Feb 192017
 
 February 19, 2017  Posted by at 10:23 am Finance Tagged with: , , , , , , , , ,  4 Responses »


John Vachon Beer signs on truck, Little Falls, Minnesota 1940

 

Fed: From Lender Of Last Resort To Destroyer Of American Wealth (DDMB)
“There’s Something Weird Going On”: The Global Dollar Shortage (ZH)
Merkel Suggests Euro Is Too Low For Germany (R.)
Empowering “Deep State” is Prescription for Destroying Democracy (Greenwald)
Sekulow: Obama Should Be “Held Accountable” For “Soft Coup” Against Trump (ZH)
Russia Calls For ‘Post-West’ World Order – Lavrov (R.)
Lavrov on US Election Hacking Claims: ‘Give Us Some Facts’ (BBG)
Nine People Flee US Border Patrol To Seek Asylum In Canada (R.)
GMO Crops Are Driving Genocide And Ecocide – Keep Them Out Of The EU! (Paul)
‘From Bad To Worse’: Greece Hurtles Towards A Final Reckoning (O.)
Greek Banks Worry Over Sudden Bad Loan Spike In January (K.)
Greeks Turn to the Black Market as Another Bailout Showdown Looms (NYT)
Tensions Escalate In Aegean As Turkish Boat Fires Shots in Greek Waters (K.)
Defend The Sacred (Bell)

 

 

Looks like a must read: [..] a special preview excerpt from FED UP: An Insider’s Take on Why The Federal Reserve is Bad for America by Danielle DiMartino Booth.

She agrees with me: “The one true growth industry? That would be all that high cotton harvested in high finance. Since 2007, world debt has grown by about $60 trillion, enriching legions of investment bankers one bond deal at a time.”

Fed: From Lender Of Last Resort To Destroyer Of American Wealth (DDMB)

Created in 1913 after the Panic of 1907, the Federal Reserve was founded to keep the public’s faith in the buying power of the U.S. dollar. After failing miserably in the 1930s, the Fed aimed to be more responsive. This led the institution to find discipline in the rising macroeconomic models championed by top monetary theorists. During the ensuing “Quiet Period” in American banking, deposit insurance prevented panics, the Fed controlled interest rates and manipulated the money supply, and though occasional disruptions flared, like the failure of Continental Illinois National Bank and Trust Company in 1984, no systemic risk erupted for seventy years. The Fed had tamed the volatile U.S. economy.

Until September 2008, when all hell broke loose in a worldwide panic that completely blindsided and, embarrassed the Federal Reserve. The Fed had used billions of dollars in taxpayer funds to bail out Wall Street fat cats. Everyone blamed the Fed. Just before 9 a.m., the door to the chairman’s office opened. Federal Reserve Chairman Ben Bernanke took his place in an armchair at the center of a massive oval table. The members of the FOMC found their designated places around the table; aides sat in chairs or couches against the wall. With staff, the room contained fifty or sixty people, far more than normal for this momentous occasion. In front of each FOMC member was a microphone to record their words for posterity. To a casual observer, the content of their conversation would be obscured by economic jargon.

This day, their essential task was to vote on whether to take the “fed funds” rate—the interest rate at which banks lent money to each other in the overnight market—to the zero bound. The history-making low rate would ripple throughout the economy, affecting the price to borrow for businesses and consumers alike. Bernanke was calm but insistent. His lifetime of study of the Great Depression indicated this was the only way. His sheer depth of knowledge about the Fed’s mishandling of that tragic period was undoubtedly intimidating. By the end of the meeting, the vote was unanimous. The FOMC officially adopted a zero-interest-rate policy in the hopes that companies teetering on the brink of insolvency would keep the lights on, keep employees on their payrolls, and keep consumers spending. It would even pay banks interest on deposits.

Free cash. We’ll even pay you to take it! As they gathered their belongings, everyone shook hands, all very collegial despite the sometimes vigorous discussion. They journeyed back to their nice homes in the toniest neighborhoods of America’s richest cities: New York, Boston, Philadelphia, Chicago, Dallas, San Francisco, Washington, DC. They returned to their lofty perches, some at the Eccles Building, others to the executive floors of Federal Reserve District Bank buildings, safely cushioned from the decision they had just made. Most of them were wealthy or had hefty defined benefit pensions. Their investments were socked away in blind trusts. They would feel no pain in their ivory towers.

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A Eurodollar is a dollar held anywhere outside the US.

“There’s Something Weird Going On”: The Global Dollar Shortage (ZH)

While we urge readers to listen to the full interview below, here are some of the highlights, starting with “why the Dollar shortage a symptom of an inherently unstable system.” As Snider explains, “the dollar shortage isn’t so much the shortage per se, it’s the fact that it’s a symptom of what is an inherently unstable system.” He notes that “the reason banks are withdrawing from the system is that it’s just is no longer tenable” and “so there has to be some kind of – whether you want to look at it like another Bretton Woods – conference, a global monetary system, a global monetary get together where people start to analyze solutions to the problem as they are rather than keep trying to apply band aids that are not going to work. ” But, he concludes, “step one of that task is to actually recognize the problem as it is and so doing more stimulus or doing more QE isn’t going to solve anything it isn’t do anything just like prior QEs and prior stimulus haven’t done anything either because the problem is an unstable system.”

Snider focuses on the Eurodollar system, which he defines as a problem of “decay and dysfunction” and explains that “nothing ever happens in a straight line even the Eurodollar problem has not been a singular event. It’s not been a decade long straight line of decay and dysfunction.” He goes on to say that the fact that after enough time these markets have adjusted to the fact that the economy’s going to be bad for a very long time until something actually changes and so true reflation is predicated on something actually changing rather than the hope that something might change.

Looking at history, Snider observes that “what happened in July 2008 obviously was the fact that everyone decided almost all at once that wasn’t the right interpretation of what the Fed was doing nor was it the right interpretation of the dollar system overall. So, that reflation ended in reality which was the dollar system was eroding and it was eroding in a very dangerous way and that’s why oil prices essentially crashed from July till I think January 2009.” An implication of the ongoing reserve currency funding shortage is that, according to Snider, despite the occasional blip (arguably funded by massive Chinese credit creation), “reflation is going to fail and there’s nothing the Fed can do about it.” He goes on to state that “until they fix the global dollar problem we’re not going to fix the global economy and so we’re kind of stuck gyrating between various levels of really bad. We go from the lack of recovery to what looks like a global recession to the lack of recovery and back again” as a result he thinks that “reflation is going to fail.”

[..] Snider summarizes by saying that “the fact that these markets realize that there’s a problem in Eurodollar system, there’s no banking to be had, no additional marginal banking capacity being added and without it none of these stuff really matters, none of these other stuff really matters. That’s the only thing that truly matters” and concludes gloomily that “the probability scenarios for economic and financial future are much darker now than they were three years ago.”

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It’s blowing the EU apart but its de facto leader says she has “no power to address this problem”. That’s just great.

Merkel Suggests Euro Is Too Low For Germany (R.)

German Chancellor Angela Merkel suggested on Saturday that the euro was too low for Germany but made clear that Berlin had no power to address this “problem” because monetary policy was set by the independent ECB. Merkel made her remarks at the Munich Security Conference as U.S. Vice President Mike Pence looked on. They seemed aimed at addressing recent criticism from a top trade adviser to President Donald Trump, who has accused Germany of profiting from a “grossly undervalued” euro. “We have at the moment in the euro zone of course a problem with the value of the euro,” Merkel said in an unusual foray into foreign exchange rate policy.

“The ECB has a monetary policy that is not geared to Germany, rather it is tailored (to countries) from Portugal to Slovenia or Slovakia. If we still had the (German) D-Mark it would surely have a different value than the euro does at the moment. But this is an independent monetary policy over which I have no influence as German chancellor.” The euro has fallen nearly 25% against the dollar over the past three years, touching a 14-year low of $1.034 in January. But it has since risen to roughly $1.061. In late January, Peter Navarro, the head of Trump’s new National Trade Council, said the euro’s low valuation was giving Germany an edge over the United States and its European Union partners. His comments came weeks after Trump himself said the dollar’s strength against the Chinese yuan “is killing us”, deepening concerns that his administration could pursue a more confrontational, protectionist approach to trade. Merkel and other German officials pushed back forcefully at the time.

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Lots of Deep State pieces these days. Greenwald provides some balance.

Empowering “Deep State” is Prescription for Destroying Democracy (Greenwald)

The deep state, although there’s no precise or scientific definition, generally refers to the agencies in Washington that are permanent power factions. They stay and exercise power even as presidents who are elected come and go. They typically exercise their power in secret, in the dark, and so they’re barely subject to democratic accountability, if they’re subject to it at all. It’s agencies like the CIA, the NSA and the other intelligence agencies, that are essentially designed to disseminate disinformation and deceit and propaganda, and have a long history of doing not only that, but also have a long history of the world’s worst war crimes, atrocities and death squads. This is who not just people like Bill Kristol, but lots of Democrats are placing their faith in, are trying to empower, are cheering for as they exert power separate and apart from—in fact, in opposition to—the political officials to whom they’re supposed to be subordinate.

And you go—this is not just about Russia. You go all the way back to the campaign, and what you saw was that leading members of the intelligence community, including Mike Morell, who was the acting CIA chief under President Obama, and Michael Hayden, who ran both the CIA and the NSA under George W. Bush, were very outspoken supporters of Hillary Clinton. In fact, Michael Morell went to The New York Times, and Michael Hayden went to The Washington Post, during the campaign to praise Hillary Clinton and to say that Donald Trump had become a recruit of Russia. The CIA and the intelligence community were vehemently in support of Clinton and vehemently opposed to Trump, from the beginning. And the reason was, was because they liked Hillary Clinton’s policies better than they liked Donald Trump’s.

One of the main priorities of the CIA for the last five years has been a proxy war in Syria, designed to achieve regime change with the Assad regime. Hillary Clinton was not only for that, she was critical of Obama for not allowing it to go further, and wanted to impose a no-fly zone in Syria and confront the Russians. Donald Trump took exactly the opposite view. He said we shouldn’t care who rules Syria; we should allow the Russians, and even help the Russians, kill ISIS and al-Qaeda and other people in Syria. So, Trump’s agenda that he ran on was completely antithetical to what the CIA wanted. Clinton’s was exactly what the CIA wanted, and so they were behind her. And so, they’ve been trying to undermine Trump for many months throughout the election. And now that he won, they are not just undermining him with leaks, but actively subverting him. There’s claims that they’re withholding information from him, on the grounds that they don’t think he should have it and can be trusted with it. They are empowering themselves to enact policy.

Now, I happen to think that the Trump presidency is extremely dangerous. You just listed off in your news—in your newscast that led the show, many reasons. They want to dismantle the environment. They want to eliminate the safety net. They want to empower billionaires. They want to enact bigoted policies against Muslims and immigrants and so many others. And it is important to resist them. And there are lots of really great ways to resist them, such as getting courts to restrain them, citizen activism and, most important of all, having the Democratic Party engage in self-critique to ask itself how it can be a more effective political force in the United States after it has collapsed on all levels. That isn’t what this resistance is now doing.

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The timing is indeed very peculiar.

Sekulow: Obama Should Be “Held Accountable” For “Soft Coup” Against Trump (ZH)

[..] what until recently was a trickle of private data captured about US individuals by the NSA with only a handful of people having full, immersive access, suddenly became a firehose with thousands of potential witnesses across 16 other agencies, each of whom suddenly became a potential source of leaks about ideological political opponents. And with the universe of potential “leaking” culprits suddenly exploding exponentially, good luck finding the responsible party. However, the implications are far more serious than just loss of privacy rights. According to civil right expert and prominent First Amendement Supreme Court lawyer, Jay Sekulow, what the agencies did by leaking the Trump Administration information was not only illegal but “almost becomes a soft coup”, one which was spurred by the last minute rule-change by Obama, who intentionally made it far easier for leaks to propagate, and next to impossible to catch those responsible for the leaks.

This is his explanation: “There was a sea-change here at the NSA with an order that came from president Obama 17 days before he left office where he allowed the NSA who used to control the data, it now goes to 16 other agencies and that just festered this whole leaking situation, and that happened on the way out, as the president was leaving the office. Why did the Obama administration wait until it had 17 days left in their administration to put this order in place if they thought it was so important. They had 8 years, they didn’t do it, number one. Number two, it changed the exiting rule which was an executive order dating back to Ronald Reagan, that has been in place until 17 days before the Obama administration was going to end, that said the NSA gets the raw data, and they determine dissemination.

Instead, this change that the president put in place, signed off by the way by James Clapper on December 15, 2016, signed off by Loretta Lynch the Attorney General January 3, 2017, they decide that now 16 agencies can get the raw data and what that does is almost creates a shadow government. You have all these people who are not agreeing with President Trump’s position, so it just festers more leaks. If they had a justification for this, wonderful, why didn’t they do it 8 years ago, 4 years ago, 3 years ago. Yet they wait until 17 days left. One potential answer: they knew they had a “smoking gun”, and were working to make it easier to enable the information to be “leaked” despite the clearly criminal consequences of such dissemination.

As this point Hannity correctly points out, “it makes it that much more difficult by spreading out the information among 16 other agencies, if they want to target or take away the privacy rights, and illegally tap the phones, in this case General Flynn, it’s going to be much harder to find the perpetrator. Sekulow confirms, noting that back when only the NSA had access to this kind of raw data, there would be a very small amount of people who have access to this kind of data. “But this change in the Obama Administration was so significant that they allowed dissemination to 16 other agencies, and we wonder why there’s leaks.” Sekulow’s conclusion: “President Obama, James Clapper, Loretta Lynch should be held accountable for this.”

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Russia’s no big fan of -unfetterred- globalization either: “I hope that (the world) will choose a democratic world order – a post-West one – in which each country is defined by its sovereignty.”

Russia Calls For ‘Post-West’ World Order – Lavrov (R.)

Russian Foreign Minister Sergei Lavrov called Saturday for an end to a world order dominated by the West and said Moscow wanted to establish a “pragmatic” relationship with the United States. Lavrov was speaking at the Munich Security Conference shortly after US Vice President Mike Pence told the audience Washington remained “unwavering” in its commitment to the US-led NATO military alliance as it faced a more assertive Russia. Lavrov said that the time when the West called the shots was over and, dismissing NATO as a relic of the Cold War, added: “I hope that (the world) will choose a democratic world order – a post-West one – in which each country is defined by its sovereignty.”

Lavrov said Moscow wanted to build relations with Washington which would be “pragmatic with mutual respect and acknowledgement of our responsibility for global stability.” The two countries had never been in direct conflict, he said, noting that they were actually close neighbours across the Baring Straits. Russia wanted to see a “common space of good neighbour relations from Vancouver to Vladivostok,” he added. Pence was in Europe along with Secretary of State Rex Tillerson and defence chief James Mattis as part of efforts to reassure allies rattled by President Donald Trump’s “America First” stance and his calls for improved ties with Russia despite the continuing crisis in Ukraine.

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“He said Russia had “many years ago” initiated work at the United Nations to discuss information security. “Our western partners evaded that work..”

Lavrov on US Election Hacking Claims: ‘Give Us Some Facts’ (BBG)

Foreign Minister Sergei Lavrov pushed back against accusations that Russian hackers meddled in last year’s U.S. presidential election, saying no one had put forward any proof and former President Barack Obama’s administration ignored repeated overtures to discuss cyber-security norms. “Somehow when we are blamed, no one asked for facts,” Lavrov said at the Munich Security Summit on Saturday. “Give us some facts.” In his remarks, made in response to an audience question about whether Russia interferes in other countries’ elections, Lavrov portrayed Russia as a leader in efforts to focus on information security. He said Russia had “many years ago” initiated work at the United Nations to discuss information security. “Our western partners evaded that work,” he said.

After Donald Trump won the election in November, the U.S. intelligence community issued an assessment that Russia sought to sway the election in his favor through the hacking of the Democratic National Committee and Hillary Clinton’s campaign staff. In the waning days of his administration, Obama imposed new sanctions on Russia’s military intelligence agency and the successor agency to the KGB, saying the actions had been directed “at the highest level” of the government. [..] “I have seen no facts, there were just some accusations that we tried to hack some Democratic party website; that’s happening in France, Germany, Italy,” Lavrov said. He went on to point blame at the U.S. and make a reference to recent leaks that the CIA may have spied on French political parties before the 2012 election there. WikiLeaks released e-mails making that claim this week.

Lavrov said he had suggested to the Obama administration in 2015 that the two countries discuss working together on cyber-security, and repeatedly asked former Secretary of State John Kerry about the proposal. “For a year we had no reaction from them,” he said. “Then in December last year they said let’s meet, and later they said now we have transitional administration let’s postpone it.”

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Not the first time in history people flee from the US to Canada.

Nine People Flee US Border Patrol To Seek Asylum In Canada (R.)

Nine asylum-seekers, including four children, barely made it across the Canadian border on Friday as a U.S. border patrol officer tried to stop them and a Reuters photographer captured the scene. As a U.S. Customs and Border Patrol officer seized their passports and questioned a man in the front passenger seat of a taxi that had pulled up to the border in Champlain, New York, four adults and four young children fled the cab and ran to Royal Canadian Mounted Police on the other side. One by one they scrambled across the snowy gully separating the two countries. RCMP officers watching from the other side helped them up, lifting the younger children and asking a woman, who leaned on her fellow passenger as she walked, if she needed medical care. The children looked back from where they had come as the U.S. officer held the first man, saying his papers needed to be verified.

The man turned to a pile of belongings and heaved pieces of luggage two at a time into the gully – enormous wheeled suitcases, plastic shopping bags, a black backpack. “Nobody cares about us,” he told journalists. He said they were all from Sudan and had been living and working in Delaware for two years. The RCMP declined on Friday to confirm the nationalities of the people. A Reuters photo showed that at least one of their passports was Sudanese. The man then appeared to grab their passports from the U.S. officer before making a run for the border. The officer yelled and gave chase but stopped at the border marker. Canadian police took hold of the man’s arm as he crossed. The border patrol officer told his counterpart that the man was in the United States illegally and that he would have detained him. Officers on both sides momentarily eyed the luggage strewn in the snow before the U.S. officer took it, and a walker left on the road, to the border line.

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Overview of the damage done across the world by GMO.

GMO Crops Are Driving Genocide And Ecocide – Keep Them Out Of The EU! (Paul)

We currently face a desperate, almost farcical push for GM crops in the UK and Europe, characterised by hyperbolic and inaccurate claims. So rather than taking those claims on trust, let’s look at the impacts of GM crops in countries that have adopted them. That means North and South America, where GM crops were first launched in 1996. The cultivation of herbicide tolerant crops in Argentina began in 1996 with GM soya and spread swiftly through the country. As Argentina’s Grupo Reflexion Rural (GRR) wrote to the Vatican in April 2013, “The model was based on the political decision that Argentina, which had once been the grain basket of the world and a producer of healthy and high-quality foods, would be transformed into a producer of animal forage, firstly, to provide fodder for European livestock, and then for livestock in China.”

At first, herbicide tolerant crops seemed to simplify the farming process, especially for larger mechanised farms. Instead of skillful weed management, farmers applied large quantities of the herbicide glyphosate, mainly from the air. Powerful groups of investors helped drive GM soya production. Small farmers could not compete and many have left or been driven off their land, often into urban slums. People who remain in the countryside and small towns find themselves bombarded from the air with increasingly complex mixtures of chemicals intended to combat the problem of increasing weed and pest resistance. Although GM crops were promoted as a means to reduce levels of pesticides used, pesticide use in Argentina has increased massively, “from nine million gallons (34 million litres) in 1990 to more than 84 million gallons (317 million litres) today”.

[..] Europe has been wise to resist the pressure to adopt GM crops for cultivation except for a GM maize mainly grown in Spain. In the face of the evidence from countries with experience of these crops, and their associated cocktails of agrotoxics, why should Europe be forced to consider another GM crop for cultivation? But Europe should go further. The soya boom is driven by markets for animal feed, in the form of soya meal or cake, and biodiesel from soya oil. Vast quantities of both are imported into Europe, making it a major driver of South America’s unfolding GM disaster. The EU should surely stop importing GM animal feeds and oils from North and South America.

Indeed Europe should change its whole approach to livestock and crop production to address human health impacts, biodiversity loss and climate change. Far from being a “museum of world farming” as the UK’s current environment minister, Owen Paterson, likes to claim, Europe could show the way to a rich and varied GM free agriculture that provides nutritious, healthy food and jobs. It would at the same time address the profound degradation of soils and accelerating biodiversity loss, caused to a great extent by the industrial model of agriculture to which genetically engineered crops belong.

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“All I know is that we are all being pushed,” he said, searching for the right words. “Pushed in the direction of somewhere very explosive, somewhere we do not want to be.”

‘From Bad To Worse’: Greece Hurtles Towards A Final Reckoning (O.)

The assumption is that the prime minister, Alexis Tsipras, will cave in, just as he did when the country came closest yet to leaving the euro at the height of the crisis in the summer of 2015. But the 41-year-old leader, like Syriza, has been pummelled in the polls. Persuading disaffected backbenchers to support more measures, and then selling them to a populace exhausted by repeated rounds of austerity, will be extremely difficult. Disappointment has increasingly given way to the death of hope – a sentiment reinforced by the realisation that Cyprus and other bailed-out countries, by contrast, are no longer under international supervision.

In his city centre office, the former finance minister Evangelos Venizelos pondered where Greece’s predicament was now. “[We are] at the same point we were several years ago,” he joked. “The only difference is that anti-European sentiment is growing. What was once a very friendly country towards Europe is becoming increasingly less so, and with that comes a lot of danger, a lot of risk.” When historians look back they, too, may conclude that Greece has expended a great deal of energy not moving forward at all.

The arc of crisis that has swept the country – coursing like a cancer through its body politic, devastating its public health system, shattering lives – has been an exercise in the absurd. The feat of pulling off the greatest fiscal adjustment in modern times has spawned a slump longer and deeper than the Great Depression, with the Greek economy shrinking more than 25% since the crisis began. Even if the latest impasse is broken and a deal is reached with creditors soon, few believe that in a country of weak governance and institutions it will be easy to enforce. Political turbulence will almost certainly beckon; the prospect of “Grexit” will grow.

“Grexit is the last thing we want, but we may arrive at a point of serious dilemmas,” said Venizelos. “Whatever deal is reached will be very difficult to implement, but that notwithstanding, it is not the memoranda [the bailout accords] that caused the crisis. The crisis was born in Greece long before.” Like every crisis government before it, Tsipras’s administration is acutely aware that salvation will come only when Greece can return to the markets and raise funds. What happens in the weeks ahead could determine if that is likely to happen at all. Back in Syntagma, Costopoulos the good-natured farmer ponders what lies ahead. Like every Greek, he stands to be deeply affected. “All I know is that we are all being pushed,” he said, searching for the right words. “Pushed in the direction of somewhere very explosive, somewhere we do not want to be.”

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Greek banks never recovered.

Greek Banks Worry Over Sudden Bad Loan Spike In January (K.)

Nonperforming loans last month posted a major spike of almost 1 billion euros, reversing the downward course set in the last few months of 2016. This has generated major concerns among local lenders regarding the achievement of targets for reducing bad loans, as agreed with the Single Supervisory Mechanism (SSM) of the ECB for the first quarter of this year. Bank sources say that after several months of stabilization and of a negative growth rate in new nonperforming exposure,the picture deteriorated rapidly in January, as new bad loans estimated at €800 million in total were created. This increase in a period of just one month is considered particularly high, and is a trend that appears to be continuing this month as well.

Bank officials attribute the phenomenon to uncertainty from the government’s inability to complete the second bailout review, fears for a rekindling of the crisis and mainly the expectations of borrowers for extrajudicial settlements of bad loans. Senior bank officials note that a large number of borrowers will not cooperate with their lenders in reaching an agreement for the restructuring of their debts, in the hope that the introduction by the government of the extrajudicial compromise could lead to better terms and possibly even to a debt haircut

Banks further observe that the issue of the extrajudicial settlement, along with the matter of the deferred tax assets for the tackling of banks’ losses from the write-off or sale of bad loans, are of major significance to the general issue of dealing with the NPL problem, so they have to be arranged rapidly. Even more important to the banking sector is the completion of the pending bailout review, as uncertainty and the re-emergence of fears over a possible Greek exit from the eurozone have frozen the market and encouraged many people to avoid paying their dues in anticipation of negotiations. This unexpected deterioration in the quality of loan portfolios in recent weeks has banks on edge, as NPLs will have to be reduced by €2.5 billion by end-March, which will be particularly difficult to achieve given the fresh addition of another €800 million.

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Forced out of work by Troika demands.

Greeks Turn to the Black Market as Another Bailout Showdown Looms (NYT)

During seven years of a grinding economic crisis, Dimitri Tsamopoulos has lost at least half the clients from his once bustling tax consultancy. But in the past few months, business has jumped, not because the Greek economy is finally recovering but because it is falling even deeper into the abyss. With the Greek government pushing through more tax increases to comply with austerity requirements, more than 21,000 self-employed workers and small firms have shut down in the past two months, with many seeking help from accountants like Mr. Tsamopoulos to close their books. Yet many are not actually closing their businesses. “Most of these people will keep working,” Mr. Tsamopoulous said, arching an eyebrow from behind his desk as clients waited in a smoky room outside. “But now, they’ll do it on the black market. They’re saying they need a way to survive.”

Greece is the crisis that never quite goes away for the EU, and with another tense negotiation with creditors scheduled for this coming week, the country is struggling to recover from the longest downturn in the eurozone. The budget-slashing policies and reform medicine required by creditors have done little to revive growth, leaving Greece even more dependent on the three international bailouts the country has received since 2010. Few problems are more ingrained, or harder to combat, than the shadow economy, which appears to be growing again as new austerity measures compel once law-abiding Greeks to go off the books. Greece’s black market is estimated at 20 to 25% of the gross domestic product, as more people have stopped reporting their income to avoid paying taxes that, by some estimates, have risen to 70% of an individual’s gross income.

As of last month, unpaid taxes in Greece had soared to €95 billion, up from €76 billion two years ago. Most of that is considered uncollectable. “The heart of the matter for an ever-rising number of citizens and businesses is that they simply do not have the financial resources anymore to meet their rising tax obligations,” said Jens Bastian, an economist and a member of a team of European Union specialists that helped supervise the country’s earlier bailouts. Short on alternatives, he said, “many are falling back into the gray economy.”

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Again: US and EU need to be very careful about this. And act.

Tensions Escalate In Aegean As Turkish Boat Fires Shots in Greek Waters (K.)

Tension between Greece and Turkey escalated further on Friday after a Turkish coastal patrol boat fired live ammunition during a military exercise in Greek territorial waters in the eastern Aegean Sea. [..] a Greek diplomatic source described the incident in the area around the eastern Aegean island of Farmakonisi, as “a grave violation of international law.” “Turkey’s unacceptable act raises serious concerns about the potential consequences of its behavior on the stability of the wider region,” the same source said. Greek defense officials were reportedly preparing to lodge a demarche with Ankara and brief allies and international organizations on the incident.

According to the Defense Ministry, Turkish authorities issued a navigational telex, or Navtex, the day before informing of a military exercise with live ammunition within Greek territorial waters, east of Farmakonisi, on Friday [yesterday] morning between 7 and 9 a.m. The Greek Defense Ministry responded by issuing a Navtex turning down the Turkish notification, saying it covered Greek territorial waters. Turkish authorities have previously issued similar notifications without executing them. The Greek gunboat Nikiforos was sent to the area to monitor the Turkish Kusadasi vessel, which fired a volley of shots from small caliber (up to 40mm) guns between 7.40 and 7.55 a.m., until it left the area just before 8 a.m.

[..] Friday’s incident occurred in the wake of repeated Turkish violations of Greek air space and increased tensions between Athens and Ankara, which were further fueled last month when Greece’s highest court blocked the extradition of eight Turkish officers to Turkey for their alleged involvement in July’s failed coup. Reacting to the development on Friday, Greece’s conservative opposition requested a meeting of the country’s National Council of Foreign Policy. “We are deeply concerned to witness Turkey’s insistence on provoking [Athens] and maintaining a climate of tension in the Aegean,” New Democracy shadow foreign minister Giorgos Koumoutsakos said in a letter to Foreign Minister Nikos Kotzias.

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“How do you capture Spirit?”

Defend The Sacred (Bell)

Defend The Sacred: Documentary from Kyle Bell on Vimeo.

Capturing the heart of a movement that is constantly evolving is difficult. How do you capture Spirit? “Defend The Sacred” is a short documentary that attempts to capture the spirit of Indigenous people at Standing Rock.

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Feb 102017
 
 February 10, 2017  Posted by at 10:05 am Finance Tagged with: , , , , , , , , ,  4 Responses »


Al Capone’s free soup kitchen, Chicago, 1931

 

US Appeals Court Upholds Suspension Of Trump Travel Ban (AP)
The Crash Will Be Violent (David Stockman)
Foreign Governments Dump US Treasuries as Never Before; Who is Buying? (WS)
Impediments to Growth (Lacy Hunt)
A Game Of Chess (BP)
Biography of President Donald Trump, a.k.a. “Wayne Newton” (Jim Kunstler)
What Would it Cost a Country to Leave the Euro? (WS)
Varoufakis Accuses Creditors Of Going After Greece’s ‘Little People’ (Ind.)
Greece Hopeful Of Imminent EU Debt Deal Despite German Warning (G.)
Greek Crisis Descends Into Blame Game (Tel.)
China Bitcoin Exchanges Halt Withdrawals After PBOC Talks (BBG)
Where US Immigrants Have Come From Over Time (BI)
The World According to a Free-Range Short Seller (BBG)
Radiation at Japan’s Fukushima Reactor Is Now at ‘Unimaginable’ Levels (Fox)
Ground-Breaking Research Uncovers New Risks of GMOs, Glyphosate (NGR)
‘No One Accepts Responsibility’: Thirteen Refugees Dead In Greece (IRR)

 

 

It is crucial for the US political system to be tested this way. So far, it seems to work, but we’re in very early innings. Important to recognize that Trump and Bannon merely attempt to use the broader executive powers developed under Clinton, Bush and Obama. A major problem can be that the judiciary has alredy become very politicized, with presidents getting to pick judges.

US Appeals Court Upholds Suspension Of Trump Travel Ban (AP)

Trump’s ban on travelers from seven predominantly Muslim nations, dealing another legal setback to the new administration’s immigration policy. In a unanimous decision, the panel of three judges from the San Francisco-based 9th U.S. Circuit Court of Appeals declined to block a lower-court ruling that suspended the ban and allowed previously barred travelers to enter the U.S. An appeal to the U.S. Supreme Court is possible. The court rejected the administration’s claim that it did not have the authority to review the president’s executive order. “There is no precedent to support this claimed unreviewability, which runs contrary to the fundamental structure of our constitutional democracy,” the court said. The judges noted that the states had raised serious allegations about religious discrimination.

Following news of the ruling, Trump tweeted, “See you in court, the security of our nation is at stake!” U.S. District Judge James Robart in Seattle issued a temporary restraining order halting the ban last week after Washington state and Minnesota sued. The ban temporarily suspended the nation’s refugee program and immigration from countries that have raised terrorism concerns. Justice Department lawyers appealed to the 9th Circuit, arguing that the president has the constitutional power to restrict entry to the United States and that the courts cannot second-guess his determination that such a step was needed to prevent terrorism. The states said Trump’s travel ban harmed individuals, businesses and universities. Citing Trump’s campaign promise to stop Muslims from entering the U.S., they said the ban unconstitutionally blocked entry to people based on religion.

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“..the first half of the year will be consumed in nasty partisan battles over cabinet appointments, the Gorsuch nomination, interminable maneuvers over the travel ban and follow-on measures of extreme vetting and the Obamacare repeal/replace battle.”

The Crash Will Be Violent (David Stockman)

[..] What will be coming soon, however, is the mother of all debt ceiling crises — an eruption of beltway dysfunction that will finally demolish the notion that Trump is good for the economy and the stock market. The debt ceiling holiday ends on March 15, and it appears that the rudderless Treasury Department — Mnuchin has not yet been approved as Treasury Secretary and there are no Trump deputies, either — may be engaging in a bit of sabotage. That is, the cash balance has run down from a peak of about $450 billion to just $304 billion as of last Friday. Unless reversed soon, this means that the Treasury will run out of cash by perhaps July 4th rather than Labor Day. After that, all hell will break loose.

Washington has been obviously dysfunctional for years, but the virtue of the Great Disrupter is that his tweets, tangents, inconsistencies and unpredictabilities guarantee that the system will soon shut down entirely. Consequently, the first half of the year will be consumed in nasty partisan battles over cabinet appointments, the Gorsuch nomination, interminable maneuvers over the travel ban and follow-on measures of extreme vetting and the Obamacare repeal/replace battle. Then, the second half of 2017 will degenerate into a non-stop battle over raising the debt ceiling and continuing resolutions for fiscal year (FY) 2018 which begins October 1. That will mean, in turn, that there is no budget resolution embodying the Trump/GOP fiscal agenda, and therefore no basis for filibuster-proof “reconciliation instructions” on the tax cut.

This latter point, in fact, needs special emphasis. The frail GOP majorities now in place will be too battered and fractured by the interim battles to coalesce around a ten-year budget resolution that embodies the $10 trillion of incremental deficits already built into the CBO baseline — plus trillions more for defense, veterans, border control, the Mexican Wall, an infrastructure bonanza and big tax cuts, too. It will never happen. There is not remotely a GOP majority for such a resolution. But without an FY 2018 budget resolution, inertia and the K-Street lobbies will rule. Without a 51-vote majority rule in the Senate, a material, deficit-neutral cut in the corporate tax rate would be absolutely impossible to pass. Yet that’s exactly what the casino is currently pricing-in.

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Foreign investors.

Foreign Governments Dump US Treasuries as Never Before; Who is Buying? (WS)

It started with a whimper a couple of years ago and has turned into a roar: foreign governments are dumping US Treasuries. The signs are coming from all sides. The data from the US Treasury Department points at it. The People’s Bank of China points at it in its data releases on its foreign exchange reserves. Japan too has started selling Treasuries, as have other governments and central banks. Some, like China and Saudi Arabia, are unloading their foreign exchange reserves to counteract capital flight, prop up their own currencies, or defend a currency peg. Others might sell US Treasuries because QE is over and yields are rising as the Fed has embarked on ending its eight years of zero-interest-rate policy with what looks like years of wild flip-flopping, while some of the Fed heads are talking out loud about unwinding QE and shedding some of the Treasuries on its balance sheet.

Inflation has picked up too, and Treasury yields have begun to rise, and when yields rise, bond prices fall, and so unloading US Treasuries at what might be seen as the peak may just be an investment decision by some official institutions. The chart below from Goldman Sachs, via Christine Hughes at Otterwood Capital, shows the net transactions of US Treasury bonds and notes in billions of dollars by foreign official institutions (central banks, government funds, and the like) on a 12-month moving average. Note how it started with a whimper, bounced back a little, before turning into wholesale dumping, hitting record after record (red marks added):

The People’s Bank of China reported two days ago that foreign exchange reserves fell by another $12.3 billion in January, to $2.998 trillion, the seventh month in a row of declines, and the lowest in six years. They’re down 25%, or almost exactly $1 trillion, from their peak in June 2014 of nearly $4 trillion (via Trading Economics, red line added):

China’s foreign exchange reserves are composed of assets that are denominated in different currencies, but China does not provide details. So of the $1 trillion in reserves that it shed since 2014, not all were denominated in dollars. The US Treasury Department provides another partial view, based on data collected primarily from US-based custodians and broker-dealers that are holding these securities for China and other countries. But the US Treasury cannot determine which country owns the Treasuries held in custodial accounts overseas. Based on this limited data, China’s holdings of US Treasuries have plunged by $215.2 billion, or 17%, over the most recent 12 reporting months through November, to just above $1 trillion.

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From a Mish article quoting an unpublished report. I wonder when all these people will begin to understand my point that growth is gone. Only then will the pieces fall into place. Note: calling Weak Global Growth and Impediment to Growth sounds a bit silly.

Impediments to Growth (Lacy Hunt)

1. Unproductive Debt At the end of the third quarter, domestic nonfinancial debt and total debt reached $47.0 and $69.4 trillion, respectively. Neither of these figures includes a sizeable volume of vehicle and other leases that will come due in the next few years nor unfunded pension liabilities that will eventually be due. The total figure is much larger as it includes debt of financial institutions as well as foreign debt owed. The broader series points to the complexity of the debt overhang. Netting out the financial institutions and foreign debt is certainly appropriate for closed economies, but it is not appropriate for the current economy.

Total debt gained $3.1 trillion in the past four quarters, or $5.70 dollars for each $1.00 of GDP growth. From 1870 to 2015, $1.90 of total debt generated $1.00 dollar of GDP. We estimate that approximately $20 trillion of debt in the U.S. will reset within the next two years. Interest rates across the curve are up approximately 100 basis points from the lows of last year. Unless rates reverse, the annual interest costs will jump $200 billion within two years and move steadily higher thereafter as more debt obligations mature. This sum is equivalent to almost two-fifths of the $533 billion in nominal GDP in the past four quarters. This situation is the same problem that has constantly dogged highly indebted economies like the U.S., Japan and the Eurozone.

2. Record Global Debt The IMF calculated that the gross debt in the global non-financial sector was $217 trillion, or 325% of GDP, at the end of the third quarter of 2016. Total debt at the end of the third quarter 2016 was more than triple its level at the end of 1999. Debt in China surged by $3 trillion in just the first three quarters of 2016. Chinese debt at the end of the third quarter soared to 390% of GDP, an estimated 20% higher than U.S. debt-to-GDP. This debt surge explains the shortfall in the Chinese growth target for 2016, a major capital flight, a precipitous fall of the Yuan against the dollar and a large hike in their overnight lending rate. Such policies lose their effectiveness over time. [As stated by] Nobel laureate F. A. Hayek (1933):“To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about.”

3. Weak Global Growth Based on figures from the World Bank and the IMF through 2016, growth in a 60-country composite was just 1.1%, a fraction of the 7.2% average since 1961. Even with the small gain for 2016, the three-year average growth was -0.8%. As such, the last three years have provided more evidence that the benefits of a massive debt surge are elusive. World trade volume also confirms the fragile state of economic conditions. Trade peaked at 115.4 in February 2016, with September 2016 1.7% below that peak, according to the Netherlands Bureau of Economic Policy Analysis. Over the last 12 months, world trade volume fell 0.7%, compared to the 5.1% average growth since 1992.

4. Eroding Demographics World trade volume also confirms the fragile state of economic conditions. Trade peaked at 115.4 in February 2016, with September 2016 1.7% below that peak, according to the Netherlands Bureau of Economic Policy Analysis. Over the last 12 months, world trade volume fell 0.7%, compared to the 5.1% average growth since 1992.

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Absolutely delightful.

A Game Of Chess (BP)

Chess is a game where the number of possible positions rises at an astronomical rate. By the 2nd move of the game there are already 400 possible positions and after each person moves twice, that number rises to 8902. My coach explained to me that I was not trained enough to even begin to keep track of those things and that my only chance of ever winning was to take the initiative and never give it up. “You must know what your opponent will do next by playing his game for him.” was the advice I received. Now, I won’t bore you with the particulars but it boiled down to throwing punches each and every turn without exception. In other words, if my opponent must always waste his turn responding to what I am doing then he never gets an opportunity to come at me in the millions of possibilities that reside in the game. Again, if I throw the punch – even one that can be easily blocked, then I only have to worry about one combination and not millions.

My Russian chess coach next taught me that I should Proudly Announce what exactly I am doing and why I am doing it. He explained to me that bad chess players believe that they can hide their strategy even though all the pieces are right there in plain sight for anyone to see. A good chess player has no fear of this because they will choose positions that are unassailable so why not announce them? As a coach, I made all of my students tell each other why they were making the moves that they made as well as what they were planning next. It entirely removed luck from the game and quickly made them into superior players.

My Russian coach next stressed Time as something I should focus on to round out my game. He said that I shouldn’t move the same piece twice in a row and that my “wild punches” should focus on getting my pieces on to the board and into play as quickly as possible. So, if I do everything correctly, I have an opponent that will have a disorganized defense, no offense and few pieces even in play and this will work 9 out of 10 times. The only time it doesn’t work for me is when I go against players that have memorized hundreds of games and have memorized how to get out of these traps.

With all that said, let’s see if President Trump is playing chess. First, we can all agree that Trump, if nothing else, throws a lot of punches. We really saw this in the primaries where barely a day could go by without some scandal that would supposedly end his presidential bid. His opponents and the press erroneously thought that responding to each and every “outrage” was the correct thing to do without ever taking the time to think whether or not they had just walked into a trap. They would use their turn to block his Twitter attack but he wouldn’t move that piece again once that was in play but, instead, brought on the next outrage – just like my coach instructed me to do.

Second, Trump is very vocal in what he is going to do. Just like I had my students announced to each other their plans, Trump has been nothing but transparent about what he intends to do. After all, announcing your plans only works if your position is unassailable. It demoralizes your opponent. You rub their face in it. Another benefit to being vocal is that it encourages your opponent to bring out his favorite piece to deal with said announced plans. This is a big mistake as any good chess player will quickly recognize which piece his opponent favors and then go take them.

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“Fraid Jim lost it.

Biography of President Donald Trump, a.k.a. “Wayne Newton” (Jim Kunstler)

And so it happened years ago on the Trump family’s annual Christmas pilgrimage to Paraguay that Papa Fred and Mama Mary Anne fell in socially with the circle around Klaus Furtwänkler, Waffen-SS Gruppenführer (ret.) in the little resort village of Nueva Bavaria. The former commandant of the Flossenbürg work camp (granite quarries) introduced young Donald to the song “Danke Schoen” popularized by the vocalist Eva Braun at the 1936 Berlin Olympics. Since earliest childhood, with his love for the “spotlight,” Donald had entertained the family with renditions of Disney’s beloved hits, “Zip-a-dee-doo-dah,” “When I See an Elephant Fly,” and “Hi-Diddle-Dee-Dee (an Actor’s Life for Me).” The next evening, on Furtwänkler’s 3,000-hectare estancia, before an audience of fifty “special guests” at the Heiliger Abend buffet (Arapaima snapper with red cabbage and potato salad), Donald performed “Danke Schoen” to wild applause, propelling him into a career in show business. Not a few of the frauleins present fainted.


Young Donald or someone else?

To protect Papa’s real estate business interests in Queens, New York, Donald adopted the professional name “Wayne Newton” and was withdrawn from military school to perform on the county fair circuit across the states that would later self- identify by the color “red” — but which, given our adversarial relations with the USSR at the time, styled themselves red, white, and blue. Six month’s later, “Wayne” caught the eye of Las Vegas promoter Sal “Cukarach” Vaselino while playing the Refrigeration Engineers annual meet-up at the Sands Hotel, and then after a six-week smash engagement at the Golden Nugget in 1963, “Wayne” was inducted into the notorious Frank Sinatra / Dean Martin Rat-pack as its first underage member. (Rat-pack consigliere Peter Lawford introduced the talented lad to the concept of “sloppy seconds”).

[..] Back on the convention circuit with Jules the Singing Jackrabbit, Wayne played the 1983 National Realtors Association Pump-and-Dump Expo and was influenced to get his first real estate license. “Why pay for milk when you can own the cash cow,” keynote speaker Ivan Boesky advised “Wayne,” prompting him to return to his New York City “roots” and resume his identity as “The Donald,” son of “The Fred” Trump. A carefully orchestrated life of public appearances at Gotham charity events and a lavish wedding to model Ivana Zelníková reestablished Donald Trump as a fixture on the glittering Manhattan scene – meanwhile, a Greyhound Bus mechanic and aspiring country crooner named Bud Gorch, a “dead-ringer” look-alike for the erstwhile “Wayne Newton,” was recruited by the Trump Organization to impersonate the once-again in-demand Las Vegas star. Gorch-as-Wayne successfully premiered his new act at the National Colorectal Surgeons Association Chron’s and Colitis Congress and the “great switch” was achieved. The rest, as they say, is history!


Who actually was it onstage at the National Organ Transplant Association Convention, 1967?

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The door is ajar.

What Would it Cost a Country to Leave the Euro? (WS)

[Le Pen] is campaigning on taking France out of the euro (after holding a referendum) and re-denominating the entire €2.4 trillion pile of French government debt into new franc. Then the government can just print the money it wants to spend. There are some complications with her plan, including that the diverse and bickering French political class will unite into a slick monolithic bloc against her during the second round. And if she still wins, her government will face that bloc in parliament. But hey. And now people are seriously thinking about it. Greece was on the verge of leaving the euro, but then within a millimeter of actually taking the step, it blinked and inched back from the precipice in the hot summer of 2015. And so for now still no one knows what the cost would be to leave…

[..] Now ECB President Mario Draghi is stumbling into the fray. “The euro is irrevocable,” he told the European Parliament on Monday, to counter the populist rejection of the euro. “This is the treaty,” he said. Which evoked memories of the good ol’ days of the sovereign debt crisis, when, to put an end to it in July 2012, Draghi said that the euro was “irreversible” and that the ECB was “ready to do whatever it takes to preserve the euro.” At the time, the Spanish 10-year yield was above 7% and the Italian 10-year yield was above 6%. So now, same tune, different scenario. It’s not a debt crisis. It’s just a question of whether or not it’s possible to leave the euro, and if yes, how much it would cost. And that question has already been raised officially.

On January 18, Draghi had sent a letter to European Union lawmakers Marco Valli and Marco Zanni, telling them: “If a country were to leave the Eurosystem, its national central bank’s claims on or liabilities to the ECB would need to be settled in full.” That was the opening – the IF. “If a country were to leave…” It meant that a country could leave! It was the first official admission that this was actually possible. It was just a matter of cost. That’s how Zani saw Draghi’s response. Bloomberg: “I wanted to bring up the issue of exit from the euro and how it can happen,” he said in an interview before the testimony. “Draghi has now clearly admitted that such an exit is possible and now there is need to have more clarity about the cost. I’m sure that in case of Italy’s exit from the euro, benefits exceed costs.”

Alas, in his testimony before the European Parliament, Draghi refused to put a price tag on leaving the euro. Valli asked him whether the “liabilities” Draghi had referred to that would “need to be settled in full” were the so-called Target2 imbalances. These are a result of payment settlements within the European System of Central Banks. They’d soared during the debt crisis to hundreds of billions of euros, a sign of the underlying financial tensions between debtor and creditor countries. But Draghi dodged the question: “I cannot answer a question that is based on hypotheses, on assumptions which are not foreseen” by the European treaties, he said. “What I could do is send you a written answer which compares our Target2 system with the Federal Reserve-based system.” Which was very helpful.

But even though he refused to put a price tag on leaving the euro, the whole exchange confirmed that it’s possible to leave the euro, though there is nothing in the treaties that mentions leaving the euro.

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Yanis is spot on right. The Greeks are now being sacrificed on the altar of incumbents afraid to lose elections. The insane narrative that Germans and Dutch ‘give’ billions to Greece persists. That says a lot about the press in these countries.

Varoufakis Accuses Creditors Of Going After Greece’s ‘Little People’ (Ind.)

Former Greek finance minister Yanis Varoufakis has said that everyday life in Greece is unsustainable and that the country’s European creditors are going after the “little people” rather than “corrupt oligarchs”. Speaking to BBC Radio 4’s Today programme, the 55-year old economist said that the country has been put on a fiscal path which makes everyday life “unsustainable” in Greece. “The German finance minister agrees that no Greek government, however reformist it might be, can sustain the current debt obligations of Greece,” he said. Earlier in the day, Wolfgang Schäuble told German broadcaster ARD that Greece must reform or quit the euro. “A country in desperate need of reform has been made unreformable by unsustainable macroeconomic policies,” Mr Varoufakis said.

He said that “instead of attacking the worst cases of corruption, for six years now the creditors have been after the little people, the small pharmacists, the very poor pensioners instead of going for the oligarchies”. Greece in 2010 was given a huge loan that Mr Varoufakis said was not designed to save the bankrupt country but to “cynically transfer huge banking losses from the books of the Franco German banks onto the shoulders of the weakest taxpayers in Europe”. Earlier this week, the IMF warned Greece’s debts are on an “explosive” path, despite years of economic reform. The IMF has insisted on additional debt relief and reduced fiscal targets before it participates financially in Greece’s current bailout program. Germany, which faces national elections, has resisted such moves. Statistics agency ELSTAT said on Thursday that Greece’s jobless rate came in at 23% in November, unchanged from the previous month. But although the jobless rate has come down from record highs, it remains more than double the euro zone’s average of 9.8% in November.

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Why try anymore?

Greece Hopeful Of Imminent EU Debt Deal Despite German Warning (G.)

The Greek government has expressed hope of an imminent deal with its EU creditors, despite a warning from the German finance minister, Wolfgang Schäuble, that the country could cut its debts only by leaving the single currency. Athens is in a familiar stand-off with the German finance ministry as it seeks easier repayment terms on its €330bn debt pile, which the IMF has described as unsustainable and explosive. The IMF has so far declined to get involved in the latest Greek rescue effort, a three-year EU bailout worth €86bn set to run until August 2018. The fund says it will only join if Greece gets significant debt relief, although its board is split. Germany and the Netherlands, which both face elections this year, think the IMF’s involvement is crucial for the bailout plan to continue.

Tensions – and Greek borrowing costs – have risen in recent weeks, ahead of a meeting of eurozone finance ministers on 20 February, which is widely seen as the last moment to reach agreement before the eurozone election cycle. The Dutch go to the polls in March; French presidential elections follow in April-May and German elections in the autumn. George Katrougalos, Greece’s Europe minister, voiced confidence that a deal was within reach: “I am optimistic that we can have such an agreement before the Eurogroup of 20 February.” He told journalists in Brussels that Europe was not the problem. “If we had just to deal with the Europeans we would have already completed this review in December. All the delay is due to the ambivalence of the IMF to participate or not to participate.”

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“Klaus Regling, the managing director of the European Stability Mechanism, argued that “Greece’s debt situation does not have to be cause for alarm”…

Greek Crisis Descends Into Blame Game (Tel.)

Greece is under mounting pressure to embark on a new wave of economic reforms, as its international creditors demand extra efforts to drag the country out of its latest crisis. At the same time Germany is facing fresh demands from the International Monetary Fund (IMF) to write off some of the money it loaned to Greece in the most recent €86bn (£73bn) bailout. And the IMF has been forced to defend its dire predictions of permanent economic gloom as the Greek government rejects the IMF’s assessment of its reforms, public finances and economic performance. On top of that, the IMF itself is split, with a minority of directors pushing for extra spending cuts and tax hikes in Greece to try to improve its public finances. The IMF tried to address its internal splits, stressing that it wants debt relief for Greece combined with economic reforms, not austerity. It does still demand serious action, though – unless the economy picks up and debts are slashed, it has warned Greece’s debts are on an “explosive” path.

“Our strong preference is for a primary [Greek budget] surplus target of 1.5pc and that this should be accompanied by significant debt relief. We’ve referred to this as the ‘two legs’ of the programme that we think is required,” said Gerry RIce, the IMF’s spokesman. “We think this target, the 1.5, can be obtained by the policies envisaged by the current European Stability Mechanism programme – in short, the IMF is not asking for any more austerity for Greece.” That passes much of the pressure on to Germany and the other nations which have loaned Greece money, but are unwilling to write off the debt. Germany renewed the pressure on Greece to press ahead with more economic reforms. Its finance minister Wolfgang Schauble told a German TV station that the Lisbon Treaty prevents governments from writing off these debts.

Instead, he argued, Greece must continue reforming to make its economy more competitive. Meanwhile Klaus Regling, the managing director of the European Stability Mechanism, argued that “Greece’s debt situation does not have to be cause for alarm”. Writing in the Financial Times, he said that the IMF has failed to fully appreciate the amount of support on offer from other eurozone countries to Greece, largely in the form of very generous loans. “It is hard to overestimate the significance of this pledge, made by the finance ministers of the eurozone. Solidarity with Greece will continue,” he said. “We would not have lent this amount if we did not think we would get our money back,” he said, ruling out debt relief and backing more economic reforms.

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Beijing decides what bitcoin is.

China Bitcoin Exchanges Halt Withdrawals After PBOC Talks (BBG)

China’s three biggest bitcoin exchanges took steps to prevent withdrawals of the cryptocurrency amid pressure from the nation’s central bank to clamp down on capital outflows. BTC China subjected all bitcoin withdrawals to a 72-hour review, while Huobi and OKCoin suspended them completely, the three venues said in separate statements on Thursday. They all said the measures were in response to central bank requirements. Conversion to and from the yuan is not affected and the curbs will be dropped after updates to compliance systems, the exchanges said. The People’s Bank of China told nine bitcoin venues at a meeting in Beijing on Wednesday that it will close exchanges that violate rules on foreign exchange management, money laundering, and payment and settlement.

Chinese authorities are scrutinizing the cryptocurrency amid concerns it’s being used to spirit money out of the country, undermining official efforts to clamp down on capital outflows and prop up the yuan. Demand from investors in Asia’s largest economy, home to most of the world’s bitcoin trades, has fueled a 160% rally versus the dollar over the past year. Huobi and OKCoin said it will take about a month to upgrade systems in line with new PBOC guidelines. BTC China did not give a timing for when any upgrade would be completed. “The Chinese government is worried about capital flight,” said Arthur Hayes, a former market maker at Citigroup who now runs BitMEX, a bitcoin derivatives venue in Hong Kong. “Bitcoin is seen as another way to move money out of China, even though most people trade it for onshore capital appreciation and as another asset in their portfolio.”

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A long history of immgrant bans.

Where US Immigrants Have Come From Over Time (BI)

President Donald Trump’s recent executive orders on immigration may have reignited public debate, but Americans have long harbored anti-immigrant sentiments. One-third of Americans said in a 2016 Pew Research Center survey that immigrants are a “burden on our country because they take our jobs, housing and health care,” and 38% say immigration should be decreased. On the flip side, 59% of Americans say immigrants “strengthen our country because of their hard work and talents” and either think immigration should stay at its present level or increase. Today, immigrants make up 13.5% of the US population — on par with the share in 1860, according to the Migration Policy Institute. The overall number of immigrants coming to the US peaked from 2000-05 at 5 million, and has been declining since then. Here are the major regions where immigrants entering the US have come from since 1820:

US immigrants were largely of European descent in the 1800s, and started coming from the Americas (largely Mexico) in the 1960s. The sharp decrease in the 1920s is due to Congress passing the Exclusion Act, which set limits on the number of immigrants who could enter the US, based on a quota system of the percentage of nationalities already in the country. Barely anyone from Asia could enter at all. Congress revised the law in 1952, and immigration started to tick up again.

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Wonderful story.

The World According to a Free-Range Short Seller (BBG)

Some of the most respected people in the investing industry say that, dating back to the 1980s, nobody has had a better nose for sniffing out fraud than the 56-year-old Cohodes. He’s exposed suspect accounting at a number of high-profile companies, including the Belgian speech-recognition software developer Lernout & Hauspie, which went bankrupt in 2001 after being valued at about $10 billion, and mortgage lender NovaStar Financial, where his efforts earned him a Harvard Business School case study published in 2013. “I would not want to be his adversary if I was still a criminal today,” says Sam Antar, who was sentenced to six months of house arrest and 1,200 hours of community service for cooking the books at New York consumer-electronics chain Crazy Eddie in one of the largest securities frauds unearthed in the 1980s. “A character like Marc”—the two crossed paths later in his life when both were focused on detecting fraud—“you stay away from.”

And that’s been relatively easy for at least part of the past eight years. In 2008 the hedge fund Cohodes worked at for more than two decades went out of business under controversial circumstances. He maintains that Goldman Sachs, its prime broker, closed it too hastily by making needless margin calls, a claim Goldman disputes. The fallout spurred a bout of what Cohodes likens to post-traumatic stress disorder. “What happened to me would put the average person under,” he says. He retreated to his farm, where he recuperated by spending his days delivering eggs to San Francisco, cheering on the Oakland Raiders, and traveling to see a friend’s rock band, Collective Soul. Besides, the vast majority of stocks were rising because of central bank stimulus, depriving him of ideal opportunities as a short seller.

Now Cohodes is back. His time among the horses and chickens—outside the money management industry—may even have helped him return to the top of his game. Slimmed down and fighting fit, he’s been winning big on a series of short bets against Canadian companies since he made his comeback. Cohodes says he’s been betting against embattled Valeant Pharmaceuticals International since the summer of 2015. Around the same time, he began shorting another debt-laden Canadian drugmaker, Concordia International, which he calls “the poor man’s Valeant.” Both stocks lost most of their value last year. Cohodes says he’s committed to exposing companies that he believes may be ripping off ordinary, unwary investors—“Joe Six-pack,” as he puts it. “Legitimate companies don’t know who the f— I am. And they don’t care,” Cohodes says. “The bad guys? They know. And they do care.”

And he’ll go to great lengths to chase them down: dumpster-diving to find clues of wrongdoing, lambasting enemies on Twitter (where his rambunctious character is on full display), and hotfooting it across Las Vegas to check whether new business offices reported by NovaStar were real. (They weren’t, according to Cohodes; one was a private home, another a massage parlor.) “I’m a pretty driven guy,” he says.

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Still trying to find a good report on this, it’s frustrating. One detail: radiation levels are measured at a certain distance from the source, having some suggest real levels at that source could be 5000 sievert.

Radiation at Japan’s Fukushima Reactor Is Now at ‘Unimaginable’ Levels (Fox)

The radiation levels at Japan’s crippled Fukushima nuclear power plant are now at “unimaginable” levels. Adam Housley, who reported from the area in 2011 following the catastrophic triple-meltdown, said this morning that new fuel leaks have been discovered. He said the radiation levels – as high as 530 sieverts per hour – are now the highest they’ve been since 2011 when a tsunami hit the coastal reactor. “To put this in very simple terms. Four sieverts can kill a handful of people,” he explained.

He said that critics, including the U.S. military in 2011, have long questioned whether Tokyo Electric Power Co. (TEPCO) and officials have been providing accurate information on the severity of the radiation. TEPCO maintains that the radiation is confined to the site and not a risk to the public. It’s expected to take at least $300 billion and four decades to fix it. Housley said small levels of radiation are still being detected off the coasts of California and Oregon and scientists fear it could get worse. “The worry is with 300 tons of radioactive water going into the Pacific every day, what is that doing to the Pacific Ocean?” said Housley. He added that critics are now questioning whether the radiation has been this severe all along.

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Keep paying attention.

Ground-Breaking Research Uncovers New Risks of GMOs, Glyphosate (NGR)

Within just a few weeks, two studies were published in the peer-reviewed journal Scientific Reports that cast new doubts on the safety of genetically modified foods and glyphosate herbicide. The first found that a genetically modified corn, NK 603, was not substantially equivalent to a non-GMO counterpart, which is contrary to claims of GMO proponents. The second study found that glyphosate, the main ingredient in Monsanto’s Roundup herbicide, can cause a serious liver disease at doses thousands of times lower than that allowed by law. Dr. Michael Antoniou, Head of the Gene Expression and Therapy Group at King’s College London in the United Kingdom, led the ground-breaking research.

The main focus of research within Dr. Antoniou’s group is the study of the molecular mechanisms of the regulation of gene function. He has used these discoveries to develop efficient gene expression systems for efficacious and safe biotechnological applications, including gene therapy. More recently, Dr. Antoniou has expanded his research program to include using molecular profiling “omics” methods in evaluating the safety of foods derived from GMO crops, low dose exposure from their associated pesticides, and other chemical pollutants. Dr. Antoniou is also a co-author of GMO Myths and Truths, an evidence-based examination of the claims made for the safety of genetically modified crops and foods.

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Too many parties involved see misery as being a positive for their goals. Very few aim at actually solving the problems.

‘No One Accepts Responsibility’: Thirteen Refugees Dead In Greece (IRR)

The IRR has been trying to ascertain the circumstances in which thirteen refugees and migrants died since April 2016 in Greece, with six of these deaths occurring in hotspots. In only one of these cases are we in a position to provide the full name of the deceased; the only available identifier is nationality. At least six of the dead were refugees from Syria, including Syrian Kurds, three were from Afghanistan. Five of the dead were living at the hotspot at Moria, on the Greek island of Lesbos where over 3,000 refugees are accommodated, well above stated capacity. Those who died here did so because the heaters and gas canisters they had obtained in order to keep warm or cook food were faulty, or used in dangerous situations. An Iraqi man died of a cardiac arrest at a hotspot in Samos (refugee population around 1,800 in a place designed for less than half that number).

Since the Idomeni makeshift migrant camp close to the Macedonian border was cleared by police in May 2016, sub-standard government refugee camps lacking basic amenities have been set up, with three of the dead living in such facilities around Thessaloniki. The oldest to die was a grandmother of 66, the youngest a two-month-old baby. There are three children amongst the dead. The remaining two deaths we have recorded were of men who died of hypothermia after having crossed from Turkey via the river Evros. It’s likely that they made the perilous crossing in order to avoid being detained in the hotspots on the Greek islands. Autopsy results are shrouded in secrecy. Nevertheless, the facts speak for themselves. Overcrowded, unprotected and dangerous conditions are all symptoms of institutional neglect. The simple truth is that the securitisation of asylum policy has come at the expense of refugee protection, as well as basic human rights.

[..] The deaths that have occurred over the winter have at least been reported in the media, partly because human rights defenders, wary of the positive communication strategy of the UNHCR and the EU, issued a number of press releases. Even so, officialdom does not appear over- anxious to investigate. What is particularly worrying is the secrecy shrouding autopsy results, which, if left unchallenged, will ensure that completely avoidable deaths such as these become the new normal. Philippa Kempson, of the Eftalou/ Molovos refugee support group on Lesbos, told IRR News of her fear that the ‘deaths could be subject to cover ups’, and her particular concern that ‘the “accidental” deaths in Moria still do not have a conclusive cause of death’. She also drew attention to the escalation in suicide attempts, particularly amongst unaccompanied minors, at Moria. ‘No one accepts responsibility for what is going on, just a circle of blame,’ she said.

In fact, evading accountability is hard-wired into the way refugee reception is organised in Greece, as there is no central authority responsible for the camps’ administration but a number of actors – a mixture of EU officials, the Greek army and other Greek institutions, the Red Cross and the UNHCR. This means that when anything goes wrong, the various actors end up blaming each other – something academics refer to as a process of distanciation, in which complex chains of responsibility make it difficult to connect cause (ie, government policies) with effect (ie, border-related deaths). Guardian journalist Patrick Kingsley made a similar point in his recent exposé of how a multi-million pound fund administered by the EU’s aid department ECHO, implemented in Greece by UNHCR and aimed at creating adequate facilities to protect refugees from the winter, has been mishandled. Kingsley points out that as ‘no single actor has overall control of all funding and management decisions in the camps, this has allowed most parties to distance themselves from blame’.

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Oct 302016
 
 October 30, 2016  Posted by at 11:12 am Finance Tagged with: , , , , , , , , ,  1 Response »


Harris&Ewing The White House kitchen, Washington DC 1909

Democrats Should Ask Clinton To Step Aside (Kass)
FBI Still Does Not Have Warrant To Review New Abedin Emails (Yahoo)
DOJ Officials Warned FBI’s Comey About Sending Letter on Clinton Emails (WSJ)
Huma Abedin ‘Doesn’t Know How Emails Wound Up On Husband’s Computer’ (WaPo)
Clinton Hid Email Scandal From Her Own Staff (WE)
The First 100 Days Of A Trump White House: Sea Change (AFP)
Finland’s Millionaire Premier Freezes Pay in Bid to Save Economy (BBG)
Iceland Pirate Alliance Falls Short Of Majority (G.)
Mark Carney Could Quit His Bank of England Role Within Days (DM)
Turkey Fires Another 10,000 Civil Servants In Post-Coup Purge (AFP)
Erdogan Says Turkey Soon Will Bring Back Death Penalty (AP)
UK Taxpayers Will Pick Up Costs Of Hinkley Nuclear Waste Storage (G.)
The Broken Promise of Genetically Modified Crops (NY Times)

 

 

Make that ALL Clintons.

Democrats Should Ask Clinton To Step Aside (Kass)

Has America become so numb by the decades of lies and cynicism oozing from Clinton Inc. that it could elect Hillary Clinton as president, even after Friday’s FBI announcement that it had reopened an investigation of her emails while secretary of state? We’ll find out soon enough. It’s obvious the American political system is breaking down. It’s been crumbling for some time now, and the establishment elite know it and they’re properly frightened. Donald Trump, the vulgarian at their gates, is a symptom, not a cause. Hillary Clinton and husband Bill are both cause and effect. FBI director James Comey’s announcement about the renewed Clinton email investigation is the bombshell in the presidential campaign. That he announced this so close to Election Day should tell every thinking person that what the FBI is looking at is extremely serious.

This can’t be about pervert Anthony Weiner and his reported desire for a teenage girl. But it can be about the laptop of Weiner’s wife, Clinton aide Huma Abedin, and emails between her and Hillary. It comes after the FBI investigation in which Comey concluded Clinton had lied and been “reckless” with national secrets, but said he could not recommend prosecution. So what should the Democrats do now? If ruling Democrats hold themselves to the high moral standards they impose on the people they govern, they would follow a simple process: They would demand that Mrs. Clinton step down, immediately, and let her vice presidential nominee, Sen. Tim Kaine of Virginia, stand in her place.

Democrats should say, honestly, that with a new criminal investigation going on into events around her home-brew email server from the time she was secretary of state, having Clinton anywhere near the White House is just not a good idea. Since Oct. 7, WikiLeaks has released 35,000 emails hacked from Clinton campaign boss John Podesta. Now WikiLeaks, no longer a neutral player but an active anti-Clinton agency, plans to release another 15,000 emails. What if she is elected? Think of a nation suffering a bad economy and continuing chaos in the Middle East, and now also facing a criminal investigation of a president. Add to that congressional investigations and a public vision of Clinton as a Nixonian figure wandering the halls, wringing her hands.

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I read about this before but couldn’t get it verified when writing my article yesterday. But it’s apparently true: the DOJ may deny the FBI a warrant to look into the emails. They should try. Meanwhile, I wrote the article this morning: James Comey, American Hero.

FBI Still Does Not Have Warrant To Review New Abedin Emails (Yahoo)

When FBI Director James Comey wrote his bombshell letter to Congress on Friday about newly discovered emails that were potentially “pertinent” to the investigation into Hillary Clinton’s private email server, agents had not been able to review any of the material, because the bureau had not yet gotten a search warrant to read them, three government officials who have been briefed on the probe told Yahoo News. At the time Comey wrote the letter, “he had no idea what was in the content of the emails,” one of the officials said, referring to recently discovered emails that were found on the laptop of disgraced ex-Rep. Anthony Weiner, the estranged husband of top Clinton aide Huma Abedin. Weiner is under investigation for allegedly sending illicit text messages to a 15-year-old girl.

As of Saturday night, the FBI was still in talks with the Justice Department about obtaining a warrant that would allow agency officials to read any of the newly discovered Abedin emails, and therefore was still in the dark about whether they include any classified material that the bureau has not already seen. “We do not have a warrant,” a senior law enforcement official said. “Discussions are under way [between the FBI and the Justice Department] as to the best way to move forward.” That Comey and other senior FBI officials were not aware of what was in the emails – and whether they contained any material the FBI had not already obtained – is important because Donald Trump’s campaign and Republicans in Congress have suggested that the FBI director would not have written his letter unless he had been made aware of significant new emails that might justify reopening the investigation into the Clinton server.

But a message that Comey wrote to all FBI agents Friday seeking to explain his decision to write the controversial letter strongly hinted that investigators did not not yet have legal authority establishing “probable cause” to review the content of Abedin’s emails on Weiner’s electronic devices.

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“FBI officials were also concerned that if they didn’t act, the information might leak out anyway, in a less controlled manner”. Again, see James Comey, American Hero.

DOJ Officials Warned FBI’s Comey About Sending Letter on Clinton Emails (WSJ)

Justice Department officials warned FBI Director James Comey that his letter to Congress about newly discovered emails potentially related to an investigation of Hillary Clinton would contradict the department’s long-established election policy, according to people familiar with the discussions. Mr. Comey acted “independently” when he decided to send the letter, the people said. The FBI is reviewing newly obtained emails linked to its previously closed investigation into Mrs. Clinton’s handling of classified information as secretary of state. Friday’s announcement came just days before voters to go to the polls to choose a new president.

Before the letter was sent, the FBI told senior Justice Department officials what Mr. Comey planned to do, and those officials warned that doing so would contradict the department’s rules against taking steps that could influence—or be seen as trying to influence—an election, these people said. Mr. Comey, however, decided it was better to share the information rather than face possibly greater criticism for keeping quiet until after the election, according to the people familiar with the discussions. FBI officials were also concerned that if they didn’t act, the information might leak out anyway, in a less controlled manner, these people said.

[..] The emails in question were found during the search of a device in the FBI probe of former Rep. Anthony Weiner, a New York Democrat, who is being investigated for allegedly sending sexually explicit messages to a minor. Many of the emails were discovered on a laptop used by both Ms. Abedin and Mr. Weiner, according to people familiar with the matter. In searching the laptop, investigators found thousands of emails, and they determined earlier this week that some of the emails involved Ms. Abedin discussing work issues. Authorities haven’t yet determined how many emails involved such work discussions or if any of those included classified information, these people said. They also haven’t determined if the work emails in question are copies of messages already reviewed by the FBI.

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Should be start to feel pity for here? Abused both at work and at home?

Huma Abedin ‘Doesn’t Know How Emails Wound Up On Husband’s Computer’ (WaPo)

Top Hillary Clinton aide Huma Abedin has told people she is unsure how her emails could have ended up on a device she viewed as her husband’s computer, the seizure of which has reignited the Clinton email investigation, according to a person familiar with the investigation and civil litigation over the matter. The person, who would not discuss the case unless granted anonymity, said Abedin was not a regular user of the computer, and even when she agreed to turn over emails to the State Department for federal records purposes, her lawyers did not search it for materials, not believing any of her messages to be there.

That could be a significant oversight if Abedin’s work messages were indeed on the computer of her estranged husband, former congressman Anthony Weiner, who is under investigation for allegedly exchanging lewd messages with a 15-year-old girl. So far, it is unclear what — if any — new, work-related messages were found by authorities. The person said the FBI had not contacted Abedin about its latest discovery, and she was unsure what the bureau had discovered. According to federal law enforcement officials, investigators found thousands of messages on Weiner’s computer that they believe to be potentially relevant to the separate, Clinton email investigation. How they are relevant — or if they are significant in any respect — remains unknown.

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If/when the entire story gets out, we’re not going to believe it. Or rather, that his person ran for/became president.

Clinton Hid Email Scandal From Her Own Staff (WE)

Hillary Clinton’s closest aides hid the private email scandal from her campaign team in the months before the official launch of her presidential campaign, emails made public by WikiLeaks show. Robby Mook, Clinton’s campaign manager, John Podesta, Clinton’s campaign chair, and Neera Tanden, co-chair of Clinton’s transition team, each expressed shock at the revelations about her private server as they emerged in early March 2015. Although Clinton’s team had performed research on her in 2014 as staff prepared for her campaign, Clinton’s inner circle apparently steered Mook and others away from the issue until it was too late. When Podesta asked Mook if he had “any idea of the depth of this story,” Mook answered simply, “Nope.”

“We brought up the existence of emails in reserach [sic] this summer but were told that everything was taken care of,” Mook added in his email reply. Although how Mook approached the emails with researchers in 2014 is not entirely clear, the exchange provides more evidence that Clinton’s team set up her server with the intent to conceal emails from the Freedom of Information Act given their expectation that she would run again for president. In an email to Podesta in July 2015, Tanden hinted that the results of an upcoming CNN poll would likely show Sen. Bernie Sanders, Clinton’s primary opponent, ahead among Democratic voters. “Do we actually know who told Hillary she could use a private email? And has that person been drawn and quartered?” Tanden joked. “Like whole thing is f***g insane.”

Podesta said their party would have to be “suicidal” to consider nominating Sanders over Clinton. A number of the emails obtained illegally form Podesta’s inbox and published in 20 batches by WikiLeaks have exposed the Clinton campaign’s struggle to confront the controversy over Clinton’s private server. A few days after stories about Clinton’s personal email use broke for the first time, Philippe Reines, a longtime Clinton aide, admitted “there is just no good answer” to questions about her server. Later, Tanden pressed Podesta on why Clinton’s team did not disclose their private emails months earlier in order to avoid such a massive distraction around the time of her campaign kickoff. “[I] guess I know the answer,” Tanden said. “[T]hey wanted to get away with it.”

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And now for something completely different.

The First 100 Days Of A Trump White House: Sea Change (AFP)

Donald Trump believes he will score a “tremendous” victory on November 8. If he does, the Republican presidential candidate has indicated he will bring vast change in America during his first 100 days in office. At a recent campaign rally in North Carolina, he promised “a very busy first day,” adding: “The change will begin my first day in office.” The 70-year-old Manhattan real estate mogul, who insists the country suffers from a “rigged” political system, has pledged to “make America great again” with two key ideas: jumpstarting the economy and bolstering national security. He is certainly not without ideas. Trump offered a list of them on October 22 in his own “Gettysburg address” at the same place where Abraham Lincoln tried to unite a divided nation during the Civil War in 1863.

From the first day, Trump has pledged in his “revolutionary Contract with the American Voter” to renegotiate NAFTA and withdraw from the Trans-Pacific Partnership. He plans to lift restrictions on producing fossil fuels, relaunch the Keystone XL oil pipeline project put on hold by President Barack Obama, and cancel billions of dollars in payments to UN climate change programs. The billionaire will work to “begin removing the more than two million criminal illegal immigrants from the country and cancel visas to foreign countries that won’t take them back.” He would “suspend immigration from terror-prone regions where vetting cannot safely occur” and carry out “extreme vetting” of those seeking to enter the country. “Our campaign represents the kind of change that only arrives once in a lifetime,” he said.

Trump has also vowed to “drain the swamp” of what he sees as systemic corruption in Washington – impose term limits on members of Congress, freeze federal hiring and ban lawmakers and White House staff from becoming lobbyists for five years. He also has promised to “cancel every unconstitutional executive action” undertaken by Obama. Despite his tense ties with the Republican Party, which for now controls both houses of Congress, Trump says he will work with lawmakers to introduce and pass legislation that would see at least 25 million jobs created in a decade.

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The dark days are coming to the north.

Finland’s Millionaire Premier Freezes Pay in Bid to Save Economy (BBG)

The Nordic region’s only euro member is still struggling with austerity. After being stripped of its top AAA credit grade at all three major ratings companies, the government is asking Finns to tighten their belts to keep up with the Germans and the Swedes, who are more productive exporters. Failure to do so will jeopardize Finland’s path away from economic limbo and growing indebtedness, the government warns. Prime Minister Juha Sipila, a self-made millionaire who won elections last year on pledges to reinvigorate Finland’s ailing post-Nokia economy, says exports are the key to economic success. But that requires Finns to produce more without getting more pay if the nation is to close a competitiveness gap as wide as 15 percent relative to its main trading partners.

“We’re behind our main competitor countries,” Sipila said in an interview in Helsinki on Wednesday. “Our problem is that exports are lagging and that growth relies on domestic demand.” But if the economy is to recover, “exports should become the growth motor again.” Finland has been trapped in a low-growth cycle since exiting a series of economic contractions in 2015. Its once dominant paper industry has succumbed to the advent of digital media. The poster child of its consumer technology boom, Nokia Oyj, sold its handset unit off to Microsoft in 2013 after failing to see the potential of smart phones. And the economic crisis in Russia, with whom Finland shares the EU’s longest border, has battered trade.

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Maybe not that bad if they get some more time to learn the ropes.

Iceland Pirate Alliance Falls Short Of Majority (G.)

With about 80% of votes counted, the Pirates, founded four years ago by a group of activists, anarchists and former hackers, and their three left-of-centre partners held 27 seats – five short of a majority in the country’s 63-seat parliament. The Independence party won nearly 30% of the vote, significantly more than pre-election polling had predicted, and with its coalition partner of the past three years, the Progressive party, looks set to end up with 29 seats. “I cannot deny that if the results stay this way … it would be natural that we are a leading party in the next government,” said the leader of the Independence party, Bjarni Benediktsson, one of the its 21 MPs. In a campaign dominated by widespread public discontent with the country’s traditional elites and desire for political reform, the Independence party pledged to lower taxes and keep Iceland’s economic recovery on track.

The preliminary results mean the seven MPs from the newly established, liberal Regeneration party, which split from the Independence party over the issue of Europe earlier this year, could be kingmakers – making coalition negotiations more tricky than usual. Riding a wave of public anger at what many see as endemic political corruption in the wake of the 2008 financial crash and the Panama Papers scandal in April, the Pirates had been predicted to score as high as 20% and possibly even become Iceland’s largest party. But the party’s co-founder, Birgitta Jónsdóttir, an activist, poet and former WikiLeaks collaborator, said it was satisfied with the result, which saw it finish second equal on more than 14% of the vote and with 10 MPs – more than three times as many as in the previous 2013 elections.

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Britain is ruled by vile allegations wherever you look. ‘He never seems to want to recognize the result of the referendum and get on with it. It looks like he is a sore loser.’

Mark Carney Could Quit His Bank of England Role Within Days (DM)

Mark Carney’s days as Governor of the Bank of England appear to be numbered amid rumours he could resign within days. The Canadian – who has been a controversial figure since the Brexit vote as many of his ‘Project Fear’ predictions are yet to materialise – could elect to return to his homeland next year due to family reasons. A decision will be made before the end of the year and could be announced at the Bank’s quarterly inflation report next Thursday. Tory MP Jacob Rees-Mogg, a Treasury Select Committee member and one of Dr Carney’s most outspoken critics, has been touted as a potential replacement, according to Bloomberg.

Mr Rees-Mogg said earlier this month: ‘On every occasion he wants to talk down the economy and find doom and gloom, which doesn’t seem to me to be the job of the governor of the Bank of England. ‘He never seems to want to recognize the result of the referendum and get on with it. It looks like he is a sore loser.’ Just days ago, Dr Carney delivered a stark warning in the House of Lords that interfering with the independence of the Bank of England could send sterling into a fresh tailspin. In an apparent dig at Theresa May, the governor said markets had ‘taken note’ when politicians criticised monetary policy in the past.

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I lost count, I must admit. How they keep the country going, no idea.

Turkey Fires Another 10,000 Civil Servants In Post-Coup Purge (AFP)

Turkish authorities have fired over 10,000 additional civil servants as the government presses a crackdown over the failed July coup, the official gazette said. A total of 10,131 government employees were removed, mainly from the education, justice and health ministries, according to announcements published late Saturday. The government also announced the closure of 15 pro-Kurdish and other media outlets. University rector elections have also been suspended, with President Recep Tayyip Erdogan set to pick the winners from a pool of candidates selected by the nation’s education authority. The moves came three months after the government declared a state of emergency following a failed bid by a rogue faction of the army to oust Erdogan. More than 35,000 people have been arrested since then, and many dozens of teachers, police officers and judges have either been suspended or fired.

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Blood and circus.

Erdogan Says Turkey Soon Will Bring Back Death Penalty (AP)

Turkish President Recep Tayyip Erdogan says the government will soon submit a bill to Parliament to reinstate the death penalty amid calls for the execution of the plotters of a failed coup in July. Addressing crowds in Ankara on Saturday, Erdogan said he would ratify such a bill once it passed despite any objections it might spark in the West. Erdogan made the comments in response to public chants calling for the death penalty, which Turkey abolished in 2004 as part of its bid to join the European Union. Erdogan said: “Soon, our government will bring (the bill) to Parliament…It’s what the people say that matters, not what the West thinks.”

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Excuse me, but does this surprise anyone? It’s what’s going to happen everywhere, no matter what any ‘leader’ says.

UK Taxpayers Will Pick Up Costs Of Hinkley Nuclear Waste Storage (G.)

Taxpayers will pick up the bill should the cost of storing radioactive waste produced by Britain’s newest nuclear power station soar, according to confidential documents which the government has battled to keep secret for more than a year. The papers confirm the steps the government took to reassure French energy firm EDF and Chinese investors behind the £24bn Hinkley Point C plant that the amount they would have to pay for the storage would be capped. The Department for Business, Energy & Industrial Strategy – in its previous incarnation as the Department for Energy and Climate Change – resisted repeated requests under the Freedom of Information Act for the release of the documents which were submitted to the European commission.

“The government has attempted to keep the costs to the taxpayer of Hinkley under wraps from the start,” said Dr Doug Parr, Greenpeace chief scientist. “It’s hardly surprising as it doesn’t look good for the government’s claim that they are trying to keep costs down for hardworking families.” But, earlier this month, on the very last day before government officials had to submit their defence against an appeal for disclosure of the information, the department released a “Nuclear Waste Transfer Pricing Methodology Notification Paper”. Marked “commercial in confidence”, it states that “unlimited exposure to risks relating to the costs of disposing of their waste in a GDF [geological disposal facility], could not be accepted by the operator as they would prevent the operator from securing the finance necessary to undertake the project”.

Instead the document explains that there will be a “cap on the liability of the operator of the nuclear power station which would apply in a worst-case scenario”. It adds: “The UK government accepts that, in setting a cap, the residual risk, of the very worst-case scenarios where actual cost might exceed the cap, is being borne by the government.”

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OK, now kick ’em out. It’s taken far too long already.

The Broken Promise of Genetically Modified Crops (NY Times)

The controversy over genetically modified crops has long focused on largely unsubstantiated fears that they are unsafe to eat. But an extensive examination by The New York Times indicates that the debate has missed a more basic problem — genetic modification in the United States and Canada has not accelerated increases in crop yields or led to an overall reduction in the use of chemical pesticides. The promise of genetic modification was twofold: By making crops immune to the effects of weedkillers and inherently resistant to many pests, they would grow so robustly that they would become indispensable to feeding the world’s growing population, while also requiring fewer applications of sprayed pesticides.

Twenty years ago, Europe largely rejected genetic modification at the same time the United States and Canada were embracing it. Comparing results on the two continents, using independent data as well as academic and industry research, shows how the technology has fallen short of the promise. An analysis by The Times using United Nations data showed that the United States and Canada have gained no discernible advantage in yields — food per acre — when measured against Western Europe, a region with comparably modernized agricultural producers like France and Germany. Also, a recent National Academy of Sciences report found that “there was little evidence” that the introduction of genetically modified crops in the United States had led to yield gains beyond those seen in conventional crops.

At the same time, herbicide use has increased in the United States, even as major crops like corn, soybeans and cotton have been converted to modified varieties. And the United States has fallen behind Europe’s biggest producer, France, in reducing the overall use of pesticides, which includes both herbicides and insecticides. One measure, contained in data from the United States Geological Survey, shows the stark difference in the use of pesticides. Since genetically modified crops were introduced in the United States two decades ago for crops like corn, cotton and soybeans, the use of toxins that kill insects and fungi has fallen by a third, but the spraying of herbicides, which are used in much higher volumes, has risen by 21%. By contrast, in France, use of insecticides and fungicides has fallen by a far greater %age – 65% – and herbicide use has decreased as well, by 36%.

The potential harm from pesticides, however, has drawn researchers’ attention. Pesticides are toxic by design – weaponized versions, like sarin, were developed in Nazi Germany – and have been linked to developmental delays and cancer. “These chemicals are largely unknown,” said David Bellinger, a professor at the Harvard University School of Public Health, whose research has attributed the loss of nearly 17 million I.Q. points among American children 5 years old and under to one class of insecticides. “We do natural experiments on a population,” he said, referring to exposure to chemicals in agriculture, “and wait until it shows up as bad.” The industry is winning on both ends – because the same companies make and sell both the genetically modified plants and the poisons. Driven by these sales, the combined market capitalizations of Monsanto, the largest seed company, and Syngenta, the Swiss pesticide giant, have grown more than sixfold in the last decade and a half.

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Oct 132016
 
 October 13, 2016  Posted by at 8:39 am Finance Tagged with: , , , , , , , , ,  2 Responses »


G. G. Bain 100-mile Harkness Handicap, Sheepshead Bay Motor Speedway, Brooklyn 1918

China September Exports Plunge 10%, Imports Down 1.9% (R.)
Wave Of China Property Tightening Hits Home Sales During Holiday Week (R.)
Chinese Firms Unveil Debt Swaps As Beijing Struggles To Reduce Leverage (R.)
US Mortgage Applications Down 6%, Rates Rise (CNBC)
Where Will All the Money Go When All Three Market Bubbles Pop? (CHSmith)
If Europe Insists On A Hard Brexit, So Be It (AEP)
Brexit Means Whatever The EU Says It Means (Luyendijk)
ECB Says Greece Needs Clarity on Debt to Regain Market Access (BBG)
Steve Keen: A Renegade Economist Has A Plan For Reducing Global Debt (RV)
Pension Benefits In Tiny California Town Slashed As ‘Ponzi Scheme’ Exposed (ZH)
Dumped Apartment Projects ‘Groundhog Day’ To Global Financial Crisis (NZ Herald)
Wells Fargo CEO John Stumpf Steps Down, Walks Away With $120 Million (WSJ)
Moscow Officials Told To Immediately Bring Back Children Studying Abroad (ZH)
Putin Ally Tells Americans: Vote Trump Or Face Nuclear War (R.)
“We Are At War And You Are The Front-line Troops In This War” (I’Cept)
The Global Seed And Chemical Industry Is Undergoing A Rapid Realignment (BBG)
Monsanto Dismisses ‘People’s Tribunal’, ‘Moral Trial’ As A Staged Stunt (G.)
Cut Funds To EU States That Turn Away Refugees, Italy Urges (R.)

 

 

All you need to know about the state of world trade.

China September Exports Plunge 10%, Imports Down 1.9% (R.)

China’s September exports fell 10% from a year earlier, far worse than expected, while imports unexpectedly shrank 1.9% after picking up in August, suggesting signs of steadying in the world’s second-largest economy may be short-lived. That left the country with a trade surplus of $41.99 billion for the month, the General Administration of Customs said on Thursday. Analysts polled by Reuters had expected imports to rise 1%, after unexpectedly advancing 1.5% in August for the first time in nearly two years on stronger demand for coal as well as other commodities such as iron ore which are feeding a construction boom.

Exports had been expected to fall 3%, slightly worse than in August as global demand for Asian goods remains stubbornly weak. Analysts had expected the trade surplus to expand to $53 billion in September from August’s $52.05 billion. The September import reversal raises questions over the strength of the recent recovery in domestic demand, Julian Evans-Pritchard at Capital Economics said in a note after the data. “The data we have so far suggests that a drop in import volumes of a number of key commodities, including iron ore and copper, are partly responsible,” he said.

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Xi continues to do two opposite things: blow bubbles and deflate them at the same time. My guess is there’s a time limit on that game.

Wave Of China Property Tightening Hits Home Sales During Holiday Week (R.)

A wave of restrictions imposed on housing markets in major Chinese cities last week have unnerved some buyers and developers, cutting the area of new homes sold in places such as Beijing and Shenzhen by more than half. More than 20 cities have imposed measures, including higher mortgage downpayments, to cool hot property markets that have raised official alarm in Beijing and fresh concerns about China’s ballooning debt. Last week was a public holiday to mark National Day, traditionally a high season for property sales. Property agents said prices of new homes sold in the southern city of Shenzhen and in Beijing dropped 20% last week to entice buyers, compared with the previous week.

“The new tightening measures are quite stringent,” said Alan Cheng, general manager of realtor Centaline Shenzhen. “It’s a blow to confidence and people are worried that prices will drop, so they are observing from the sidelines now.” The latest restrictions varied from city to city, but included higher mortgage downpayments for second and third-time home buyers, in a bid to stem the flow of cash into the red-hot property market. China’s home prices rose 9.2% in August from a year earlier, official data shows. But in Shenzhen, they increased almost 37%, in Beijing more than 23% and in Shanghai topped 30%. Such hefty price rises have been common all year in these so-called Tier 1 cities. The rally has prompted a frenzy among some buyers. In some cases, couples divorced to find a way around buying restrictions.

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How to make debt go away. Transfer it from state-owned firms to state-owned banks. Yeah, that should work..

Chinese Firms Unveil Debt Swaps As Beijing Struggles To Reduce Leverage (R.)

Chinese firms are moving rapidly to announce debt restructuring plans following the release of government guidelines on Monday, as policymakers experiment with ways to rein in the country’s ballooning corporate debt. China Construction Bank, the nations’ second-largest lender by assets, has been reported in two deals to help big, debt-laden state companies in as many days, and other Big Four banks are expected to follow soon. Chinese companies sit on $18 trillion in debt, equivalent to about 169% of GDP, according to the most recent figures from the Bank for International Settlements. Most of it is held by state-owned firms. Construction Bank will conduct a debt-to-equity swap with Yunnan Tin Group, the world’s biggest tin producer and exporter, to cut its debt and financing costs, Xinhua reported on Wednesday.

Separately, the bank on Tuesday announced the launch of a 24 billion yuan ($3.60 billion) debt restructuring fund to help struggling Wuhan Iron and Steel. Although the statement from CCB did not specify the planned operations of the fund, official media reported that the debt reduction would be accomplished primarily through debt-to-equity swaps. CCB will give Yunnan Tin 2.35 billion yuan next week in its first round of investment to swap some high-interest debt, Xinhua reported, without spelling out further details of the deal. The guidelines for debt-to-equity swaps, mooted as one solution to China’s growing corporate debt overhang, have been in development for months. However, some senior bankers and analysts have been outspoken critics of the idea, saying it risks saddling banks with ownership stakes in weak companies which Beijing sees as too big or too sensitive to fail [..]

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Actual rates are starting to creep up no matter what central banks do. Sign of the times.

US Mortgage Applications Down 6%, Rates Rise (CNBC)

As pumpkins pop up on front porches across the nation, the highest interest rates in a month are scaring consumers away from the mortgage market. Total mortgage application volume fell 6% on a seasonally adjusted basis for the week ended Oct. 7, compared to the previous week, according to the Mortgage Bankers Association. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.68%, from 3.62%, with points increasing to 0.35 from 0.32 (including the origination fee) for 80% loan-to-value ratio loans.

“As incoming economic data reassured investors regarding U.S. growth, and financial markets returned to viewing a December Fed hike as increasingly likely, mortgage rates rose to their highest level in a month last week,” said Michael Fratantoni, chief economist at the MBA. “Total and refinance application volume dropped to their lowest levels since June as a result.” Applications to refinance a home loan, which are highly rate-sensitive, have been falling for weeks, and took another 8% dive last week, seasonally adjusted. Mortgage applications to purchase a home fell a smaller 3% for the week and are 27% higher than one year ago. Comparisons to last year may be skewed, however, as new mortgage rules went into effect last October that pulled demand forward and then delayed mortgage processing.

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Charles asks: “Where will the money fleeing deflating bubbles go?”. But doesn’t add that much of it will simply evaporate. That’s what happens when bubbles pop.

Where Will All the Money Go When All Three Market Bubbles Pop? (CHSmith)

Everyone who’s not paid to be in denial knows stocks, bonds and real estate are in bubbles of one sort or another. Real estate is either an echo bubble or a bubble that exceeds the previous bubble, depending on how attractive the market is to hot-money investors.

Here’s a look at the inflation-adjusted S&P 500 (SPX) and margin debt: yep, a bubble.

With the Fed funds rate pinned to near-zero, bonds are in a bubble as well.

[..] Where will the money fleeing deflating bubbles go? Since the stock, bond and real estate markets are all correlated, it’s a question with no easy answer. What would $10 trillion seeking safe haven do to small asset classes such as precious metals, bitcoin, and tradable (liquid) sectors of the commodities markets? If the bubbles in bonds, stocks and real estate all pop, what markets will be left that can absorb trillions of hot money sloshing around? the short answer is: none. The chaos that will arise as trillions of dollars, yen, yuan and euros, etc. try to crowd through the fire exits as the asset bubbles pop will be monumental, and the the spikes in small asset class prices as the hot money floods in will be equally monumental.

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At least Ambrose doesn’t whine as much as many Brits do. “What [Hollande] is also admitting – à son insu – is that the union is held together only by fear. He might as well write its epitaph.” He’s writing his own epitaph, too.

If Europe Insists On A Hard Brexit, So Be It (AEP)

There may be serious economic trials ahead as we extract ourselves from the EU after more than forty years, but the slump in sterling is not one of them. The devaluation is necessary and desirable. The pound is now near ‘fair value’ based on the real effective exchange rate used by the IMF. All that has happened is a correction of the extreme over-valuation of sterling before Brexit, caused by capital inflows. This left the country with the worst current account deficit in peace-time since records began in the 18th Century. The fall is roughly comparable to the devaluation from 2007 to 2008 – though the same financial elites who talk so much of Armageddon today played it down on that occasion, mindful that their own banking crisis was the trigger. We can argue over how much the 2008 devaluation helped but it clearly acted as shock absorber at a crucial moment.

It was in any case a far less painful way to restore short-term competitiveness than the ‘internal devaluations’ and mass unemployment suffered by the eurozone’s Club Med bloc. But there is a deeper point today that is often overlooked. Central banks across the developed world are caught in a deflationary trap. The ‘Wicksellian’ or natural rate of interest has been falling ever lower with each economic cycle and is now at or below zero in half the global economy, a full seven years into the expansion. This paralyses monetary policy and has dark implications for the next downturn. It is why central banks are desperately trying to drive down their currencies to gain a little breathing room, or in the case of the US Federal Reserve to stop the dollar rising. By the accident of Brexit, Britain has pulled off a Wicksellian adjustment that eludes others.

With luck, the economy may even generate a few flickers of inflation, enough to let the Bank of England raise interest rates and start to restore ‘intertemporal’ equilibrium. Personally, I have been in favour of a “soft Brexit” that preserves unfettered access to the single market and passporting rights for the City, but not at any political cost – and certainly not if it means submitting to the European Court, which so cynically struck down our treaty opt-out on the Charter in a grab for sweeping jurisdiction. But what has caused me to harden my view – somewhat – is the open intimidation by a number of EU political leaders. “There must be a threat,” said French president Francois Hollande. “There must be a price… otherwise other countries or other parties will want to leave the European Union.”

These are remarkable comments in all kinds of ways, not least in that the leader of a democratic state is threatening a neighbouring democracy and military ally. What he is also admitting – à son insu – is that the union is held together only by fear. He might as well write its epitaph.

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Yet another example of why Britain should be delighted to leave the EU. But isn’t.

Brexit Means Whatever The EU Says It Means (Luyendijk)

If you still believe Britain will get a sweet deal out of Brexit because “the EU needs the UK more than vice versa”, ask yourself: why don’t we hear European politicians pleading with Britain “not to punish the EU over Brexit”? Why is the pound plunging against the euro and not the other way around? Why do we not hear of companies escaping from the EU to “free-trading Britain” while there is almost a traffic jam in the other direction? Why do EU leaders look rather relaxed when Brexit comes up, even cracking the odd joke or two about sending the British foreign minister, Boris Johnson, a copy of the Lisbon treaty so he can read up on reality? The negotiating cards with the EU are “incredibly stacked our way”, the Brexit minister, David Davis, told the House of Commons on Monday.

The cards certainly are “incredibly stacked” – but not in the way Davis imagines. To understand why, get a map of the EU and find Slovenia, a nation of 2 million people. No, that is Slovakia, with 5.4 million, almost three times bigger. Next look up Lithuania (population: 3.3 million), Latvia (2 million), Estonia (1.3 million) and Luxembourg (500,000). Now repeat after me: all these EU members, as well as the other 21, hold veto power over whatever deal the UK (65 million) manages to negotiate with the EU (population: 508 million). That is right, 1.2 million Cypriots can paralyse the British economy by blocking a deal, and the same holds true for Malta (400,000). Did I mention the Walloon parliament in Namur (get that atlas out again) has veto power too? And then there is, of course, the European parliament in Strasbourg.

Brexiteers argue that the EU takes ages to conclude trade deals so Britain is better off striking them on its own. The former is certainly true. Consider the Walloons currently threatening to derail an EU trade deal with Canada. But how does EU institutional sluggishness square with the Brexiteers’ promise that the EU is even capable of concluding a swift Brexit deal with the UK, even if it wanted to do? It doesn’t. And this is true even before we look at whether the EU would have an interest in making things easy for Britain. Remember how, before the EU referendum, David Cameron went to Brussels threatening to support leave unless he was given a range of “concessions”? Well, two can play that game, now that the tables have turned – except the EU has 27 nations. That is a lot of scope for blackmail à l’anglaise.

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A new torture technique. It’s a Good Cop Bad Cop set-up, but with three parties: EU, ECB and IMF, who keep on blaming both each other and the suspect, who may be innocent but is never released.

ECB Says Greece Needs Clarity on Debt to Regain Market Access (BBG)

Greece won’t regain stable access to international bond markets unless creditors ease repayment terms on the country’s bailout loans, ECB Executive Board member Benoit Coeure said. The country cannot gain “solid and long-lasting market access without the clarity about the sustainability of Greek debt,” Coeure told European Parliament lawmakers on Wednesday, adding that the IMF should stay fully involved in the Greek bailout to ensure fair treatment in Greek debt talks. “There are serious concerns about the sustainability of Greek public debt,” the Frenchman said during the hearing. “We are looking forward to a solution that can reassure markets, restore confidence in the dynamics of public debt, allow the full involvement of the IMF in the program – which would enhance the program’s credibility – and restore market access for Greece ahead of the end of the program in July 2018.”

The IMF is at loggerheads with Greece’s European creditors as the Washington-based lender insists on concrete and quantified relief measures before extending any more loans to the continent’s most-indebted state. While the institution acknowledges that a nominal haircut on Greek bailout loans is implausible, it has demanded more concessionary repayment terms, including extensions of maturities and a cap on interest rates. Wolfgang Schaeuble has said the source of Greece’s woes is a lack of competitiveness, not elevated debt levels, and reiterated calls earlier this week for the IMF to contribute to Greek bailout loans. The ECB “very much” believes that the IMF should be on board when devising a solution for Greek debt, Coeure said. The ECB has excluded Greek government bonds from its asset-purchase program, pending “an additional level of safeguards and clarity on debt sustainability.”

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Bit hard to find the best part. There’s a RealVision interview connected to it.

Steve Keen: A Renegade Economist Has A Plan For Reducing Global Debt (RV)

What he is really focused on is here is reducing the debt burden and is inspired by US philanthropist Richard Vague, who started two US credit card companies, First USA and Juniper Financial — and now campaigns against excessive debt. “We have to cope with the residue, and it’s created this enormous pile of elephant dung of debt. We have to get rid of it. I’m simply being practical about how do we get rid of it,” Keen said. “He’s a totally realistic man (Vague), totally feet-on-the-ground personality. And he said, when you look at history, there has never been a successful episode of de-leveraging by growing out of it. It’s been debt write offs every last time. Somehow debts have been written off whether it’s being done at the individual scale by individual bankruptcies or some sort of collective action.

“We can’t get rid of it by market mechanisms, and we can’t grow our way out of it. “So we’ve got this pile of elephant dung we need to get rid of. Let’s work out a way of doing it. Richard’s way is to let the banks write debt off over like a 30-year amortization period. So you have somebody who has got a $1million dollar mortgage, you write it down to half a million, in one year, that half a million loss by the bank would wipe the bank out. You let them out of that over 30 years. That why they can cope with it, and you get a recovery that way. “Mine is to say let’s use the state’s capacity to create money to do the cancellation. But whatever way you go about it, you’ve got to reduce that pile of elephant dung we call accumulated private debt.”

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Tidings of things to come.

Pension Benefits In Tiny California Town Slashed As ‘Ponzi Scheme’ Exposed (ZH)

For the tiny little town of Loyalton, California, with a population of only 700, a failure of city council members to understand the difference between the calculation of a regular everyday pension liability and a “termination liability” has left 4 residents at risk of losing their pensions from Calpers. According to the New York Times, the town of Loyalton decided to drop out of Calpers back in 2012 in order to save some money but what they got instead was a $1.6mm bill which was more than their annual budget. For those who aren’t familiar with pension accounting, we can shed some light on the issue faced by Loyalton. There are two different ways to calculate the present value of pension liabilities. One methodology applies to “solvent”, fully-functioning pension funds (we call this the “Ponzi Methodology”) and the other applies to pensions that are being terminated (we call this one “Reality”).

Under the “Ponzi Methodology,” pension funds, like Calpers, discount their future liabilities at 7.5% in order to keep the present value of their liabilities artificially low. That way, pension funds can maintain the illusion that they’re solvent and the Ponzi scheme can continue on so long as there are enough assets to cover annual benefit payments. Now, the managers of the pension funds aren’t actually dumb enough to believe that the “Ponzi Methodology” accurately reflects the true present value of future liabilities because they know that, particularly in light of current Central Banking policies around the world, their actual long-term returns will be much lower than 7.5%. Therefore, they have a completely separate, special calculation that applies when towns, like Loyalton, want to exit their plan.

This “termination liability”, or what we refer to as “Reality”, uses a discount rate closer to or even below risk-free rates which means the present value of the future liabilities is much higher. As a quick example, lets just assume that Loyalton’s 4 pensioners draw $225,000 per year, in aggregate pension benefits, and enjoy a 2% annual inflation adjustment. Assuming a 7.5% discount rate, the present value of that liability stream is about $2.9mm. However, if the discount rate drops to 2%, the present value of those liabilities surges to $4.5mm…hence the $1.6mm bill sent to the Loyalton City Council.

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And so it begins (again).

Dumped Apartment Projects ‘Groundhog Day’ To Global Financial Crisis (NZ Herald)

The collapse of property developments in Auckland as banks refuse to fund projects due to blowouts in construction and labour costs, is “almost groundhog day” to the run-up of the global financial crisis in 2007/2008 says John Kensington, the author of KPMG’s Financial Institutions Performance Survey. The most recent development to be cancelled is the Flo apartment project in Avondale. Buyers’ 10% deposits were refunded this week as the developer cited funding and construction cost issues. Speaking to BusinessDesk, Kensington said exactly the same thing was happening at the start of the GFC. “Banks were looking at property development opportunities back then, and going, ‘we’ve got a record rise in prices, we’ve got shortages of materials, we’ve got shortages of labour, we don’t think this property development has been correctly analysed, we don’t think it’s going to work’, so they declined to fund it.”

Kensington said this year was different because the finance companies were diminished and no longer in a position to take up the slack. “The money went to finance companies [before the GFC] who, having got the money, had to find a home and probably invested in the very things the banks had said no to. At least this time round there is not as strong a property finance company sector there to take up the slack when the banks said no. I’m sure if there was, they would happily bank some of this.” He added that there was a “real strain on the construction industry, labour costs are blowing out, and there are some shortages of building materials”. Prime Minister John Key yesterday told the Herald he stood by comments that young people should be looking to buy apartments as their first home.

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So go after him, I dare you.

Wells Fargo CEO John Stumpf Steps Down, Walks Away With $120 Million (WSJ)

Wells Fargo Chairman and CEO John Stumpf, under fire for the bank’s sales-tactics scandal and his own handling of its fallout, is stepping down from both roles, effective immediately, the bank said Wednesday. Mr. Stumpf will be replaced as head of the third-largest U.S. bank by assets by President and COO Timothy J. Sloan, who was widely seen as his heir apparent. Mr. Stumpf won’t receive a severance package, the bank said. The board, at Mr. Stumpf’s own recommendation, had previously decided he should relinquish $41 million in unvested equity, one of the biggest-ever forfeitures of pay by a bank chief. He still retires with tens of millions of dollars earned during roughly 35 years at the bank. Mr. Stumpf’s departure comes after he was subjected to two grillings on Capitol Hill in which he was attacked by both Democrats and Republicans.

The bank also faces numerous federal and state inquiries into its sales-practices issues, including from the Justice Department. The toppling of Mr. Stumpf, 63 years old and just shy of his 10th year as CEO, marks a stunning comedown for a firm that largely passed through the financial crisis unscathed and which was seen as a reliable Main Street lender. That reputation was shattered by the sales-tactics scandal, which revealed that bank employees had opened as many as two million accounts without customers’ knowledge. The bank has said it regrets the improper behavior, has ended sales goals for retail-bank employees and has been refunding customers improperly charged.

The problems came to light Sept. 8 when Wells Fargo agreed to a $185 milion fine and enforcement action with regulators. That settlement also brought to light that the bank had fired 5,300 employees over a five-year period for improper behavior. This underscored the breadth of problems related to a hard-charging sales culture that pushed bankers to sell multiple products to individual customers.

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Curious report.

Moscow Officials Told To Immediately Bring Back Children Studying Abroad (ZH)

In Europe, when it gets serious, you have to lie… at least if you are an unelected bureaucrat like Jean-Claude Juncker. In Russia, however, when it gets serious, attention immediately turns to the children. Which is why we read a report in Russian website Znak published Tuesday, according to which Russian state officials and government workers were told to bring back their children studying abroad immediately, even if means cutting their education short and not waiting until the end of the school year, and re-enroll them in Russian schools, with some concern. The article adds that if the parents of these same officials also live abroad “for some reason”, and have not lost their Russian citizenship, should also be returned to the motherland. Znak cited five administration officials as the source of the report.

The “recommendation” applies to all: from the administration staff, to regional administratiors, to lawmakers of all levels. Employees of public corporations are also subject to the ordinance. One of the sources said that anyone who fails to act, will find such non-compliance to be a “complicating factor in the furtherance of their public sector career.” He added that he was aware of several such cases in recent months. It appears that the underlying reason behind the command is that the Russian government is concerned about the optics of having children of the Russian political elite being educated abroad, while their parents appear on television talking about patriotism and being “surrounded by enemies.”

While we doubt the impacted children will be happy by this development, some of the more patriotic locals, if unimpacted, are delighted. Such as Vitaly Ivanov, a political scientist who believes that the measure to return children of officials from studying abroad, is “long overdue.” According Ivanoc, the education of children of the Russian elite abroad is subject to constant ridicule and derision against the ruling regime. “People note the hypocrisy of having a centralized state and cultivating patriotism and anti-Western sentiment, while children of government workers study abroad. You can not serve two gods, one must choose.”

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“..if they vote for Hillary it’s war. It will be a short movie. There will be Hiroshimas and Nagasakis everywhere.”

Putin Ally Tells Americans: Vote Trump Or Face Nuclear War (R.)

Americans should vote for Donald Trump as president next month or risk being dragged into a nuclear war, according to a Russian ultra-nationalist ally of President Vladimir Putin who likes to compare himself to the U.S. Republican candidate. Vladimir Zhirinovsky, a flamboyant veteran lawmaker known for his fiery rhetoric, told Reuters in an interview that Trump was the only person able to de-escalate dangerous tensions between Moscow and Washington. By contrast, Trump’s Democratic rival Hillary Clinton could spark World War Three, said Zhirinovsky, who received a top state award from Putin after his pro-Kremlin Liberal Democratic Party of Russia (LDPR) came third in Russia’s parliamentary election last month.

Many Russians regard Zhirinovsky as a clownish figure who makes outspoken statements to grab attention but he is also widely viewed as a faithful servant of Kremlin policy, sometimes used to float radical opinions to test public reaction. “Relations between Russia and the United States can’t get any worse. The only way they can get worse is if a war starts,” said Zhirinovsky, speaking in his huge office on the 10th floor of Russia’s State Duma, or lower house of parliament. “Americans voting for a president on Nov. 8 must realize that they are voting for peace on Planet Earth if they vote for Trump. But if they vote for Hillary it’s war. It will be a short movie. There will be Hiroshimas and Nagasakis everywhere.”

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Nice country to live in.

“We Are At War And You Are The Front-line Troops In This War” (I’Cept)

“That’s the next wave in the militarization of police,” Atkinson told The Intercept in an interview. “What we found was a whole slew of retired military officers now in the private sector now selling the exact same surveillance technology that they just got back from Iraq and Afghanistan with to local law enforcement for small money on the dollar.” The intent of “Do Not Resist,” Atkinson said, is to provide a glimpse inside the realities of American policing, challenge the policing-for-profit model that has caused departments in economically depressed communities to treat their citizens as walking ATM machines, call out a warrior culture that divides law enforcement from the public they’re sworn to serve, and flag the dangers of war-zone technologies being applied domestically.

[..] All told, the team traveled to 19 states, went on roughly 20 police ride-a-longs, observed half a dozen raids, and interacted with hundreds of police officers. The hope was to be on-hand for an incident in which a SWAT team’s use of heavy weapons would be unquestionably warranted. “I thought the whole time I would be able to show something that would kind of reflect the entire scope of what a SWAT officer might go through sometimes, where you actually do need the equipment,” Atkinson explained.

Instead, the filmmaker repeatedly found himself watching police with military-grade weaponry executing dubious search warrants. The frequency of the raids was particularly shocking, with one of the officers in the film claiming his team does 200 such operations a year. By comparison, Atkinson notes, his father performed a total of 29 search warrant raids over his entire 13 years in SWAT – according to some estimates, SWAT teams now carry out between 50,000 to 80,000 raids across the country annually. “The search warrants, we’re told, are always used for massive drug dealers and kingpins, and then we run in these homes and we never found anything,” Atkinson said.

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The real problem is that such a thing as a ‘seed and chemical industry’ exists at all. That agriculture has been just about fully taken over by 100+ year-old chemical companies that started out supplying death and now seek to control life, control our food to sell their chemicals, which our food doesn’t need.

The Global Seed And Chemical Industry Is Undergoing A Rapid Realignment (BBG)

The global seed and chemical industry is undergoing a rapid realignment, with three massive deals in less than a year. Last month, Bayer clinched a bid to buy Monsanto, the world’s biggest seed company, for $66 billion, ending a months-long chase. DuPont and Dow Chemical plan a $59 billion merger of equals, while China National Chemical waits to complete its $43 billion takeover of Swiss seed maker Syngenta. While the dominant players get bigger, some independents look for advantages in research and development. About two-thirds of Stine’s employees work in R&D using traditional breeding techniques to improve corn and soybean genetics. The company sells these improved seeds to farmers and also licenses them to bigger companies like Monsanto that, as part of the bargain, give Stine Seed priority access to the newest genetically modified traits that help farmers control weeds and bugs.

Closely-held companies account for about 20% of U.S. sales in corn seed and 22% in soybeans, according to Todd L. Martin, executive director of the Independent Professional Seed Association, which has 118 regular members. The bulk of Stine Seed profit comes from licensing its genetics research to bigger rivals. But customer backlash from the big mergers means the company’s revenue from its retail sales could “easily double,” Stine said. The company declined to provide sales figures. Smaller companies also may find an edge over pricier biotech products, said Jason Miner, an analyst at Bloomberg Intelligence. The market for seeds with multiple traits to control different types of insects and to withstand multiple weed killers may have reached a saturation point, he said. “Traditional breeding may actually be on the rise,” Miner said. “Farmers are less interested in speculating on high-cost, potential yield boosters. They want cost-effective solutions.”

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Get farmers to stop buying the stuff.

Monsanto Dismisses ‘People’s Tribunal’, ‘Moral Trial’ As A Staged Stunt (G.)

International judges will take evidence from 30 witnesses and “victims” of US agri-business Monsanto in an attempt by hundreds of grassroots groups to hold the company accountable for what they allege are human rights violations, crimes against humanity, and “ecocide”, or widespread environmental damage. High-profile witnesses, including former UN special rapporteur on the right to food Olivier De Schutter, will give evidence alongside Argentine doctors, Mexican beekeepers and toxicologists and scientists from 15 countries. The five judges will deliver what is expected to be a lengthy advisory legal opinion. The three-day peoples’ tribunal, which will be held in The Hague this weekend, will adopt the format of the UN’s international court of justice but will have no standing in law.

Organisers have described the hearing as a “moral trial” and “a test of international law”. “It aims to assess the allegations of harm made against Monsanto as well as the human health and environmental damages caused by the company throughout its history,” said a spokeswoman in London. The agro-chemical company, which is the subject of a £51bn takeover by German conglomerate Bayer, has declined to take part, or to defend its history at the tribunal. The company, which manufactured hundreds of thousands of tonnes of Agent Orange for use as a chemical weapon in the Vietnam war, is the world’s biggest genetically modified seed corporation. Monsanto developed toxic polychlorinated biphenyls and also makes glyphosate, the primary ingredient in Roundup, a widely used but controversial herbicide.

The firm’s accusers in The Hague will hold it and other major chemical companies primarily responsible for developing an unsustainable system of farming. “Monsanto promotes an agro-industrial model that contributes at least one-third of global anthropogenic greenhouse gas emissions; it is also largely responsible for the depletion of soil and water resources, species extinction and declining biodiversity, and the displacement of millions of small farmers worldwide. This is a model that threatens peoples’ food sovereignty by patenting seeds and privatising life”, said the spokeswoman.

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Everyone’s happy to saddle Italy with the problem, same as Greece. It’s what the EU stands for.

Cut Funds To EU States That Turn Away Refugees, Italy Urges (R.)

Eastern states that continue to refuse to take in refugees to help frontline countries in Europe’s migration crisis should have their EU funding cut, Italian Prime Minister Matteo Renzi said on Wednesday. Italy is the main destination for the waves of migrants fleeing violence and poverty in Africa. It is housing 160,000 asylum seekers out of more than 460,000 refugees who have reached its shores from North Africa since the start of 2014. Of 39,600 refugees due to be relocated from Italy under an EU quota plan, so far only 1,300 have been moved, according to the European Commission. While outlining his priorities for the EU’s next summit meeting on Oct. 20-21 in Brussels, Renzi told parliament: “It’s necessary that Italy be the promoter of a very tough position toward those countries that have received a lot of money for belonging to the bloc to relaunch their territories, and who are shirking their commitments to relocate immigrants.”

Poland, Hungary and other formerly communist states are firmly opposed to relocation quotas for refugees and say immigration, especially from the Muslim cultures of the Middle East, would disrupt their homogeneous societies. They also object to paying penalties for not taking people in. The financial transfers to less-developed areas of the EU from which they benefit, and which Renzi was referring to in his comments, absorb a large portion of the current €1 trillion EU long-term budget. The proposal for the next EU budget, for the 2021-27 period, is supposed to be completed by the end of next year. “The positive aspects of belonging to the EU must be balanced by the duties that come with membership,” Renzi said.

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Sep 282016
 
 September 28, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , ,  7 Responses »


DPC Heart of Chinatown, San Francisco, after earthquake and fire 1906

Small Army Of Fed Speakers, OPEC On Tap For Wednesday (CNBC)
“Negative Growth” of Real Wages is Normal for Much of the Workforce (WS)
Grocery Prices Are Plunging (BBG)
EU Banking Mayhem, One Bank at a Time, then All at Once (WS)
Deutsche Bank Troubles Cast Long Shadow Over European Banking (BBG)
IMF Warns Central Banks Could Lose Deflation Fight (AFP)
A Legal Barrier to Higher US Interest Rates (WSJ)
Global Container Volume on Track for Worst Year Since 2009 (WSJ)
Wells Fargo Executives Forfeit Millions, CEO To Forgo Salary (G.)
Worries Grow Over Greek Economic Forecast (WSJ)
Germany’s Hypocrisy Over Greece Water Privatisation (G.)
China Wants GMOs. The Chinese People Don’t. (BBG)
Single Clothes Wash May Release 700,000 Microplastic Fibres (G.)

 

 

And the MH17 report that lost all credibility long ago. Got to keep the customer entertained.

Small Army Of Fed Speakers, OPEC On Tap For Wednesday (CNBC)

A flurry of Fed speakers, including the Fed chair, will keep markets busy Wednesday. There are also mortgage applications at 7 a.m. EDT, durable goods data at 8:30 a.m. EDT and oil inventory data at 10:30 a.m. EDT. OPEC, meanwhile, is meeting in Algeria and could continue to create volatility in oil prices after headlines from there triggered a near 3% plunge Tuesday. Fed Chair Janet Yellen appears before the House Financial Services Committee at 10 a.m. on supervision and regulation. The Fed chair was personally criticized in the presidential debate Monday night by GOP candidate Donald Trump, who said the Fed’s decision to keep rates low was political and that it’s creating a bubble in the stock market.

“It has to worry the markets that potentially you could have a president getting into a nasty dispute with the chairman of the Fed in early 2017. That’s something the market would not like to see. I think the Fed has not done a very good job communicating. It’s a cacophony of confusing comments. There’s reason to criticize the Fed, but the personal attack on Yellen is unprecedented,” said Greg Valliere, chief global strategist at Horizon Investments. Traders are watching to see if Yellen is in the political hot seat on banking regulation and supervision when she appears before the committee.

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One side of US deflation is falling wages…

“Negative Growth” of Real Wages is Normal for Much of the Workforce (WS)

The chart below shows the%age change of real wages (left, y-axis) as these men aged (horizontal, x-axis). As young adults, their wages soared by up to 10% a year. Then the rate of growth fell off sharply. When the men in this cohort turned 40 in the 1990s, wage growth disappeared. By around the year 2000, the real wage peak in the US, when the oldest men in this cohort turned 50, wages had begun to decline for most of them. By the time these men were in the mid-50s, their wages across the board were heading south – and for many of them, rapidly. Hence this colorful, drooping spaghetti:

This “negative real wage growth” – devastating as it may be for those experiencing it – is nothing special, according to the New York Fed. And it crushes not just white men, but everyone: “Real wages tend to rise early in a worker’s career, flatten out mid-career, and then decline as the worker approaches retirement. This inverted U-shape pattern is a well-established feature in the labor economics literature.” The report explained it further: “Labor economists explain the rapid real wage growth early in a worker’s career as a combination of on-the-job learning and better matching of workers to jobs. A large portion is due to job matching as workers change jobs in search of a position that better utilizes their skills. As workers age, the decline in the pace of their real wage growth reflects a diminished incentive to invest in new skills (because their remaining work life is shorter) and fewer job changes (because they have found a good job match).”

The report divides life for its purposes into three phases, terms of wage growth: • Fast growth, up to age 40, • Flat growth, ages 41-54, • “Negative growth,” age 55 and older. Now there’s another problem mucking up the overall and ever-elusive real-wage growth miracle everyone has been counting on: demographics. The US population is aging. There are more people aged 40 and over in the workforce, and their incomes are now flat or declining. The portion of the population in the first phase when wages are growing fast has plunged from close to 60% in the 1980s to the mid-40% range currently. And the portion of workers with wages in the “negative growth” phase has ballooned. Given the demographics, real wage declines among workers over 50 will continue to hammer the national averages.

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…and when wages are falling, so must prices.

Grocery Prices Are Plunging (BBG)

Call it the Great Grocery-Store Giveaway of 2016. In Austin, Texas, Randalls slashed prices for boneless beef ribs by 40%, to $3.99 a pound. Not to be outdone, the H-E-B grocer down the street charged $1 a pound less. Not long ago, Albertsons advertised a deal you don’t normally see on your finer cuts of meat: “buy 1 get 1 free” specials on “USDA Choice Petite Sirloin Steak.” And what does $1 buy these days? In North Bergen, New Jersey, you could pick up a dozen eggs at Wal-Mart. OK, the price was actually $1.14. A mile away, check out Aldi, the German supermarket discounter, which can actually break the buck – 12 eggs for 99 cents. A year ago, you would have paid, on average, three times that price.

In a startling development, almost unheard of outside a recession, food prices have fallen for nine straight months in the U.S. It’s the longest streak of food deflation since 1960 – with the exception of 2009, when the financial crisis was winding down. Analysts credit low oil and grain prices, as well as cutthroat competition from discounters. Consumers are winning out; grocery chains, not so much. Their margins and, in some cases, their stock prices, are taking a hit. Eggs and beef have have grown especially inexpensive, and it isn’t only an American phenomenon: In England, Aldi recently offered its prized 8-ounce wagyu steaks from New Zealand for about $6.50 – a little more than the price of a pint of beer. “The severity of what we’re seeing is completely unprecedented,” said Scott Mushkin at Wolfe Research, who has studied grocery prices around the country for more than ten years. “We’ve never seen deflation this sharp.”

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“The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.”

EU Banking Mayhem, One Bank at a Time, then All at Once (WS)

Here are the 29 banks in the ESTX Banks Index of Eurozone banks (so Swiss and UK banks, for example are not included). It shows the percentage drop from their 52-week high. But for some of these banks, particularly for Italian and Portuguese banks, that 52-week high was just about last year’s 52-week low, so relentless has their decline been over the years. Some of them had already been reduced to penny stocks years ago, and for them, in euro terms, the biggest losses occurred back then. So these mayhem banks, color coded by country:

If a bank stock plunges from €0.04 to €0.01 over the 52-week period, such as Banco Comercial Português in Portugal, it has been toast for longer than 52 weeks, and the percentage plunge is essentially meaningless because shares were worthless to begin with. The shares of five of these banks trade under €1. Another 8 banks trade under €3. These 29 banks form a big part of the European financial system. It includes some of the world’s largest banks, such as Deutsche Bank, Societe Generale, and BNP Paribas. It includes a slew of other “systemically important financial institutions,” such as Unicredit, ING, and Santander. They’re troubled at the same time. The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.

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Deutsche won’t go alone. Just like saving only Deutsche is far from enough. The dominoes suppart each other.

Deutsche Bank Troubles Cast Long Shadow Over European Banking (BBG)

The turmoil swirling around Deutsche Bank has brought simmering concerns about the health of Europe’s banks back to a boil. Germany’s largest lender extended losses to a record low this week, dragging down European financial stocks, after the U.S. Department of Justice requested $14 billion to settle claims tied to fraudulent mortgage-backed securities. While the bank said it won’t pay anywhere close to that amount, the dust-up fueled doubts over its capital levels and refocused investors on the industry’s faults. “One word – Deutsche,” David Moss at BMO Global Asset Management in London, said when asked to sum up the recent slump in European banks. “That’s the biggest thing – it’s reignited the risk around regulation, fines and litigation.”

Dismissing concern about the bank’s finances, Chief Executive Officer John Cryan told Bild in an interview published late Tuesday that capital “is currently not an issue,” and accepting government support is “out of the question for us.” Deutsche Bank has tumbled almost 20% this month, while Royal Bank of Scotland – which also faces a looming Justice Department fine – fell 13%, and Italy’s UniCredit slumped 12%. The Bloomberg Europe 500 Banks and Financial Services Index has declined 4.2% in September, making it the worst month since June, when Britain’s vote to exit the European Union roiled markets and sent bank shares plunging.

[..] European banks are grappling with tougher regulatory requirements, sputtering economic growth and negative interest rates, which squeeze lending margins and crimp investment returns. In Italy, where banks are burdened with some €360 billion of soured loans, UniCredit is working on a plan to boost capital that may include asset sales and a stock offering, according to people familiar with the matter. In Germany, Commerzbank scaled back its full-year profit goals and may announce thousands of job cuts this week,

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They already have.

IMF Warns Central Banks Could Lose Deflation Fight (AFP)

The IMF warned Tuesday that central banks are struggling to beat back deflationary forces and that governments need to spend to help them succeed. In a new assessment of global economic conditions, the IMF said many countries worldwide are battling disinflation – low and slowing inflation – due to weak global economic growth.If central banks around the world cannot halt this stall, and if companies and people increasingly believe they can’t halt it, their economies risk sinking into a deflationary spiral – where prices generally start to fall and companies and consumers hold back spending and investment, stalling the economy. In this case, “countries can’t afford to be complacent,” the Fund warned. The report said deflationary pressures in many countries are coming from abroad, in the form of sinking prices of both commodities and manufactured goods.

“The breadth of the decline in inflation across countries and the fact that it is stronger in the tradable goods sectors underscore the global nature of disinflationary forces,” the IMF said. Weak inflation challenges central banks’ ability to use monetary policy to stimulate demand, the IMF notes, because interest rates are likely to already be very low, giving them little room to cut further. That has been the case with top central banks including the Fed, the ECB and the BOJ, with the latter two already having taken some interest rates negative. “Eventually, ‘persistent’ disinflation can lead to costly deflationary cycles – as we have seen in Japan – where weak demand and deflation reinforce each other, and end up increasing debt burdens and hindering economic activity and job creation.”

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How to politicize the Fed?!

A Legal Barrier to Higher US Interest Rates (WSJ)

Defending the Fed’s recent decision to put off raising interest rates again, Fed Chair Janet Yellen told reporters last week that she and other Fed governors wanted “to see some continued progress” before taking that step. Politics, she insisted, had nothing to do with it. What Ms. Yellen didn’t say is that the Fed couldn’t raise its rates without breaking the law. Since when are Fed rate increases illegal? Since the 2007-08 subprime meltdown and financial disaster, actually. Until then the Fed could set any target it liked for the federal-funds rate—the interest rate banks pay for overnight loans of cash reserves. To keep the fed-funds rate from rising above target, the Fed pumped more reserves into the banking system. To keep it from dropping below, it took reserves away.

But after Lehman Brothers failed in 2008, the Fed’s efforts to keep the fed-funds rate from dropping below its target proved futile. To set a floor on how far the rate could go, the Fed started paying interest on banks’ reserve balances with the Fed, taking advantage of the 2006 Financial Services Regulatory Relief Act giving it permission to do so. Alas, it didn’t work. Government-sponsored enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks, which also kept deposit balances at the Fed but weren’t eligible for interest on reserves (IOR), started making overnight loans to banks at rates below the IOR rate. In effect, this turned what the Fed hoped would be a floor on the fed-funds rate into a ceiling. To raise rates now, the Fed increases the rate on reserves.

So what’s to keep the Fed from raising rates this way again? The 2006 Financial Services Regulatory Relief Act is what. For that law only allows the central bank to pay interest on reserves “at a rate or rates not to exceed the general level of short-term interest rates.” The rub is that the Fed’s IOR rate of 50 basis points (0.5%) already exceeds the closest comparable market rates: those on shorter-term Treasury bills. At the start of this month, the four-week T-bill rate was just 26 basis points; since then it has slid even lower, all the way down to 10 basis points. Judging by these numbers, the Fed is already flouting the law. Another hike would mean flouting it all the more flagrantly. Lawmakers will be duty-bound to object. The law can only be stretched so far. Unless “general short-term rates” rise markedly, Congress can be expected to question the legality of any Fed rate increase. If it comes to that, Ms. Yellen will find it very hard to dissemble her way out of it.

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2016 will be known as the good old days.

Global Container Volume on Track for Worst Year Since 2009 (WSJ)

Global container volumes are on track for zero growth this year, which would mark the sector’s worst performance since the 2009 economic crisis and a sure catalyst for further bankruptcies and possible acquisitions in the beleaguered shipping industry, shipping executives said. Freight rates, the predominant source of income for shipping companies, fell 20% in the benchmark Asia to Europe trade route this week compared with last week to $767 per container. Rates have mostly stayed well below $1,000 since the start of the year and operators say anything below $1,400 is unsustainable. They aren’t expected to turn around soon.

China’s Golden Week holiday starts at the beginning of October, marking the slow season for operators as many Chinese factories cut production levels after an output frenzy in the summer months when western importers stack up products for the year-end holidays. “The industry faces its worst year since the Lehman Brothers collapse,” said Jonathan Roach, an analyst at London based Braemar ACM. “Demand is around zero and any moves to increase freight rates will likely fail.” Hanjin, South Korea’s biggest operator and the world’s seventh largest in terms of capacity, filed for bankruptcy protection last month and is under court order to sell its own ships and returning chartered ships to their owners. Container operators, which move everything from clothes and shoes to electronics and furniture, are burdened by 30% more capacity in the water than demand.

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And they’ll keep their jobs?

Wells Fargo Executives Forfeit Millions, CEO To Forgo Salary (G.)

Wells Fargo executives will forfeit millions of dollars in the wake of revelations that the bank’s sales quotas led to the creation of more than 2m unauthorized accounts. The bank’s chief executive John Stumpf will forgo his salary for the coming months as independent directors launch a new investigation into Wells Fargo’s retail banking and sales practices. Last year, Stumpf made about $19.3m. Stumpf will also forfeit unvested equity awards worth about $41m. Carrie Tolstedt, who oversaw the retail banking at Wells Fargo while the unauthorized accounts were opened, was slated to receive as much as $124.6m after retiring this summer, according to Fortune. The bank said on Tuesday that she would not receive an undisclosed severance and would forfeit about $19m in unvested awards.

Less than three weeks ago, Wells Fargo announced that it had agreed to pay $185m in penalties after an audit found that its employees opened as many as 1.5m deposit accounts and 565,000 credit card accounts without customers’ consent. The accounts were opened by the bank’s staff in hopes of meeting their monthly sales quota and earning their incentive bonuses. Wells Fargo workers have tried to draw attention to the “unreasonable” quotas before – some even staged a protest in front of the bank’s headquarters last year. When Stumpf testified in front of the US Senate last week, he drew ire from US lawmakers. Many of them called for the bank to recoup pay from Stumpf and Tolstedt and hold them accountable.

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The EU has made Greek recovery impossible. Spending power has been murdered, and a whole generation of younger people is 50-60% long-term unemployed. It makes no difference what anyone forecasts.

Worries Grow Over Greek Economic Forecast (WSJ)

Greece’s economic recovery is proving elusive, challenging the forecasts of the country’s government and foreign creditors still counting on growth reviving this year. The IMF said last week that the economy is stagnating, in the first admission from creditors that Greece’s recovery is off track again. Growth will only restart next year, the head of the IMF’s team in Greece said on a conference call with reporters, without offering details. Of particular concern is that exports, which are supposed to lead Greece out of trouble, are on a slow downward trajectory, hampered by capital controls, taxes and a lack of credit. “There is no chance we will see a rebound unless we see some bold political decisions that would introduce a more stable business environment,” said Dimitris Tsakonitis, general manager at mining company Grecian Magnesite.

The bailout agreement between Greece and its German-led creditors assumes rapid growth from late 2016 onward, including an official forecast of 2.7% growth in 2017. Private-sector economists believe next year’s growth could be closer to 0.6%. Weaker growth would undermine the budget, likely leading to fresh arguments with lenders about extra austerity measures. Greece is still grappling with the measures it has already agreed to. Late on Tuesday the country’s parliament approved pension overhauls and other policy changes that have been delayed for months, holding up bailout funding.

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Good to note. Berlin buys back its water, and forces Athens to sell it. “It’s not any more a democracy or equality in the EU. It’s a kind of business..”

No society should ever agree to sell its basic needs to foreigners. Leaders who do that anyway should be fired.

Germany’s Hypocrisy Over Greece Water Privatisation (G.)

Greek activists are warning that the privatisation of state water companies would be a backward step for the country. Under the terms of the bailout agreement approved by the Greek parliament today, Greece has pledged to support an existing programme of privatisation, which includes large chunks of the water utilities of Greece’s two largest cities – Athens and Thessaloniki. There is ongoing debate about water privatisation and the role of business. Across Europe a wave of austerity-driven privatisation proposals has led to protests in Ireland, Italy, Greece and Spain. At the same time, some of northern Europe’s largest cities, including Paris and Berlin, are buying back utilities they sold just last decade.

President of the Thessaloniki water company trade union George Argovtopoulos said a move to a for-profit model would raise prices for consumers and degrade services. “It’s not any more a democracy or equality in the EU. It’s a kind of business,” he said, adding that austerity measures that require water privatisation smacked of a “do as I say, but not as I do” approach from Germany. “We know that in Berlin, just two years ago they remunicipalised the water there, although they paid just under €600m to Veolia [to buy back its stake]. It’s clear that the model of privatisation of water has failed all around the world,” he said. The German finance ministry refused to comment ahead of a Eurogroup meeting in Brussels on Friday where the third bailout deal looked set to be signed.

[..] Austerity-led changes to water supply have been fiercely resisted across Europe’s most indebted countries. In Dublin this year, huge protests erupted over plans to directly charge water users who previously paid for water through their taxes. This was seen as a first step towards selling off Ireland’s water supply. A water privatisation push by former Italian prime minister Silvio Berlusconi was crushed by a 95% referendum vote in 2011. A similar referendum in Thessaloniki last year delivered a 98% vote against. A 2014 report by the Transnational Institute’s Satoko Kishimoto found that across the world 180 cities had bought back (or remunicipalised) their water supply. She said this was a response to almost universally higher water prices and the loss of control over a fundamental resource.

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Another author claiming that “..the scientific consensus within and outside of China is that GMOs are safe..”

China Wants GMOs. The Chinese People Don’t. (BBG)

The latest food safety scandal in China might be its most damaging. Earlier this week, a former doctoral student at one of the country’s national testing centers for genetically modified organisms went public with allegations of scientific fraud, including claims that records were doctored extensively, that unqualified personnel were employed under illegal contracts and – most seriously – that authorities refused to take action when his concerns were aired privately. On Wednesday, China’s Ministry of Agriculture responded to a social media storm by suspending operations at the center. That might take care of the current scandal, but the Chinese public’s hostility toward GMOs won’t go away so easily.

Those concerns have only grown over the past decade as the government has increased its support of GMOs, including approval of the state-owned ChinaChem Group’s $43 billion takeover offer for the Swiss seed giant Syngenta. These efforts have galvanized a very public opposition that transcends China’s typical political fault lines, and created one of the government’s most intractable headaches. Feeding China’s huge population has never been easy. But over the last three decades, the challenges have become considerably greater as urbanization devoured farmland, and pollution made even more of it unusable. Today, the government is faced with the task of feeding 21% of the world’s population with 9% of its arable land. Its reliance on foreign goods has made China the world leader in imports since 2011.

Officials now fear the country could become dependent on foreigners for its food supply and the government remains committed to maintaining self-sufficiency in rice, wheat, and other key grains. As a result, the political pressure to increase yields is considerable. In fact, this pressure is centuries-old. Domesticated rice first appeared in the Yangtze River Valley at least 8,000 years ago, and Chinese farmers and scientists have been innovating ever since. In 1992, China became the first country to introduce a GMO crop into commercial production, when it sowed a virus-resistant tobacco plant on 100 acres. Since then, the government has issued safety certificates for a wide range of GMO crops, ranging from chili peppers to petunias. Yet, so far at least, only cotton has gone into wide cultivation. Other GMOs – especially rice, a staple of the Chinese diet – are still awaiting approval to be domestically cultivated.

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The blessings of plastic.

Single Clothes Wash May Release 700,000 Microplastic Fibres (G.)

Each cycle of a washing machine could release more than 700,000 microscopic plastic fibres into the environment, according to a study. A team at Plymouth University in the UK spent 12 months analysing what happened when a number of synthetic materials were washed at different temperatures in domestic washing machines, using different combinations of detergents, to quantify the microfibres shed. They found that acrylic was the worst offender, releasing nearly 730,000 tiny synthetic particles per wash, five times more than polyester-cotton blend fabric, and nearly 1.5 times as many as polyester. “Different types of fabrics can have very different levels of emissions,” said Richard Thompson, professor of marine biology at Plymouth University, who conducted the investigation with a PhD student, Imogen Napper.

“We need to understand why is it that some types of [fabric] are releasing substantially more fibres [ than others].” These microfibres track through domestic wastewater into sewage treatment plants where some of the tiny plastic fragments are captured as part of sewage sludge. The rest pass through into rivers and eventually, oceans. A paper published in 2011 found that microfibres made up 85% of human-made debris on shorelines around the world. The impact of microplastic pollution is not fully understood but studies have suggested that it has the potential to poison the food chain, build up in animals’ digestive tracts, reduce the ability of some organisms to absorb energy from foods in the normal way and even to change the behaviour of crabs.

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Jul 172016
 
 July 17, 2016  Posted by at 4:08 pm Finance Tagged with: , , , , , , , , , ,  7 Responses »


Ben Shahn Daughter of Virgil Thaxton, farmer, near Mechanicsburg, Ohio 1938

Recently, I posted a two-tear old article on facebook.com/TheAutomaticEarth that was shared so many times it seems to make sense to use it for an Automatic Earth article as well. The article asks how toxic the wheat we eat is – or Americans, more specifically-, and why that is.

But first I would like to touch on a closely connected issue, which is Nassim Nicholas Taleb’s ‘war’ on GMOs. Taleb, of Black Swans fame, has been at it for a while, but he’s stepped up his efforts off late.

In 2014, with co-authors Rupert Read, Raphael Douady, Joseph Norman and Yaneer Bar-Yam, he published The Precautionary Principle (with Application to the Genetic Modification of Organisms), an attempt to look at GMOs through a ‘solidly scientific’ prism of probability and complex systems. From the abstract:

The precautionary principle (PP) states that if an action or policy has a suspected risk of causing severe harm to the public domain (affecting general health or the environment globally), the action should not be taken in the absence of scientific near-certainty about its safety. Under these conditions, the burden of proof about absence of harm falls on those proposing an action, not those opposing it. PP is intended to deal with uncertainty and risk in cases where the absence of evidence and the incompleteness of scientific knowledge carries profound implications and in the presence of risks of “black swans”, unforeseen and unforeseable events of extreme consequence.

[..] We believe that the PP should be evoked only in extreme situations: when the potential harm is systemic (rather than localized) and the consequences can involve total irreversible ruin, such as the extinction of human beings or all life on the planet. The aim of this paper is to place the concept of precaution within a formal statistical and risk-analysis structure, grounding it in probability theory and the properties of complex systems. Our aim is to allow decision makers to discern which circumstances require the use of the PP and in which cases evoking the PP is inappropriate.

This puts into perspective the claims made by Monsanto et al that since no harm has ever been proven to arise from the use of GMOs, they should therefore be considered safe. Which is the approach largely taken over by American politics, and increasingly also in Europe and other parts of the world. In their paper, Taleb et al say the approach does not meet proper scientific standards.

This is very close to my personal opinion, expressed in many articles in the past, that GMOs pose such risks on such a wide scale to the food supply of every human being on earth -as well as a much wider selection of organisms- that they should not be legalized before perhaps 100 years of tests have been done by large and independent teams of specialists.

Note that if you, as an individual farmer, as a community or even as a nation, want to ban GMOs but your neighbors do not, you will in the case of many crops not stand a chance of keeping your plants GMO free. For which you can subsequently be sued by the ‘owner’ of the genetically altered plants and seeds.

Also, I think it is irresponsibly dangerous to give a handful of companies (Monsanto, Bayer, DuPont, Syngenta), who all happen to be chemical giants dating back to the 20th century interbellum, and all with questionable pasts, a quasi-monopoly over the -future of- world’s food. Because that is where things will go unless proper principles are applied, both scientific and legal.

One of the main arguments proponents of GMOs use is that through thousand of years mankind has altered crops through selection ‘anyway’, so talking about anything ‘pure’ or ‘natural’ in this regard is not relevant. Taleb put the difference between altering a staple through this ‘generational’ selection on the one hand and the modifying of genes in a lab into a sketch:

The sketch was later annotated by Rahul Goswami, approved and shared by Taleb:

I think it is obvious that ‘generational’ selection through breeding is localized, can be rejected by nature. Genetic modification is something completely different, it takes a much bigger step (a giant leap) and forces itself -as a more or less alien body- onto a much larger eco-system.

It’s not about trying to figure out what works, but about forcing itself upon the world and its inhabitants regardless of the consequences. The precautionary principle is missing where it is most needed.

A few examples of Taleb’s tweets on the topic in the past few days make his stance abundantly clear.

“GMO issue is ignorance of the properties of complex systems/fattails (Monsanto’s 107 Nobels, 80 y.o. are 50 y behind)”

“Anyone pro-GMOs on “scientific” grounds is 50 years behind, ignorant of complexity, or just stupid”

“Monsanto pulled no stop trying to discredit me: 1000 mails to Univ (!),>1000 shill posts. Nada. F***you money works.”

Then, on to the article I started talking about above. As I said, it was written some two years ago by Sarah at the Healthy Home Economist. From the reactions to my posting it on Facebook -a huge number of shares- I surmise that many people A) had no idea that what Sarah describes is common practice, and B) have a profound interest in the topic.

Note: while a fair number of people said they had never heard of this, and/or doubted it was true at all, quite a few confirmed it as common where they live, and not just stateside, but in Scotland, Argentina etc.

Let’s see how we get through this. I don’t want to just post the whole thing, but I’ll need large portions of it.

The Real Reason Wheat is Toxic

The stories became far too frequent to ignore. Emails from folks with allergic or digestive issues to wheat in the United States experienced no symptoms whatsoever when they tried eating pasta on vacation in Italy. Confused parents wondering why wheat consumption sometimes triggered autoimmune reactions in their children but not at other times.

In my own home, I’ve long pondered why my husband can eat the wheat I prepare at home, but he experiences negative digestive effects eating even a single roll in a restaurant. There is clearly something going on with wheat that is not well known by the general public. It goes far and beyond organic versus nonorganic, gluten or hybridization because even conventional wheat triggers no symptoms for some who eat wheat in other parts of the world.

What indeed is going on with wheat? For quite some time, I secretly harbored the notion that wheat in the United States must, in fact, be genetically modified. GMO wheat secretly invading the North American food supply seemed the only thing that made sense and could account for the varied experiences I was hearing about. I reasoned that it couldn’t be the gluten or wheat hybridization. Gluten and wheat hybrids have been consumed for thousands of years.

It just didn’t make sense that this could be the reason for so many people suddenly having problems with wheat and gluten in general in the past 5-10 years.

Finally, the answer came over dinner a couple of months ago with a friend who was well versed in the wheat production process. I started researching the issue for myself, and was, quite frankly, horrified at what I discovered. The good news is that the reason wheat has become so toxic in the United States is not because it is secretly GMO as I had feared (thank goodness!).

The bad news is that the problem lies with the manner in which wheat is grown and harvested by conventional wheat farmers. You’re going to want to sit down for this one. I’ve had some folks burst into tears in horror when I passed along this information before.

Common wheat harvest protocol in the United States is to drench the wheat fields with Roundup several days before the combine harvesters work through the fields as the practice allows for an earlier, easier and bigger harvest

Pre-harvest application of the herbicide Roundup or other herbicides containing the deadly active ingredient glyphosate to wheat and barley as a desiccant was suggested as early as 1980. It has since become routine over the past 15 years and is used as a drying agent 7-10 days before harvest within the conventional farming community.USDA pesticides applied to wheat.

According to Dr. Stephanie Seneff of MIT who has studied the issue in depth and who I recently saw present on the subject at a nutritional Conference in Indianapolis, desiccating non-organic wheat crops with glyphosate just before harvest came into vogue late in the 1990’s with the result that most of the non-organic wheat in the United States is now contaminated with it.

Seneff explains that when you expose wheat to a toxic chemical like glyphosate, it actually releases more seeds resulting in a slightly greater yield: “It ‘goes to seed’ as it dies. At its last gasp, it releases the seed” says Dr. Seneff. According to the US Department of Agriculture, as of 2012, 99% of durum wheat, 97% of spring wheat, and 61% of winter wheat has been treated with herbicides. This is an increase from 88% for durum wheat, 91% for spring wheat and 47% for winter wheat since 1998.

Wheat farmer Keith Lewis: “I have been a wheat farmer for 50 yrs and one wheat production practice that is very common is applying the herbicide Roundup (glyphosate) just prior to harvest. Roundup is licensed for preharvest weed control. Monsanto, the manufacturer of Roundup claims that application to plants at over 30% kernel moisture result in roundup uptake by the plant into the kernels. Farmers like this practice because Roundup kills the wheat plant allowing an earlier harvest.

A wheat field often ripens unevenly, thus applying Roundup preharvest evens up the greener parts of the field with the more mature. The result is on the less mature areas Roundup is translocated into the kernels and eventually harvested as such. This practice is not licensed. Farmers mistakenly call it “dessication.”

Consumers eating products made from wheat flour are undoubtedly consuming minute amounts of Roundup. An interesting aside, malt barley which is made into beer is not acceptable in the marketplace if it has been sprayed with preharvest Roundup. Lentils and peas are not accepted in the market place if it was sprayed with preharvest roundup….. but wheat is ok.. This farming practice greatly concerns me and it should further concern consumers of wheat products.”

This practice is not just widespread in the United States either. The Food Standards Agency in the United Kingdom reports that use of Roundup as a wheat desiccant results in glyphosate residues regularly showing up in bread samples. Other European countries are waking up to to the danger, however. In the Netherlands, use of Roundup is completely banned with France likely soon to follow.

Using Roundup on wheat crops throughout the entire growing season and even as a desiccant just prior to harvest may save the farmer money and increase profits, but it is devastating to the health of the consumer who ultimately consumes the glyphosate residue laden wheat kernels.

The chart below of skyrocketing applications of glyphosate to US wheat crops since 1990 and the incidence of celiac disease is from a December 2013 study published in the Journal Interdisciplinary Toxicology examining glyphosate pathways to autoimmune disease. Remember that wheat is not currently GMO or “Roundup Ready” meaning it is not resistant to its withering effects like GMO corn or GMO soy, so application of glyphosate to wheat would actually kill it.

While the herbicide industry maintains that glyphosate is minimally toxic to humans, research published in the Journal Entropy strongly argues otherwise by shedding light on exactly how glyphosate disrupts mammalian physiology. Authored by Anthony Samsel and Stephanie Seneff of MIT, the paper investigates glyphosate’s inhibition of cytochrome P450 (CYP) enzymes, an overlooked component of lethal toxicity to mammals.

The currently accepted view is that glyphosate is not harmful to humans or any mammals. This flawed view is so pervasive in the conventional farming community that Roundup salesmen have been known to foolishly drink it during presentations! However, just because Roundup doesn’t kill you immediately doesn’t make it nontoxic. In fact, the active ingredient in Roundup lethally disrupts the all important shikimate pathway found in beneficial gut microbes which is responsible for synthesis of critical amino acids.

Friendly gut bacteria, also called probiotics, play a critical role in human health. Gut bacteria aid digestion, prevent permeability of the gastrointestinal tract (which discourages the development of autoimmune disease), synthesize vitamins and provide the foundation for robust immunity. In essence:

Roundup significantly disrupts the functioning of beneficial bacteria in the gut and contributes to permeability of the intestinal wall and consequent expression of autoimmune disease symptoms

In synergy with disruption of the biosynthesis of important amino acids via the shikimate pathway, glyphosate inhibits the cytochrome P450 (CYP) enzymes produced by the gut microbiome. CYP enzymes are critical to human biology because they detoxify the multitude of foreign chemical compounds, xenobiotics, that we are exposed to in our modern environment today.

As a result, humans exposed to glyphosate through use of Roundup in their community or through ingestion of its residues on industrialized food products become even more vulnerable to the damaging effects of other chemicals and environmental toxins they encounter! What’s worse is that the negative impact of glyphosate exposure is slow and insidious over months and years as inflammation gradually gains a foothold in the cellular systems of the body.

The consequences of this systemic inflammation are most of the diseases and conditions associated with the Western lifestyle: Gastrointestinal disorders, Obesity ,Diabetes, Heart Disease, Depression, Autism, Infertility, Cancer, Multiple Sclerosis, Alzheimer’s, etc.

In a nutshell, Dr. Seneff’s study of Roundup’s ghastly glyphosate which the wheat crop in the United States is doused with uncovers the manner in which this lethal toxin harms the human body by decimating beneficial gut microbes with the tragic end result of disease, degeneration, and widespread suffering

[..] The bottom line is that avoidance of conventional wheat in the United States is absolutely imperative even if you don’t currently have a gluten allergy or wheat sensitivity. The increase in the amount of glyphosate applied to wheat closely correlates with the rise of celiac disease and gluten intolerance.

Dr. Seneff points out that the increases in these diseases are not just genetic in nature, but also have an environmental cause as not all patient symptoms are alleviated by eliminating gluten from the diet. The effects of deadly glyphosate on your biology are so insidious that lack of symptoms today means literally nothing. If you don’t have problems with wheat now, you will in the future if you keep eating conventionally produced, toxic wheat!

I guess we can leave it at that for now. Do go to the original article for more. Whether you look at it from a scientific viewpoint, as Taleb et al do, or from a common sense one, as Sarah does, the common thread seems obvious: Monsanto and other rich chemical giants seek to be the sole providers -even owners- of the world’s food, handed to us for free by nature and generations of our ancestors.

And to achieve that magnitude of power -and riches- they are more than willing to literally drive over sick and dead bodies. Once again, Taleb:

The precautionary principle (PP) states that if an action or policy has a suspected risk of causing severe harm to the public domain (affecting general health or the environment globally), the action should not be taken in the absence of scientific near-certainty about its safety. Under these conditions, the burden of proof about absence of harm falls on those proposing an action, not those opposing it.

That is not what’s happening, and there’s not much time left to start applying it before it’s too late. Because GMOs, once they’ve been introduced in a large enough environment, are near impossible to get rid of.

To end on a somewhat happier note, Taleb thinks that Monsanto is doing quite poorly these days, financially. Then again, that’s why Bayer wants to buy them, and that would only mean a continuation or even increase of the present practices.

What we need is decision makers who understand the science of complex systems, probability and the precautionary principle. And I don’t know about you, but when I look at who’s vying to be the leaders of the US, UK and many other nations, I think we’re a long way away from that.

Only Putin seems to get it. His stated goal is to make Russia the largest producer of organic food in the world. So maybe there is still hope.

Jul 152016
 
 July 15, 2016  Posted by at 9:01 am Finance Tagged with: , , , , , , , , ,  1 Response »


Dorothea Lange Farm boy at main drugstore, Medford, Oregon 1939

(Nobody Believes) China’s Q2 GDP Growth Stable at 6.7% (ET)
Asian Shares Rise To Eight-Month Highs (R.)
US Exporters’ Gains From Chinese Economic Growth Shrink Further (WSJ)
Could Italy Bring Down The Euro? (Kern)
EU Finance Ministers Get Tough With Italian Bank Trying For Third Bailout (G.)
Who’s Buying It? (Roberts)
Canada New Home Prices Grow At Fastest Pace In Nearly 9 Years (R.)
UK MPs Decry ‘Failed’ Effort To Stop London Property Money Laundering (G.)
McKinsey Slams Globalization: “The Resentment Will Explode” (ZH)
Globalism vs. “Populism” (Smith)
President of Belgian Magistrates: Neoliberalism Is A Form Of Fascism (DDP)
In New Zealand, Lands and Rivers Can Be People -Legally Speaking- (NYT)
Obama Expected to Sign Industry-Backed GMO Label Bill Into Law (EW)
Biodiversity Is Below Safe Levels Across More Than Half Of World’s Land (G.)
Gleaning: Harvesting Spain’s Unwanted Crops To Feed The Hungry (G.)

 

 

I know, what does any of it mean with 100 people dying in Nice? Still, as many died in Syria.

“The speed of growth that it points to is increasingly hard to believe given the clear structural drags that the economy is facing..”

(Nobody Believes) China’s Q2 GDP Growth Stable at 6.7% (ET)

China’s GDP grew at 6.7% year on year in the second quarter of 2016, at least officially. However, most analysts don’t believe the official figures. “The official figure is still around 7%, but those data are made in the statistical kitchen,” says Willem Buiter, the chief economist of Citigroup. He thinks China is not growing at more than 4%. After reporting 6.7% growth over the year in the first quarter of 2016, analysts were looking for 6.6% growth in the second quarter compared to the second quarter of 2015, so China managed to engineer a small beat and create the illusion of stability. Quarterly growth even picked up from 1.1% in the first quarter to 1.8% in the second quarter.

“The speed of growth that it points to is increasingly hard to believe given the clear structural drags that the economy is facing,” research firm Capital Economics writes in a note. The analysts think China grew 4.5% based on a proprietary activity index, roughly the same as in the first quarter. Private investment was the biggest drag on growth, it just expanded 1% in May, down from 15% in early 2015. State companies have picked up the slack. A survey of thousands of companies by the China Beige Book (CBB) released earlier in July paints a similar picture. CBB says most indicators improved in the second quarter, although activity is roughly flat over the year. In most cases, less than 50% of survey respondents report an improvement in sales, hiring, capital expenditure, or bank lending.

Read more …

The harder they come…

Asian Shares Rise To Eight-Month Highs (R.)

Asian shares extended gains to eight-month highs on Friday, on track for a solid weekly rise, as better-than-expected economic data from China lifted risk sentiment that was already buoyant after record highs on Wall Street. China’s economy grew 6.7% in the second quarter from a year earlier, steady from the first quarter and slightly better than expected as the government stepped up efforts to stabilize growth in the world’s second-largest economy.

Industrial output and retail sales also beat forecasts, which helped alleviate fears of slowing momentum, though fixed-asset investment growth slipped and missed market expectations. “The data showed the signs of stabilisation, which is very encouraging,” said Julian Wang, economist for Greater China at HSBC. “However, public sector investment and housing market are slowing down. So the challenges still loom quite large in the second half of the year.”

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Well, that’s a surprise….

US Exporters’ Gains From Chinese Economic Growth Shrink Further (WSJ)

China’s economic roller coaster is taking a bite out of American exporters, hurting U.S. industries ranging from mining equipment to cotton producers and adding to criticism that China is getting more than it gives in trade with the U.S. The U.S. shipped just $42.4 billion to China in the first five months of the year, or 8.2% less than the year-earlier period and 13.8% below the peak export year of 2014, according to the Census Bureau. The export drop comes as China’s economy, while slowing, is still officially expanding at more than 6% a year. That growth is driven in part by the mountain of goods—worth $174 billion so far this year—the U.S. imports from China. That is quadruple the size of its exports to China during those months, and only slightly less than 2014 levels.

The slowdown in U.S. exports could exacerbate accusations in the 2016 presidential campaign that China is engaged in unfair trade practices. Donald Trump, the presumptive Republican nominee, has cited the trade gap with China in threatening to slap new tariffs on the country if he becomes president. U.S. companies have grown increasingly vocal in criticizing Beijing for allegedly dumping subsidized steel and other products on world markets and for refusing to open major parts of its economy to foreign investment—a roadblock that almost certainly hinders two-way trade.

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No doubt it could. But Brussels will first try and turn it into Greece….

Could Italy Bring Down The Euro? (Kern)

[..] M5S’s Luigi Di Maio, who, polls show, has a very good chance of succeeding Renzi as prime minister, has reiterated his party’s long-standing call for a referendum on the euro: “We want a consultative referendum on the euro. The euro as it is today does not work. We either have alternative currencies or a ‘euro 2.’ We entered the European Parliament to change many treaties. The mere fact that a country like Great Britain even held a referendum on whether to leave the EU signals the failure of the European Union.” A referendum on the euro would be “consultative” because Italian law does not allow such plebiscites to change international treaties, including those that involve Italy’s relations with the European Union.

But Grillo is seeking a legislative change to allow an “ad hoc” exception, similar to the one in June 1989, when Italy held a consultative referendum on whether to transfer certain powers to the European Parliament. The exception would presumably be approved if M5S wins the prime minister’s office. Meanwhile, analysts are warning that the turmoil in Italy could spread to the rest of the eurozone. The risk of contagion is due to the so-called “doom loop” that exists between European governments and European banks, which have more than doubled the holdings of their own governments’ debt from a low of €355 billion in September 2008 to €791 billion today. International banks have lent Italy more than €500 billion, according to Die Welt, which reports that French banks alone hold €250 billion of Italian debt.

German banks hold €84 billion of Italian bonds. The only question, according to analysts, is whether taxpayers or bondholders will be left holding the tab. Wolfgang Münchau warned of the consequences of a disorderly Italian exit from the euro: “An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period. It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.” As Ambrose Evans-Pritchard of the Telegraph has pointed out, however, Italy must choose between the euro and its own economic survival. Leaving the euro “may be the only way to avert a catastrophic deindustrialization of the country before it is too late.”

Read more …

…like here.

EU Finance Ministers Get Tough With Italian Bank Trying For Third Bailout (G.)

The idea of modern banking was born in Siena in 1624, when the Medici Grand Duke decided to guarantee accounts held at Monte dei Paschi, the world’s oldest bank, with the proceeds of pasture he held in the Maremma in south-western Tuscany. Nearly 400 years later, the principle established by the Tuscan ruler – that account holders and investors are protected by the state – lies at the heart of a crisis at Monte dei Paschi di Siena (MPS) that is worrying financial markets around the world. The country’s third-largest lender has already been bailed out twice in modern Italian history but is likely to need a third multibillion-euro intervention by the Italian government – a move that would need Brussels to break new rules designed to prevent such taxpayer bailouts after the 2008 global financial crisis.

So the question of who will pay for the inevitable rescue of MPS, whose share value has fallen 80% over the past year, has yet to be answered. Three weeks after the news that Britain has voted to leave the European Union shocked the markets, a debate over the fate of MPS and the economic and political repercussions of inaction is raging from Rome to Brussels and Paris to Berlin. The welfare of thousands of Italian households is at stake, as well as the political fortune of Italy’s prime minister, Matteo Renzi, who is facing the toughest political challenge of his career. It is also testing Italy’s credibility among foreign investors. “There is no way they will let the bank go and create a systemic effect,” said Wolfango Piccoli, co-president of Teneo Intelligence. “The mechanics are still unclear but there will be a third bailout of Monte dei Paschi.”

[..] Unlike the US, Spanish and Irish financial crises, the Italian banking crisis is not the result of a speculative property bubble. While other issues have exacerbated the turmoil at Monte dei Paschi’s – including a poorly judged €9bn acquisition – the primary reason the bank is in trouble is because it doled out billions of euros in loans to small businesses at a time when the scale of the recession facing Italy was gravely underestimated. From 2007 to 2013, Italy lost about a quarter of its industrial production and tens of thousands of companies collapsed. In 2013 more than 150 shops closed every day. Construction and home sales slumped and none of the sectors has recovered fast enough.

Read more …

Central banks are the only buyers left.

Who’s Buying It? (Roberts)

With the market breaking out to all-time highs, the media has started to once again reach for their party hats as headlines suggest clear sailing for investors ahead. While I certainly do not disagree the breakout is indeed bullish, and signals a continuation of the long-term bullish trend, there are more than sufficient reasons to remain somewhat cautious. Earnings are still weak, there is little evidence of economic resurgence and inflationary pressures globally remain nascent. But, for now, a rash of global Central Banks continue to support asset prices by increasing accommodative policies either through additional reductions in interest rates or direct injections of liquidity. As Matt King from Citi recently noted: “It has been a surge in net global central bank asset purchases to their highest level since 2013.”

With the ECB in full QE mode, the BOC now using $300 billion in Pension Funds to prop up prices, and the BOJ now moving towards an additional $130 billion in QE as well, the liquidity push continues. Interestingly, despite the push by Central Banks to loft asset prices higher, individual market participants as measured by the Investment Company Institute (ICI) have a different idea. As shown in the chart below, despite asset prices ringing all-time highs, net equity inflows have turned decisively negative. This was much the same case following the 2012 market rout and it wasn’t until the launch of QE3 in 2013 that investors began to once again chase the markets.

Read more …

Trudeau needs to act, and very fast, or he’ll be staring a monster in the face.

Canada New Home Prices Grow At Fastest Pace In Nearly 9 Years (R.)

Canadian new home prices in May grew at their fastest pace in almost nine years, soaring 0.7% from April on strength in the booming markets of Toronto and Vancouver, Statistics Canada said on Thursday. Analysts polled by Reuters had predicted a 0.2% advance. May’s increase was the largest since the 1.0% jump recorded in July 2007. The Liberal government is concerned about rapidly rising prices in Toronto and Vancouver and is mulling more restrictions on mortgages. The combined region of Toronto and Oshawa – which accounts for 27.92% of the entire Canadian market – posted a 1.9% gain, the highest in 27 years.

Builders cited market conditions and the price of land. Market conditions also helped drive up new home prices in Vancouver by 1.1%. Overall, housing prices increased by 2.7% from May 2015, the largest year-on-year rise since the 2.7% advance seen in September 2010. The new housing price index excludes apartments and condominiums, which the government says are a particular cause for concern and which account for one-third of new housing.

Read more …

A feature, not a bug.

UK MPs Decry ‘Failed’ Effort To Stop London Property Money Laundering (G.)

Government attempts to stop the UK property market being exploited by international money launderers are “totally inadequate” and the country has instead “laid out a welcome mat” to criminals, the House of Commons home affairs committee has said. The influential panel of MPs, chaired by the Labour backbencher Keith Vaz, said it was disgraceful that at least £100bn was being laundered through the UK every year and astonishing that just 335 out of 1.2m property transactions last year were deemed to be suspicious by law enforcement officials. That means only 0.01% of the 2.4 million buyers and sellers in the UK generated suspicious activity reports at the National Crime Agency (NCA), whose system, Vaz said, was not fit for purpose.

“The proceeds of crime legislation has failed,” Vaz said. “London is a centre for money laundering, and its standing as a global financial centre is dependent on proactively and effectively tackling money laundering. Investment in London properties is a major route which tarnishes the image of the capital. Supervision of the property market is totally inadequate.” The NCA’s system gathers suspicious activity reports from lawyers, accountants, bankers and other professionals but is overwhelmed with more than 380,000 reports per year, when it is designed to handle 20,000. [..] The MPs said it remained “far too easy for someone intent on laundering money to buy a property with their ill-gotten gains, and rent it out in a very buoyant and robust letting market and take in clean money in perpetuity”.

Read more …

As I said many times before: when growth goes, so does centralization. It seems hard to make that connection.

McKinsey Slams Globalization: “The Resentment Will Explode” (ZH)

The IMF is getting nervous, and what it appears to be most concerned about, is a collapse of the status quo. Moments ago, in a speech in Washington, IMF head Christine Lagarde said that “The greatest challenge we face today is the risk of the world turning its back on global cooperation—the cooperation which has served us all well. We know that globalization – and increased integration – over the past generation has yielded many economic benefits for many people.” The IMF is not alone: for years, consultancy giant McKinsey towed the party line as well saying in 2010 that “the core drivers of globalization are alive and well” and adding as recently as 2014 that “to be unconnected is to fall behind.”

That appears have changing, and cracks are starting to form behind the cohesive push for globalization, at least among those who benefit the most from globalization. In a stunning study released today, one which effectively refutes all its prior conclusions on the matter, McKinsey slams the establishment’s status quo thinking and admits that the economic gains of changes in the global economy have not been widely shared lately, especially in the developed world. In the report titled “Poorer Than Their Parents? Flat or Falling Incomes in Advanced Economies” it finds that prospects for income growth have deteriorated significantly since the financial crisis, and that the benefits from globalization are now over:

This overwhelmingly positive income trend has ended. A new McKinsey Global Institute report finds that between 2005 and 2014, real incomes in those same advanced economies were flat or fell for 65 to 70% of households, or more than 540 million people. And while government transfers and lower tax rates mitigated some of the impact, up to a quarter of all households still saw disposable income stall or fall in that decade.

As Bloomberg reports, Britain’s vote to exit the European Union exemplifies what happens when people feel like the system is letting them down, Richard Dobbs, the co-leader of the research, said in an interview Wednesday, ahead of the report’s release. He likened the buildup of resentment over globalization to a dangerous natural gas leak in a row of houses. “One of them will explode. I did not think that it would be the U.K. first,” said Dobbs, a senior partner of McKinsey and a member of the McKinsey Global Institute Council in London. “When we launch a new policy, let’s think about the impact on those groups” who have been left behind, Dobbs said. Sometimes the goals of fairness and efficiency can conflict, he said. “Are we prepared to damage competitiveness a bit to reduce the risk of an explosion?”

Read more …

Brandon Smith on one of my ‘hobby horses’. More good stuff in the article.

Globalism vs. “Populism” (Smith)

The globalists have used the method of false dichotomies for centuries to divide nations and peoples against each other in order to derive opportunity from chaos. That said, the above dichotomy is about as close to real as they have ever promoted. As I explained [earlier], the recent passage of the Brexit referendum in the U.K. has triggered a surge of new propaganda from establishment media outlets. The thrust of this propaganda is the notion that “populists” are behind the fight against globalization and these populists are going to foster the ruin of nations and the global economy. That is to say – globalism good, populism bad. There is a real fight between globalists and those who desire a free, decentralized and voluntary society.

They have just changed some of the labels and the language. We have yet to see how effective this strategy will be for the elites, but it is very useful for them in certain respects. The wielding of the term “populist” is about as sterilized and distant from “freedom and liberty” as you can get. It denotes not just “nationalism,” but selfish nationalism. And the association people are supposed to make in their minds is that selfish nationalism leads to destructive fascism (i.e. Nazis). Therefore, when you hear the term “populist,” the globalists hope you will think “Nazi.” Also, keep in mind that the narrative of the rise of populism coincides with grave warnings from the elites that such movements will cause global economic collapse if they continue to grow.

Of course, the elites have been fermenting an economic collapse for years. We have been experiencing many of the effects of it for some time. In a brilliant maneuver, the elites have attempted to re-label the liberty movement as “populist” (Nazis), and use liberty activists as a scapegoat for the fiscal time bomb THEY created. Will the masses buy it? I don’t know. I think that depends on how effectively we expose the strategy before the breakdown becomes too entrenched. The economic collapse itself has been handled masterfully by the elites, though. There is simply no solution that can prevent it from continuing. Even if every criminal globalist was hanging from a lamp post tomorrow and honest leadership was restored to government, the math cannot be changed and decades of struggle will be required before national economies can be made prosperous again.

Read more …

By Manuela Cadelli, President of the Magistrates’ Union of Belgium. Bit older, but interesting reasoning.

President of Belgian Magistrates: Neoliberalism Is A Form Of Fascism (DDP)

Every totalitarianism starts as distortion of language, as in the novel by George Orwell. Neoliberalism has its Newspeak and strategies of communication that enable it to deform reality. In this spirit, every budgetary cut is represented as an instance of modernization of the sectors concerned. If some of the most deprived are no longer reimbursed for medical expenses and so stop visiting the dentist, this is modernization of social security in action! Abstraction predominates in public discussion so as to occlude the implications for human beings. Thus, in relation to migrants, it is imperative that the need for hosting them does not lead to public appeals that our finances could not accommodate. Is it In the same way that other individuals qualify for assistance out of considerations of national solidarity?

Social Darwinism predominates, assigning the most stringent performance requirements to everyone and everything: to be weak is to fail. The foundations of our culture are overturned: every humanist premise is disqualified or demonetized because neoliberalism has the monopoly of rationality and realism. Margaret Thatcher said it in 1985: “There is no alternative.” Everything else is utopianism, unreason and regression. The virtue of debate and conflicting perspectives are discredited because history is ruled by necessity. This subculture harbours an existential threat of its own: shortcomings of performance condemn one to disappearance while at the same time everyone is charged with inefficiency and obliged to justify everything. Trust is broken. Evaluation reigns, and with it the bureaucracy which imposes definition and research of a plethora of targets, and indicators with which one must comply. Creativity and the critical spirit are stifled by management.

Read more …

In general, everywhere native people get an actual say, things improve.

In New Zealand, Lands and Rivers Can Be People -Legally Speaking- (NYT)

Can a stretch of land be a person in the eyes of the law? Can a body of water? In New Zealand, they can. A former national park has been granted personhood, and a river system is expected to receive the same soon. The unusual designations, something like the legal status that corporations possess, came out of agreements between New Zealand’s government and Maori groups. The two sides have argued for years over guardianship of the country’s natural features. Chris Finlayson, New Zealand’s attorney general, said the issue was resolved by taking the Maori mind-set into account. “In their worldview, ‘I am the river and the river is me,’” he said. “Their geographic region is part and parcel of who they are.”

From 1954 to 2014, Te Urewera was an 821-square-mile national park on the North Island, but when the Te Urewera Act took effect, the government gave up formal ownership, and the land became a legal entity with “all the rights, powers, duties and liabilities of a legal person,” as the statute puts it. “The settlement is a profound alternative to the human presumption of sovereignty over the natural world,” said Pita Sharples, who was the minister of Maori affairs when the law was passed. It was also “undoubtedly legally revolutionary” in New Zealand “and on a world scale,” Jacinta Ruru of the University of Otago wrote in the Maori Law Review.

Personhood means, among other things, that lawsuits to protect the land can be brought on behalf of the land itself, with no need to show harm to a particular human. Next will be the Whanganui River, New Zealand’s third longest. The local Maori tribe views it as “an indivisible and living whole, comprising the river and all tributaries from the mountains to the sea — and that’s what we are giving effect to through this settlement,” Mr. Finlayson said. It is expected to clear Parliament and become law this year.

Read more …

How crazy is this? ‘Misinformation is also information’.

Obama Expected to Sign Industry-Backed GMO Label Bill Into Law (EW)

Looks like we’re finally getting GMO labels on food products—just not the kind you can actually read. President Obama is expected to throw his weight behind a controversial bill that allows businesses to use a smartphone scannable QR code instead of clear, concise wording that informs consumers if a product contains genetically modified ingredients. The bill would also nullify state-by-state GMO labeling mandates such as Vermont’s landmark law that took effect on July 1. “While there is broad consensus that foods from genetically engineered crops are safe, we appreciate the bipartisan effort to address consumers’ interest in knowing more about their food, including whether it includes ingredients from genetically engineered crops,” White House spokeswoman Katie Hill told Bloomberg in an e-mail.

“We look forward to tracking its progress in the House and anticipate the president would sign it in its current form.” The House of Representatives is voting today on legislation from the Senate, which voted 63 to 30 in favor of the bill on July 7, less than a week after Vermont enacted its GMO label law. The bipartisan “compromise” bill was conceived after years of negotiations by Democrat Sen. Debbie Stabenow and Republican Sen. Pat Roberts and is supported by the very industry that produces and profits from such products, including the powerful Grocery Manufactures Association and world’s largest seed producer and pesticide giant Monsanto. UPDATE: The U.S. House of Representatives passed the bill by a 306-117 vote Thursday. The bill now heads to President Obama’s desk.

Read more …

Can’t stop the brilliance of the human brain.

Biodiversity Is Below Safe Levels Across More Than Half Of World’s Land (G.)

The variety of animals and plants has fallen to dangerous levels across more than half of the world’s landmass due to humanity destroying habitats to use as farmland, scientists have estimated. The unchecked loss of biodiversity is akin to playing ecological roulette and will set back efforts to bring people out of poverty in the long term, they warned. Analysing 1.8m records from 39,123 sites across Earth, the international study found that a measure of the intactness of biodiversity at sites has fallen below a safety limit across 58.1% of the world’s land. Under a proposal put forward by experts last year, a site losing more than 10% of its biodiversity is considered to have passed a precautionary threshold, beyond which the ecosystem’s ability to function could be compromised.

“It’s worrying that land use has already pushed biodiversity below the level proposed as a safe limit,” said Prof Andy Purvis, of the Natural History Museum, and one of the authors. “Until and unless we can bring biodiversity back up, we’re playing ecological roulette.” Researchers said the study, published in the journal Science on Thursday, was the most comprehensive examination yet of biodiversity loss. The decline is not just bad news for the species but in the long term could spell problems for human health and economies. “If ecosystem functions don’t continue, then yes it affects the ability of agriculture to sustain human populations and we simply don’t know at which point that will be reached,” said Dr Tim Newbold, lead author of the work and a research associate at University College London. “We are entering the zone of uncertainty.”

Read more …

There’s a man and then there’s ‘a mensch’.

Gleaning: Harvesting Spain’s Unwanted Crops To Feed The Hungry (G.)

Under a blazing Catalan sun, Abdelouahid wipes the sweat from his brow in a cabbage patch full with clouds of white butterflies. “It’s really not warm today,” he says. “It’s only hot if you stop working.” Around him, unemployed workers and environmentalists squat in green bibs, black gloves and hats, plucking cabbages that would otherwise be threshed, to distribute at food banks around Barcelona. A 39-year-old Moroccan emigré with two small children, Abdelouahid began “gleaning” – harvesting farmers’ unwanted crops – with the Espigoladors (gleaners) after losing his job in the construction industry four years ago. It is Ramadan and he is fasting but still smiling as he cuts at the green jewels.

“I don’t like to spend my days at home, sending CVs to employers, waiting for their rejection letters, or going around the restaurants trying to find food,” he says. “I prefer to do something positive. A lot of people need this food. It is better to collect it than to leave it.” Europe wastes some 88m tonnes of food each year – around 173 kg per person – with costs estimated at €143bn (£113bn). Advocates of the new gleaning movements say that its collection could reduce pressure on land use, improve diets, feed the hungry and provide work for the socially excluded.

For now, most of its recovered foods go to food banks, but the Espigoladors social enterprise has launched an “Es Imperfect” (is imperfect) brand of jams, soups and sauces made from recovered produce. The line is growing so fast that the day after the cabbage picking, the project’s founder, Mireia Barba, was called to a meeting of Cotec, King Felip VI’s national development foundation. Another fruit of the gleaning project has been an “I’m imperfect too” advertising campaign which challenges conventional ideas of food and beauty, by using photos of ordinary people holding painted fruit. The idea was to change misconceptions about browned, soft or unusually shaped fruit and veg being any less tasty.

Read more …

Mar 282016
 
 March 28, 2016  Posted by at 8:40 am Finance Tagged with: , , , , , , , , ,  3 Responses »


Albert Freeman Mrs. Alice White at the War Fund Victory Store, Hardwick, VT 1942

The Seven Countries Most Vulnerable To A Debt Crisis (Steve Keen)
Capital and Credit (Mr. Practical)
Japan’s Negative Rates A Looming Headache For Central Bank (Reuters)
Japan Seen Stuck With Negative Yields on 70% of Bonds for 2016 (BBG)
China’s Pension Fund To Flow Into Stock Market This Year (CD)
China Hunts Source of Letter Urging Xi to Quit (WSJ)
US Energy Companies Pay Up to Raise Cash (WSJ)
Negative Gearing Has Created Empty Houses And Artificial Scarcity (SMH)
Has The Brics Bubble Burst? (Guardian)
In Yahoo, Another Example of the Buyback Mirage (NY Times)
Wealthier Countries Have More Leisure Time – With One Big Exception (Wef)
Is Monsanto Losing Its Grip? (WS)
Pentagon, CIA-Armed Militias Fight Each Other In Syria (LA Times)
Saudi Arabia Campaign Leaves 80% Of Yemen Population Needing Aid (G.)
Smugglers Prepare New Human Trafficking Route To Italy (DW)
EU Prepares For Massive Migration Flows From Libya (EurActiv)

It’s Steve’s birthday today!

The Seven Countries Most Vulnerable To A Debt Crisis (Steve Keen)

For decades, some of the most important data about market economies was simply unavailable: the level of private debt. You could get government debt data easily, but (with the outstanding exception of the USA—and also Australia) it was hard to come by. That has been remedied by the Bank of International Settlements, which now publishes a quarterly series on debt—government & private—for over 40 countries. This data lets me identify the seven countries that, on my analysis, are most likely to suffer a debt crisis in the next 1-3 years. They are, in order of likely severity: China, Australia, Sweden, Hong Kong (though it might deserve first billing), Korea, Canada, and Norway. I’ve detailed the logic behind my argument too many times to count, and I won’t repeat it here.

The bottom line is that private sector expenditure in an economy can be measured as the sum of GDP plus the change in credit, and crises occur when (a) the ratio of private debt to GDP is large; (b) growing quickly compared to GDP. When the growth of credit falls—as it eventually must, as growing debt servicing exhausts the funds available to finance it, new borrowers baulk at entry costs to house purchases, and numerous euphoric and Ponzi-based debt-financed schemes fail—then the change in credit falls, and can go negative, thus reducing demand rather than adding to it.

This is what caused the Global Financial Crisis, and the simplest way to simply substantiate my argument—which virtually every other economist on the planet will advise you is crazy (except Michael Hudson, Dirk Bezemer and a few others)—is to show you this data for the USA. The crisis began as the rate of growth of credit began to fall, and the Great Recession was dated as starting in 2008 and ending in 2010. As you can see from Figure 1, the sum of GDP plus credit growth peaked in 2008, and fell till 2010—at which point the recovery began.


Figure 1: America’s crisis began when the rate of growth of credit began to fall

The BIS database lets me identify other countries—several of which managed to avoid a serious downturn during the GFC—which fill these two pre-requisites: a high level of private debt to GDP, and a rapid growth of that ratio in the last few years. The American ex-banker turned philanthropist and debt reformer Richard Vague, in his excellent empirical study of crises over the last 150 years, concluded that crises occur when (a) private debt exceeds 1.5 times GDP and (b) the level grows by about 20% (say from 140% to 160%) over a 5 year period.

America fitted those gloves in 2008, as did many other countries—all of which are either still in a crisis (especially in the Eurozone), or are suffering “inexplicably” low growth after an apparent recovery (as is the case in the USA, the UK, and so on). Using the BIS database, I can identify 21 countries that meet Richard’s first criteria, but to “go for broke” on this forecast, I restricted myself to the 16 countries that had a private debt to GDP ratio exceeding 175% of GDP. To simplify my analysis, I then limited the second criteria to countries where the increase in private debt last year exceeded 10% of GDP. That combination gave me my list.


Figure 2: Countries with private debt/GDP > 175% & debt growth in 2015 > 10% of GDP, ranked by debt growth

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“If all the savings are chased out of banks, what is left for investment for the future?”

Capital and Credit (Mr. Practical)

Central banks have altered the definition of debt. Debt was once created by banks when they lent out deposits, transferring the liquid capital of the depositor to the debtor; the bank, acting as a clearing house, guaranteed the deposit. The Federal Reserve allows banks to lever that functionality by requiring banks to keep just 10% of the deposit as collateral; ergo, a bank could lend ten times its deposit base. That was the first step in levering capital up in the economy. It was and is called fractional banking. Over the last 30 years, central banks, regulators, and Wall Street have created various methods to increase that leverage even more; in other words, they have taken a modicum of capital and created mountains of debt with it. In other words, financial engineering creates new and different ways to increase leverage.

Most of those vehicles are disguised as derivatives. For example, some stocks allow investors to buy them on margin of 50%: they put up half of the cost and a broker lends them the other half so the investor’s capital is levered two-to-one. Alternatively, through derivatives, they can buy an SP500 futures contract and only put up 5% in capital and the broker will lend them the other 95%, so the investor’s capital is levered twenty to one! The derivatives market has a notional value of ~$1 quadrillion (one thousand trillions; pause to let the enormity of that number sink in); this provides a glimmer of the risk and leverage embedded in the derivatives markets, and by extension the stock and commodity markets. The system imploded under this debt in 2008 because there was not enough income being generated to pay back interest and principal.

Central banks and governments responded by adding $60 trillion of fresh global debt to reflate the bubble. How is that working? Well, we’re now seeing negative interest rates (NIRP) in Europe and Asia and many think they are coming to the U.S. Negative interest rates mean savers are now being charged to keep their money at the bank; there now is a cost to holding cash in a savings account. This is not natural and has revolting consequences. If you buy an Italian government bond you actually have to pay them interest to lend them money. This is ridiculous on its face but especially since Italy is bankrupt. The only reason it is possible is that the central bank of Europe is buying them up to that price. And why is this happening? The bubble is fraying. It is about to pop again for all of the new debt created since 2008; that debt is even less productive than the previous debt and generates even less income to pay it back.

Bureaucrats can either lever capital or re-distribute it. t seems they are having trouble levering it any further so negative rates are an attempt to re-distribute capital. All of the savings in liquid capital within the banks must be chased out to buy increasingly risky assets like stocks and houses to stimulate the economy. This is like Dr. Frankenstein raising the dead. If all the savings are chased out of banks, what is left for investment for the future?

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“The JGB market is really in a bubble, when you think about it as an investment vehicle..”

Japan’s Negative Rates A Looming Headache For Central Bank (Reuters)

Driving interest rates below zero, the Bank of Japan has turned a comatose government bond market into an enormous free-for-all, complicating the central bank’s own efforts to kick-start growth and end deflation. The $9 trillion market for Japanese government bonds had been all but paralyzed since the BOJ began a massive monetary easing three years ago that made the bank the dominant buyer. But in the two months since the BOJ announced it was imposing a negative interest rate, JGBs have become a volatile commodity, with prices swinging wildly as below-zero yields confound investors’ attempts to find fair market value. “The JGB market is really in a bubble, when you think about it as an investment vehicle,” said Takuji Okubo at Japan Macro Advisors. “Their prices have moved away from fundamentals, and people don’t have a traditional way to measure their value.”

As the BOJ’s dominance distorts bond market functions and dries up liquidity, the central bank could have a hard time tapering its buying binge when it eventually chooses to exit its “quantitative and qualitative easing” program. The bank theoretically could just sit on its enormous holdings until the bonds mature, but policymakers are unlikely to want those assets to remain on the balance sheet for decades. On the other hand, it might be difficult to smoothly taper off its asset purchases, much less sell its holdings. So far, the BOJ’s money printing has kept the cost for financing the government’s massive public debt very low. A spike in that cost could stoke market fears Japan may be losing control of its finances, potentially triggering a damaging bond sell-off, some analysts say. “It would be quite tough for the BOJ to taper such an enormous balance sheet without disrupting markets,” said a person familiar with the BOJ’s thinking.

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Abe to call snap elections, the opposition melting into blocks to prevent a 2/3 majority.

Japan Seen Stuck With Negative Yields on 70% of Bonds for 2016 (BBG)

Japanese primary dealers say negative bond yields are here to stay in 2016, and room for capital gains has run out. [..] Three years after the start of the Bank of Japan’s unprecedented quantitative and qualitative easing, or QQE, and two months since the surprise announcement of negative interest rates, bond investors are still trying to adjust to the conditions that have turned yields on 70% of the market negative. Even amid such extreme measures, the central bank has failed to prevent inflation from flatlining for more than a year. Most of the dealers surveyed expect a further expansion of stimulus. “The BOJ has dominated the bond market,” said Takafumi Yamawaki at JPMorgan, who sees the 10-year note yielding minus 0.15% at year-end. “Yields will remain deeply depressed.” An investor would just about break even if the 10-year JGB yield ended the year at minus 0.1%, after accounting for reinvested interest.

The 10-year yield was at minus 0.095% on Friday, the lowest globally after Switzerland’s minus 0.35%. The equivalent U.S. Treasury note yielded 1.9%. JGBs have returned 5.3% over the past six months, the most of 26 sovereign debt markets tracked by Bloomberg, as yields pushed ever lower amid pressure from BOJ easing. “We expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long,” said Takeki Fukushima at Citigroup in Tokyo, who predicts the 10-year note will yield about minus 0.15% at year-end. The BOJ owns an unprecedented one-third of outstanding JGBs, more than any other class of investor, as it snaps up as much as 12 trillion yen ($106 billion) of the debt each month. The result has been a loss of liquidity that has heightened volatility and hurt market functionality.

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There goes the kitchen sink.

China’s Pension Fund To Flow Into Stock Market This Year (CD)

China’s massive pension fund may begin investing in the nation’s A-share markets this year, an anticipated move that will channel approximately 600 billion yuan ($92.28 billion) into the equity market and likely improve its liquidity. The target date comes several months after China’s State Council published an investment guideline that would allow the country’s pension fund to invest in more diversified and risker products, with the maximum proportion of investments in stocks and equities set at 30% of total net assets. As of last Friday, the nation’s A-share markets’ combined value totaled about 44 trillion yuan. China’s pension fund, which accounts for approximately 90% of the country’s total social security fund pool, had net assets of 3.98 trillion yuan by the end of 2015.

By the end of last year, total investible pension fund nationwide reached approximately 2 trillion yuan, according to data from the Ministry of Human Resources and Social Security. Yin Weimin, the minister of Human Resources and Social Security, said last week: “Detailed guidelines about how the investments will be conducted are expected shortly and the investments will be made through commissioned institutional investors.” According to a survey by the Shenzhen Stock Exchange, which polled 3,874 small investors from 219 cities around China, more than 77.5% of respondents said they had been anticipating the pension fund investments and that the move will bring a wave of liquidity.

The move is expected to not only benefit the equity market but also the pension fund itself, because yields from investing in equities are normally higher than that from treasury bonds or interest rates from bank accounts. Critics have said that the low yields earned from bank accounts or bonds will not meet the increasing demands of a rapidly growing elderly population. Researchers said it will take time for all of the investible portion of the pension fund to become fully injected into the equity market. Provinces that have already piloted their local pension funds to be invested in the equity market have reported positive yields. South China’s Guangdong province reportedly accrued a combined yield of 17.34 billion yuan from a 100-billion-yuan investment.

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China, Turkey, Saudi: what’s the difference? And they’re all our friends…

China Hunts Source of Letter Urging Xi to Quit (WSJ)

A Chinese news portal’s publication of a mysterious letter calling for President Xi Jinping’s resignation appears to have triggered a hunt for those responsible, in a sign of Beijing’s anxiety over bubbling dissent within the Communist Party. The letter, whose authorship remains unclear, appeared on the eve of China’s legislative session in early March, the most public political event of the year. Since then, at least four managers and editors with Wujie Media—whose news website published the missive—and about 10 people from a related company providing technical support have gone missing, according to their friends and associates, who say the disappearances are linked to a government probe into the letter.

A U.S.-based dissident author said authorities have also taken away his family in southern China over claims that he had helped disseminate the letter – an allegation he denies. The editor of an overseas Chinese website that also published the letter said he has received harassing phone calls and anonymous death threats. Wujie Media -which is based in Beijing and partly owned by the government of China’s far western Xinjiang region- hasn’t published any original news content since mid-March, while its social-media accounts have also gone silent. Many among its more than 100 employees worry that the company may soon be shut down, according to a Wujie employee and two people familiar with the situation.

[..] Analysts said the incident highlights the party’s concerns over the letter and a broader pushback against Mr. Xi’s domineering style of leadership. The response “shows a real brittleness of power and of high levels of nervousness,” said Kerry Brown, professor of Chinese studies at King’s College London. “If this sort of complaint spreads, then there could be real problems,” he said. [..] “The concentration of power in Xi’s hands, as well as the budding personality cult, have come to arouse dissent among party circles,” said Daniel Leese, a professor of Chinese history and politics at Germany’s University of Freiburg. Over the past two months, divisions between the disgruntled party members and Mr. Xi’s camp have spilled out into the open. After prominent real-estate tycoon and party member Ren Zhiqiang questioned Mr. Xi’s demands for loyalty from the media, party news outlets savaged the retired businessman.

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“These firms have come to rely on selling new shares to pay down debt and keep rigs drilling..”

US Energy Companies Pay Up to Raise Cash (WSJ)

Energy companies tapping the stock market to fill their coffers are deepening the pain for shareholders. These firms have come to rely on selling new shares to pay down debt and keep rigs drilling since oil and gas prices began tumbling in late 2014. The further commodity prices and energy stocks slid, the more shares that companies have had to sell at ever lower prices to raise the desired proceeds. This has further diluted the stakes held by existing shareholders, who are already suffering from falling share prices. North American oil and gas producers have raised more than $10 billion selling new shares this year. That’s in line with the amount raised over the same period last year, which went on to be a record year for so-called follow-on stock offerings with about $18 billion raised.

The cash injections haven’t guaranteed stability for the companies selling shares, though. Emerald Oil, which sold $27.5 million of new shares last year, filed Tuesday for chapter 11 bankruptcy protection. Wunderlich Securities estimates that a prearranged sale of Emerald’s North Dakota drilling fields will yield roughly enough to pay back its bank lenders, leaving little for other creditors and nothing for shareholders. Those who bought roughly $50 million of stock that Goodrich Petroleum sold last March have been basically wiped out. The Houston company’s stock, which ended the week trading at 8 cents, was delisted from the New York Stock Exchange earlier this year. Earlier this month Goodrich said that when it discloses its 2015 financial results, its auditors are likely to express “substantial doubt” about its ability to stay in business.

Much of the money raised by oil and gas producers this year has been through deals that involve banks putting up their own capital to buy a chunk of the company’s stock—below the market rate because of the risk they are taking on—before selling it to investors. A bigger discount in these so-called block, or bought, deals reflects the risk perceived by banks when it comes to energy companies at a time when the price of oil has been fluctuating and large U.S. banks have said they are seeing more energy loans go bad. Last June, Energen raised about a net $400 million in a sale of 5.7 million shares, according to Dealogic. Following the offering, shares declined by nearly 70% by Feb. 16, more than the nearly 60% decline of the SIG Oil Exploration and Production stock index, an industry benchmark, in the same period.

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Australia is belatedly waking up. It won’t stop the pain.

Negative Gearing Has Created Empty Houses And Artificial Scarcity (SMH)

A major myth that permeates the recent debate on housing affordability is that the present level of housing supply is not meeting demand. Scarcity of housing, we are repeatedly told, is driving up prices. The same voices simplistically suggest, reduce the barriers caused by planners and housing supply will respond, bringing affordability back into the market. But more reasoned voices can be heard above the clamour, focussing on the perverse effects of our highly skewed housing taxation and subsidy system, as well as a complete lack of a national housing policy framework to support affordable housing. Nevertheless, throughout this debate there is little recognition of the broader shifts in housing stock, tenure and housing opportunity that these policies have created.

At the last census there were nearly 120,000 empty dwelling in the greater Sydney region alone, representing nearly one fifth of the projected new housing demand to be met by 2031, or equivalent to nearly five years of projected dwelling need. When this is combined with under-utilised dwellings, such as those let out as short-term accommodation, the total number of dwellings reaches 230,000 in Sydney, and 238,000 in Melbourne. There is a possibility that these aggregate figures could be accounted for by a spatial mismatch between supply and demand. That is, they are in places that people simply don’t want to live. But this isn’t the case. When these numbers are mapped there is a clear concentration of unoccupied dwellings in central parts of all our metropolitan areas. In Sydney there is a clear bias towards inner, eastern suburb and north shore locations.

This aligns with established areas of highest rents and prices. This picture is repeated in the other cities. If you chose to accept that there is a housing shortage in Sydney, then the sheer scale and location of these figures strongly suggest that this is an artificially produced scarcity. The number of empty dwellings could more than account for the notional supply shortfalls. Why, then, are these homes left vacant when they could command the highest prices or rents? To answer this, we mapped rental yields for the same period. What it reveals is that rental yields tend to be highest in the outer suburbs, where residential property is cheaper to purchase. Where rental yields are lowest is in the inner city and eastern and north shore suburbs, where capital values (and therefore gains) are highest. And this is where we also see higher rates of vacant properties. This is not a coincidence.

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There’s a lot more bursting in the offing.

Has The Brics Bubble Burst? (Guardian)

The political crisis in Brazil over economic mismanagement and high-level corruption, likely to come to a head next week, has reinforced the fashionable view, popular among western governments and businesses, that the Brics bubble has burst. Members of the exclusive Brics club of leading developing countries – Brazil, Russia, India, China and South Africa – are failing to justify predictions that, separately and together, they will dominate the 21st century world, or so the argument goes. The Brics concept, plus acronym, was dreamed up in 2001 by Jim O’Neill, chairman of Goldman Sachs Asset Management. He highlighted the combined potential of non-western powers controlling one quarter of the world’s land mass and accounting for more than 40% of its population. O’Neill’s idea morphed into a formal association, with South Africa joining the original Bric group in 2011.

The five nations, with a joint estimated GDP of $16tn, set up their own development bank in parallel to the US-dominated IMF and World Bank and hold summits rivalling the G7 forum. Their next meeting will be in Goa, India, in October. But ambitious plans to create an alternative reserve currency to the US dollar and challenge American dominance in IT and global security surveillance have come to little. Meanwhile, adverse economic conditions compounded by falling global demand and lower oil and commodity prices are taking their toll. Last November, Goldman Sachs, where the idea originated, closed its Bric investment fund after assets reportedly declined in value by 88% from a 2010 peak. The bank told the SEC it did not expect “significant asset growth in the foreseeable future”. “The promise of Bric’s rapid and sustainable growth has been challenged very much for the last five years or so,” Jorge Mariscal at UBS told Bloomberg Business. “The Bric concept was popular. But nothing is eternal.”

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“..Yahoo, if it had invested that same amount of money in its operations, would have had to generate only a 3.2% after-tax return to produce overall net profit growth of 16% annually over those years.”

In Yahoo, Another Example of the Buyback Mirage (NY Times)

It is one of the great investment conundrums of our time: Why do so many stockholders cheer when a company announces that it’s buying back shares? Stated simply, repurchase programs can be hazardous to a company’s long-term financial health and often signal a management that has run out of better ways to invest in the business. And yet investors love them. Not all stock repurchases are bad, of course. But given the enormous popularity of buybacks nowadays, those that are harmful probably outnumber the beneficial. Those who run companies like buybacks because they make their earnings look better on a per-share basis. When fewer shares are outstanding, each one technically earns more. But a company’s overall profit growth is unaffected by share buybacks.

And comparing increases in earnings per share with real profit growth reveals the impact that buybacks have on that particular measure. Call it the buyback mirage. Consider Yahoo. The company bought back shares worth $6.6 billion from 2008 to 2014, according to Robert L. Colby, a retired investment professional and developer of Corequity, an equity valuation service used by institutional investors. These purchases helped increase Yahoo’s earnings per share about 16% annually, on average. But a good bit of that performance was the buyback mirage. Growth in Yahoo’s overall net profits came in at about 11% annually. Given these figures, Mr. Colby reckoned that Yahoo, if it had invested that same amount of money in its operations, would have had to generate only a 3.2% after-tax return to produce overall net profit growth of 16% annually over those years.

Some companies argue that the money they spend repurchasing stock is a shrewd use of their capital. And given Yahoo’s track record in recent years, its management team seems to have had a hard time identifying profitable investments. But Mr. Colby pointed out that buybacks provide only a one-time benefit, while smart investments in a company’s operations can generate years of gains. This analysis may be of interest to Starboard Value, an activist investor that is a large and unhappy Yahoo shareholder. On Thursday, Starboard nominated nine directors to replace the company’s entire board, saying its current members lack “the leadership, objectivity and perspective needed to make decisions that are in the best interests of shareholders.”

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“Sure, the French may have day care and five-week vacations and 35-hour work weeks,” we’ve argued. “But we’ve got flat-screen TVs, $5 footlongs and big cars.”

Wealthier Countries Have More Leisure Time – With One Big Exception (Wef)

The American work ethic can basically be boiled down to one well-worn phrase: “Work hard, play hard.” But new research from a pair of Stanford University economists suggests we are failing, miserably, at the latter half of that maxim. Take a look at the chart below. It’s a plot of hours worked per capita versus GDP, and one country really stands out. As countries get wealthier, their annual hours worked per capita tend to decrease, at least in the sample examined here by economists Charles Jones and Peter Klenow. They measure GDP in fractions of U.S. GDP, because they’re most interested in how other countries stack up to the United States in terms of economic well-being. For instance, Russia’s GDP per capita is less than half of that in the United States, so it lands halfway down the chart’s X axis.

The relationship between GDP and working hours harkens back to economist John Maynard Keynes’ famous prediction that his grandchildren would be working 15-hour work weeks – thanks, in part, to increased productivity from new machines and technology. Since you’re probably reading this story at your office or on your commute, you’re well aware that things didn’t exactly work out this way. We didn’t trade our productivity gains for more time, we traded them instead for more stuff. But the extent of that trade-off -time versus stuff- hasn’t been the same in all countries, as the chart above illustrates. “Average annual hours worked per capita in the U.S. are 877 versus only 535 in France: the average person in France works less than two-thirds as much as the average person in the U.S.,” Jones and Klenow write. You see similar numbers in Spain, Italy and the UK.

For a long time we’ve used our stuff to justify our workaholism. “Sure, the French may have day care and five-week vacations and 35-hour work weeks,” we’ve argued. “But we’ve got flat-screen TVs, $5 footlongs and big cars.” Or, in strictly economic terms: “France’s per capita GDP is only 67% of ours. Who’s living the good life now?” But in their new research, forthcoming in the American Economic Review, Jones and Klenow attempt to devise a “a summary statistic for the economic well-being” that goes beyond GDP. Economists have proposed alternative measures incorporating everything from “greenness” to “gross national happiness.” The Stanford economists make the latest contribution to the genre with their measure that “combines data on consumption, leisure, inequality, and mortality.”

They find that when you throw these other qualities into the mix, the economic well-being gap between the United States and other wealthy countries shrinks – but it doesn’t disappear completely. “Living standards in Western Europe are much closer to those in the United States than it would appear from GDP per capita,” Jones and Klenow conclude. “Longer lives with more leisure time and more equal consumption in Western Europe largely offset their lower average consumption vis a visthe United States.” So, even when you factor in our ridiculously long work weeks, the things we miss out on when we work long hours, and the myriad ways that overwork iskilling us, the United States is still No. 1! Which is irksome, I’m sure, to the millions of French workers who spend literally the entire month of August at the beach.

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Monsanto counts on the TPP and TTiP.

Is Monsanto Losing Its Grip? (WS)

Monsanto is not having a good year. The company recently slashed its 2016 earnings forecast from the $5.10-$5.60 per share it had forecast in December to $4.40-$5.10, claiming that about 25-30 cents of the reduction was due to the stronger dollar. But judging by recent trends, a strong dollar could soon be the least of its concerns. Across a number of key markets, the company is facing growing resistance, not only from farmers and consumers but also, amazingly, governments. In India, the world’s biggest cotton producer, the Ministry of Agriculture accuses Monsanto of price gouging. It even imposed a 70% cut in the royalties that the firm’s Indian subsidiary could charge farmers for their crop genes, prompting Monsanto to threaten that it would withdraw its biotech crop genes from the country. If Monsanto’s threat was a bluff, it’s just been called.

According to Mandava Prabhakara Rao, the president of the National Seed Association of India (NSAI), Monsanto’s threat came as a big relief: All these years, the company has restrained us from using technologies other than the one developed by it. It forced the seed firms to sign the licence agreements that barred them from using other technologies. India’s government also seems unconcerned by the prospect of Monsanto’s withdrawal.“It’s now up to Monsanto to decide whether they want to accept this rate or not,” said Minister of state for agriculture and food processing, Sanjeev Balyan. “We’re not scared if Monsanto leaves the country, because our team of scientists are working to develop (an) indigenous variety of (GM) seeds.” India’s pushback against Monsanto is part of a gathering global backlash against Monsanto and the GMO industry as a whole.

Even in the U.S., where GMOs are estimated to represent more than 90% of corn, soybean, and cotton acres, the trend is no longer Monsanto’s friend. Earlier this year the company filed a lawsuit against the state of California for its intent to label glyphosate, the main chemical used in Monsanto’s flagship Roundup herbicide, as a probable carcinogen, in accordance with the World Health Organization’s recent findings. There’s also growing pressure on major food outlets to stop using GMO ingredients. After the USDA’s 2015 approval of genetically modified apples and potatoes, companies including McDonald’s and Wendy’s claimed they didn’t plan to use them, saying they were happy with non-GMO suppliers. Even more importantly, the Orwellian-titled Deny Americans the Right to Know (DARK) act, aimed at prohibiting mandatory GMO labelling, was defeated in the Senate last week.

Meanwhile, in Mexico, Monsanto’s fourth biggest market after the U.S., Brazil, and Argentina, a moratorium remains in place on the granting of licenses for GMO seed manufacturers like Monsanto, Dow, and Du Pont. In the face of growing public and judicial opposition, Monsanto & Friends have pinned their hopes on the Peña Nieto government’s upcoming agrarian reform act. Manuel Bravo, Monsanto’s director for Latin America, recently told El País that he is confident that once the legal problems in the courts are “resolved,” the issue will become a central plank in the current administration’s agenda. “The Government has been very clear about the importance of these technologies,” he said. Across the Atlantic, Monsanto’s problems are somewhat more intractable. Already more than half of EU countries have moved to bar GMO cultivation, while a last-minute mutiny by four EU states (France, Sweden, Italy, and the Netherlands) recently forced the postponement of a vote in Brussels on re-licensing glyphosate.

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“This is a complicated, multi-sided war where our options are severely limited..”

Pentagon, CIA-Armed Militias Fight Each Other In Syria (LA Times)

Syrian militias armed by different parts of the U.S. war machine have begun to fight each other on the plains between the besieged city of Aleppo and the Turkish border, highlighting how little control U.S. intelligence officers and military planners have over the groups they have financed and trained in the bitter five-year-old civil war. The fighting has intensified over the last two months, as CIA-armed units and Pentagon-armed ones have repeatedly shot at each other while maneuvering through contested territory on the northern outskirts of Aleppo, U.S. officials and rebel leaders have confirmed. In mid-February, a CIA-armed militia called Fursan al Haq, or Knights of Righteousness, was run out of the town of Marea, about 20 miles north of Aleppo, by Pentagon-backed Syrian Democratic Forces moving in from Kurdish-controlled areas to the east.

“Any faction that attacks us, regardless from where it gets its support, we will fight it,” Maj. Fares Bayoush, a leader of Fursan al Haq, said in an interview. Rebel fighters described similar clashes in the town of Azaz, a key transit point for fighters and supplies between Aleppo and the Turkish border, and on March 3 in the Aleppo neighborhood of Sheikh Maqsud. The attacks by one U.S.-backed group against another come amid continued heavy fighting in Syria and illustrate the difficulty facing U.S. efforts to coordinate among dozens of armed groups that are trying to overthrow the government of President Bashar Assad, fight the Islamic State militant group and battle one another all at the same time. “It is an enormous challenge,” said Rep. Adam Schiff (D-Burbank), the top Democrat on the House Intelligence Committee, who described the clashes between U.S.-supported groups as “a fairly new phenomenon.”

“It is part of the three-dimensional chess that is the Syrian battlefield,” he said. The area in northern Syria around Aleppo, the country’s second-largest city, features not only a war between the Assad government and its opponents, but also periodic battles against Islamic State militants, who control much of eastern Syria and also some territory to the northwest of the city, and long-standing tensions among the ethnic groups that inhabit the area, Arabs, Kurds and Turkmen. “This is a complicated, multi-sided war where our options are severely limited,” said a U.S. official, who wasn’t authorized to speak publicly on the matter. “We know we need a partner on the ground. We can’t defeat ISIL without that part of the equation, so we keep trying to forge those relationships.”

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More refugees.

Saudi Arabia Campaign Leaves 80% Of Yemen Population Needing Aid (G.)

It is difficult to view Saudi Arabia’s relentless war of attrition in Yemen as anything other than a destructive failure. The military intervention that began one year ago has killed an estimated 6,400 people, half of them civilians, injured 30,000 more and displaced 2.5 million, according to the UN. Eighty per cent of the population, about 20 million people, are now in need of some form of aid. The Saudis’ principal aim – to restore Yemen’s deposed president, Abd Rabbuh Mansur Hadi – has not been achieved. If they hoped to contain spreading Iranian regional influence, that has not worked, either. If the US-backed coalition’s campaign was intended to combat terrorism, that too has flopped. Al-Qaida in the Arabian Peninsula (AQAP), in particular, and Islamic State (Isis) have profited from the continuing anarchy.

The conflict pits Aden-based Hadi government forces and their Sunni Arab allies against Houthi Shia militias, backed by Tehran, who control the capital, Sana’a, and much of central and northern Yemen. Already one of the world’s poorest countries before fighting escalated last year, Yemen now faces widespread famine. Food shortages are being exacerbated by a growing bank and credit crisis, Oxfam warned this week. “The destruction of farms and markets, a de facto blockade on commercial imports, and a long-running fuel crisis have caused a drop in agricultural production, a scarcity of supplies and exorbitant food prices,” Oxfam said. Sajjad Mohamed Sajid, Oxfam’s country director, said: “A brutal conflict on top of an existing crisis … has created one of the biggest humanitarian emergencies in the world today – yet most people are unaware of it. Close to 14.4 million people are hungry and the majority will not be able to withstand the rising prices.”

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Inevitable. Refugee streams flow like water. Impossible to stop.

Smugglers Prepare New Human Trafficking Route To Italy (DW)

Trafficking gangs are arranging a new way to ship migrants from Turkey to the EU by sailing to Italy, a leading German newspaper reports. Demand for alternative routes has been rising for weeks, according to the article. The smugglers intended to start transporting refugees via the new Italian route in the first week of April, according to the Sunday edition of the “Frankfurter Allgemeine Zeitung” newspaper. They would reportedly use small cargo vessels and fishing ships to ferry their customers from the seaside resort Antalya in Turkey, the Turkish city of Mersin near the Syrian border, and the Greek capital Athens. According to the paper, the price for such trip is between 3,000 and 5,000 euros ($3,400 -$5,600), which is much more expensive than traveling the usual route from Turkish shores to one of the Greek islands.

However, refugees face growing obstacles attempting to reach Western Europe through Greece, with several countries along the Balkan route closing their borders to migrants. Last week, the EU also forged an agreement with Ankara about shipping migrants back to Turkey, slowing the influx to a trickle. The traffickers responded to growing demand for alternative routes in recent weeks by preparing their new venture, according to the Sunday article. Some of the smugglers aimed to offer two trips per week, and at least one claimed he could fit 200 people on a boat. They also advised migrants to stay below deck until the vessels reached international waters. In addition to migrants in Turkey and Greece, hundreds of thousands of people were waiting to cross to Italy from Libya, EU officials said. The Italian interior ministry has registered almost 14,000 arrivals this year.

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“..In August [2015], we had 40-50 Moroccans, and in November, their number was over 7,000.”

EU Prepares For Massive Migration Flows From Libya (EurActiv)

EU leaders will discuss the critical situation in Libya and potential waves of immigrants trying to reach Europe on 18 April, EurActiv Greece has been informed. The discussion will take place following the regular Foreign Affairs Council meeting and ahead of Foreign Affairs Council Defence on 19 April, in Luxembourg. French Defence Minister Jean-Yves Le Drian said yesterday (24 March) that some 800,000 migrants are in Libya hoping to cross to Europe. Le Drian told Europe 1 radio that “hundreds of thousands” of migrants were in Libya, having fled conflict and poverty in the Middle East and elsewhere, adding that the figure of 800,000 was “about right”. In an interview with EurActiv in December, Greece’s Alternate Foreign Minister for European Affairs, Nikos Xydakis, noted that new routes and new compositions [in migration flows] were found.

“The people who now come from the Turkish coast to the Greek islands are from the Maghreb. Let me give you an example. In August [2015], we had 40-50 Moroccans, and in November, their number was over 7,000.” “The route we have identified is the following: Moroccans and Algerians can travel without a visa from Maghreb countries, with a very cheap ticket with Turkish Airlines, directly to Constantinople [Istanbul], and then they easily reach the coast and go to the other side [Greece],” Xydakis said. But the presence of NATO in the Aegean Sea combined with a possible “isolation” in Greece due to the closed borders on the north might have discouraged migrants and re-directed the routes.

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Mar 142016
 
 March 14, 2016  Posted by at 9:45 am Finance Tagged with: , , , , , , , , ,  2 Responses »


John M. Fox WCBS studios, 49 East 52nd Street, NYC 1948

Marc Faber: Central Banks Will End Up Buying All Financial Assets (CNBC)
There’s Only One Buyer Keeping the S&P 500’s Bull Market Alive (BBG)
The Central Bankers Are Crazy & Public is Out Of Its Mind (Armstrong)
The Effects of a Month of Negative Rates in Japan (BBG)
Bank Of Japan Scrambles To Find Positives In Negative Rates (Reuters)
There Is A Limit To Draghi’s Negative Interest Rate Madness (Mish)
The European Central Bank Has Lost The Plot On Inflation (FT)
A Thought Experiment On Budget Surpluses (Steve Keen)
Central Banks Beat Bitcoin At Own Game With Rival Supercurrency (AEP)
China Debt Swap Could Leave Banks In Capital Hole (Reuters)
China’s Next Bubble? Iron Ore Surges As Speculators Weigh In (AFP)
China’s Growth Target Is the Next Test for Its Central Bank (BBG)
Goldman: 4 Reasons Why Yuan Will Weaken vs Dollar (CNBC)
Subprime Flashback: Early Defaults Are a Warning Sign for Auto Sales (WSJ)
Key Formula for Oil Executives’ Pay: Drill Baby Drill (WSJ)
Dairy Industry In Race To Ruin (NZH)
Why Monsanto’s GMO Business Isn’t Growing in India (WSJ)
February Breaks Global Temperature Records By ‘Shocking’ Amount (Guardian)
Anti-Refugee And Pro-Refugee Parties Both Win In German Elections (Guardian)
Bulgaria Pushes To Be Part Of EU-Turkey Refugee Deal (AFP)

Don’t know that you would call this socialism, but with the limits to negative rates, it sounds plausible.

Marc Faber: Central Banks Will End Up Buying All Financial Assets (CNBC)

Central banks around the globe are pursuing strategies that will put all financial assets into government hands, perma-bear Marc Faber, told CNBC’s Squawk Box. He also took the opportunity to endorse Donald Trump’s bid for the U.S. presidency. Faber said central bank policies are essentially monetizing debt, particularly in Japan, where he claims the Bank of Japan is buying all the government bonds the treasury is issuing. He expects that asset buying by global central banks will only increase, even though he believes those policies aren’t working to stimulate the economy. “The central banks aren’t interested in what works, they’re interested in their own prestige. And they are so deep into it already and it didn’t work. They will increase the medicine,” said Faber, the publisher of The Gloom, Boom & Doom Report.

“Eventually, they’ll buy all the government bonds; they’ll buy all the corporate bonds, all the shares outstanding. Afterwards the housing market goes down, they’ll buy all the homes and then the government will own everything.” That’s the road to socialism, he said. “I could see a situation where at the end the government owns all the corporations and all the government bonds and then we are back into socialism, into a planning economy,” said Faber. To be sure, the Bank of Japan does not buy Japan government bonds (JGBs) directly from the treasury; it only purchases them in the open market. Since some entities, such as banks and insurers, are required to hold JGBs in their reserves, the BOJ is unlikely to acquire all of the bonds outstanding. The BOJ does, however, use its quantitative easing program to purchase select exchange traded funds (ETFs) in the open market.

The U.S. Federal Reserve began tapering its quantitative easing program in 2013 and officially ended it in late 2014. But last week, the ECB announced further easing measures, including expanding the size of its bond-buying program to 80 billion euros ($89.23 billion) worth of assets a month, to include corporate bonds. Faber expects these programs will only expand. “The governments in my view, with their agents the Federal Reserve and other central banks and with the treasury department, they will do anything not to let asset prices go down,” said Faber. “If the stock markets go down, I’m convinced all the central banks will buy stocks. All of them,” he said, noting that this is not without precedent, citing Hong Kong’s purchase of stocks during the Asian Financial Crisis in the late 1990s.

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Beware.

There’s Only One Buyer Keeping the S&P 500’s Bull Market Alive (BBG)

Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever. While past deviations haven’t spelled doom for equities, the impact has rarely been as stark as in the last two months, when American shares lurched to the worst start to a year on record as companies stepped away from the market while reporting earnings.

Those results raise another question about the sustainability of repurchases, as profits declined for a third straight quarter, the longest streak in six years. “Anytime when you’re relying solely on one thing to happen to keep the market going is a dangerous situation,” said Andrew Hopkins at Wilmington Trust.. “Over time, you come to the realization, ‘Look, these companies can’t grow. Borrowing money to buy back stocks is going to come to an end.”’

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“I asked John if he slept with Karen and got his admittal!” “I told him, Oh that’s cool, I think it’s probably about time you stopped drinking.”

The Central Bankers Are Crazy & Public is Out Of Its Mind (Armstrong)

The central bankers are simply crazy, not evil. They are trying to steer the economy by utilizing this simpleton theory that if you make something cheaper, someone will buy it. Japanese and German cars managed to get a major foothold in the U.S. because the quality of U.S. manufacturers collapsed, thanks to unions. The socialist battle against corporations forgot something important – the ultimate decision maker is the consumer. The last American car I bought in the 1970s simply caught on fire while parked in my driveway. Another friend bought a brand-new American car and there was a terrible rattle. When they took the door panel off, there was an empty bottle of Coke inside. Cheaper does not always cut it. Gee, shall we cheer if the stock market goes down by 90%? It would be a lot cheaper. Why does the same theory not apply?

Then we have the trading public. If the central bankers have gone crazy with this whole negative interest rate theory, then the public is simply out of their minds. The euro rallied because Draghi cut rates further, extended the stimulus another year, increased the amount by another 33%, and then declared rates would stay there for years to come. And these insane traders cheer. Unbelievable! They are celebrating the public admission of Draghi that all his efforts to date have failed, so let’s do even more of the same. And they love this nonsense? Negative interest rates have become simply a tax on saving money and the stupid traders and media writers love it. The Fed tries to raise rates and they say – NO! This is a stunning combination of admission and stupidity that one would expect from a pretty but clueless girl and her drunk college boyfriend who can’t say no to any girl: “I asked John if he slept with Karen and got his admittal!” “I told him, Oh that’s cool, I think it’s probably about time you stopped drinking.”

All they see is that lower interest rates “should” stimulate but ignore the fact that they never do. They are too stupid to grasp the fact that raising taxes cannot be offset by lower interest rates. People judge everything by the bottom-line and not some crazy theory that’s just stupid. A simple correlation study by a high school student in math class would prove this theory does not correlate to the expected outcome. And we cheer this insanity confirming our own overall stupidity and one is left wondering who is crazier? I suppose it is just that central bankers are crazy and the public, as well as the media, are just out of their minds.

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Bank hits.

The Effects of a Month of Negative Rates in Japan (BBG)

The Bank of Japan shocked markets in January with negative rates. The policy had immediate effects on financial markets, even before it actually started on February 16. Although most analysts don’t expect a change on Tuesday, they are expecting the central bank eventually to cut the rate further. Here’s a look at some effects of negative rates:

About 70% of government bonds have a yield of zero or below, meaning investors are paying to hold the debt. Pushing the yield curve down to make borrowing less costly and to encourage lending is the aim of the new policy, according to Governor Haruhiko Kuroda. However, those actions are hurting the bond market, with 69% of traders in February saying market function has declined compared with three months ago, according to a BOJ survey.

A 10-year, fixed-rate home loan carried a 0.8% rate last week, down from 1.05% before the introduction of the negative rate, according to a speech by Kuroda. Japan’s three biggest banks cut their deposit rate to a record low of 0.001%, meaning you receive 10 yen (9 cents) in income on a deposit of 1 million yen. All 11 companies running money-market funds stopped accepting new investments, citing the BOJ stimulus. They plan to return money to investors, the Nikkei newspaper reported, and money from the funds is moving to deposits, according to analysts at Deutsche Bank. Deposit returns are still positive, if negligible.

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“Bank shares fell sharply.”

Bank Of Japan Scrambles To Find Positives In Negative Rates (Reuters)

Bank of Japan officials have been scurrying to commercial banks to explain and apologize for its surprise adoption of negative interest rates in January, while Prime Minister Shinzo Abe has distanced himself from a decision that is proving unpopular with the public. Some officials close to the premier say it could cause a rift in his once close relationship with BOJ Governor Haruhiko Kuroda, whose radical stimulus measures have so far failed to lift Japan clear of two decades of deflation and stagnation. A government press relations official said there was nothing to add beyond remarks made publicly by Chief Cabinet Secretary Yoshihide Suga that no such rift exists. With the economy shrinking again and prices flat, Abe has already announced he will set up a panel to consider fresh budget spending to provide the stimulus that monetary policy has struggled to achieve.

The controversy over the negative rates move, which unlike his previous eye-catching policy steps was not welcomed by Japan’s stock market, comes even as Kuroda is on the verge of gaining greater control of the bank’s nine-member board. Two skeptics of his stimulus program are stepping down in the coming months. The diminishing returns from his preferred modus operandi of market-shocking measures will leave him little option but to revert to the drip-feed easing he derided in his predecessor Masaaki Shirakawa if inflation fails to pick up, some analysts say. “Given the confusion caused by the January move, I don’t think the BOJ will be able to cut rates again for the time being,” said Hideo Kumano, a former BOJ official who is now chief economist at Dai-ichi Life Research Institute.

“The BOJ may instead expand asset purchases in small installments. That would be returning to the incremental approach of easing Kuroda dismissed in the past as ineffective.” Mandated by Abe to transform the risk-shy BOJ, Kuroda delighted markets and silenced skeptics within the bank by deploying a massive money-printing program, dubbed “quantitative and qualitative easing” (QQE), in April 2013. The Tokyo stock market soared and the yen tumbled, giving exporters a boost, and Japanese growth and inflation registered a pulse. He struck again in October 2014 with a big expansion of QQE, though the market boost was smaller, price rises were already moderating and the economy was taking a step back for every step forward. But the late-January rates decision failed to reverse a rise in risk-aversion that was hitting stocks and forcing up the yen, traditionally a safe haven in times of market stress. Bank shares fell sharply.

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Very clear and simple explanation of what the limits are.

There Is A Limit To Draghi’s Negative Interest Rate Madness (Mish)

On Thursday, ECB president Mario Draghi lowered the deposit rate on money parked at the ECB to -0.4% from -0.3%. Draghi also cut the main refinancing rate by 5 basis points to 0%. How low can he go? Is there a limit? There is indeed a practical limit to negative interest rate madness, and it’s likely we have already hit that limit. Let’s investigate why. All hell would break loose if rates fell lower than -1.0%, and perhaps well before that. This has to do with Euribor. Euribor is the rate offered to prime banks on euro-denominated interbank term loans. It is based on the average interest rates of about 50 European banks that lend and borrow from each other. [..]

How does Euribor place a Limit? Millions of mortgages in Europe are based on Euribor. The vast majority of mortgage rates in Spain and Portugal are based on Euribor. A huge number in Italy are based on Euribor. The typical mortgage loan in many Eurozone countries is Euribor plus 1%age point. For those on 1-month Euribor, the interest banks collect is no longer 1%. Instead, banks collect 0.70%. Servicing fees eat into that profit. If Euribor fell below -1.0% banks would have to pay customers interest on their mortgages rather than collect interest! This has already happened in some instances, primarily related to the Swiss Franc where rates are even lower.

Low rates eat into bank profits. Such concerns place a floor on negative rates. This is why Draghi announced he is finished cutting rates. The practical limit on negative interest rates in Europe may very well be -0.4%, right where we are now. Perhaps Draghi has a buffer of another -0.20% or so, but he is reluctant to use it. If 12-month Euribor rates go any lower, it will affect bank profits on every Euribor-based mortgage loan. Loans based on 1-month and 6-month Euribor are already impacted. Draghi is unable or unwilling to go further down the interest rabbit hole, but there are still lots of rabbit hole possibilities regarding various QE measures. Corporate bonds still offer Draghi wide possibilities for more economic madness.

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“The only reason you would want to make a long-term investment at these rates is that you do not believe in the target.”

The European Central Bank Has Lost The Plot On Inflation (FT)

Better than expected. How often have we heard these three words after a policy decision by the European Central Bank? My advice is to stop reading immediately whenever you see them. After all, what the markets expect to happen is entirely in the control of the ECB. The only thing that matters is the policy decision itself: the extent to which it can help achieve a target in this case an inflation rate of just under 2%. It may have been better than expected. But was it sufficient? The components of the decision an≠nounced on Thursday by Mario Draghi, ECB president, were: cuts in the three official interest rates; an increase in the volume of asset purchases; and more generous terms on targeted longer-term refinancing operations, a liquidity facility for banks pegged to the quantity of loans on their balance sheet.

The deposit rate, at which banks park their reserves at the central bank, is down from -0.3 to -0.4%. Mr Draghi hinted that we should not expect further cuts in that rate. And that line was the really big news of the day. He did not so much cut the rates as end the rate cuts. This is why the euro first fell then rose when investors realised this rate cut was not what it seemed. There is nothing fundamentally wrong with any of the decisions except that the ECB missed a trick. It could have widened the spread between short-term and long-term interest rates or, in financial parlance, it could have steepened the yield curve. One method would have been to make a bigger cut in the deposit rate and a smaller increase in the size of asset purchases. Since asset purchases reduce long-term rates, a small increase in purchases would have reduced them by less.

There are big problems with a flat yield curve. It is a nightmare for the banks because their business consists of turning short-term savings into long-term loans. When long rates are similar to short rates, banks find it hard to make money. They have to find other ways to generate income. Think also about the deeper meaning of a flat yield curve with all interest rates near 0%. Assume you trust Mr Draghi’s commitment to the inflation target. Would you, as a private investor, buy a 10-year corporate bond that yields 0.5%? If inflation really were to reach 2% within two or three years, you would surely make a loss. The only reason you would want to make a long-term investment at these rates is that you do not believe in the target. Long-term rates are low because people believe the ECB has lost the plot on inflation. I, too, believe this.

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Government surpluses kill economies.

A Thought Experiment On Budget Surpluses (Steve Keen)

While conservative parties—like the USA’s Republicans, the UK’s Tories, and Australia’s Liberals,—are more emphatic on this point than their political rivals, there’s little doubt that all major political parties share the belief that the government should aim to have low government debt, to at least balance its budget, and at best to run a surplus. As the UK’s Prime Minister put it in 2013:

“Would you want a government that is not targeting a surplus in the next Parliament, that just said no, we’re going to run overdrafts all the way through the next parliament,” he told BBC political editor Nick Robinson. “I don’t think that would be responsible. So the other parties are going to have to answer this question, ‘Do you think it’s right to have a surplus?’ I do.” (David Cameron: It’s responsible to target budget surplus”, BBC October 1 2013)

So is it “right to run a surplus”? Let’s consider this via a little thought experiment. The numbers are far-fetched, but they’re chosen just to highlight the issue: Imagine an economy with an GDP of $100 per year, where the money supply is just $1—so that $100 of output each year is generated by that $1 changing hands 100 times in a year. And imagine that this country’s government has accumulated debt of $100—giving it a debt to GDP ratio of 100%—and it decides to reduce it by running a surplus that year of 1% of GDP. And imagine that it succeeds in its target. What will this country’s GDP the following year, and what will happen to the government’s debt to GDP ratio? The GDP will be zero, and the government’s debt to GDP ratio will be infinite.

Huh? The outcomes of this policy are the opposite of its intentions: a policy aimed at reducing the government’s debt to GDP ratio increased it dramatically; and what is perceived as “good economic management” actually destroys the economy. What went wrong? The target of running a surplus of 1% of GDP means that the government collects $1 more in taxes than it spends. This $1 surplus of taxation over spending takes all of the money in the economy out of circulation, leaving the population with no money at all. The physical economy is still there, but without money, no-one can buy anything, and the economy collapses. The government can pay its debt down by $1 as planned, but the GDP of the economy is now zero, so the government debt to GDP ratio has gone from $100/$100 or 100%, to $99/$0 or infinity.

As I noted, the numbers are far-fetched, but the principle is correct: a government surplus effectively destroys money. A government surplus, though it might be undertaken with the noble aim of reducing government debt, and the noble intention of helping the economy to grow, will, without countervailing forces from elsewhere in the economy, increase the government’s debt to GDP ratio, and make the economy smaller (if the rate of turnover of money—it’s so-called “velocity of circulation”—is greater than one). This little thought experiment illustrates the logical flaw in the conventional belief that running a government surplus is “good economic management”: it ignores the relationship between government spending and the money supply. Unless the public finds some other way to compensate for the effect of a government surplus on the money supply, the surplus will reduce GDP by more than it reduces government debt.

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Provocative. Let’s see how this unfolds.

Central Banks Beat Bitcoin At Own Game With Rival Supercurrency (AEP)

Computer scientists have devised a digital crypto-currency in league with the Bank of England that could pose a devastating threat to large tranches of the financial industry, and profoundly change the management of monetary policy. The proto-currency known as RSCoin has vastly greater scope than Bitcoin, used for peer-to-peer transactions by libertarians across the world, and beyond the control of any political authority. The purpose would be turned upside down. RSCoin would be a tool of state control, allowing the central bank to keep a tight grip on the money supply and respond to crises. It would erode the exorbitant privilege of commercial banks of creating money out of thin air under a fractional reserve financial system.

“Whoever reacts too slowly to these developments is going to take it on the chin. They will lose their businesses,” said Dr George Danezis, who is working on the design at University College London. “My advice is that companies should play very close attention to what is happening, because this will not go away,” he said. Layers of middlemen in payments systems face a creeping threat across the nexus of commerce, stockbroking, currency trading or derivatives. Many risk extinction over time. “Deep in the markets there are dark pools buying and selling shares, and entities that facilitate that foreign exchange. There are Visa, Master, and PayPal. These are the sorts of guys that we are going to disrupt,” he said. University College drafted the plan after being encouraged by the Bank of England last year to come up with a radical design for a secure digital currency.

The Bank itself has an elite four-man unit grappling with the implications of crypto-currencies and blockchain technology. Central banks at first saw Bitcoin as a rogue currency and a threat to monetary order, but they are starting to glimpse ways of turning the new technology to their advantage. The findings of the University College team were delivered to the Network and Distributed System Security Symposium (NDSS) in San Diego, revealing for the first time what may be in store. Dr Danezis said a national pilot project could be up and running within eighteen months if a decision were made to launch such a scheme. The RSCoin is deemed more likely to gain to mass acceptance than Bitcoin since the ledger would remain exclusively in the hands of the central bank, with the ‘trust’ factor of state authority. It would have the incumbency benefits of an established currency behind it.

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“..any bank that swaps a corporate loan for equity of the equivalent value will need at least four times as much capital for that exposure.”

China Debt Swap Could Leave Banks In Capital Hole (Reuters)

China’s mooted debt-for-equity swap could leave the country’s banks in a capital hole. New rules are being proposed that would allow lenders to exchange bad loans for shares. That could ease pressure on ailing companies. But it would also put pressure on bank capital ratios. In developed economies, it’s not unusual for creditors of troubled companies to accept shares in exchange for loans. In China, however, banks are restricted from investing in non-financial companies, limiting their scope for restructuring ailing borrowers. The regulations being prepared would remove that constraint, Reuters reported on March 10, potentially clearing the way for a wave of debt conversions. Some exchanges are already happening: Huarong Energy, a troubled shipbuilder, announced on March 8 it would give creditors a 60% stake in the company in return for forgiving debt worth $2.2 billion.

Yet while such swaps help overindebted Chinese companies, they are less positive for banks. True, the industry’s reported ratio of non-performing loans – which rose to 1.7% of total lending at the end of 2015 – will fall. But capital requirements will also rise as banks recognize more losses. Under China’s interpretation of international Basel rules, corporate loans typically attract a risk weighting of 100% for capital purposes. But the risk weighting for equity investments is at least 400%, and can be as high as 1250%, according to a 2013 assessment of Chinese regulations by the Bank for International Settlements. In other words, any bank that swaps a corporate loan for equity of the equivalent value will need at least four times as much capital for that exposure.

This calculation also assumes that banks have already written down troubled loans to their correct value. In reality, that’s unlikely to be the case. So-called “special mention” loans, which are wobbly but not yet officially classed as bad, accounted for a further 3.8% of overall lending at the end of last year. The true level of non-performing debt is probably much higher. The result is that any large-scale swap of debt-for-equity in the country will leave lenders short of capital. As the largest shareholder of Chinese banks, the government would have to step in. Though that might be one way to start solving China’s debt problem, other investors in the banks would feel the pain.

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Casino.

China’s Next Bubble? Iron Ore Surges As Speculators Weigh In (AFP)

With a huge global steel glut and slowing demand in China, an enormous recent spike in the price of iron ore has left analysts scratching their heads, with some even claiming a flower show might be to blame. But observers say the extraordinary movements for one of the world’s basic bulk commodities have been fuelled by something far more prosaic than daisies and daffodils – simple speculation. The spot price for iron ore – the key material for steel – jumped 20% on the Dalian Commodity Exchange on Monday. It closed at $57.35 per tonne on Friday, up nearly 33% so far this year. But the vast majority of trades on the exchange do not reflect real-world transactions: the iron ore futures volume on Wednesday alone represented an underlying 978 million tonnes of the commodity – more than China’s entire imports last year.

“Steel prices are in a crazy phase now. Everyone’s emotions are high and pushing up prices is the norm,” Chen Bingkun at Minmetals and Jingyi Futures told AFP. “The price rise is also caused by speculation.” Only part of the real global iron ore trade passes through exchanges such as Dalian or Singapore, the other main hub for derivatives based on the commodity. Instead, the business is dominated by a small group of producers, including Anglo-Australian giants Rio Tinto and BHP Billiton, Brazil’s Vale and Fortescue Metals of Australia. They all compete to sell to steelmakers in China and elsewhere on longer-term contracts, often priced according to indices calculated by specialist trade publications, leaving limited liquidity for the spot market and heightening its volatility.

Chinese analysts and industry officials have cited a mix of factors driving the speculation that fuelled the price surge, including hopes for higher government spending on steel-hungry infrastructure after the economy grew at its slowest pace in a quarter of a century last year. The beginning of warmer weather and the end of the Lunar New Year holiday have restarted construction projects and steel production. Even an upcoming flower show in the Chinese steel hub of Tangshan has been named as a factor, with local steel companies expected to suspend output to ensure blue skies for the event – which could prompt them to step up production before the halt. China produces more steel than the rest of the world combined, and in the long term, cuts of up to 150 million tonnes in its capacity over five years could ultimately support steel prices, although their impact on iron ore costs is less clear.

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“If market participants have been worried about China since June-July 2015, they have not seen the real thing yet.”

China’s Growth Target Is the Next Test for Its Central Bank (BBG)

China’s central bank chief oozed calm in an annual press briefing in Beijing Saturday, supported by weeks of composure in markets as investor anxiety over the nation’s currency policy eased. How long the lull lasts will depend on how policy makers manage a balancing act made tougher by a weaker-than-anticipated start to the year for the world’s No. 2 economy. After People’s Bank of China Governor Zhou Xiaochuan spoke at the country’s annual gathering of the legislature, data showed an “alarming” failure of growth to respond to recent stimulus, Bloomberg Intelligence analysts Tom Orlik and Fielding Chen concluded. The weakening momentum seen in industrial output and retail sales highlight skepticism about the Communist Party’s goal of achieving average growth of at least 6.5% in its five-year plan to 2020.

Gavekal Dragonomics calls the target “incredible.” JPMorgan says a sustainable pace is “much lower” than what officials are targeting for this year. The danger is that to meet the leadership’s objective, which for 2016 is an expansion of 6.5% to 7%, Zhou will need to loosen monetary policy faster and further. That could intensify depreciation pressures on the yuan, which has benefited in recent weeks from a drop in the dollar. Looser monetary policy, along with the expanded fiscal deficit pledged by Premier Li Keqiang’s cabinet, would quicken a buildup of debt that already amounts to almost 2.5 times GDP. “This is a risky target for the next five years as it means the continuation of super-loose monetary and fiscal policy,” said Chen Zhiwu, a finance professor at Yale University, and a former adviser to China’s State Council.

“If market participants have been worried about China since June-July 2015, they have not seen the real thing yet.” The data released Saturday showed industrial production rose 5.4% in the first two months of the year from a year before, the weakest reading since the 2009 global recession. That’s even before policy makers have much to show for a campaign to shut down excess capacity in the unproductive state-owned sector. Retail sales also slowed, while the value of homes soared versus a year ago with property sales in some mid-sized cities doubling. Fixed-asset investment exceeded economists’ estimates. Speaking hours before the data releases, Zhou, 68, warned banks about increased credit risk and rising real estate prices in the biggest cities. He sought to ease concerns over volatility in the stock and currency markets while saying meeting the five-year growth target would not require a big stretch.

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China is going to get called on its illusions.

Goldman: 4 Reasons Why Yuan Will Weaken vs Dollar (CNBC)

The Chinese yuan, the source of much anguish in financial markets from Sao Paulo to Singapore since last summer, is enjoying some respite. The currency, also known as renminbi, is currently trading near its best levels against the dollar this year at 6.5241, having slumped to 6.5800 earlier in 2016. Efforts by Chinese policymakers to shore up confidence in the economy have helped somewhat. Capital outflows, a big factor behind the weakness in the currency and the subsequent depletion of China’s foreign exchange reserves as the People’s Bank of China intervened to prevent the yuan from falling more, also appear to have eased. But Goldman Sachs still expects the currency to weaken to 7 against the greenback by the end of the year and has listed four reasons behind its call. Here they are:

Debt overhang The sharp surge in credit in recent years has led to an accumulation of debt in the economy that will likely imply interest rates will stay lower for longer, Goldman Sachs estimates. The softer monetary policy should add to depreciation pressures on the currency.

Economic slowdown China’s once-runaway export growth has slowed (shipments fell at their fastest pace since 2009 in February) as the currency has appreciated on a trade-weighted basis over many years. Overall economic growth was 6.9% in 2015, sturdy by global standards but the slowest pace in China in 25 years. Policymakers may now have to tweak the currency to counter the slowdown in the economy, Goldman reckons.

Preference for weaker currency According to Goldman Sachs, the managed depreciation of the yuan in December and the early weeks of 2016 suggests “a degree of bias” on the part of the authorities for a weaker currency. Goldman cites a recent interview given by PBOC Governor Zhou Xiaochuan to Caixin magazine, in which Zhou suggested that the current yuan level against the dollar did not represent a “reasonable and balanced” level for the currency.

Policy divergence Goldman’s U.S. team expects the U.S. Federal Reserve to raise interest rates three times this year, while forecasting economic growth to be above the trend level. An increase in U.S. interest rates coupled with a downward trend in Chinese monetary policy will imply outflow pressures and lead to yuan weakness, Goldman says. The trend for further softness in the yuan has raised speculation on policy options for the PBOC, including a one-off devaluation in the yuan or a more steady weakness. Goldman believes the second option is more likely as a chunky one-off devaluation would raise doubts over the credibility of Chinese policymakers and draw political attention at a sensitive time.

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This is going to go so wrong.

Subprime Flashback: Early Defaults Are a Warning Sign for Auto Sales (WSJ)

To understand how far the U.S. auto business has been reaching for new customers, consider the early performance of a bond issue called Skopos Auto Receivables Trust 2015-2. The bonds were built out of subprime auto loans and sold in November. Through February, about 12% of the underlying loans were at least 30 days past due, a third of which were more than 60 days delinquent. In another 2.6% of loans, borrowers had filed for bankruptcy or the vehicles had been repossessed. Those borrowers are at the outer fringe of the auto market. Still, the high level of missed payments for loans made so recently is a warning sign for an industry that needs every customer it can get to keep sales increasing at a record pace.

The early delinquency rates seen in the debt issue from Skopos Financial, a Dallas-based lender that specializes in loans to people with weak or no credit histories, are in line with those for several similar bond deals from other lenders around the same time. About 12% of the loans backing bonds sold in November by Exeter Finance, another Dallas-based subprime lender, were more than 30 days delinquent through February, according to the company. A spokeswoman said delinquency rates came down from the previous month. Loan payments have been slipping as well for the broader group of subprime borrowers who make up a big slice of the auto market. The 60-plus day delinquency rate among subprime car loans that have been packaged into bonds over the past five years climbed to 5.16% in February, according to Fitch Ratings, the highest level in nearly two decades.

The rate of missed payments is higher for loans made in more recent years, a reflection of more liberal credit standards and the larger number of deals from lenders serving less creditworthy customers, according to Standard & Poor’s Ratings Services. Investors are becoming concerned. Flagship Credit Acceptance, another small lender, recently had to offer higher yields than expected to sell bonds backed by subprime auto loans. Flagship declined to comment. “What’s driving record auto sales is not the economy, but record auto lending,” said Ben Weinger, who runs hedge fund 3-Sigma Value LP in New York and who has bearish bets on some auto lenders. He said demand for auto debt has led lenders to systematically loosen underwriting standards, which he predicts will result in higher loan delinquencies.

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Paid to harm your own company. Perfect.

Key Formula for Oil Executives’ Pay: Drill Baby Drill (WSJ)

Markets have been waiting for U.S. energy producers to slash output during a period of depressed crude prices. But these companies have been paying their top executives to keep the oil flowing. Production and reserve growth are big components of the formulas that determine annual bonuses at many U.S. exploration and production companies. That meant energy executives took home tens of millions of dollars in bonuses for drilling in 2014, even though prices had begun to fall sharply in what would be the biggest oil bust in decades. The practice stems from Wall Street’s treatment of such companies’ shares as growth stocks, favoring future prospects over profitability. It has helped drive U.S. energy producers to spend more unearthing oil and gas than they make selling it, energy executives and analysts say.

It has also helped fuel the drilling boom that lifted U.S. oil and natural-gas production 76% and 31%, respectively, from 2009 through 2015, pushing down prices for both commodities. “You want to know why most of the industry outspent cash flow last year trying to grow production?” William Thomas, CEO of EOG Resources, said recently at a Houston conference. “That’s the way they’re paid.” Lately, though, some shareholders are asking companies to reduce connections between pay and production, saying such incentives don’t make sense since abundant supplies have caused commodity prices to crash. Signs that oil production may finally be easing helped push up crude prices Friday to their highest levels of the year. The International Energy Agency said in a monthly report that output in some regions was falling faster than expected and that prices may have “bottomed out.”

A separate report said the number of rigs drilling for oil and natural gas in the U.S. fell to a record low. Still, CEO pay and production are likely to remain a flash point for investors because few wells are profitable even at these higher crude prices. The persistence of U.S. production in the face of such economics has been one of the biggest puzzles in the energy market. Members of the Organization of the Petroleum Exporting Countries have increased production, betting that U.S. energy producers would curtail drilling or be forced out of business. But even as oil prices began their plunge in the second half of 2014, many companies kept drilling.

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New Zealand is so toast. Land prices are doomed, and home prices will follow a swell as corporate defaults.

Dairy Industry In Race To Ruin (NZH)

Imagine being approached with an investment proposal that went something like this: how about you borrow almost $30 billion to invest in something that produces a commodity that swings in price by more than 50% over a two-year cycle? How about you invest in producing that commodity on the idea that demand has moved structurally higher, but pretty much ignores what other suppliers of that commodity might do? You would probably be more than a little sceptical. Yet that was the proposition New Zealand Inc essentially agreed to invest in over the past decade. This is the story of the dairy boom that has now bust, leaving dairy farmers holding debts of more than $40b and producing a commodity that is losing them $1.6b a year. Those debts are worth more than three times the income produced by that land and up from just $11.3b as recently as 2003.

The Reserve Bank has forecast that if this week’s payout cut to $3.90/kg is extended into next season, and then recovers only slowly, then 44% of those loans would be non-performing. That doesn’t necessarily mean the banks would kick 44% of farmers off their land – but it does mean the banks face profit drops. No other business leader in any other industry would borrow three times the income to build a business that produced something they couldn’t control the price of. Robert Muldoon was ridiculed and condemned for borrowing and betting big on a continued high price for oil when he invested in petro-chemical plants at Motonui, Waitara and Kapuni, and indirectly on the Clyde Dam and Tiwai Point expansion. This sort of investment decision makes no sense. Unless, of course, you weren’t actually borrowing the money purely to produce cashflow from the sale of that commodity.

It makes perfect sense if you are borrowing money to push up the value of land, the gains from which are tax-free. Most farmers would vehemently deny they are farming for tax-free capital gains, and most hold their land for multiple decades and often for multiple generations. But it is simply not credible to say that land value is irrelevant in their decision-making. It’s certainly relevant in the decision-making of the banks. Finance Minister Bill English put it best this week when he said it was time for farmers to be more like proper business investors. “This is an industry where they’ve had a focus on growing equity and growing land values for quite a long time now. It’s going to be a significant adjustment to getting back to the core business of effective farming for cash flow. “They are going to see land values drop. That is pretty much certain.”

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“Despite dozens of biotech-food-crop trials in India, the country has approved none for commercial cultivation.”

Why Monsanto’s GMO Business Isn’t Growing in India (WSJ)

Genetically modified organisms, or GMOs, grow in an estimated 97% of India’s cotton fields and have helped India by some measures become the fiber’s top global producer. But after a decade of Monsanto’s efforts with Mahyco to win Indian-government approval for biotech food crops, seeds for plants like Mr. Char’s remain in limbo, stymied by environmentalist opposition, farmer skepticism and bureaucratic inertia. Despite dozens of biotech-food-crop trials in India, the country has approved none for commercial cultivation. “What greater case study in terms of food security than a country that will soon have more people than any other country in the world?” said Robert Fraley, Monsanto’s chief technology officer. “To see a country that has the potential and intellectual ability to be a leader in these biotech advances, to be stymied politically, I think it’s a tragedy.”

India’s Agriculture Minister, Radha Mohan Singh, said the government was waiting for India’s Supreme Court to rule in a case opposing genetically modified food crops before deciding on their commercial cultivation. Meanwhile, Monsanto’s established cotton business in India faces new threats, including new government price controls around seed genetics and an antitrust probe into pricing practices, prompting Monsanto on March 4 to warn that it could withdraw its biotech crop genes from the country. Monsanto’s experience is part of a broader backlash against genetically engineered crops from a mix of environmentalists, consumer groups and nationalism thwarting the technology’s expansion after years of growth. Biotech-crop opponents say they can damage the environment, burden poor farmers with high-price seeds and potentially harm health.

GMO proponents reject such assertions, and the U.S. Food and Drug Administration, World Health Organization and European Commission have concluded GMOs are safe to eat. Yet pushback has swept the world. More than half of European Union countries have moved to bar GMO cultivation. Russia hasn’t approved any biotech crops. China, which allows cultivation of some, isn’t expected to approve new ones soon. In the U.S., where GMO crops are widespread, some food brands are stripping GMOs from their products. The backlash has slowed global-sales growth of genetically modified seeds. Sales grew 4.7% to $21 billion in 2014, compared with 8.7% growth in 2013 and average annual growth of 21% from 2007 through 2012, according to research firm PhillipsMcDougall.

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Looks insane.

February Breaks Global Temperature Records By ‘Shocking’ Amount (Guardian)

Global temperatures in February smashed previous monthly records by an unprecedented amount, according to Nasa data, sparking warnings of a climate emergency. The result was “a true shocker, and yet another reminder of the incessant long-term rise in global temperature resulting from human-produced greenhouse gases”, wrote Jeff Masters and Bob Henson in a blog on the Weather Underground, which analysed the data released on Saturday. It confirms preliminary analysis from earlier in March, indicating the record-breaking temperatures. The global surface temperatures across land and ocean in February were 1.35C warmer than the average temperature for the month, from the baseline period of 1951-1980.

The global record was set just one month earlier, with January already beating the average for that month by 1.15C above the average for the baseline period. Although the temperatures have been spurred on by a very large El Niño in the Pacific Ocean, the temperature smashed records set during the last large El Niño from 1998, which was at least as strong as the current one. The month did not break the record for hottest month, since that is only likely to happen during a northern hemisphere summer, when most of the world’s land mass heats up. “We are in a kind of climate emergency now,” Stefan Rahmstorf, from Germany’s Potsdam Institute of Climate Impact Research and a visiting professorial fellow at the University of New South Wales, told Fairfax Media. “This is really quite stunning … it’s completely unprecedented,” he said.

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Polarization

Anti-Refugee And Pro-Refugee Parties Both Win In German Elections (Guardian)

The anti-refugee party, Alternative für Deutschland (AfD), has shaken up Germany’s political landscape with dramatic gains at regional elections, entering state parliament for the first time in three regions off the back of rising anger with Angela Merkel’s asylum policy. But, in a sign of the increasingly polarised nature of Germany’s political debate, pro-refugee candidates also achieved two resounding victories in the elections – the first to take place in Germany since the chancellor embarked on her flagship open-doors approach to the migration crisis. Merkel’s Christian Democrat party suffered painful defeats to more left-leaning parties in two out of three states, one of them Baden-Württemberg, a region dominated by the CDU since the end of the second world war. News weekly Der Spiegel described the result as a “black Sunday” for the conservatives.

The CDU also failed to oust the incumbent Social Democrats in Rhineland-Palatinate. But it was the breakthrough of the AfD – a party that did not exist a little more than three years ago and last year was on the verge of collapse – that was arguably most striking. In Saxony-Anhalt in the former east Germany, the party with links to the far-right Pegida movement had gained 24.4%, according to initial exit polls, thus becoming the second-biggest party behind the CDU. In both Rhineland-Palatinate and Baden-Württemberg, it appeared to have gained 12% and 15%. Germany’s rightwing upstarts appeared to have benefited from an increased voter turnout across the country. In all three states, the AfD gained most of its votes from people who had not voted before, rather than disillusioned CDU voters. In Saxony-Anhalt, as many as 40% of AfD voters were previously non-voters, while 56% of AfD voters in the state said they had opted for the party because of the refugee crisis, according to one poll.

[..]If the AfD’s strong showing reflected deep hostility to Merkel’s plan, however, other results last night told a different story. [..] The politician who won in Baden-Württemberg’s, Green state premier Winfried Kretschmann, had passionately defended the German chancellor’s open-borders stance, stating in one day that he was “praying every day” for her wellbeing. With a centrist, pro-business party programme that defied orthodox ideas of what an environmental party should stand for, the Green party in Germany’s southwest managed to come top with 30.5% in a state. Remarkably, 30% of voters who had switched from Christian Democrat to Green in the state said they had done so because of the refugee debate. “In Baden-Württemberg we have written history”, Kretschmann told reporters after the first exit polls.

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More closed borders.

Bulgaria Pushes To Be Part Of EU-Turkey Refugee Deal (AFP)

Bulgarian Prime Minister Boyko Borisov pressed on March 12 to have his country’s borders protected as part of a proposed EU-Turkey deal aimed to stop the flow of migrants to Europe. Bulgaria has so far remained on the sidelines of the EU’s worst migration crisis since WWII after it built a 30-kilometre razor wire fence in 2014 and sent 2,000 border police to guard its 260-kilometre (160-mile) border with Turkey. But the EU member fears that it could become a major transit hub after countries along the main western Balkan migrant trail shut their borders this week. All countries on the frontline should be able to rely on support from the EU for protection of the EU’s external borders,” Borisov told visiting Austrian Interior Minister Johanna Mikl-Leitner and Austrian Defense Minister Hans Peter Doskozil in Sofia.

Borisov said he had sent a letter to that effect to EU President Donald Tusk on March 11. “Bulgaria insists that the talks between the EU and Turkey for solving the migration problem should also include Bulgaria’s land borders with Turkey and Greece as well as the Black Sea border between the EU and Turkey,” the letter read. [..] Bulgarian media reported on Saturday that Borisov was ready to block the deal if Turkey only agreed to stop the flow of migrants to the Greek islands in the Aegean Sea. Mikl-Leitner and Doskozil, who were due to visit the Bulgarian-Turkish border later on Saturday, expressed their “full support” for Borisov’s demands. “What applies to Greece also has to apply to Bulgaria,” Doskozil said. Mikl-Leitner meanwhile pledged to host a police conference on border security and human traffickers with the countries along the western Balkan migrant trail, including Germany and Greece.

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Dec 042015
 
 December 4, 2015  Posted by at 9:50 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle December 4 2015


Danish frontpage today after No To More EU vote

Stocks Plunge With Dollar, Bonds as ECB Decisions Disappoint (BBG)
Mario Draghi Riles Germany With QE Overkill (AEP)
“But It’s Just A 0.25% Rate Hike, What’s The Big Deal?” (ZH)
Bankruptcy Might Be the Mining Industry’s Last Best Hope (BBG)
“Distress” in US Corporate Debt Spikes to 2009 Level (WolfStreet)
Hong Kong Housing Bubble Collapses, Sales Plunge 42% (ZH)
For China, The Real Battle For A Global Currency Is Just Beginning (BBG)
Top China Cop Targets Bankers After Putting Away Security Czar (BBG)
America’s Leadership Just Doesn’t Seem To Get It (Tanosborn)
It’s So Bad in Brazil That Olympians Will Have to Pay for Their Own AC (BBG)
Putin Wants Russia To Become World’s Biggest Exporter Of Non-GMO Food (RT)
Financial Engineering To Save The Planet (Kaminska)
Denmark Rejects Closer EU Ties as Skeptics Dominate Referendum (BBG)
Greece Asks EU For Help With Refugees Following Threats (Kath.)
World’s Woes Huddle on Greek Shores as Another Crisis Year Looms (BBG)

Did Draghi finally do something sensible? Very much depends on who you ask.

Stocks Plunge With Dollar, Bonds as ECB Decisions Disappoint (BBG)

Equities tumbled around the world and government bonds sank, while the euro rallied the most in six years after the scale of additional stimulus from the European Central Bank disappointed investors just as the Federal Reserve signaled interest-rate increases are imminent. The Standard & Poor’s 500 Index fell the most in two months and European equities had their worst day since the height of the summer selloff. The euro climbed against all its major peers, stinging traders who had piled on wagers against the currency amid expectations of aggressive easing from the ECB. Yields on 10-year German notes jumped 20 basis points, while rates on similar-maturity Treasuries posted their biggest advance since February. Brent crude rallied from a six-year low before Friday’s OPEC meeting.

The selloff in risk assets spread from Europe around the world, with investors anticipating deeper cuts to the region’s lending rates and an increase in the amount of ECB bond purchases to support flagging economic growth. Meanwhile, Fed Chair Janet Yellen indicated the conditions for higher rates in the U.S. had been met, boosting the odds the central bank will raise borrowing costs at its final meeting of 2015 on Dec. 16. “Everyone was positioned the same way going into today,” Michael Block, chief equity strategist at Rhino Trading Partners, said by phone. “Draghi disappointed, the long bond is down over three points, trades are getting messed up, it all snowballed and on days when that happens you have a problem. It’s the idea the central banks won’t be there to bail out equities.”

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Ambrose predicts nirvana for Europe next year. We do not.

Mario Draghi Riles Germany With QE Overkill (AEP)

The ECB has cut the deposit rate to a record low of -0.3pc and vowed to print money for as long as it takes to defeat deflation, pushing its radical stimulus measures to extremes never seen before in any major region in modern history. The far-reaching moves come despite signs that economic growth in the eurozone is picking up, and ignores vehement protests from German-led hawks that quantitative easing at this late stage is doing more harm than good. Mario Draghi said the bank will keep buying €60bn of bonds each month as far out as March 2017 or “beyond if necessary”. It is effectively an open-ended pledge. “Abundant liquidity will continue for a long, long time,” he said. Markets were betting on even more largesse, and reacted badly to the package of measures.

Many funds had expected an increase in the volume of QE purchases to nearer $80bn and an even deeper cut in the deposit rate, beguiled by the ultra-dovish rhetoric of top ECB officials over recent days. The euro soared by almost 4pc to $1.0933 against the dollar, smashing through technical stops in a bloodbath on the exchange markets. “It was the biggest one-day rise in the euro since 2009,” said Ian Stannard, from Morgan Stanley. Germany’s DAX index of equities and France’s CAC 40 both fell 3.6pc, the worst drop since August. The FTSE 100 dropped 2.3pc to 6,275. Yields on 10-year German Bunds spiked violently by 19 basis points to 0.66pc, with even more drastic reversals in Italy and Spain. An estimated €300bn of eurozone debt trading at negative rates has turned positive again within a single trading day, reducing the total to €2.2 trillion.

“Markets want immediate gratification. A lot of traders had large positions and they got caught out,” said David Owen, at Jefferies. “But when things settle down in a couple of weeks, people will realize that what happened today is highly significant. The ECB is adding another $360bn to its balance sheet and is now reinvesting its portfolio, like the Bank of England. This is a big deal,” he said. The ruckus on trading floors had echoes of August 2012, when Mr Draghi launched his back-stop plan for Italian and Spanish bonds (OMT), ending the eurozone debt crisis at a stroke. Markets sold off in a knee-jerk fashion at first but soon changed their mind as the significance sunk in. Mr Draghi said QE has been an unqualified success but the summer storm in emerging markets and China diluted the effects, while the commodity crash has made it even harder to fight deflation.

Inflation is still stuck at 0.1pc, leaving little safety margin against an external shock. “We are doing more because it works, not because it fails,” said Mr Draghi, insisting that the eurozone would have been in outright deflation this year without QE. Yet it is far from clear whether the region needs radical stimulus as far ahead as 2017, given that the ECB itself is predicting above trend growth of 1.7pc next year. Euroland is already benefitting from a near perfect storm of positive shocks. Fiscal austerity is finally over. The euro has fallen 13pc in trade-weighted terms since April 2014. Oil prices have plummeted from $114 a barrel to $43 in 18 months, giving consumers a shot in the arm.

[..]The Bundesbank warns that negative rates are causing serious problems for savings banks and smaller lenders, and make it much harder for insurance companies to match their maturities. Hans Werner Sinn, from the Germany’s IFO Institute, said Mr Draghi has given up trying to conduct a responsible monetary policy and is engaged in a covert rescue of ailing banks and governments. “The ECB has turned into a bail-out machine,” he said. Both German members of the ECB opposed the new measures, and were almost certainly joined by hawkish governors from the Netherlands and the Baltics. They may have stopped Mr Draghi going even further. “The ultra doves lost the argument,” said Frederik Ducrozet, from Pictet. [..] For Mr Draghi, it is a day he would probably rather forget. He delivered exactly what he promised yet for mysterious reasons the markets concluded otherwise. Sometimes you just can’t please them.

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$800 billion in reverse QE. Let’s see them do it.

“But It’s Just A 0.25% Rate Hike, What’s The Big Deal?” (ZH)

After today’s market plunge, the result of what even Goldman admitted may have been a major policy error by the ECB, suddenly the Fed’s determination to hike rates in two weeks lies reeling on the ropes. After all, what the ECB did was an implicit tightening of reverse QE1 proportions (it is no accident that the EURUSD is soaring as much as it did in March 2009 when the Fed unleashed QE). But assuming the Fed is still intent on hiking at all costs, and does just that in two weeks time, a question many are asking is where will General Collateral repo trade in case the Fed does decided to push rates higher by 0.25%: after all the Reverse Repo-IOER corridor is the most important component of the Fed’s rate hike strategy, one which better work or otherwise the Fed will be helpless to raise rates with some $3 trillion in excess liquidity sloshing around, and what little credibility it has will be gone for good. And much more importantly, what are the liquidity implications from such a move.

For the answer we go to the repo market expert, Wedbush’s E.D. Skyrm. Here are his thoughts: “Where will General Collateral trade when the fed funds target range is moved 25 basis points higher to .25% to .50%? In the most simple method, GC has averaged about .15% for the past month, which implies a GC rate around .40% after the Fed move. However, given the unprecedented amount of liquidity in the financial system, there’s a belief the Fed will have problems moving overnight rates higher. We have two quantifiable events over the past few years where the Fed moved Repo rates higher or lower: quarter-end and the QE programs.

Given there are so many moving parts, consider these to be very rough estimates: Beginning in 2015, when funding pressure began each quarter-end, the market, on average, took approximately $255B additional collateral from the Fed and, on average, GC rates averaged 20.5 basis points higher. In 2013 on my website, I calculated that QE2 moved Repo rates, on average, 2.7 basis points for every $100B in QE. So, one very rough estimate moved GC 8 basis points and the other 2.7 basis points per hundred billion. In order to move GC 25 basis points higher, in a very rough estimate, the Fed needs to drain between $310B and $800B in liquidity.

If readers didn’t just have an “oops” moment, please reread the last bolded sentence until they do, because it explains precisely what the market is missing about the Fed’s rate hike cycle: according to Skyrm’s calculations, to push rates by a paltry 25 bps, the smallest possible increment, what the Fed will have to do is drain up to a whopping $800 billion in liquidity! Putting that in context, QE2 – which pushed the S&P higher from November 2010 until June 2011 – was “only” $600 billion. In other words, to “prove” to itself that it is in control and the economy is viable, the Fed will effectively conduct, via reverse repo, an overnight QE2…. only in reverse.

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Good way to phrase it: “[China’s] economy is expanding at the slowest rate in a generation..”

Bankruptcy Might Be the Mining Industry’s Last Best Hope (BBG)

For the world’s ailing metals-mining industry to have any hope of a turnaround, more producers may have to go belly up. Companies that dig up everything from gold to copper have failed to stem a prolonged collapse in mineral prices mostly because not enough mines are closing. Years of increased output have created global surpluses just as slower economic growth erodes demand. Unprofitable operations were kept alive by across-the-board cuts in operating costs, lower energy prices, a strong dollar and the unfulfilled hopes by mining executives that markets will improve. “We are going to see bankruptcies,” Evy Hambro at Blackrock’s $3.5 billion World Mining Fund said. “Some companies have been praying for commodity prices to deliver a kind of escape route from the problems that they face. That’s clearly gone the other way.”

While nobody expects industry giants such as Rio Tinto or BHP Billiton to go bust, higher-cost producers and those unable to raise more cash are vulnerable as a measure of base-metals prices heads for a third straight annual decline. The loss of value means more companies are getting closer to default, Moody’s Investors Service said Wednesday. There have been some production cuts, but the rout has deepened because companies are still supplying more metal than is needed around the world. Most mining executives don’t want to trim even unprofitable output because the resulting tighter supply and higher prices would benefit rivals. China, the world’s biggest metals user, has been mostly to blame for the price slump.

The Asian country’s economy is expanding at the slowest rate in a generation, curbing demand, just as new mines planned during an almost decade-long bull run in commodities are coming into operation. “We need to see supply cuts across these markets to try to bring them back into balance,” said Colin Hamilton at Macquarie in London. “It’s either companies making the decisions themselves, or it comes through a full process of people dying very slowly.” A gauge of contracts on the London Metal Exchange has slid 26% this year, the most since 2008, to near the lowest in six years. About 15% of copper production and a quarter of zinc output are unprofitable, while 60% of aluminum and 70% of nickel are supplied at a loss, according to Standard Chartered.

First-half profits slumped at least 30% for Rio Tinto, Glencore and Anglo American, while BHP Billiton’s full-year earnings slid 52%. The biggest producers have proved the most efficient at pumping out more material at lower costs, while smaller companies have struggled. “You’ve got to allow the markets to work,” Tom Albanese, CEO of Vedanta Resources and former CEO of Rio Tinto, said on Tuesday. “It creates a prisoner’s dilemma in terms of what it means for the broader sector, but it’s logical and it’s in the best interests of those companies.”

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“..half of the oil-and-gas junk debt trades at distressed levels..”

“Distress” in US Corporate Debt Spikes to 2009 Level (WolfStreet)

Investors, lured into the $1.8-trillion US junk-bond minefield by the Fed’s siren call to be fleeced by Wall Street and Corporate America, are now getting bloodied as these bonds are plunging. Standard & Poor’s “distress ratio” for bonds, which started rising a year ago, reached 20.1% by the end of November, up from 19.1% in October. It was its worst level since September 2009. It engulfed 228 companies at the end of November, with $180 billion of distressed debt, up from 225 companies in October with $166 billion of distressed debt, S&P Capital IQ reported. Bonds are “distressed” when prices have dropped so low that yields are 1,000 basis points (10 %age points) above Treasury yields.

The “distress ratio” is the number of non-defaulted distressed junk-bond issues divided by the total number of junk-bond issues. Once bonds take the next step and default, they’re pulled out of the “distress ratio” and added to the “default rate.” During the Financial Crisis, the distress ratio fluctuated between 14.6% and, as the report put it, a “staggering” 70%. So this can still get a lot worse. The distress ratio of leveraged loans, defined as the%age of performing loans trading below 80 cents on the dollar, has jumped to 6.6% in November, up from 5.7% in October, the highest since the panic of the euro debt crisis in November 2011. The distress ratio, according to S&P Capital IQ, “indicates the level of risk the market has priced into the bonds.

A rising distress ratio reflects an increased need for capital and is typically a precursor to more defaults when accompanied by a severe, sustained market disruption. And the default rate, which lags the distress ratio by about eight to nine months – it was 1.4% in July, 2014 – has been rising relentlessly. It hit 2.5% in September, 2.7% in October, and 2.8% on November 30. This chart shows the deterioration in the S&P distress ratio for junk bonds (black line) and leveraged loans (brown line). Note the spike during the euro debt-crisis panic in late 2011. The oil-and-gas sector accounted for 37% of the total distressed debt and sported the second-highest sector distress ratio of 50.4%. That is, half of the oil-and-gas junk debt trades at distressed levels! The biggest names are Chesapeake Energy with $7.4 billion in distressed debt and Linn Energy with nearly $6 billion.

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All bubbles pop.

Hong Kong Housing Bubble Collapses, Sales Plunge 42% (ZH)

Over the weekend we reported that in the aftermath of China’s crackdown on capital controls, “Chinese buyers have left the U.S. housing market.” But if potential Chinese buyers are unable to transfer funds out of the mainland, it wouldn’t be just the U.S. and Australia where the housing bubble is now rapidly bursting, it would be everywhere else too as said potential buyers hunker down and instead scramble to avoid the government’s attention and to preserve dry powder. Sure enough, nowehere was this more clear overnight than in Hong Kong, where the once-upon-a-time raging housing bubble just got its last rites after November home sales sank to a record low as an imminent interest rate in the US this month scared away prospective buyers.

According to Land Registry data, reported by SCMP, November saw 2,826 registered residential transactions, down 14.4% from October and 41.7% less than in November last year. This was the lowest print in the history of the series. In terms of value, residential transactions dropped 7.7% month on month to HK$20.8 billion. “Total home sales including those in primary and the secondary market dropped to the lowest level since we have started to gauge property transactions in 1996,” said Wong Leung-sing, an associate director of research at Centaline Property Agency.

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“The legacy has left a $28 trillion debt pile hanging over an economy set to grow at the weakest pace since 1990…”

For China, The Real Battle For A Global Currency Is Just Beginning (BBG)

After a struggle of more than half a decade, China this week overcame doubts and objections to qualify for official reserve status for its currency, the yuan. Now, the real battle begins. Chinese officials who want a much bigger role for market forces – including central bank Governor Zhou Xiaochuan and his deputy Yi Gang – have used the goal as a lodestone for their ideas. In their campaign, the reformers won approval for gradually opening up the financial system to foreign participation and letting the private sector set interest rates. With the IMF’s decision on Nov. 30 to endorse the yuan for inclusion alongside the dollar, euro, pound and yen in the International Monetary Fund’s global currency basket, known as Special Drawing Right, or SDR, the reformers in one sense realized their ambition.

While meeting the IMF’s “freely usable” requirement, Chinese policy makers are still a long way from a “freely convertible” currency. That’s the long-term objective of the reformers seeking to overturn China’s state-directed lending model. The legacy has left a $28 trillion debt pile hanging over an economy set to grow at the weakest pace since 1990. The People’s Bank of China’s Yi Gang was quick to highlight the unfinished business. “We are still relatively far from the world’s developed markets,” Yi told reporters in Beijing hours after the IMF announcement. “Joining the SDR also means that the international community will have more expectations for China in many financial and economic aspects, so we also feel that the burden on our shoulders is heavier.”

The financial system is a key battleground between Zhou, Yi and their allies and the Communist Party stalwarts who advanced in the state-owned enterprise world and want to keep the old structure of a planned economy. Opponents maintain their anonymity in a system where the party is supposed to be moving forward as one. The Communist leadership agreed in the new Five Year Plan for the economy to move toward yuan convertibility by 2020. Those next steps will be fraught with risk — the global economy is littered with a trail of examples that illustrate what can go wrong when the sequencing of capital-account opening is fumbled. It took Japan 40 years to complete big reforms to its exchange rate, interest rates and financial sector only to see an asset bubble swell, then burst and crash the economy for two decades.

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Xi’s hubris reaches far and deep. The more control he wants, the more problems he gets.

Top China Cop Targets Bankers After Putting Away Security Czar (BBG)

The high-ranking cop who brought down one of China’s top Communist Party officials has been put in charge of a corruption probe of the securities industry in the wake of a summer stock crash, said a person familiar with the matter. The appointment of Fu Zhenghua underscores the importance that President Xi Jinping has given the investigation into possible securities fraud linked to the $5 trillion wipeout in June and July. Fu has had several promotions since Xi came to power in 2012, and oversaw the case against former Politburo Standing Committee member Zhou Yongkang, said three people familiar with the case, who asked not to be identified because Fu’s role hasn’t been made public. Zhou was sentenced to life behind bars in June.

The 60-year-old former Beijing police chief, who also led a corruption case against one of China’s richest men and busted a huge prostitution ring in 2010, is overseeing a probe under which police have questioned dozens of executives at securities firms amid allegations of insider trading and other malfeasance stemming from the crash, one of the people said. The investigations have intensified in recent weeks, sending fear through China’s finance firms and chilling their investment strategies. “Fu is a capable assistant to Xi because his cutthroat style would help the investigation get to the very bottom of things, and to make sure things under Xi’s full control,” said Zhang Lifan, a political commentator. “An investigation into the financial sector could easily damage the interests of some power havens, and Fu is more than qualified to fight Xi’s battle as he’s famous for not being afraid of offending anyone.”

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“US leaders’ ignorance, or disregard, of history created with the invasion of Iraq not just an illegitimate and uncalled for war of choice, but a dislocation of an existing balance..”

America’s Leadership Just Doesn’t Seem To Get It (Tanosborn)

As we fail to identify the causes that bring about what we call terrorism, we also fail to realize that such causes also bring higher ideological Causes: goals and principles that are served with dedication and zeal by a militant leadership that we simplistically term as terrorists, and the connotation which allows us in the West to don righteousness while placing the entire blame of any regional turmoil on “them.” And that region in turmoil now extends beyond the Near East/Middle East, with dissatisfaction branching out from Afghanistan (east) to Morocco (west) by diverse cultures faithful to Islam and highly influenced by the success being achieved by the Islamic State (IS). Under the auspices of the UN, and the diplomatic leadership of John Kerry (US) and Sergei Lavrov (Russia), a plan to stabilize Syria has just been drafted in Vienna; a plan that’s inclusionary of all but one feuding group.

That exception being ISIS/ISOL, by whatever acronym one wishes to know the new and resolute Islamic State, now holding major swathes of territory in Iraq and Syria, while establishing itself as the purveyor of extra-territorial reaches and ambition in the creation of a caliphate. But stabilizing Syria, as important as that would be after a devastating civil war, won’t begin to cure the geopolitical problems in that part of the world; problems that were ignited by an Imperial Britain six-plus decades ago, later adopted and enlarged by an equally ambitious and powerful Imperial America. Problems which have not only deep economic roots but extensive foliage cover of prejudice, lies and deceit. Britain and the US have played havoc in the Middle East, creating geographic borders, sitting and deposing rulers at will, and meddling forcefully in the region’s geopolitics.

Meddling which achieved the pinnacle of idiocy with George W. Bush’s invasion of Iraq and deposition of Saddam Hussein, a dictator with lay roots who had long maintained some political balance in the region. By far the greatest mistake ever in the annals of American foreign policy, one which will leprously follow into history a not-very-bright president who did totally depend for his decisions on a cadre of advisers proven to be not exactly political luminaries themselves (Dick Cheney, Don Rumsfeld and perhaps the archetype of the Peter principle, Colin Powell, at the helm). US leaders’ ignorance, or disregard, of history created with the invasion of Iraq not just an illegitimate and uncalled for war of choice, but a dislocation of an existing balance of cultures, religion, ethnicities and ruling socio-economic power.

In the decade following the invasion, the vengeful Shia majority, who came into power with both the vote and US help, helped create fertile grounds for a Sunni insurgency under proven leadership from capable, former members of Saddam Hussein’s government. Except that this time around, these insurgents are looking at religion, Islam, as the main motivator for their existence, the glue that makes them stay strong and together – fanatically so in the view of most non-Islamic people. And that, nothing else, is the Islamic State in search of its identity, a modern day caliphate… brought to the world courtesy of George W. Bush.

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There are many poor countries and athletes participating.

It’s So Bad in Brazil That Olympians Will Have to Pay for Their Own AC (BBG)

The Brazilian economic crisis has finally hit the 2016 Olympics. Following a new round of cost-cutting by the Rio 2016 organizers, athletes will be asked to pay for the air conditioning in their dorm rooms. Stadium backdrops will be stripped to their bare essentials. Fancy cars and gourmet food for VIPs are out. “The goal here is to organize games without public funding and to organize games that make sense from an economic point of view,” Rio 2016 spokesman Mario Andrada said in an interview. That economic focus has changed radically in the six years since Rio was awarded the Games – South America’s first. At the time, Brazil’s government pledged $700 million toward any budgetary overrun. Then the economy tanked. Unemployment has soared, and the local currency, the real, has lost one-third of its value against the dollar in the last year.

Now, with costs that ran up to 2 billion reais ($520 million) over budget and the public commitment in doubt, the organizers must stick firmly to the 7.4 billion reais they expect to earn from sponsorships, ticket sales, and a grant from the International Olympic Committee. Final decisions on what to pare back and how much should be finalized by next week, Andrada said. By the time the Games begin, the committee plans to have 500 fewer paid staff than the 5,000 it originally expected. The deepest cuts will probably come from operational areas like catering, transportation and cleaning services.

Shifting the cost for air conditioning and other amenities from the host city to each nation’s Olympic committee – or to the athletes themselves – is a big deal, said Nick Symmonds, a two-time Olympic runner. “The world wants to tune in and watch the world’s greatest athletes compete at the absolute highest level,” Symmonds said. “If you don’t provide them with good food, a good place to sleep and comfortable temperature, they won’t be able to recover and bring the A-plus product that the world is demanding. To cut the budget on athletes’ hospitality and comfort, that’s just going to cheapen the games.”

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Now he’s Monsanto’s no. 1 enemy as well.

Putin Wants Russia To Become World’s Biggest Exporter Of Non-GMO Food (RT)

Russia could become the world’s largest supplier of ecologically clean and high-quality organic food, said President Vladimir Putin on Thursday. He also called on the country to become completely self-sufficient in food production by 2020. “We are not only able to feed ourselves taking into account our lands, water resources – Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost, especially given the fact that demand for such products in the world market is steadily growing,” said Putin, addressing the Russian Parliament on Thursday. According to the President, Russia is now an exporter, not an importer of food.

“Ten years ago, we imported almost half of the food from abroad, and were dependent on imports. Now Russia is among the exporters. Last year, Russian exports of agricultural products amounted to almost $20 billion – a quarter more than the revenue from the sale of arms, or one-third the revenue coming from gas exports,” he said. Putin said that all this makes Russia fully capable of supplying the domestic market with home-grown food by 2020. In September, the Kremlin decided against producing food products containing genetically modified organisms (GMOs). Russia imposed an embargo on the supply of products from the EU and the United States as a response to Western sanctions. After Turkey shot down Russian Su-24 bomber, Russian authorities decided to ban the import of fruit, vegetables and poultry from Turkey. The ban will take effect from January 1.

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“Unlike fossil fuel developments [..]..most renewable projects have to be entirely capital funded up front..”

Financial Engineering To Save The Planet (Kaminska)

One of the problems with green energy finance is the nature of the asset. Unlike fossil fuel developments, which spread the capital cost of development and production across the lifespan of the asset, most renewable projects have to be entirely capital funded up front. According to Citi’s Anthony Yuen and Ed Morse, that means the cost of financing is the key determinant in making these projects competitive and viable — an increasingly pressing objective in the context of falling fossil fuel prices, which reduce the competitive position of renewables in the energy complex. In an upcoming report, Financing a Greener Future, the experts even argue it’s probably a more important determinant than changes in global climate change policy.

The COP21 meeting in Paris matters, but – says the report –bottom up, local and national policies matter more. In fact, what the climate change campaigners in Paris may never have bargained for is the degree to which fossil fuel abundance and elasticity has disrupted the economic incentives associated with going green. For renewables, it’s arguably even worse, because the real cost comparison isn’t even oil, it’s even cheaper coal or natural gas. From Citi: ”

As gas prices have continued their march lower in the midst of staggering productivity gains in hydraulic fracturing, gas’s inroads into coal’s once safe territory have gone farther. Additionally, new environmental regulations, such as the Clean Power Plan that more strictly regulates coal pollution, have added liability to building new coal plants and forced more coal-fired power plants to retire In the rest of the world, however, the story is very different. In nearly every economy except the US, coal remains a much cheaper source of power generation.

Even in Europe, with a €9/ton carbon burden, burning coal is still far more profitable than burning gas, due in large part to the high costs of imported gas (see below chart). In addition to oversupply, mining costs have compressed by 30% in the last three years, even with lower prices, cushioning producers. The prospects for significant increases in coal pricing that might hinder the competitiveness of renewables or gas appear limited, and hinge crucially on India and China. In the US, cheap natural gas should keep a tight lid on coal prices, limiting prospects for significant uplift.

Even if China moves to curb its coal consumption, Citi’s team expects the demand drop — by making coal even cheaper than before — will simply fuel more coal consumption in other economies such as India. Indeed, with low coal prices actually undermining the case for renewables, Citi’s Yuen tells FT Alphaville it’s only lower financing costs that can give the sector the boost it needs. So what sort of financial innovation is needed or even possible in this sector? Err.. mostly, it turns out, the sort involving public balance sheets and government de-risking. Quelle surprise.

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That frontpage is a keeper.

Denmark Rejects Closer EU Ties as Skeptics Dominate Referendum (BBG)

Danes voted to keep their distance from the European Union, marking a blow to Brussels before heads of government meet to discuss British demands for a renegotiated relationship with the 28-member bloc. Denmark will preserve an opt-out from EU justice and home affairs laws, with 53% of voters in favor of the status quo, while 47% back a shift to a flexible opt-in, according to state broadcaster Danmarks Radio. The result “is based on a general skepticism toward the EU,” said Prime Minister Lars Loekke Rasmussen. At stake is the ability to coordinate everything from tracking cyber crime to ensuring family disputes get the same legal treatment across EU borders. The center-right government argues that failure to agree to a flexible opt-in arrangement means Denmark will forfeit its automatic participation in Europol, which changes its status next year to become an EU institution.

“If we’re to fight cross-border crime, I think one has to say that Denmark needs to be part of this union,” Rasmussen said in an interview with broadcaster TV2. His “yes” campaign was supported by the Social Democrats, the largest opposition party. But the more vocal “no” side warned against giving up sovereignty to an EU it says is becoming more bureaucratic in pushing agendas that are remote to the average Dane’s interests. The latest Eurobarometer shows 33% of Danes associate the EU with bureaucracy. Only the Czech Republic, Finland and Sweden have a lower opinion of the bloc’s administrative evils. But by far the majority of Danes – 70% – think they’re better off inside the EU than outside.

Denmark has held seven referenda since becoming an EU member in 1973. The country most recently voted in favor of adopting EU patent laws. Thursday’s vote was on one of four exemptions Denmark secured in 1993. The others concern monetary union, defense and citizenship. Polls have consistently shown Danes would reject any attempt to do away with their currency opt-out. Instead, the central bank pegs the krone to the euro in a 2.25% band.

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The EU is so woefully lacking, one would think they do it on purpose.

Greece Asks EU For Help With Refugees Following Threats (Kath.)

In the wake of pressure regarding its membership of the Schengen Area, Greece on Thursday activated the European Union Civil Protection Mechanism, agreed to allow EU border agency Frontex on its frontier with the Former Yugoslav Republic of Macedonia (FYROM) and to trigger the Rapid Border Intervention Teams mechanism (RABIT) for extra help with patrols in the Aegean. The European Commission confirmed Thursday that it received these three requests from Athens. The action came after a number of unnamed EU officials claimed that there were calls for Greece to be excluded from the Schengen free travel area because of complaints about the way it is handling the flow of migrants and refugees and its failure to live up to commitments made at the Western Balkans Route Leaders’ Summit in October.

The EU Civil Protection Mechanism allows Greece to benefit from material support. Alternate Minister for Migration Policy Yiannis Mouzalas said Thursday that Athens had not made the request for assistance earlier because it needed to assess its needs first. “We did not know exactly what we needed and, more importantly, how we would use what we asked for,” he said at a news conference. Greece sent a list containing 23 categories to Brussels. Among the things the government is asking for are 26 ambulances, six water pumps, four diesel-powered generators, 500 large all-weather tents, 100,000 waterproof jackets, 50,000 woolen blankets, 100,000 sleeping bags and 100,000 first-aid kits.

The agreement with Frontex will see the border agency provide personnel to help register refugees and migrants at Greece’s border with FYROM, where some 6,000 people have now amassed as a result of Skopje refusing to allow anyone except Syrians, Iraqis and Afghans, who can qualify as refugees, through. The situation in the Greek border village of Idomeni is becoming increasingly tense, with clashes breaking out between refugees and migrants from countries such as Iran, Pakistan and Morocco. A man believed to be from Morocco was fatally electrocuted after touching high-power railway cable when he climbed on top of a train. “There will be a solution soon for Idomeni,” said Mouzalas. “We are trying to convince people to return to Athens.”

[..] Mouzalas rejected claims that the Greek government is unwilling to work with Frontex. He said Athens had rejected the idea of Frontex guards patrolling Greece’s border with FYROM but had repeatedly asked for more help from the agency in other areas. “In May, we asked Frontex for 318 people but less than 100 are currently involved in operations,” he said. “On September 25, we asked for 1,600 people and we have so far not received any response.”

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“Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,

I lift my lamp beside the golden door!”

Surprisingly good piece as Bloomberg wakes up to the reality in Greece. But the EU does not, and won’t.

World’s Woes Huddle on Greek Shores as Another Crisis Year Looms (BBG)

Sotiris Alexopoulos has been helping the desperate and destitute spawned by Greece’s economic free fall since he lost his job in 2010. This year, he began catering to a new group of stricken people: the thousands of refugees arriving at the port of Piraeus. “We are like them, we had the same needs,” Alexopoulos, 65, said as he helped distribute food and clothing to some of the 1,400 who had traveled overnight on a ferry from the island of Lesvos, their entry point to Europe. “We are the poor people doing something to help ourselves.” Alexopoulos and the 350-strong network of volunteers mark the nexus of the financial and humanitarian crises stalking the 28-nation European Union. Greece, dependent on international rescue money since 2010, is the soft underbelly of a continent straining to shelter the almost 900,000 asylum-seekers who landed on European shores this year.

As it enters 2016, the country remains as vulnerable to economic catastrophe as it is defenseless against the torrent of people fleeing Syria and other war zones. “Greece isn’t out of the danger zone,” said Panagiotis Pikrammenos, who led a caretaker government in 2012 when Greece’s cash shortage risked unraveling the euro. “The coming months will be a make-or-break moment.” After six years of recession and austerity, the economy is still a mess. Banks are restricting withdrawals, pensions are whittled and unemployment remains around 25 percent. The government is relying on an ever-slimmer majority in parliament to pass more of the legislation required in the most recent aid deal. But at least there was a deal and the bailout money is flowing. The latest spending cuts tied to keeping Greece in the euro are only now kicking in and workers held their second general strike in less than a month this week.

The measures are the result of a dramatic capitulation by Prime Minister Alexis Tsipras at a 17-hour overnight summit in July when his euro-area counterparts refused to budge from their austerity demands. European leaders have long since turned their attention to stemming the flow of people from the war in Syria and, with them, any potential terrorists. Border checks following the Nov. 13 massacre in Paris are effectively undoing Europe’s Schengen agreement on the passport-free movement of people. Before the summer, EU powwows dedicated to refugees passed with a fraction of the attention given to the drama unfolding over Greece. As Tsipras prepared to meet German Chancellor Angela Merkel on April 23, more than 700 migrants drowned when their boat sank off Libya, a harrowing portent of what was to come.

While bureaucrats worked through nights poring over spreadsheets in the spring and early summer, Sakellarios Billiris spent them lifting corpses out of the Aegean. Billiris is the harbor master on Leros, where about 200 refugees – the lucky ones – most days first set foot in the EU after making the perilous trip from Turkey. “We were pulling overnighters throughout these months and we weren’t sitting at a table,” said Billiris, 50. “We were out in the sea, in the cold, carrying bodies.” The Greek Coast Guard is on the front line of Europe’s gathering woes. The refugees keep coming while budget cuts mean paying for fuel and equipment is getting tougher. There’s also the opposition to immigrants in a country where the far-right Golden Dawn party placed third in Greece’s two elections this year. “When you have 500 people outside at your yard yelling, crying, starving and you have some people on the other side yelling ‘immigrants out,’ it’s hard,” said Billiris. “No one at the time saw the immigration crisis with the gravity it needed to be looked at.”

Greece has spent €1.5 billion from its over-stretched budget on rescuing refugees and giving them accommodation, food and health care, Immigration Policy Minister Ioannis Mouzalas said this week. It’s now starting to access the EU money allocated to the country, but it’s not enough, he said.

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