried.” “I think we are going to get potentially more tariffs imposed on China coming at the end of the month, or early September,” he said.

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“They may be intent on stopping China’s economic growth altogether..”

Trump Tariffs: Turning Point In History, End Of Globalisation – Duncan (SCMP)

The deepening trade dispute between the United States and China could mark a “turning point in history”, ending the system of global trade that brought low-cost goods to consumers and fuelled the rise of the Chinese mainland and other emerging markets in just a few decades, according to noted economist and author Richard Duncan. Bangkok-based Duncan believes the US$50 billion of Chinese products designated for 25% tariffs by the Trump administration – in addition to a proposed 10% tariff on an additional US$200 billion in Chinese goods – may represent the first steps in a policy shift by Washington that goes far beyond what many observers expect.

“I am becoming concerned that they really do intend to put up trade tariffs on a very large scale against China and that perhaps there’s more to this strategy than just balancing trade. They may be intent on stopping China’s economic growth altogether, now that China has become so large they are becoming not only an economic competitor, but potentially a military threat to US global dominance. If that’s the case, this could be a turning point in history,” Duncan said in a new South China Morning Post business podcast. While it is too early to say how the trade talks between the two sides will play out, one concern is that escalating tariffs, beginning with the US$34 billion of Chinese products which went into effect on July 6, are about to become the norm, rather than the exception.

[..] “Over the last 30 years the rapid economic rise of China has really transformed the world, but if the US starts putting tariffs on US$200 billion and US$500 billion of Chinese exports, then China’s economy could go into a very serious crisis,” Duncan said. [..] “I don’t view this as a conflict between the US and China. It is not that simple, it’s not team USA versus team China. There are interests in the United States that have benefited enormously from this arrangement that now exists, in particular, the large US multinationals. They have been able to drive down their labour costs by moving their factories from Detroit and other US cities into China. Their wage costs have collapsed as a result of this move. The share of profits that are split between labour and capital have shifted.”

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Beware international law, Lenin.

Julian Assange’s Fate Rests On Death Penalty Assurances -Moreno (CNN)

British and Ecuadorian authorities have held discussions over the future of Julian Assange, the Ecuadorian president said on Friday, fueling speculation that the WikiLeaks founder may soon be stripped of the country’s diplomatic protection in London. Speaking in Madrid, President Lenín Moreno suggested Ecuador was seeking guarantees that whatever Assange’s eventual fate, he would not face the death penalty. Assange took refuge in the Ecuadorian Embassy in London in 2012 when he was facing allegations of sexual assault in Sweden. The case was eventually dropped but Assange has always feared being extradited to the US, and in the past his lawyers have claimed he could face execution there.

Moreno said the previous Ecuadorian government granted Assange asylum because it agreed his life was in danger. “The death penalty does not exist in Ecuador, and we knew that possibility existed… The only thing we want is a guarantee that his life will not be in danger,” Moreno said. In a statement Friday, Moreno’s communication’s office stressed the President “hasn’t ordered, at any moment, the removal of Julian Assange from the Ecuadorian embassy in London.” Ecuador’s government has no desire that Assange remain “in asylum his whole life” and urged “a solution to a problem we inherited,” the statement said. [..] Moreno made it clear that he did not support Assange’s work. “I have never agreed with what Mr. Assange does. I have never supported the interception of private emails to be able to obtain information, regardless of how valuable it may be, to bring to light certain undesirable actions carried out by governments on people.”

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No, really, Correa and Moreno were close friends. I’m convinced the Americans got to Moreno before he became president.

‘Assange’s Days In Ecuadorian Embassy In London Are Numbered’ – Correa (RT)

The days of Julian Assange’s residence in the Ecuadorian embassy in London are numbered, the country’s former president Rafael Correa, who was still at the helm when he offered the WikiLeaks founder asylum, has told RT. Correa’s remarks came amid speculation that his successor, Lenin Moreno, may soon kick Assange out, probably to be arrested by British authorities. According to Assange himself, this would lead to the unsealing of a secret US indictment against him and his extradition to America. Moreno this week said that, sooner or later, the self-exiled anti-secrecy activist will have to leave the Ecuadorean diplomatic mission.

You can be sure that he [Moreno] is a hypocrite. He already has an agreement with the US about what will happen to Assange. And now he’s just trying to sweeten the pill by saying he’s going to have a dialogue” about conditions of the transfer, Correa told RT. “I’m afraid … that Assange’s days in our embassy are numbered.” Ecuador’s President Lenin Moreno, has made no secret that Assange’s refuge was a nuisance for his government, which he inherited from Correa. The Australian has been living at the compound since 2012 and has lately been barred by his Ecuadorean hosts from any communications.

Accusing the incumbent Ecuadorian president of “reducing [Assange] to a hacker who snooped in private emails,” Correa pointed out that Moreno cannot grasp the complexity of Assange’s role in exposing human rights abuses by the US government, or the harsh punishment the 47-year-old will face if extradited to the US. Correa, who now hosts a show on RT’s Spanish service, noted that unless Assange secures safe passage guarantees, he is likely to be prosecuted for espionage and treason “which may carry the death penalty.” While Moreno said on Friday that he is trying to negotiate Assange’s security guarantees, Correa believes that the activist’s fate has already been sealed.

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Twitter’s shadow banning scandal lurks in the background.

Twitter Share Price Drops 17% As Q2 Results Released (Ind.)

Twitter Inc shares have plunged 17% after the social media platform revealed its monthly users dropped by 1 million in the second quarter – and predicted the number will decline further. The decline in monthly users comes as Twitter contends with increasing fake spam accounts and dangerous rhetoric on the platform. Monthly active users are at 335 million in the current quarter, according to a statement released by Twitter on Friday, down from 336 million in the first quarter. Despite the decline, the number of users is up 2.8% from the past year, but Twitter expects the numbers to continue falling as the crusade against spam accounts continues.

“Our second quarter results reflect the work we’re doing to ensure more people get value from Twitter every day,” said Twitter CEO Jack Dorsey in a statement. “We want people to feel safe freely expressing themselves and have launched new tools to address problem behaviours that distort and distract from the public conversation.” According to Dorsey, the company’s machine-learning algorithms are identifying more than 9 million potential spam or fake accounts a week.

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Any fine would be paid by…the same shareholders who sue.

Facebook Is Sued After Stock Plunge ‘Shocked’ Market (R.)

Facebook Inc and its chief executive Mark Zuckerberg were sued on Friday in what could be the first of many lawsuits over a disappointing earnings announcement by the social media company that wiped out about $120 billion of shareholder wealth. The complaint filed by shareholder James Kacouris in Manhattan federal court accused Facebook, Zuckerberg and Chief Financial Officer David Wehner of making misleading statements about or failing to disclose slowing revenue growth, falling operating margins, and declines in active users. Kacouris said the marketplace was “shocked” when “the truth” began to emerge on Wednesday from the Menlo Park, California-based company.

He said the 19% plunge in Facebook shares the next day stemmed from federal securities law violations by the defendants. The lawsuit seeks class-action status and unspecified damages. Shareholders often sue companies in the United States after unexpected stock price declines, especially if the loss of wealth is large. Facebook has faced dozens of lawsuits over its handling of user data in a scandal also concerning the U.K. firm Cambridge Analytica. Many have been consolidated in the federal court in San Francisco.

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“..we make no insulin in the UK. We import every drop of it.”

Millions Could Be Affected By ‘No-Deal’ Brexit Medicines Shortages (PJ)

Many patients — including the prime minister herself — could be “seriously disadvantaged” by disruption to the drug supply chain if the UK exits the EU without a deal, the head of the UK’s medicines regulator has said. In comments made in a “personal capacity” to The Pharmaceutical Journal, Sir Michael Rawlins, chair of the Medicines and Healthcare products Regulatory Agency (MHRA), said that the supply of medicines such as insulin could be disrupted because the UK does not manufacture it and transporting it is complicated as its storage has to be temperature-controlled. Prime minister Theresa May has type 1 diabetes and is known to use insulin to control it.

Rawlins said that the government needed to “work out how” the supply of some medicines are going to be guaranteed in the event of a ‘no-deal’ Brexit. He said: “There are problems and the Department for Exiting the EU and the Department of Health and Social Care (DHSC) needs to work out how it’s going to work. “Here’s just one example why: we make no insulin in the UK. We import every drop of it. You can’t transport insulin around ordinarily because it must be temperature-controlled. And there are 3.5 million people [with diabetes, some of whom] rely on insulin*, not least the prime minister.”

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What happened to the gag order? Oh, wait, this is Sputnik.

Yulia Skripal to Return to Russia When Her Father Gets Better (Sp.)

Yulia Skripal, who was allegedly poisoned alongside her father Sergei Skripal in the UK city of Salisbury in March, will return to Russia when the latter gets better, Yulia’s cousin Viktoria Skripal told Sputnik on Thursday. “[Yulia] said she was doing well and already had a connection to the Internet… She will return home when her father gets better,” Viktoria said. The phone conversation took place on Tuesday, when Sergei Skripal’s mother was celebrating her 90th birthday.

“She was very happy to hear that Sergei was okay,” Viktoria stressed, adding that, according to Yulia, Sergei Skripal still had a respiratory tube in his trachea. On March 4, the Skripals were found unconscious on a bench at a shopping center in Salisbury. The United Kingdom and its allies have accused Moscow of having orchestrated the attack with what UK government claims was the A234 nerve agent, albeit without presenting any proof. Russian authorities have refuted the allegations as groundless.

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United’s CEO is Hispanic.

United Airlines Donates Flights To Reunite Immigrant Families (SFBT)

Several of the nation’s airlines made headlines in June when they told Washington that they would not fly immigrant children separated from their families at the border. Now United is going one step further by donating flights to reunite children that have been separated from their immigrant families. United’s move is garnering favorable attention on social media. “We have great news to share! A growing community of support is coming together to reunite families who were separated at the border. We are so thankful and happy to announce that United Airlines is jumping in and helping,” FWD.us posted on Facebook. “Thanks to this partnership with United, we are able to provide travel to the recently reunited immigrant families to get to their next destination with dignity.”

Another supporter of United’s generosity tweeted, “Thank you @united. You’re good people.” Earlier this week, the Refugee and Immigrant Center for Education and Legal Services, the Texas nonprofit also known as RAICES, said that it planned to donate $3 million as part of a #FlightsForFamilies initiative, The Hill newspaper reported. RAICES is working with FWD.us and Families Belong Together on the effort to reunite immigrant families. RAICES made news last week by declining a $250,000 donation from San Francisco-based Salesforce.com because of the tech company’s contract with U.S. Customs and Border Protection. Chicago-based United Airlines, which operates a major hub in San Francisco, could risk some backlash from wading into the contentious immigration debate, but the carrier may expect most Americans will embrace the idea of reuniting families.

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The troika works like a boa constrictor.

Greek Overtaxation Hurts Private Consumption (K.)

Conditions of weak growth and high unemployment look set to continue in the Greek economy, as despite the increase in exports and investments, private consumption remains stagnant due to overtaxation, according to Alpha Bank’s weekly economic bulletin. “The drop in private consumption in the first quarter of 2018 coincides with households’ limited consumption capacity due to the excessive taxation imposed both through direct and indirect taxes. According to Bank of Greece estimates, private consumption is expected to show a small 0.8% increase in 2018, which will be supported by the increase in employment and the negative mean trend toward savings,” the bulletin read.

The bank’s analysts point out that, with the exception of the significant annual rise of 33% in car sales, all other indexes point to weak growth in private consumer spending: The retail sales volume index grew by just 0.6% on an annual basis in the January-April period, against an increase of 1.1% in the whole of 2017. Also takings from value-added tax slipped 0.3%, illustrating the weak demand in the market, Alpha noted.

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If the EU wanted to stop this, they could. Within days.

HRW Slams ‘Appalling’ Conditions Of Migrant Camps In Northern Greece (K.)

Human Rights Watch (HRW) has issued a scathing report on the “appalling” conditions that migrants and refugees face in northern Greece. HRW said that thousands have been subject to appalling reception and detention conditions, with at-risk groups lacking necessary protection. It added that Greece has failed to ensure minimum standards for pregnant women, new mothers and others arriving via the northeast land border with Turkey, many of whom are fleeing violence or repression in countries including Syria, Afghanistan and Iraq.

The group said that during visits by its members to three government-run centers last May they found that living conditions did not meet international standards in terms of adequate access to healthcare – including for mental health and support for at-risk people including women traveling alone, pregnant women, new mothers, and survivors of sexual violence. Several of the 49 residents at the three facilities that HRW interviewed also reported verbal abuse by police. Two said they witnessed police physically abusing others. Hillary Margolis, a women’s rights researcher at HRW, said, “People told us they were being treated so poorly in these facilities that they felt less than human.” “Greece has a responsibility to uphold basic standards of care for everyone in its custody, regardless of their immigration status,” she added.

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Jul 122018
 

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Russell Lee Gas station, Edcouch, Texas 1939

Ilargi: Someone linked to this almost 8 year old article from Nicole (July 19 2010), on Twitter. And yes, it’s even more relevant now than it was when she wrote it. So here’s a re-run:

 

… the Smoot-Hawley Tariff Act of 1930 in the US, which drastically raised tariffs on imports, lead to retaliation by trading partners, and the resulting trade war dropped global trade by 66% between 1929 and 1934.

One more comment from me: Trump may be on to something with some of his tariff actions, but he risks having the US run headfirst into the brittleness of just-in-time supply lines.

 

 

Nicole Foss: As the world has become a smaller and smaller place over the last few decades, we think less about the differences between locations. Global trade has allowed us to circumvent many local constraints, evening out surpluses and shortages in a more homogenized world.

We have a just-in-time world built on comparative advantage, in the name of economic efficiency. Under this economic principle, every location should specialize in whatever activity it executes most efficiently and the resulting products from all areas would then be traded. The idea is that all will then be better off than they would have been had they attempted to cover all bases themselves for reasons of self-sufficiency.

Where countries had been inclined towards more expensive self-sufficiency, market forces have often made this approach untenable, as large cost differences can make countries or industries uncompetitive. Local production has been progressively out-sourced as a result.

By ‘better off’, economists mean that goods will be cheaper for all, thanks to global wage arbitrage and economies of scale. Globalization has indeed delivered falling prices for many consumer goods, particularly electronics. In an era of massive credit expansion (effectively inflation), such as we have lived through for decades, one would normally have expected prices to rise, as a lagging indicator of money supply expansion, but prices do not always follow money supply changes where other major complicating factors exist.

In recent years, the major complicating factors have been the ability to produce goods in places where wages are exceptionally low, the ability to transport those goods to consumer markets extremely cheaply and ready access to letters of credit.

For nominal prices (unadjusted for changes in the money supply) to fall during an inflationary period, real (inflation adjusted) prices must be going through the floor. This has been the effect of trade as we have known it, and it is all many of us have known. What we are not generally aware of is the vulnerability of the global trade system, due to the fragility of the critical factors underpinning it.

 

By producing goods, particularly essential goods, in distant locations, we create long and potentially precarious supply lines. While relative stability reigns, this vulnerability does not cause trouble and we enjoy cheap and plentiful goods. However, if these supply lines are disrupted, critical shortages could result. In a very complex just-in-time system, this may not take very long at all. Such as system is very brittle, as it has almost no redundancy, and therefore almost no resilience. When Jim Kunstler refers to efficiency as “the straightest path to hell”, it is this brittleness he is referring to.

The most ephemeral critical factor for trade is the availability of letters of credit. These became scarce during the first phase of the credit crunch in 2008, and the result was goods stuck in port even though there was robust demand for them elsewhere. Goods simply do not move without letters of credit, and these can dry up extremely quickly as a systemic loss of confidence results in a systemic loss of liquidity. In a very real way, confidence IS liquidity.

The Baltic Dry shipping index fell 96% in 2008 as a result, meaning that shipping companies were suffering. Although the index has recovered slightly during the recent long rally, it is still very depressed in comparison with its previous heights. Now that the rally appears to be over, on the balance of probabilities, letters of credit for shipping will come under renewed pressure, and goods will once again have difficulty moving. As demand also starts to fall, due to the loss of purchasing power in the depressionary era we are moving into, this will get far worse.

 

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In a depression, trade is very adversely affected. One reason for this a highly protectionist beggar-thy-neighbour economic policies. For instance, the Smoot-Hawley Tariff Act of 1930 in the US, which drastically raised tariffs on imports, lead to retaliation by trading partners, and the resulting trade war dropped global trade by 66% between 1929 and 1934.

 

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Thanks to globalization, we are much more dependent on trade than people were in the 1930s. The combination of credit drying up on the one hand and global trade wars on the other is an extreme threat to our vulnerable supply lines. Add to that the general upheaval created by severe economic disruption, which can easily lead to increased physical risks to transporting goods, and the longer term potential for much higher energy prices, and we could see an outright collapse of global trade in the approaching years.

The benefits of self-sufficiency will be seen in places where it still exists. So long as the whole supply chain is local, localized production means being able to maintain access to essential goods at a time when obtaining them from overseas may be difficult or impossible. It is currently more expensive, but the relative security it can provide can be priceless in a dangerous world. The ability to produce locally does not arise overnight however, especially where there are no stockpiles of components. In places where it has been lost, it will take time to regain. There is no time to lose.

We will be returning to a world of much greater diversity as we lose the homogenizing effect of trade. That means the existing disparities between areas will matter far more in the future than they have in the recent past. We will need to think again about the pros and cons of our local regions – what they can provide and what they cannot, and for how many people. Some areas will be in a great deal of trouble when they lose the ability to compensate for deficiencies through trade. As the global village ceases to exist, the world will once again be a very large and variable place.

 

 

Jan 142018
 
 January 14, 2018  Posted by at 11:00 am Finance Tagged with: , , , , , , , , , ,  6 Responses »


Carl Mydans Pearl Harbor 1940

 

Hawaii Panics After False Alert Of Incoming Missile (AFP)
Rising Rental Rates Suppress Consumer Demand (Roberts)
The Chinese Are Now Spending As Much As Americans (ZH)
China To Step Up Banking Oversight In ‘Arduous’ Fight On Financial Risks (R.)
EU Set To Target UK’s Overseas Tax Havens (Ind.)
Historic Brexit Vote Could Be Reversed, Admits Nigel Farage (O.)
Globalization Is Stuck In A Trap. What When It Breaks Free? (Varoufakis)
The Trump-Russia Dossier Rehab Campaign (WSJ)
Chelsea Manning Seeks US Senate Seat (AFP)
Greeks Avoid Seeing A Doctor When Ill Due To Cost (K.)

 

 

Orson Welles strikes again.

Hawaii Panics After False Alert Of Incoming Missile (AFP)

An alert warning of an incoming ballistic missile aimed at Hawaii was sent in error Saturday, sowing panic and confusion across the US state – which is already on edge over the risk of attack – before officials dubbed it a “false alarm.” Emergency management officials eventually determined the notification was sent just after 8:00 am during a shift change and a drill after “the wrong button was pushed” – a mistake that lit up phones across the archipelago with a disturbing alert urging people to “seek immediate shelter.” There were frenzied scenes of people rushing to safety – a bathtub, a basement, a manhole, cowering under mattresses. Adventurer Alison Teal called it “the worst moment of my life.”

The erroneous message came after months of soaring tensions between Washington and Pyongyang, with North Korea saying it has successfully tested ballistic missiles that could deliver atomic warheads to the United States, including the chain of volcanic islands. “I deeply apologize for the trouble and heartbreak that we caused today,” said Vern Miyagi, administrator of Hawaii’s Emergency Management Agency. “We’ve spent the last few months trying to get ahead of this whole threat, so that we could provide as much notification and preparation to the public. “We made a mistake,” he acknowledged in a press conference. “We’re going to take processes and study this so that this doesn’t happen again. “The governor has directed that we hold off any more tests until we get this squared away.”

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And lead to recessions. Still lots of people out there saying price increases equal inflation. They don’t.

Rising Rental Rates Suppress Consumer Demand (Roberts)

[..] the cost of Housing, Medical Care, and Transportation have all risen sharply over the past 5-months with those three components comprising 67% of the inflation calculation. Clearly, the surge in “health care” related costs, due to the surging premiums of insurance due to the “Un-affordable Care Act,” pushed both consumer-related spending measures and inflationary pressures higher. Unfortunately, higher health care premiums do not provide a boost to production but drain consumptive spending capabilities. Housing costs, a very large portion of overall CPI, is also boosting inflationary pressures. But like “health care” costs, rising housing costs and rental rates also suppress consumptive spending ability.

Importantly, while households may be receiving a modest “tax cut” over the coming year, given the rise in three of the biggest expenditures in most households, whatever increase in incomes maybe received has likely already been absorbed by higher costs and debt service payments. “For the middle-class and working poor, which is roughly 80% of households, rent, energy, medical and food comprise 80-90% of the aggregate consumption basket.” – Research Affiliates. The problem for the Fed is that by pushing interest rates higher, under the belief there is a broad increase in inflation, the suppression of demand will only be exacerbated as the costs of variable rate interest payments also rise. With households already ramping up debt just to make ends meet, another increased expense will only serve to further suppress “consumer demand.”

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Brought to you as a success story.

The Chinese Are Now Spending As Much As Americans (ZH)

In the US, the latest batch of data, released this week, showed retail sales climbed in December for the sixth straight month – though they missed expectations, with growth slowing to 0.3% MoM. With the personal savings rate at a 10 year low, the US consumer is now fully tapped out: This latest uptick in spending has presumably been fueled by debt, as credit-card borrowing has reached an all-time high. But another milestone in the history of global consumerism passed last month: As the Washington Post points out, China tied the US in 2018 in terms of domestic retail sales – according to data compiled by Mizuho. In some important categories, China has overtaken the US: With 17.6 million vehicles sold in the US in 2016, for example, but that was far below the 24 million passenger cars sold in China.

US automakers account for about one out of every five cars sold in China, even though the communist party placed a 10% tax on luxury cars and trucks imported from the United States. This economic heft has made the problem of confronting China intractable: China is now responsible for 20% of sales for some of the largest US corporations. This is making it difficult for Trump to confront Xi Jinping. Any restrictions on Chinese access to the US market would be met with barriers to American companies selling in China. One area where there’s a lot of agreement across the political spectrum is to go after China’s theft of US intellectual property. Over the summer, Trump ordered an investigation by the US Trade Representative Robert Lighthizer to examine China’s IP policies.

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Xi’s knee jerk is to increase central control. But the bubble couldn’t have happened without the shadow system, i.e. decentralization.

China To Step Up Banking Oversight In ‘Arduous’ Fight On Financial Risks (R.)

China will step up oversight in the banking sector this year to reduce financial risks, the country’s banking regulator said, stressing that long-term efforts would be needed to control banking sector chaos. The China Banking Regulatory Commission (CBRC) said late on Saturday in a statement that its priorities included increasing supervision over shadow banking and interbank activities. “Banking shareholder management, corporate governance and risk control mechanisms are still relatively weak, and root causes creating market chaos have not fundamentally changed,” the CBRC said. “Bringing the banking sector under control will be long-term, arduous, and complex,” it said. The regulator said violations in corporate governance, property loans, and disposal of non-performing assets will be punished more strictly, and that it would strengthen risk control in interbank activities, financial products and off-balance sheet business.

China has repeatedly vowed to clean up disorder in its banking system. In recent months, regulators have introduced a series of new measures aimed at controlling risk and leverage in the financial system, with everything from lending practices to shadow banking under the microscope. Already in January, the CBRC has published regulations that put limits on the number of commercial banks that single investors can have major holdings in. President Xi Jinping has declared that financial security is vital to national security. The government is particularly concerned about the massive shadow banking industry, lending conducted outside of the regulated formal banking system. It fears that a big default or series of loan losses could cascade through the world’s second-biggest economy, leading to a sudden halt in bank lending.

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And not its own.

EU Set To Target UK’s Overseas Tax Havens (Ind.)

Demands to open up Britain’s shady network of overseas tax havens are set to be used by the EU as leverage to force concessions during Brexit trade talks, The Independent understands. The European Commission will soon review whether British territories previously left off a Brussels tax haven blacklist should now be added – just as negotiations move on to the all-important future trade deal. Publicly EU officials say the blacklisting process has nothing to do with Brexit, but separate sources in Brussels told The Independent British territories where billions of pounds are stashed will come into play. One official made clear the EU would “go after” them, while another said the UK Government must ask itself if it wants to fly in the face of British public opinion on tax avoidance.

EU commissioners in December produced a blacklist of uncooperative tax jurisdictions, in a bid to clamp down on evasion and avoidance, tackle “threats” to members states’ tax bases and take on “third countries that consistently refuse to play fair”. But the 17 jurisdictions listed included no British Overseas Territories or Crown Dependencies, despite them being named in earlier EU lists and some being implicated in the Paradise Papers scandal. The EU had agreed the blacklisting screening process would be put on hold for territories caught in Hurricane Irma, meanwhile the UK is said to have pushed back against tougher sanctions for blacklisted territories. But officials confirmed that the screening process will now restart in “early spring” for British territories including Anguilla, the British Virgin Islands and the Turks and Caicos Islands. Other British territories – Bermuda, the Cayman Islands, Guernsey, the Isle of Man and Jersey – promised to try and address EU concerns to stay off the list, which will now be reviewed annually.

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Covering his tracks?

Historic Brexit Vote Could Be Reversed, Admits Nigel Farage (O.)

Nigel Farage today makes a dramatic admission that the vote for Brexit could be overturned because Remainers have seized control of the argument over Britain’s future relationship with the EU. The former Ukip leader told the Observer that he was becoming increasingly worried that the Leave camp had stopped fighting their corner, leaving a well-funded and organised Remain operation free to influence the political and public debate without challenge. “The Remain side are making all the running,” said Farage. “They have a majority in parliament, and unless we get ourselves organised we could lose the historic victory that was Brexit.” On Thursday Farage angered many Brexiters, and many in Ukip, when he said he was coming round to the view that the country might need to hold a second referendum in order to close down the EU argument for good.

He said then that he believed such a vote would see the Brexit side win with a bigger majority than the one it achieved on 23 June 2016, when it triumphed by 52% to 48%. But, speaking on Friday, Farage appeared to change his tune, making clear that he was seriously worried that Brexit could be undone and reversed. The case for a complete break from the EU was no longer being made, even by pro-Brexit MPs in parliament, he said. Instead, the Remain camp was relentlessly putting out its message that a hard Brexit would be ruinous to the British economy and bad for the country, without people hearing the counter-argument that had secured Brexiters victory in the 2016 referendum campaign.

His latest intervention comes ahead of another vital week for the Brexit process in the House of Commons and as peers in the overwhelmingly pro-Remain House of Lords prepare to argue for retaining the closest possible links with the EU – and in some cases for a second referendum – when legislation reaches peers at the end of this month. Farage said he now had a similar feeling to the one he had 20 years ago when Tony Blair appeared to be preparing the country for an eventual entry into the euro. “I think the Leave side is in danger of not even making the argument,” he said. “The Leave groups need to regather and regroup, because Remain is making all the arguments. After we won the referendum, we closed the doors and stopped making the argument.”

Last Monday Farage held a meeting in Brussels with the EU’s chief Brexit negotiator, Michel Barnier, which, he said, left him convinced that the UK would not be offered the kind of deal that would be easy to sell as beneficial to the UK economy unless Leavers upped their game. “We no longer have a majority in parliament. I think we would lose the vote in parliament,” Farage said.

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Decentralize.

Globalization Is Stuck In A Trap. What When It Breaks Free? (Varoufakis)

Humanity has been globalizing since our ancestors left Africa, the earliest economic migrants on record. Moreover, capitalism has been operating for two centuries like “heavy artillery,” in Marx and Engels’ words, using the “cheap prices of commodities” to batter “down all Chinese walls,” “constantly expanding market for its products” and replacing “the old local and national seclusion and self-sufficiency” with “intercourse in every direction, universal interdependence of nations.” It wasn’t until the 1990s, when we noticed the unleashing of momentous forces, that we required a new term to describe the emancipation of capital from all fetters, which led to a global economy whose growth and equilibrium relied on increasingly unbalanced trade and money movements. It is this relatively recent phenomenon – globalization, we called it – that is now in crisis and in retreat.

Only an ambitious new internationalism can help reinvigorate the spirit of humanism on a planetary scale. But before arguing in favour of that antidote, it is worthwhile recounting globalization’s origins and internal contradictions. In 1944, the New Deal administration in Washington understood that the only way to avoid the Great Depression’s return at war’s end was to transfer America’s surpluses to Europe (the Marshall Plan was but one example of this) and Japan, effectively recycling them to generate foreign demand for all the gleaming new products – washing machines, cars, television sets, passenger jets – that American industry would switch to from military hardware. Thus began the project of dollarizing Europe, founding the EU as a cartel of heavy industry, and building up Japan within the context of a global currency union based on the U.S. dollar.

This would equilibrate a global system featuring fixed exchange rates, almost-constant interest rates and boring banks (operating under severe capital controls). This dazzling design, also known as the Bretton Woods system, brought us a golden age of low unemployment and inflation, high growth and impressively diminished inequality. Alas, by the late 1960s, it was dead in the water. Why? Because the United States lost its surpluses and slipped into a burgeoning twin deficit (trade and federal budget), rendering it no longer able to stabilize the global system. Never too slow to confront reality, Washington killed off its finest creation: On Aug. 15, 1971, then-president Richard Nixon announced the ejection of Europe and Japan from the dollar zone. Unnoticed by almost everyone, globalization was born on that summer day.

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The Wal Street Journal doesn’t mince its words.

The Trump-Russia Dossier Rehab Campaign (WSJ)

There’s no such thing as a coincidence in Washington, so why the sudden, furious effort by Democrats and the media to give cover to the Steele dossier? As in, the sudden, furious effort that happens to coincide with congressional investigators’ finally being given access to FBI records about the Trump-Russia probe. This scandal’s pivotal day was Jan. 3. That’s the deadline House Intelligence Chairman Devin Nunes gave the Federal Bureau of Investigation to turn over documents it had been holding for months. Speaker Paul Ryan backed Mr. Nunes’s threat to cite officials for contempt of Congress. Everyone who played a part in encouraging the FBI’s colonoscopy of the Trump campaign – congressional Democrats, FBI and Justice Department senior career staff, the Hillary Clinton and Barack Obama political mobs, dossier commissioner Fusion GPS, the press corps – knew about the deadline and clearly had been tipped to the likelihood that the FBI would have to comply.

Thus the dossier rehabilitation campaign. Weeks before, the same crew had taken a desperate shot at running away from the dossier, with a New York Times special that attempted to play down its significance in the FBI probe. You can see why. In the year since BuzzFeed published the salacious dossier, we’ve discovered it was a work product of the Clinton campaign, commissioned by an oppo-research firm (Fusion), compiled by a British ex-spook on the basis of anonymous sources, and rolled out to the media in the runup to the election. Oh, and it appears to continue to be almost entirely false. When the best you’ve got is that a campaign orbiter made a public trip to Russia, you haven’t got much. But with Congress about to obtain documents that show the dossier did matter, it was time for a new line.

And so the day before the Nunes deadline, Fusion co-founders Glenn Simpson and Peter Fritsch broke their public silence to explain in a New York Times op-ed that what really matters was their noble intention – to highlight Donald Trump’s misdeeds. The duo took credit for alerting the “national security community” to a Russian “attack.” Meanwhile, Dianne Feinstein, ranking Democrat on the Senate Judiciary Committee, decided it was suddenly a matter of urgency that the nation see Mr. Simpson’s testimony, which he gave back in August. That move provided the cable news channels with more than 300 pages of self-serving material. Mr. Simpson extols his journalistic chops, praises the integrity of dossier author Christopher Steele (a “Boy Scout”), professes his love of country and his distaste for Russians (other than those paying him), and ladles on more disinformation about Mr. Trump.

Democrats and the media have spun this into a new contention: What mattered were the motives and credentials of the dossier’s creators, which were sufficient to give the FBI good cause to run with the document. Which you have to admit sounds a lot better than “Hillary Clinton’s Campaign Conjured Up an Opposition-Research Document That Was Fed to the Obama FBI, Which Then Used It to Spy on the Trump Campaign.” Even if that’s a more accurate headline.

Read more …

Very smart, brave and strong.

Chelsea Manning Seeks US Senate Seat (AFP)

Whistleblower Chelsea Manning, jailed for leaking classified information, is seeking election in the US state of Maryland, a document seen on Saturday says. The Federal Election Commission document, filed Thursday, lists Chelsea Elizabeth Manning of North Bethesda, Maryland, as a Democratic candidate for the United States senate. Manning, now 30, was an army intelligence analyst sentenced to 35 years in prison in 2013 for leaking more than 700,000 classified documents related to the wars in Iraq and Afghanistan. The revelations by Manning, who is transgender and was then known as Bradley Manning, exposed covered-up misdeeds and possible crimes by US troops and allies.

Her actions made Manning a hero to anti-war and anti-secrecy activists but US establishment figures branded her a traitor. Then-president Barack Obama commuted Manning’s sentence, leading to her release in May. During her incarceration, Manning battled for, and won, the right to start hormone treatment. On Twitter, she identifies herself as a “trans woman,” and carries the slogan: “Make powerful people angry.”

Read more …

A great health care sytem has fallen victim to Brussels. Unforgiveable.

Greeks Avoid Seeing A Doctor When Ill Due To Cost (K.)

30% of people who fell ill in Greece in 2016 did not see a doctor, according to a new survey which found that 35.8% of those people who did not seek treatment did so due to the financial cost. The nationwide survey, based on a sample of 2,000 adults, was carried out in January 2017 by the National School of Public Health in Athens. The results, which highlight the impact of the financial crisis on access to medical care, were made available only recently. The study showed that the main reason Greeks consulted a health professional in 2016 was because they were experiencing a symptom or pain, with 47.4% giving that as a reason. In 2006 only 21% gave that as a main reason as most people visited doctors to receive medical prescriptions or routine checkups. Meanwhile, 26.4% of Greeks who needed healthcare in 2016 received it for free, compared to 52.6% in 2006.

Read more …

Oct 162017
 
 October 16, 2017  Posted by at 2:00 pm Finance Tagged with: , , , , , , , , ,  16 Responses »


Marc Riboud Zazou, painter of the EIffel Tower 1953

 

Central bankers have never done more damage to the world economy than in the past 10 years. One may argue this is because they never had the power to do that. If their predecessors had had that power, who knows? Still, the global economy has never been more interconnected than it is today, due mostly to the advance of globalism, neoliberalism and perhaps even more, technology.

Ironically, all three of these factors are unremittingly praised as forces for good. But living standards for many millions of people in the west have come down and/or are laden with uncertainty, while millions of Chinese now have higher living standards. People in the west have been told to see this as a positive development; after all, it allows them to buy products cheaper than if they had been made in domestic industries.

But along with their manufacturing jobs, their entire way of life has mostly disappeared as well. Or, rather, it is being hidden behind a veil of debt. Still, we can no longer credibly deny that some three-quarters of Americans have a hard time paying their bills, and that is very different from the 1950s and 60s. In western Europe, this is somewhat less pronounced, or perhaps it’s just lagging, but with globalism and neoliberalism still the ruling economic religions, there’s no going back.

What happened? Well, we don’t make stuff anymore. That’s what. We have to buy our stuff from others. Increasingly, we lack the skills to make stuff too. We have become dependent on nations half a planet away just to survive. Nations that are only interested in selling their stuff to us if we can pay for it. And who see their domestic wage demands go up, and will -have to- charge ever higher prices for their products.

And we have no choice but to pay. But we can only pay with what we can borrow. As nations, as companies, and as individuals. We need to borrow because as nations, as companies, and as individuals we don’t make stuff anymore. It’s a vicious circle that globalization has blessed us with. And from which, we are told, we can escape only if we achieve growth. Which we can’t, because we don’t make anything.

 

So we rely on central bankers to manage the crisis. Because we’re told they know how to manage it. They don’t. But they do pretend to know. Still, if you read between the lines, they do admit to their ignorance. Janet Yellen a few weeks ago fessed up to the fact that she has no idea why inflation is weak. Mario Draghi has said more or less the same. Why don’t they know? Because the models don’t fit. And the models are all they have.

Economic models are more important in central banking than common sense. The Fed has some 1000 PhDs under contract. But Yellen, their boss, still claims that ‘perhaps’ the models are wrong, with it comes to inflation, and to wage growth. They have no idea why wages don’t grow. Because the models say they should. Because everybody has a job. 1000 very well paid PhDs. And that’s all they have. They say the lack of wage growth is a mystery.

I say that those for whom this is a mystery are not fit for their jobs. If you export millions of jobs to Asia, take workers’ negotiating powers away and push them into crappy jobs with no benefits, only one outcome is possible. And that doesn’t include inflation or wage growth. Instead, the only possible outcome is continuing erosion of economies.

The globalist mantra says we will fill up the lost space in our economies with ‘better’ jobs, service sector, knowledge sector. But reality does not follow the mantra. Most new jobs are definitely not ‘better’. And as we wait tables or greet customers at Wal-Mart, we see robots take over what production capacity is left, and delivery services erase what’s left of our brick and mortar stores. Yes, that means even less ‘quality’ jobs.

 

Meanwhile, the Chinese who now have taken over our jobs, have only been able to do that amidst insane amounts of pollution. And as if that’s not bad enough, they have recently, just to keep their magical new production paradise running, been forced to borrow as much as we have been -and are-, at state level, at local government level, and now as individuals as well.

In China, credit functions like opioids do in America. Millions of people who had never been in touch with the stuff would have been fine if they never had, but now they are hooked. The local governments were already, which has created a shadow banking system that will threaten Beijing soon, but for the citizens it’s a relatively new phenomenon.

And if you see them saying things like: “if you don’t buy a flat today, you will never be able to afford it” and “..a person without a flat has no future in Shenzhen.”, you know they have it bad. These are people who’ve only ever seen property prices go up, and who’ve never thought of any place as a ghost city, and who have few other ways to park what money they make working the jobs imported from the US and Europe.

They undoubtedly think their wages will keep growing too, just like the ‘value’ of their flats. They’ve never seen either go down. But if we need to borrow in order to afford the products they make in order to pay off what they borrowed in order to buy their flats, everyone’s in trouble.

 

And then globalization itself is in trouble. The very beneficiaries, the owners of globalization will be. Though not before they have taken away most of the fruits of our labor. What are you going to do with your billions when the societies you knew when you grew up are eradicated by the very process that allowed you to make those billions? It stops somewhere. If those 1000 PhDs want to study a model, they should try that one.

 

Globalization causes many problems. Jobs disappearing from societies just so their citizens can buy the same products a few pennies cheaper when they come from China is a big one. But the main problem with globalization is financial: money continually vanishes from societies, who have to get ever deeper in debt just to stand still. Globalization, like any type of centralization, does that: it takes money away from the ‘periphery’.

The Wal-Mart, McDonald’s, Starbucks model has already taken away untold jobs, stores and money from our societies, but we ain’t seen nothing yet. The advent of the internet will put that model on steroids. But why would you let a bunch of Silicon Valley venture capitalists run things like Uber or Airbnb in your location, when you can do it yourself just as well, and use the profits to enhance your community instead of letting them make you poorer?

I see UK’s Jeremy Corbyn had that same thought, and good on him. Britain may become the first major victim of the dark side of centralization, by leaving the organization that enables it -the EU-, and Corbyn’s idea of a local cooperative to replace Uber is the kind of thinking it will need. Because how can you make up for all that money, and all that production capacity, leaving where you live? You can’t run fast enough, and you don’t have to.

This is the Roman Empire’s centralization conundrum all over. Though the Romans never pushed their peripheries to stop producing essentials; they instead demanded a share of them. Their problem was, towards the end of the empire, the share they demanded -forcefully- became ever larger. Until the periphery turned on them -also forcefully-.

 

The world’s central bankers’ club is set to get new leadership soon. Yellen may well be gone, so will Japan’s Kuroda and China’s Zhou; the ECB’s -and Goldman’s- Mario Draghi will go a bit later. But there is no sign that the economic religions they adhere to will be replaced, it’ll be centralization all the way, and if that fails, more centralization.

The endgame of that process is painfully obvious way in advance. Centralization feeds central forces, be they governmental, military or commercial, with the fruits of labor of local populations. That is a process that will always, inevitably, run into a wall, because too much of those fruits are taken out. Too much of it will flow to the center, be it Silicon Valley or Wall Street or Rome. Same difference.

There are things that you can safely centralize (peace negotiations), but they don’t include essentials like food, housing, transport, water, clothing. They are too costly at the local level to allow them to be centralized. Or everybody everywhere will end up paying through the nose just to survive.

It’s very easy. Maybe that’s why nobody notices.

 

 

Aug 272017
 
 August 27, 2017  Posted by at 12:27 pm Finance Tagged with: , , , , , , , , ,  9 Responses »


Henri Cartier-Bresson Trafalgar Square on the Day of the Coronation of George VI 1937

 

The Jackson Hole gathering of central bankers and other economics big shots is on again. They all still like themselves very much. Apart from a pesky inflation problem that none of them can get a grip on, they publicly maintain that they’re doing great, and they’re saving the planet (doing God’s work is already taken).

But the inflation problem lies in the fact that they don’t know what inflation is, and they’re just as knowledgeable when it comes to all other issues. They get sent tons of numbers and stats, and then compare these to their economic models. They don’t understand economics, and they’re not interested in trying to understand it. All they want is for the numbers to fit the models, and if they don’t, get different numbers.

Meanwhile they continue to make the most outrageous claims. Bank of England Governor Mark Carney said in early July that “We have fixed the issues that caused the last crisis.” What do you say to that? Do you take him on a tour of Britain? Or do you just let him rot?

Fed head Janet Yellen a few days earlier had proclaimed that “[US] Banks are ‘very much stronger’, and another financial crisis is not likely ‘in our lifetime’. “ While we wish her a long and healthy life for many years to come, we must realize that we have to pick one: it has to be either a long life, or no crisis in her lifetime.

Just a few days ago, ECB President Mario Draghi somehow managed to squeeze through his windpipe that “QE has made economies more resilient”. Even though everybody -well, everybody who’s not in Jackson Hole- knows that QE has blown huge bubbles in lots of asset classes and caused severe damage to savings and pensions, problems that will reverberate through economies for a long time and rip entire societies apart.

But they really seem to believe what they say, all of them. Which is perhaps the biggest problem of all. That is, either they know better and lie straight-faced or they are blind to what they’re doing. Which might be caused by the fact that they are completely blind to what goes on in their countries and societies, and focus exclusively on banking systems. But that’s not where financial crises reside, or at least not only there.

How do we know? Easy. Try this on for size.

78% of Americans Live Paycheck To Paycheck

No matter how much you earn, getting by is still a struggle for most people these days. 78% of full-time workers said they live paycheck to paycheck, up from 75% last year, according to a recent report from CareerBuilder. Overall, 71% of all U.S. workers said they’re now in debt, up from 68% a year ago, CareerBuilder said. While 46% said their debt is manageable, 56% said they were in over their heads. About 56% also save $100 or less each month, according to CareerBuilder.

Haven’t seen anything as ironic in a long time as having a company called CareerBuilder report on this. But more importantly, when almost 4 out of 5 people live paycheck to paycheck, that is a financial crisis right there. Just perhaps not according to the models popular in Jackson Hole. What do they know about that kind of life, anyway? So why would they care to model it?

Yellen’s Fed proudly report almost full employment -even if they felt forced to abandon their own models of it. But what does full employment constitute, what does it mean, when all those jobs don’t allow for people to live without fear of the next repair bill, the next hospital visit, their children’s education?

What does it mean when banks are profitable again and pay out huge bonuses while at the same time millions work two jobs and still can’t make ends meet? How is that not a -financial- crisis? In the economists’ models, all those jobs must lead to scarcity in the labor market, and thus rising wages. And then inflation, by which they mean rising prices. But the models fail, time and time again.

Moreover, talking about inflation without consumer spending, i.e. velocity of money, is empty rhetoric. 78% of Americans will not be able to raise their spending levels, they’re already maxed out at the end of each week, and 71% have debts on top of that. So where will the inflation, rising wages, etc., come from? When nobody has money to spend? Nobody can put that Humpty Dumpty together again.

An actual -as opposed to theoretical- recovery of wages and inflation will certainly not come from QE for banks, that much should be clear after a decade. And that is exactly where the problem is. That is why so many people work such shitty jobs. The banks may be more resilient (and that comes with a big question mark), but it has come at the cost of the economies. And no, banks are not the same as economies. Moreover, ‘saving’ the banks through asset purchases and ultra low rates has made ‘real economies’ much more prone to the next downturn.

The asset purchases serve to keep zombie firms -including banks- alive, which will come back to haunt economies -and central banks- when things start falling. The ultra low rates have driven individuals and institutions into ‘investments’ for which there has been no price discovery for a decade or more. Homes, stocks, you name it. Everyone and their pet hamster overborrowed and overpaid thanks to Bernanke, Yellen and Draghi, and their ‘policies’.

QE for banks didn’t just not work as advertized, it has dug a mile deep hole in real economies. No economy can properly function unless most people can afford to spend money. It’s lifeblood. QE for banks is not, if anything it’s the opposite.

 

Another -joined at the hip- example of what’s really happening in -and to- America, long term and deep down, and which will not be a discussion topic in Jackson Hole, is the following from the Atlantic on marriage in America. And I can hear the disagreements coming already, but bear with me.

Both the above 78% paycheck to paycheck number and the Atlantic piece on marriage make me think back of Joe Bageant. Because that is the world he came from and returned to, and described in Deer Hunting with Jesus: Dispatches from America’s Class War. The Appalachians. I don’t believe for a moment that Joe, if he were still with us, would have been one bit surprised about Trump. And reading this stuff, neither should you.

This is not something that is new, or that can be easily turned around anymore. This is the proverbial oceanliner which requires a huge distance to change course. Victor Tan Chen’s piece is a worthwhile read; here are a few bits:

America, Home of the Transactional Marriage

Over the last several decades, the proportion of Americans who get married has greatly diminished—a development known as well to those who lament marriage’s decline as those who take issue with it as an institution. But a development that’s much newer is that the demographic now leading the shift away from tradition is Americans without college degrees—who just a few decades ago were much more likely to be married by the age of 30 than college graduates were.

Today, though, just over half of women in their early 40s with a high-school degree or less education are married, compared to three-quarters of women with a bachelor’s degree; in the 1970s, there was barely a difference. [..] Fewer than one in 10 mothers with a bachelor’s degree are unmarried at the time of their child’s birth, compared to six out of 10 mothers with a high-school degree.

The share of such births has risen dramatically in recent decades among less educated mothers, even as it has barely budged for those who finished college. (There are noticeable differences between races, but among those with less education, out-of-wedlock births have become much more common among white and nonwhite people alike.)

And then you make education so expensive it’s out of reach for a growing number of people… Insult and injury.

Plummeting rates of marriage and rising rates of out-of-wedlock births among the less educated have been linked to growing levels of income inequality. [..] Why are those with less education—the working class—entering into, and staying in, traditional family arrangements in smaller and smaller numbers? Some tend to stress that the cultural values of the less educated have changed, and there is some truth to that.

But what’s at the core of those changes is a larger shift: The disappearance of good jobs for people with less education has made it harder for them to start, and sustain, relationships. What’s more, the U.S.’s relatively meager safety net makes the cost of being unemployed even steeper than it is in other industrialized countries—which prompts many Americans to view the decision to stay married with a jobless partner in more transactional, economic terms.

And this isn’t only because of the financial ramifications of losing a job, but, in a country that puts such a premium on individual achievement, the emotional and psychological consequences as well. Even when it comes to private matters of love and lifestyle, the broader social structure—the state of the economy, the availability of good jobs, and so on—matters a great deal.

This is the erosion of social cohesion. And there is nothing there to fill that void.

Earlier this year, the economists David Autor, David Dorn, and Gordon Hanson analyzed labor markets during the 1990s and 2000s—a period when America’s manufacturing sector was losing jobs, as companies steadily moved production overseas or automated it with computers and robots. Because the manufacturing sector has historically paid high wages to people with little education, the disappearance of these sorts of jobs has been devastating to working-class families, especially the men among them, who still outnumber women on assembly lines.

Autor, Dorn, and Hanson found that in places where the number of factory jobs shrank, women were less likely to get married. They also tended to have fewer children, though the share of children born to unmarried parents, and living in poverty, grew. What was producing these trends, the researchers argue, was the rising number of men who could no longer provide in the ways they once did, making them less attractive as partners.

The perks of globalization. Opioids, anyone?

[..] In doing research for a book about workers’ experiences of being unemployed for long periods, I saw how people who once had good jobs became, over time, “unmarriageable.” I talked to many people without jobs, men in particular, who said that dating, much less marrying or moving in with someone, was no longer a viable option: Who would take a chance on them if they couldn’t provide anything?

It’s not only Joe Bageant. These are also the people Bruce Springsteen talked about when he was still the Boss.

[..] The theory that a lack of job opportunities makes marriageable men harder to find was first posed by the sociologist William Julius Wilson in regard to a specific population: poor, city-dwelling African Americans. [..] In later decades of the last century, rates of crime, joblessness, poverty, and single parenthood soared in cities across the country.

[..] In a 1987 book, Wilson put forward a compelling alternative explanation: Low-income black men were not marrying because they could no longer find good jobs. Manufacturers had fled cities, taking with them the jobs that workers with less in the way of education—disproportionately, in this case, African Americans—had relied on to support their families. The result was predictable. When work disappeared, people coped as best they could, but many families and communities frayed.

By now it’s all Springsteen, Darkness on the Edge of Town. That album is some 40 years old. That’s -at least- how long this has been going on. And why it’ll be so hard to correct.

Decades later, the same storyline is playing out across the country, in both white and nonwhite communities, the research of Autor, Dorn, and Hanson (as well as others) suggests. The factory jobs that retreated from American cities, moving to suburbs and then the even lower-cost South, have now left the country altogether or been automated away.

[..] “The kinds of jobs a man could hold for a career have diminished,” the sociologists wrote, “and more of the remaining jobs have a temporary ‘stopgap’ character—casual, short-term, and not part of a career strategy.” The result: As many men’s jobs have disappeared or worsened in quality, women see those men as a riskier investment.

This next bit is painful: life ain’t gonna get any better, so we might as well have kids.

At the same time, they are not necessarily postponing when they have kids. As the sociologists Kathryn Edin and Maria Kefalas have found in interviews with low-income mothers, many see having children as an essential part of life, and one that they aren’t willing to put off until they’re older, when the probability of complications in pregnancy can increase.

For mothers-to-be from more financially stable backgrounds, the calculation is different: They often wait longer to have children, since their career prospects and earnings are likely to improve during the period when they might otherwise have been raising a child. For less-educated women, such an improvement is much rarer.

Tan Chen follows up with a comparison of European and American safety nets, and suggests that “It’s not a matter of destiny, but policy”, but I don’t find that too relevant to why I found his piece so touching.

It describes a dying society. America is slowly dying, and not all that slowly for that matter. The Fed is comfortably holed up in Jackson Hole after having handed out trillions to bankers and lured millions of Americans into buying -or increasingly renting- properties that have become grossly overpriced due to its ZIRP policies, and congratulating itself on achieving “full employment”.

Why that ever became part of its mandate, g-d knows. I know, ML King et al. But. Thing is, when full employment means 78% of people have such a hard time making ends meet that they can’t afford to keep each other in a job by spending their money in stores etc., you’re effectively looking at a dying economy. Maybe we should not call it ‘full’, but ’empty employment’ instead.

Yeah, I know, trickle down. But instead of wealth miraculously trickling down, it’s debt that miraculously trickles up. How many Americans have mortgages or rents to pay every month that gobble up 40-50% or more from their incomes? That’d be a useful stat. Model that, Janet!

The article on marriage makes clear that by now this is no longer about money. The 40+ year crisis has ‘transcended’ all that. If and when money becomes too scarce, it starts to erode quality of life, first in individuals and then also in societies. It erodes the fabric of society. And you don’t simply replace that once it’s gone, not even if there were a real economic recovery.

But there will be no such recovery. As bad as things are for Americans today, they will get a whole lot worse. That is an inevitable consequence of the market distortion that QE has wrought: a gigantic financial crisis is coming. And the crowd gathered at Jackson Hole will be calling the shots once more, and bail out banks, not people. What’s that definition of insanity again?

 

 

Aug 202017
 
 August 20, 2017  Posted by at 9:37 am Finance Tagged with: , , , , , , , , ,  1 Response »


Stanley Kubrick Shoe shine boys New York 1947

 

What Happens When Credit Spreads Finally Rise (ZH)
Don’t Forget About The Red Swan (Stockman)
Ricardo’s Vice and the Virtues of Industrial Diversity (Steve Keen)
Utilitarian Economics and the Corruption of Conservatism (Philip Pilkington)
‘The Housing Industry Is In A Time Of Major Transformation’ (AFR)
Hard Brexit ‘Offers £135 Billion Annual Boost’ To UK Economy (BBC)
Donald Trump Finally Comes Out of the Closet (Krieger)
The Coming Clash Of Empires (Gavekal)

 

 

I wasn’t going to do a Debt Rattle at all. Too much time spent in too narrow and claustrophobic echo chambers. Bunch of loud shrieking parrots. But we have to move on. Tell people who think it all makes sense that really, it doesn’t. What you see is not what you get.

 

Economics is all about cycles. Central banks trying to deny and prevent them just makes the seasons more extreme.

What Happens When Credit Spreads Finally Rise (ZH)

[..] according to one of the best minds on Wall Street today, Citi’s Matt King, what traders should be far more concerned about, is not who is in the Oval Office or how bombastic the war of words between the US and North Korea may be on any given day, but rather what central banks are preparing to unleash in the coming months. To underscore this, two weeks ago, King made a stark warning when he summarized that we are now more reliant on central banks banks holding markets together than ever before: “with asset prices displaying a high degree of correlation with central bank liquidity additions in recent years, that feedback loop makes the economy, upon which both corporate profitability and bank net interest margins depend, more reliant on central banks holding markets together than almost ever before. That delicate balance may well be sustained for the time being. But with central banks beginning to move, however gingerly, towards an exit, is it really worth chasing the last few bp of spread from here?”

One week later, he followed up with what was arguably his magnum opus on why the market is far too complacent about the threat to risk assets from the upcoming rounds of balance sheet normalization, summarized best in the following charts, showing the correlation between central bank asset purchases and the returns across global stock markets. The unspoken, if all too familiar, message was that riskier financial assets, such as credit and equities, have been artificially boosted by central bank actions, actions which are soon coming to an end whether voluntarily in the case of the Fed, or because the central bank is simply running out of eligible bonds to monetize, in the case of the ECB and BOJ.

In short, King is worried the global market is about to enter another tantrum. Is he right? To answer that question, another Citi strategist, Robert Buckland, admitting that “we are (always) worried”, takes a look at where we currently stand in the business cycle as represented by Citi’s Credit/Equity clock popularized also by Matt King in previous years.

For those unfamiliar, here is a summary of the various phases of the business cycle clock:

Phase 1: Debt Reduction – Buy Credit, Sell Equities Our clock starts as the credit bear market ends. Spreads turn down as companies repair balance sheets, often through deeply discounted share issues. This dilution, along with continued pressure on profits, keeps equity prices falling. For the present cycle, this phase began in December 2008 and ended in March 2009. Global equities fell another 21% even as US spreads tightened.

Phase 2: Profits Grow Faster Than Debt – Buy Credit, Buy Equities The equity bull market begins as economic indicators stabilise and profits recover. The credit bull market continues as improving cashflows strengthen company balance sheets. It’s all-round risk-on. This is usually the longest phase of the cycle. This began in March 2009, and according to most Wall Street analysts, is the phase we find ourselves in right now. Equity and credit investors both do well in this phase.

Phase 3: Debt Grows Faster Than Profits – Sell Credit, Buy Equities This is when credit and equities decouple again. Spreads turn upwards as fixed income investors become increasingly worried about deteriorating balance sheets. But equity markets keep rallying as EPS rise. Share prices are also boosted by the effects of higher corporate leverage, often in the form of share buybacks or M&A. This is the time to favour equities over credit.

Phase 4: Recession – Sell Credit, Sell Equities In this phase, equities recouple with credit in a classic bear market. It is associated with a global recession, collapsing EPS and worsening balance sheets. Insolvency fears plague the credit market, profit warnings plague the equity market. It’s all-round risk-off. Cash and government bonds are usually the best-performing asset classes.

Read more …

More attempts at denial of cycles.

Don’t Forget About The Red Swan (Stockman)

Given the anti-Trump feeding frenzy, we continue to believe that a Swan is on its way bearing Orange. But if that’s not enough to dissuade the dip buyers, perhaps the impending arrival of the Red Swan will at least give them pause. The chart below comprises a picture worth thousands of words. It puts the lie to the latest Wall Street belief that the global economy is accelerating and that surging corporate profits justify the market’s latest manic rip. What is actually going on is a short-lived global credit/growth impulse emanating from China. Beijing panicked early last year and opened up the capital expenditure (CapEx) spigots at the state-owned enterprises (SOEs) out of fear that China’s great machine was heading for stall speed at exactly the wrong time.

The 19th national communist party Congress scheduled for late fall of 2017. This every five year event is the single most important happening in the Red Ponzi. This time the event is slated to be the coronation of Xi Jinping as the second coming of Mao. Beijing was not about to risk an economy fizzling toward a flat line before the Congress. Yet that threat was clearly on the horizon as evident from the dark green line in the chart below which represents total fixed asset investment. The latter is the spring-wheel of China’s booming economy, but it had dropped from 22% per annum growth rate when Mr. Xi took the helm in 2012 to 10% by early 2016. There was an eruption as dramatized in the chart. CapEx growth suddenly more than doubled in the one-third of China’s economy that is already saturated in excess capacity.

The state owned enterprises (SOE) in steel, aluminum, autos, shipbuilding, chemicals, building equipment and supplies, railway and highway construction etc boomed. It was as if a switch had been flicked on by Mr. Xi himself, SOE CapEx soared back toward the 25% year-over-year rate by mid-2016, keeping total CapEx hugging the 10% growth line. However, you cannot grow an economy indefinitely by building pyramids or any other kind of low-return/no return investment – even if the initial growth spurt lasts for years as China’s had. Ultimately, the illusion of Keynesian spending gets exposed and the deadweight costs of malinvestments and excess capacity exact a heavy toll. If the investment boom that was financed with reckless credit expansion is not enough, as was the case in China where debt grew from $1 trillion in 1995 to $35 trillion today, the morning-after toll is especially severe and disruptive. This used to be called a “depression.”

China’s propagated spurt in global trade and commodities was artificial and short-term. It was done to flatter China’s rulers at the 19th party congress. Now that a favorable GDP glide path has been assured, China’s planners and bureaucracy are already back at it trying to find some way to reel in its runaway credit growth and bloated economy before it collapses.

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Globalization dissected.

Ricardo’s Vice and the Virtues of Industrial Diversity (Steve Keen)

That specialization is the primary source of economic gain has been accepted by economists ever since the famous example of the pin factory with which Adam Smith opened The Wealth of Nations: “One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; . . . ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. . . . But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day.” David Ricardo extended Smith’s vision of specialization within a given industry to specialization between industries and nations, and made the argument that two countries can benefit from free trade even if one country is absolutely less competitive in both industries than the other.

In his hypothetical example, Portugal could produce both cloth and wine with less labor than England. If England specialized at the industry it was comparatively better at (cloth, obviously) and Portugal specialized in wine, then the total output of both industries would rise. This concept of the advantages of specialization became the core insight of economics, and it continues to be ingrained in and promoted by economists today. Lionel Robbins’s proposition that “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses” is the dominant definition of economics. It implicitly emphasizes the importance of specialization, so that those “scarce means which have alternative uses” can be efficiently allocated to achieve the maximum level of output.

This belief in the advantages of specialization lies behind the incredulity with which economists have reacted to the rise of populist politicians like Donald Trump in the United States, as well as the United Kingdom’s vote for Brexit. They have, at their most self-righteous, blamed the rise of anti-globalization sentiment on the public’s irrational failure to appreciate the net benefits of trade. Or, more commonly, they have conceded that perhaps the electorate has reacted negatively because the gains from trade have not been shared fairly. There is, however, another explanation for why anti–free trade sentiment has risen: the gains from specialization at the national level were not there to share in the first place, for sound empirical reasons that were ignored in Ricardo’s example. That ignorance has been ingrained in economics since then, as Robbins’s definition—dominant and superficially persuasive, but fundamentally limited—gave economists a starting point from which they could not properly perceive either the advantages or the costs of globalization.

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Conservatism can mean: hold on to what you hold dear. Like nature. Like civility.

Utilitarian Economics and the Corruption of Conservatism (Philip Pilkington)

The Oxford English Dictionary has two definitions of the word “conservatism.” The first defines it as a “commitment to traditional values and ideas with opposition to change or innovation”; the second defines it as “the holding of political views that favor free enterprise, private ownership, and socially conservative ideas.” The former definition strikes me as the classical definition; the latter, a more modern invention—as those who supported private ownership and free enterprise, such as John Locke and Adam Smith, were in their own times thought of as progressive liberals. But is there a conflict between the two? Not inherently. With the absolute monarchies either abolished or subordinated to the will of parliaments, private ownership and free enterprise have evolved into the status quo.

Given this, one can see how someone who defends this state of affairs might see him or herself as conservative. But in defending this status quo, many who think themselves conservative have instead slipped into supporting a truly radical social doctrine—namely, utilitarianism—a doctrine that has subsequently morphed into neoclassical or marginalist economics. This is a social doctrine that has very little concern for traditional values. Indeed, it often appears to be entirely nihilistic in its consideration of value and truth. Because utilitarianism in its modern form—neoclassical or marginalist economics—is often the primary doctrine used to defend private property and free enterprise, the two definitions from the Oxford dictionary mentioned earlier begin to clash with one another.

What is the essence of the utilitarian doctrine? At its heart, it is the conversion of the human being in all of his or her richness into simplistic, self-contained atoms that are motivated only by their reaction to pleasure and pain. The individual is viewed as a creature isolated from any community: All considerations of intersubjective dynamics are subordinated to atomistic subjective dynamics. Anything resembling intersubjectivity is, in the utilitarian doctrine, merely a product of atomistic desires. There is, as Margaret Thatcher once said, no such thing as society. Simultaneously, although the individual is stripped of all faculties but the ability to feel pleasure and pain, he or she is invested with the ability to perfectly calculate how to best maximize pleasure and minimize pain. Man is divested of his all-too-human nature and endowed with the extremes of animal desires and godlike, calculating omniscience.

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Famous last words. Hey, if your paycheck depends on it… But sure, major transformation coming. Just not that one.

‘The Housing Industry Is In A Time Of Major Transformation’ (AFR)

Australia’s rising house prices reflect strong fundamentals, says Olumide Soroye, managing director of property data giant Corelogic’s US Information Solutions. Like Australia, which is experiencing rising house prices – which have doubled since the end of the global financial crisis – the US’s affordability is also worsening, Mr Soroye, who visited Australia and New Zealand last week, said. While the proportion of first-home buyers is higher in the US – 35% of total buyers compared with about 8 to 9% in Sydney and Melbourne – people trying to get into the housing markets for the first time are constrained in the US. Five years ago, first-home buyers were 50% of the US market. “The housing industry is in a time of major transformation and one of the forces at work that is going to drive that transformation is the affordability question,” Mr Soroye said.

“It exists here in the US and in Australia and New Zealand.” “Our view is the value of property since the GFC…the levels in the US while they are high they are still within range. We don’t think there is a systemic overvaluation.” “The question is, how does the system respond?” Mr Soroye said the use of macro-prudential tools – controlling lending to homebuyers – to cool the housing market was prudent and the US had done the same especially after the GFC. But that was not enough to reduce prices, and the key solution was supply, Mr Soroye said. He suggested government intervention, home design and the release of more suburban greenfield land supported by strong infrastructure. Reductions in stamp duty and assisted household funding could also help ease the affordability problem, Mr Soroye said.

Dispersing demand into the outer suburbs was another solution but it should be supported by fast trains and good roads. The pace of delivery of infrastructure must also be fast and timely. Importantly, the change in the designs of homes was crucial. Mr Soroye said in the US builders were starting to construct “multi-generational homes” to accommodate parents and their grown children on different floors. “In the context of the US, in 10 years 20% will be over 65. These are the type of parents who will have their millennial children come into their homes,” he said. “Millennials are over two thirds of first-home buyers so you need to figure out what to do with them.” And while planning was slow, particularly in NSW, Australia’s supply delivery was still better than the US and even the UK, Mr Soroye said.

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Sometimes it’s too obvious that people are just making stuff up.

Hard Brexit ‘Offers £135 Billion Annual Boost’ To UK Economy (BBC)

Removing all trade tariffs and barriers would help generate an annual £135bn uplift to the UK economy, according to a group of pro-Brexit economists. A hard Brexit is “economically much superior to soft” argues Prof Patrick Minford, lead author of a report from Economists for Free Trade. He says eliminating tariffs, either within free trade deals or unilaterally, would deliver huge gains. Campaigners against a hard Brexit said the plan amounts to “economic suicide”. The UK is part of the EU customs union, and so imposes tariffs – taxes on imports – on some goods coming into the country. Countries in the customs union don’t impose tariffs on each other’s goods, and every country inside the union levies the same tariffs on imports from abroad. So, for example, a 10% tariff is imposed on some cars imported from outside the customs union, while 7.5% is imposed on roasted coffee. Other goods have no tariffs.

The UK has said it is leaving the EU’s customs union because as a member it is unable to strike trade deals with other countries. Prof Minford’s full report, From Project Fear to Project Prosperity, is due to be published in the autumn. He argues that the UK could unilaterally – before a reciprocal deal is in place – eliminate trade barriers for both the EU and the rest of the world and reap trade gains worth £80bn a year. The report foresees a further £40bn a year boost from deregulating the economy, as well as other benefits resulting from Brexit-related policies. Prof Minford says that when it comes to trade the “ideal solution” would still be free trade deals with major economic blocks including the EU. But the threat that the UK could abolish all trade barriers unilaterally would act as “the club in the closet”.

The EU would then be under pressure to offer Britain a free trade deal, otherwise its producers would be competing in a UK market “flooded with less expensive goods from elsewhere”, his introduction says. He argues UK businesses and consumers would benefit from lower priced imported goods and the effects of increased competition, which would force firms to raise their productivity. [..] During the referendum campaign last year Prof Minford stoked controversy by suggesting that the effect of leaving the EU would be to “eliminate manufacturing, leaving mainly industries such as design, marketing and hi-tech”. However in a recent article in the Financial Times he suggested manufacturing would become more profitable post-Brexit.

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Thinking in the right direction, but not quite there yet.

Donald Trump Finally Comes Out of the Closet (Krieger)

The firing of Steve Bannon is in my opinion the most significant event to happen during the Trump administration thus far. Moreover, it will have massive reverberations across the U.S. political spectrum for years and years to come. I wasn’t planning on writing today, but this news is so incredibly significant I find myself with little choice. Taking a step back, part of the reason I was immediately able to see through the Trump con was due to my upbringing in New York City. The guy was constantly in the news my entire life, so I had a pretty decent understanding of where he was really coming from and what makes him tick. The mindset of your typical NYC-based billionaire real estate developer is filled with all sorts of perspectives and priorities, but thoughts of populism are not amongst them.

Trump used populism to get elected, and then as soon as he won, immediately appointed some of the most destructive oligarchs imaginable to run his administration. The reason I warned about this incessantly at the time, is because I learned the lesson from the Obama administration. People = policy, and the people Trump was elevating were almost unanimously awful. Irrespective of what you think of Bannon, him being out means Wall Street and the military-industrial complex is now 100% in control of the Trump administration. Prepare for an escalation of imperial war around the world and an expansion of brutal oligarchy. The removal of Bannon is the end of even a facade of populism. This is now the Goldman Sachs Presidency with a thin-skinned, unthinking authoritarian as a figurehead.

Meanwhile, guess who’s still there in addition to the Goldman executives? Weed obsessed, civil asset forfeiture supporting Jefferson Sessions. The Trump administration just became ten times more dangerous than it was before. With the coup successful, Trump no longer needs to be impeached. Here’s another prediction. Watch the corporate media start to lay off Trump a bit more going forward. Rather than hysterically demonize him for every little thing, corporate media will increasingly give him more of the benefit of the doubt. After all, a Presidency run by Goldman Sachs and generals is exactly what they like. Trump finally came out of the closet as the anti-populist oligarch he is, and the results won’t be pretty.

Corporate media got the scalp it wanted, so the hysterical criticisms of him will die down. This is not to say I think the media will become pro-Trump, it just means the obsessive and aggressive propaganda will be dialed back considerably. Trump is now inline, and he will be rewarded by the establishment for that. He will learn that the more he gets with the program, the easier his life will be and the more secure his power. He is merely being conditioned, and my forecast is that Trump will gladly embrace the worst parts of the establishment going forward. Why? Because Trump’s true worldview fits in way more with Goldman Sachs and the military-industrial complex than with populism. It always has. The whole thing was just an act to get elected. Firing Bannon is just Trump coming home to who he always was. A ruthless oligarch.

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A clash that has nothing to do with Trump.

The Coming Clash Of Empires (Gavekal)

History shows that maritime powers almost always have the upper hand in any clash; if only because moving goods by sea is cheaper, more efficient, easier to control, and often faster, than moving them by land. So there is little doubt that the US continues to have the advantage. Simple logic, suggests that goods should continue to be moved from Shanghai to Rotterdam by ship, rather than by rail. Unless, of course, a rising continental power wants to avoid the sea lanes controlled by its rival. Such a rival would have little choice but developing land routes; which of course is what China is doing. The fact that these land routes may not be as efficient as the US controlled sealanes is almost as irrelevant as the constant cost over-run of any major US defense projects. Both are necessary to achieve imperial status.

As British historian Cyril Northcote Parkinson highlighted in his mustread East And West, empires tend to expand naturally, not out of megalomania, but simple commercial interest: “The true explanation lies in the very nature of the trade route. Having gone to all expenses involved… the rule cannot be expected to leave the far terminus in the hands of another power.” And indeed, the power that controls the end points on the trading road, and the power that controls the road, is the power that makes the money. Clearly, this is what China is trying to achieve, but trying to do so without entering into open conflict with the United States; perhaps because China knows the poor track record of continental empires picking fights with the maritime power. Still, by focusing almost myopically on Russia, the US risks having its current massive head-start gradually eroded. And obvious signs of this erosion may occur in the coming years if and when the following happens:

• Saudi Arabia adopts the renminbi for oil payments • Germany changes its stripes and cozies up to Russia and pretty much gives up on the whole European integration charade in order to follow its own naked self-interest. The latter two events may, of course, not happen. Still, a few years ago, we would have dismissed such talk as not even worthy of the craziest of conspiracy theories. Today, however, we are a lot less sure. And our concern is that either of the above events could end up having a dramatic impact on a number of asset classes and portfolios. And the possible catalyst for these changes is China’s effort to create a renminbi-based gold market in Hong Kong. For while the key change to our global financial infrastructure (namely oil payments occurring in renminbi) has yet to fully arrive, the ability to transform renminbi into gold, without having to bring the currency back into China (assuming Hong Kong is not “really” part of China as it has its own supreme court and independent justice system… just about!) is a likely game-changer.

Clearly, China is erecting the financial architecture for the above to occur. This does not mean the initiative will be a success. China could easily be sitting on a dud. But still, we should give credit to Beijing’s policymakers for their sense of timing for has there ever been a better time to promote an alternative to the US dollar? If you are sitting in Russia, Qatar, Iran, or Venezuela and listening to the rhetoric coming out of Washington, would you feel that comfortable keeping your assets, and denominating your trade, in dollars? Or would you perhaps be looking for alternatives? This is what makes today’s US policy hard to understand. Just when China is starting to offer an alternative—an alternative that the US should be trying to bury—the US is moving to “weaponize” the dollar and pound other nations—even those as geo-strategically vital as Russia—for simple domestic political reasons. It all seems so short-sighted.

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Jul 312017
 


Elvis Presley with parents Gladys and Vernon 1937

 

Whatever It Took To Save The Euro (BBG)
US To Cut 755 Us Diplomatic Staff In Russia, Says Putin (AFP)
Despite Appearances, The Idea Of Social Progress Is A Myth (Satyajit Das)
China Bond Buyers Quiz Taxi Drivers to See If Credit Good (BBG)
Uber, Lyft Mangle Rental Cars & Taxis. Other Sectors Next (WS)
Pence Sketches Possible Patriot Deployment In Estonia, Vows US Support (AFP)
How Immigration Is Changing Italian and European Demographics (Sp.)
Greece’s Road to Bailout Exit: 140 Reforms Down, Many More to Go (BBG)
Greeks Can’t See Any Light At The End Of Any Tunnel (G.)
Greece: A (Basket) Case Study In Savage Globalization (Nevradakis)
‘Human Life Is More Expendable’: Why Slavery Has Never Made More Money (G.)

 

 

Cute, funny. But the real cost is much higher. It’s not just the ECB.

Whatever It Took To Save The Euro (BBG)

So how much did it end up taking after ECB President Mario Draghi memorably said five years ago he’d do “whatever it takes” to save the euro? About €1.2 trillion ($1.4 trillion). That’s the amount that the ECB’s balance sheet has expanded in the half-decade since Draghi made those remarks at a conference in London (an ironic location from today’s post-Brexit perspective.) Deutsche Bank analysts including Luke Templeman go on to note there’s several things that have changed by that magnitude – €1.2 trillion – in the past five years, in an eerie Da Vinci Code-like confluence:
• The euro region’s gross domestic product has risen about €1.2 trillion
• The Federal Reserve’s balance sheet has also climbed the equivalent of roughly €1.2 trillion
• The combined market cap of the FANG stocks – Facebook, Amazon, Netflix and Alphabet – has jumped about the equivalent of €1.2 trillion

Templeman and his colleagues warn against making too much of the symmetry. After all, for the U.S. numbers to be related, it would suggest “every bond the Federal Reserve bought drove people to spend more time on these websites.”

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Think uranium.

US To Cut 755 Us Diplomatic Staff In Russia, Says Putin (AFP)

President Vladimir Putin on Sunday said the United States would have to cut 755 diplomatic staff in Russia and warned of a prolonged gridlock in its ties after the US Congress backed new sanctions against the Kremlin. Putin added bluntly that Russia was able to raise the stakes with America even further, although he hoped this would be unnecessary. A US State Department official denounced the move as a “regrettable and uncalled for act,” adding that Washington was now weighing a potential response. On Friday, the Russian foreign ministry demanded Washington cut its diplomatic presence in Russia by September 1 to 455 people – the same number Moscow has in the US.

“More than a thousand people – diplomats and technical personnel – were working and are still working” at the US embassy and consulates, Putin said in an interview with Rossia-24 television. The US State Department would not confirm the number of US officials serving at the mission. Putin added that an upturn in Russia’s relations with Washington could not be expected “any time soon.” “We have waited long enough, hoping that the situation would perhaps change for the better,” he said. “But it seems that even if the situation is changing, it’s not for any time soon.” Putin warned that Russia could further ratchet up the pressure, but he hoped this would not be needed.

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“If you are not busy being born, you are busy buying”.

Despite Appearances, The Idea Of Social Progress Is A Myth (Satyajit Das)

The undeniable improvement in living standards over the last 150 years is seen as evidence of progress. Improvements in diet, health, safe water, hygiene and education have been central to increased life spans and incomes. The lifting of billions of people globally out of poverty is a considerable achievement. But many of these individuals earn between $2 and $10 dollars a day. Their position is fragile, exposed to the vicissitudes of health, employment, economic conditions and political and societal stability. As William Gibson observed: “The future is already here — it’s just not very evenly distributed”. Economic progress also has come at a cost. Growth and wealth is increasingly based on borrowed money, used to purchase something today against the uncertain promise of paying it back in the future.

Debt levels are now unsustainable. Growth has been at the expense of existentially threatening environmental changes which are difficult to reverse. Higher living standards rely on the profligate use of under-priced, finite resources, especially water and energy, which have been utilised without concern about conservation for future use. Current growth, short-term profits and higher living standards for some are pursued at the expense of costs which are not evident immediately but will emerge later. Society has borrowed from and pushes problems into the future. The acquisition of material goods defines progress. The concept of leisure as shopping and consumption as the primary economic engine now dominate. Altering Bob Dylan’s lyrics, the Angry Brigade, an English anarchist group, described it as: “If you are not being born, you are busy buying”.

[19th-century Thomas Carlyle], who distrusted the “mechanical age”, would have been puzzled at the unalloyed modern worship of technology. Much of our current problems, environmental damage and pollution, are the unintended consequences of technology, especially the internal combustion engine and exploitation of fossil fuels. The invention of the motor vehicle was also the invention of the car crash. Technology applied to war continues to create human suffering. Mankind’s romance with technology increasingly is born of a desperate need for economic growth and a painless, cheap fix to problems such as reducing in greenhouse gas without decreasing living standards.

[..] Pre-occupation with narcissistic self-fulfilment and escapist entertainment is consistent with Carlyle’s concern about the loss of social cohesiveness, spirituality and community. His fear of a pervasive “philosophy of simply looking on, of doing nothing, of laissez-faire … a total disappearance of all general interest, a universal despair of truth and humanity, and in consequence a universal isolation of men in their own ‘brute individuality” … a war of all against all … intolerable oppression and wretchedness” seems modern.

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Taxi drivers and shoeshine boys. There’s your peak.

China Bond Buyers Quiz Taxi Drivers to See If Credit Good (BBG)

In China, taxi rides aren’t just a form of transportation any more. They’ve also become useful for bond buyers doing due diligence. Dining out at restaurants is also helpful. It’s all part of a boom in field trips by market participants coming to grips with a new reality in China: the potential for bond defaults. After decades when authorities effectively provided blanket assistance to keep troubled companies from going under, the Communist leadership’s focus on shuttering unproductive assets has upended the market. A total of 45 onshore corporate bonds have defaulted since the start of last year, a surge from the eight recorded in 2014 and 2015 – which themselves were the first since the market was established in the 1980s. While China has the world’s third-largest bond market, corporate financial transparency can be limited, forcing investors to get creative.

“If you just sit in the office, you would never know if an issuer has actually closed business,” said Xu Hua at Colight Asset Management in Shanghai. “When you go to the local places, be sure to have a chat with taxi drivers or restaurant customers after talking to the issuer – ask them if they have friends working for the company. Has their friends’ pay been cut or raised this year? Has the company delayed paying salaries? What’s the local reputation?” Recent incidents have showcased concerns about corporate governance and disclosure standards. The onshore bonds of two China Hongqiao units slumped in March after the world’s biggest aluminum maker said full-year results may be delayed because of issues raised by its auditor. Bondholders of China Shanshui Cement are still trying to recoup most of their money – at one point the company said it couldn’t repay interest without a company seal.

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We really want monopolies? They’re calling it freedom, and beneficial, but…

Uber, Lyft Mangle Rental Cars & Taxis. Other Sectors Next (WS)

Rideshare companies – mostly Uber, but now also Lyft elbowing into the scene – are changing the way business travelers look at ground transportation. In the process, these worker bees, who’re spending their company’s money, are not only crushing the taxi business but also that end of the rental car business. The collapse of business travel spending on taxis and rental cars is just stunning. And there is no turning back. Uber’s and Lyft’s combined share of the ground transportation market in terms of expense account spending in the second quarter has soared to 63%, with Uber hogging 55% and Lyft getting 8%. The share of taxis has plunged to 8%, now equal with Lyft for the first time, according to Certify, which provides cloud-based expense management software.

Uber hit that point in Q1 2015, when expense account spending on Uber matched spending on taxis for the first time, each with 25% of the market; rental cars still dominated with a 50% share. But that was an eternity ago. Note that the share of rental cars and taxis has declined at roughly the same rate. Uber’s growth in the business travel ground transportation market has continued despite its constant drumbeat of intricate debacles in the news, but the rate of growth has slowed. And Lyft’s rate of growth has surged. The chart above shows this surge in the growth rate of Lyft, which caused its share to jump from 3% a year ago to 8% now.

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We all know of teh US promise to Russia to not expand NATO.

Pence Sketches Possible Patriot Deployment In Estonia, Vows US Support (AFP)

US Vice President Mike Pence on Sunday raised the possibility of deploying the Patriot anti-missile defence system in Estonia, one of three NATO Baltic states worried by Russian expansionism, Prime Minister Juri Ratas said. “We spoke about it today, but we didn’t talk about a date or time,” Ratas told state broadcaster ERR after Pence began a visit to the tiny frontline state. The Patriot is a mobile, ground-based system designed to intercept incoming missiles and warplanes. “We talked about the upcoming (Russian military) manoeuvres near the Estonian border… and how Estonia, the United States and NATO should monitor them and exchange information,” Ratas said.

Relations between Moscow and Tallinn have been fraught since Estonia broke free from the crumbling Soviet Union in 1991, joining both the EU and NATO in 2004 – a move that Russia says boosted its own fears of encirclement by the West. Concern in Estonia and fellow Baltic states Latvia and Lithuania surged after Russia annexed Crimea from Ukraine in 2014 and stepped up military exercises. Pence, in remarks to journalists in the Estonian capital of Tallinn, spoke in strong but general terms about US support for eastern European countries. On Monday, he heads to Georgia – a non-NATO member that is also worried about Russia – and then to Montenegro, which became NATO’s 29th member on June 5. “President (Donald) Trump sent me to Europe with a very simple message. And that is that America first doesn’t mean America alone,” Pence said.

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This is not going to be smooth. Throw in a fierce financial crisis and what do you get?

How Immigration Is Changing Italian and European Demographics (Sp.)

Some European countries, namely Italy, Germany, France and the UK, are facing the so-called “substitution of nations,” where the national ethnical majority is disappearing physically and biologically, and is being substituted by migrants, according to a recent report. Sputnik Italy discussed the issue with Daniele Scalea, the author of the report. The recent report of the Italian-based Machiavelli Center of Political and Strategic Studies, “How immigration is changing Italian demographics” has revealed that a number of European countries are facing the “biological and physical extinction” of their national ethnicities. Ethnic majorities in such countries as Italy, Germany, France and the UK, are gradually turning into ethnic minorities, while being “substituted” by incoming migrants. Sputnik Italy discussed the issue with Daniele Scalea, an analyst at the center and the author of the report.

Migration is drastically changing the habitual course of life in Italy, he told Sputnik. The reason for the influx of African migrants into Europe is not wars or catastrophes, but an explosive demographic increase on the African continent, from 9% to 25% of the global population throughout the last century. While Europe, which accounted for over a fifth of the entire world population in 1950 (22%), is expected to make up just 7% of the world population in the year 2050, the%age of the African population will make a sweeping rise from 9% to 40%. Italy’s fertility rate is less than half of what it was in 1964, the analyst explained in his report. It has dropped from 2.7 children per woman to just 1.5 children per woman currently, a figure well below the replacement level for zero population growth of roughly 2.1 children per woman.

As of the first half of this year, Italy had over 5 million foreigners living as residents, a remarkable 25% growth relative to 2012 and a whopping 270% since 2002. At that time, foreigners made up just 2.38% of the population while 15 years later the figure has nearly trebled to 8.33% of the population. Moreover, even the children being born in Italy are overrepresented by immigrants, whose birthrate is considerably higher than native Italians, the study revealed. It is “unsurprising,” therefore, that Italian regions with the highest fertility rates are no longer in the south, as was usual the case, but in the Italian north and in the Lazio region, where there is a higher concentration of immigrants. If current trends continue, by 2065, first- and second-generation immigrants will exceed 22 million persons, or more than 40% of Italy’s total population.

By comparison, it was only in the not far-off 2001 that the percentage of foreigners living in Italy crossed the low threshold of 1%, which reveals the speed and magnitude of demographic change occurring in Italy, a phenomenon “without precedent” in Italy’s history, the study asserts.

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Waterboarding. Disregard all stories of recovery.

Greece’s Road to Bailout Exit: 140 Reforms Down, Many More to Go (BBG)

Greece’s hard times aren’t over. A return to the bond market last week, the pledge of 8.5 billion euros ($9.5 billion) in new loans from euro-area creditors, the possibility of more money from the International Monetary Fund and a S&P Global Ratings outlook upgrade have coalesced to bolster investor sentiment that Greece has turned a corner. Trouble is, much depends on the country implementing reforms — dozens of the 140 measures agreed to are in various stages of application and more than 100 additional actions are needed to access the remaining 26.9 billion euros in funds before the current bailout program ends in August 2018. While the evidence of belt-tightening is everywhere in Greece, from falling incomes to rising poverty, the country has less to show in terms of structural overhauls.

Creditor demands for more measures threaten to become politically explosive as Greek citizens and businesses count the cost of the financial crisis that has thrown their lives into turmoil over the last seven years. Over the years, creditors have imposed reforms that have affected the daily lives of Greeks, from requiring receipts for tax breaks and e-prescriptions for patients to prevent abuse to pension payout cuts of as much as 50%. While Greece’s record of implementing reforms hasn’t won it any kudos, it is now hitting against even more challenging structural measures aimed at profoundly changing entrenched habits. The real problem is with reforms like fixing the tax system and the judiciary that require “long implementation,” said Gerassimos Moschonas, an associate professor of comparative politics at Panteion University in Athens. Belt-tightening measures have had a dramatic effect on life, making further long-lasting reforms difficult, he said.

“The income of an average household has decreased at least 40% during the crisis, poverty risk has increased 35.6%, pension cuts are enormous and there is over-taxation,” he said. Since Greece became the epicenter of the European debt crisis in 2010, the country has agreed to austerity measures to restructure its economy, which has shrunk by more than a quarter over the period. In exchange, euro-area creditors and the IMF have provided more than 260 billion euros in bailout funds to keep Greece afloat. “Progress with structural reforms has fallen far short of what is needed to allow Greece to succeed in the euro zone, but the program foresees some intensification of efforts,” the IMF said in its report on July 20.

Prime Minister Alexis Tsipras’s government is struggling to squeeze pensions even more, allow Sunday openings for stores – which could threaten the livelihoods of small mom-and-pop shops that dot the country – consider further taxes and change labor laws that would make it even harder for employees to go on a strike. “There’s no serious implementation,” of difficult structural reforms, said Moschonas. “The Greek state has failed” to put them in place even after they were voted in parliament because of a lack of political will and the absence of technical expertise, he said.

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Got them by the balls.

Greeks Can’t See Any Light At The End Of Any Tunnel (G.)

Athens, like most urban centres, has been hardest hit by a crisis that has seen the country’s economic output contract by a devastating 26%. A study by the DiaNeosis thinktank found that 15% of the population, or 1,647,703 people, in 2015 earned below the extreme poverty threshold. In 2009 that number did not exceed 2.2%. The net wealth of Greek households fell by a precipitous 40% in the same period, according to the Bank of Greece. Unemployment, austerity’s most pernicious effect, hovers around 22%, by far the highest in the EU, despite a 5% drop in the last two years. Although the worst is over in terms of fiscal adjustment, few believe Greece will be able to escape a fourth bailout even if Athens regains market access when its current EU-IMF sponsored programme ends in August next year.

“It is very difficult to see the country being able to make a clean exit [from international stewardship] and raise the sort of money it needs to refinance its debt,” said Kyriakos Pierrakakis, director of research at DiaNeosis. “It will almost certainly need a new financial credit line, a bailout light, and that will come with new conditions.” In such circumstances, faith in government claims that the country has turned the corner – based as much on last week’s market foray as completion of a landmark compliance review and disbursement of €8.5bn in bailout funds – is in short supply. “Greeks can’t see any light at the end of any tunnel,” said Christodoulaki, shaking her head in disbelief. “They won’t believe anything at this point until they see it for real in front of their eyes.”

Across town in the communist party stronghold of Kaisariani, municipal authorities are already preparing for winter. In the giant 1960s concrete town hall, the social services department has lined up fundraising events, including concerts and theatre performances, to finance food donations that local stores and supermarkets can no longer afford to make. “Needs have grown exponentially,” said Marilena Christodoulou, her office wall adorned with the slogan “poverty is not a crime”.

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Last bits of a really good piece from a Greek American.

Greece: A (Basket) Case Study In Savage Globalization (Nevradakis)

Jean-Paul Sartre once famously stated that “a lost battle is a battle one thinks one has lost.” The tragic reality in Greece today, most Greeks, beaten down by the crisis and by the effects of what can be described as savage globalization, are plagued by feelings of collective guilt, self-loathing, hopelessness, feelings of inferiority, and apathy. The “inferiority” of Greece and the Greek people, and their “guilt,” are accepted as “facts of life.” It is, therefore, no surprise to see Greece ranked fourth worldwide in Bloomberg’s misery index for 2017. When one believes they have lost a battle, that means that they also recognize some other entity as the victor. In the case of Greece, that victor could be recognized as the EU and countries considered by average Greeks as “superior” and “civilized.” Writing in 1377, North African historian and historiographer Ibn Khaldun provides us with insights which could help explain Greece’s “xenomania” and nationwide Stockholm Syndrome today:

“The vanquished always want to imitate the victor in his distinctive mark, his dress, his occupation, and all his other conditions and customs. The reason for this is that the soul always sees perfection in the person who is superior to it and to whom it is subservient. It considers him perfect, either because the respect it has for him impresses it, or because it erroneously assumes that its own subservience to him is not due to the nature of defeat but to the perfection of the victor. If that erroneous assumption fixes itself in the soul, it becomes a firm belief. The soul, then, adopts all the manners of the victor and assimilates itself to him. This, then, is imitation.” It is, unfortunately, this very imitation that one observes in crisis-stricken Greece today. A society where the majority whines and complains, or simply gets up and leaves, but does not demand.

A nation that is demoralized; defeated; consumed by hopelessness; devoid of pride, self-respect, and self-confidence; paralyzed by fear; hampered by ignorance; and gripped by feelings of inferiority, cannot deliver change. This situation, of course, suits the powers that be magnificently. A society of self-loathers, a nation that is defeated and demoralized, will not pose a threat to those responsible for that oppression, while other “civilized” countries reap the ancillary benefits of the crisis, as the economic beneficiaries of the mass exodus and “brain drain” from Greece. This is savage globalization in action. In other words, Greece is a prime candidate for, in the words of Oscar López Rivera, the kickstarting of a decolonization process. His words may have been intended for Puerto Rico, but they are similarly applicable to Greece. But will the people of Greece heed Oscar’s words?

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21 million slaves. And we talk about Scaramucci’s rants.

‘Human Life Is More Expendable’: Why Slavery Has Never Made More Money (G.)

Slave traders today make a return on their investment 25-30 times higher than their 18th- and 19th-century counterparts. Siddharth Kara, a slavery economist and director of the Carr Center for Human Rights Policy at Harvard Business School, has calculated that the average profit a victim generates for their exploiters is $3,978 (£3,030) a year. Sex trafficking is so disproportionately lucrative compared to other forms of slavery that the average profit for each victim is $36,000. In his book Modern Slavery, to be published in October, Kara estimates that sex trafficking accounts for 50% of the total illegal profits of modern slavery, despite sex trafficking victims accounting for only 5% of modern slaves. Kara based his calculations, shared exclusively with the Guardian, on data drawn from 51 countries over a 15-year period, and from detailed interviews with more than 5,000 individuals who have been victims of slavery.

The first move to eradicate slavery was made in 1833, when the British parliament abolished it, 26 years after outlawing the trade in slaves. Nonetheless, at least twice as many people are trapped in some form of slavery today as were traded throughout the 350-plus years of the transatlantic slavery industry. Experts believe roughly 13 million people were captured and sold as slaves by professional traders between the 15th and 19th centuries. Today, the UN’s International Labour Organisation believes at least 21 million people worldwide are in some form of modern slavery. “It turns out that slavery today is more profitable than I could have imagined,” Kara said. “Profits on a per slave basis can range from a few thousand dollars to a few hundred thousand dollars a year, with total annual slavery profits estimated to be as high as $150bn.”

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