GMO Archives - Page 3 of 5 - The Automatic Earth

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.

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.

…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.”

“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.

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,

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.”

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.

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.

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.

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.

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.

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.

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.

Toxic Wheat, GMOs and the Precautionary Principle

Jul 172016

July 17, 2016 Posted by Raúl Ilargi Meijer at 4:08 pm Finance Tagged with: Bayer, food, GMO, harvest, Monsanto, proof, Roundup, science, Taleb, toxic, wheat 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.

Debt Rattle July 15 2016

Jul 152016

July 15, 2016 Posted by Raúl Ilargi Meijer at 9:01 am Finance Tagged with: biodiversity, China, euro, globalism, GMO, Growth, hunger, Italy, Nice, populism 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.

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.”

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.

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.”

…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.

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.

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.

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”.

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?”

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.

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.

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.

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.

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.”

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.

Debt Rattle March 28 2016

Mar 282016

March 28, 2016 Posted by Raúl Ilargi Meijer at 8:40 am Finance Tagged with: bubble, buybacks, crisis, debt, GMO, Japan, Libya, NIRP, refugees, Yemen 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

“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?

“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.

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.

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.

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.

“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.

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.

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.”

“..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.”

“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.

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.

“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.”

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.”

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.

“..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.

Debt Rattle March 14 2016

Mar 142016

March 14, 2016 Posted by Raúl Ilargi Meijer at 9:45 am Finance Tagged with: buyback, central banks, China, deflation, GMO, Japan, Merkel, negative rates, refugees, surplus 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.

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.”’

“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.

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.

“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.

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.

“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.

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.

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.

“..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.

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.

“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.

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.

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.

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.

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.”

“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.

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.

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.

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.

Debt Rattle December 4 2015

Dec 042015

December 4, 2015 Posted by Raúl Ilargi Meijer at 9:50 am Finance Tagged with: China, distress, Draghi, ECB, euro, GMO, mining, QE, refugees Comments Off

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.”

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.

$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.

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.”

“..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.

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.

“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.

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.”

“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.

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.”

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.

“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.

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.

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.”

“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.

Debt Rattle November 20 2015

Nov 202015

November 20, 2015 Posted by Raúl Ilargi Meijer at 10:28 am Finance Tagged with: bitcoin, China, drones, EU, euro, GMO, homeless, housing, oil, refugees, Syria, VW 6 Responses »

Marjory Collins “Crowds at Pennsylvania Station, New York” Aug 1942

• This Is What Will Kill The EU (Novak)

• Goldman Eyes $20 Oil As Glut Overwhelms Storage Sites (AEP)

• China Has a $1.2 Trillion Ponzi Finance Problem (Bloomberg)

• A Hard Landing in China Could ‘Shake the World’ (Bloomberg)

• The Real Reason Behind China’s Latest ‘Stimulus’ (CNBC)

• China Cracks $64 Billion ‘Underground Bank’ Moving Money Abroad (Bloomberg)

• China’s Yuan May Enter IMF Basket With Lower Share (Reuters)

• Asian And Russian Buyers Desert Prime London Property Market (FT)

• Here’s How the Boring German Housing Market Turned Piping Hot (Bloomberg)

• Volkswagen Faces Pressure In US To Buy Back Older Diesel Cars (Reuters)

• Volkswagen Faces Major Spending Cuts And Regulatory Deadlines (NY Times)

• US Probes VW Supplier Bosch In Cheating Scandal (Reuters)

• Caterpillar’s Depression Has Never Been Worse .. But It Has A Cunning Plan (ZH)

• EU Targets Bitcoin, Anonymous Payments To Curb Terrorism Funding (Reuters)

• Who Are The Traders Buying And Selling ISIS Oil? (Zero Hedge)

• US Drone Operators: ‘Ever Step On Ants, Not Give It Another Thought?’ (Guardian)

• Hottest October On Record Is Bad News For Polar Bears (MarketWatch)

• US Clears GMO Salmon For Human Consumption (Reuters)

• Merkel Confronts Refugee Policy Critics On Decade In Power (Bloomberg)

• Toronto Couple Cancels Big Wedding To Help Sponsor Syrian Refugees (CBC)

• Half of New Yorkers Say They Are Barely or Not Getting By (NY Times)

• Of America’s Half Million Homeless, Nearly A Quarter Are Children (Reuters)

Excellent: “The truth is evil people who commit evil acts transcend economic trigger points, which is why you can get mugged by a poor person the same day that a billionaire banker cheats you out of your retirement savings and a rich terrorist tries to blow up an airliner with a bomb in his pants.”

• This Is What Will Kill The EU (Novak)

It’s always the things you don’t expect that get you. After banking scandals, currency issues, and a Greek/Portugese/Spanish debt crisis just about every six months, the economic and political partnership that is the European Union seems much more likely to fall apart for an entirely different reason after all. That reason is ISIS. The direct cause is actually an extremely divisive and growing dispute about open borders, immigration, and refugee resettlement. But that conflict just became a lot more serious thanks to the horrific ISIS terrorist attacks in Paris Friday night. Now, this discussion has grown and migrated, (pun intended), from a political debate among E.U. elites to the #1 pressing issue on the streets of Europe.

When relatively smaller economic nations like Hungary began closing their borders to migrants and Syrian refugees last month, it could be written off as perhaps an isolated incident. But all bets are off now that France is closing its borders in response to the attacks, even if it is just temporarily. That’s because in so doing, President Francois Hollande has unambiguously connected the border issue with the effort to fight the spread of terror. It’s so obvious that even the most politically uninterested person can see what it means. And just in case the message still isn’t entirely clear to everyone, one of the major stories in Europe today is about how the alleged mastermind of the Paris attacks, Abdelhamid Abaaoud, boasted in videos about how easily he crisscrossed the borders of the E.U. for years.

This is a political nightmare for the statist bureaucrats who have been working for decades to reduce true representative democracy all for the goal of a unified and monolithic economic entity without worrying about being hindered by annoying little things like the will of the people. Before these attacks and the border response, the E.U. simply glossed over dissent and most attempts to challenge its un-elected sovereignty. Its best weapon in that fight has always been using the accusations of racism and xenophobia against those who refused to integrate and obey the E.U. fully and quickly enough in all matters of economics, immigration, and tax law. With a mostly compliant state-sponsored news media on its side, the “racist” and “xenophobic” label has been used the most against Britain’s anti-E.U. UKIP party more and more in recent years.

UKIP does keep gaining in popularity in the U.K., but it still has to fight very hard to beat back those scare tactic accusations. But what do the people who spread accusations of racism and xenophobia do now that more Europeans than ever believe their governments are sacrificing their safety in favor of remaining compliant with E.U. immigration dogma? The simple answer is that they’re in trouble, and no amount of sanctimonious shaming or economic threats will do much good when the majority of the public doesn’t feel safe anymore.

No, Ambrose, OPEC’s pump and dump is not a strategy, it’s despair.

• Goldman Eyes $20 Oil As Glut Overwhelms Storage Sites (AEP)

The world is running out of storage facilities for surging supplies of oil and may soon exhaust tanker space offshore, raising the chances of a violent plunge in crude prices over coming weeks, experts have warned. Goldman Sachs told clients that the increasing glut of oil on the global market has combined with mild weather from a freak El Nino this winter. The twin-effect could send prices plummeting to $20 a barrel, the so-called ‘cash cost’ that forces drillers to abandon production. “Risks of a sharp leg lower remain elevated,” it said. Oil has fallen from $110 a barrel early last year and is hovering near $40 for US crude, and $44 for Brent in Europe. The US investment bank said the overall glut in the commodity markets may take another twelve months to clear.

It cited ‘red flag’ signals on the Shanghai Future Exchange over recent days. Copper contracts point to “imminent weakening” in China’s ‘old economy’ of heavy industry and construction, it said. The warnings came as OPEC producers and Russian companies fight a cut-throat battle for market share in Europe and Asia. Saudi Arabia is shipping crude to Poland and Sweden for the first time, poaching new customers in the Kremlin’s traditional backyard. Iraq is selling its low grade ‘Basra heavy’ crude on global markets for as little as $30 a barrel as the country runs out of operating cash and is forced to cut funding for anti-ISIS militias. Iraq is seeking a large rescue loan from the IMF. “The drop in oil prices is a difficult test for us,” said premier Haider al-Abadi.

It is estimated that at least 100m barrels are now being stored on tankers offshore, waiting for better prices. A queue of 39 vessels carrying 28m barrels is laid up outside the Texas port of Galveston, while the Iranians have a further 30m barrels offshore ready to sell as soon as sanctions are lifted. “The world is floating in oil, and commercial stocks on land are at a record high,” said David Hufton, head of oil brokers PVM Group. “The numbers we are facing now are dreadful. Stocks have been building continuously for two years. This is unprecedented.” “What has saved us so far is that China has been buying 200,000 to 300,000 barrels a day (b/d) for their strategic reserve,” he said.

It is unclear exactly how much more space China may have. The Chinese authorities certainly want to keep building stocks – and do so at bargain prices – since reserves cover just 50 days demand, far short of the 90-day minimum recommended by the International Energy Agency. But the new storage depots in Gansu and Xinjiang will not be ready until the end of the year, at the earliest. Data from the US Energy Department shows that America’s storage sites are 70pc full, in theory leaving room for another 150m barrels. But this is already tight enough to create regional bottlenecks. It will not be sufficient if OPEC continues to flood the global market in a bid to drive out rivals. Excess supply is running near 2m b/d.

I doubt that’s the total number. Try ten times that one.

• China Has a $1.2 Trillion Ponzi Finance Problem (Bloomberg)

Chinese borrowers are taking on record amounts of debt to repay interest on their existing obligations, raising the risk of defaults and adding pressure on policy makers to keep financing costs low. The amount of loans, bonds and shadow finance arranged to cover interest payments will probably rise 5% this year to a record 7.6 trillion yuan ($1.2 trillion), according to Beijing-based Hua Chuang Securities. Dubbed “Ponzi finance” by Hyman Minsky, the use of borrowed funds to repay interest was seen by the late U.S. economist as an unsustainable form of credit growth that could precipitate financial crises. Chinese companies are struggling to generate the cash flow needed to service their obligations as economic growth slows to the weakest pace in 25 years and corporate profits shrink.

While the debt burden has been eased by six central bank interest-rate cuts in 12 months and a tumble in corporate borrowing costs to five-year lows, the number of defaults in China’s onshore corporate bond market has increased to six this year from just one in 2014. “Some Chinese firms have entered the Ponzi stage because return on investment has come down very fast,” said Shi Lei, the Beijing-based head of fixed-income research at Ping An Securities Co., a unit of the nation’s second biggest insurance company. “As a result, leverage will be rising and zombie companies increasing.” China Shanshui Cement became the latest company to default on yuan-denominated domestic notes last week as overcapacity in the industry hurt profits and a shareholder dispute stymied financing.

State-owned steelmaker Sinosteel, which pushed back an interest payment on a bond last month, postponed it again this week. Metrics of corporate health in Asia’s largest economy have deteriorated as growth slowed. The number of Shanghai and Shenzhen-listed companies that have less cash than short-term debt, net losses and contracting revenue has increased to 200 as of June from 115 in the year-earlier period, according to data compiled by Bloomberg. The amount of bad debt among Chinese banks rose 10% in the third quarter from the previous three months to 1.2 trillion yuan, about the size of New Zealand’s economy. Total debt at listed companies has climbed to 141% of common equity, based on a market-capitalization weighted average, the highest level in three years.

It already is.

• A Hard Landing in China Could ‘Shake the World’ (Bloomberg)

China’s slowdown is already playing out across the world, dragging down commodity prices and weighing on trade partners. And that’s while the economy is still growing at about 7%. So imagine what happens in a hard-landing scenario. The crew at Oxford Economics have done just that in a new report that makes stark reading for anyone with a stake in the global economy. China’s economic boom of the past 30 years means it now accounts for 11% of world GDP and around 10% of world trade. For resources, it’s an even bigger player, accounting for 11% of world oil demand and 40 to 70% of demand for other key commodities, according to the Oxford Economics research. Its financial system is massive, with its broad money supply now larger than the U.S.’s and amounting to over 20% of the world’s.

So were China to sneeze, the world may well catch a cold. First to trade. The volume of goods imported into China have already fallen by around 4% in the first three quarters of the year, after rising an average 11% per year from 2004-14. That means China has cut around 0.4 percentage point from world goods trade growth in the nine months to the end of September, after having added an average 1 percentage point a year in the previous decade. The biggest losers are those with the closest trade links and those whose economies are most open. For most advanced economies, their reliance on trade with China is lower, with Germany among the more dependent.

Then there’s the indirect effects as the drag on GDP of China’s trading partners works through the global economy. For instance, Japan would not only suffer from weaker exports to China but also to Korea and other Asian trading partners affected by China’s slowdown, the Oxford Economics research shows. Another transmission is via commodity prices, with any further slowdown in Chinese growth leading to additional price falls, especially as supply has expanded significantly in recent years. That would be bad news for the likes of Australia and Brazil. And here’s another spillover you may not have thought of: One consequence of the plunge in crude prices is that oil exporting countries and their sovereign wealth funds now have less money to invest in advanced economy financial assets.

Making shadow banks look less attractive..

• The Real Reason Behind China’s Latest ‘Stimulus’ (CNBC)

A decision by the People’s Bank of China (PBoC) to lower short-term borrowing costs for banks is not the standard pick-me-up aimed at a weakening economy. Instead, the latest step by the PBoC is an experiment towards finding alternatives to benchmark interest rates whose efficacy has been blunted in recent years by the surge in the shadow banking system as well as removal of limits that tied commercial bank rates to official policy rates, economists say. Late on Thursday, the central bank reduced its Standing Lending Facility (SLF) interest rates, yet another policy tool to inject cash into banks, with the seven-day rate cut to 3.25% and the overnight rate to 2.75% from 5.5% and 4.5%, respectively.

Typically, Chinese monetary stimulus relies on interest rate cuts or reductions in bank reserve requirements, with the lesser-known SLF only being used in anticipation of periods of tight liquidity, such as holidays. The facility hasn’t been used since March. Thursday’s departure from traditional policy tools suggests that the central bank wasn’t necessarily trying to boost economic growth, unlike previous easing episodes. Thursday’s cuts were to “discover the function of the Standard Lending Facility as the ceiling of the interest rate corridor,” according to the PBoC’s statement. Global central banks use the interest corridor system to guide market interest rates towards main policy rates.

When monetary conditions are tight, short-term money market rates move towards the upper end of the corridor as commercial lenders borrow from the central bank. Conversely, when financial markets are awash with cash, the lower end of the corridor ends up guiding policy.

Watch out housing bubbles.

• China Cracks $64 Billion ‘Underground Bank’ Moving Money Abroad (Bloomberg)

China said it cracked the nation’s biggest “underground bank,” which handled 410 billion yuan ($64 billion) of illegal foreign-exchange transactions, as the authorities try to combat corruption and rein in capital outflows that have hit records this year. More than 370 people have been arrested or face lawsuits or other punishment in the case centered in eastern Zhejiang province, the official People’s Daily reported on Friday, citing police officials. The case brought the total for underground banking and money-laundering activities to 800 billion yuan since April, the newspaper said. The probe began in September last year and the police took almost a year to sort through more than 1.3 million suspicious transactions, the state-run Xinhua News Agency reported separately. The authorities froze more than 3,000 bank accounts, Xinhua said.

The case highlights the nation’s struggle to control capital outflows that have helped to send real-estate prices soaring from Vancouver to Sydney – even when Chinese citizens are officially limited to converting $50,000 of yuan per year. Some people may be moving the proceeds of corruption, while others may be concerned about the outlook for the economy and the potential for the yuan to weaken. “The government wants to stem outflows and stabilize the yuan’s exchange rate, but the outflows cannot be stopped unless people change their expectation on yuan depreciation,” said Xi Junyang, a finance professor at Shanghai University of Finance & Economics. Besides illegal banking operations, “a lot of money is leaving the country by legal means,” Xi said.

Xi will probabbly be elated. The yuan goes down because the IMF wants it. Beggar thy neigbor by decree.

• China’s Yuan May Enter IMF Basket With Lower Share (Reuters)

China’s yuan may enter the IMF’s benchmark currency basket at a lower weighting than previously estimated because of changes in how to calculate the make-up of the basket, people briefed on the Fund’s discussions told Reuters. IMF policymakers are expected to add the Chinese currency to the Special Drawing Rights basket later this month, after a campaign by Beijing for the yuan, or renminbi, to have equal billing with the dollar, euro, pound sterling and yen. Two people familiar with IMF deliberations said policymakers were considering changing the way the weights of currencies in the basket are calculated to make export volumes less important and financial flows more important.

China, the world’s largest exporter, lags other countries in financial transactions and such a change would give China’s yuan, also known as the renminbi, a lower share in the basket than under the current formula. The yuan’s inclusion is largely seen as a recognition of China’s political and economic heft and as setting the seal of approval on its economic reforms and would likely not have a major impact on financial markets. IMF staff calculated in July the yuan could have a weighting of about 14 to 16% and HSBC estimated it would have about 14% under the current formula. “I would say that it’s too high,” one person briefed on the IMF discussions said, referring to the estimates.

A second person, an official of a major Asian country who saw the IMF staff report, said: “It’s barely a two-digit rate, just the minimum (rate to be a double-digit one).” The SDR basket determines the mix of currencies that countries like Greece can receive as IMF disbursements and economists expect that inclusion will boost demand for the yuan. A lower weighting may crimp demand slightly. Last set in 2010, the basket is currently 41.9% dollar, 37.4% euro, 11.3% sterling and 9.4% yen. Capital Economics economist Andrew Kenningham said the methodology change would impact the yuan the most, while the other countries would maintain similar ratios. “The renminbi is completely different because despite its inclusion in the SDR, it’s not really a fully convertible currency and has very thin, much less liquid markets,” he said.

The Chinese will soon follow, Beijing’s launching crackdowns.

• Asian And Russian Buyers Desert Prime London Property Market (FT)

Asian and Russian homebuyers who once made up a third of those buying property in London’s wealthiest areas have largely deserted the market this year as emerging market currencies plunged against sterling. Properties in leafy boroughs such as Kensington, where the average home price is £1.5m, have been a sought-after asset in recent years among wealthy buyers seeking a base or an investment in a global, politically stable city. But that has changed in 2015, in a shift that estate agents said was partly down to turmoil in emerging markets and partly to a change in stamp duty that means buyers of the priciest homes pay substantially more tax. Asian homebuyers made up 26% of those buying homes in areas such as Kensington, Chelsea and Belgravia in the first three-quarters of last year, but that number was down to 6% in the same period of 2015, according to figures compiled by Hamptons, a high-end estate agent.

Chinese buyers were down from 9% of the total to 3%. Russians made up just 1% of buyers in the prime London areas, which also include Knightsbridge and Mayfair, in the first three-quarters of 2015, down from 7% a year earlier. The fall has coincided with a period of turbulence in Chinese equity markets, which spread to other Asian emerging markets and prompted falls in the region’s currencies against sterling. China’s renminbi is down 6.6% since April. In Russia, the war in Ukraine and international sanctions, together with lower oil prices, have taken a big toll on the country’s economy and currency. The rouble has shed 25% against sterling since April and is down 53% over the past two years. [..] Total transactions in prime London boroughs were down 19 per cent in the first three-quarters of 2015 against a year earlier, according to figures from LonRes, with agents blaming the stamp duty rise.

Germany catches the Anglo-Saxon housing disease.

• Here’s How the Boring German Housing Market Turned Piping Hot (Bloomberg)

Germany’s housing market is hot. Rents are rising in big cities including Berlin and Hamburg as young people seeking work move there from rural areas and elsewhere in Europe. Construction, however, has been slow to catch up, which has led to housing shortages and made leasing apartments a bonanza for landlords. Low interest rates make it cheaper than ever for companies to buy apartments, fueling record acquisitions by landlords including the country’s biggest, Vonovia. Portfolio sales rose from €5 billion in 2011 to €18.4 billion in the first nine months of this year, according to data compiled by Savills.

While shopping-mall owners and office developers dominate the listed-property sector in other countries, Germany’s residential property market is lucrative for landlords because it’s a nation of renters – and Germans tend to pay their rent on time. The surge in mergers and acquisitions, coupled with rising stocks, have allowed the market value of Germany’s publicly traded landlords to grow tenfold since 2012. The top two – Vonovia and Deutsche Wohnen – are now among the world’s biggest owners of homes, surpassing peers in the U.S. What’s more, Vonovia wants to buy its rival to create Europe’s No. 2 property company. With about 1 million refugees expected to enter Germany this year, the most of any European country, demand for apartments is unlikely to shrink anytime soon.

At what prices?

• Volkswagen Faces Pressure In US To Buy Back Older Diesel Cars (Reuters)

Volkswagen, which is set to provide detailed plans to fix vehicles that do not comply with U.S. emissions standards, faced more pressure on Thursday from officials in Washington and California to buy back older diesel cars. A California Air Resources Board spokesman said officials at the automaker are scheduled to meet Friday with CARB and the U.S. Environmental Protection Agency to present detailed proposals for recalling and fixing about 482,000 vehicles sold in the United States with diesel engines that emit more smog-forming pollutants than allowed by law. California has set a Nov. 20 deadline for Volkswagen to come up with a plan to fix the diesel cars affected by its rigging of emissions tests.

The carmaker said in September that around 11 million diesel powered cars were affected worldwide, including 482,000 in the United States. “I am personally hopeful we will be able to announce something soon about the remedies … and which we are discussing with the agencies in upcoming days,” Michael Horn, head of Volkswagen’s U.S. operations, said at the Los Angeles Auto Show on Wednesday. The CARB spokesman also confirmed that the agency’s head, Mary Nichols, told the German daily Handelsblatt that Volkswagen might have to buy back some of the older diesel models. “I think it is quite likely that they will end up buying back at least some portion of the fleet from the current owners,” the paper quoted Nichols as saying in an interview to be published on Friday.

Newer cars might get easy software fixes and medium generation ones might need software and hardware components to fix the issue, Nichols said, according to the paper. But older cars might have to be repurchased rather than fitted with new pollution control devices. Separately, U.S. Senators Ed Markey of Massachusetts and Richard Blumenthal of Connecticut on Thursday released a letter calling on the automaker to buy back diesel vehicles that don’t meet pollution standards. The lawmakers noted that Volkswagen had signaled it could buy back cars sold in Europe that have inaccurate carbon dioxide emissions ratings.

The California Air Resources Board is our best hope.

• Volkswagen Faces Major Spending Cuts And Regulatory Deadlines (NY Times)

Volkswagen is expected to announce substantial spending cuts on Friday as the carmaker braces for the financial impact of its emissions-cheating crisis — potentially setting up a confrontation with its powerful labor representatives. Volkswagen also faces a Friday deadline to inform regulators in the United States of how it plans to bring its diesel cars there into compliance with air-quality standards. The company admitted in September that it had installed software in the cars that was meant to enable the vehicles to cheat on emissions tests. That scandal, which involves about 11 million vehicles worldwide — most of them in Europe — is a big reason Volkswagen is now forced to cut costs.

The company must pay to modify the cars and could face billions of dollars in fines and legal settlements. Senior officials from the United States Environmental Protection Agency and the California Air Resources Board plan to meet with representatives from Volkswagen and its Audi division on Thursday and Friday to review the company’s proposed solutions, according to a spokeswoman for the E.P.A. Volkswagen is also under pressure to demonstrate to United States authorities that it is serious about identifying the people responsible for installing the software. Of the vehicles affected worldwide, about 500,000 are in the United States.

In addition, Volkswagen has admitted making exaggerated claims about the carbon dioxide output and fuel economy for 800,000 more cars in Europe. The Friday deadline was set by the California Air Resources Board, which helped to expose Volkswagen’s use of the so-called defeat software in its diesel vehicles. CARB, as it is known, is a particularly influential regulator in part because of the size of the California car market and also because it sets some of the most stringent emissions standards in the United States.

“A garage mechanic who soups up a car so a bank robber can make his getaway is participating in the crime.”

• US Probes VW Supplier Bosch In Cheating Scandal (Reuters)

U.S. authorities are investigating German auto supplier Robert Bosch over its role in Volkswagen’s massive scheme to cheat U.S. emission standards, according to people familiar with the matter. Federal prosecutors with the U.S. Department of Justice are examining whether Bosch, the world’s largest auto supplier, knew or participated in Volkswagen’s years-long efforts to circumvent U.S. diesel emissions tests, the people said. Bosch built key components in the diesel engine used in six Volkswagen models and one Audi model that the automaker has admitted to rigging to defeat emissions tests. Federal authorities are also investigating how deeply the scheme permeated VW’s hierarchy, according to people familiar with the matter.

The probe is at an early stage and there is no indication that U.S. prosecutors have found evidence of wrongdoing at Bosch, the people added, asking not to be named because the matter is not public. Volkswagen has admitted to installing software that allowed its 2.0 liter diesel models to pass U.S. clean air tests, while shutting off emissions control systems when its diesel cars are actually on the road. VW said in September that around 11 million diesel powered cars were affected worldwide, including 482,000 in the United States. Bosch provides the engine control module, called EDC17, and basic software for nearly all the four-cylinder diesel cars sold in North America, including by Volkswagen, BMW and Daimler’s Mercedes-Benz.

Those systems regulate how a vehicle cleans burned-up fuel before it is expelled as exhaust. Volkswagen had the engine software modified to turn on the vehicle’s emission control system when it was being tested in the lab, then turn it off when the vehicle was on the road, according to U.S. regulators. For authorities to bring charges against Bosch, they would have to prove the supplier knew that their technology was being used by Volkswagen to evade emissions requirements, said Daniel Riesel, an environmental attorney at Sive, Paget & Riesel P.C. “If you know that a crime is being committed and you actively facilitate part of the crime you are on the hook,” Riesel said. “A garage mechanic who soups up a car so a bank robber can make his getaway is participating in the crime.”

Having fun on the way down. Way down.

• Caterpillar’s Depression Has Never Been Worse .. But It Has A Cunning Plan (ZH)

Moments ago Caterpillar reported its latest monthly retail sales statistics and the numbers have never been worse: not only is the dead CAT bounce in US sales finally over, tumbling -8% Y/Y, after a -4% decline in September and hugging the flatline for the past few months, but sales elsewhere around the globe were a complete debacle: Asia/Pacific (mostly China) was down -28%, a dramatic drop from the -17% a month ago, EAME dropping -13%, and Latin America down -36%…

… but global retail sales just posted a massive -16% drop in the past month, after dropping 9% a year ago and another 12% in 2013, this was the biggest annual drop since early 2010. As the chart below shows, CAT has now suffered a record 35 months, or nearly 3 years, of consecutive declining annual retail sales – something unprecedented in company history, and set to surpass the “only” 19 months of decling during the great financial crisis by a factor of two!

Worse, with the market no longer rewarding stock buybacks, Caterpillar suddenly finds itself flailing in the gale strength winds of what nobody can claims any longer is not a global industrial depression. However, there is good news – while Caterpillar’s revenues and cash flows may be plummeting with every passing month, at least the company has a cunning plan how to recover some inventory. According to the WSJ, Caterpillar is eager to reassure shareholders it won’t get burned on equipment leased to customers in China even as the economy cools there. CAT Financial Services President Kent Adams said during a conference call on Tuesday that the company keeps tabs on the position of machinery electronically through its Product Link system.

“If a customer falls behind, we have the ability to derate the engine or turn the engine off, and we’ve set up a legal presence in all of the provinces of China.” In other words, any and all Chinese lessors who fall behind on their payments will suddenly find their excavator’s engine shut down and no longer operable, stuck in the middle of a mine, quarry, or construction site with a paperweight weighing dozens of tons.

Sliding scales. There’s no proof Bitcoin is used this way.

• EU Targets Bitcoin, Anonymous Payments To Curb Terrorism Funding (Reuters)

EU countries plan a crackdown on virtual currencies and anonymous payments made online and via pre-paid cards in a bid to tackle terrorism financing after the Paris attacks. EU interior and justice ministers will gather in Brussels on Friday for a crisis meeting called after the Paris carnage of last weekend. They will urge the European Commission to propose measures to “strengthen controls of non-banking payment methods such as electronic/anonymous payments and virtual currencies and transfers of gold, precious metals, by pre-paid cards,” draft conclusions of the meeting said. Bitcoin is the most common virtual currency and is used as a vehicle for moving money around the world quickly and anonymously via the web without the need for third-party verification. Electronic anonymous payments can be made also with pre-paid debit cards purchased in stores as gift cards. EU ministers also plan “to curb more effectively the illicit trade in cultural goods,” the draft document said.

No reason to doubt ‘we’ know who they are.

• Who Are The Traders Buying And Selling ISIS Oil? (Zero Hedge)

[..] what we have been wondering for months and what we hope some enterprising journalist will soon answer, is just who are the commodity trading firms that have been so generously buying millions of smuggled oil barrels procured by the Islamic State at massive discounts to market, and then reselling them to other interested parties. In other words, who are the middlemen. What we do know is who they may be: they are the same names that were quite prominent in the market in September when Glencore had its first, and certainly not last, near death experience: the Glencores, the Vitols, the Trafiguras, the Nobels, the Mercurias of the world.

To be sure, funding terrorist states is not something that some of the most prominent names in the list above have shied away from in the past. Which one (or ones) are the guilty parties – those who have openly breached terrorism funding laws – we don’t know: it may be one, or more of the above, or someone totally different. At this point, however, three things are certain: whoever the commodity trading house may be that is paying ISIS-affiliated “innocent civilians” hundreds of millions of dollars for their products, they are perfect aware just who the source of this deeply discounted crude is. Crude so deeply discounted, in fact, it results in massive profits for the enterprising middleman who are engaging in openly criminal transactions.

The second certainty: whoever said middleman is, it is very well known to US intelligence services such as the NSA and CIA, and thus to the Pentagon, and thus, the US government. The third certainty is that while the US, and Russia, and now France, are all very theatrically bombing something in the Syrian desert (nobody really knows what), the funding of ISIS continues unabated as someone keeps buying ISIS oil. We wonder how long until someone finally asks the all important question regarding the Islamic State: who is the commodity trader breaching every known law of funding terrorism when buying ISIS crude, almost certainly with the tacit approval by various “western alliance” governments, and why is it that these governments have allowed said middleman to continue funding ISIS for as long as it has?

Sickening. Shooting little children video game style.

• US Drone Operators: ‘Ever Step On Ants, Not Give It Another Thought?’ (Guardian)

When Michael Haas, a former senior airman with the US air force, looks back on the missions he flew over Afghanistan and other conflict zones in a six-year career operating military drones, one of the things he remembers most vividly is the colorful language airmen would use to describe their targets. A team of three would be sitting, he recalls, in a ground control station in Creech air force base outside Las Vegas, staring at computer screens on to which images would be beamed back from high-powered sensors on Predator drones thousands of miles away. The aim of the missions was to track, and when the conditions were deemed right, kill suspected insurgents. That’s not how they put it, though. They would talk about “cutting the grass before it grows out of control”, or “pulling the weeds before they overrun the lawn”.

And then there were the children. The airmen would be flying the Predators over a village in the tribal areas of Pakistan, say, when a series of smaller black shadows would appear across their screens – telling them that kids were at the scene. They called them “fun-sized terrorists”. Haas is one of four former air force drone operators and technicians who as a group have come forward to the Guardian to register their opposition to the ongoing reliance on the technology as the US military’s modern weaponry of choice. Between them, the four men clocked up more than 20 years of direct experience at the coalface of lethal drone programs and were credited with having assisted in the targeted killings of hundreds of people in conflict zones – many of them almost certainly civilians.

As a senior airman in the 15th reconnaissance squadron and 3rd special operations squadron from 2005 to 2011 – a period straddling the presidencies of George W Bush and Barack Obama – Haas participated in targeted killing runs from his computer in Creech that terminated the lives of insurgents in Afghanistan almost 8,000 miles away. He was a sensor operator, controlling the cameras, lasers and other information-gathering equipment on Predator and Reaper drones as well as being responsible for guiding Hellfire missiles to their targets once the pilot sitting next to him had pulled the trigger. Haas looks too youthful to be burdened by such enormous issues. Yet the existential sensation of killing someone by manipulating a computer joystick has left a deep and lasting impression on him.

“Ever step on ants and never give it another thought? That’s what you are made to think of the targets – as just black blobs on a screen. You start to do these psychological gymnastics to make it easier to do what you have to do – they deserved it, they chose their side. You had to kill part of your conscience to keep doing your job every day – and ignore those voices telling you this wasn’t right.”

Lowball 101: “There are currently an estimated 22,000 to 31,000 polar bears globally, but that number could shrink by as much as 30% by 2050..”

• Hottest October On Record Is Bad News For Polar Bears (MarketWatch)

If the month of October felt unusually hot, that’s because it was. The average temperature over land and ocean surfaces was the highest since records began in 1880, according to the National Oceanic and Atmospheric Administration. As the chart below illustrates, Africa and Australia had their hottest Octobers since records began, while must of the rest of the world baked in higher-than-average temperatures, said the NOAA in its October Global Analysis report. Among the report’s other findings, U.S. had its warmest October since 1963, and fourth-warmest since record keeping began in 1895. In South America, northern and central areas had warmer-than-average conditions, while southern areas had much cooler-than-average temperatures.

Parts of Argentina set new monthly record low temperatures. In Europe, Denmark had its driest October since 1972, while Latvia had its driest October on record. At the same time, Eastern Europe and areas of western Russia had cooler-than-average temperatures. Much of Africa was hotter-than-average in the month, yielding the highest October for the continent on record. Australia had its warmest October since record keeping started in 1910, while the departure from the average was also the highest for any month on record. Meanwhile, Arctic sea ice extent was 13.4% below the 1981 to 2010 average, marking the sixth smallest October since satellite records first began in 1979. Extent is the area measured in square miles that has at least some ice on it.

That’s bad news for polar bears, which on Thursday were added to a list of endangered species by a conservation watchdog. Polar bears are highly vulnerable to climate change as it is rapidly eroding their sea ice habitat, according to the International Union for Conservation of Nature (IUCN). There are currently an estimated 22,000 to 31,000 polar bears globally, but that number could shrink by as much as 30% by 2050, if they continue to lose the floating ice that allows them to hunt seals, said the IUCN.

Mary Shelley’s laughing.

• US Clears GMO Salmon For Human Consumption (Reuters)

U.S. health regulators on Thursday cleared the way for a type of genetically engineered Atlantic salmon to be farmed for human consumption – the first such approval for an animal whose DNA has been scientifically modified. Five years ago, the U.S. Food and Drug Administration first declared the product, made by Massachusetts-based AquaBounty Technologies, to be as safe as conventional farm-raised Atlantic salmon. AquaBounty’s product will not require special labeling because it is nutritionally equivalent to conventional farm-raised Atlantic salmon, the FDA said on Thursday.AquaBounty developed the salmon by altering its genes so that it would grow faster than farmed salmon, and expects it will take about two more years to reach consumers’ plates as it works out distribution.

AquaBounty is majority owned by Intrexon Corp, whose shares were up 7.3% at $37.55 in afternoon trading. AquaBounty says its salmon can grow to market size in half the time of conventional salmon, saving time and resources. The fish is essentially Atlantic salmon with a Pacific salmon gene for faster growth and a gene from the eel-like ocean pout that promotes year-round growth. Activist groups have expressed concerns that genetically modified foods may pose risks to the environment or public health. Several on Thursday said they would oppose the sale of engineered salmon to the public, while some retailers said they would not carry the fish on store shelves.

She’s fine for now, but what if there’s attacks in Germany?

• Merkel Confronts Refugee Policy Critics On Decade In Power (Bloomberg)

Angela Merkel heads to Bavaria on Friday for an appointment with some of the most persistent domestic critics of her refugee policy, in a test of her staying power just before her 10th anniversary in office. As terrorism fears add to Europe’s refugee crisis, the German chancellor’s address to the Christian Social Union will seek to preserve domestic harmony as she pursues international diplomacy to secure the region’s outer border. While Merkel is likely to reaffirm her goal of limiting the influx to Germany, she won’t offer the cap on migration that some in the CSU want, according to a person familiar with her thinking. It’s part of the balancing act as Merkel stakes her political future on persuading Germans they can cope with the biggest influx of migrants and refugees since World War II, putting at risk the standing she’s built up since taking the oath of office a decade ago Sunday.

“There is a lot of grumbling” within Merkel’s faction about her handling of the crisis as she pursues her humanitarian convictions, said Jan Kallmorgen, a partner at political consultancy Interel in Berlin. Her position is strengthened, though, because she’s “overwhelmingly respected” abroad and “the only one who has the international standing to work with other leaders” beyond the European Union, he said. With at least 800,000 asylum seekers expected in Germany this year, Merkel’s stance that the country is morally and legally obliged to accept them has spurred resistance in Bavaria, the main entry point. Merkel mollified Bavarian premier and CSU head Horst Seehofer with an agreement this month to restrict economic migrants from regions including the Balkans. [..]

As towns and cities struggle to shelter and feed refugees and winter approaches, support for Merkel’s CDU-CSU bloc has declined in polls while Alternative for Germany, or AfD, which advocates immigration limits, has gained. The CDU stumbled to 37.5% from 42% in September, while the AfD has doubled its support to 7%, according to an Allensbach poll for Frankfurter Allgemeine Zeitung newspaper. The Social Democrats, Merkel’s junior coalition partner, was unchanged at 26% in the Nov. 1-12 poll. Merkel’s poll numbers remain well above the lows reached at the height of the euro area’s debt crisis, giving her the clout to stand firm toward her Bavarian regional ally.

Cool people.

• Toronto Couple Cancels Big Wedding To Help Sponsor Syrian Refugees (CBC)

A Toronto couple has cancelled their plans for a big, expensive wedding and is instead putting the money toward sponsoring a family of Syrian refugees. Samantha Jackson and Farzin Yousefian were planning to have a traditional wedding with all the trimmings in March that would have cost tens of thousands of dollars. They had already booked a venue, hired caterers and invited their family and friends. But in September, they saw the pictures of three-year-old Syrian refugee Alan Kurdi’s lifeless body washed up on a Turkish beach. The couple cancelled their plans and instead put the wedding funds towards sponsoring a Syrian refugee family of four.

“We thought this really has to be an opportunity for us to really use our wedding as a platform, as a way to make a difference alongside our friends and family in what has obviously become an absolutely outstanding humanitarian crisis,” Jackson told CBC News. Jackson is a PhD student at Ryerson University, where she studies refugee health care policy and volunteers with the Ryerson University Lifeline Syria Challenge, which raises funds to sponsor refugees in Toronto. While planning their wedding, she and Yousefian would often talk about the global refugee crisis and wonder if there was anything they could do to help. “When there’s such a dire situation, it’s easy to become overwhelmed about thinking of ways to contribute,” Yousefian said.

“We just thought, wait a second, there’s a better way to do this. Given the circumstances, we need to turn the focus on the crisis and raise awareness and funds.” The couple tied the knot last month in a small ceremony at city hall. In lieu of wedding presents, friends and family donated to the cause. “I think the best part about this whole process has been seeing people’s reactions and then seeing just how thrilled they are for the idea and how excited they are about finding a way to contribute as well and to help us contribute,” Yousefian said. “We owe it all to our friends and family. Without them, this really couldn’t have happened a short time frame.”

All these bubble cities suffer the same thing.

• Half of New Yorkers Say They Are Barely or Not Getting By (NY Times)

Half of New York City residents say they are struggling economically, making ends meet just barely, if at all, and most feel sharp uncertainty about the future of the city’s next generation, a new poll shows. The poll, conducted by The New York Times and Siena College, shows great disparities in quality of life among the city’s five boroughs. The stresses weighing on New Yorkers vary widely, from the Bronx, where residents feel acute concern about access to jobs and educational opportunity, to Staten Island, where one in five report recently experiencing vandalism or theft. But an atmosphere of economic anxiety pervades all areas of the city: 51% of New Yorkers said they were either just getting by or finding it difficult to do so.

Even in Manhattan, three in 10 said they were just getting by. (58% said they were doing all right or thriving financially — the highest response of the five boroughs.) In some respects, the poll echoed the “tale of two cities” theme of Mayor Bill de Blasio’s 2013 campaign: Residents of the Bronx and Brooklyn shared the most pronounced sense of economic insecurity, and the lowest confidence in local government and the police — a distinctly different experience from the rest of the city. In those boroughs, nearly three in five residents said they were straining to make ends meet. In the Bronx, 36% said there had been times in the past year when they did not have the money to buy enough food for their family; only one in five said they and their neighbors had good or excellent access to suitable jobs.

But if the city appears divided into broad camps of haves and have-nots, it was, perhaps surprisingly, the less privileged segments of New York that shared the most positive outlook on the future. Four in 10 Brooklyn residents said their neighborhood was getting better, and 36% of Bronx residents said the same. Manhattanites and Staten Islanders were most likely to say things were getting worse in their area.

The land of the …?!

• Of America’s Half Million Homeless, Nearly A Quarter Are Children (Reuters)

More than 500,000 people – a quarter of them children – were homeless in the United States this year amid scarce affordable housing across much of the nation, according to a study released on Thursday. The report, from the U.S. Department of Housing and Urban Development (HUD), said the number was down slightly from 2014. Many U.S. cities are confronting a sluggish economic recovery, stagnant or falling wages among the lowest-income earners and budget constraints for social welfare programs. Los Angeles, Seattle, Portland, Oregon and Hawaii have all recently declared emergencies over the rise of homelessness, and on Thursday Seattle’s mayor toured a new encampment for his city’s dispossessed. “Despite national estimates, New York City continues to experience near record homelessness,” said Giselle Routhier at the Coalition for the Homeless.

According to HUD’s latest tally, nearly 565,000 people were living on the streets in cars, in homeless shelters or in subsidized transitional housing during a one-night national survey in January. Nearly one-fourth were aged 18 or under. That number was down 2% from the previous year’s count and 11% from 2007, HUD said. The actual U.S. homeless population is likely higher than HUD’s snapshot suggests because many people living without the means to put a roof over their heads are beyond the reach of the survey, sleeping on a friend’s couch or a relative’s basement. HUD reported separately this month that roughly 1.49 million individuals used a shelter in 2014, up 4.6% from 2013, agency spokeswoman Heather Fluit said.

Debt Rattle October 29 2015

Oct 292015

October 29, 2015 Posted by Raúl Ilargi Meijer at 10:22 am Finance Tagged with: Brexit, crash, drowning, Fed, GMO, Interest Rate, oil, refugees, smuggling, storage 1 Response »

Harris&Ewing National Emergency War Garden Commission display, Wash. DC 1918

• Fed Keeps Interest Rates Unchanged But Hints At December Rise (Guardian)

• Fed Keeps December Rate Hike in Play (Hilsenrath)

• The Death Of Monetary Policy In 1 Dismal Chart (Zero Hedge)

• Inflation Fixated Central Banks Have Lost Their Way (Stephen Roach)

• The Unnatural Rate Of Interest -Ultra Wonkish- (Steve Keen)

• Britain Is Heading For Another 2008 Crash: Here’s Why (David Graeber)

• Paris Climate Deal To Ignite A $90 Trillion Energy Revolution (AEP)

• China Running Out Of Strategic Oil Reserve Space (Reuters)

• Nigel Farage Rages At EU’s Modern Day “Brezhnev Doctrine” (Zero Hedge)

• British Bookmaker Doubles Probability of Exit From EU (Bloomberg)

• Putin Tests English Debt Law as Ukraine Feud Heads to London Court (Bloomberg)

• European Parliament Opposes National Bans on GMO-Food Imports (Bloomberg)

• Germany To Oblige Banks To Offer Accounts To Refugees (Reuters)

• Inside Europe’s Migrant-Smuggling Rings (WSJ)

• Three Migrants Drown Off Lesvos, Coastguard Rescues 242 As Boat Sinks (Reuters)

• At Least Five Refugees, Including Four Children, Drown In Aegean (AP)

• Dozens Of Refugees Missing After Boat Sinks Off Lesvos (AP)

December is Yellen’s final chance to restore credibility.

• Fed Keeps Interest Rates Unchanged But Hints At December Rise (Guardian)

The Federal Reserve on Wednesday kept interest rates unchanged at their record low of near-zero, but raised the likelihood of a rate hike in December by dropping previous warnings about the fragility of the global economy. Following a two-day meeting in Washington, Fed policymakers voted to leave rates at 0-0.25% – where they have been for the seven years since the financial crisis. However, the bank’s Federal Open Market Committee (FOMC), which sets the rate, significantly raised the prospect of a historic rate rise at its next meeting in December by removing cautious statements about unstable international markets could adversely effect the US economy.

In September, following concerns about the health of the Chinese economy, the committee said: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” This was modified on Wednesday to: “The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments.” The committee specifically pointed towards the possibility of raising rates at its December meeting – the last of 2015.

“In determining whether it will be appropriate to raise [rates] at its next meeting, the committee will assess progress – both realized and expected – toward its objectives of maximum employment and 2% inflation,” it said in the statement. Nine out of 10 FOMC members voted to keep rates unchanged. That is the same proportion as in September with Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, being the only member to push for a 25 basis points increase.

Does having a mouthpiece at the WSJ give the Fed more credibility?

• Fed Keeps December Rate Hike in Play (Hilsenrath)

Federal Reserve officials explicitly said they might raise short-term interest rates in December, pushing back against investors who have bet that the central bank wouldn’t move this year. The message appeared to have the desired effect. Before the Fed released its policy statement Wednesday, traders in futures markets put about a 1-in-3 probability on a Fed rate increase this year; after the release, that probability rose to almost 1-in-2. While the Fed kept rates steady after its two-day meeting this week, investors appeared to welcome a vote of confidence in the economy from the central bank. Top Fed officials have been saying for months they believed the economy was nearly strong enough to tolerate an increase in the benchmark short-term rate from near zero, where it has been since December 2008. But they have hesitated to move.

The last instance was in September, when the Fed pointed to worries about turbulence in financial markets and uncertainties about growth overseas—particularly in China—as reasons to stay put. “They are trying to tell us that December is still their base case,” said Roberto Perli, an analyst at Cornerstone Macro, a research firm that advises investors. Market and international developments have turned in the Fed’s favor in recent weeks. The People’s Bank of China last week cut short-term lending rates in an effort to boost growth in the world’s second-largest economy. ECB President Mario Draghi suggested he might extend a bond-purchase program in an effort to stimulate his region’s economic growth rate. The moves sparked a global stock-market rally and could support world-wide growth.

The Dow is up 6% since the Fed met last month, a sign financial-market stress has dissipated. The Fed responded Wednesday by playing down its earlier-stated concerns. Officials struck from their policy statement a sentence introduced in September that pointed to market turbulence and global developments as potential restraints on U.S. economic activity. As those concerns recede, the Fed has fewer impediments standing in the way of a rate increase. Though not mentioned in their statement, officials likely took note in their meeting of the recent progress toward an agreement between Congress and the White House on a federal budget and raising the government’s borrowing limit.

If enacted, the budget and debt-limit resolution would reduce uncertainty about the fiscal outlook and boost government spending and short-term economic growth. Officials pointed specifically in the policy statement to their Dec. 15-16 meeting as a moment when they might act on rates. Individual officials have signaled before that they expected to move before year-end, but the Fed’s policy-making committee hadn’t previously pointed so explicitly in an official statement to the potential timing of a rate increase.

Do keep this in mind: “..when the world is offering ‘money’ for free, one can only surmise its worth is also close to zero…”

• The Death Of Monetary Policy In 1 Dismal Chart (Zero Hedge)

Perhaps “The Japanification of Monetary Policy” would have been a more appropriate title… “well it didn’t work for them, so we should all try more of it” appears to be the repost of policy-makers worldwide which, inevitably, will lead to the total collpase of their credibility (and th every ‘faith’ of the world’s investors shattered). As the old adage goes “you get what you pay for” and when the world is offering ‘money’ for free, one can only surmise its worth is also close to zero…

TBTF banks like the Fed clueless.

• Inflation Fixated Central Banks Have Lost Their Way (Stephen Roach)

Fixated on inflation targeting in a world without inflation, central banks have lost their way. With benchmark interest rates stuck at the dreaded zero bound, monetary policy has been transformed from an agent of price stability into an engine of financial instability. A new approach is desperately needed. The US Federal Reserve exemplifies this policy dilemma. After the Federal Open Market Committee decided in September to defer yet again the start of its long-awaited normalization of monetary policy, its inflation doves are openly campaigning for another delay. For the inflation-targeting purists, the argument seems impeccable. The headline consumer-price index (CPI) is near zero, and “core” or underlying inflation – the Fed’s favorite indicator – remains significantly below the seemingly sacrosanct 2% target.

With a long-anemic recovery looking shaky again, the doves contend that there is no reason to rush ahead with interest-rate hikes. Of course, there is more to it than that. Because monetary policy operates with lags, central banks must avoid fixating on the here and now, and instead use imperfect forecasts to anticipate the future effects of their decisions. In the Fed’s case, the presumption that the US will soon approach full employment has caused the so-called dual mandate to collapse into one target: getting inflation back to 2%. Here, the Fed is making a fatal mistake, as it relies heavily on a timeworn inflation-forecasting methodology that filters out the “special factors” driving the often volatile prices of goods like food and energy. The logic is that the price fluctuations will eventually subside, and headline price indicators will converge on the core rate of inflation.

This approach failed spectacularly when it was adopted in the 1970s, causing the Fed to underestimate virulent inflation. And it is failing today, leading the Fed consistently to overestimate underlying inflation. Indeed, with oil prices having plunged by 50% over the past year, the Fed stubbornly maintains that faster price growth – and the precious inflation rate of 2% – is just around the corner. Missing from this logic is an appreciation of the new and powerful global forces that are bearing down on inflation. According to the International Monetary Fund’s latest outlook, the price deflator for all advanced economies should increase by just 1.5% annually, on average, from now to 2020 – not much higher than the crisis-depressed 1.1% pace of the last six years.

Steve vs Krugman redux.

• The Unnatural Rate Of Interest -Ultra Wonkish- (Steve Keen)

Paul Krugman’s latest column—“Check Out Our Low, Low (Natural) Rates” (which he didn’t flag as “Wonkish”, even though it is so in spades)—noted that the “natural real rate of interest” was falling, and that this justified the low interest rate set by the Federal Reserve. And this made me think about Karl Marx. Why? Because the “natural real rate of interest” is an unobservable entity—in that it’s not a rate you’ll find charged by any bank, but a rate that has to be statistically derived. But more importantly, it is a fantasy: there is no such thing. However it is required as part of a theory in which the economy returns to equilibrium after it is hit by an “exogenous shock”. So Neoclassical economists—meaning both “New Classicals” and “New Keynesians”, as the two fractious clans in this economic tribe call themselves—have to go in search of this phantom.

Marx had an equally important unobservable fantasy at the heart of his attempt to produce a mathematical version of his own economics: the “Labor Theory of Value”. This is the proposition that all value—and hence all profit—emanates solely from labor. Machinery, Marx asserted, simply passed on the value that had been transferred to it by the labor expended in making it. It is mathematically impossible to reconcile this proposition with the Marxist belief that profit rates in different industries converge (for competitive reasons), when you acknowledge that different industries have different ratios of capital to labor. But Marxist economists have tied themselves up in logical (and illogical) knots over this fantasy for well over a century. However Marxists have something over Neoclassicals in this regard: at least they’re aware that there is an issue.

Even though they continue to cling to this belief, they don’t shy away from acknowledging the conundrum. Neoclassicals, on the other hand, don’t even realize that they might have a problem. Some Marxists attempted to circumvent their conundrum on statistical grounds, while making the dubious assumption that the actual wage corresponded to an important concept in Marxian economics, the “value of labor power” (which strictly speaking is a subsistence wage). The great British scholar Ronald Meek rightly derided this fudge, stating that he was “unconvinced by … redefining `the value of labour-power’ so that it becomes equivalent … to any wage which the workers happen to be getting” The real problem for Marxists was that their model of how the economy operated was simply wrong. Statistical work on this chimera wasn’t going to rescue them from that problem.

Watch video at the link.

• Britain Is Heading For Another 2008 Crash: Here’s Why (David Graeber)

British public life has always been riddled with taboos, and nowhere is this more true than in the realm of economics. You can say anything you like about sex nowadays, but the moment the topic turns to fiscal policy, there are endless things that everyone knows, that are even written up in textbooks and scholarly articles, but no one is supposed to talk about in public. It’s a real problem. Because of these taboos, it’s impossible to talk about the real reasons for the 2008 crash, and this makes it almost certain something like it will happen again. I’d like to talk today about the greatest taboo of all. Let’s call it the Peter-Paul principle: the less the government is in debt, the more everybody else is. I call it this because it’s based on very simple mathematics. Say there are 40 poker chips. Peter holds half, Paul the other. Obviously if Peter gets 10 more, Paul has 10 less. Now look at this: it’s a diagram of the balance between the public and private sectors in our economy:

Notice how the pattern is symmetrical? The top is an exact mirror of the bottom. This is what’s called an “accounting identity”. One goes up, the other must, necessarily, go down. What this means is that if the government declares “we must act responsibly and pay back the national debt” and runs a budget surplus, then it (the public sector) is taking more money in taxes out of the private sector than it’s paying back in. That money has to come from somewhere. So if the government runs a surplus, the private sector goes into deficit. If the government reduces its debt, everyone else has to go into debt in exactly that proportion in order to balance their own budgets. The chips are redistributed. This is not a theory. Just simple maths.

Now, obviously, the “private sector” includes everything from households and corner shops to giant corporations. If overall private debt goes up, that doesn’t hit everyone equally. But who gets hit has very little to do with fiscal responsibility. It’s mostly about power. The wealthy have a million ways to wriggle out of their debts, and as a result, when government debt is transferred to the private sector, that debt always gets passed down on to those least able to pay it: into middle-class mortgages, payday loans, and so on. The people running the government know this. But they’ve learned if you just keep repeating, “We’re just trying to behave responsibly! Families have to balance their books. Well, so do we,” people will just assume that the government running a surplus will somehow make it easier for all of us to do so too. But in fact the reality is precisely the opposite: if the government manages to balance its books, that means you can’t balance yours.

Ambrose is techno-happy incorporated. ‘Save the world for profit!’ But we won’t have the money to do it even if we wanted to.

• Paris Climate Deal To Ignite A $90 Trillion Energy Revolution (AEP)

The fossil fuel industry has taken a very cavalier bet that China, India and the developing world will continue to block any serious effort to curb greenhouse emissions, and that there is, in any case, no viable alternative to oil, gas or coal for decades to come. Both assumptions were still credible six years ago when the Copenhagen climate summit ended in acrimony, poisoned by a North-South split over CO2 legacy guilt and the allegedly prohibitive costs of green virtue. At that point the International Energy Agency (IEA) was still predicting that solar power would struggle to reach 20 gigawatts by now. Few could have foretold that it would in fact explode to 180 gigawatts – over three times Britain’s total power output – as costs plummeted, and that almost half of all new electricity installed in the US in 2013 and 2014 would come from solar.

Any suggestion that a quantum leap in the technology of energy storage might soon conquer the curse of wind and solar intermittency was dismissed as wishful thinking, if not fantasy. Six years later there can be no such excuses. As The Telegraph reported yesterday, 155 countries have submitted plans so far for the COP21 climate summit to be held by the United Nations in Paris this December. These already cover 88pc of global CO2 emissions and include the submissions of China and India. Taken together, they commit the world to a reduction in fossil fuel demand by 30pc to 40pc over the next 20 years, and this is just the start of a revolutionary shift to net zero emissions by 2080 or thereabouts. “It is unstoppable. No amount of lobbying at this point is going to change the direction,” said Christiana Figueres, the UN’s top climate official.

Yet the energy industry is still banking on ever-rising demand for its products as if nothing has changed. BP is projecting a 43pc increase in fossil fuel use by 2035, Exxon expects 35pc by 2040, Shell 43pc and Opec is clinging valiantly to 55pc. These are pure fiction.
The Intergovernmental Panel on Climate Change (IPCC) may or may not be correct in arguing that we cannot safely burn more than 800bn tonnes of carbon (two-thirds has been used already) if we are to stop global temperatures rising two degrees above pre-industrial levels by 2100. I take no view on the science. But this is the goal accepted by world leaders. It is solemnly enshrined in international accords, and while it might once have been possible for energy companies to dismiss these utterings as empty pieties, to persist now is to trifle with fate.

“This is a world apart from where we were going into Copenhagen. The centre of gravity has fundamentally and irreversibly shifted,” said Mark Kenber, head of the Climate Group. China switched sides several years ago, not least because it faces a middle class insurrection that has shaken the Communist Party to its core. An estimated 100m people viewed the anti-pollution video “Under the Dome” in just 24 hours before it was shut down by horrified officials in February. The IEA says China invested $80bn in renewable energy last year, as much as the US and the EU combined. It is blanketing chunks of the Gobi Desert with solar panels, necessary to absorb the massive surplus production of its own solar companies. The party’s Energy Research Institute has floated the idea of raising the renewable share of electricity to 86pc by 2050.

What’s that going to do with prices? Deflation equals demand crash.

• China Running Out Of Strategic Oil Reserve Space (Reuters)

About 4 million barrels of crude oil bought by a Chinese state trader for the country’s strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said. The delays will cost millions of dollars and indicate how China is struggling to import record amounts of crude if storage and port capacity at Qingdao, its largest oil import terminal, are unable to keep pace. Ocean Lily and Plata Glory, two very large crude carriers (VLCCs) carrying oil for Sinochem Corp, arrived at Huangdao, Qingdao’s main oil terminal, in early September, and both were still at anchor this week, waiting to unload. “They are both for SPR (strategic petroleum reserve), but no tank space is available to take that oil in,” said a senior trader familiar with Sinochem’s oil trading.

China’s crude oil imports rose nearly 9% in the first nine months of the year over a year earlier to 6.65 million bpd, driven partly by reserve building. China said late last year the first phase of the government’s emergency stockpile is storing about 90 million barrels of crude oil, with the construction of a second phase due by 2020, partly through private investment. Huangdao is the site of one of China’s first SPR tanks, with space for 20 million barrels of oil and also has plans for a second phase of similar size. A recent move to increase competition for oil imports by granting quotas to independent refineries has added to congestion at Huangdao, where operations were already hampered following a pipeline accident two years ago. “Storage and berths were not ready for such a quick market opening,” the trader said.

“..for all of us that believe in democracy and want to see it reimplemented, the British referendum offers a golden opportunity.”

• Nigel Farage Rages At EU’s Modern Day “Brezhnev Doctrine” (Zero Hedge)

Nigel Farage unleashes another of his must-watch rage-fests aimed at the collapse of democracy in Europe. Amid the stunning “democracy crisis” in Portugal, where, as we detailed here, the government has lost its majority but the anti-EU opposition is being prevented from attempting to form a coalition, Farage fumes “this is the modern day implementation of the Brezhnev Doctrine. This is exactly what happened to states living inside the USSR.” One of his best…

“This is the modern day implementation of the Brezhnev Doctrine. This is exactly what happened to states living inside the USSR . What is being made clear here with Greece and indeed with Portugal is that a country only has democratic rights if it’s in favour of the [European] project. If not, those rights are taken away. And perhaps none of this should surprises us as Mr. Juncker has told us before: there can be no democratic choice against the European treaties. And the German Finance Minister, Mr. Schäuble, has said: elections change nothing – there are rules.

I think for anyone that believes in democracy, Portugal should be the final straw. It should be the warning that this project, [in order to] to protect itself and all its failings, will destroy the individual rights of peoples and of nations. My country has always believed in parliamentary democracy so strongly that twice in the last century it risked everything to fight for parliamentary democracy, not just for Britain but for the rest of Europe too. And I actually believe that for all of us that believe in democracy and want to see it reimplemented, the British referendum offers a golden opportunity.”

The opposition in Portugal might be socialists, but the country is effectively suspending democracy to prevent Eurosceptics with a massive electoral mandate from taking power. As we concluded previously, note what’s happened here. The will of the people is now being characterized as a “false signal” to “financial institutions, investors, and markets.”

Break it up! Break it down!

• British Bookmaker Doubles Probability of Exit From EU (Bloomberg)

The chances of the U.K. leaving the EU have almost doubled in just three months, if the odds from Betfair’s gambling exchange are any indication of sentiment. The probability of a majority vote for leaving the EU has jumped to 36%, from 18.5% at the end of July, based on the odds given to bettors on the outcome of the referendum. While bettors are following the momentum of the polls, it would require a huge swing for so-called Brexit to become the favorite outcome. “A vote in favor of staying in the EU is still the firm favorite at 1.56 (4/7 or a 64% chance), in much the same way as the Scottish Referendum market was predicting a No to independence from very early on,” Betfair spokeswoman Naomi Totten said. “The price for a vote in favor of leaving the EU is the shortest it has been since June, currently trading at 2.76 (7/4 or a 36% chance), but in the context of the market it is still very much assumed that Britain will vote to remain within the EU.”

The West cannot win this.

• Putin Tests English Debt Law as Ukraine Feud Heads to London Court (Bloomberg)

Russia and Ukraine are about to test the boundaries of sovereign-debt litigation in a dispute that could have far-reaching implications for government bailouts the world over. The neighbors are vowing to fight each other in a London court over a $3 billion bond Vladimir Putin bought to reward his Ukrainian ally, Viktor Yanukovych, for rejecting closer trade ties with the European Union two years ago. That move fueled the protests in Kiev that led to Yanukovych’s ouster, Putin’s annexation of Crimea and an insurgency that’s killed 8,000 people. Ukraine’s government, on life support from the IMF, says Russia has until Oct. 29 to agree to the same writedown and extension that Franklin Templeton, which manages the largest U.S. overseas bond fund, and most other creditors accepted this month.

Russia’s Finance Ministry says it won’t negotiate and is shopping for a law firm to file suit as soon as Ukraine makes good on its threat to default when the bond comes due Dec. 20. “This issue will go to court, there’s no other way around it,” said Christopher Granville, a former U.K. diplomat in Moscow who runs Trusted Sources research group in London. “There’s no way Russia will remain under financial sanctions from the U.S. government and accept the same terms as Franklin Templeton.” The bond is unusual for a state-to-state loan. It was drafted as a commercial instrument under English law, meaning any dispute will be settled by a judge in the U.K. It also contains a clause designed to prevent Ukraine from offsetting its debt due to damages inflicted by Russia, such as the annexation of Crimea, which President Petro Poroshenko plans to seek compensation for.

Ukraine’s government, which accuses Yanukovych and his allies of stealing tens of billions of dollars before fleeing to Russia, says the bond should be considered commercial and treated the same as debt held by private investors. “This $3 billion was in reality a bribe from Russia, so that President Viktor Yanukovych would stop the association agreement with the EU,” Prime Minister Arseniy Yatsenyuk told German newspaper Handelsblatt this week. Russia maintains the loan is official, a designation that would, if Ukraine doesn’t pay, force the IMF to either end its $17.5 billion bailout or alter its policy of not lending to any country that’s in arrears to another. The crisis lender has said it will only decide on the classification if Ukraine defaults.

Either way, the showdown is shaping up to be one of the most unique cases in memory, one followed closely by governments and scholars around the world, including Mitu Gulati, a law professor at Duke University who specializes in sovereign debt. “This kind of court case has never really happened before,” Gulati said. “To see the argument play out as to what Russia owes Ukraine because of its involvement in Crimea, to have that be in court in London would be fabulous.”

“.. the European Commission proposed the draft law in April in a bid to give opponents of GMOs fewer grounds to hold up EU approvals urged by supporters of the technology.”

• European Parliament Opposes National Bans on GMO-Food Imports (Bloomberg)

The European Parliament rejected a draft law that would give individual countries in Europe scope to ban imports of genetically modified food and animal feed, potentially killing an initiative that was greeted with widespread criticism. The EU assembly voted against granting EU governments a right to opt out of rules making the 28-nation bloc a single market for gene-altered food and feed. With Europe split over the safety of gene-modified organisms, the European Commission, the EU’s regulatory arm, proposed the draft law in April in a bid to give opponents of GMOs fewer grounds to hold up EU approvals urged by supporters of the technology.

The commission proposal was modeled on European legislation approved three months earlier – following more than four years of deliberations – that lets national governments go their own way on the cultivation of gene-modified crops. The EU Parliament’s rejection on Wednesday in Strasbourg, France, of the food and feed measure reflects concerns it would have been a step too far in denting a free-trade tenet of the bloc. “Member states should shoulder their responsibilities and take a decision together at EU level, instead of introducing national bans,” said Giovanni La Via, an Italian who chairs the 751-seat assembly’s environment committee, which earlier this month recommended throwing out the draft legislation on GMO food and feed. The commission said it would pursue talks on the proposal with EU governments, which also have a say on the matter.

The moment it was unveiled six months ago, the commission proposal drew rebukes from anti- and pro-GMO groups as well as from the U.S. government. Environmental organization Greenpeace called the initiative “a farce,” saying the opt-out option wouldn’t stand up in court against EU free-market rules. The European Association for Bioindustries, whose members include GMO manufacturers, said the proposal would limit choice for livestock farmers, weaken the EU economy and rattle innovative companies’ confidence in the bloc’s approval procedures. The U.S. government said the draft legislation would enable EU nations to ignore “science-based safety and environmental determinations,” would fragment the European market and was inconsistent with current trans-Atlantic talks on a free-trade agreement.

Not bad.

• Germany To Oblige Banks To Offer Accounts To Refugees (Reuters)

Germany’s cabinet signed off on a draft law on Wednesday which will make it easier for hundreds of thousands of asylum seekers in the country to set up bank accounts. Under the new rules, everyone will have the right to access basic banking services, including the homeless and people who fall under the protection of the Geneva Convention on Refugees. This means that migrants will be able to open accounts at any bank, enabling them to deposit and withdraw cash, carry out bank transfers, set up direct debits and make payments with cards. Germany expects between 800,000 to one million people, many fleeing war zones in the Middle East and Africa, to arrive this year, although not all of them will be given asylum.

Giving refugees access to current accounts is seen as a vital first step to help them integrate them into society. “Those who don’t have a bank account, don’t have good prospects on the labour market. Hunting for a flat is also a problem for many people without an account,” said Justice Minister Heiko Maas. In Germany, the number of people without a bank account is in the high six figures, according to estimates by the European Commission, and that figure is expected to rise due to the influx of refugees. Until now, only a few saving banks, which are publicly owned or controlled, have accepted refugees as customers. Asylum seekers were often turned away by other banks since they had no fixed address or lacked the necessary documents.

Under the draft law, which must be approved by parliament to go into effect, all banks that offer current accounts would be obliged to do so for a wider group of consumers. Last month, Germany’s financial watchdog Bafin said it was going to allow banks to accept a broader spectrum of documents, such as papers provided by Germany’s immigration authorities. The draft law also obliges banks to become more transparent about their charges and make it easier for customers to change bank accounts.

Brought to you by Brussels.

• Inside Europe’s Migrant-Smuggling Rings (WSJ)

The entry of established crime syndicates operating between the Middle East and Europe has brought a new level of organization and brutality to the people-smuggling game. In Sofia, many taxis from Lion’s Bridge drive northwest to Vidin, Bulgaria’s smuggling capital, where gangs move up to 500 migrants nightly across the Timok river into Serbia, Bulgarian officials say. On the town outskirts, smugglers store transiting refugees in pig farms and disused airport hangars. The money at stake has sparked a turf war between rival gangs. One public official seeking to crack down was attacked with a Molotov cocktail. Five hundred miles west, Bulgarian crime gangs have played a central role as industrial-scale migrant-smuggling expands into the heart of Europe.

In the case of 71 migrants found asphyxiated in a van in Austria in August, five of six men arrested, including the truck’s owner, are Bulgarian, Austrian police say, adding that five were arrested in Hungary and one in Bulgaria. The Hungarian prosecutor says it won’t release additional information until the men are charged and that the men aren’t reachable for interviews. Bulgaria’s prosecutor’s office says it has initiated criminal proceedings, declining to provide more information. “Our main focus now is the Balkans,” says Col. Gerald Tatzgern, Austria’s vice squad chief, who estimates the illicit transport generates more money in Europe than drug-running or weapons-trafficking. The mushrooming smuggling trade, he says, “has forced us to rethink everything we knew about the industry.”

Smugglers are positioned for another windfall: Hungary’s border-wall construction and increased checks on Austria and Germany’s normally open borders have the unintended effect of handing business to groups that skirt migrants across frontiers, says Wil van Gemert, Europol’s deputy director of operations. Closing borders “opens up new opportunities for criminals to benefit from smuggling,” he says. Smuggling “is becoming a big business in Balkan countries as they are sitting on the main migrant routes.”

“..turning into a constant operation of locating and collecting drowned refugees..”

• Three Migrants Drown Off Lesvos, Coastguard Rescues 242 As Boat Sinks (Reuters)

The Greek coastguard rescued 242 migrants when their wooden boat sank north of the island of Lesbos on Wednesday, but at least three drowned, including two small boys, authorities said. “We do not have a picture of how many people may be missing yet,” a coastguard spokeswoman said. A man and the two boys were found drowned and an extensive search was under way in the area after what was thought to be the largest maritime disaster off Greece in terms of numbers involved since a massive refugee influx began this year. More than 500,000 refugees and migrants have entered Greece through its outlying islands since January, transiting on to central and northern Europe in what has become the biggest humanitarian crisis on the continent in decades.

Inflows have increased recently as refugees are trying to beat the onset of winter, crossing the narrow sea passages between Turkey and Greece on overcrowded small boats. “These praiseworthy attempts of the coastguard to save refugees at sea is at risk of now turning into a constant operation of locating and collecting drowned refugees,” Greek shipping minister Thodoris Dritsas said.

11 confirmed drowned today so far, 39 missing, little hope of survivors

• At Least Five Refugees, Including Four Children, Drown In Aegean (AP)

Greek authorities say at least five people, including four children, have drowned as thousands of refugees and economic migrants continued to head to the Aegean Sea islands in frail boats from Turkey, in worsening weather. The coast guard said Wednesday that two children and a man died off the coast of Samos, while 51 people from the same small boat were rescued. A 5-year-old girl also drowned in a separate incident off Samos. A 7-year-old boy died off Lesbos, where most migrants land, while a 12-month-old girl was in critical condition in hospital from the same boat accident.

The ultimate disgrace that is the EU. Someone should send an army to start saving these people.

• Dozens Of Refugees Missing After Boat Sinks Off Lesvos (AP)

Authorities on the Greek island of Lesvos say 38 people are believed still missing after a wooden boat carrying migrants sank. Three people are known to have died. At first light Thursday, a helicopter from the European border protection agency Frontex joined the search by Greek coast guard vessels off the northern coast of the island, hours after the dramatic rescue of 242 people. At least 11 people – mostly children – died in five separate incidents in the eastern Aegean Sea on Wednesday, as thousands of people continued to head to the Greek islands from Turkey in frail boats and stormy weather.

Lesvos has borne the brunt of the refugee crisis in Greece, with more than 300,000 reaching the island this year – and the number of daily arrivals recently peaking at 7,500. In a dramatic scene late Wednesday, dozens of paramedics and volunteers helped in the effort to assist the survivors, wrapping them in foil blankets and prioritizing ambulance transport. Eighteen children were hospitalized, three in serious condition, local authorities said.

Debt Rattle September 3 2015

Sep 032015

September 3, 2015 Posted by Raúl Ilargi Meijer at 8:47 am Finance Tagged with: Canada, carbon, China, drowning, GMO, Greece, Monsanto, refugees, Schengen, Syrians, turbulence 4 Responses »

Jack Delano Family of Dennis Decosta, Portuguese Farm Security Administration client Dec 1940

• Syrians are the Famine Irish of the 21st Century (Glavin)

• Shocking Images Of Drowned Syrian Boy Show Tragic Plight Of Refugees (Guardian)

• Family Of Drowned Syrian Boy Had Been Rejected By Canada For Refugee Status (NP)

• Germany Targets Billions in Refugee Aid by Late September (Bloomberg)

• Italy Revives Border Checks (Deutsche Welle)

• European Police ‘Scarier Than ISIS Terrorists’ (Finian Cunningham)

• The End Of A Flawed Globalisation (Guardian)

• Devaluation Strengthens China’s Hand at IMF (WSJ)

• Wall Street Surges As Turbulence Becomes The Norm (Reuters)

• We Are In A Great Transition Period (Ron Paul)

• Wall Street and the Military are Draining Americans High and Dry (Edstrom)

• The Chinese Bubble (Beppe Grillo)

• Why The Federal Reserve Should Be Audited (John Crudele)

• Marc Faber Warns “There Are No Safe Assets Anymore” (ZH)

• Giant US Pension Fund To Sell 12% Of Stocks In Fear Of “Another Downturn” (WSJ)

• Pimco Assets Drop Below $100 Billion For The First Time Since ’07 (Reuters)

• House Sales Plunge In Calgary As Energy Sector Job Losses Mount (Globe and Mail)

• Tens Of Thousands Of Greek Companies Fear Closure In Coming Months (Kath.)

• Lucky Britain To Win 21st Century Jackpot From Carbon Capture (AEP)

• Two More European Countries Ban Monsanto GMO Crops (EcoWatch)

“This Is What It’s Come To: Letting Syria Die, Watching Syrians Drown..”

• Syrians are the Famine Irish of the 21st Century (Glavin)

“The worst part of it is the feeling that we don’t have any allies,” Montreal’s Faisal Alazem, the tireless 32-year-old campaigner for the Syrian-Canadian Council, told me the other day. “That is what people in the Syrian community are feeling.” There are feelings of deep gratitude for having been welcomed into Canada, Alazem said. But with their homeland being reduced to an apocalyptic nightmare – the barrel-bombing of Aleppo and Homs, the beheadings of university professors, the demolition of Palmyra’s ancient temples – among Syrian Canadians there is also an unquenchable sorrow. Bashar Assad’s genocidal regime clings to power in Damascus and the jihadist psychopaths of the Islamic State of Iraq and the Levant (ISIL) are ascendant almost everywhere else.

The one thing the democratic opposition wanted from the world was a no-fly zone and air-patrolled humanitarian corridors. Even that was too much to ask. There is no going home now. But among Syrian-Canadians, the worst thing of all, Alazem said, is a suffocating feeling of solitude and betrayal. “In the western countries, the civil society groups – it’s not just their inaction, they fight you as well,” he said. “They are crying crocodile tears about refugees now, but they have played the biggest role in throwing lifelines to the regime. And so I have to say to them, this is the reality, this is the result of all your anti-war activism, and now the people are drowning in the sea.”

Drowning in the sea: a little boy in a red t-shirt and shorts, found face-down in the surf. The boy was among 11 corpses that washed up on a Turkish beach Tuesday. Last Friday, as many as 200 refugees drowned when the fishing boat they were being smuggled in capsized off the Libyan coast. At least 2,500 people, most of them Syrians, have drowned in this way in the Mediterranean already this year.

Europe is comfortably Teflon coated.

• Shocking Images Of Drowned Syrian Boy Show Tragic Plight Of Refugees (Guardian)

The full horror of the human tragedy unfolding on the shores of Europe was brought home on Wednesday as images of the lifeless body of a young boy – one of at least 12 Syrians who drowned attempting to reach the Greek island of Kos – encapsulated the extraordinary risks refugees are taking to reach the west. The picture, taken on Wednesday morning, depicted the dark-haired toddler, wearing a bright-red T-shirt and shorts, washed up on a beach, lying face down in the surf not far from Turkey’s fashionable resort town of Bodrum. A second image portrays a grim-faced policeman carrying the tiny body away. Within hours it had gone viral becoming the top trending picture on Twitter under the hashtag #KiyiyaVuranInsanlik (humanity washed ashore).

Greek authorities, coping with what has become the biggest migration crisis in living memory, said the boy was among a group of refugees escaping Islamic State in Syria. Turkish officials, corroborating the reports, said 12 people died after two boats carrying a total of 23 people, capsized after setting off separately from the Akyarlar area of the Bodrum peninsula. Among the dead were five children and a woman. Seven others were rescued and two reached the shore in lifejackets but hopes were fading of saving the two people still missing. The casualties were among thousands of people, mostly Syrians, fleeing war and the brutal occupation by Islamic fundamentalists in their homeland.

Kos, facing Turkey’s Aegean coast, has become a magnet for people determined to reach Europe. An estimated 2,500 refugees, also believed to be from Syria, landed on Lesbos on Wednesday in what local officials described as more than 60 dinghies and other “unseaworthy” vessels. Some 15,000 refugees are in Lesbos awaiting passage by cruise ship to Athens’ port of Piraeus before continuing their journey northwards to Macedonia and up through Serbia to Hungary and Germany. Wednesday’s dead were part of a grim toll of some 2,500 people who have died this summer attempting to cross the Mediterranean to Europe, according to the UN refugee agency, UNHCR.

“The frustration of waiting and the inaction has been terrible.”

• Family Of Drowned Syrian Boy Had Been Rejected By Canada For Refugee Status (NP)

The drowned child washed up on a Turkish beach captured in a photograph that went around the world Wednesday was three-year-old Aylan Kurdi. He died, along with his five-year-old brother Galip and their mother Rehan, in a desperate attempt to reach Canada. The Syrian-Kurds from Kobane died along with eight other refugees early Wednesday. The father of the two boys, Abdullah, survived. The father’s family says his only wish now is to return to Kobane with his dead wife and children, bury them, and be buried alongside them. “I heard the news at five o’clock in this morning,” Teema Kurdi, Abdullah’s sister, said Wednesday. She learned of the drowning through a telephone call from Ghuson Kurdi, the wife of another brother, Mohammad. “She had got a call from Abdullah, and all he said was, my wife and two boys are dead.”

Teema, a Vancouver hairdresser who emigrated to Canada more than 20 years ago, said Abdullah and Rehan Kurdi and their two boys were the subject of a “G5” privately sponsored refugee application that the ministry of citizenship and immigration rejected in June, owing to the complexities involved in refugee applications from Turkey. Citizenship and Immigration Minister Chris Alexander could not be reached for comment, but Port Moody – Coquitlam NDP MP Fin Donnelly said he’d hand-delivered the Kurdis’ file to Alexander earlier this year. Alexander said he’d look into it, Donnelly said, but the Kurdis’ application was rejected in June. “This is horrific and heartbreaking news,” Donnelly said. “The frustration of waiting and the inaction has been terrible.”

The family had two strikes against it — like thousands of other Syrian-Kurdish refugees in Turkey, the United Nations would not register them as refugees, and the Turkish government would not grant them exit visas. “I was trying to sponsor them, and I have my friends and my neighbours who helped me with the bank deposits, but we couldn’t get them out, and that is why they went in the boat. I was even paying rent for them in Turkey, but it is horrible the way they treat Syrians there,” Teema said.

That’s 4 weeks?! Clearly Germany does not see a crisis, nor an emergency. They don’t care if people drown.

• Germany Targets Billions in Refugee Aid by Late September (Bloomberg)

Chancellor Angela Merkel’s government is facing up to the cost of caring for refugees pouring into Germany as estimates of the budget impact from Europe’s biggest migrant crisis since World War II increase. Interior Minister Thomas de Maiziere said Wednesday he’ll present a package of measures within three weeks to help fund municipalities, ease building rules and streamline bureaucracy for housing and registering refugees. “We need clarity quickly on financial assistance,” Maiziere told reporters in Berlin. Deputy Finance Minister Jens Spahn, asked in a Bloomberg Television interview in Frankfurt about the price tag of aid to refugees, said, “it will be billions, we’re still calculating.”

As migrants seeking refuge from war and poverty squeeze onto trains to Germany, Merkel says her country may see as many as 800,000 arrivals this year, about four times the level in 2014. That means federal support payments for asylum seekers this year will increase by as much as €3.3 billion, Labor Minister Andrea Nahles told reporters Tuesday. Party leaders of Merkel’s governing coalition will discuss the measures on Sunday and probably complete the legislation by Sept. 24 when Merkel and leaders of Germany’s 16 states meet, de Maiziere said. The measures could be approved by the lower house in October, he said.

And so it starts.

• Italy Revives Border Checks (Deutsche Welle)

Italy has temporarily reinstated border patrols at the frontier with Austria. The move follows an appeal from the southern German state of Bavaria. Following a request from Germany to help stem the flow of refugees, Italy reimposed identification checks in its northern region of South Tyrol on Wednesday. The bilingual province on the border with Austria is the last stop in Italy for migrants who arrive in the country from northern Africa, hoping to travel on other nations in Europe. The regional capital Bolzano said it was ready to “reactivate” controls at the Alpine town of Brennero just as it did for the G7 summit in June, but that it was “a temporary measure to allow Bavaria to reorganize and face the emergency.”

Bavaria registered around 2,500 new refugees on Tuesday, with a total of almost 4,300 new arrivals in the week so far. South Tyrol also agreed to take in 300-400 migrants who had arrived in Munich “for a few days” to take some pressure off the southern German state whose facilities are swamped by migrants arriving not only from the Middle East and Africa, but some Balkan nations as well. Although Italy, Germany, and Austria belong to the Schengen Zone, which largely abolished border controls between signatory countries beginning in the 1990s, its provisions may be lifted in exceptional situations. When Rome suspended Schengen for the G7 in June it caused serious overcrowding in South Tyrol as migrants were forced to postpone their journeys.

Well, not all of them. But still.

• European Police ‘Scarier Than ISIS Terrorists’ (Finian Cunningham)

In what is being described as the worse refugee crisis in Europe since the Second World War, tens of thousands of desperate migrants are streaming across EU borders. They have risked their lives to get there, only to be then attacked by EU «border police», or else targeted by racist street mobs. Welcome to Europe! Destitute and carrying their worldly possessions in nothing but a haversack, men, women and young children are having to outwit truncheon-wielding police ranks in order to try to reach safety. This is in the European Union, whose treaties proclaim to the rest of the world the sanctity of human rights and dignity. Hungary, Romania and Greece have emerged as the new crisis points, replacing Italy as the formerly main refugee route. Crying mothers run with petrified children jostled on their backs into forests or ditches just to escape from teargas-firing riot police.

One distraught woman told a France 24 news crew how she had become separated from her family in the melee. She didn’t know how she would ever find them because she was stranded on the other side of the police cordon. Her missing children and husband had to run away before they were captured by the cops. One young boy from Syria told CNN reporter Awra Damon that his family and many others were forced back by a phalanx of helmet-clad police officers as they attempted to cross the Hungarian border. The little boy said his family fled an area in Syria that is under control of the Islamic State (or ISIS) terror group – the cult jihadist militia notorious for beheading civilians. (The CNN reporter didn’t seem to notice the irony that her TV channel has previously made heaps of news stories out of accusing the Syrian government as being the one who is terrorising its people.)

What does that say about the Hungarian border police when beleaguered refugees are cowering before them? It’s a graphic condemnation of the EU’s border controls being scarier than blood-thirsty terrorists. Last month alone, more than 100,000 migrants crossed EU borders. This is a humanitarian crisis on a scale that evokes the harrowing grainy footage showing wandering masses in the aftermath of World War Two. The vast majority of the refugees to the EU are from war-torn Syria, according to the UN’s International Organisation for Migration. Up to 12 million of Syria’s population – half the total – have been displaced by more than four years of conflict in that country. A war that has been fuelled covertly by the United States, Britain and France seeking regime change against President Bashar al Assad. Also fuelling the war in Syria are Western allies Saudi Arabia, Qatar, Jordan, Turkey and Israel.

“..the debacle in Asia’s number one economy has blown a hole in a string of hitherto long-held beliefs.”

• The End Of A Flawed Globalisation (Guardian)

Clad as it is in jargon and technicalities, financial meltdowns can often seem like an elaborate spectacle taking place in a foreign country. So it is with the trillions wiped off shares since 24 August’s “Black Monday”. Obviously it’s a huge deal, but beyond the numbers on Bloomberg terminals it’s hard to put into perspective. Yet one way to think about what has happened in China over the past couple of weeks is the drawing to a close of an entire system for running the world economy. Over the past two decades, globalisation has fired on two engines: the belief that Americans would always buy the world’s goods, of which the Chinese would make the lion’s share – and lend their income to the Americans to buy more.

That policy regime was made explicit during the Asian crisis of the late 90s, when Federal Reserve head Alan Greenspan slashed US borrowing rates, making it cheaper for Americans to buy imports. And it was talked about throughout the noughties by central bankers fretting about the “Great Wall of Cash” flooding out of China and into western assets. The first big blow to that system came with the banking crisis of 2008, which made plain that the US could no longer afford to continue as the world’s backstop consumer. The latest dent has been made over the past couple of weeks in China. Because the debacle in Asia’s number one economy has blown a hole in a string of hitherto long-held beliefs.

First, it exploded the assumption that China can keep racking up double-digit growth rates forever. Stock markets are only the aggregate of investors’ estimates of the future profitability of the companies listed on them. The crash on the Shanghai Composite suggests that shareholders are no longer so confident of the prospects for Chinese businesses – and with reason: data shows that China’s manufacturing, investment and demand for commodities are all on the slide. More importantly, the last few weeks have shattered faith in the Beijing politburo as technocrats with an incomparably sure touch. Whatever doubts economists might have had over the sustainability of China’s dirty-tech, investment-heavy economic model, they would normally be quelled with the thought that Beijing’s “super-elite” had a textbook for every occasion.

But that was before the shock devaluation of the yuan on 11 August, followed by a jittery press conference called by the People’s Bank of China – after which it spent hundreds of billions buying yuan to keep it strong, effectively reversing the devaluation. Couple all this with the national government’s cack-handed attempts to shore up the stock market and this week’s bizarre and reprehensible “confession” on state TV from a journalist for talking down the stock market – and a picture emerges of a state government unsure how to deal with financial jitters and lashing out at any convenient target.

Or not.

• Devaluation Strengthens China’s Hand at IMF (WSJ)

China’s sudden decision last month to devalue its currency riled neighbors and fueled investors’ fears about a sharp slowdown in the world’s No. 2 economy. But the move has won over the IMF and even secured restrained praise from the U.S. Treasury Department. The currency maneuver has positioned the Chinese government to press for a greater international role for the yuan during visits to a series of Group of 20 meetings starting this week and a visit to Washington later this month. For more than a decade, the U.S. and other countries castigated China for its currency policy, saying the yuan’s level gave the country’s exporters an unfair advantage at the expense of its trading partners.

The Aug. 11 depreciation initially spurred worries in global financial markets as investors saw it as a signal that Beijing was reverting to its old policy playbook in a desperate effort to revive a flagging economy. A number of China experts and Western officials close to the matter say China likely isn’t regressing. “If they wanted to revert to their mercantilist trade policies, they would have moved sooner and they would have moved by a much bigger amount,” said Nick Lardy, a China expert at the Peterson Institute for International Economics. Instead, economists are generally viewing the depreciation as China presented it: as a move to make the country’s exchange rate more market-determined.

Combined with Beijing’s careful management of the currency since then, it is bolstering China’s bid to get the yuan included in the IMF’s basket of reserve currencies after the IMF board’s vote in November, according to people familiar with the matter. They and other experts say China is holding to its currency commitments for now despite discord in its financial markets and deepening international worries about the Chinese economy. Contrary to initial expectations, China’s depreciation of the yuan might actually help mitigate long-simmering tensions between the U.S. and China over the country’s currency policy ahead of a visit by Chinese President Xi Jinping to Washington in late September.

Volatility.

• Wall Street Surges As Turbulence Becomes The Norm (Reuters)

Wall Street stocks jumped almost 2% on Wednesday in the latest volatile session as investors weighed the impact of a stumbling Chinese economy and global market turmoil on the Federal Reserve’s impending decision about when to raise interest rates. U.S. investors have weathered over two weeks of unusually wide-swinging trade that has left the S&P 500 with its worst monthly drop in three years and a loss of 8.5% from an all-time high in May. “What we’re seeing today is not a recovery. It’s market volatility, it’s nervousness, it’s an inability to call the direction of the market,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. “Through now and October we’re going to see a lot more of this, a lot of volatility.”

U.S. labor markets were tight enough to fuel small wage gains in some professions in recent weeks, though some companies already felt a chill from an economic slowdown in China, the Fed said. The combination of more demand for workers and worries about Chinese economic growth underscores the challenge faced by the Fed at a Sept 16-17 meeting where it may decide to raise interest rates for the first time since 2006. The Dow Jones industrial average jumped 1.82% to end at 16,351.31 points. The S&P 500 climbed 1.83% to 1,948.85 and the Nasdaq Composite surged 2.46% to 4,749.98. The CBOE Volatility index .VIX, Wall Street’s “fear gauge,” dipped 11% but stayed in territory not seen since 2011 after Standard & Poor’s cut its credit rating on the United States for the first time.

The recent turbulence has left the S&P 500’s valuation at 15.1 times expected earnings, inexpensive compared to around 17 for much of 2015, according to Thomson Reuters StarMine data. But investors fear that the outlook for earnings may darken as China’s economy loses steam.

“The big danger is if the results of this failure are total poverty for more and more nations and total war.”

• We Are In A Great Transition Period (Ron Paul)

It’s a shame to see what has happened so far in this new century. The last century ended with a victory over defeated communism. I think that was the greatest victory of the 20th century. Events showed that communism did not work. Unfortunately, we jumped to the conclusion that we had an Empire to defend, and that Keynesian economics would solve all of our problems. Printing money, spending money, and debt wouldn’t matter, and we would bring peace to the world and make everyone good democrats. Right now, the refugee crisis that we see in Europe is a failure of government policies and a failure of central banking. In some ways, I think we are in a great transition period. This cannot continue. The big danger is if the results of this failure are total poverty for more and more nations and total war. Or, hopefully, we can wise up and say that these policies have failed.

The American people should lead the charge on this. The policies are lousy, and yet government is always adding more and more of the same. The worse the economy gets, the more we’re starting to hear about socialism and authoritarianism as the cures. So we live in an age in which the policies of the past are coming to an end. The Keynesian model does not work, and our Empire does not work. This total failure has to change, and we need to present the alternative. For me, the alternative is free markets, free society, civil liberties, and a foreign policy where we mind our own business. The alternative is peace and prosperity. We were told about these things in our early years, but it seems they’ve been forgotten. We’d be much better off in this country with such a policy and we could set a standard for the rest of the world.

Nice set of numbers.

• Wall Street and the Military are Draining Americans High and Dry (Edstrom)

The US government often cites $18 trillion as the amount of money that they owe, but their actual debts are higher. Much higher. The government in the USA owes $13.2 trillion in US Treasury Bonds, $5 trillion in money borrowed by the US Federal government from Federal government trust funds like the Social Security trust fund, $0.7 trillion for state bonds issued by the 50 states, $3.7 trillion for the municipal bond market (US towns, cities and counties), $1.97 trillion still owing by Freddie Mac and Fannie Mae, mostly for bad mortgages in years gone by, $6.23 trillion owed by US government authorities other than Fannie Mae and Freddie Mac, $1.04 trillion in loans taken out by the US Federal government (e.g. government credit card balances, short term loans) and $0.63 trillion in loans owed by government authorities (e.g. their government credit card balances, short term loans).

As of April 1, 2015, according to the Federal Reserve Bank’s Financial Accounts of the US report, the government in the USA has $32.77 trillion in debt excluding unfunded government pension debts and unfunded government healthcare costs Debt is money that has to be paid. The government in the USA also has to pay $6.62 trillion for unfunded pension liabilities, as of April 1, 2015. There are thousands of government pension plans in the USA. The Federal Employees Pension Plan is now short $1.9 trillion according to the Fed’s March 2015 statement plus $4.7 trillion in unfunded state and municipal pension liabilities according to State Budget Solutions which calculates on actual pension returns (approx. 2.5% per year from 2009 to 2014, instead of the fantasy ‘assumption’ of an 8% return used by the Fed to guesstimate pension fund money).

The largest governmental pension fund in Puerto Rico ran out money (became insolvent) in 2012 and the government now has to pay $20.5 billion for that. Pension contributions into government pension plans have been less than what these pension plans pay out to retirees which is why the government was short by $6.62 trillion for government pensions as of April 1, 2015. The DJIA has gone down 9.5% since the Spring. $6.3 trillion in governmental pension plan money was invested in Wall Street as of April 1st. Additional government pension plan losses have been, so far this year, $0.6 trillion. As of August 29, 2015, the government in the US owes $7.2 trillion for pensions. Every additional 10% the DJIA drops is another $0.6 trillion in unfunded pension costs that the government has to pay.

The Federal government owed $1.95 trillion in unfunded entitlements for the Federal Employees Pension Fund as of April 1, 2015. Unfunded entitlements are health care benefits for retirees above and beyond Medicare benefits. States, municipalities and governmental authorities owe an additional $4.2 trillion for retiree health benefits. Medicare and Medicaid costs, about $0.83 trillion in 2014, escalate 6% a year and Obamacare adds $0.18 trillion a year in governmental health costs, mostly for subsidies. Medicare, Medicaid and Obamacare costs will escalate to $1.28 trillion in 2018. Bottom line, as of August 29, 2015, the government in the USA owes $46.1 trillion (bonds, unfunded pension costs, unfunded healthcare costs, credit card balances and loans).

Footprints. The US government has paid Wall Street’s way when Wall Street can’t pay it’s own way. Wall Street has promised to pay more than the US government has promised to pay. $0.5 trillion in margin loans and $3.95 trillion in repurchase agreements pale in comparison to $21 trillion in open credit default swaps, a type of derivative. Bankruptcy legislation in 2005 gave derivatives “super priority” status to be paid first when banks go bankrupt. According to BIS, there were $630 trillion in outstanding derivatives earlier this year, about half in the USA. Since wall street doesn’t have $315 trillion to pay their derivatives, who will pay this amount? And how? Even if only 15% of US derivatives go bad, that’s $47 trillion. How would the US government pay for that? The derivative liabilities arising, due to ongoing Wall Street instability, is an elephant in the room.

“Since 2008, all the advanced economies have entered a phase of credit contraction (deleverage), whereas China has been moving in the opposite direction..”

• The Chinese Bubble (Beppe Grillo)

The devaluation of the currency decided by China’s Central Bank has surprised financial markets. After anchoring the yuan to the dollar within a minimum margin of oscillation, after the Lehman crisis, the Chinese authorities have progressively broadened the oscillation zone and in 2014, they altered it from 1% to 2%. The decision in August to disconnect the yuan from the dollar has made it possible for the market to stabilise fluctuations in the currency and China did not intervene to correct the oscillation in the value of the yuan and thus it allowed the currency to devalue. Why?

Reasons for the devaluation An initial response can be found in the 8% annual fall in Chinese exports reported in the month of July. Connecting the yuan to the dollar after the crisis in 2008, eliminated the exchange rate risk and it facilitated the flow of foreign investments but it also brought about a devaluation of the yuan that penalised the balance of trade. In fact the real Chinese exchange rate increased by 30% between 2008 and 2014, most of which was in that last year following on from expectations of the rise in USA interest rates and the relative increase in the value of the dollar. The result saw a decline in exports to such an extent that it now needs explaining – now at no more than 20% of China’s GDP as compared to 40% a few years ago. Devalue to maintain growth is thus the first and most obvious way of looking at this new mercantilist spirit on the part of the Chinese monetary authorities.

The Chinese property bubble 2008 was the start of the Chinese property bubble. The de facto regime of fixed exchange rates with the dollar and the enormous reserves in foreign currencies have guaranteed the convertibility of the yuan and this has facilitated the flow of capital and the disproportionate expansion of credit to families. Since 2008, all the advanced economies have entered a phase of credit contraction (deleverage), whereas China has been moving in the opposite direction: from 2008 to 2014 private debt in China as a%age of GDP, has gone from 100% to 180% (of this, corporate debt as a%age of GDP has gone from 85% to 140% and for families it has gone up by a bit less than a multiple of three: – from 15% in 2008 to 40% today). This means that the ratio of private debt to GDP in China reached and went beyond the levels that Japan and the United States recorded in a 17 year period: from 1993 to 2010.

More reasons than we have time to mention.

• Why The Federal Reserve Should Be Audited (John Crudele)

It is time for a comprehensive audit of Janet Yellen ’s Federal Reserve — and not just for the reasons presidential candidate Rand Paul and others have given. The Fed needs to be audited to see if its ruling body has broken the law by manipulating financial markets that are outside its jurisdiction. A thorough investigation of the Fed will show once and for all if its former chief Ben Bernanke and current Chairwoman Yellen should go to jail. I know, that’s a bold statement coming as it does on Sept. 1, 2015, with Wall Street still in half-bloom. But it won’t be so preposterous some day in the future if the stock market suffers a full-blown economy-busting collapse and Congress and everyone else are looking for scalps.

The Fed should be audited as a brokerage firm would be — its financial holdings, its transactions, market orders, emails and phone calls. Special attention should be given to what is called the “trade blotter” at the Federal Reserve Bank of New York, which handles all market transactions for the Fed. The Fed’s dealing with foreign central banks — especially at times of market stress — should be given special attention. Trades in the wee hours of the morning should be in the spotlight. Not surprisingly, the Fed is strongly opposed to an audit and sees it as an intrusion into its autonomy. Washington shouldn’t be intimidated. Autonomy? Hah! That ended when the central bank started playing footsie with Wall Street.

Let’s look at what happened to the stock market last week, and it’ll explain what I think those who audit the Fed need to look for. As you probably remember, stocks were headed for oblivion on Monday, Aug. 24. The Dow Jones industrial average was down 1,089 points early in the day before the index rallied for a close that was “only” 588 points lower. China’s problems. Weak US economic growth. Greece. The possibility of an interest-rate hike. Those and other issues were the root causes of last Monday’s woe. But Wall Street’s real problem is that there is a bubble in stock prices created by years of risky monetary policy by the Fed. Quantitative easing, or QE — the experiment in money printing that has kept interest rates super-low — hasn’t helped the economy (and even the Fed of St. Louis concluded that). But QE did force savers into the stock market whether they wanted to take the risk or not.

“..we have precise statistics who actually benefited from the stock market boom post-2009. This is not even 1% of the population. It’s 0.01%.”

• Marc Faber Warns “There Are No Safe Assets Anymore” (ZH)

Markets have “reached some kind of a tipping point,” warns Marc Faber in a brief Bloomberg TV interview. Simply put, he explains, “because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks – there is no safe asset anymore.” The purchasing power of money is going down, and Faber “would rather focus on precious metals because they do not depend on the industrial demand as much as base metals or industrial commodities,” as it’s now “obvious that the Chinese economy is growing at nowhere near what the Ministry of Truth is publishing.” Faber explains more… “I have to laugh when someone like you tries to lecture me what creates prosperity” Some key exceprts…

On what central banks hath wrought… I think that because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks there is no safe asset anymore. When I grew up in the ’50s it was safe to put your money in the bank on deposit. The yields were low, but it was safe. But nowadays, you don’t know what will happen next in terms of purchasing power of money. What we know is that it’s going down.

On the idiocy of QE…..in my humble book of economics, wealth is being created through, essentially, a mixture of capital spending, and land and labor. And if these three production factors are used efficiently, it then creates a prosperous society, as America became prosperous from its humble beginnings in 1800, or thereabout, to the 1960s, ’70s. But it’s ludicrous to believe that you will create prosperity in a system by printing money. That is economic sophism at its best.

On the causes of iunequality… ..unfortunately the money that was made in U.S. stocks wasn’t distributed evenly. And we have precise statistics, by the way published by the Federal Reserve, who actually benefited from the stock market boom post-2009. This is not even 1% of the population. It’s 0.01%. They took the bulk. And the majority of Americans, roughly 50%, they don’t own any shares anyway. And in other countries, 90% of the population do not own any shares. So the printing of money has a very limited impact on creating wealth.

Scream.

• Giant US Pension Fund To Sell 12% Of Stocks In Fear Of “Another Downturn” (WSJ)

The nation’s second-largest pension fund is considering a significant shift away from some stocks and bonds, one of the most aggressive moves yet by a major retirement system to protect itself against another downturn. Top investment officers of the California State Teachers’ Retirement System have discussed moving as much as 12% of the fund’s portfolio—or more than $20 billion—into U.S. Treasurys, hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund. Its holdings of U.S. stocks and other bonds would likely decline to make room for the new investments. The board of the $191 billion fund, which is known by its abbreviation Calstrs, discussed the proposal at a meeting Wednesday. A final decision won’t be made until November.

A wave of deep selloffs over the past two weeks has shattered years of steady gains for U.S. stocks. Calstrs isn’t reacting directly to those sharp price swings, but they are a reminder of the volatility in stocks and how exposed Calstrs is when markets swoon. “There’s no question,” Calstrs Chief Investment Officer Christopher Ailman said in an interview. The recent market volatility “has been painful.” Calstrs currently has about 55% of its portfolio in stocks. The fund’s investment officers began discussing the new tactic—called “Risk-Mitigating Strategies” in Calstrs documents—several months ago as they prepared for a regular three-year review of how Calstrs invests assets for nearly 880,000 active and retired school employees. Mr. Ailman, who has been chief investment officer at the fund since 2000, said he hopes a move away from certain stocks and bonds could help stub out heavy losses during future gyrations. This could include moving out of some U.S. stocks as well as investment-grade bonds.

“..leaving it with about a third of the money it managed at its 2013 peak..”

• Pimco Assets Drop Below $100 Billion For The First Time Since ’07 (Reuters)

Pacific Investment Management Co’s flagship fund dropped below $100 billion in assets for the first time in more than eight years, leaving it with about a third of the money it managed at its 2013 peak. Investors pulled $1.8 billion in assets from the Pimco Total Return Fund in August, down from $2.5 billion the previous month, according to the Newport Beach, California-based firm on Wednesday. After 28 consecutive months of outflows, assets plunged to $98.5 billion as of Aug. 31 from a peak of $293 billion in April 2013, when the mutual fund was the world’s largest and run by Pimco co-founder Bill Gross.

Gross, the bond market’s most renowned investor and long known as the “Bond King,” shocked the investment world nearly a year ago when he quit Pimco for distant rival Janus Capital Group. This is the first time that Total Return assets had less than $100 billion since January 2007, before strong risk-adjusted returns during the financial crisis attracted monstrous inflows of cash from investors seeking the relative safety of bonds. Assets were $99.86 billion in January 2007, according to Morningstar data. Investors have withdrawn record amounts of money since April 2013 because of erratic performance exacerbated by last year’s departures by Gross and Mohamed El-Erian, the former chief executive officer of Pimco and Gross’ heir apparent.

Sales down 27%, prices down 2%. Next step is obvious.

• House Sales Plunge In Calgary As Energy Sector Job Losses Mount (Globe and Mail)

Calgary’s housing market is showing signs of fracturing amid a fresh wave of layoffs announced by major energy companies in the city. Home sales plunged 27% in August from a year earlier, while the benchmark and average resale prices both fell, the Calgary real estate board said Tuesday. The benchmark price slipped 0.09% to $456,300. The average resale price in the city tumbled nearly 2% to $466,570. On a year-to-date basis, average prices fell roughly 1.7% while benchmark prices rose about 2.4% as the number of new listings eased. But overall inventories are swollen at 44% above the same period in 2014 so far this year, pointing to more weakness ahead as job losses in the oil and gas sector mount. Total sales so far this year are down 25%.

“While we’ve managed to come through the spring market with not a lot of change, because there is further expectations of softness in the employment market, these things will start weighing on the housing market as we move into the end of the year,” said Ann-Marie Lurie, chief economist with the board. The weakening housing market is another symptom of oil’s collapse to under $50 a barrel from more than $100 (U.S.) last year – a sharp drop that has forced the city’s energy industry into survival mode. ConocoPhillips and Penn West Petroleum on Tuesday shed a combined 900 positions, adding to thousands of job losses that have piled up as companies dial back spending and halt drilling projects. Alberta’s oil-dependent economy is now expected to contract by 0.6% this year and its deficit could top $6.5-billion (Canadian) as the downturn intensifies, the province’s NDP government said this week.

The price of a bailout.

• Tens Of Thousands Of Greek Companies Fear Closure In Coming Months (Kath.)

Many of the country’s very small enterprises believe the returning recession and the capital controls are likely to finally put them out of business, with about 30% of them facing the threat of closure in the next six months, a survey by the Small Enterprises’ Institute of the Hellenic Confederation of Professionals, Craftsmen and Merchants has shown. It is estimated that the number of enterprises in Greece will drop by about 63,000 in the next six months, and the toll will be higher for very small companies. Indications that appeared in the second half of last year suggesting that the country was finally emerging from its recession have been eclipsed in the last couple of months.

According to the study’s baseline scenario, business closures will lead to some 138,000 people losing their jobs (including employers, the self-employed and salary workers), of whom about 55,000 will be salary workers. In the first half of the year, total job losses in small and very small enterprises amounted to 25,000, of which 15,000 concerned salary workers. The marginal decline in the jobless rate, which came to 25% in May according to the latest ELSTAT figures, seems unlikely to be reproduced in the second half of the year: The survey showed that over 20% of enterprises consider it probable they will have to lay off staff in the next six months. This rate is considerably greater (40.2%) among enterprises employing more than five people.

Three in every seven businesses (43%) are facing difficulties in making salary payments, while one in every four reduced its employees’ salaries during the first half of the year. Over two in five enterprises (41.1%) say they are likely to cut salaries or working hours during the latter half of the year.

This can only go wrong, as technohappy does: “Access to storage will be much more valuable than the fossil fuels themselves.”[..] “..Coal producers now see carbon capture as their saviour.”

• Lucky Britain To Win 21st Century Jackpot From Carbon Capture (AEP)

The energy sheikhs of the next generation will not be those who control vast reserves of oil, gas or coal. Sweeping climate rules are about to turn the calculus upside-down. Greater riches will accrue to those best able to capture carbon as it is burned, and are then able to transport it through a network of pipelines and store it cheaply a mile or more underground. As it happens, Britain is perfectly placed to win the jackpot of the 21st century. China and the US – the twin CO2 giants – have already reached a far-reaching deal to curb greenhouse gases. China has pledged to cap total emissions by 2030. Mexico has vowed to cut gases by 40pc within 15 years, and Gabon by even more. The poisonous North-South conflict that doomed the Copenhagen summit in 2009 has given way to a more subtle mosaic of interests.

There is a high likelihood that 40,000 delegates from 200 countries will agree to legally-binding rules at the COP 21 climate talks in Paris in December. As a matter of pure economics, it makes no difference whether or not you accept the hypothesis of man-made global warming. The political argument has been settled by the world’s dominant powers. The messy compromise will fall far short of capping carbon emissions at 3,000 gigatonnes, the outer limit deemed necessary by scientists to stop temperatures rising by more than two degrees Celsius above pre-industrial levels. (We have used up two-thirds) But it will probably usher in some sort of regime that puts a “non-trivial” price on burning carbon, the first of several escalating accords. Eventually it will be draconian.

“I don’t think people have fully realised that there is a finite budget, and when it’s used up, that’s it,” said Professor Jon Gibbins from Edinburgh University. “We will have to go negative and capture carbon from the air, which will be very expensive.” A new report by Cititgroup – “Energy Darwinism” – says an ambitious COP 21 implies that a third of global oil reserves, half the gas and 80pc of coal reserves cannot be burned, unless carbon capture and storage (CCS) comes to the rescue. It is precisely this prospect of “fossil-dämmerung” that is at last concentrating the mind. The fossil industry itself is embracing the CCS revolution because its own survival depends on it in a “two degree” political world.

Carbon capture has long been dismissed as a pipe-dream. But as so often with technology, the facts on the ground are rapidly pulling ahead of a stale narrative. The Canadian utility SaskPower has already retro-fitted a filtering system onto a 110 megawatt (MW) coal-fired plant at Boundary Dam, extracting 90pc of the CO2 at a tolerable cost. It used Cansolv technology from Shell. “We didn’t intend to build the first one in the world, but everybody else quit,” said Mike Monea, the head of the project. “We have learned so much from the design flaws that we could cut 30pc off the cost of the next plant, but it is already as competitive as gas in Asia,” he said. The capture process uses up 18pc of the power – a cost known as the “parasitic load” – but it is less than the 21pc expected.

Greece and Latvia.

• Two More European Countries Ban Monsanto GMO Crops (EcoWatch)

Two more European countries are rejecting genetically modified organisms (GMOs). Lativia and Greece have specifically said no to growing Monsanto‘s genetically modified maize, or MON810, that’s widely grown in America and Asia but is the only variety grown in Europe. Latvia and Greece have chosen the “opt-out” clause of a European Union rule passed in March that allows member countries to abstain from growing GM crops, even if they are authorized by the EU. Scotland and Germany also made headlines in recent weeks for seeking a similar ban on GMOs. According to Reuters, in many European countries, there is widespread criticism against the agribusiness giant’s pest-resistant crops, claiming that GM-cultivation threatens biodiversity.

Monsanto said it would abide by Latvia’s and Greece’s request to not grow the crops. The company, however, accused the two countries of ignoring science and refusing GMOs out of “arbitrary political grounds.” In a statement, Monsanto said that the move from the two countries “contradicts and undermines the scientific consensus on the safety of MON810.” Monsanto also told Reuters that since the growth of GM-crops in Europe is so small, the opt-outs will not affect their business. “Nevertheless,” the company continued, “we regret that some countries are deviating from a science-based approach to innovation in agriculture and have elected to prohibit the cultivation of a successful GM product on arbitrary political grounds.”

According to NewsWire, the EU’s opt-out clause “directly confronts U.S. free trade deal supported by EU, under which the Union should open its doors widely for the US GM industry.” In a statement on Thursday, the European Commission confirmed its zero-tolerance policy against non-authorized GM products. The commission said that it’s also consulting with the European Food Safety Authority (EFSA) in order to answer “a scientific question” on GMO crops that’s unrelated to trade negotiations with the U.S. The EFSA announced that it would release a scientific opinion on the question by the end of 2017.

Debt Rattle August 10 2015

Aug 102015

August 10, 2015 Posted by Raúl Ilargi Meijer at 11:25 am Finance Tagged with: canaries, China, commodities, democracy, Finland, GMO, Greece, refugees, Varoufakis 3 Responses »

NPC Congressman John C. Schafer of Wisconsin 1924

• Why Commodities Are Dying The Death Of 1,000 Cuts (CNBC)

• The Canaries Continue To Drop Like Flies (Mark St.Cyr)

• China’s Hard Landing Suddenly Gets a Lot Rougher (WolfStreet)

• Quantitative Easing With Chinese Characteristics Takes Shape (Bloomberg)

• China Slashes U.S. Debt Stake by $180 Billion – and Bonds Shrug (Bloomberg)

• The Monetary Superpower Strikes Again (David Beckworth)

• Greece Hopes to End Bailout Talks by Tuesday (Bloomberg)

• Finland Throws Support Behind Greek Bailout It Says Won’t Work (Bloomberg)

• Berlln Faces Isolation As Athens And Creditors Near €86 Billion Accord (FT)

• Democracy At The Heart Of Fight For Greece (FT)

• Analysis: Varoufakis Vs Media Manipulation (Press Project)

• Portugal Cautioned By IMF Over Debt Sustainability (FT)

• In Southern Europe, Bank Share Sales Can Hit Depositors Hard (WSJ)

• Scotland To Issue Formal Ban On GMO Crops (Guardian)

• Good For Migrants, Good For Britain (Philippe Legrain)

• ‘Marauding’ Migrants Threaten Standard Of Living: Foreign Secretary (Guardian)

• Germany Has a Refugee Problem, and the Problem Is the Germans (FP)

“..Carlyle Group saw the holdings of a commodities fund it owns plummet from $2 billion to $50 million, due to bullish bets on a host of commodities.”

• Why Commodities Are Dying The Death Of 1,000 Cuts (CNBC)

Commodities are the gift that keep on not giving. The sector is in the throes of an ‘annus horribilis’, having gotten wrecked over the past few years despite massive liquidity that should have boosted their value. Bullish investor after bullish investor has tried to call a bottom, in a set of calls that now appear ill-conceived and money losing. In the past week, the S&P GSCI Commodity Index has dropped 3.4 in the past week, as crude oil plunged 7% to hit multi-month lows, and a host of metals fell alongside it. That, of course, hardly marks the first big drop for the alternative investment group. That widely watched commodity index has fallen 17% the last three months, and a whopping 42% in the past two years. It’s not just an energy issue, either.

Copper, platinum, lumber, coffee, sugar, wheat, oats and lean hogs are all down double-digit percentages this year. While each specific commodity obviously responds to its own distinct supply-and-demand dynamics, a few fundamental factors appear to be weighing on commodities as a whole. First of all, the U.S. dollar has risen nearly 8% this year against a basket of major currencies, and has rediscovered some of its strength in the past three months. A strong dollar tends to be bad for commodities, as it should mean that it takes fewer dollars to buy the same amount of a given fixed asset. And in fact, many investors bought commodities to get protection from a Federal Reserve stimulus-stoked rise in inflation that never came.

As the Fed ended its QE program—and now appears months away from raising rates—what now appears to have been a massive bubble in commodities like gold has slowly popped. But Fed fears didn’t form the only bull case for commodities. Others maintained that the global economy would heat up, leading to greater demand for industrial commodities like oil and copper. Instead, Europe has been a mess, and that great commodity consumer China has seen its economy continue to slow. The losses in the complex have been dramatic indeed. The Astenbeck commodities fund managed by famed trader Andy Hall tumbled 17% in July. And the WSJ said last week that private equity firm Carlyle Group saw the holdings of a commodities fund it owns plummet from $2 billion to $50 million, due to bullish bets on a host of commodities.

“That was not a “canary” but rather a “dodo.”

• The Canaries Continue To Drop Like Flies (Mark St.Cyr)

One would think as “canary” after “canary” falls silent either sickened with laryngitis, or worse – completely comatose, that those on Wall Street as well as the financial media itself would not only have seen, but heard, many of the warning calls that have been obvious for quite some time. Yet, history always shows; not only do they not see, but more often than not – they don’t want to see, nor hear the warning calls. Even when all the warning signs are screaming danger – not only are they ignored, they’re explained away as if those which saw or heard them, should be ignored as they’ll contend not only did one not see; but couldn’t see. What they’ll propose is: “That was not a “canary” but rather a “dodo.” After all, with a Fed that’s as interactive as this one currently is, surely what they believe they heard, or saw is impossible.

For people say they’ve spotted warning signs in these ‘markets’ for years, and none have yet produced a crisis because – they’re now extinct!” Yet, the wheezing sounds of many a Wall Street songbird has been apparent for quite a while. Again: If only one would care to look or listen. Back in April of 2014 in an article titled “The Scarlet Absence Of A Letter of Credit” I opined a few scenarios as to why this seemingly dismissed revelation by the so-called “smart crowd” should not go unnoticed. For the implications may very well portend far greater reasons too worry in the coming future. Let’s not forget this is some 16 months ago. When the financial media et al were still reciting in unison the wonders to which, “China will be the economy that leads us out of this current malaise.”

“Over the last few years since the financial melt down of 2008, we have seen what many have believed are precursors that may tip the hand of markets as to show just how unhealthy this levitating act fueled by free money has become. And yes there are always false indicators, and we all know correlation doesn’t equal causation. And even more may shrug and think, “No letter of credit, so what.” However, if there were ever a canary in a coalmine worth noting this is one not to let one’s eyes to divert from.

The issue at hand is not just the foolishness of the absence contained in a one-off LOC gamble some company would take. Far from it. It’s the desperation that could be hidden that’s a precursor one has to watch for. For the amount of desperation, or the degree that might be hidden beneath the surface to which a commodity will be sent overseas to another country, a country for all intents and purposes is using that very product as a pseudo currency to back other financial obligations without the requisite document to be paid. Is mind numbingly dangerous in its implications in my view.”

“..568 strikes and worker protests in the second quarter, raising this year’s tally to 1,218 incidents as of June..”

• China’s Hard Landing Suddenly Gets a Lot Rougher (WolfStreet)

This has become a sign of the times: Foxconn, with 1.3 million employees the world’s largest contract electronics manufacturer, making gadgets for Apple and many others, and with mega-production facilities in China, inked a memorandum of understanding on Saturday under which it would invest $5 billion over the next five years in India! In part to alleviate the impact of soaring wages in China. Meanwhile in the city of Dongguan in China, workers at toy manufacturer Ever Force Toys & Electronics were protesting angrily, demanding three months of unpaid wages. The company, which supplied Mattel, had shut down and told workers on August 3 that it was insolvent. The protests ended on Thursday; local officials offered to come up with some of the money owed these 700 folks, and police put down the labor unrest by force.

These manufacturing plant shutdowns and claims of unpaid wages are percolating through the Chinese economy. The Wall Street Journal: The number of labor protests and strikes tracked on the mainland by China Labour Bulletin, a Hong Kong-based watchdog, more than doubled in the April-June quarter from a year earlier, partly fueled by factory closures and wage arrears in the manufacturing sector. The group logged 568 strikes and worker protests in the second quarter, raising this year’s tally to 1,218 incidents as of June, compared with 1,379 incidents recorded for all of last year. The manufacturing sector is responsible for much of China’s economic growth. It accounted for 31% of GDP, according to the World Bank. And a good part of this production is exported. But that plan has now been obviated by events.

Exports plunged 8.3% in July from a year ago, disappointing once again the soothsayers surveyed by Reuters that had predicted a 1% drop. Exports to Japan plunged 13%, to Europe 12.3%. And exports to the US, which is supposed to pull the world economy out of its mire, fell 1.3%. So far this year, in yuan terms, exports are down 0.9% from the same period last year. As important as manufacturing is to China, this debacle is not exactly conducive to economic growth. The General Administration of Customs, which issued the report, added: “We could see relatively strong downward pressure on exports in the third quarter.”

Qe with an extra step built in.

• Quantitative Easing With Chinese Characteristics Takes Shape (Bloomberg)

China’s leaders are increasingly relying on the central bank to help implement government programs aimed at shoring up growth, in an adaptation of the quantitative easing policies executed by counterparts abroad. Rather than bankroll projects directly, the People’s Bank of China is pumping funds into state lenders known as policy banks to finance government-backed programs. Instead of buying shares to prop up a faltering stock market, it’s aiding a government fund that’s seeking to stabilize prices. And instead of purchasing municipal bonds in the market, it’s accepting such notes as collateral and encouraging banks to buy the debt.

QE – a monetary policy tool first deployed in modern times by Japan a decade and a half ago and since adopted by the U.S. and Europe – is being echoed in China as Premier Li Keqiang seeks to cushion a slowdown without full-blooded monetary easing that would risk spurring yet another debt surge. While the official line is a firm “no” to Federal Reserve-style QE, the PBOC is using its balance sheet as a backstop rather than a checkbook in efforts to target stimulus toward the real economy. “It’s Chinese-style quantitative easing,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. “But it’s not a direct central bank asset-purchase plan. China’s easing is indirect and more subtle compared with the U.S. or Japan.”[..]

While there’s been no public unveiling of the strategy, China’s leaders are putting in place plans for the central bank to finance, indirectly, a fiscal stimulus program to put a floor under the nation’s slowdown. China will sell “special” financial bonds worth trillions of yuan to fund construction projects, and the PBOC will provide funds to state banks to buy the bonds, people familiar with the matter said this month. China Development Bank and the Agricultural Development Bank of China – known as policy banks because they carry out government objectives – will issue bonds, people told Bloomberg earlier.

The Postal Savings Bank of China will buy the debt, aided by liquidity from the central bank, according to one of the people. It’s unclear whether by taking on bonds as collateral and delivering cash in return the PBOC’s official balance sheet will expand. In the U.S., the euro region and Japan, central banks have bought securities outright in secondary markets, making the quantitative easing transparent on their books.

Dollars flowing back home.

• China Slashes U.S. Debt Stake by $180 Billion – and Bonds Shrug (Bloomberg)

To get a sense of how robust demand is for U.S. Treasuries, consider that China has reduced its holdings by about $180 billion and the market barely reacted. Benchmark 10-year yields fell 0.6 percentage point even though the largest foreign holder of U.S. debt pared its stake between March 2014 and May of this year, based on the most recent data available from the Treasury Department. That’s not the doomsday scenario portrayed by those who said the size of the holdings – which peaked at $1.65 trillion in 2014 – would leave the U.S. vulnerable to China’s whims. Instead, other sources of demand are filling the void. Regulations designed to prevent another financial crisis have caused banks and similar firms to stockpile highly rated assets.

Also, mutual funds have been scooping up government debt, flush with cash from savers who are wary of stocks and want an alternative to bank deposits that pay almost nothing. It all adds up to a market in fine fettle as the Federal Reserve moves closer to raising interest rates as soon as next month. “China may be stepping away, but there is such a deep and broad buyer base for Treasuries, particularly when you have times of uncertainty,” Brandon Swensen at RBC Global Asset Management said. America has relied on foreign buyers as the Treasury market swelled to $12.7 trillion in order to finance stimulus that helped pull the economy out of recession and bail out the banking system.

Overseas investors and official institutions hold $6.13 trillion of Treasuries, up from about $2 trillion in 2006, government data show. China was a particularly voracious participant, boosting its holdings from less than $350 billion as its economy boomed and the nation bought dollars to keep the yuan from soaring. Now, the Asian nation is stepping back as it raises money to support flagging growth and a crumbling stock market, and allows its currency to trade more freely. The latest update of Treasury data and estimates by strategists suggest that China controls $1.47 trillion of Treasuries. That includes about $200 billion held through Belgium, which Nomura says is home to Chinese custodial accounts.

Da Fed.

• The Monetary Superpower Strikes Again (David Beckworth)

China’s economy has been slowing down for the past few years and many observers are worried. The conventional wisdom for why this is happening is that China’s demographic problems, its credit binge, and the related malinvestment have all come home to roost. While there is a certain appeal to these arguments, there is another explanation that I was recently reminded of by Michael T. Darda and JP Koning: the Fed’s passive tightening of monetary policy is getting exported to China via its quasi-peg to the dollar. Or, as I would put it, the monetary superpower has struck again.

The Fed as a monetary superpower is based on the fact that it controls the world’s main reserve currency and many emerging markets are formally or informally pegged to dollar. Therefore, its monetary policy is exported across the globe and makes the other two monetary powers, the ECB and Japan, mindful of U.S. monetary policy lest their currencies becomes too expensive relative to the dollar. As as result, the Fed’s monetary policy also gets exported to some degree to Japan and the Euro. This understanding lead Chris Crowe and I to call the Fed a monetary superpower, and idea further developed by Collin Gray. Interestingly, Janet Yellen implicitly endorsed this idea in a 2010 speech:

For all practical purposes, Hong Kong delegated the determination of its monetary policy to the Federal Reserve through its unilateral decision in 1983 to peg the Hong Kong dollar to the U.S. dollar in an arrangement known as a currency board. As the economist Robert Mundell showed, this delegation arises because it is impossible for any country to simultaneously have a fixed exchange rate, completely open capital markets, and an independent monetary policy. One of these must go. In Hong Kong, the choice was to forgo an independent monetary policy.

The original context of the monetary superpower argument was that the Fed was exporting its easy monetary policy to the rest of the world in the early-to-mid 2000s. Now the argument is that its normalization of monetary policy is creating a passive tightening of monetary conditions for the rest of the world, especially the dollar peggers like China.

And then the Troika can start stalling again.

• Greece Hopes to End Bailout Talks by Tuesday (Bloomberg)

The Greek government is seeking to conclude talks on a rescue program by Tuesday, leaving enough time for national parliaments to assess the deal so funds can be disbursed for an Aug. 20 payment to the ECB. The four institutions representing Greece’s creditors – the ECB, the IMF, the EC and the European Stability Mechanism – made progress over the weekend on the details of a plan that would make as much as €86 billion available to Greece, according to three people with knowledge of the discussions. Officials are optimistic an agreement will be reached, allowing Greece’s parliament to pass any new required reforms in the middle of the week and paving the way for a meeting of euro-area finance ministers at the end of the week.

The indebted nation needs a quick release of about €20 billion to create a buffer for its banks and to make loan payments. “We are trying to make swift progress in order to have a deal preferably before the 20th of August so the disbursement can be made under the new ESM program,” EC spokeswoman Mina Andreeva told reporters on Aug. 7 in Brussels. Greece and its creditors still need to decide exactly how much money will be required for the bailout, which will be the nation’s third in five years, as well as what reforms will have to be concluded before any money is released, one of the people said. The headway comes as some members of the 19-nation common currency express skepticism that a deal can work.

Finnish Foreign Minister Timo Soini said over the weekend that his government is ready to discuss a new aid plan for Greece but that “we should admit that this isn’t going to work.” Last week, Hans Michelbach, a Bavarian lawmaker who has argued against a deal with Greece, said he didn’t believe a rescue program could be reached in time and other financing arrangements would be needed. Even as the European governments are racing to cinch an agreement before Greece needs to pay €3.2 billion to the ECB on Aug. 20, the situation isn’t as dire as it was earlier this summer; if the leaders fail to disburse the funds in time, Greece could still request a short-term loan from a European fund that has about €5 billion available.

They have that in common with Tsipras. Just make sure to lay the blame where it belongs.

• Finland Throws Support Behind Greek Bailout It Says Won’t Work (Bloomberg)

A third Greek bailout won’t work and will only prolong the difficulties plaguing the euro area, according to Finnish Foreign Minister Timo Soini. But his party, the euro-skeptic the Finns, is ready to discuss another rescue package because allowing Greece to fail would only add to Europe’s costs, he said. “Truth is the strongest force,” Soini said in an interview on Saturday. “We should admit that this isn’t going to work.” Soini shares the skepticism of Greece’s ruling Syriza party, which despite its opposition to further austerity measures, is seeking €86 billion in international loans to stay afloat. Greece is struggling to strike a deal with its creditors as €3.2 billion in debt to the ECB falls due on Aug. 20.

The Finns party, which in April became part of a ruling coalition for the first time, has no choice but to support a bailout since not doing so would cause the three-party government to collapse. That would only open the door for the left-wing opposition, Soini said. “I kept my party in the opposition for four years because of this subject,” he said. “But with this government structure we can’t block the program alone and we’d be replaced.” While Finland drove a hard bargain during Greece’s second bailout, it may no longer have the clout to block a deal. Finland has already made its 1.44 billion-euro contribution to the permanent European Stability Mechanism. Should Europe decide that the future of the euro zone is at stake, a bailout won’t require unanimous backing from members; 85% is enough.

Even without an imminent bailout agreement, a European fund deployed in July to help Greece clear arrears contains about €5 billion and could be tapped again for a bridge loan. According to Soini, bridge financing will do little to solve the long-term fiscal plight Greece faces. “This bridge funding isn’t going to be final solution,” he said. “There’s no solution for this particular problem that doesn’t cost Finnish taxpayers. If Greece collapsed and Grexit would be tomorrow’s reality, we would lose €3-4 billion more or less at once. So I hope that the EU and euro zone, that in due course, we can face the facts and say enough is enough and that we must do something else.”

Replace Schäuble.

• Berlln Faces Isolation As Athens And Creditors Near €86 Billion Accord (FT)

Greece and its creditors are close to reaching an outline deal this week on the debt-laden country’s €86bn rescue programme, amid signs of growing German isolation over its tough stance towards Athens. Significant concessions by Alexis Tsipras and his negotiators in the past month have encouraged other hawkish eurozone members such as Finland to break with Berlin, which wants to hold out longer to squeeze more reforms from Athens. Even previously sceptical EU diplomats now say that a full agreement could be reached by the August 20 deadline, when Athens must make a €3.2bn debt repayment to the ECB. The cautious optimism contrasts sharply with the acrimony at last month’s eurozone summit, which came close to ushering Greece out of the currency bloc before agreeing to negotiate a deal.

The main elements of the proposed deal include spending cuts, administrative reform and privatisations. Remaining sticking points between Athens and its creditors include details of a €50bn privatisation plan and proposals for raising the planned budget surplus, excluding debt interest, to 3.5 per cent of gross domestic product in 2018 from zero this year. Officials in Brussels said an early deal was “ambitious but feasible”. But they emphasised that while this was the “preferable” way forward, the option of a €5bn bridging loan to give negotiators more time, championed by Berlin, was still on the table. As often in the past, Greek officials were the most positive about the likelihood of a breakthrough, expressing confidence that an outline deal could come by Tuesday and be approved by the Athens parliament later this week, despite political divisions and public anger over the terms.

Eurogroup finance ministers would then meet on Friday to approve the deal, leaving time next week for national parliaments in Germany, and the other creditor countries which must vote on the plan, to do so before August 20. One Greek official said: ”If there aren’t any last-minute obstacles raised by our partners, we can wrap up a deal this week.” However, Germany, the biggest creditor, was late last week still holding out for more reforms from Athens, arguing that a two- or three-week bridging loan was better than hurriedly striking an inadequate three-year deal. Jens Spahn, deputy finance minister, tweeted on Friday: “It is better done thoroughly than hastily.” An EU official said that even if Wolfgang Schäuble, Berlin’s hawkish finance minister, dug in his heels, chancellor Angela Merkel would not want Berlin isolated.

Didn’t we pass that point a while back?

• Democracy At The Heart Of Fight For Greece (FT)

The biggest question raised by Syriza’s election victory last January was not about Greece. It was whether any national population that has adopted the euro can meaningfully express a democratic choice. This is a test case of the euro itself. If monetary union and democracy are incompatible, even the euro’s most committed friends need to choose the latter. Fortunately, they are not incompatible. But European policy is premised on the opposite view. Without a change in approach, it must lead to failure. The list of pressures on Greeks’ self-determination is uniquely long. It includes, first, the extraordinary micromanagement of policy by creditors.

Second, the shameless intervention in Greek elections by European leaders who both in 2012 and in 2015 made abundantly clear they wanted Greeks to re-elect the same discredited elites. Third, the huge efforts made to avoid any plebiscitary upset, or even support, of the eurozone’s policy programme. In November 2011, Angela Merkel, the German chancellor, and Nicolas Sarkozy, France’s then-president, bullied Prime Minister George Papandreou out of an attempt to establish Greek ownership of the second rescue loan (and the attached conditions) through a referendum. While the eurozone failed to scare Syriza off from holding a ballot this June, it was not for the lack of trying. Why this astonishingly prickly attitude to letting people make a choice?

The answer is as obvious as it is worrying: Europe’s leaders fear that the people will make the wrong choice. In Greece, opinion polls have been remarkably consistent about two things: most Greeks want to keep the euro as their currency, and most also reject the policies imposed by the creditor institutions previously known as the troika. That is what the “no” landslide this summer meant; and it is what Mr Papandreou’s referendum would also have shown had it not been aborted. It is the expression of this particular preference — keep the euro, but with different policies — that the eurozone political elite has done everything it can to prevent.

Nice study. Translation could be better. The Press Project tries to give Greece an actual news outlet.

• Analysis: Varoufakis Vs Media Manipulation (Press Project)

There comes a point in any crisis where we have to look at all the players involved and ask who ultimately is responsible, in other words, where does the buck stop? In the case of Greece it’s rather muddled, there are more villains than a Tarantino movie. But it appears that the former Finance minister, Yiannis Varoufakis, has found himself with the finger of blame pointing squarely at him. The “revelation” that Varoufakis had a contingency plan for Grexit after all has led to the filing of two lawsuits, one by the Mayor of Stylida and the other by the head of a new political party Teleia – which translates as ‘full-stop’ (yes really). At the moment Varoufakis is protected by political immunity and will not have to face trial unless the Greek Parliament decrees otherwise.

But as talk of ‘treason’ gains traction it’s important to remember what our frame of reference for all of these events is – the media. Everything we think we know about this crisis, every opinion we have formed and our knowledge of the people involved, including Varoufakis, starts with what we read and watch and how we then process that narrative or ‘story.’ It’s important to grasp that news narratives come with an array of potential variables that might influence how we see them, the cultural experiences of the author for example or the pre held-prejudices of the reader. The question then is how those involved, whether it’s the IMF, Greece or the EU, can push the public to accept their version of the narrative because capturing the public’s much coveted validation provides a cloak of legitimization for decisions.

The answer is media manipulation. The systematic warping of news narratives happens everyday almost everywhere. To demonstrate this we can start by doing what governments and institutions such as the EU do daily – analyze the media output. In the run-up to the Greek elections in January, when it was looking likely that Syriza would win, global news related to ‘corruption’ in Greece skyrocketed and has maintained relatively high levels until now. Yet, during the same period no major corruption scandals came to light. Syriza as a virgin government can claim to be untainted at that time. So why with the arrival of Syriza is there a corruption narrative flooding the airwaves and printing presses and sticking there? The media monitoring software reveals that this ‘corruption related to Greece’ news is present overwhelmingly in the IMF’s homeland – America. It’s important to point out here that stories starting in the US impact massively because they are regurgitated far and wide.

Calling Troika!

• Portugal Cautioned By IMF Over Debt Sustainability (FT)

Even if they had been compiled by his own spin-doctors, Portugal’s latest unemployment figures could hardly have been better for Pedro Passos Coelho, the country’s centre-right prime minister. The last batch of labour market numbers to be published before a general election in October showed the biggest quarterly drop in the country’s jobless rate for at least 17 years — falling by 1.8 percentage points in the second quarter to 11.9%. This is the lowest level since 2010, before painful austerity measures imposed under an international bailout saw unemployment soar to a record 17.5% in 2013.

Mr Passos Coelho’s ruling coalition welcomed the figures as “historic” – trumpeting them as proof that punishing spending cuts and tax increases have turned around a struggling economy and put Portugal definitively on a path towards export-led growth and sustained debt-reduction. But the day after the National Statistics Institute released the jobless figures last week, the euphoria was dashed by a series of sobering warnings from the IMF over the country’s heavy debt burden and a slackening pace of reform. Particularly stinging for the prime minister’s two-party coalition, which is neck-and-neck in the polls with the moderately anti-austerity opposition Socialists, was the IMF’s view that the government faced a “tangible risk” of failing to bring this year’s budget deficit below 3% of national output, as required under EU rules.

Government election pledges to ease austerity, partly by phasing out extraordinary tax charges introduced during the €78bn bailout, would have to be postponed or partially cancelled if insufficient spending cuts were put in place or revenues fell lower than forecast, the IMF warned. João Galamba, a Socialist politician, said that despite Mr Passos Coelho’s “long romance” with the IMF, the Fund’s latest assessment of the Portuguese economy showed that it no longer trusted the government’s forecasts and had been “surprised by its electioneering”.

Why Spain still has bankcs that are going concerns?!

• In Southern Europe, Bank Share Sales Can Hit Depositors Hard (WSJ)

When Spain’s Banco de Sabadell needed to raise nearly $2 billion for its takeover of a British bank this year, it instructed branch employees to sell shares directly to retail customers. One customer said his banker called him several times to entice him to purchase shares. Later, at the branch, the banker placed a 10-by-10-inch box of Nestlé chocolates next to a document and urged him to sign, ceding to Sabadell’s management the right to vote his shares at the annual meeting. The customer, who declined to be named, said he signed and took the chocolates. In southern Europe, which has a tradition of mutually owned or unlisted savings banks, it is a legal and long-standing practice for branch employees to sell stocks and bonds issued by the bank to people who have deposits and loans with the bank.

Sometimes, customers are encouraged to cede their shareholder voting rights to the bank, too. But the practice cost customers dearly during Europe’s financial crisis and is coming under fire anew as an inherent conflict of interest that prioritizes banks’ balance sheets over investors’ pocketbooks. In Portugal, clerks of the now collapsed Banco Espírito Santo sold €550 million ($603 million) in debt from the bank’s parent to retail customers in late 2013. The parent was already in trouble and has since gone bankrupt. Many clients have lost their entire savings. Spanish bank customers were saddled with around €3 billion of paper losses after they bought €7 billion of complex bonds from Banco Santander in 2007. Five years later, the bonds converted into shares that had plummeted in value.

Around 300,000 Bankia depositors also lost millions after they purchased shares in the lender’s ill-fated 2011 initial public offering. Bankia was bailed out in 2012. “The bank should always act in good faith and in the interest of the client,” said Fernando Herrero, spokesman for Spanish consumer association Adicae. But when a bank sells its own securities, he said, “the interest that is going to take priority is the bank’s interest in obtaining financing.”

Might want to hold that next independence vote soon.

• Scotland To Issue Formal Ban On GMO Crops (Guardian)

Scottish ministers are planning to formally ban genetically modified crops from being grown in Scotland, widening a policy divide with the Tory government in London. Ministers in Edinburgh are to apply to use recent EU powers which allow devolved administrations to opt out entirely from a more relaxed regime which is expected to see far more commercial use of GM crops around the EU. The move will reinforce a long-standing moratorium on planting GM crops in Scotland and allow the Scottish National party to further distance itself from the UK government.

Backed by agribusiness, scientific bodies and the National Farmers Union, ministers in London have already signalled that they plan to allow commercial cultivation of GM crops such as maize and oilseed rape in England, despite significant consumer resistance and opposition from environmental groups. The Scottish government announcement on Sunday was silent on whether this new legal power would extend to a ban on scientific and experimental research, but a spokeswoman confirmed that laboratory research on GMOs would continue. Scottish scientists, including those at the James Hutton Institute and the Rowett Institute, have taken a leading role in GM research. The Scottish government’s former chief scientific officer, Dame Anne Glover, who became the EC’s chief scientific adviser before the position was abolished, is a keen advocate of GM crops.[..]

Richard Dixon, director of Friends of the Earth Scotland, said: “The Scottish government has been making anti-GM noises for some time, but the new Tory government has been trying to take us in the direction of GM being used in the UK, so it is very good news that Scottish ministers are taking that stance. “If you are a whisky producer or breeding high-quality beef, you ought to be worried if you don’t want GM but it is going to come to a field near you and you were worried that there was going to be some contamination. It is certainly in Scotland’s interests to keep GM out of Scotland.”

This has long ceased being a rational discussion. Not sure trying to make it one will fly.

• Good For Migrants, Good For Britain (Philippe Legrain)

The chaos in Calais is a nightmare, not least for the 3,000 or so migrants scraping by in makeshift camps. It’s not fun for the 75,000 people of Calais either. And it’s a big disruption for British hauliers and holidaymakers who are delayed, and for people in Kent whose roads are jammed. With £200 billion worth of UK trade transiting between Dover and Calais each year, the Financial Times estimates that the lost trade, including wider costs such as retailers having to write off spoiled food and manufacturers not receiving crucial goods in time, amounts to (a surprisingly large) £250 million a day. Perhaps it would be cheaper to let the migrants come work here instead.

The poor people squatting in squalid conditions in the Jungle outside Calais have risked life and limb to get there from war-torn and repressive places such as Syria, Afghanistan and Eritrea. Now they are again risking death to try to reach Britain through the Channel Tunnel. Such brave, enterprising people are surely just the kind that an open, dynamic country would want to welcome. While the disruption they are causing is large, their numbers are small. The 3,000 in Calais are a tiny fraction of the 219,000 migrants who crossed the Mediterranean Sea to Europe last year. They pale into insignificance compared to the 1.2 million Syrian refugees in Lebanon (local population: 4.4 million). Overall, Britain received only 31,400 asylum applications last year – and most are rejected.

Sweden, with a seventh of our population, received 75,100. The total number of refugees in the UK at the end of 2014 was 117,161: 0.18% of the population. What attracts desperate people to Britain is not the measly benefits for asylum seekers. People don’t spend thousands of pounds risking their lives crossing the Mediterranean to get £36.95 a week in benefits. If welfare was their priority, they’d stay in France. Most asylum seekers wouldn’t need to claim benefits at all if they were allowed to work. But in a futile attempt to deter “economic migrants”, Britain bans asylum seekers from working.

Not a rational discussion, but a sliding scale into dark days not unlik the 1930s.

• ‘Marauding’ Migrants Threaten Standard Of Living: Foreign Secretary (Guardian)

The foreign secretary, Philip Hammond, has weighed in to the debate over migration with some of the government’s strongest language yet, claiming millions of marauding African migrants pose a threat to the EU’s standard of living and social structure. Senior Labour figures responded by accusing Hammond of scaremongering after he claimed Europe “can’t protect itself” if it has to take in millions of migrants from Africa. Speaking to the BBC while visiting Singapore on Sunday, Hammond said: “The gap in standards of living between Europe and Africa means there will always be millions of Africans with the economic motivation to try to get to Europe.”

He said: “So long as there are large numbers of pretty desperate migrants marauding around the area, there always will be a threat to the tunnel security. We’ve got to resolve this problem ultimately by being able to return those who are not entitled to claim asylum back to their countries of origin.” Hammond said EU laws meant migrants could be “pretty confident” that after setting foot on EU soil they would not be returned to their country of origin. “Now that is not a sustainable situation because Europe can’t protect itself, preserve its standard of living and social infrastructure if it has to absorb millions of migrants from Africa.”

Three of the candidates to be Labour’s next leader condemned Hammond’s use of language. Shadow home secretary, Yvette Cooper, described it as “alarmist and unhelpful”, and Liz Kendall said there should be no place for dehumanising language in the debate. Jeremy Corbyn said Hammond’s comments were part of a pattern of language designed to whip up prejudice and hostility.

Or do we think that sliding scale is scarier when it applies to Germany?

• Germany Has a Refugee Problem, and the Problem Is the Germans (FP)

Anti-refugee sentiment has touched a nerve at a time when record numbers of people are seeking shelter in Germany. The government received nearly 203,000 asylum applications last year – more than twice as many as any other country in the EU.The government received nearly 203,000 asylum applications last year – more than twice as many as any other country in the EU. And that number is expected to double by the end of this year. Hundreds of thousands of people fleeing war and persecution, from Syria to Eritrea, are appealing to Berlin for protection. Many receive it. Of the more than 34,000 Syrians who submitted asylum applications in the first half of this year, only seven were denied permission to stay according to data from the Federal Office for Migration and Refugees.

That comes as the European Union is wrangling over a contentious plan to overhaul its immigration system. A recent proposal would see Europe distribute asylum-seekers according to a quota system, based on a country’s size, economy, and other factors. Britain and a host of Eastern European nations have refused. Germany, which stands to take in the most asylum-seekers under the new proposal (18.4%), supports the plan: It would help regulate how many migrants Berlin is expected to shelter as waves of asylum-seekers continue to arrive. Authorities here have been unprepared for the influx. Aydan Özoguz, the Federal Commissioner for Migration, Refugees and Integration, said the government has just approved 2,000 new positions to help work through a backlog of over 240,000 asylum applications.

The responsibility for housing refugees falls on states, and they have hastily arranged makeshift reception facilities in gyms and tents. Chancellor Angela Merkel’s government committed an additional 1 billion euros for support. But refugee groups say Berlin has consistently underestimated the amount of time and funds needed. “The [federal] government has reacted far too slowly in allocating more money towards shelters for asylum-seekers — that would help relieve the burden on states,” said Marei Pelzer of Pro Asyl, a refugee organization based in Frankfurt. “A lot has been discussed and announced but very little has been implemented.” “It’s still not a lot of people for such a large and rich country like Germany,” she added.

The commissioner, Aydan Özoguz, says the government has instituted some important changes – freeing up asylum-seekers to find jobs while they wait for their applications to be processed, for example. The rest takes time. “I find it a bit dishonest when people say we could have been better prepared — you can’t just create an apartment building in one year, not in the amount we need,” she said. “I think we’re doing a really good job.”

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