Sep 052018
 
 September 5, 2018  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , , , ,  


Henri Matisse Luxury, calm and pleasure 1904

 

JP Morgan Warns Next Crisis To Have Flash Crashes And Social Unrest (CNBC)
Share Buybacks Boost Earnings (Roberts)
Mueller To Accept Written Answers From Trump In Russia Probe (Ind.)
Senior Diplomat Exposes US Meddling In Russian Election (ZH)
Google Bosses Expected To Snub Senate (BBC)
Mervyn King Attacks ‘Incompetent’ Brexit Approach (BBC)
Angela Merkel Admits Collapse Of Brexit Talks Cannot Be Ruled Out (G.)
Mark Carney Willing To Stay On As BoE Governor To Help ‘Smooth’ Brexit (Ind.)
US ‘Could Have Forced A Greek Debt Haircut’ – Ashoka Mody (K.)
Eight Bird Species Are First Confirmed Avian Extinctions This Decade (G.)

 

 

Yeah, I know, the Woodward book. No objective views available. Lots of sensational quotes subject to interpretation. Tons of voices saying for instance that Trump wanted Mattis to kill Assad, even ordered him to. But Woodward writes that Trump said: “Let’s fucking kill him! Let’s go in. Let’s kill the fucking lot of them..”. That doesn’t sound like an order. That’s a first reaction from someone who’s been fooled by his own staff into believing Assad was responsible. Normal first reaction. Not an order. We’ll get some more balance, but it won’t come from the MSM.

 

Liquidity, volatility, fighting in the streets.

JP Morgan Warns Next Crisis To Have Flash Crashes And Social Unrest (CNBC)

Sudden, severe stock sell-offs sparked by lightning-fast machines. Unprecedented actions by central banks to shore up asset prices. Social unrest not seen in the U.S. in half a century. That’s how J.P. Morgan Chase’s head quant, Marko Kolanovic, envisions the next financial crisis. The forces that have transformed markets in the last decade, namely the rise of computerized trading and passive investing, are setting up conditions for potentially violent moves once the current bull market ends, according to a report from Kolanovic sent to the bank’s clients on Tuesday. His note is part of a 168-page mega-report, written for the 10th anniversary of the 2008 financial crisis, with perspectives from 48 of the bank’s analysts and economists.

Kolanovic, a 43-year-old analyst with a Ph.D. in theoretical physics, has risen in prominence for explaining, and occasionally predicting, how the new, algorithm-dominated stock market will behave. The current bull rally, the longest in modern history by some measures, has been characterized by extended periods of calm punctuated with spasms of selling known as flash crashes. Recent examples include a nearly 1,600 point intraday drop in February and a 1,100 point decline in August 2015. “They are very rapid, sharp declines in asset values with sharp increases in market volatility,” Kolanovic, the bank’s global head of macro quantitative and derivatives research, said in a recent interview. But those flash crashes occurred during a backdrop of a U.S. economic expansion; the new market hasn’t been tested in the throes of a recession, he said.

“If you have these liquidity-driven sharp sell-offs that come at the end of the cycle, or maybe even causes the end of the cycle, then I think you can have a much more significant asset price correction and even more significant increase in market volatility,” Kolanovic said. [..] Kolanovic closes his report on an ominous note: “The next crisis is also likely to result in social tensions similar to those witnessed 50 years ago in 1968.”

Read more …

Tyler labeled it the graph of the decade. That may be a bit much, but it’s good to point out that earnings rise ONLY because there are so many fewer outstanding shares. Buybacks don’t only raise share prices, they raise earnings numbers too.

Share Buybacks Boost Earnings (Roberts)

[..] while top line SALES fell, bottom line revenue expanded as share buybacks and accounting gimmickry escalated for the quarter. The question is whether sales dramatically expanded in Q2? Given some of the recent economic data, we have our doubts and expect a smaller increase. (I will update this chart when S&P updates the sales/share figure for Q2) As shown in the chart below, the biggest support for earnings expansion in Q2 continues to be the dramatic decline in shares outstanding.

Of course, such should not be a surprise. Since the recessionary lows, much of the rise in “profitability” have come from a variety of cost-cutting measures and accounting gimmicks rather than actual increases in top-line revenue. While tax cuts certainly provided the capital for a surge in buybacks, revenue growth, which is directly connected to a consumption-based economy, has remained muted. Since 2009, the reported earnings per share of corporations has increased by a total of 353%. This is the sharpest post-recession rise in reported EPS in history. However, the increase in earnings did not come from a commensurate increase in revenue which has only grown by a marginal 44% during the same period and declined from 49% in Q1.

The reality is that stock buybacks create an illusion of profitability. If a company earns $0.90 per share and has one million shares outstanding – reducing those shares to 900,000 will increase earnings per share to $1.00. No additional revenue was created, no more product was sold, it is simply accounting magic. Such activities do not spur economic growth or generate real wealth for shareholders. However, it does provide the basis for with which to keep Wall Street satisfied and stock option compensated executives happy.

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if Mueller does anything in the public eye before the mid terms are over, expect chaos.

Mueller To Accept Written Answers From Trump In Russia Probe (Ind.)

Special Counsel Robert Mueller will accept written answers from President Donald Trump on whether his campaign conspired with Russia to interfere in the 2016 US election, but Mr Mueller is not ruling out a follow-up interview on that issue, Mr Mueller’s offer to accept written responses from the president on questions about possible collusion was contained in a letter that Mr Trump’s lawyers received on Friday, a person familiar with the matter said on Tuesday. Mr Trump’s legal team and Mr Mueller’s investigators have been negotiating for months over whether the president will be formally interviewed in the probe.

The president’s team have not yet answered the letter. After receiving the written responses, Mr Mueller’s investigators would decide on a next step, which could include an interview with Mr Trump, the person said. The letter was first reported by the New York Times. It was not immediately clear what those conditions mean for other avenues Mr Mueller is exploring, including whether the president sought to obstruct the Russia investigation through actions such as the firing last year of former FBI Director James Comey.

Read more …

And there is Google.

Senior Diplomat Exposes US Meddling In Russian Election (ZH)

As Russian citizens prepare to head to the polls on Sunday to vote in regional elections, a senior Russian diplomat has revealed that Moscow has uncovered a US interference effort involving a Silicon Valley tech giant and activists opposed to the government of Russian President Vladimir Putin. Following a briefing on the matter, senior Russian diplomat Andrey Nesterenko told Russia’s Interfax news agency that the US “certainly does” meddle in the Russian electoral processes, as RT reported. The revelation followed reports that Russia has resumed a major airstrike of a reputed terrorist stronghold in Idlib province over the objections of President Trump, who warned that such a strike would be a humanitarian disaster.

“Our collective opinion is that electoral sovereignty is a principle that all civilized nations should respect” the diplomat said, adding that Moscow will notify “our American partners that the actions of their media outlets allow us to state that they are close to breaking Russian law.” Specifically, Nesterenko was referring to a possible violation of Russian election laws by Google parent Alphabet, which hosted advertisements for an illegal campaign rally organized by Russian opposition leader Aleksey Navalny. Navalny is calling for protests to denounce the vote, which he believes is biased. To help spread the word, Navalny’s public movement is using paid ads on Google services like YouTube. However, holding an event dedicated to an election campaign on the same day as the vote goes against Russian law.

The Russian Central Election Commission, media watchdog Roskomnadzor, and the Russian Anti-monopoly Service have reportedly informed Google about these illegal activities being carried out on its platform. “Living in a proper law-abiding nation, we expect every actor to play by the rules. Especially an informed player. If the opposite happens, I believe we have tools at our disposal [to address that],” Andrey Kashevarov, the deputy head of FAS, said.

Read more …

It’s like an all-out power game.

Google Bosses Expected To Snub Senate (BBC)

When Silicon Valley companies once again appear in front of the US Senate on Wednesday, there will be one major absentee: Google. The Senate Intelligence Committee wanted to hear from Sundar Pichai, Google’s chief executive, or his boss Larry Page, the chief executive of Google’s parent firm, Alphabet. Barring a dramatic, last-minute change of plan, the BBC understands neither will attend. It would mark the first time a technology firm has refused to comply with the wishes of Congress since the wide-reaching inquiries into misinformation and meddling began in the wake of the 2016 election. Google had instead hoped to send Kent Walker, one of its top lawyers. The offer was abruptly shut down by the committee.

Its vice chairman, the Democratic Senator Mark Warner, said an empty chair would be left out to represent Google’s non-appearance. Eventually, senators may issue a subpoena, forcing an appearance under the threat of prosecution. “If Google thinks we’re just going to go away, they’re sadly mistaken,” said Senator Warner, speaking to Wired magazine. The hearing, scheduled to begin at 09:30 (13:30 GMT), is entitled “Foreign Influence Operations’ Use of Social Media Platforms”. As well as Google, Twitter and Facebook have been called to appear. Twitter will be represented by its chief executive, Jack Dorsey, while Facebook is sending its chief operating officer, Sheryl Sandberg. It will be the first time either executive has faced a congressional committee.

[..] The affair risks becoming a public relations crisis for Google, which just last week was doing its best to bat back claims from President Donald Trump that it was censoring conservative news outlets in its search results. The White House did not provide any evidence to support the president’s complaints, but the topic may well come up at Wednesday’s hearing. “I don’t know if it’s because [Page] wants to avoid being asked about those things or because they think they’re so important and so powerful that they don’t need to provide congressional testimony,” said Republican Senator Marco Rubio, speaking to the Washington Post. He also told the newspaper: “They should be careful with that. When a company gets too big to become accountable, they become a monopoly.”

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No kidding.

Mervyn King Attacks ‘Incompetent’ Brexit Approach (BBC)

Former Bank of England governor Lord King has blasted Brexit preparations as “incompetent”. The Brexit supporter said it “beggared belief” that the world’s sixth-biggest economy should be talking of stockpiling food and medicines. This left the government without a credible bargaining position, he said. “A government that cannot take action to prevent some of these catastrophic outcomes illustrates a whole lack of preparation,” he said. “It doesn’t tell us anything about whether the policy of staying in the EU is good or bad, it tells us everything about the incompetence of the preparation for it.” Lord King said the 11th-hour preparation for a no-deal Brexit had undermined the government’s negotiating position.

He added: “We haven’t had a credible bargaining position, because we hadn’t put in place measures where we could say to our colleagues in Europe, ‘Look, we’d like a free-trade deal, we think that you would probably like one too, but if we can’t agree, don’t be under any misapprehension, we have put in place the measures that would enable us to leave without one.'” He predicts that we will find ourselves with what’s been dubbed as Brino – Brexit in name only – which he said was the worst of all worlds. It’s also a state of affairs that he fears could drag on for years. “I think the biggest risk to the UK, and this is what worries me most, is that this issue isn’t going to go away, you know the referendum hasn’t decided it, because both camps feel that they haven’t got what they wanted.”

Lord King expressed regret and surprise that it was more difficult for a single country to present a united front than the other 27 EU members. He said: “They must have been really worried that they had 27 countries to try to corral, how could they have a united negotiating position, they were dealing with a country that was one country, made a clear decision, voted to leave, it knew what it wanted to do, how on earth could the EU manage to negotiate against this one decisive group on the other side of the Channel? “Well, the reality’s been completely the opposite. The EU has been united, has been clear, has been patient and it’s the UK that’s been divided without any clear strategy at all for how to get to where we want to go.”

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Maybe at this point Merkel should be more outspoken?

Angela Merkel Admits Collapse Of Brexit Talks Cannot Be Ruled Out (G.)

Angela Merkel has warned her country’s business leaders that the Brexit negotiations are in danger of collapse. With talks in Brussels at an impasse with just months to go before a deal needs to be agreed, the German chancellor made a rare intervention at a conference in Frankfurt. She told major players in the world of German finance on Tuesday: “We don’t want the discussions to break down. We will use all our force and creativity to make sure a deal happens. We don’t want these negotiations to collapse. But we also can’t fully rule that out because we still have no result.” The EU says it needs a deal to be struck on the withdrawal agreement covering citizens’ rights, the £39bn divorce bill and the Irish border, along with the political declaration on the future deal, by November at the latest.

The German chancellor has generally played a backseat role in the talks, preferring to intervene only at crunch points at EU summits. EU leaders are due to meet in Brussels in October, but an emergency summit is being pencilled in for 13 November in case the negotiations require an extra few weeks for agreement to be made. The leaders will be gathering at a summit in Salzburg later this month where the EU27 are planning a “carrot and stick” approach to Brexit, offering Theresa May warm words on the Chequers proposals to take to the Conservative conference alongside a sharp warning that they need a plan for Northern Ireland within weeks.

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Using the words ‘Brexit’ and ‘smooth’ in one sentence is just comedy. Wonder what they had to promise him. Knighthood?

Mark Carney Willing To Stay On As BoE Governor To Help ‘Smooth’ Brexit (Ind.)

Mark Carney told MPs on Tuesday that he was willing to stay on as governor of the Bank of England beyond his planned departure date in order to “smooth” the Brexit process. Mr Carney had planned to step down in June 2019 after six years in Threadneedle Street’s top job, two years fewer than BoE governors normally serve. But, asked by MPs on the Treasury Committee whether he would stay, Mr Carney said: “Even though I have already agreed to extend my time to support a smooth Brexit, I am willing to do whatever else I can in order to promote both a smooth Brexit and effective transition at the Bank of England.”

“The chancellor and I have discussed this. I would expect an announcement to be made in due course.” The comments come after mounting speculation in recent days that the Treasury would like Mr Carney to stay on in his role, providing more continuity during uncertain economic times. There are fears that few candidates will put themselves forward for the job as the Brexit negotiations reach a critical stage.

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“What was the basic demand of SYRIZA? To tie debt repayments to GDP and so reduce the level of austerity. Any good economist will tell you that was a very reasonable starting point for the negotiation.”

US ‘Could Have Forced A Greek Debt Haircut’ – Ashoka Mody (K.)

“The fundamental reason why the Greek crisis lasted so long was the extreme level of austerity that was imposed.” That is the verdict of Ashoka Mody, visiting professor in International Economic Policy at Princeton University, a former deputy director of the IMF’s European Department and one of the most eloquent critics of the policies of the troika in Greece and elsewhere. Mody, who recently published a long-form version of these critiques in his book “EuroTragedy: A Drama in Nine Acts”, spoke to Kathimerini about the Greek crisis and those to blame for it. We began by discussing what many consider the original sin of the bailout period: the decision not to restructure Greece’s debt in May 2010. What should the IMF have done?

“It should have insisted, it should have made the restructuring a condition of its participation,” the Indian-born economist said, mentioning that the staff report all but admitted the debt was unsustainable and that Dominique Strauss-Kahn later said he was in favor of debt relief. “The reason it didn’t happen was the ideological opposition of the European Central Bank – in this case supported by the US Treasury. Strauss-Kahn did not want to offend either the Americans or the Europeans. The stance of the US Treasury was critical – if its representative on the Executive Board had come out in favor of a restructuring, it would have happened. Instead, it sided completely with the European viewpoint – the Treasury secretary, Tim Geithner, believed that there should never be a restructuring in the midst of a crisis.”

Regarding the argument that the problem in Greece (compared with other bailout countries) was there was no ownership of reforms, Mody said: “It is indeed the case that IMF programs only succeed when there is ownership. The question is what were Greeks asked to own. The arithmetic of austerity was relentless, cruel. Whatever the Greeks did, with austerity on such a scale they could not have escaped the collapse in gross domestic product. And then things became even worse, because the recession led to targets being missed, which led to more measures! The IMF published studies at the time showing what a terrible idea it was to impose further austerity in a recession, how it worsens the debt-to-GDP ratio. Yet the IMF kept doing it in Greece, ignoring all its internal studies!”

[..] The conversation turned to 2015. How does he think the creditors should have handled SYRIZA differently? “Look, even before SYRIZA came to power, Wolfgang Schaeuble said that elections do not matter. On January 31, 2015, six days after the election, Erkki Liikanen, the head of the Finnish central bank, says that if the new government does not accept the program, the ECB will cut liquidity support for Greek banks. Four days later, the ECB withdraws the waiver [which allowed the banks to borrow cheaply from it, using Greek government bonds as collateral]. And in June, the Europeans close down the banks. What was the basic demand of SYRIZA? To tie debt repayments to GDP and so reduce the level of austerity. Any good economist will tell you that was a very reasonable starting point for the negotiation.”

Read more …

More of my friends are leaving every day. Some don’t even say goodbye.

Eight Bird Species Are First Confirmed Avian Extinctions This Decade (G.)

Spix’s macaw, a brilliant blue species of Brazilian parrot that starred in the children’s animation Rio, has become extinct this century, according to a new assessment of endangered birds. The macaw is one of eight species, including the poo-uli, the Pernambuco pygmy-owl and the cryptic treehunter, that can be added to the growing list of confirmed or highly likely extinctions, according to a new statistical analysis by BirdLife International. Historically, most bird extinctions have been small-island species vulnerable to hunting or invasive species but five of these new extinctions have occurred in South America and are attributed by scientists to deforestation.

Stuart Butchart, BirdLife International’s chief scientist, said the new study highlighted that an extinction crisis was now unfolding on large continents, driven by human habitat destruction. “People think of extinctions and think of the dodo but our analysis shows that extinctions are continuing and accelerating today,” he said. “Historically 90% of bird extinctions have been small populations on remote islands. Our evidence shows there is a growing wave of extinctions washing over the continent driven by habitat loss from unsustainable agriculture, drainage and logging.” More than 26,000 of the world’s species are now threatened, according to the latest “red list” assessment, with scientists warning that humans are driving a sixth great extinction event.


The Brazilian Spix’s macaw, as seen in the children’s movie Rio, is one of the eight birds to become extinct Photograph: Al Wabra Wildlife Preservation

Read more …

Dec 302017
 
 December 30, 2017  Posted by at 10:28 am Finance Tagged with: , , , , , , , , , ,  


Ansel Adams Evening at McDonald Lake, Glacier National Park 1942

 

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Global Markets End On Record High After Adding $9 Triilion In 2017 (G.)
Value Of US Housing Market Climbs To Record $31.8 Trillion (HW)
Return of Volatility Foreshadowed In Economic Data (BBG)
Trump’s Tax Changes To Blow A $5 Billion Hole In Goldman Sachs Profits (G.)
Doug Casey on the Coming Financial Crisis (CR)
The Year in Trump (Jim Kunstler)
The New Poverty (Alt)
Theresa May’s Infrastructure Czar Quits, Lashing Out at Brexit (BBG)
Rajoy Says Spain Won’t Yield to Blackmail by Catalan Separatists (BBG)
Putin Tells Assad Russia Will Help Defend Syrian Sovereignty (R.)
Greek Banks Offer Borrowers Haircuts Of Up To 90% (K.)
How Did Half Of The Great Florida Coral Reef System Disappear? (G.)

 

 

No, this is not actual value, this is just another bubble in a system built exclusively on bubbles.

Global Markets End On Record High After Adding $9 Triilion In 2017 (G.)

Global stock markets have ended 2017 on record highs, gaining $9tn in value over the year due to a strong worldwide economy, President Donald Trump’s tax cuts and central banks’ go-slow approach to easing financial support. The FTSE 100 hit a new peak in London, with an all-time closing high of 7687.77, having earlier hit a new all-time peak of 7697.62. The leading UK index was boosted by a late surge in mining stocks as commodity prices rose against a weaker dollar and optimism grew about the Chinese economy, leaving the index up 7.6% over the year. In global terms, the MSCI all-country world index gained 22% or $9tn on the year to an all-time high of 514.53.

Even the rival attractions of bitcoin, up nearly 14 times over the year, and concerns about war with North Korea, political upheaval in Europe with the Catalan separatist movement in Spain and an inconclusive German election failed to dampen the party mood. Craig James, chief economist at Sydney-based fund manager CommSec, said that of the 73 bourses it tracks globally, all but nine have recorded gains in local currency terms this year. The key for 2018 will be whether central banks maintain a benign approach to reducing their financial support, he added, with the Federal Reserve and Bank of England raising borrowing costs only gradually this year. Low interest rates and quantitative easing, where central banks buy bonds from financial institutions, have been a major support for investors and asset prices in recent years.

“For the outlook, the key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines,” said James. “Globalisation and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.”

Read more …

And here’s your next bubble. Now, remember, the Fed is set to tighten, taking the fuel for the bubble away with it.

Value Of US Housing Market Climbs To Record $31.8 Trillion (HW)

The total value of all homes in the U.S. increased in 2017 to a total $31.8 trillion, according to the latest report from Zillow. This is up from last year’s record high of $29.6 trillion, data from 2016 shows. This is so high, that total homes in Los Angeles and New York City metro areas are worth $2.7 trillion and $2.6 trillion, respectively, the size of the U.K. and French economies. To put it in perspective, the total value of the housing market is 1.5 times greater than the GDP of the U.S., and nearly three times that of China. This is an increase of $1.95 trillion over the past year, more than all of Canada’s GDP or two companies the size of Apple, Zillow’s report showed. And renters are also now spending more money than ever before on housing, spending a record $485.6 billion in 2017.

This is an increase of $4.9 billion from 2016. Renting in San Francisco is especially expensive as renters collectively paid $616 million more than renters in Chicago, despite having 467,000 fewer renters in San Francisco. Of the 35 largest U.S. markets, most home value growth occurred in Columbus, Ohio, which saw an increase of 15.1% to $152.3 billion in 2017. But home prices continue to increase, fueling the housing market’s value growth. Home prices recently increased in October, and experts are beginning to fear 2018 could lock many potential buyers out of the housing market, forcing them to rent, according to the latest report released by S&P Dow Jones Indices and CoreLogic.

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Stating the obvious.

Return of Volatility Foreshadowed In Economic Data (BBG)

If financial market volatility was given up for dead in 2017, then get ready for a resurrection. To understand why, take a look at the incoming economic data. When the underlying dynamics of the economy change, the data tend to become more volatile before markets react. Economic volatility as expressed by the standard deviation of changes in the monthly data has been on the rise since the summer as the global economy gained strength. Financial market volatility, though, has fallen amid a lack a surprises in central bank policies, receding geopolitical tensions and upbeat corporate earnings. But as history shows, such divergences between economic and financial market volatility only last for brief periods. As such, a rebound in market volatility has the potential to be a key driver of risk premiums, bond yields and valuations in 2018.

Volatility is also linked to “financial vulnerability,” which is an aggregate of indicators such as fiscal and current-account balances, the share of local currency bonds held by nonresidents, and short-term external debt as a percentage of currency reserves. Such vulnerabilities picked up in 2017 as portfolio flows into local emerging-market bond and currency funds swelled by $7.5 billion to 15% of local GDP with the growing popularity of exchange-traded funds. And although the data coming from emerging-market economies have been solid, it’s become more volatile, which contrasts with the drop in financial market volatility brought on by large portfolio flows. Countries such as South Africa and Turkey that are political hot spots have seen portfolio flows increase even though their current-account balances have deteriorated. Historically, market volatility has closely tracked economic volatility in emerging markets.

Read more …

$2.5 trillion coming back home?

Trump’s Tax Changes To Blow A $5 Billion Hole In Goldman Sachs Profits (G.)

Goldman Sachs has said Donald Trump’s radical US tax changes will knock about $5bn (£3.7bn) off its profits this year. The investment bank said most of the cost would come from Trump’s “repatriation tax” designed to encourage multinationals to bring back the trillions of dollars they hold overseas to avoid tax. Goldman, which made profits of $7.4bn last year, said: “The enactment of the tax legislation will result in a reduction of approximately $5bn in the firm’s earnings for the fourth quarter and year ending 31 December 2017, approximately two-thirds of which is due to the repatriation tax. “The remainder includes the effects of the implementation of the territorial tax system and the remeasurement of US deferred tax assets at lower enacted corporate tax rates,” the bank said in a filing with the Securities and Exchange Commission on Friday.

Last week Congress approved the biggest tax overhaul in 30 years, which includes big tax cuts for companies and wealthy people. The reduction in corporation tax – from 35% to 21% – is designed in part to encourage multinational to repatriate cash from overseas. US companies were estimated, by Citigroup, to hold $2.5tn of capital overseas. Companies had previously explained that they had a duty to shareholders to keep the money abroad, rather than bring it back to the US and pay large tax bills. The tax overhaul will allow Apple to bring back its $252.3bn foreign cash mountain without a major tax hit. The huge amount of untaxed profits Apple holds overseas has become a major political football and a headache for the world’s most valuable company. Drugmaker Amgen said last week that it expected to pay $6bn to $6.5bn repatriating its cash to the US.

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More of the obvious, in a long article: “I don’t care that some university gave her a Ph.D., and some politicians made her Fed Chair ..”

Doug Casey on the Coming Financial Crisis (CR)

Justin’s note: Earlier this year, Fed Chair Janet Yellen explained how she doesn’t think we’ll have another financial crisis “in our lifetimes.” It’s a crazy idea. After all, it feels like the U.S. is long overdue for a major crisis. Below, Doug Casey shares his take on this. It’s one of the most important discussions we’ve had all year. Justin: Doug, I know you disagree with Yellen. But I’m wondering why she would even say this? Has she lost her mind?

Doug: Listening to the silly woman say that made me think we’re truly living in Bizarro World. It’s identical in tone to what stock junkies said in 1999 just before the tech bubble burst. She’s going to go down in history as the modern equivalent of Irving Fisher, who said “we’ve reached a permanent plateau of prosperity,” in 1929, just before the Great Depression started. I don’t care that some university gave her a Ph.D., and some politicians made her Fed Chair, possibly the second most powerful person in the world. She’s ignorant of economics, ignorant of history, and clearly has no judgment about what she says for the record. Why would she say such a thing? I guess because since she really believes throwing trillions of dollars at the banking system will create prosperity.

It started with the $750 billion bailout at the beginning of the last crisis. They’ve since thrown another $4 trillion at the financial system. All of that money has flowed into the banking system. So, the banking system has a lot of liquidity at the moment, and she thinks that means the economy is going to be fine. [..] The whole banking system is screwed-up and unstable. It’s a gigantic accident waiting to happen. People forgot that we now have a fractional reserve banking system. It’s very different from a classical banking system. I suspect not one person in 1,000 understands the difference… Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely.

Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money. Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business—nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers.

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“..we’re more likely to land in a return to something more like 1834, with scant central heating, and a lot of suspense about getting a hot meal at sundown. I want a mule…”

The Year in Trump (Jim Kunstler)

There he is, our president, both immovable object and irresistible force, unsmiling with slitty eyes beneath that car-hood of a hair-doo, lumbering from one presidential prerogative to the next through squalls of opprobrium, perplexing leaders from foreign lands, punking congressmen and senators, inducing swoons of un-safeness among the zhes, theys, and thems on campus, provoking the op-ed bards of The Times to mouth-foaming hysterics, tweeting any old thing that flies through the interstices of his brain-pan, our Golden Golem of Greatness, MAGA sword in smallish hand against a swirling red sky. Well, he made it through the year. I thought the fucker would be sandbagged by a claque of Pentagon patriots inside of three months, but I was wrong, wrong, wrong.

What seems to be forgotten is that Donald Trump brought his own swamp to Washington, as in a history of hinky real-estate wheelings-and-dealings, stiffed vendors, bankruptcies, lowbrow TV hijinks, and dark adventures in the Manhattan nightlife of the late 20th century. So, it’s swamp versus swamp. You may detect that I’m not exactly a fan of the president, but I rather admire his standing up to the permanent bureaucracy that we call the Deep State, and especially its elite poobahs, who have driven this polity into a deeper ditch than the voters realize. The Mueller investigation hangs over Trump’s head like a piñata filled with dog-shit, but he soldiers on.

After more than a year, the RussiaGate narrative is looking like something fished out of the Goodwill Industries dumpster, its chief sponsor, the FBI, riddled with conflicts-of-interest, suspicious political motivations, and flat-out partisan animosity. Right now, there’s more reason to suppose Mueller will have to start asking some hard questions about Russia collusion among the Hillary cohort —and don’t forget, there’s that stinky business featuring ex-DNC-Chief Debbie Wasserman-Schultz and her mysterious Pakistani IT go-fer, Imran Awan, waiting in the wings.

[..] I’m skeptical of Trump’s MAGA program. We’re not going to replay the industrial age in North America, and we’re for sure not going to return to the life-ways of 1962. I also doubt that we are heading into a Silicon Valley inspired robotic A-I nirvana of “creative” weenies in flying, pilotless Ubers. Rather, I think we’re more likely to land in a return to something more like 1834, with scant central heating, and a lot of suspense about getting a hot meal at sundown. I want a mule.

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Pay people for work in non-profit-oriented jobs. Education, health care etc. Good for society, and the only way to save these fields.

The New Poverty (Alt)

We define poverty, I suppose, as that living condition which is unable to acquire enough dollars to purchase some, or most, of the basic necessities of life. It also seems to be an accepted notion that a certain amount of “poverty” is a necessary condition of our modern market economy—that a certain segment of the population will always be “unemployable” by the profit-oriented business community, either because they lack skills or because the business community simply does not need their services in order to generate its profits. Nobody really knows what to do with these “unneeded” people. We talk about “retraining” them—but there is no guarantee the profit-seeking business community will need them even with their newly acquired skills. In the meantime, these “unneeded” people don’t know what do with themselves either.

This is, perhaps, the biggest problem of all—though I will not, in this short essay, go into the details of that (except to say that it is contributing to a tragedy that is now disrupting the lives of too many of us). The point is this: It is time to begin imagining specific, concrete solutions to what is becoming a fundamental dilemma of our time. Imagine, for example, that every American citizen over the age of 16 can choose to earn a living-wage in exchange for providing a useful service to their local or regional community. Imagine that every local community has a free health and pharmacy clinic (in conjunction with a free methadone and counseling center)—where some of the employees are the living-wage earners. Imagine further that every local community has a housing co-op system (built in part by some of the living-wage earners) that makes available—to every family that needs it—a basic dwelling unit that is warm, dry, well-ventilated, and which provides for cooking, bathing, sleeping, and family gathering.

Imagine that every local community has at least one community garden and rookery (managed by some of the living-wage earners) which grows, harvests, and processes vegetables, fruits, eggs, cheese—and perhaps fish—for local consumption. Imagine that every local community has at least one pre-school day-care (manned at least in part by some of the living-wage earners) which provides, free of charge, a safe, early child-hood learning environment between the hours of 6 A.M. and 6 P.M. Imagine that every local community has a system of retirement co-housing villages (built and staffed, in part, by the living-wage earners). Imagine, in other words, replacing what we now define as “poverty” with another kind of living condition—we might call it “community subsistence.”

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If he feels so strongly anti-Brexit, why did he agree to be part of May’s government?

Theresa May’s Infrastructure Czar Quits, Lashing Out at Brexit (BBG)

Andrew Adonis quit as Theresa May’s infrastructure czar, but not before delivering a blistering verdict on the Brexit policy being pursued by the U.K. prime minister and her Conservative Party. The Labour peer and former transport secretary described Brexit as a “populist and nationalist spasm worthy of Donald Trump” in a resignation letter published by the Guardian that he confirmed as “accurate” on Twitter. As for May’s flagship piece of Brexit legislation, which cleared the House of Commons in December, Adonis described it as “the worst legislation of my lifetime,” and indicated he’ll oppose it when the House of Lords debates it. “I feel duty bound to oppose it relentlessly from the Labour benches,” Adonis wrote.

“You are pursuing a course fraught with danger…If Brexit happens, taking us back into Europe will become the mission of our children’s generation, who will marvel at your acts of destruction.” Adonis was appointed to the National Infrastructure Commission in 2015 by then Chancellor of the Exchequer George Osborne, to push cross-party consensus over long-term decisions to invest in infrastructure. His departure and pledge to oppose May’s Brexit strategy is another sign that even as Britain leaves the EU, divisions permeate throughout the political establishment.

His departure means 2017 is bookended by resignations for May. Three days into the year, her EU envoy Ivan Rogers unexpectedly quit, depriving her of a key figure in dealing with EU negotiators. And now, days from the end of the year, Adonis is departing with an excoriating verdict on the country’s direction. “Brexit is causing a nervous breakdown across Whitehall,” Adonis wrote. “The government is hurtling towards the EU’s emergency exit with no credible plan for the future of British trade and European cooperation, all the while ignoring – beyond sound-bites and inadequate programs – the crises of housing, education, the NHS and social and regional inequality which are undermining the fabric of our nation and feeding a populist surge.”

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Rajoy calls an election, tries to influence it be jailing some opponents and making sure others remain in exile, then loses anayway and starts blabbing about extortion. Who’s blackmailing who?

Rajoy Says Spain Won’t Yield to Blackmail by Catalan Separatists (BBG)

Spanish Prime Minister Mariano Rajoy set in motion the process for convening a new Catalan parliament and said he wouldn’t allow a new separatist administration to blackmail his government. A session to swear in lawmakers in Barcelona will take place on Jan. 17 before a vote days later to appoint a new regional president if there is a candidate, Rajoy said in an end-of-year news conference in Madrid. Rajoy dissolved the Catalan parliament in October after drawing on emergency constitutional powers to respond to a unilateral declaration of independence from Spain. Elections held last week in the region produced a majority for parties that support independence in a result that threatens to prolong a secession crisis that is damaging Spain’s economy.

“I hope that very soon in Catalonia we can count on a government dedicated to reversing the grave social and economic effects of the crisis of recent months,” Rajoy said. “There’s no room for more appeals for rupture or illegality because the law will not allow it.” Choosing a president for Catalonia won’t be easy for the pro-independence parties with former President Carles Puigdemont in Brussels avoiding arrest and his former deputy, Oriol Junqueras, already in jail. A Supreme Court judge is investigating whether the campaign to split from Spain amounted to a rebellion against the government. Rajoy said his most pressing task for the start of the year would be the need to build consensus for his minority government to pass a budget for 2018.

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Syria is no-go for the US and its allies. Leave it alone. Let them rebuild.

Putin Tells Assad Russia Will Help Defend Syrian Sovereignty (R.)

Russian President Vladimir Putin told his Syrian counterpart Bashar al-Assad in a new year’s greeting that Russia will continue supporting Syria’s efforts to defend its sovereignty, the Kremlin said on Saturday. Earlier this month Putin ordered the Russian forces in Syria to start withdrawing from the country, but said Russia would keep its Hmeymim air base in Syria’s Latakia Province as well as its naval facility at Tartous “on a permanent basis”.

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The Troika will use this to come up with additional demands.

Greek Banks Offer Borrowers Haircuts Of Up To 90% (K.)

Greek lenders are proposing huge haircuts, ranging from 70% to 90%, for borrowers with debts from consumer loans, credit cards or small business loans without collateral. In the context of the sale of a €2.5 billion bad-loan portfolio named Venus, Alpha Bank is using the incentive of major haircuts in letters it has sent to some 156,000 debtors. The fact that this concerns some 240,000 bad loans means that some debtors may have two or three overdue loans. Eurobank is employing the same strategy for a set of loans adding up to €350 million. Most of them range between €5,000 and €7,000 each and have been overdue for over a decade. This means that the banks are expecting to collect a small amount of those debts, coming to €250 million for Alpha and €35 million for Eurobank – in effect accepting that the rest of the debt is uncollectible.

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Man happened.

How Did Half Of The Great Florida Coral Reef System Disappear? (G.)

The great Florida coral reef system stretches hundreds of miles down the eastern seaboard of the US. It is the world’s third largest, and nearly 1,400 species of plants and animals and 500 species of fish have been recorded there. But last year marine scientists found nearly half the reef was missing. They took the latest satellite images, compared them with precisely drawn 250-year-old British admiralty charts and found them nearly identical. But where the historic charts showed there had been extensive coral reefs close to the shore in the 1760s, the satellite maps revealed just sea grasses and mud. Only those reefs far from the shore were still intact and alive with fish and plants. So when and why did so much of the world’s third largest reef system just disappear?

Natural forces like spells of extreme rainfall and heatwaves may have played some part, but it is more likely that man was responsible. In those 250 years, fishing off the Florida Keys intensified, causeways and cities were built, pollution increased and the flow of freshwater, sediments and nutrients from the land all changed. Any of these factors could have led to the stress and decline of the reef, but it probably took a combination to kill off half the corals. Something similar to what took place over 250 years off the Florida coast is now accelerating across reefs around the world as natural and new anthropogenic threats emerge and combine with deadly effect.

Corals are intolerant both of temperature and salinity change and it just takes a rise of 1C for a few weeks or extreme rainfall for them to begin to die. In the past 20 years, extreme weather linked to El Niño events and climate change has hit the world’s shallow reefs hard. Abnormally warm water caused the world’s first recorded widespread coral bleaching in 1998. Stretches of the Great Barrier Reef off Australia, and other reefs off Madagascar, Belize and the Maldives, were left white and seemingly dead. Most recovered because corals survive if conditions return to normal. But since then, widespread bleaching and other events have occurred nearly every year, leaving many of the world’s reefs stressed and vulnerable to disease.

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Mar 152015
 
 March 15, 2015  Posted by at 9:01 am Finance Tagged with: , , , , , , , , ,  


NPC Fred Haas, Rhode Island Avenue NE, Washington, DC 1924

Welcome To A Fed Without Patience (MarketWatch)
US Debt To Hit Legal Limit Again On Monday (MarketWatch)
BP CEO On Oil: ‘It’s Going To Be Very Painful’ (CNBC)
Oil Futures Suffer Nearly 10% Weekly Plunge (MarketWatch)
‘Most Significant Break Between Germany And US Since WWII’ (RT)
Poroshenko: 11 EU States Struck Deal With Ukraine To Deliver Weapons (RT)
Ukraine Says Creditors Face Principal Losses on Dollar Bonds (Bloomberg)
The #ALBA Dawn Of A New Europe (Beppe Grillo)
Presenting An Agenda For Europe, Ambrosetti, Lake Como, 14-3-2015 (Varoufakis)
Greece Has Plenty Of Options. It’s Just That None Are Good (Satyajit Das)
Juncker, Tsipras Agree On Creating Greek Task Force For Reforms (Kathimerini)
Athens Ready To Delay Some Election Pledges, Says Varoufakis (Reuters)
Greece’s Varoufakis Says QE To Fuel Unsustainable Equity Rally (Reuters)
The Greek Election: Why I Went Home To Vote For The First Time (Alex Andreou)
The Power of Le Pen (BBC)
UK Support For China-Backed Asia Bank Prompts US Concern (BBC)
Russia In A Spin As Its Putin Goes Missing (FT)
Is EU Army Intended To Reduce US Influence In Europe? (RT)
Steven Pinker Is Wrong About Violence And War (John Gray)

“We’re in the ninth inning of a zero-rate environment.”

Welcome To A Fed Without Patience (MarketWatch)

Get ready for a central bank without patience. The Federal Reserve on Wednesday is widely expected to remove its pledge to be “patient” in raising short-term interest rates, giving them the flexibility to move as soon as June. This may be the most anticipated Fed meeting in some time as it fundamentally changes policy to a meeting-by-meeting calculation. The Fed has not hiked rates since 2006, and it has kept rates at zero since December 2008 . The Fed will release its policy statement on Wednesday at 2 p.m. Eastern along with its latest economic forecast and the projected interest rate path of the 17 officials. A press conference with Fed Chairwoman Janet Yellen will follow at 2:30 p.m.

Fed watchers said Yellen telegraphed the Fed policy committee’s intentions in her Congressional testimony last month. Read Yellen removes another obstacle to an eventual rate hike. “I would be shocked if ‘patient’ is not removed,” said John Ryding, chief economist at RDQ Economics. “Patient” meant the Fed would not raise rates for two meetings. With formal policy deliberations scheduled for late April and June, the pledge needed to go if a June move was to be on the table. “Enough Fed officials have said they want to have the debate about hiking rates at the June meeting, so it has to come out,” Ryding said. Avery Shenfeld, chief economist at CIBC World Markets, agreed patient would be dropped and said Yellen would use her press conference to stress that the central bank has not made up its mind about a June move.

The Fed chairwoman will stress the Fed is data dependent and a decision will come on a meeting-by-meeting basis. She will highlight some of the mixed messages the economy has been sending, such as the strength in employment but the relatively soft pace of GDP growth. The goal is to keep markets from overreacting and tightening financial conditions, he said. Q1 GDP seems likely to decelerate to a 1.5% annual rate from a 2.2% rate in the final three months of 2014, he said. But growth should rebound “north of 4% “in the second quarter, which should boost worker paychecks and give the Fed a green light to hike rates, Shenfeld said. Ryding agreed: “We’re in the ninth inning of a zero-rate environment.”

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“The creditworthiness of the United States is not a bargaining chip..”

US Debt To Hit Legal Limit Again On Monday (MarketWatch)

The U.S. government is about to run into the legal limit on how much it can borrow, but don’t expect a whole lot of fireworks again in Congress over what’s become a frequently quarrelsome issue. The U.S. debt limit goes into effect on Monday after a one-year suspension, with a ceiling of around $18 trillion. Treasury Secretary Jack Lew on Friday urged John Boehner, the Republican speaker of the House, to raise the debt limit as quickly as possible and not to allow the issue to become a political football. “The creditworthiness of the United States is not a bargaining chip, and I again urge Congress to address this matter without controversy or brinksmanship,” Lew wrote in a second letter to Boehner in two weeks.

Americans and foreign investors need not worry, though. The U.S. Treasury has the means to keep funding the government until October through the use of so-called extraordinary measures, the Congressional Budget Office estimates. And the Bipartisan Policy Center in a new report suggests a breach in the debt limit could be put off potentially until the end of the December. What’s more, the leader of the U.S. Senate, Republican Mitch McConnell of Kentucky, insists he won’t let the government default or shut down amid negotiations with the White House on raising the debt limit.

That’s good news for the nation’s bondholders or anyone dependent on the feds for support, such as retirees receiving Social Security or other benefits, because it means the government will continue to pay its bills on time. The modern-day debt limit, which has been in place since World War II, caps how much money the government can borrow. The limit has been raised about a hundred times since the 1950s, but it’s become the source of increasingly hostile political tug-of-wars since the mid-1990s.

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“We’re back into the normal world of volatility for oil and gas prices..”

BP CEO On Oil: ‘It’s Going To Be Very Painful’ (CNBC)

The dramatic drop in oil prices and the transfer of wealth to consumers is going to be very painful for the oil and gas industry, Bob Dudley, CEO of BP, told CNBC Saturday. Speaking at Egypt’s Economic Development Conference in the resort town of Sharm el-Sheikh, Dudley said that oil prices – which have fallen around 60% since last June – had been a “huge shock” for companies like his. “We’re back into the normal world of volatility for oil and gas prices,” he said on a CNBC-hosted panel. “Anything that happens that fast can have unintended consequences. BP was the first European major to sound the alarm on tumbling oil prices – on December 10, it warned that it was implementing a cost-cutting program as a result.

In December, oil majors in Europe also received a stark warning from credit ratings agency S&P, which placed BP, Total and Shell on a negative watch. It means the three firms are more likely to have their debt rating downgraded over the next three months. Speaking at the investment event in Egypt, Dudley added that BP had operated continuously in the country for the last 25 years. His comments come after the oil giant signed an deal to develop gas resources in Egypt, with investment of around $12 billion from BP and its partners. The company said the project underlined its commitment to the Egyptian market and was a vote of confidence in the country’s investment climate and economic potential.

Three days later, BP also announced a gas discovery in the East Nile Delta which it said was expected to be the deepest well ever drilled in Egypt. “I think the time is absolutely right,” Dudley said about investing in the Middle Eastern nation. “(Egypt) really is the lynchpin…it’s the largest market in the Middle East.” On Saturday, Dudley said the investments would increase in gas production in the country by 25 to 30%.

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Anything over zero is a godsend by now.

Oil Futures Suffer Nearly 10% Weekly Plunge (MarketWatch)

Oil futures fell sharply on Friday, to tally a weekly decline of nearly 10%, as a monthly report from the International Energy Agency raised concerns that the glut of crude supplies and tightening storage capacity in the U.S. may cause prices to weaken further. Crude-oil for delivery in April fell $2.21, or 4.7%, to settle at $44.84 a barrel on the New York Mercantile Exchange. Prices ended the week with a loss of 9.6%. April Brent crude on London’s ICE Futures exchange shed $2.41, or 4.2%, to settle at $54.67 a barrel, with the front-month contract down 8.5% for the week. After trading on Nymex ended Friday, the U.S. Energy Department said it plans to buy up to 5 million barrels of crude for the Strategic Petroleum Reserve. Prices in electronic trading edged backed above $45.

In its report early Friday, the IEA said any appearance of stability in oil is tenuous. “Behind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly,” the report said. Ballooning inventories combined with the nation’s shrinking oil storage could drag prices lower, it said. The comments from IEA come as oil has been trading in a relatively narrow band over the course of the past few weeks, on the heels of steep declines in weekly U.S. rig counts. Baker Hughes on Friday reported that the number of U.S. rigs actively drilling for oil as of March 13 fell 56 rigs from last week to 866.

“Oil rig counts fell for a historic 14th week in a row,” said Phil Flynn, senior market analyst at Price Futures Group. “While at this point the rig count drop has not impacted output, at this rate it soon will.” Flynn also pointed out that the IEA report wasn’t all that bearish as it raised its demand estimate. The IEA forecast average global oil demand of 93.5 million barrels a day for 2015.

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Sounds good.

‘Most Significant Break Between Germany And US Since WWII’ (RT)

People in the US, like ex-CIA chief Michael Hayden, are trying to put Berlin back in place dissatisfied that the Germans are acting like adults but not like subservient servants from of the “five eyes” alliance, says Ray McGovern, a former CIA officer. Speaking at a Washington-based think tank, the New America Foundation, on Tuesday former NSA and CIA director, General Michael Hayden, said that terror attacks such as the Charlie Hebdo shooting are inevitable and similar to Ebola. He confessed that the NSA would never agree to stop spying on Germany whatever the political fallout.

RT: Do you really believe that nothing can be done to avoid terror attacks like Charlie Hebdo, given the West’s massive intelligence networks?
Ray McGovern: It does make everything that General Hayden implemented at the NSA worthless. The famous pile, from which you are supposed the extract a little nugget on terrorism, it hasn’t worked. Hayden has his nose out of joint. He is neocon who is very dissatisfied these days and particularly with the performance of German Chancellor Angela Merkel because she is not acting obediently anymore. She actually sees Germany interests first, and has prevented a worsening of the situation in Ukraine. General Hayden doesn’t like that. He doesn’t like Angela Merkel being an upstart and saying that she’s displeased at having her handy, her little cell phone monitored. Well, “she should know her place.” So Hayden here is not the most diplomatic person in the world. He is trying to tell Merkel and everyone else who is outside the [Five Eyes intelligence alliance] – the UK, the US, Canada, Australia, and New Zealand – that they are secondary citizens and they will remain so as long as they don’t spring to obedience the way the other four do.

RT: The former NSA director suggested that relations between Germany and the US might not be as rosy as generally believed. Is that true? How do you see relations between Berlin and Washington evolving from here?
RM: The most significant break since WWII has just happened. Angela Merkel came to Washington and she said“selling offensive arms and giving them to the Ukrainians is a bad idea, we oppose it.” And the President [Barack Obama] said: “Oh, we’re still trying to make our decision about that.” She went to Russia and worked out a deal with Putin and Poroshenko saying: “Look, we need a ceasefire,” and so far the good news is that ceasefire is holding.

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But then we still have the war types and lying basterds.

Poroshenko: 11 EU States Struck Deal With Ukraine To Deliver Weapons (RT)

Ukraine has concluded deals with eleven countries of the EU on delivery of weapons, including lethal, President Petro Poroshenko told the country’s TV. He, however, didn’t mention which countries will provide ‘defensive aid’ to Kiev. “The Head of State has informed that Ukraine had contracts with a series of the EU countries on the supply of armament, inter alia, lethal one. He has reminded that official embargo of the EU on the supply of weapons to Ukraine had been abolished,” said a statement on Poroshenko’s official website, citing his interview to the TV channel “1+1”.

According to Poroshenko’s statement, he is confident that EU and USA will support Ukraine with weapons if needed. “If there is a new round of aggression against Ukraine, I can surely say that we will immediately receive both lethal weaponry and new wave of sanctions against the aggressor. We will act firmly and in a coordinated manner.” Ukraine won’t reduce its defense capacity, said Poroshenko, adding that now “intensive combat training is being held” in the country. “We are mining the most dangerous tank directions and building engineering structures under the new plan and projects.”

The statement said that the decision of the US President Barack Obama “who decided to supply Kiev with defensive weaponry” is crucial. “This armament will increase preciseness and efficiency of the Ukrainian weapons. In addition, thermal imagers and radars that detect motion help counteract reconnaissance and subversive groups of the opponent.” The Ukrainian leader said the situation in Donetsk and Lugansk Regions is being gradually deescalated, adding that the Ukrainian army hasn’t suffered casualties for several days.

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Good model for Greece?!

Ukraine Says Creditors Face Principal Losses on Dollar Bonds (Bloomberg)

Ukraine’s bond restructuring may include a reduction in principal, as well as an extension of maturities and lower coupons, Finance Minister Natalie Jaresko said in her first talks with creditors about easing the country’s debt load. The nation of more than 40 million, which is struggling to contain a separatist war that has killed more than 6,000 people in its easternmost regions, will try to reorganize debt from both the government and publicly run entities by June, Jaresko said in a conference call on Friday. She called on Russia, which has lent Ukraine $3 billion in a bond maturing this year, to join the talks. The price of Ukraine’s dollar debt fell. The operation “will probably involve the combination of a maturity extension, a coupon reduction and a principal reduction,” Jaresko said. “The proportion of each of these elements will be discussed with creditors.”

Ukraine won approval this week for $17.5 billion of IMF aid, bolstering reserves that have fallen to a more-than-decade low. The loan is part of a $40 billion package to rescue the nation’s economy as it buckles under a plunging hryvnia currency and the war, which has devastated its industrial heartland. The best investors can try is to limit the principal reduction, said Richard Segal, the head of emerging-market credit strategy at Jefferies in London. Avoiding losses on the face value of the debt “seems to be mathematically impossible,” Michael Ganske, who helps oversee $7 billion in emerging-market assets as a money manager at Rogge Global Partners in London, said by e-mail.

Ukraine’s dollar bonds extended losses after Jaresko’s comments. The dollar notes due in July 2017 dropped 1.5 cents to 44.3 on the dollar at 8 p.m. in Kiev, increasing the yield to 53.48%. The securities fell as low as 41.35 cents last month, before rallying in the run-up to the IMF’s approval of its second Ukraine loan in 11 months this week. “Unfortunately, they have to insist on debt reduction,” Ronald Schneider, who helps manage about €800 million at Raiffeisen in Vienna, including Ukrainian bonds, said by e-mail on Friday. “Negotiations with creditors would be easier without a haircut” reducing the face value of the securities, he said.

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Beppe: “Something that can ensure no one is left behind.”

The #ALBA Dawn Of A New Europe (Beppe Grillo)

“They are telling us that the European economy is in recovery because the reforms are working. And the government has been celebrating the 0.1% growth in GDP in the first quarter of 2015 as a trophy. The reality is, however, that:
– since 2010, our GDP has lost 10 points;
– since the beginning of the crisis about 100 thousand companies have gone bust with the loss of more than a million jobs, and out of every hundred young people, fifty are without a job.

And (as we hope others will do), we can examine the state of our country in terms of the index called “Benessere Equo e Sostenibile” {Equitable and Sustainable Well-being} instead of using the Gross Domestic Product, and we become aware of a drama that is ever more ferocious. In this tragic recessionary vortex, the countries that have suffered the greatest setback are those in Southern Europe: as well as Italy, there’s Greece, Spain and Portugal. The economists all over the world and a few German hacks have called us “PIGS“. After depriving us of our future, they have insulted us in the media. Today we are at a crossroads.. The first round lost by Alexis Tsipras against the Troika, demonstrates that for Berlin, Brussels and Frankfurt there is no alternative to “austerity Europe”. This is confirmed by Renzi’s “Jobs Act” and the growing amount of trickery he’s coming up with.

It’ll be difficult to get out of this trap, but it is possible if we manage to build an alliance among the Mediterranean countries that can break the logic of German mercantilism. Italy, Greece, Spain, Portugal and France – together – represent the third biggest economy in the world. We could create a “cartel” and get greater contractual power with Berlin. Someone has already done it before us: the countries of ALBA, formed in 2001 as an alternative to The Free Trade Area of the Americas (FTAA) that was what the United States wanted. The political principles and the concept of social cooperation that the countries of Venezuela, Bolivia, Nicaragua, Ecuador and Cuba have signed up to, can be our source of inspiration to fight the domineering and neo-liberal process at the basis of the endless crisis in the West. They’ve had the FTAA, and soon, we’ll have TTIP.

Today there are movements and parties not delegitimized by years of power and of compromising with the corporate-financial lobbies that can, or must, start to think of a new supportive Community that can reject the diktats of the Troika. The dawn of a new Europe is close at hand: a great Euro-Mediterranean alliance of sovereign States that can give back freedom, civilisation, sovereignty and democracy to our own people. Something that can ensure no one is left behind.

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Yanis’ first blog since Jan 25 is this long speech at the Ambrosetti forum March 14.

Presenting An Agenda For Europe, Ambrosetti, Lake Como, 14-3-2015 (Varoufakis)

Dear All, Ministerial duties have impeded my blogging of late. I am now breaking the silence since I have just given a talk that combines my previous work with my current endeavours. Here is the text of the talk I gave this morning at the Ambrosetti Conference on the theme of ‘An Agenda for Europe’. Long time readers will recognise the main theme – evidence of a certain continuity… Back in March 1971, as Europe was preparing itself for the Nixon Shock and beginning to plan for a European monetary union closer to the Gold Standard than to the Bretton Woods system that was unravelling, Cambridge economist Nicholas Kaldor wrote the following lines in an article published in The New Statesman:

“… [I]t is a dangerous error to believe that monetary and economic union can precede a political union or that it will act (in the words of the Werner report) “as a leaven for the evolvement of a political union which in the long run it will in any case be unable to do without”. For if the creation of a monetary union and Community control over national budgets generates pressures which lead to a breakdown of the whole system it will prevent the development of a political union, not promote it.”

Unfortunately, Kaldor’s prescient warning was ignored and replaced by a touching optimism that monetary union will forge stronger links between Europe’s nations and, following some large financial sector crisis (like that of 200), European leaders will be forced by circumstances to deliver the political union that was always necessary. And so, at a time when America was recycling other peoples’ surpluses at a global scale, a Gold Standard of sorts was created in the midst of Europe, causing a wall of capital to flow into Wall Street fuelling financialisation and large-scale private money minting worldwide – with French and German rushing in to participate enthusiastically.

Within the Eurozone the illusion of riskless risk was reinforced by the fantasy that (in a union built on the Principle of Perfectly Separable Public Debts and Separate Banking Systems,) lending to a Greek entity was more or less equally risky as lending to a Bavarian one. As a result, net trade surpluses gave rise to net capital flows into the deficit nations, causing unsustainable bubbles in both the private and the public sectors. Our Eurozone growth model, ladies and gentlemen, relied heavily on private, bank-driven, vendor-financing for the net exports of the surplus nations. It was as if, in constructing the Eurozone, we removed all shock absorbers while ensuring that the shock, when it came, would be massive.

And when that massive shock came, in the form of the Great Eurozone Crisis in 2010, following the global Crash of 2008, with my country, Greece, proving the canary in the mine, Europe decided to remain in denial of the nature of the crisis, insisting on dealing with the insolvencies caused by the bursting of bubbles (first in the banking sector and then in the realm of public debt) as if they were mere liquidity problems, lending to the deeply indebted nations through SPVs (special purpose vehicles) that resembled stacked CDOs (collateralized debt obligations). The end result was a transfer of potential losses from the banks’ books onto Europe’s taxpayers in a manner that placed most of the burden of adjustment on the crisis countries that could least bear it.

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But that doesn’t mean they‘re all equally bad.

Greece Has Plenty Of Options. It’s Just That None Are Good (Satyajit Das)

The choices for Greece now are clear. In the first option, the European Union makes allowances: maturities for loans, especially short-term ones, are extended; there are concessions on interest rates; debt may be replaced with securities without maturity and a coupon linked to growth – Keynes-style “Bisque bonds”; the European Central Bank continues to support the liquidity needs of the Greek banks; and the hated Troika is renamed, to remove the odious association with the past. Despite the reduction in the value of the debt outstanding, the EU and lenders avoid a politically difficult explicit debt writedown. Syriza claims to have fulfilled its mandate to stand up to the EU and Germany, and reclaim Hellenic sovereignty and pride. In reality, little changes. Under this scenario, Greece and the EU are back at the negotiating table within six to 12 months, confronting the same issues.

In the second option, Greece defaults on its debt but stays in the euro. (It is not clear how a nation in default can remain within the euro other than through the fortuitous absence of an ejection mechanism.) Greek banks collapse if the ECB decides to withdraw funding. Capital flight accelerates, requiring capital controls. The Greek Government is left with no obvious source of funding, other than a parallel currency or IOUs, as used during some government shutdowns in the US. Greece’s competitive position is unchanged as it purports to use the euro. The EU and lenders incur substantial losses on their loans.

In the third option, Greece defaults and leaves the euro, bringing in new drachmas. There is short-term chaos. Activity in Greece collapses. The EU and lenders face the same problem as in the second option. In addition, the euro is destabilised. The third option allows Greece to regain control of its currency and interest rates. Sharp devaluation of the new drachma improves competitiveness, for example in tourism. The ability of the central bank to create and control money supply helps restore liquidity to its banks and provides a mechanism for financing the Government.

A cheap new drachma, if appropriately managed, may reverse capital flight, as the threat of a loss of purchasing power is reduced. A devalued currency may also help attract inflows of funds looking for bargains. In time, Greece regains access to capital markets as Russia did after its 1998 default. Greece regains economic sovereignty but at the cost of reduced living standards as import prices sky-rocket and international purchasing power is diminished. But after the initial dislocation, a strong recovery may ensue.

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“Juncker, however, insisted that there was no scope for Greece and its eurozone partners failing to find a way to progress.”

Juncker, Tsipras Agree On Creating Greek Task Force For Reforms (Kathimerini)

Greece was warned on Friday that it has to make swifter progress in agreeing reforms with its lenders, as European Commission President Jean-Claude Juncker and Prime Minister Alexis Tsipras agreed in Brussels on the creation of a Greek task force to work with EU experts on structural improvements. “I don’t think we have made sufficient progress,” Juncker told reporters as he welcomed Tsipras to the Commission on Friday, echoing Eurogroup chief Jeroen Dijsselbloem’s comments that the two weeks following the February 20 agreement on a four-month bailout extensions between Greece and its creditors had been “wasted.” Juncker, however, insisted that there was no scope for Greece and its eurozone partners failing to find a way to progress.

“I’m totally excluding a failure… This is not a time for division. This is the time for coming together,” he said. His comments came in the wake of German Finance Minister Wolfgang Schaeuble refusing to rule out the possibility that Greece would slip out of the single currency. “As the responsibility, the possibility to decide what happens lies only with Greece and because we don’t exactly know what those in charge in Greece are doing, we can’t rule it out,” he told an Austrian broadcaster. In an interview with Germany’s Der Spiegel magazine due to be published on Saturday, European Economic and Monetary Affairs Commissioner Pierre Moscovici strikes a similar tone to Juncker, insisting that the option of a Greek exit should not be considered. “All of us in Europe probably agree that a Grexit would be a catastrophe – for the Greek economy, but also for the eurozone as a whole,” he said.

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Mind you: Delay. Not give up.

Athens Ready To Delay Some Election Pledges, Says Varoufakis (Reuters)

Greek Finance Minister Yanis Varoufakis said on Friday he was confident Athens could reach a deal by April 20 with its international creditors on the reforms it must implement to unblock further aid. Speaking to reporters on the sidelines of a business conference in northern Italy, Varoufakis also said Greece’s new leftist government was prepared to delay some of its promised anti-austerity measures in an effort to win EU backing. “We can complete the review of the 20th of February agreement… We have a commitment, all of us, to reach an agreement by the 20th of April,” Varoufakis said. The government was elected in January on a pledge to roll back austerity and renegotiate the terms of a €240 billion international bailout, but it has faced fierce resistance from EU partners who are unwilling to offer Athens major compromises.

Although the partners agreed on Feb. 20 to a four-month extension to the bailout programme, the accord did not give Greece access to funds pledged to it from the euro zone and the International Monetary Fund. To obtain that cash, Athens needs to agree on a revised package of measures. After long delays, the discussions only kicked off in earnest this week in Brussels. Varoufakis indicated on Friday a willingness to compromise. “If this means that, for the next few months that we have negotiations, we suspend or we delay the implementation of our (election) promises, we should do precisely that in the context to build trust with our partners…,” he said.

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That’s not its worst consequence.

Greece’s Varoufakis Says QE To Fuel Unsustainable Equity Rally (Reuters)

The ECB’s bond purchases will create an unsustainable stock market rally and are unlikely to boost euro zone investments, Greek Finance Minister Yanis Varoufakis warned on Saturday. The ECB began a programme of buying sovereign bonds, or quantitative easing, on Monday with a view to supporting growth and lifting eurozone inflation from below zero up towards its target of just under 2%. Bond yields in the currency bloc have collapsed, but record low interest rates so far have not spurred investments that would support growth in recession-hit countries like Italy or Spain.

“QE is all around us and optimism is in the air,” Varoufakis told a business audience in Italy. “At the risk to sound the party pooper … I find it hard to understand how the broadening of the monetary base in our fragmented and fragmenting monetary union will transform itself into a substantial increase in productive investments. “The result of this is going to be an equity run boost that will prove unsustainable,” he said.

Varoufakis reiterated that the new Greek government was ready to time its promised anti-austerity measures in a way that helped negotiations with European Union partners over the disbursement of financial aid. “We never said we’re going to renege on any promises, we said that our promises concern a four-year parliamentary term,” he told reporters on the sidelines of the conference. “They will be spaced out in an optimal way, in a way that is in tune with our bargaining stance in Europe and also with the fiscal position of the Greek state,” he said.

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“Most understand that, whatever one thinks of the outcomes, there would not have been any negotiation at all but for Syriza.”

The Greek Election: Why I Went Home To Vote For The First Time (Alex Andreou)

It has become clear that most of the commentariat no longer possesses even the basic language to engage with politics that is not free market-based. It looks at a government with clear social intentions, but flexible methods, and it cannot make sense of it. Politicians who, after an election, appear to want to achieve precisely what they promised before it, just don’t compute. Even in its first months, Syriza must be discredited, it seems, at any cost. Recent polls, and the following interviews, reveal Greek voters to be infinitely more sophisticated. Most understand that this is merely the start of a necessary conversation about austerity and, more generally, capitalism. Many hope that Spain, Italy and even the UK will join it in time.

Most understand that, whatever one thinks of the outcomes, there would not have been any negotiation at all but for Syriza. After four decades of being ruled by corruption and nepotism, expectations are low. Everything is a bonus. It feels utterly refreshing to have someone fighting your corner. After almost two months of dominating international news, Greece will no doubt disappear again into relative obscurity. This is as it should be. A country whose economy accounts for less than 0.3% of the world’s GDP should not be the focus of such intense attention.

That it has been consistently presented as the fuse that, once lit, will set the globe on the path to inevitable decline is revealing. It says that the systemic interconnectedness that resulted in the global financial crisis is still very much present. It reveals a fear of anyone who does things differently. It speaks volumes about this being a political, as well as an economic, crisis. Most of all, such scrutiny makes it impossible for an inexperienced government to get on with the practical business of running a country. The absence of this obsessive examination will be welcome. Wouldn’t it be something if our collective folly, this experiment at fair and honest government, actually made a difference?

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“She talks about this as “regaining our economic freedom” and the “exercise of economic patriotism.”

The Power of Le Pen (BBC)

Marine le Pen. Arguably, she is the most important opposition politician in Europe, who has the potential to affect the way of life of all of us. How so? Well her party is France’s most popular. It topped the polls in last years European elections and is expected to do so again in the first round of local elections on March 22. Also France’s business and political establishment, with whom I have spent a good deal of time nattering in recent weeks, takes it for granted that she will go through to the second round of the French presidential elections in 2017 – and is not remotely confident that a centre-ground candidate of left or right will be able to rally sufficient moderate support to beat her. So she matters, which is why I interviewed her twice for my film, once before and once after the Charlie Hebdo atrocity.

One important question is whether her repudiation of her party’s racist and anti-Semitic past is more than cosmetic (she insists it is – but many argue the party’s criticism of Islam is insidious). Outside France probably what may matter most about her is that she explicitly blames the EU and eurozone for all France’s economic woes. She is in favour of French withdrawal from both, so that she can restrict immigration, impose customs duties on imports, nationalise big businesses when useful, and re-instate the French Franc. She talks about this as “regaining our economic freedom” and the “exercise of economic patriotism”. When I put it to her that her protectionist policies were chillingly similar to those that reinforced the Great Depression of the 1930s, she said she totally disagreed and that the relevant crisis was the “eurozone that has been the black hole of world growth for 12 years”.

Whether or not you think reinstating economic borders is the road to penury, it is very difficult to see how the eurozone could survive a French exit – and the economic shock of even rising fears of French withdrawal would seriously set back a European recovery (the cost of finance would rise sharply, because of the fear that converting strong euros into weak francs would generate huge losses on French assets). None of which is to say there is a need to panic about this now. But it does show that unless and until Europe’s establishment succeeds in demonstrating that the EU and the eurozone is serving the interests of most people, which they are conspicuously failing to do at the moment, Europe’s way of life will be under sustained and serious threat.

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“..the US sees the Chinese effort as a ploy to dilute US control of the banking system..”

UK Support For China-Backed Asia Bank Prompts US Concern (BBC)

The US has expressed concern over the UK’s bid to become a founding member of a Chinese-backed development bank. The UK is the first big Western economy to apply for membership of the Asian Infrastructure Investment Bank (AIIB). The US has raised questions over the bank’s commitment to international standards on governance. “There will be times when we take a different approach,” a spokesperson for Prime Minister David Cameron said about the rare rebuke from the US. The AIIB, which was created in October by 21 countries, led by China, will fund Asian energy, transport and infrastructure projects.

The UK insisted it would demand the bank adhere to strict banking and oversight procedures. “We think that it’s in the UK’s national interest,” said Mr Cameron’s spokesperson. Pippa Malmgren, a former economic advisor to US President George W Bush, told the BBC that the public chastisement from the US indicates the move might have come as a surprise. “It’s not normal for the United States to be publically scolding the British,” she said, adding that the US’s focus on domestic affairs at the moment could have led to the oversight. However, Mr Cameron’s spokesperon said UK Chancellor George Osborne did discuss the measure with his US counterpart before announcing the move.

In a statement announcing the UK’s intention to join the bank, Mr Osborne said that joining the AIIB at the founding stage would create “an unrivalled opportunity for the UK and Asia to invest and grow together”. The hope is that investment in the bank will give British companies an opportunity to invest in the world’s fastest growing markets. But the US sees the Chinese effort as a ploy to dilute US control of the banking system, and has persuaded regional allies such as Australia, South Korea and Japan to stay out of the bank.

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He’s already ‘back’. Who starts this sort of thing?

Russia In A Spin As Its Putin Goes Missing (FT)

He is the most talked-about person in Russia – even when he’s nowhere to be seen. Moscow is buzzing with talk about the whereabouts of Vladimir Putin who took a week-long hiatus from public appearances from March 5, fuelling wild rumours about the president’s health, political future and love life. On Twitter, critics of the president have been tweeting morbid jokes and memes under the hashtag “Putin is dead”, while Russian bloggers and pundits pore over the official Kremlin website looking for discrepancies in Mr Putin’s alleged work schedule.

Andrei Illarionov, a former adviser to Mr Putin now based in Washington, claimed in a blog post that Mr Putin had fallen victim to a palace coup and fled abroad, while Konstantin Remchukov, an influential Moscow editor, alleged that the state-owned oil company Rosneft’s chairman Igor Sechin was about to get the boot, indicating that a big government shake-up was looming. In Switzerland, the news outlet Blitz.ch ran a report claiming that Alina Kabaeva, a former gymnast and Duma deputy who has been linked romantically with Mr Putin, had given birth to a child this week in Switzerland’s Italian-speaking region of Ticino, suggesting that the Russian president had taken time off for a “baby mission”.

The Kremlin’s press service has brushed off the various allegations, with Mr Putin’s spokesman repeatedly insisting that the president’s health is “fine”. On Friday, the Kremlin announced that he would be meeting the president of Kyrgyzstan – publicly – in St Petersburg on Monday. Later, Russian state television channels co-ordinated to show Mr Putin at a Kremlin meeting with the head of Russia’s supreme court. However, at least one blogger claimed that the footage was dated, noting that the president’s desk had a clock on it that was supposed to have been given away as a gift a few days earlier.

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Great read.

Is EU Army Intended To Reduce US Influence In Europe? (RT)

Germany itself is the ultimate prize for the US in the conflict in Ukraine, because Berlin has huge sway in the direction that the EU turns. The US will continue to stoke the flames in Ukraine to destabilize Europe and Eurasia. It will do what it can to prevent the EU and Russia from coming together and forming a “Common Economic Space” from Lisbon to Vladivostok, which is dismissed as some type of alternative universe in the Washington Beltway. The Fiscal Times put it best about the different announcements by US officials to send arms to Ukraine. “Given the choreographed rollout, Washington analysts say, in all likelihood this is a public-opinion exercise intended to assure support for a weapons program that is already well into the planning stages,” the news outlet wrote on February 9.

After the Munich Security Conference it was actually revealed that clandestine arms shipments were already being made to Kiev. Russian President Vladimir Putin would let this be publicly known at a joint press conference with Hungarian Prime Minister Viktor Orban in Budapest when he said that weapons were already secretly being sent to the Kiev authorities. In the same month a report, named ‘Preserving Ukraine’s Independence, Resisting Russian Aggression’, was released arguing for the need to send arms to Ukraine — ranging from spare parts and missiles to heavy personnel — as a means of ultimately fighting Russia. This report was authored by a triumvirate of leading US think-tanks, the Brookings Institute, the Atlantic Council, and the Chicago Council on Global Affairs — the two former being from the detached ivory tower “think-tankistan” that is the Washington Beltway.

This is the same clique that has advocated for the invasions of Iraq, Libya, Syria, and Iran. It is in the context of divisions between the EU and Washington that the calls for an EU military force are being made by both the European Commission and Germany. The EU and Germans realize there is not much they can do to hamper Washington as long as it has a say in EU and European security. Both Berlin and a cross-section of the EU have been resentful of how Washington is using NATO to advance its interests and to influence the events inside Europe. If not a form of pressure in behind the door negotiations with Washington, the calls for an EU military are designed to reduce Washington’s influence in Europe and possibly make NATO defunct.

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Can’t let John Gray go unnoticed.

Steven Pinker Is Wrong About Violence And War (John Gray)

If great powers have avoided direct armed conflict, they have fought one another in many proxy wars. Neocolonial warfare in south-east Asia, the Korean war and the Chinese invasion of Tibet, British counter-insurgency warfare in Malaya and Kenya, the abortive Franco-British invasion of Suez, the Angolan civil war, the Soviet invasions of Hungary, Czechoslovakia and Afghanistan, the Vietnam war, the Iran-Iraq war, the first Gulf war, covert intervention in the Balkans and the Caucasus, the invasion of Iraq, the use of airpower in Libya, military aid to insurgents in Syria, Russian cyber-attacks in the Baltic states and the proxy war between the US and Russia that is being waged in Ukraine – these are only some of the contexts in which great powers have been involved in continuous warfare.

While it is true that war has changed, it has not become less destructive. Rather than a contest between well-organised states that can at some point negotiate peace, it is now more often a many-sided conflict in fractured or collapsed states that no one has the power to end. The protagonists are armed irregulars, some of them killing and being killed for the sake of an idea or faith, others from fear or a desire for revenge and yet others from the world’s swelling armies of mercenaries, who fight for profit. For all of them, attacks on civilian populations have become normal. The ferocious conflict in Syria, in which methodical starvation and the systematic destruction of urban environments are deployed as strategies, is an example of this type of warfare.

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Jan 282015
 
 January 28, 2015  Posted by at 11:24 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing “Street scene with snow, F STreet Washington, DC” 1918

Why Europe Will Cave to Greece (Bloomberg)
Can Europe Resist Greek Demands For A Debt Haircut? (CNBC)
How Wall Street Squeezed Greece – And Germany (MarketWatch)
Five Things Syriza Wants To Change (BBC)
Greece’s Coming Clash in Europe Starts With Russia Sanctions (Bloomberg)
Greek Finance Minister Varoufakis: ‘End The Vicious Cycle’ (CNBC)
Greek PM Alexis Tsipras Unveils Cabinet Of Mavericks And Visionaries (Guardian)
Stiglitz: Germany’s The Problem, Not Greece (CNBC)
Germany’s Top Institutes Push ‘Grexit’ Plans As Showdown Escalates (AEP)
Why Aren’t Markets Panicking About Greece? (BBC)
New Greek PM Finds Official Residence Strippped Bare By Predecessor (Guardian)
Orders for US Durable Goods Fell in December for Fourth Month (Bloomberg)
ECB Bond Buying Makes Fed Rate Increase More Likely (Bloomberg)
Obama Proposes Offshore Oil Drilling From Virginia to Georgia (Bloomberg)
Crude at $49: The New Reality for Big Oil Companies (Bloomberg)
He Called $50 Oil, Now He Says It’s Going Lower (MarketWatch)
France ‘Proves’ Q€ Is Entirely Useless (Zero Hedge)
Syriza’s ‘Bella Ciao’ Casts Shadow Over Italy President Vote (Bloomberg)
Portugal Repays IMF Early; Greece Prepares Fight (Bloomberg)
Singapore Surprises With Easing, Clubbing Currency (CNBC)
Subprime Bonds Are Back With Different Name 7 Years After US Crisis (Bloomberg)
Looming Recession Will Be “Remembered For 100 Years”: Crispin Odey (Zero Hedge)

“What surprises me is that this all-or-nothing positioning takes anybody in. Debts are debts? Please.”

Why Europe Will Cave to Greece (Bloomberg)

A prediction for you: Greece and the European Union will split the difference in their quarrel over debt relief. What’s uncertain is how their respective governments will justify the new deal, and how much damage they’ll inflict on each other before accepting the inevitable. EU governments, with Germany in the lead, are saying that debt writedowns are out of the question. Debts are debts. Greece’s newly elected leader, Alexis Tsipras, calls the current settlement “fiscal waterboarding” and says his country faces a humanitarian crisis. His government won’t pay and wants much of the debt written off. Neither side is willing to give way. What surprises me is that this all-or-nothing positioning takes anybody in. Debts are debts? Please. Europe’s governments have already provided debt relief to Greece. (In that process, private creditors saw their loans written down; most of what remains is owed to governments.)

However, the plan hasn’t worked. Greece’s fiscal position was so bad that the haircuts, reschedulings and interest-rate concessions weren’t sufficient to restore its creditworthiness. At the same time, thanks to slower-than-expected growth, the fiscal conditions tied to the settlement proved harsher than intended. Greek voters have just repudiated those terms. In other words, the existing settlement has failed. It therefore needs to be revised. No conceptual revolution is required. This conclusion follows from the same kind of analysis that EU governments have already relied on. For sure, granting additional debt relief has drawbacks – just as there were drawbacks to granting debt relief in the first place. It sends a bad message; it encourages bad behavior in future; it will inflame resentment among voters in other EU countries.

That’s why it’s a good idea, so far as possible, to make relief conditional on efforts to behave responsibly. But the likely consequences of any EU refusal to budge are much worse. There’s a serious risk that Greece will default unilaterally. This would not be in Greece’s interests, but it’s too close a call for comfort. The existing settlement will require the government to run primary budget surpluses (that is, excluding interest payments) in the neighborhood of 4% of GDP That means that if Greece defaulted, it could cut taxes or raise public spending substantially without needing to borrow. The downside of default would be huge – possible ejection from the euro system. That would be a calamity for Greece and, because of the risk of contagion, for the rest of the euro area as well. Nonetheless, if the EU offers Tsipras nothing, that’s how things could turn out.

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“.. to bring its debts down to 60% of GDP – in order to meet the terms of the fiscal compact – Greece would require a primary surplus (where government income exceeds spending) of 9% (of GDP).”

Can Europe Resist Greek Demands For A Debt Haircut? (CNBC)

As Greece’s new Prime Minister Alexis Tsipras settles into running government, euro zone leaders have rushed to dismiss talk of any haircut or forgiveness of Greek debt, but economists are already wondering how long Europe’s resistance can last. Tsipras became prime minister after his party won a snap general election on Sunday, dramatically ousting the New Democracy party and its leader Antonis Samaras from power. Samaras oversaw tough austerity measures that were imposed as part of a 240 billion euro ($271 billion) bailout terms agreed with the so-called troika, comprising the European Commission, International Monetary Fund and European Central Bank.

The left-wing party Syriza – which is joined in a coalition government by the right-wing Independent Greeks party – has said it will repeal unpopular austerity measures, rehire fired public sector workers and aim to get lenders to write off a third of Greece’s debt. Despite euro zone resistance to such a demand, the region’s leaders might not have much of a choice, according to economist Philippe Legrain. “Really, Greece needs a haircut,” Legrain, a former economic advisor to the President of the European Commission, told CNBC Tuesday. “Greece’s debts are unsustainably large.” On Monday, euro zone leaders did not delay in making their feelings on any possible debt haircut known to Syriza.

The head of the European Commission, Jean-Claude Juncker, reminded Tsipras of the need to “ensure fiscal responsibility” while German Finance Minister Wolfgang Schaeuble ruled out a debt haircut for Greece on Monday, telling ARD Television that Greece was not “overburdened by its debt servicing,” as Syriza argue. However, Legrain dismissed Scheuble’s comments as “propaganda” and criticized the Berlin government for “saying that this is somehow a bearable burden and that the interest costs are low. But to bring its debts down to 60% of GDP – in order to meet the terms of the fiscal compact – Greece would require a primary surplus (where government income exceeds spending) of 9% (of GDP).”

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“Europe, like the United States, seems to be at the beck and call of its financial industry.”

How Wall Street Squeezed Greece – And Germany (MarketWatch)

Europe’s political leaders and bankers would have you believe that the conflict between Greece and the European Union is a tug of war between a deadbeat nation and its richer ones who have come to the debtor’s aid time and time again. Instead, what most of these leaders miss is that it’s a bank bailout in plain view. What’s really happened is that since Greece ran into serious trouble repaying its debts four years ago, Germany, France and the EU have instituted what can only be described as a massive bailout of its own financial system — shifting the burden from its banks to taxpayers. Last week, asset manager Mike Shedlock republished research by Eric Dor, a French business school director, and it shows the magnitude of the shift. To put it simply, German taxpayers are on the hook for roughly $40 billion in Greek debt. German banks? Just $181 million, though they do hold $5.9 billion in exposure to Greek banks. Those numbers are a flip-flop from where things stood less than five years ago.

This massive shift from private gains to public losses was done through the European Financial Stability Facility. Created in 2010, this was the European Union’s answer to the U.S. Troubled Asset Relief Program, the Treasury Department’s 2008 bailout program. There are some differences. The EFSF issues bonds, for instance, but the principle is the same. Governments buy bad bank debt and hold it on the public’s books. The terms set by the EFSF are basically what’s at issue when we hear about Greece’s new government being opposed to austerity in their nation. The Syriza victory, which was a sharp rebuke to the massive cost-cutting in government spending, including pensions and social welfare costs, drew warnings from leaders across Europe. “Mr. Tsipras must pay, those are the rules of the game, there is no room for unilateral behavior in Europe, that doesn’t rule out a rescheduling of the debt,” ECB’s Benoît Coeuré said.

“If he doesn’t pay, it’s a default and it’s a violation of the European rules.” British Prime Minister David Cameron’s Twitter account said, the Greek election results “will increase economic uncertainty across Europe.” And Jens Weidmann, president of the German central bank, warned the new ruling party that it “should not make promises that the country cannot afford.” Those sound like very threatening words. And one wonders if these same officials made the same tough statements to Deutsche Bank, Commerzbank, Credit Agricole or SocGen when they were faced with potentially billions in losses when the banks were holding Greek debt. [..] Perhaps the move to shift Greek liabilities to state-owned banks (Germany’s export/import bank holds $17 billion in Greek debt) was necessary, but that doesn’t make it fair, or the right thing to do. Europe, like the United States, seems to be at the beck and call of its financial industry.

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“Syriza wants Germany to repay a loan that the Nazis forced the Bank of Greece to pay during the occupation. That would work out at an estimated €11bn today.”

Five Things Syriza Wants To Change (BBC)

Syriza, the left-wing party that stormed to power in Greece with 36% of the vote, has promised to ditch austerity and renegotiate the country’s €240bn bailout with the EU and IMF. But what exactly have Greeks signed up to, backing a party that was once a wide-ranging far-left coalition that included Maoists? Here are five of Syriza’s key aims.

Actions on jobs and wages Most eye-catching for Greeks is the promise of 300,000 new jobs in the private, public and social sectors, and a hefty increase in the minimum monthly wage – from €580 to €751. The new jobs would focus on the young unemployed – almost 50% of under-25s are out of work – and the long-term unemployed, especially those over 55. Salaries and pensions plummeted in 2012 as Greek ministers tried to curb spending. Now Syriza aims to reverse many of those “injustices”, bringing back the Christmas bonus pension, known as the 13th month, for pensioners receiving less than €700 a month. Syriza says it will rebuild Greece with what it describes as four pillars: • Confronting the humanitarian crisis • Restarting the economy and promoting tax justice • Regaining employment • Transforming the political system to deepen democracy

Power to the people For Syriza, 300,000 appears to be a magic number. They are promising 300,000 households under the poverty line up to 300 kWh of free electricity per month and food subsidies for the same number of families who have no income. Tax on heating fuel will be scrapped. Then there are plans for free medical care for those without jobs and medical insurance.

Debt write-off The headline-grabbing Syriza policy that has shaken the eurozone is a promise to write off most of Greece’s €319bn debt, which is a colossal 175% of its GDP. But the write-off is only part of it. Syriza also wants: • Repayment of the remaining debt tied to economic growth, not the Greek budget • A “significant moratorium” on debt payments • The purchase of Greek sovereign bonds under the European Central Bank’s €60bn monthly programme of quantitative easing.

Syriza wants a European Debt Conference modelled on the London Debt Conference of 1953, when half of Germany’s post-World War Two debt was written off, leading to a sharp increase in economic growth. If it happened for Germany, it can happen for Greece, the party argues. Syriza wants Germany to repay a loan that the Nazis forced the Bank of Greece to pay during the occupation. That would work out at an estimated €11bn today. The Independent Greeks also want Germany to pay war reparations.

Scrapping of property tax It is not just the poor who voted for Syriza but the middle classes as well. Property owners in Athens’s leafy, northern suburbs were enticed with the promised abolition of a hated annual levy on private property. Known as “Enfia”, the tax was introduced in 2011 as an emergency measure but made permanent under the previous government. Instead, there will be a tax on luxury homes and large second properties.

Closer relations with Russia It did not go unnoticed that the first foreign ambassador whom Syriza leader Alexis Tsipras met as prime minister was Russia’s envoy. Not a great surprise, perhaps, as he was once considered a pro-Moscow communist and visited Russia last May. Mr Tsipras has strongly criticised EU sanctions imposed on Russia for its annexation of Crimea and its involvement in eastern Ukraine, and there are signs that the election of a pro-Russian government in Athens could affect policy in Brussels.

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“Sanctions require unanimity among the 28 governments.”

Greece’s Coming Clash in Europe Starts With Russia Sanctions (Bloomberg)

Greece’s new government questioned moves to impose more sanctions on Russia, adding a foreign-policy angle to its challenge to the status quo in Europe. Prime Minister Alexis Tsipras’s Syriza-led coalition said it opposed a European Union statement issued in Brussels Tuesday paving the way to additional curbs on the Kremlin over the conflict in Ukraine, and complained it hadn’t been consulted. “Greece doesn’t consent,” the government said in a statement. It added that the announcement violated “proper procedure” by not first securing Greece’s agreement. Whether the government in Athens turns that rhetoric into reality will be tested when Greece’s new foreign minister, Nikos Kotzias, has the opportunity to block further sanctions at an EU meeting in Brussels on Thursday.

Sanctions require unanimity among the 28 governments. A Greek veto would shatter the fragile European consensus over dealing with Russia, potentially robbing Syriza of early goodwill as it lobbies for easier terms for Greece’s bailout. It would also deepen a looming stand-off with German Chancellor Angela Merkel, who has signaled her support to keep up the pressure on Russia amid an escalation in violence in eastern Ukraine. Kotzias, a politics professor and former communist, has advocated closer ties with Russia, spoken out against a German-dominated Europe and, in the 1980s, praised the Polish government’s crackdown on the Solidarity movement.

He said the new government objected to the “rules of operation” within the EU regarding the Russia statement. “Anyone who thinks that in the name of the debt, Greece will resign its sovereignty and its active counsel in European politics is mistaken,” Kotzias said at the ceremony to take over the Foreign Ministry. “We want to be Greeks, patriots, Europeanists, internationalists.” He’s part of a cabinet in Greece named on Tuesday by Tsipras after he formed a coalition with Independent Greeks, a more socially conservative party that also opposes austerity. After winning the election two seats short of a majority, Syriza decided against seeking a deal with To Potami, a new party whose leader has pledged to steer a “European course.”

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“You know that I can’t really repay you the money I already borrowed and now you’re asking me to borrow more..”

Greek Finance Minister Varoufakis: ‘End The Vicious Cycle’ (CNBC)

Greece’s newly elected government will look to “end the vicious cycle” of bailout and borrowing that has persisted through years of financial crisis, Finance Minister Yanis Varoufakis told CNBC on Tuesday. Varoufakis is a member of the Cabinet of Alexis Tsipras, who was elected prime minister on Sunday. Tsipras leads the leftist Syriza party, which has formed a coalition with the right-wing Independent Greeks party. The new government has made renegotiating Greek debt to the European Central Bank a priority. It wants European leaders, the European Central Bank and the International Monetary Fund to “table [its] comprehensive proposal for ending this never-ending Greek crisis,” Varoufakis said in an interview on CNBC.

Tsipras’ party has promised to repeal austerity policy and seek to shave off some of Greece’s debt. The country has imposed stiff austerity measures in the years following a €240 billion euro bailout package from the “troika” of the European Commission, ECB and IMF. Varoufakis stressed “finding common ground for Europeans.” He argued that Greece has been put in a tough situation where it is being asked to borrow money to pay back debts for which it already borrowed. “You know that I can’t really repay you the money I already borrowed and now you’re asking me to borrow more,” Varoufakis said.

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“Panos Kammenos, who has declared that Europe is governed by “German neo-Nazis”, assumes the helm of the defence ministry.”

Greek PM Alexis Tsipras Unveils Cabinet Of Mavericks And Visionaries (Guardian)

Greece’s prime minister, Alexis Tsipras, has lined up a formidable coterie of academics, human rights advocates, mavericks and visionaries to participate in Europe’s first anti-austerity government. Displaying few signs of backing down from pledges to dismantle punitive belt-tightening measures at the heart of the debt-choked country’s international rescue programme, the leftwing radical put together a 40-strong cabinet clearly aimed at challenging Athens’s creditors. In a taste of what lies ahead, Yanis Varoufakis, the flamboyant new finance minister, said on his way to the government’s swearing-in ceremony that negotiations would not continue with the hated troika of officials representing foreign lenders. “They have already begun but not with the troika,” said Varoufakis, an economist who has disseminated his anti-orthodox views through blogs and tweets almost daily since the debt crisis exploded in Athens in late 2009 – something he promised on Tuesday to continue to do.

“The time to put up or shut up has, I have been told, arrived,” he wrote on his blog. “My plan is to defy such advice.” Tsipras’s Syriza party, which emerged as the winner of snap polls on Sunday, has been adamant that it will deal only with governments, and not the technocrats that represent the EU, ECB and IMF. Varoufakis is to represent Greece at eurozone meetings. Setting its stamp on the new era, the cabinet took the oath of office in two separate ceremonies, with some sworn in during a religious service but most breaking with tradition to conduct their investiture before the president, Karolos Papoulias. Tsipras, an avowed atheist, was sworn in by Papoulias on Monday. At 40 he is Athens’s youngest postwar prime minister. After falling two seats short of attaining a 151-seat majority in Greece’s 300-seat parliament, Syriza was forced into a coalition with the populist rightwing Independent Greeks party.

The junior partner is openly Eurosceptic and withering of the way international creditors have turned Greece into an “occupied zone, a debt colony”. Its leader, Panos Kammenos, who has declared that Europe is governed by “German neo-Nazis”, assumes the helm of the defence ministry. Tsipras acted on pledges to pare back government with the establishment of 10 ministries and four super-ministries amalgamating different portfolios, starkly illuminating the failure of previous Greek governments to act on promises to reform ministry structures. Giorgos Stathakis, a political economics professor, took over the development portfolio, a super-ministry that includes oversight of tourism, transport and shipping, the country’s biggest industries. Panaghiotis Kouroublis, who is blind, was made health minister, becoming the first Greek politician with a disability to hold public office. Euclid Tsakalotos, a British-trained economist who rose out of the anti-globalisation movement, became deputy minister in charge of international economic relations.

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“Greece made a few mistakes … but Europe made even bigger mistakes..”

Stiglitz: Germany’s The Problem, Not Greece (CNBC)

Nobel Prize-winning economist Joseph Stiglitz told CNBC on Monday that the euro zone should stay together but if it breaks apart, it would be better for Germany to leave than for Greece. “While it was an experiment to bring them together, nothing has divided Europe as much as the euro,” Stiglitz said in a “Squawk Box” interview. The risk of a sovereign default in Greece has increased after the anti-austerity party Syriza won Sunday’s snap elections, raising concerns over the possibility of a Greek exit from the euro zone. Greece is not the only economy struggling under the euro, and that’s why a new approach is needed, Stiglitz said. “The policies that Europe has foisted on Greece just have not worked and that’s true of Spain and other countries.”

The Columbia University professor is one of 18 prominent economists who co-authored a letter saying that Europe would benefit from giving Greece a fresh start through debt reduction and a further conditional extension in the grace period. But in the letter in the Financial Times last week, they stressed that Greece would also have to carry out reforms. “Greece made a few mistakes … but Europe made even bigger mistakes,” Stiglitz told CNBC. “The medicine they gave was poisonous. It led the debt to grow up and the economy to go down.” “If Greece leaves, I think Greece will actually do better. … There will be a period of adjustment. But Greece will start to grow,” he said. “If that happens, you going to see Spain and Portugal, they’ve been giving us this toxic medicine and there’s an alternative course.”

Insisting that it’s best for Europe and the world to keep the euro intact, he argued that keeping the single currency together requires more integration. “There’s a whole set of an unfinished economic agenda which most economists agree on, except Germany doesn’t.” He said the real problem is Germany, which has benefited greatly under the euro. “Most economists are saying the best solution for Europe, if it’s going to break up, is for Germany to leave. The mark would rise, the German economy would be dampened.” Under that scenario, Germany would find out just how much it needs the euro to stay together, he added, and possibly be more willing to help out the countries that are struggling. “The hope was, by having a shared currency, they would grow together.” But he said that should work both ways.

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Ambrose has a more aggressive take.

Germany’s Top Institutes Push ‘Grexit’ Plans As Showdown Escalates (AEP)

A top German body has called for a clear mechanism to force Greece out of the euro if the left-wing Syriza government repudiates the terms of the country’s €245bn rescue. “Financial support must be cut off if Greece does not comply with its reform commitments,” said the Institute of German Economic Research (IW). “If Greece is going to take a tough line, then Europe will take a tough line as well.” IW is the second German institute in two days to issue a blunt warning to the new Greek premier, Alexis Tsipras, who has vowed to halt debt payments and reverse austerity measures imposed by the EU-IMF Troika. The ZEW research group said on Tuesday that the EU authorities should order an immediate stress test of banks linked to Greece, and drive home the threat that they are willing to let a Greek default run its course rather than cave to pressure.

“Europe should clearly signal that it is not susceptible to blackmail,” it said. Germany’s finance minister, Wolfgang Schäuble, said in Brussels that debt forgiveness for Greece is out of the question. “Anybody discussing a haircut just shows they don’t know what they are talking about.” Mr Schäuble said he was sick of having to justify his rescue strategy. “We have given exceptional help to Greece. I must say emphatically that German taxpayers have handed over a great deal,” he said. In a clear warning, he said the eurozone is now strong enough to withstand a major shock. “In contrast to 2010, the financial markets have faith in the eurozone. We face no risk of contagion, so nobody should think we can be put under pressure easily. We are relaxed,” he said. Officials in Berlin are irritated that Mr Tsipras has gone into coalition with the Independent Greeks, a viscerally anti-German party that seems to be spoiling for a cathartic showdown over Greece’s debt.

“This increases the risk of a head-on collision with the international creditors,” said Holger Schmieding, from Berenberg Bank. Mr Schmieding said the likelihood of “Grexit” has risen to 35pc. He warned that Mr Tsipras could be in for a reality shock after making “three impossible promises to his country in one campaign”. The risk is that he will end up “ruining his country” like Argentina’s Peronist leader Cristina Kirchner. “Vicious circles can start fast,” he said. Sources close to Mr Tsipras say he is convinced that German leaders are bluffing and will ultimately yield rather than admit to their own people that the whole EMU crisis strategy has been a failure. Markets do not agree. Credit default swaps measuring bankruptcy risk in Greece rocketed on Tuesday by 248 points to 1,654, but those for Portugal, Italy and Spain barely moved.

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“Greece’s debt problem is worse today than it was when it was rescued.”

Why Aren’t Markets Panicking About Greece? (BBC)

The Greek people don’t seem desperately grateful for the 240bn euros in bailouts they’ve had from the eurozone and IMF – and here is one way of seeing why. The country’s economic crisis was caused in large part because its government had taken on excessive debts. So at the time the crisis began in earnest, at the end of 2009, its debts as a share of GDP were 127% of GDP or national income – and rose the following year to 146% of GDP. As a condition of the official rescues, significant public spending cuts and austerity were imposed on Greece. And that had quite an impact on economic activity. The country was already in recession following the 2008 financial crisis. But since 2010, and thanks in large part to austerity imposed by Brussels, GDP has shrunk a further 19%.

GDP per head, perhaps a better measure of the hardship imposed on Greeks, has fallen 22% since the onset of the 2008 debacle. So austerity has certainly hurt. But has it worked to get Greece’s debts down? To the contrary, Greek debt as a share of GDP has soared to 176% of GDP, as of the end of September 2014. Now it has fallen a bit in absolute terms. Greek public sector debt was €265bn in 2008, €330bn in 2010 and was €316bn in September of last year. But it is debt as a share of GDP or national income which determines affordability. And on that important measure, Greece’s debt problem is worse today than it was when it was rescued. To state the obvious, it is the collapse in the economy which has done the damage.

And although Greece started to grow again last year, at the current annual growth rate of 1.6% (which may not be sustained) it would take longer than a generation to reduce national debt to a manageable level. Little wonder therefore that a party – Syriza – campaigning to end austerity and write off debts, has enjoyed an overwhelming victory in the general election. That it appears to be two seats short of a clear majority in the Athens parliament should not disguise the clear message sent by Greek people to Brussels. Or perhaps it would be more apt to talk of the message being sent to Berlin – since it is Germany which has been the big eurozone country most wedded to the economic orthodoxy that there’s no gain without austerity pain.

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Samaras is one sore loser.

New Greek PM Finds Official Residence Strippped Bare By Predecessor (Guardian)

To the victor the spoils? Not in Athens, where the new prime minister arrived at his official residence on Monday night to discover that computers, paperwork and even the toiletries had been removed by the outgoing administration. Shortly after he was sworn in, Syriza leader Alexis Tsipras found himself inside the Maximos Mansion without some basic necessities. “They took everything,” he said. “I was looking for an hour to find soap.” Traditionally, a defeated Greek prime minister will wait until their successor has been anointed to wish them well. But Antonis Samaras was in such a rush to go that he even failed to leave the Wi-Fi password.

“We sit in the dark. We have no internet, no email, no way to communicate with each other,” one staffer told Germany’s Der Spiegel. It took until Tuesday evening for Tsipras to get his hands on the official prime ministerial Twitter account. In his first tweet, he repeated the oath he took 24 hours earlier, pledging to uphold the constitution and always serve the interests of the Greek people. But on Tuesday night, the new administration was struggling to put its mark on the system; 48 hours after the polls closed, an official Greek government website still showed Samaras as prime minister.

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3.4% is no pittance.

Orders for US Durable Goods Fell in December for Fourth Month (Bloomberg)

Orders for business equipment unexpectedly fell in December for a fourth month, signaling a global growth slowdown is weighing on American companies. Bookings for non-military capital goods excluding aircraft dropped 0.6% for a second month, data from the Commerce Department showed today in Washington. Demand for all durable goods – items meant to last at least three years – declined 3.4%, the worst performance since August. Slackening demand from Europe and some emerging markets is probably weighing on orders, making companies less willing to invest in new equipment. At the same time, brightening American consumer attitudes are leading to gains in purchases of big-ticket items such as automobiles and appliances that can ripple through the economy and underpin manufacturing.

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No need for any Yellen announcements this week.

ECB Bond Buying Makes Fed Rate Increase More Likely (Bloomberg)

Dollar bulls say Europe’s €1.1 trillion euro bond-buying plan will bring the Federal Reserve a step closer to raising interest rates before the year’s out. By pumping cash into global markets, the European Central Bank may clear the way for the U.S. to tighten its own money supply without stoking volatility, according to Citigroup and Bank of America. As Fed officials start a two-day policy meeting, the greenback is extending a rally that’s taken it to a more than decade-high versus a basket of its peers even as bond investors express less conviction about the timing of an U.S. central bank’s first rate increase since 2006. “We’ve been expecting dollar strength, and it’s coming quicker than we thought,” Steven Englander at Citigroup said.

Fed officials “may feel they actually have to advance the first tightening rather than put it off.” Money has flooded into dollar assets in recent months as the world’s largest economy outperforms its developed peers and the Fed prepares to raise its main interest rate from the zero-to-0.25% range it’s been in since 2008. That makes the dollar more valuable to investors, particularly as central banks from Japan and Canada to Europe debase their currencies by easing their monetary policies. The anticipated timing of that first Fed increase inched forward as the ECB unveiled its government-bond purchase program. Investors now expect the U.S. central bank to boost borrowing costs from near zero in October, after betting on a December increase just a month ago, according to futures prices compiled by Bloomberg.

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Sure, we don’t have enough of the stuff yet.

Obama Proposes Offshore Oil Drilling From Virginia to Georgia (Bloomberg)

The Obama administration proposed opening to offshore drilling an area from Virginia to Georgia in a policy shift long sought by energy companies but opposed by environmentalists concerned about popular resorts such as the Outer Banks and Myrtle Beach. The proposed offshore plan for 2017 to 2022, marks the second time President Barack Obama has recommended unlocking areas in the U.S. Atlantic for oil drilling, and faced criticism from allies who say the risks of a spill along the populated coast don’t justify the payoff. “At this early stage in considering a lease sale in the Atlantic, we are looking to build up our understanding of resource potential, as well as risks to the environment and other uses,” Interior Secretary Sally Jewell said in a statement.

The agency said it would do one auction in the Atlantic and keep a 50-mile buffer from the shore. Managing the U.S. oil and gas boom has become a fraught issue for Obama, who has continued to trumpet the benefits of the jump in production and falling prices, while also seeking to balance it with a desire to combat climate change. Environmentalists say the administration hasn’t done enough to counter the risks of pollution, spills and greenhouse-gas emissions from the domestic production. “The world is in a very big hole with climate change and when you’re in a hole the first order of business should be to stop digging,” Steve Kretzmann, executive director of Oil Change International, said in an e-mail. “Unfortunately, the administration’s five-year plan amounts to climate denial.”

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“Our research suggests that the consensus view that oil markets will recover by the second half of 2015 may well be optimistic.”

Crude at $49: The New Reality for Big Oil Companies (Bloomberg)

Financial results from a fourth quarter that saw the collapse of the crude market will provide a window into how the world’s biggest oil companies are adjusting to a new reality of slowing growth and low prices. Oil that topped $115 a barrel as recently as June has been trading below $50 a barrel since the first week of the year, portending a bleak 2015 for the world’s five so-called supermajors – Exxon Mobil, Shell, Chevron, Total and BP. The companies, whose businesses combine oil and natural gas exploration with refining and chemical manufacturing, have historically been among the most resilient players during down cycles. This could be the oil bust that breaks that pattern. “The issue for this group of companies is they don’t have bulletproof business models,” said Brian Hennessey at Alpine Woods. A 57% plunge in the price of oil since June “really tests your convictions.”

The industry’s stark change in fortune set off panic from corporate board rooms to drill-rig floors as companies that pump almost one-tenth of the world’s crude scramble to tighten budgets and preserve cash for dividends, buybacks and capital projects too far along to abandon. BP froze wages, Chevron delayed its 2015 drilling budget and Shell canceled a $6.5 billion Persian Gulf investment; layoffs industrywide have topped 30,000, enough to fill almost every seat in Madison Square Garden twice. Investors will be sifting the data from the fourth quarter for clues to how long the current slump will last. Momentum from $109 a barrel oil during the first half of the year helped carry producers through the last three months, when the price of Brent, the benchmark used by most of the world, averaged $77.07 — well above the current price of $49.

The effects of lower prices will still take their toll as all except Shell are forecast to report earnings declines compared with the fourth quarter of 2013. Shell profits are expected to rise compared with unusually ugly results the year before. Worldwide crude supplies appear likely to exceed demand for the rest of the year and beyond, even as the lowest oil prices since 2009 discourage new developments in high-cost regions such as Canada’s oil sands, said Paul Sankey at Wolfe Research. That would postpone any rebound in share prices of the five biggest oil majors, which have tumbled by an average of 8.1% since crude prices began to slide in June. That compares with a 28% decline in a Standard & Poors index of 18 smaller U.S. oil and gas producers. “Buying oil equities here would be dangerous,” Sankey said. “Our research suggests that the consensus view that oil markets will recover by the second half of 2015 may well be optimistic.”

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“’Never’ is a long time.” Then he paused. “It’s going to be a long time.”

He Called $50 Oil, Now He Says It’s Going Lower (MarketWatch)

Last November, when I was trying to figure out where oil prices were going, I spoke with Shawn Driscoll, manager of the T. Rowe Price New Era Fund, a mutual fund that focuses on natural resource stocks. Brent crude was trading at $80 a barrel, and there was speculation that OPEC would halt its slide by cutting production at its upcoming meeting, scheduled for Thanksgiving Day. Driscoll was having none of it. Oil, gold, and other commodities, he told me, were in a secular bear market that could last another decade. He said oil would bottom out around $50 over the next 10 years. Actually it took less than 10 weeks, as Brent traded under $48 a barrel on Monday. I usually don’t revisit columns or sources that quickly, but events have moved so fast I decided to catch up with Driscoll again. Right off the bat, he acknowledged being surprised by the suddenness of oil’s price drop.

“We expected Saudi Arabia to cut, frankly,” he told me in a phone interview. “Once Saudi Arabia didn’t cut production, it became clear to us there was a problem.” Both supply and demand were heading in opposite directions more drastically than he expected. “Underlying demand got a lot weaker, Libya came back, Iraqi volumes have been pretty good,” he explained. We spoke last Friday, the day after the pro-U.S. Yemeni government had fallen and King Abdullah of Saudi Arabia died and was succeeded by his 79-year-old half-brother Salman. Yet despite these new uncertainties in the world’s most volatile, energy-rich region, Driscoll’s view remains unchanged: look out below. He explained that $40 a barrel is the top of the industry’s operating cost curve – the price at which individual wells break even after they’ve been drilled and are producing and below which operators shut in existing wells.

So, does he think Brent will fall below that $40 magic number? “I do,” he told me. Why? Whatever political or competitive motives may be behind Saudi Arabia’s refusal to cut production, the world is awash in oil. “There’s still an overwhelming glut of supply in global markets,” Stephen Schork, president of Schork Group, said. No wonder Wall Street firms have been falling all over each other to predict ever-lower crude prices: Goldman Sachs is looking for $40 Brent and Bank of America Merrill Lynch says crude futures could fall to $31 a barrel in the first quarter, lower than they were during the financial crisis. “The job of correcting markets when they’re oversupplied is to find a price that destroys the oversupply,” Driscoll told me. That destruction is just getting started. Asked about billionaire Saudi investor Prince Alwaleed bin Talal’s comments that “I’m sure we’re never going to see $100 anymore,” Driscoll replied: “’Never’ is a long time.” Then he paused. “It’s going to be a long time.”

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Not for the banks.

France ‘Proves’ Q€ Is Entirely Useless (Zero Hedge)

According to the doctrine of central planners, the idea of Q€ is to lower rates to encourage borrowing (and credit creation) to spark growth and kickstart a virtuous recovery. As the following chart shows, that is total and utter crap… French jobseekers just hit a fresh record high and French rates just hit a record low – and that has been the story for 6 years. So – just as The Fed was finally forced to admit, Q€ is nothing more than wealth redistribution from all taxpayers to the ultra-rich asset owners who – it is hoped- will bless the plebeians with some trickle-down-ness… with every asset under the moon already at record highs, once again we ask – just what do you think this will achieve Draghi.

And finally, we have no words for this idiot…: “Bank Of Italy’s PANETTA: ECB QE TO BOOST GROWTH ‘SIGNIFICANTLY’ OVER NEXT 2 YEARS”. Yep – they really believe that.

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Syriza is sure to wake up sentiments across Europe.

Syriza’s ‘Bella Ciao’ Casts Shadow Over Italy President Vote (Bloomberg)

As Greeks welcome Syriza’s historical victory with the Italian partisan anthem “Bella Ciao,” Italian Premier Matteo Renzi is nervously eyeing resistance within his own party before a key presidential vote this week. “By gaining a clear lead and moving to form a new government in a short time, Syriza leader Alexis Tsipras is also galvanizing his Italian supporters, including a significant number of Renzi’s opponents within his party,” Francesco Galietti, founder of research firm Policy Sonar in Rome, said in a phone interview. Renzi’s grip on the Democratic Party, or PD, will be closely-watched Jan. 29, when 1,009 national lawmakers and regional delegates meet in Rome to start voting for the new head of state, a post left vacant by 89-year-old Giorgio Napolitano earlier this month.

Some lawmakers within the left-wing PD minority, including Giuseppe Civati and Stefano Fassina, were part of a pro-Syriza delegation who visited Athens before the vote. Supporters of Nichi Vendola, leader of the Left, Ecology and Freedom party, one of the strongest supporters of Syriza in Italy, sang the World War II “Bella Ciao” anthem at a three-day event in Milan last week. Now, Vendola is trying to open a dialogue with the anti-Renzi line of the PD to see if they can join forces. “Numerous defections in the first three rounds of voting and an election that drags on past the fifth round will spell trouble” for the premier, Wolfango Piccoli, managing director at Teneo Intelligence in London, wrote in a Jan. 13 note to clients. Such an outcome would probably mark the beginning of the end for “his flagship reforms and the current legislature.”

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Paying off the IMF through record low borrowing. Sounds nice, but what justifies the low rates for places like Portugal?

Portugal Repays IMF Early; Greece Prepares Fight (Bloomberg)

As Greece gets ready to fight the IMF, Portugal wants to pay it off early. While Greece catapulted Alexis Tsipras into power and set up a confrontation with its creditors, Portugal has raised almost half of its planned gross bond issuance for this year. With falling borrowing costs, Portugal now plans to make an early repayment of its IMF bailout loans. “Portugal has already covered about 40% of the maximum size of its own target, and it extended its curve by eight years,” said David Schnautz at Commerzbank. “After this start, Portugal should be able to wrap up its ‘must do’ bond supply activities soon, maybe before the slow supply summer season.” Portugal’s message to investors is this: the country is more like Ireland than Greece. The Irish government has already taken advantage of record low borrowing costs and relative political stability to refinance about €9 billion of its IMF loans.

While anti-austerity parties Podemos in Spain and Tsipras’s Syriza in Greece tap into voter discontent, in Portugal the ruling Social Democrats and the Socialists, the main opposition party, still dominate opinion polls ahead of elections scheduled for September or October. “The political system has proven its maturity,” Economy Minister Antonio Pires de Lima said. “The radical parties exist, but you cannot imagine in Portugal that those parties get more than 10% or 15%, never more than 20% in polls.” Portugal this month sold 5.5 billion euros of 10- and 30-year government securities via banks. Debt agency IGCP plans gross issuance of €12 billion to €14 billion in 2015. The government is paying an estimated 3.7% on 26.5 billion euros of IMF loans. They formed part of the country’s 2011 bailout program, which Portugal exited in May last year after Ireland wrapped up its rescue package in December 2013.

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One more down in the currency race to the bottom.

Singapore Surprises With Easing, Clubbing Currency (CNBC)

Singapore’s central bank surprised markets with a between-meeting easing amid nearly non-existent inflation, sending the city-state’s currency sharply lower. “With material downward revision to the inflation outlook, MAS (Monetary Authority of Singapore) saw cause for preemptive action,” Mizuho Bank said in a note Wednesday. “On the growth front, MAS also sounded more cautious, pointing to a mixed outlook for the global economy, which is likely to weigh on the export-oriented sectors.” Without waiting for its scheduled April review – or today’s U.S. Federal Reserve’s meeting – the MAS Wednesday announced that it was reducing the slope of the Singapore dollar’s appreciation against an undisclosed, trade-weighted basket of currencies.

Rather than using interest rates, Singapore sets its monetary policy by adjusting the currency’s trading range. The slope was last flattened in 2011 and this was the MAS’ first unscheduled policy statement since 2001. Inflation in the trade-dependent city-state has been on the wane despite rising labor shortages as the government limited the number of foreign workers. In December, the consumer price index fell 0.2% on-year after declining 0.3% in November as declining oil prices globally eased fuel costs and as housing costs were lower. The MAS cut its headline inflation forecast for 2015 to a band of negative 0.5% to 0.5% from 0.5-1.5% previously.

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Just great.

Subprime Bonds Are Back With Different Name 7 Years After US Crisis (Bloomberg)

The business of bundling riskier U.S. mortgages into bonds without government backing is gearing up for a comeback. Just don’t call it subprime. Hedge fund Seer Capital Management, money manager Angel Oak Capital and Sydney-based bank Macquarie are among firms buying up loans to borrowers who can’t qualify for conventional mortgages because of issues such as low credit scores, foreclosures or hard-to-document income. They each plan to pool the mortgages into securities of varying risk and sell some to investors this year. JPMorgan analysts predict as much as $5 billion of deals could get done, while Nomura Holdings Inc. forecasts $1 billion to $2 billion. Investment firms are looking to revive the market without repeating the mistakes that fueled the U.S. housing crisis last decade, which blew up the global economy.

This time, they will retain the riskiest stakes in the deals, unlike how Wall Street banks and other issuers shifted most of the dangers before the crisis. Seer Capital and Angel Oak prefer the term “nonprime” for lending that flirts with practices that used to be employed for debt known as subprime or Alt-A. While “subprime is a dirty word” these days, “what everyone is seeing is the credit box has shrunk so much that there’s a lot of good potential borrowers out there not being served,” said John Hsu, the head of capital markets at Angel Oak. The Atlanta-based firm expects to have enough loans for a deal next quarter in which it retains about 20% to 33%, he said. Reopening this corner of the bond market may lower consumer costs and expand riskier lending, aiding the housing recovery.

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“..the slowdown/recession finds a secondary downturn thanks to the immediate closing down of any discretionary capital expenditure..”

Looming Recession Will Be “Remembered For 100 Years”: Crispin Odey (Zero Hedge)

“I think equity markets will get devastated,” warns famed $12bn AUM hedge fund manager Crispin Odey in his latest letter to investors. Having been one of the biggest bulls of this particular central bank artificial-bull cycle, his dramatic bearish tilt (as we discussed what he thinks are the biggest risks underpriced by the market previously), is notable. Finally, Odey fears major economies are entering a recession that will be “remembered in a hundred years,” adding that the “bearish opportunity” to short stocks looks as great as it was in 2007-2009.

Odey Asset Management (report for Dec 2014)
• The themes I have been outlining since the second quarter of 2014 are now establishing themselves:
• A faltering Chinese economy with growth ultimately slowing down to 3%.
• A hard landing for those countries plugged into China’s growth – especially Australia, South Africa and Brazil.

A fall in commodity prices bringing with it pain to those heavily exposed. For oil this is the Middle East, Venezuela, Argentina, mid-west USA, Canada, Norway and Scotland. No one forecast how fast and how far those commodity markets would fall. However, the same people who singly failed to see this coming are the first to say that the benefits of falling prices will outweigh the costs. My problem with such a hopeful outcome is that, in my experience, those that lose out from a fall in their income are quicker to adjust than those that benefit. In that intertemporal space lurks a recession. For me, the slowdown/recession finds a secondary downturn thanks to the immediate closing down of any discretionary capital expenditure in the affected industries and countries, something we are only just seeing.

This obviously has knockon effects for incomes and employment. At that time the exchange rate is likely to be falling to give some support. In my world this slowdown in the commodity producer’s economy is felt via falling exports back in the beneficiary’s economy, which finds external markets weaken. Again, if I am right on timing, the effect can be great because it is not yet affected by a pickup in spending in the beneficiary’s economy. As always, that is the theory and markets will show whether it works in practice. In my world, this hit to the world economy is the first experience of a business cycle since 2008. Most investors do not believe we can experi-ence such a downturn. They rely upon Central bankers who they think have solved the problem.

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