Nov 272015
 
 November 27, 2015  Posted by at 10:14 am Finance Tagged with: , , , , , , , , ,  


Jack Delano Freight train on the Chicago & North Western, Chicago to Clinton, Iowa 1943

The $400 Billion Ripoff That Could Destroy The Greek Bailout (CNBC)
Good News, Holiday Shoppers: Retailers Are Desperate (MarketWatch)
China’s Stocks Sink Most in Three Months as Broker Probes Widen (Bloomberg)
China October Industrial Profits Fall For Fifth Straight Month (Reuters)
China’s Stock-Market Regulator is Investigating Citic Securities (WSJ)
Japan Spending Slumps Even As Unemployment Hits 20-Year Low (Reuters)
Japan Prime Minister Debuts New Social Programs to Help Economy (WSJ)
Japan’s Debt Trap Won’t Fix Itself (Bloomberg)
Bad Saudi PR Fuels Riyal Devaluation Talk (Reuters)
EU Warns 12 Eurozone Nations Including Germany Over Imbalances (Bloomberg)
Portugal’s Anti-Austerity Left Take Power In Watershed Moment For Euro (AEP)
VW’s Emissions Scandal Exposes Far Deeper Problems In Europe (Bloomberg)
‘Classic Ponzi Scheme’: Sydney House Prices Are 12 Times The Annual Income (SMH)
Biggest Overhaul Of Chinese Armed Forces In Six Decades (Bloomberg)
Hollande, Putin Propose Closing Turkey-Syria Border (AFP)
Russia Raiding Turkish Firms And Sending Imports Back (Al Jazeera)
Turkish Journalists Charged Over Claim Secret Services Armed Syrian Rebels (AFP)
Refugee Influx Threatens Fall Of EU, Warns Dutch PM (FT)
After Uproar, German Town Warms To Refugees Who Took Over Church (Reuters)
Stranded Migrants Try To Storm Into Macedonia, Tear Down Fence (Reuters)

Criminal behavior. “What is so disturbing is that this fire sale is going on with the blessings of European creditors. That makes it hard to brand it an asset looting. The loss for Greek taxpayers is enormous.”

The $400 Billion Ripoff That Could Destroy The Greek Bailout (CNBC)

As if Greece didn’t have enough economic market woes, last week foreign investment funds managed to take control of four of the country’s largest banks — Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank — through $6.42 billion worth of capital increases and a complex set of legal manipulations. As a result, bank shares sold like penny stocks, diluting state ownership in these important institutions that have assets totaling $358 billion. The country’s stake in the National Bank of Greece dropped to 24% from 57%, and in Eurobank it fell to 2.4% from 35%, while its stake in Alpha Bank was reduced to 11% from 64% and in Piraeus Bank it dropped to 22% from 67%. This translates to a loss of almost $44 billion that Greek taxpayers gave to bail out the banks over the past three years.

Greek stock market and legal experts believe that the maneuvers were engineered after a statutory legal provision was amended by the Greek Parliament that allowed private investors to price bank shares using a so-called “book-building method.” Under this method, the share price in capital increases is not predetermined, and investors set the price at which they want to buy the shares. It also made it mandatory for the country’s regulatory body, the Hellenic Financial Stability Fund, to accept book-building prices, even if they were not properly reflecting share values. According to Greek banking sources, Capital Group, Pimco, WLR Recovery Fund, Wellington, Fairfax, Brookfield Capital Partners and Highfields Capital Management are among those who jumped at the opportunity to invest in Greek banks at below-market value this month.

The foreign investors valued the four banks at about $800 million, which is more than three times less than their current market value of $3 billion. Moreover, from Nov. 4 to Nov. 20, when the book building took place, the index of bank shares on the Greek stock market fell nearly 70%. This has hit the banks hard, according to Nikos Chryssochoidis, an Athens-based stockbroker. “In just 13 trading sessions, Alpha Bank’s stock dropped to .055 euros from its 0.125 euros closing on Nov. 4, losing 56%.” “These are horrendous figures,” Emilios Avgouleas, a professor of banking law at the University of Edinburgh, told CNBC. “What is so disturbing is that this fire sale is going on with the blessings of European creditors. That makes it hard to brand it an asset looting. The loss for Greek taxpayers is enormous.”

As the dust settles, the blame game is in full swing. The HFSF argues that its decisions are lawful and in line with the legislation passed by the Greek Parliament. The country’s creditors and euro zone officials have waived their responsibilities. In the meantime, there are worries about how this could affect overall trading on the Hellenic Stock Exchange. On Monday, Euro-area member states agreed to disperse €10 billion for the recapitalization of Greek banks after the nation completed the first set of milestones that included the overhaul of bank governance rules, eased restrictions on home foreclosures and raised wine and road taxes. These funds will be released to the Hellenic Financial Stability Fund on a case-by-case basis, as required by the European Commission.

At the same time, Greek creditors want the country’s authorities to tackle the remaining vulnerabilities in the banking system, notably those arising from $114 billion worth of nonperforming loans. If there is a capital shortfall in Greek banks that private investors cannot cover in 2016, then the EU will impose a surcap on unsecured bank deposits that are more than €100,000, like they did in Cyprus during its financial crisis three years ago. At that time, a €10 billion by the Eurogroup, European Commission and the IMF resulted in the closure of the country’s second-largest bank and a onetime bank deposit levy on all uninsured bank depositors. To date, the European Union has lent $49.22 billion to bail out Greek banks.

Read more …

“..they have literally never before had so much stuff they need to sell…”

Good News, Holiday Shoppers: Retailers Are Desperate (MarketWatch)

As Black Friday kicks off and you prepare for the annual shopping orgy, here’s something you may find useful to know: The retailers need your money. I mean, they really, really need your money. The companies you know down at your local mall are under incredible pressure this Christmas season. They have sky-high inventories, flat-lining sales and collapsing stock prices on Wall Street. And they’ve got a few weeks to turn that around. You think you want a deal? Oh, boy, these guys need to make a deal. Let’s start with the inventories. The people running the stores place their Christmas orders many months in advance — often, in fact, as much as a year in advance. And when it came time to buy inventories for this season, they were super-optimistic and they went large.

As a result, they have literally never before had so much stuff they need to sell. They’re piled high with cashmere sweaters and pashminas and diamond earrings and plastic action figures and “Frozen” tiaras and embroidered oven mittens and exercise bikes and “Italian Stallion” golf balls. The managers are feeling sick just looking at it all. According to U.S. government data, America’s retailers are entering this holiday season with an incredible $584 billion in inventory to sell — equal to almost $5,000 per household. When compared with annual sales, these inventory levels are the highest since the financial crisis. When adjusted for inflation, they’ve never been so high. Christmas is the key period for retailers. It’s when they make their money.

The Christmas shopping season makes or breaks their entire financial year. In fact, “Black Friday” is traditionally the day of the year when retailers finally move into profit. With all that stuff to sell, it’s no wonder that “Cyber Monday” has now been brought forward to Sunday — and Black Friday apparently started about a week ago. These guys are nervous. They’re under a lot of pressure. Shock profit warnings, including those from stalwarts such as Macy’s, have revealed that all is not well down at the mall. Shoppers aren’t buying as much as hoped. And they’re buying more of it online — at lower margins. Take a look at stock prices. They tell a story. And they’re in free-fall.

Best Buy is off 20% so far this year. Wal-Mart and Bed Bath & Beyond are down about 30%. Gap, Ralph Lauren and Urban Outfitters are down by about a third. Macy’s is down more than 40%. And even the high-end is hurting. Tiffany and Nordstrom are each down about 30%. Bad news for them. Great news for you. There are plenty of sensible strategies for making sure the holiday season doesn’t bankrupt you. They include setting a budget, setting gift value limits, agreeing on a Christmas truce or just adopting the Secret Santa strategy so everyone gets one gift. I’ll confess I am so over the Christmas shopping mania. But no matter what strategy you adopt, if you’re looking for deals, you should know your enemy. The retailers look like they’re hurting. And that should mean that the longer you wait, the better the deals you’ll find.

Read more …

Shanghai closed at -5.48%, Shenzhen -6.11%.

China’s Stocks Sink Most in Three Months as Broker Probes Widen (Bloomberg)

China’s stocks tumbled as some of the largest brokerages disclosed regulatory probes, the nation’s industrial profits fell and two companies flagged bond payment difficulties. [..] Citic Securities and Guosen Securities plunged more than 9% in Shanghai after saying they were under investigation for alleged rule violations, while Reuters reported Haitong Securities Co. is also being probed after the company suspended trading in its shares. Industrial profits slid 4.6% last month, data showed Friday, compared with a 0.1% drop in September. The crackdown in the finance industry comes as the government widens an anti-corruption campaign and seeks to assign blame for a $5 trillion stock-market rout.

Authorities are also testing a bull-market rebound by paring emergency support measures, including lifting a freeze on initial public offerings and scrapping a rule requiring brokerages to hold net-long positions. A Chinese fertilizer maker and a pig iron producer became the latest companies to struggle to repay bonds after at least six defaults this year as the earliest economic indicators for November show a deterioration. “The investigations may be related to their roles in the stock rout,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai, who’s keeping his holdings unchanged. “The regulator will probably further step up oversight and crack down that area. In the short term, the market will be pressured by that.”

Read more …

“The mining industry was the laggard with profits falling 56.3% in the first 10 months of the year from a year earlier..”

China October Industrial Profits Fall For Fifth Straight Month (Reuters)

Profits earned by Chinese industrial companies fell 4.6% in October from a year earlier, data from the statistics bureau showed on Friday, declining for the fifth consecutive month. Industrial profits – which cover large enterprises with annual revenue of more than 20 million yuan ($3.13 million) from their main operations – fell 2.0% in the first 10 months of the year compared with the same period a year earlier, the National Bureau of Statistics (NBS) said on its website. In September, profits fell 0.1% from a year earlier. The impact of foreign exchange and lower investment income on companies’ profits were less pronounced in October than in prior months, the statistics bureau said in a statement. Falling sales, rising costs and hits to profit in the oil, steel and coal industries all contributed to October’s disappointing industrial profits, the NBS said.

The mining industry was the laggard with profits falling 56.3% in the first 10 months of the year from a year earlier, the NBS data showed. China’s Premier Li Keqiang said on Tuesday that China was on track to reach its economic growth target of about 7% this year, and the economy was going through adjustments to maintain reasonable medium- to long-term growth. China’s customs authorities announced a number of new measures on Wednesday to help exporters and importers, describing the current foreign trade environment as “complicated and grim.” The new policies include lowering various costs for importers and exporters, streamlining the clearance of goods at customs and gathering more accurate statistics.

Read more …

Broad investigations going on.

China’s Stock-Market Regulator is Investigating Citic Securities (WSJ)

China’s securities regulator has launched a probe into Citic Securities for suspected violations of securities rules, escalating a crackdown on the country’s largest stockbroker at the center of a broad campaign to clean up the financial sector following the summer’s stock-market rout. In a statement to the Shanghai Stock Exchange, Citic Securities said that it has received notification from the China Securities Regulatory Commission regarding the investigation, without offering further details. The Beijing-based brokerage said it will cooperate with the authorities and that the firm’s operations remain normal.

The latest move by the Chinese authorities marks a significant shift in the nature of its probe into the brokerage, which has been at the forefront of Beijing’s effort to modernize its underdeveloped capital market and globalize the reach of its state-owned financial behemoths over the past decades. Guosen Securities, China’s third-largest broker by assets, also said on Thursday that it received investigation notification from the CSRC over suspected violation of securities rules, according to the company’s filing to the Shanghai Stock Exchange. No details were provided regarding the probe.

In recent months, Beijing has confined its investigation to Citic Securities’ employees, according to the company’s filings and reports by the official Xinhua news agency, with the Chinese police leading the effort after detaining a number of senior executives from the company. “The scope and depth of official crackdown on financial irregularities since the stock-market plunge in June has surpassed expectations,” said Hao Hong, managing director at Bank of Communications. “The probe into China’s leading broker serves as a clear warning to market participants.” Since August, several senior employees at Citic Securities, including general manager Cheng Boming , have been detained by the Chinese police over suspected illegal practices, such as insider trading.

Read more …

Can’t force spending. The more you try, the more people save, out of fear.

Japan Spending Slumps Even As Unemployment Hits 20-Year Low (Reuters)

Japanese household spending unexpectedly fell in October for a second straight month, even as unemployment hit a two-decade low, underscoring the challenge facing premier Shinzo Abe in persuading reluctant companies to boost wages. Consumer price inflation fell for the third consecutive month, but after excluding the effect of lower energy bills, household costs rose. The data underlined the difficulty Abe faces as he campaigns for companies to spend more of their record profits on wages and investment, in the hope of pulling Japan out of recession. “Job offers are surging but the average sum each employee is earning isn’t rising much. That’s why household income isn’t increasing and consumption remains weak,” said Taro Saito, senior economist at NLI Research Institute.

“It’s quite difficult to generate a positive economic cycle just by applying political pressure on companies.” The jobless rate fell to 3.1% in October from 3.4% in September, hitting the lowest level since 1995, government data showed on Friday. Household spending fell 2.4% in October from a year earlier, against market forecasts for a 0.1% rise, and disposable income slid 0.3%, separate data showed. The core consumer price index (CPI), which excludes volatile fresh food but includes oil costs, fell 0.1% in the year to October, matching a median market forecast.

Read more …

Abe’s games become more dangerous as time goes by and Abenomics is increasingly exposed as the failure it always was.

Japan Prime Minister Debuts New Social Programs to Help Economy (WSJ)

Japanese Prime Minister Shinzo Abe said Thursday he would increase spending on social programs and raise the minimum wage as he tries to jump-start the flagging economy ahead of an election next summer. Mr. Abe said the government would give cash handouts to the elderly poor, and build child-care and elder-care facilities to help people enter and stay in the workforce, as part of a stimulus package expected to cost at least ¥3 trillion ($24 billion). Mr. Abe hopes to revive an economy that has slipped into recession for the second time in two years, heightening skepticism about whether Abenomics will ultimately succeed in generating sustainable growth. He announced a “second phase” of the growth program in September, offering few details but pledging to expand the economy by 20% by 2020, a target many economists dismissed as unrealistic.

The measures outlined Thursday, though modest in scope, reflect a new focus for Abenomics, which has been criticized for benefiting mostly big businesses while average Japanese struggle to keep up. Mr. Abe said the theme of the second phase is “inclusion,” while the goal is to help more people contribute to and benefit from economic activity. Kazumasa Oguro, professor of economics at Hosei University, described the package as “not bad as a first step,” but warned that it would take a long time to lift labor-force participation or growth. One of the biggest obstacles to growth has been stagnant wages, something a higher minimum wage is supposed to address. Mr. Abe and the Bank of Japan have urged businesses to share more of their record profits with workers, with limited success.

The government will also give ¥30,000 ($245) in cash to each of the nation’s 10 million elderly poor, whose numbers are on the rise. These people wouldn’t benefit from the push for higher wages but because they are on fixed incomes they suffer when prices rise. To ease a shortage of workers, the government plans to make working easier for people with children or elderly parents who need care. It will build enough public child-care facilities to accommodate more than 500,000 additional children by fiscal 2017 and make more temporary workers eligible for child-care leave. Mr. Abe said the government would also build enough new nursing homes to accommodate 500,000 additional elderly people by the fiscal year 2020, and offer scholarships to those wishing to become certified care givers.

Read more …

Rock and a hard place.

Japan’s Debt Trap Won’t Fix Itself (Bloomberg)

When even Paul Krugman is worried about the national debt, you know you have a problem. The country in question isn’t Greece or the U.S., but Japan. With low unemployment and high labor force participation, Japan has essentially no idle resources. The scope for boosting the economy with fiscal stimulus or easy money is almost nil. But Japan continues to run an enormous budget deficit every year. In 2014, the government had a deficit of 7.7% of gross domestic product, with a primary deficit – which excludes interest payments – of just under 6%. Things are looking somewhat better for 2015. A hike in the consumption tax in 2014 has swelled revenues. Government coffers have also been boosted by increased profits at Japanese companies – which is then subject to the country’s high corporate tax rate.

As a result, the primary deficit is projected to be only about 3.3% in 2015. But 3.3% is still way too high. In the long run, any deficit that stays higher than the rate of nominal GDP growth is unsustainable. Japan’s nominal GDP growth is now about zero. Its long-term potential real GDP growth is no more than 1% (due to shrinking population), and the Bank of Japan has not managed to increase core inflation to the 2% target despite Herculean efforts. Even if interest rates stay at zero forever – allowing the country to eventually refinance all its debt in order to bring interest payments down to zero – borrowing 3.3% of GDP every year is just too much. And if interest rates rise, deficits would explode. The government, of course, knows this, and has pledged to cut the primary deficit to 1% by 2018 and to zero by 2020.

But its projections rely on unrealistically fast growth assumptions; it would require Japan to expand well above its long-term potential rate. As in the U.S., Japanese administrations are in the habit of over-optimism. The Ministry of Finance, full of sober-minded bureaucrats, projects that under more realistic growth assumptions, the primary deficit will shrink only to 2.2%. Even that improvement would require tax hikes, spending cuts or some combination of the two. A primary deficit of 2.2% would be at the very edge of long-term sustainability. If we assume a 1% real potential growth rate and 1.5% inflation, then a 2.2% deficit will be just barely under the maximum sustainable level of 2.5%. So Japan does have a chance to avoid disaster. But the risk is still high. A growth slowdown, a rise in interest rates or a fall in corporate profitability could easily nudge the government back to excessive debt growth. A secure future will require more serious deficit reduction.

Read more …

Saudi’s talk the talk. But there’s palpable uncertainty. And that’s what attracts predators.

Bad Saudi PR Fuels Riyal Devaluation Talk (Reuters)

“If Saudi cannot resist the gravitational forces created by a persistently strong U.S. dollar and de-pegs the riyal to follow the Russian or Brazilian currencies, oil could collapse to $25 per barrel,” Bank of America Merrill Lynch wrote this week. In fact Riyadh is determined to avoid devaluation at almost any cost, the Gulf bankers said. The resulting market panic and import cost surge would outweigh the benefit to state finances from higher oil revenue after conversion from dollars to riyals. Saudi Arabia imports much of its food, consumer goods and machinery, and their rapid price inflation could stoke political discontent in the event of a devaluation. The state has reserves to support its currency for years to come. With Brent averaging $57.55 a barrel between March and September, the central bank’s foreign assets shrank at an annual rate of $87 billion, leaving it holding $647 billion.

Even if the asset depletion accelerated, it would take several more years to reach $225 billion, or a generous 18 months of import cover – twice the cushion most nations enjoy. Such arithmetic does little to ease market jitters, however, when Saudi officials have yet to explain how they will handle the pressure. Rare public pronouncements have so far been confined to general assurances of economic health, leaving many investors unconvinced. Earlier this month, as dwindling oil receipts drove interbank money rates SAIBOR= to their highest levels since 2009, the central bank governor brushed off what he called a “slight” rise in rates, insisting that banks had liquidity aplenty. Borrowing costs have since risen further.

In a country renowned for government secrecy, reluctance to engage with the markets may have been heightened by leadership changes ushered in with new King Salman’s accession in January. His son, Mohammed bin Salman, has taken over much of the economic policy apparatus just as it grapples with an oil price slump whose extent may have caught officials off-guard. The last serious bout of market speculation on a Saudi devaluation was handled by their predecessors, in 1998. Another reason to keep likely countermeasures under wraps is their political sensitivity. Curbing public sector wages, trimming subsidies and slowing construction projects would hit the lavish welfare policies that have helped maintain Saudi Arabia’s social peace. In a sign of their delicacy, Oil Minister Ali al-Naimi has toned down comments last month that domestic energy prices may have to rise.

Read more …

Pointless.

EU Warns 12 Eurozone Nations Including Germany Over Imbalances (Bloomberg)

The European Commission flagged up potential economic troubles in 12 of the 19 euro-zone countries, from the export powerhouse Germany to the perpetually debt-ridden Italy. The commission said on Thursday that it will have a closer look at imbalances in those countries, under a monitoring policy introduced at the height of the euro debt crisis. In a repeat of criticism from last year, export-oriented Germany was faulted for a high trade surplus that leaves it vulnerable to an economic slowdown elsewhere. “The very large and increasing external surplus and strong reliance on external demand expose growth risks and underlines the need for continued rebalancing toward domestic sources,” the commission said.

Overall, the commission said it will conduct further analysis of Germany, France, Italy, Ireland, the Netherlands, Portugal, Spain, Belgium, Slovenia and Finland; it added Austria and Estonia to the list. Six countries not using the euro – Britain, Sweden, Romania, Bulgaria, Croatia and Hungary – also face renewed monitoring Findings will be published in February. Governments that ignore repeated warnings face financial penalties, though none have been imposed since the imbalances system was set up in 2011.

Read more …

President lost.

Portugal’s Anti-Austerity Left Take Power In Watershed Moment For Euro (AEP)

Portugal’s anti-austerity Left has taken power with the support of Communists and radical forces after eight weeks of bitter wrangling, breaking Germany’s grip on economic policy and setting the scene for a bruising fight with Brussels on budget plans. The triumph of the triple-Left alliance under Socialist leadership is a historic moment for the country and implies a sweeping reversal of austerity cuts imposed by the now-departed EU-IMF Troika. President Anibal Cavaco Silva warned the Socialists that he will sack the government if it violates eurozone deficit rules and the Fiscal Compact, or endangers the “external credibility” of the country. “It is an illusion to think that Portugal can dispense with the institutions and creditors,” he said. Yet his rhetoric cannot disguise the fact that an establishment centre-Left party has, for the first time, defied the prevailing ideology in the eurozone.

The Germans can no longer count on Lisbon to make the austerity case for them, and to provide political cover. “They have lost their best ally for fiscal discipline,” said Ricardo Amaro, from Oxford Economics. Portugal’s revolt is not a replay of the Syriza saga in Greece. The country escaped Troika tutelage last year, and is not dependent on money from the eurozone rescue fund (EMS). “We have no leverage,” said one EU official. The pro-European Socialist leader, Antonio Costa, has gone out of his way to reassure bankers and business leaders that he will avoid the sort of showdown that brought Greece to its knees. Yields on Portugal’s 10-year bonds have settled down to 2.33pc since spiking earlier this month – though this could change when the Europe Central Bank stops buying its bonds under quantitative easing.

The new finance minister is Mario Centeno, a Harvard-trained labour economist with “Blairite” leanings, deemed to be a cautious team-player. “He is not another Yanis Varoufakis,” said Rui Tavares, a Portuguese commentator. Yet the picture remains chaotic and fraught with danger. The Socialists are to rule by minority, with no encompassing coalition agreement. The Communists and the Left Bloc reserve the right to dissent, and have made it clear that they will do so. “It could break over Syria, or TTIP (trade deal), or anything,” said Mr Tavares. Mr Cavaco initially deemed the triple-Left grouping too dangerous for power, warning that there could be no government in Portugal that relied on parties opposed to the euro, the Fiscal Compact or Nato. He reappointed a Right-wing minority government even though it had lost its parliamentary majority, and openly urged rebel Socialists to switch sides.

This gambit failed. The Left held rock solid. He has been forced to back down. The issues of euro membership, debt restructuring and Nato have been finessed but have not gone away. While the Socialists vow to abide by eurozone budget rules, their policies are incompatible with the Fiscal Compact and go against the grain of market reforms. They will reverse wage cuts and a pension freeze for state workers. The minimum wage will be lifted to €600 a month, plus two months’ bonus. Electricity will be subsidized for poor families. VAT be will cut for restaurants. They will halt privatization of the water group EGF and the airline TAP, and suspend plans to open transport in Lisbon and Oporto to private competition.

Read more …

Every carmaker is included.

VW’s Emissions Scandal Exposes Far Deeper Problems In Europe (Bloomberg)

The Volkswagen diesel emissions scandal might have started in the U.S., but it’s becoming clear that the controversy has opened far deeper wounds in Europe. Though the European Union is known for its strict vehicle carbon dioxide emissions standards, the Volkswagen ordeal – which centers around nitrogen oxides (NOx), a hazardous type of diesel pollutant – has revealed profound weaknesses in the EU’s entire regulatory system. With millions of diesel vehicles on the road across Europe, the stakes are high – and environmental groups are anxious not to let this scandal go to waste. Leading the charge against what he calls major weaknesses in regulation is Axel Friedrich, a chemist and activist who has spent the last 35 years agitating for cleaner auto emissions.

Friedrich, with help from environmental group Deutsche Umwelthilfe (DUH), says the NOx emissions testing scandal extends well beyond VW. Vehicles from General Motors’s European division Opel and French automaker Renault have been tested under his guidance and found wanting: Opel’s Zafira 1.6 CDTi emitted up to 17 times the legally allowed levels of NOx in DUH tests, and Renault’s Espace 1.6 dCi exceeded the Euro 6 level by as much as 25 times. Friedrich argues that these results – along with those from a number of other automakers that he says DUH will reveal in the coming weeks – is mounting proof that VW’s scandal is just the tip of a massive iceberg. Behind Europe’s reputation for strict environmental regulation, he argues, lies a broken system.

And the damage he is trying to head off is not distant and only potentially controversial, as so many emissions issues are. Rather, NOx is a carcinogen whose concentrations in Europe’s urban centers are not dropping as fast as official emissions. “People need to understand that this is not a game,” he told me. “People are dying.” And yet the automakers that are failing Friedrich’s tests are playing legal gymnastics to defend themselves. Opel and Renault – just as VW initially did – say DUH’s testing methods deviate from official procedure and that, when “properly” tested, their vehicles meet all relevant regulations.

But this defense actually makes Friedrich and DUH’s point for them: Official test procedures are so specific that automakers can program their vehicles in myriad ways to recognize testing conditions and perform better in the tests than they do in the real world. The fact that NOx emissions rise above legal levels as soon as official testing conditions are abandoned shows that automakers essentially teach to the test, making emissions monitoring tools nearly irrelevant. By focusing on a merely legal approach to compliance, Friedrich says, regulators and automakers alike are hiding the problem of real-world NOx emissions from the public, whose health it directly affects.

Read more …

Incredible that some people still deny Sydney’s in a bubble.

‘Classic Ponzi Scheme’: Sydney House Prices Are 12 Times The Annual Income (SMH)

Sydney houses now cost 12 times the annual income, up from four times when Gough Whitlam was dismissed. As many first time buyers turn to the bank of mum and dad to top up their deposits, a new report “Parental guidance not recommended” warns Australians are being caught up in a classic “Ponzi scheme”. The report by economic consultancy LF Economics – which has previously sensationally warned of a “bloodbath” when Sydney’s property bubble bursts – estimates it will now take the average first time buyer in Sydney nine years to save a deposit, up from three years in 1975. Baby boomers, who have benefited from skyrocketing prices, are increasingly able to fast track their children’s path to property ownership by either stumping up part of the deposit or putting up their own homes as collateral.

LF Economics, founded by Lindsay David and Philip Soos, warns this may be helping a new generation to over-leverage into mortgages they can’t afford, leaving their parents’ homes exposed. “Unfortunately, this loan guarantee strategy in a rising housing market for securing ever-larger amounts of debt is essentially pyramid or Ponzi finance. This leaves many parents in a dangerous predicament should their children experience difficulties making loan payments, let alone defaulting and suffering foreclosure.” “In reality, many parents – the Baby Boomer cohort – are asset-rich but income-poor. The blunt fact is few parents have enough savings and other liquid assets on hand to meet their legal obligations without selling their home if their children default,” the report warns.

Property experts disagree furiously about whether prices are in a bubble and about the best measure of housing affordability. LF Economics argues that price gains have outstripped the fundamental worth of properties. “Financial regulators have ignored the Ponzi lending practices by lenders, believing the RBA will have the adequate ability to bail them out at taxpayers’ expense the day this classic Ponzi lending scheme breaks down.”

Read more …

Wonderful.

Biggest Overhaul Of Chinese Armed Forces In Six Decades (Bloomberg)

President Xi Jinping announced a major overhaul of China’s military to make the world’s largest army more combat ready and better equipped to project force beyond the country’s borders. Under the reorganization, all branches of the armed forces would come under a joint military command, Xi told a meeting of military officials in Beijing, the official Xinhua News Agency reported. Bloomberg in September reported details of the plan, which may also seek to consolidate the country’s seven military regions to as few as four. The Chinese president said the reform aimed to “build an elite combat force” and called on the officials to make “breakthroughs” on establishing the joint command by 2020, Xinhua said. Xi announced the changes at the end of a three-day meeting attended by about 200 top military officials, Xinhua said.

Xi, who also became chairman of the Central Military Commission upon taking power in 2012, is directly managing the overhaul. He made a public display of his commitment to the reforms when he announced that the People’s Liberation Army would shed 300,000 troops at a September military parade in Beijing to mark the 70th anniversary of Japan’s defeat in World War II. “This is the biggest military overhaul since the 1950s,” said Yue Gang, a retired colonel in the PLA’s General Staff Department. “The reform shakes the very foundations of China’s Soviet Union-style military system and transferring to a U.S. style joint command structure will transform China’s PLA into a specialized armed force that could pack more of a punch in the world.”

Under Xi, China has been more assertive over territorial claims in the East China Sea and South China Sea, raising tensions with neighbors such as Japan and the Philippines, as well as the U.S. Xi’s policy marks a shift from China’s previous approach of keeping a low profile and not attracting attention on the world stage, a philosophy laid out by former paramount leader Deng Xiaoping. “The reform enhanced the power of the Central Military Commission and its chairman,” Yue said. “This is also a lesson learned from last generation of military leaders, as the former CMC chairman had little real power over the armed forces.”

The plan also seeks to strengthen the Communist Party’s grip on the military. The army was urged to strictly follow the Party’s orders, and the plan called for enhancing the military leadership of the Party, Xinhua said. Xi also said the PLA would build a new disciplinary structure and a new legal and political committee to make sure the army is under the rule of law. Xi has also made the military one of the targets of his anti-corruption campaign as he consolidates his power over the PLA. Two former CMC vice-chairman were both expelled from the party since Xi took power in 2012, as were dozens of generals accused of everything from embezzling public funds to selling ranks.

Read more …

The exact opposite of what Erdogan wants.

Hollande, Putin Propose Closing Turkey-Syria Border (AFP)

Russia vowed Thursday to cooperate in the fight against terrorism as French President Francois Hollande began the last leg of a diplomatic bid to step up efforts to crush the Islamic State group. Sitting down to talks with Hollande at the Kremlin, Russian President Vladimir Putin pointed to the November 13 assaults in Paris which 130 people were killed, and the IS-claimed bombing of a Russian jetliner over Egypt on October 31, with the loss of all 224 people onboard. These “make us unite our efforts against the common evil,” Putin said. “We are ready for this cooperation.” Hollande, pitching a message he had taken to other major capitals with varying degrees of success, said, “We have to form this large coalition together to strike against terrorism.” Moscow was the last stage of a whirlwind campaign by Hollande to intensify efforts to crush IS in Iraq and Syria.

[..] Hollande’s diplomatic foray suffered a heavy blow after Turkey shot down a Russian jet on Tuesday. Turkey’s military said the following day it did not know the jet was Russian but Moscow called the incident a “planned provocation”. The sole surviving pilot said he received no warning and the aircraft did not violate Turkish air space, but the Turkish military released audio recordings claiming to show the Russian jet was repeatedly warned to change course. “We still have not heard any articulate apologies from Turkey’s highest political level nor any proposals to compensate for the harm and damage,” Putin told Russian TV on Thursday. The Turkish foreign minister vowed that Ankara would not apologise for downing the plane, while Moscow said it was preparing a raft of retaliatory economic measures.

Moscow has intensified its strikes in Syria after IS claimed it brought down a Russian passenger plane over the Sinai. Ankara and Moscow have backed opposing forces in the four-year Syrian conflict, with Turkey supporting rebel groups opposed to President Bashar al-Assad, while Russia is one of his last remaining allies. Russian Foreign Minister Sergei Lavrov welcomed a proposal by Hollande to close off the Syria-Turkey border, considered the main crossing point for foreign fighters seeking to join IS. “I think this is a good proposal and… President Hollande will talk to us in greater detail about it. We would be ready to seriously consider the necessary measures for this,” Lavrov said.

Read more …

Russia will not forgive.

Russia Raiding Turkish Firms And Sending Imports Back (Al Jazeera)

Russian police have been raiding Turkish companies in different regions of Russia and, in some cases, have suspended their operations, two Turkish businessmen with investments in the country have told Al Jazeera. Moscow has also started sending back Turkish trucks loaded with exports at the border and stopped Turkish tourists – who normally do not need visas – entering the country, at least two businessmen said. Turkish companies in Russia, particularly construction companies, are being raided. Moscow’s move comes after Turkish fighter jets shot down a Russian Sukhoi Su-24 warplane on Tuesday for allegedly violating Turkish airspace. The two sides, who are at odds over the Syrian crisis, have opposite claims over whether the airspace breach is true or not.

“Turkish companies in Russia, particularly construction companies, are being raided,” a Turkish executive with a manufacturing company active in Russia told Al Jazeera, on condition of anonymity. “They check if anyone with expired or no working visas is actively working in these companies or not. They check if working regulations were implemented or not. “There have been serious breaches in this area within construction companies and Russian authorities know it. Activities of some companies have been frozen on these grounds.” Cevdet Seylan, a businessman with trade relations in the city of Kazan, also confirmed that police had been raiding Turkish companies there. Osman Bagdatlioglu, the chairman of Turkey’s Ornamental Plants and Products Exporters Union, said that several trucks loaded with flowers returned back to Turkey on Wednesday after Russian authorities blocked their entry into the country.

“Six trucks came back yesterday. We stopped all deliveries. We stopped deliveries by planes as well,” Bagdatlioglu told Al Jazeera. [..] Meanwhile, several Turkish citizens confirmed to Al Jazeera that Russia was sending back Turkish tourists trying to enter the country by finding “excuses” and was delaying entry of Turks with work or residence permit. Turkish and Russian tourists have been able to travel between the two countries without a visa since 2011, following an agreement signed between the two countries.

Read more …

Fast track into the EU, anyone?

Turkish Journalists Charged Over Claim Secret Services Armed Syrian Rebels (AFP)

A court in Istanbul has charged two journalists from the opposition Cumhuriyet newspaper with spying after they alleged Turkey’s secret services had sent arms to Islamist rebels in Syria. Can Dundar, the editor-in-chief, and Erdem Gul, the paper’s Ankara bureau chief, are accused of spying and ‘divulging state secrets’, Turkish media reported. Both men were placed in pre-trial detention. According to Cumhuriyet, Turkish security forces in January 2014 intercepted a convoy of trucks near the Syrian border and discovered boxes of what the daily described as weapons and ammunition to be sent to rebels fighting against Syrian president Bashar al-Assad. It linked the seized trucks to the Turkish national intelligence organisation (MIT).

The revelations, published in May, caused a political storm in Turkey, and enraged president Recep Tayyip Erdogan who vowed Dundar would pay a ‘heavy price’. He personally filed a criminal complaint against Dundar, 54, demanding he serve multiple life sentences. Turkey has vehemently denied aiding Islamist rebels in Syria, such as the Islamic State group, although it wants to see Assad toppled. “Don’t worry, this ruling is nothing but a badge of honour to us”, Dundar told reporters and civil society representatives at the court before he was taken into custody. Reporters Without Borders had earlier on Thursday urged the judge hearing the case to dismiss the charges against the pair, condemning the trial as political persecution .

The Cumhuriyet daily was awarded the media watchdog s 2015 Press Freedom Prize just last week, with Dundar travelling to Strasbourg to receive the award. “If these two journalists are imprisoned, it will be additional evidence that the Turkish authorities are ready to use methods worthy of a bygone age in order to suppress independent journalism in Turkey”, said RSF secretary general Christophe Deloire in a statement. Reporters Without Borders ranked Turkey 149th out of 180 in its 2015 press freedom index last month, warning of a dangerous surge in censorship .

Read more …

Rome fell because it didn’t protect its borders? Really?! Oh well, what do your voters know, right? Protect from whom, though? Barbarians? Is that what you now want to compare Syrian refugees to?

Refugee Influx Threatens Fall Of EU, Warns Dutch PM (FT)

The EU risks suffering the same fate as the Roman empire if it does not regain control of its borders and stop the “massive influx” of refugees from the Middle East and central Asia, the Dutch prime minister has warned. Mark Rutte, whose government assumes the EU’s rotating presidency in January, said southern EU countries had yet to implement policies agreed to stem the flow, which has exceeded 850,000 arriving by sea so far this year, according to the International Organisation for Migration. Mr Rutte said Greece, where more than 700,000 have landed this year, might have to increase its “reception capacity” to at least 100,000. Athens has so far committed to about half that, insisting that it does not want to become a giant refugee camp.

Hundreds of thousands of refugees have travelled on from Greece and Italy to other EU countries -principally to Germany and Sweden- creating huge administrative and political strains across the union. “As we all know from the Roman empire, big empires go down if the borders are not well-protected”, said Mr Rutte in an interview with a group of international newspapers. “So we really have an imperative that it is handled.” His comments echoed a warning by Jean-Claude Juncker, president of the European Commission, that a breakdown of the EU s 26-country open-border system, known as Schengen, would put the whole union in peril. “We have to safeguard the spirit behind Schengen, Mr Juncker told the European Parliament on Wednesday.

“Yes, the Schengen system is partly comatose. But … a single currency does not exist if Schengen fails. It is one of the pillars of the construction of Europe”. Mr Rutte said the EU needed to act quickly to stem the migrant flow, adding that he was optimistic that Sunday’s summit in Brussels between President Recep Tayyip Erdogan of Turkey and EU leaders would help ease conditions by providing €3bn to improve refugee camps in Turkey and disrupting the “business model” of human smugglers channelling migrants in boats to Greece. “It’s not the case that you will close a deal and then, on Monday, everything is delivered”, he said. “It’s not like you buy a house. But I think, on both sides, we need confidence building.”

Read more …

Still plenty to learn: Reuters put this story in its ‘Lifestyle’ section.

After Uproar, German Town Warms To Refugees Who Took Over Church (Reuters)

When Daniela Handwerk looked out of her window earlier this month and saw the church across the street being emptied out and turned into a refugee shelter, she panicked – and she was not alone. As news of the plan to house 50 refugees in the church and suspend Sunday services spread through this community on the outskirts of Oberhausen, in the Ruhr valley, angry residents pressed church and city officials to reconsider. Some worried about safety, others about real estate values and, at a raucous meeting of locals held in the church shortly before the refugees arrived, one man complained that his new Mercedes might get scratched. But nearly a month on, the uproar, played up at the start in the German media, has died down and residents are beginning to warm to the refugees, including 20 children, who are camped out in the ochre-colored brick church built in the early 20th century.

“Initially, there was fear among the neighbors and I don’t exclude myself,” said Handwerk. “I have two small children and of course I was worried about what was going to happen here.” Now she is part of a local support group that counts roughly 100 volunteers. They teach German, assist with bureaucratic hurdles and play with the refugee children. The Protestant church, surrounded by pointy-roofed stone buildings that were built to house miners, is the first in Germany to have been set aside for refugees since they began streaming into the country by the thousands in late summer. Germany expects about 1 million migrants to arrive this year, far more than any other European country.

German politicians are under intense pressure to stem the flow as local communities complain that they are being overwhelmed. But the story of the church in Oberhausen suggests that Germany’s “Willkommenskultur”, or welcome culture, remains alive and well in some pockets of the country. Local resident Sebastian Possner launched a neighborhood initiative nearly a month ago to protest against the conversion of the church. Now he says his kids are playing with the refugee children and that he’s donated bicycles and toys. “Some of them even manage to greet us in German now,” Possner said. Up to 140 refugees are landing in Oberhausen every week, forcing authorities to come up with new locations to house them. City officials say they had little choice but to use the church.

In early November, workers removed the altar and dozens of chairs, replacing them with metal beds, which are separated by makeshift partitions to give the church’s new residents a semblance of privacy. There was no question of removing the large metal cross that sits in the church, even though many of the new residents are Muslim. One reason for the initial uproar, locals say, was that many of them learned about the plans in the newspaper. “In the beginning, many older members of the parish couldn’t comprehend what was happening to the church they had been going to for so many years, but we’ve come a long way and people now appreciate the importance of Christian charity,” pastor Stefanie Zuechner said.

Read more …

Bad weather coming this weekend. Gale force winds and lots of rain.

Stranded Migrants Try To Storm Into Macedonia, Tear Down Fence (Reuters)

Hundreds of Moroccans, Algerians and Pakistanis tried to storm the border between Greece and Macedonia on Thursday, tearing down part of the barbed wire fence at the crossing and demanding to be allowed to carry on into northern Europe. They were among about 1,500 migrants who have been stranded near Greece’s northern border town of Idomeni after Europe decided to filter migrants, allowing only those fleeing conflict in Syria, Afghanistan and Iraq to cross into the Balkans. Some threw stones at police while others fell to their knees shouting, “We want to go to Germany!” A few ran across into Macedonia but were quickly detained by police. Police in riot gear guarded a gap where migrants had torn down about 30-40 meters of fence, and a Reuters photographer saw riot police armed with assault rifles.

More than 800,000 refugees and migrants from the Middle East, Africa and Asia have arrived in Europe by sea so far this year, most through the Greek islands, seeking a better life in wealthier European countries such as Germany. Balkan countries have clamped down at their borders recently to stem the largely unchecked stream of people, leaving tens of thousands stranded in Macedonia, Serbia and Croatia. The United Nations has condemned the new restrictions on travel based on nationality. So far, only 148 refugees have been relocated from Italy and Greece to other EU countries under a plan for transferring 160,000 agreed by EU leaders in September.

Read more …

Jun 212015
 
 June 21, 2015  Posted by at 10:21 am Finance Tagged with: , , , , , , , , ,  


Unknown Army of the James at completed Dutch Gap canal, James River, Virginia 1864

Hollande Is Implored to End ‘Financial Blackmail’ of Greece (Bloomberg)
The Fight To End Greece’s Great Euro Depression (Telegraph)
Greek Episodes Of Despair And Drama As Moment Of Truth Nears (Helena Smith)
Greece, The Euro and Gunboat Diplomacy (Karl Whelan)
As Greece Stares Into The Abyss, Has Spain Escaped From Crisis? (Observer)
Greek PM Prepares Last-Ditch Offer To Avoid Default On Debts (Observer)
The Greek Crisis Reveals The EU’s Democratic Deficit (Coppola)
Rising Child Poverty Across Britain ‘Halts Progress Made Since 1990s’ (Observer)
‘It’s Time To Hold Physical Cash’: Senior UK Fund Manager (Telegraph)
Steal from Taxpayers, Blame the Poor (Paul Buchheit)
Russia Slams Renewed EU Sanctions, Says Measure Is ‘Hopeless’ (RT)
Ukraine is a ‘Black Hole’ for European Taxpayers’ Money: German Media (Sputnik)
Powerful People In The West And In Kiev Do Not Want Peace – Stephen Cohen (RT)
Nomi Prins: There Is No Saving This Global Financial System (KWN)
Liars, Cowards, Freaks & Fools: Trump for President? (Paul Craig Roberts)
Why the Pope’s Environment Encyclical Is a Big Deal (Newsweek)
All Kangaroos Are Left-Handed (Discovery)
The Latest Global Temperature Data Are Literally Off The Chart (Guardian)
The Sixth Mass Extinction Is Here (Stanford.edu)

Potential big deal. Hollande’s chance to show -independent- leadership. France is pivotal to Europe, but it must speak up to make that count.

Hollande Is Implored to End ‘Financial Blackmail’ of Greece (Bloomberg)

French President Francois Hollande received an appeal from a group of lawmakers including some from the ruling Socialist Party and other political figures to end the “financial blackmail” of Greece by its European creditors. The message of France “cannot be a docile reminder of the rules at a time when the house is burning,” the lawmakers said in an open letter to Hollande published on the website of France’s Communist Party. “We are asking you to take the initiative to unblock the talks between the euro group and the Greek political authorities.” The letter highlights the domestic political pressure Hollande faces to help broker a deal between Greece and its creditors as the region’s most indebted nation is on the brink of a default.

German Chancellor Angela Merkel and Hollande spoke by phone on Friday after a meeting of euro area finance ministers failed to advance toward an agreement with Greece. So far the two biggest economies in the 19-nation euro bloc have presented a united front against Greek Prime Minister Alexis Tsipras, who has spent his five months in power trying to roll back the austerity policies underpinning the country’s bailout. At the finance minister’s meeting in Luxembourg on Thursday, French Finance Minister Michel Sapin pressed hardest for a compromise, while his German counterpart, Wolfgang Schaeuble stayed largely silent and ministers from other countries stepped up the pressure on Greece, according to two people familiar with the matter.

The French lawmakers, including Socialists such as Pouria Amirshahi and Fanelie Carrey-Conte, told Hollande to place France “at the side of the people of Greece.” “Bring explicit support to the healthy measures taken by the Greek authorities, notably those addressing the humanitarian crisis in the country” they said. “Accept the principle of a restructuring of Greek debt, of which a large part is notoriously illegitimate.”

Read more …

“There Is No Europe Without Greece.”

The Fight To End Greece’s Great Euro Depression (Telegraph)

Nikos Athanassiou, a 61-year-old Athenian pensioner, is at the heart of Greece’s struggle to maintain its fragile 14-year membership of the euro. Like many of his compatriots, Nikos took early retirement having worked most of his life labouring in the country’s now defunct construction industry, aged 58. He is one of the 2.6m pensioners in Greece who have become the unlikely battleground in the latest game of brinkmanship between the radical Left government and its paymasters. A member of Communist Party of Greece (KKE), Nikos spends his retirement resisting Troika-imposed cuts to public services as a union representative for his local district in northern Athens “It is my duty to demand dignity for Greeks. We are collapsing as a country,” says Nikos.

His resolve is not unusual in a society where the bulk of proposed cuts will hit the elderly and newly retired. The IMF is demanding the Greek government slash €1.8bn in pensions spending in 2016. At 16.2pc of GDP, Greece’s outlay is highest in the eurozone. Even with overhauls to the retirement age and spending cuts, this will still only fall to 14.3pc in 45 years time – the third highest in the EU. Nikos’s pension is €750 a month. He is among nearly half of all Greek pensioners who provide the sole source of income to support three generations of one family. But his pension is barely enough to provide for his seven-year old granddaughter and her parents. “When I think about my granddaughter’s future, I panic. I want her to live in an independent Greece – not a protectorate.”

Resentment against creditors’ determination to suck more funds from the country’s pension system is rife. Greeks have already seen a 40pc fall in their pension provision over five years – a shrinkage that has been ruled unconstitutional by the country’s highest administrative court. One of the reasons the spending ranks so highly is due less to generosity of individual pensions than it is the extreme recession that has shrunk GDP to almost pre-euro levels. Greece’s radical Left government has vociferously defended pensions as one of the last remaining safety nets in a country where 45pc of the elderly live below the poverty line. The issue has become the immovable “red line” in Greece’s struggle to finally end what the ruling Syriza party have dubbed a “ritual humiliation.”

Read more …

One week in the life of a shattered society.

Greek Episodes Of Despair And Drama As Moment Of Truth Nears (Helena Smith)

Sunday: Five years is a long time to be in crisis. It’s freefall by a thousand cuts; loss in myriad ways, hard choices that never get easier. Last week, as Greece descended into drama, a young man appeared on the marble steps of the neoclassical building opposite my home. Head in hand, he sat there from Sunday to Wednesday, in the beating sun, a wheelie bag in front of him, a slice of cardboard perched on top that read: “I am homeless. Help please!”

When you live in Athens you do not flinch at the signs of decay: to do so would be to give in. But somehow the sight of this forlorn figure – a waif of a man, eyes fixed only at his feet, the embodiment of wounded pride, brought home as never before that Greeks are in crisis. Was he giving up or making a hard choice? If he was 22, and he barely seemed that, his entire adult life had been spent in crisis. This is the great tragedy of Greece. It has not only been needlessly impoverished – it now eats up its own. The elderly woman who occasionally rifles through the rubbish bins on the corner of the square my office overlooks – often carrying a Louis Vuitton bag – is so glad she was born at the end of the 1946-49 civil war. “At least then it could get better. Today it can only get worse.”

Monday: For five years we have all felt as if we are on a runaway train, hurtling into the unknown. Sometimes the train picks up speed, sometimes it slows down, but never enough to stop. This week, as the drumbeat of default, impending bankruptcy and disastrous euro exit thudded ever louder, the train felt as if it might derail altogether. Had a lunatic got hold of the controls? On Monday morning it began to feel like it. For me, the day started at 2am when I received a text from Euclid Tsakalotos, the point-man in negotiations between Athens and the troika.

“We made huge efforts to meet them halfway,” he wrote hours after talks reached an impasse over a reform-for-cash deal that could save Greece. “But they insisted on pension and wage cuts.” By mid-morning, global stock markets were tumbling. By midday, the world had learned that, without an agreement, Greece might not be able to honour an end-of-month debt repayment to the IMF worth €1.6bn. By midnight, newscasters, looking decidedly nervous, had broken their own taboo: many were talking openly of euro exit.

Read more …

“..unnecessary cowardice, confusion and hubris..”

Greece, The Euro and Gunboat Diplomacy (Karl Whelan)

Original decision to provide a bail out is the source of the current crisis. Time for Europe to share the blame and financial consequences.

With everyone talking about Greece being on the verge of exiting the euro after Monday’s summit meeting, it seems to be forgotten that the current crisis is not really about Greece’s currency arrangements at all. The Greek people are not demanding a return to the drachma and few within the country are arguing for the competitive benefits a currency devaluation would entail. And there are no formal rules that Greece is breaking that must lead to an exit from the euro because, legally, the euro is a fixed and irrevocable currency union. This crisis is about more basic things: Debt and power. Indeed, the current stand-off looks a lot more like the classic gunboat diplomacy conflicts of the 19th century than it does the currency crises of the 20th century.

Europe’s governments and the IMF made an enormous mistake in bailing out Greece’s private creditors in 2010 and then overseeing a botched debt restructuring in 2012. In turn, the Greek governments of this era made the mistake of accepting official loans to pay off private creditors, perhaps not realising they were jumping out the frying pan straight into the fire. Now the Greeks are learning that defaulting on private creditors is one thing (not so hard it turns out, once you’ve got Lee Buchheit in your corner) but defaulting on governments of rich European countries is quite something else. Blaming the euro for the current impasse is actually pretty strange because the euro’s founding fathers explicitly warned member states to not to get themselves into this situation.

The story of the demise of Europe’s “no bailout clause” is an interesting one. Rather than an inevitable crisis, one can credibly argue that the decisions that landed us in the current situation did not need to be taken and were taken as a result of unnecessary cowardice, confusion and hubris. I reviewed many papers on prospects for the euro written by economists in the 1990s. I was struck by the consensus that the fiscal limitations of the Stability and Growth Pact would generally be honoured, that euro members that got into fiscal troubles would not be bailed out by other countries and this would lead to sovereign defaults when countries did get into fiscal problems.

By and large, the policy heavyweights of the day, such as Rudi Dornbusch, believed there was a “categorical no-bailout injunction.” As such, it was expected that markets would understand that European governments were more likely to default once their devaluation option was taken away and that financial markets would price the sovereign debt of countries differently depending on the health of their public finances.

Read more …

Note the pattern: Spain ‘recovers’ through increasing inequality.

As Greece Stares Into The Abyss, Has Spain Escaped From Crisis? (Observer)

While the big picture is undoubtedly improving – big investors are returning to a country that barely three years ago was widely expected to need a Greece-style sovereign bailout – Spain is still mired in a period of transition. Even the IMF report that welcomed Spain’s impressive growth rate – one of the strongest in Europe – also stressed the shaky jobs outlook, noting that unemployment was “still painfully high” and that “vulnerabilities remain”. “Spain has returned to about 95% of where it was in 2008,” says Professor Javier Diaz-Giménez of the IESE business school in Madrid. “That means 2008 is still a benchmark people look back at with nostalgia. At current growth rates, the economy will get back to where it was in 2008 at the end of next year. It’s a very late recovery.”

One of the biggest worries for those yet to see any improvements in their lives is whether even a sustained recovery will be enough to repair the damage. Jobs are starting to return, currently at a rate of 400,000-500,000 a year, but more than three million were lost during the downturn, so the new jobs represent only a small improvement in an unemployment rate, which is still running at almost 24%. In Greece, which now finds itself on the edge of the economic precipice, the rate is 26%. Inequalities, meanwhile, are deepening, leaving some to wonder whether the crisis is even over at all. “The economy is certainly not improving for those without a job or a home,” says Lotta Tenhunen, a social activist in Madrid. The group she works with, PAH, campaigns on behalf of those evicted after falling into arrears on their mortgage payments, and became especially prominent at the height of the recession. In Vallecas, it still meets every week: “People and families are still being driven out of their homes – and the rate is still rising.”

Prospects for the young are particularly bleak. About half of under-25-year-olds in the labour force are without a job, and this threatens to leave the country with a listless lost generation for whom unemployment is the norm. The ranks of the long-term jobless are also swelling. “It is not just the headline unemployment figure that is worrying; it is also the type of unemployment,” says Antonio Barroso of consultancy Teneo Intelligence. “40% of unemployed people are over the age of 45, so difficult to retrain and bring back into the labour market. You also have to look at the types of jobs being created. Most new positions are temporary contracts, where people are left in a precarious position with very few rights – this does not breed confidence.”

Read more …

“Speculation is rife that Greece’s creditors at the EU, ECB and IMF would offer a six-month extension of the bailout programme..”

Greek PM Prepares Last-Ditch Offer To Avoid Default On Debts (Observer)

The race to save Greece from economic collapse intensified on Saturday night as its beleaguered leader conducted a flurry of behind-the-scenes negotiations before an EU summit on Monday that is expected to decide the country’s fate. Alexis Tsipras, the prime minister, met senior officials in an attempt to devise a package of reforms that would secure emergency funds and avoid the nation defaulting on its massive debts. It will be the third such proposal that Athens has made to its creditors in as many weeks. “We will try to supplement our proposal so that we get closer to a solution,” Greece’s minister of state, Alekos Flabouraris, told broadcaster Mega TV. “We are not going [to the summit] with the old proposal. Some work is being done to see where we can converge, so that we achieve a mutually beneficial solution.”

Flabouraris, widely seen as a mentor to the young prime minister, said Tsipras would hold crucial talks with the head of the European commission, Jean-Claude Juncker. The Greek cabinet will meet in an emergency session on Sunday with Tsipras also dispatching senior officials to Brussels. The frantic diplomacy came as Greece’s eurozone partners warned that, after five months of fruitless talks, the game was up for Tsipras’s radical leftwing government. The country, which has been thrown two lifelines since 2010, has until 30 June to secure €7.2bn (£5.1bn) in bailout funds. Failure to release the loans will result in default, as Greece owes €1.6bn to the IMF at the end of the month. Among the measures that the Syriza-led coalition was reportedly working on on Saturday were reductions in early retirement schemes.

Pension and VAT reforms, along with labour deregulation, remain sources of friction between the two sides. Speculation is rife that Greece’s creditors at the EU, ECB and IMF would offer a six-month extension of the bailout programme – disbursing more than €10bn in aid to tide the country over the summer – if agreement was reached. Discussions over a third bailout Athens will inevitably also require would be kicked down the road. Speaking to the Observer, Athens’s chief negotiator, Euclid Tsakalotos, described the prospect of a short-term deal as perhaps the worst possible outcome. Prolongation of the political uncertainty – and scenarios of Greece’s enforced exit from the euro – would, he said, do nothing for the country’s economic recovery.

Read more …

Coppola still leaves me with a host of questions. Yanis wrote yesterday that his proposals were never even read because that would mean they’d need to be sent to Bundestag. Whether that automatically implies a vote, I don’t know.

The Greek Crisis Reveals The EU’s Democratic Deficit (Coppola)

The Greek finance minister, Yanis Varoufakis, has stirred up something of a hornet’s nest. He has spilled the beans on the less-than-transparent negotiating tactics of the EU institutions – the European Commission and the ECB. The Irish finance minister, Michael Noonan, complained that he had not seen the proposals put forward by the EU institutions for consideration by the Greek government. This is a serious criticism. Failure to brief finance ministers adequately before a Eurogroup meeting is negligent, although perhaps understandable in a rapidly-changing situation. It means that the ministers are unable to make informed decisions, so they must either rubber-stamp proposals without considering then properly, or defer everything.

Kicking cans down the road is of course a Eurogroup specialty, but it really shouldn’t be forced on finance ministers through inadequate briefing. Exactly why Mr. Noonan was not briefed is unclear. Did he miss the briefing? Was it an oversight by hard-pressed bureaucrats? Were other ministers briefed? We don’t know. But it is worrying that a mistake like this can be made in such finely balanced negotiations. One false move could spell disaster. The EU negotiators must be more careful. But Mr. Varoufakis added another complaint to Mr. Noonan’s. He said that he had been prevented from briefing EU finance ministers on his own proposal ahead of the meeting. And he blamed the Germans:

In fact, as our German counterpart was later to confirm, any written submission to a finance minister by either Greece or the institutions was “unacceptable”, as he would then need to table it at the Bundestag, thus negating its utility as a negotiating bid.

I find this hard to believe. In effect, it means that anything presented to the Eurogroup in writing is deemed by the Germans to be a firm recommendation requiring a vote by the German Parliament. If this is true, then it makes negotiations far more difficult. Complex proposals have to be written down, even if they are not the final word, because otherwise there is a significant risk of misunderstanding. Even more importantly, it raises serious questions about the role of the Eurogroup. If all the Eurogroup can ever see is a finished product, they can never do more than rubber-stamp decisions made by unelected bureaucrats behind the scenes. This is not a good way of running a supposedly democratic polity. Mr. Varoufakis makes a very similar criticism:

The euro zone moves in a mysterious way. Momentous decisions are rubber- stamped by finance ministers who remain in the dark on the details, while unelected officials of mighty institutions are locked into one-sided negotiations with a solitary government-in-distress. It is as if Europe has determined that elected finance ministers are not up to the task of mastering the technical details; a task best left to “experts” representing not voters but the institutions. One can only wonder to what extent such an arrangement is efficient, let alone remotely democratic.

And in his final paragraphs, he accuses the Eurogroup of being not fit for purpose. Hmm. Whether or not this criticism is justified, I can’t for the life of me see how saying it publicly is helpful to the Greek cause. It’s only going to annoy people.

Read more …

Shame on you!

Rising Child Poverty Across Britain ‘Halts Progress Made Since 1990s’ (Observer)

Child poverty is on course for the biggest rise in a generation, reversing years of progress that began in the late 1990s, leading charities and independent experts claimed on Saturday. The stark prognosis comes before the release of government figures which experts believe will show a clear increase for the first time since the start of the decade. It also comes as the chancellor George Osborne and work and pensions minister Iain Duncan Smith announced they had agreed a plan to slash a further £12bn a year from benefits spending. In a joint letter they pledged to attack the “damaging culture of welfare dependency”, and said it would take “a decade” or more to return the welfare budget to what they called “sanity”.

The introduction of the bedroom tax and cuts in benefits between 2013 and last year are blamed for fuelling the rise in the number of families whose income is below 60% of the UK average – the definition of relative poverty. Calculations from the Institute for Fiscal Studies (IFS) have suggested that progress between the late 1990s and 2010 has been reversed and that the number of children living in relative poverty rose from 2.3 million in 2013 to 2.6 million in 2014. The Child Poverty Action Group says that with the government committed to implementing another £12bn of cuts in a new round of austerity, the problem will grow.

As tens of thousands of people joined an anti-austerity march through London on Saturday, Alison Garnham, the charity’s chief executive, said ministers were failing too many children. “The government can no longer claim that deficit reduction is about protecting children’s futures now that it’s being made to confront a child poverty crisis, with the biggest rise in a generation now expected of its own making,” she said. “With child poverty expected to rise by nearly a third in the decade to 2020 as a result of its policies, it’s clear the government’s approach is failing.”

Read more …

Pretty soon, we’ll all be Greeks.

‘It’s Time To Hold Physical Cash’: Senior UK Fund Manager (Telegraph)

The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress. Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds for Fidelity, including the flagship Moneybuilder Income fund, is concerned that a “systemic event” could rock markets, possibly similar in magnitude to the financial crisis of 2008, which began in Britain with a run on Northern Rock. “Systemic risk is in the system and as an investor you have to be aware of that,” he told Telegraph Money. The best strategy to deal with this, he said, was for investors to spread their money widely into different assets, including gold and silver, as well as cash in savings accounts.

But he went further, suggesting it was wise to hold some “physical cash”, an unusual suggestion from a mainstream fund manager. His concern is that global debt – particularly mortgage debt – has been pumped up to record levels, made possible by exceptionally low interest rates that could soon end, and he is unsure how well banks could cope with the shocks that may await. He pointed out that a saver was covered only up to £85,000 per bank under the Financial Services Compensation Scheme – which is effectively unfunded – and that the Government has said it will not rescue banks in future, hence his suggestion that some money should be held in physical cash. He declined to predict the exact trigger but said it was more likely to happen in the next five years rather than 10.

The current woes of Greece, which may crash out of the euro, already has many market watchers concerned. Mr Spreadbury’s views are timely, aside from Greece. A growing number of professional investors (see comment, right) and commentators are expressing unease about what happens next. The prices of nearly all assets – property, shares, bonds – have been rising for years. House prices have risen by 26pc since the start of 2009, and by 68pc in London. The FTSE 100 is up by 75pc. Although it feels counter-intuitive, this trend of rising prices should continue if economies remain weak, because it gives central banks licence to keep rates low and to carry on with their “quantitative easing” programmes.

Read more …

The MO.

Steal from Taxpayers, Blame the Poor (Paul Buchheit)

It’s a vicious circle of hypocrisy: Americans dependent on the safety net are urged to “get a job” by the same free-market system that pays them too little to avoid being dependent on the safety net. According to the Economic Policy Institute, $45 billion per year in federal, state, and other safety net support is paid to workers in the bottom 20% of wage earners. Thus the average U.S. household is paying almost $400 to employees in low-wage industries such as food service, retail, and personal care. Paul Ryan said that social programs “turn the safety net into a hammock that lulls able-bodied people to lives of dependency and complacency.” But 63% of eligible working-age poor Americans are employed, and 73% are members of working families.

Yet in a show of hypocrisy by some of the leading safety net critics, Congress has killed or blocked or ignored numerous attempts to create better jobs for underemployed Americans. A Demos study found that raising wages to $25,000 per year (about $12.50 per hour) for full-time retail workers would lift 734,075 people out of poverty. It would probably help a lot more. An analysis of Bureau of Labor Statistics data reveals that about 22 million workers are underpaid (about a sixth of the total), over half of them in food service, cashiering, personal care, and housekeeping. Paying everyone $12.50 (assuming full-time) would cost an extra $80 billion. That’s about 3% of total 2014 corporate profits. Three%, compared to the 95% spent by S&P 500 companies on investor-enriching stock buybacks and dividend payouts.

About two-thirds of low-wage workers are employed by large corporations with over 100 employees. The very worst offender is probably Walmart, which pays its estimated 1.4 million U.S. employees so little that the average Walmart worker depends on about $4,400 per year in taxpayer assistance, for food stamps and other safety net programs. As Walmart was depending on us, the taxpayers, to pay $4,400 a year to each of its employees, the company was spending the equivalent of $5,000 per U.S. employee for price-boosting stock buybacks.

Read more …

The EU will split on this soon enough.

Russia Slams Renewed EU Sanctions, Says Measure Is ‘Hopeless’ (RT)

The Russian Foreign Ministry has slammed the EU’s “pushy sanctions strategy” as “political blackmail,” and said it is “absolutely hopeless” as it won’t make Russia give up its “national interests and principled position.” Coming in response to the EU’s extension of sanctions over what Brussels called “the illegal annexation of Crimea and Sevastopol,” the Russian statement said “it was time” to accept that those territories are an “integral part of the Russian Federation” and that the situation “can’t be changed by methods of economic and political blackmail.” Sanctions against Russia are “absolutely hopeless,” the ministry said, adding that “it is a mistake to expect that [the sanctions strategy] will make us sacrifice national interests and [our] principled position on key issues.”

As the prolonged restrictions target Crimea and the city of Sevastopol, the Foreign Ministry sees the sanctions as unacceptable “discrimination” against people in Crimea “on a political and territorial basis.” Recalling “historical examples,” the ministry condemned the move as “a collective punishment” of “the residents of the [Crimean] peninsula who made a free choice” for reunification with Russia. “It was hard to imagine that Europe would face this in the 21st century,” the Foreign Ministry’s statement said. On Friday, the EU extended economic sanctions against Crimea until June 23, 2016, and said it still doesn’t recognize Crimea’s reunification with Russia, calling it an “illegal annexation.”

The restrictions include a ban on imports from Crimea or Sevastopol into the EU, investment and tourism services, as well as the export of certain products and technology to Crimean companies. The EU sanctions against Russia were imposed over the Ukrainian crisis. They targeted access to foreign loans and the oil and gas industry. Moscow responded with countersanctions that hit European food producers. However, the toll the conflict is taking on the EU economy is higher than Brussels initially anticipated.

Read more …

German media should be way more vocal on this. And the rest of Europe too.

Ukraine is a ‘Black Hole’ for European Taxpayers’ Money: German Media (Sputnik)

In the coming weeks, Kiev will receive the €600 million tranche of the third EU loan package for Ukraine. It will be a new financial burden for ordinary EU taxpayers because there is no hope that the debt will be paid off, a German business newspaper reports. The €600 million euro tranche of financial aid for Ukraine is taking money from ordinary European taxpayers with no chance to return, the German newspaper Deutsche Wirtschafts Nachrichten reports. Earlier, Johannes Hahn, European Commissioner for European Neighborhood Policy and Enlargement Negotiations, said the EU completed all the procedures for the new tranche. “I’m very glad that the Verkhovna Rada [the Ukrainian Parliament] ratified the memorandum on the third package of financial aid of €1.8 billion.

I’m sure that within several weeks Kiev will receive the first tranche of €600 million,” Hahn said. “Thus, there is a new financial burden for our taxpayers. There is no hope that the money will return,” the newspaper claims. In May, Ukraine’s National Railroad Company declared bankruptcy. Part of its debt is due to be restructured. In total, its debt has reached $500 million. During the last year only, European taxpayers lost €200 million to save the company, the article reads. The Ukrainian protective wall along the border with Russia is also funded by EU taxpayers. The electrified barrier with mines and barbed wire is planned to be 2,000-kilometer-long and will cost nearly €100 million, DWN points out.

Read more …

“..there is a war party in every capital and even in the White House itself.”

Powerful People In The West And In Kiev Do Not Want Peace – Stephen Cohen (RT)

RT: A few weeks ago US Vice President Joe Biden said that “everybody wants an end to this conflict in Ukraine, but the question is on whose terms and how will it end.” Are the terms to end this conflict are still being negotiated and if so what options are on offer?

Stephen Cohen: My perspective is different from that of Vice President Biden. We are now after all in almost two years – a year and a half – of a new Cold War between the US and Russia – an exceedingly dangerous confrontation over Ukraine, which I think and I’ve said this for months could easily become as dangerous as the Cuban missile crisis was. The politics of this have now spread far and wide including in Europe. It seems to me, and this is my fundamental analysis, that in almost every capital – Washington, Brussels and certainly in Kiev, and even to some degree in Moscow – there is what I call a peace and a war party.

The Minsk agreements, which were agreed upon by the Chancellor of Germany, the President of France, the President of Ukraine and of course President Putin of Russia represented then a peace party. It set out in addition to a ceasefire in Ukraine very far reaching, fundamental terms of negotiation to end the civil war in Ukraine, to end the proxy war between the West and Russia. It’s clear to me that there are powerful people in the West and in Kiev who do not want a negotiated settlement.

RT: Vice President Biden, who recently said that he talks to either PM Yatsenyuk or President Poroshenko on almost a weekly basis – that’s what he said – do you think that Biden belongs to the peace or war camp when he is on the phone with them? Does he preach reconciliation?

SC: He says he talks to them three times per week not once a week. But we have evidence, something very dramatic just happened. As you know, in late May Secretary of State John Kerry went to Sochi. First he met with Russian Foreign Minister Sergey Lavrov and then, remarkably, he met for four hours with President Putin. It was absolutely clear from what was said in Sochi at the press conferences afterwards that Kerry’s mission had been to say that the US, the Obama administration, now fully backed the Minsk agreement. That would put Kerry in the peace party.

It was kind of a surprise because he had been taking a very hard line. However, look what then happened. Kerry was attacked, literally criticized, for having gone to Sochi by members of the Obama administration. The most vivid example reported in the New York Times last Sunday I think was that a former very close policy aide to Vice President Biden told the reporter they didn’t know why Kerry had gone to Sochi, and that he had sent bad messages and that his trip had been counterproductive. So you conclude from this – and it confirms my thesis – that there is a war party in every capital and even in the White House itself.

Read more …

For those who still needed confirmation.

Nomi Prins: There Is No Saving This Global Financial System (KWN)

Eric King: “You mentioned that we are in unprecedented times. And the concern is that when the 2008 collapse unfolded there was all this money printing and the banks were bailed out. It really fell on the shoulders of the taxpayers, but the concern as you said is that this leverage is growing. There are over one quadrillion dollars of derivatives. With the leverage totally ramped up in (terms of) the central banks’ (balance sheets), who will save the financial system (this time around)? Who will save the banks? There are all these bail-ins that have been written into law in the West and it seems like the next move is just to steal money from the public. Who will save the system this time when it implodes?

Nomi Prins: “When it implodes it will implode more dangerously. The IMF and the Fed have different ideas about whether rates should stay low or go up. In this particular round the IMF won. They want rates to stay low because they don’t know what’s going to happen to the global financial system if the availability of cheap money goes away…. “Right now everyone knows, whether they admit it or not, that (cheap money) is the only thing that’s keeping this (global financial) system afloat. It isn’t production. It isn’t savings of individuals because nobody has any money to save. So there is no there, there.

The only policy that these central banks have is to continue to do more of the same. And the only thing that does is continue to push this next crisis, or the second leg of the current crisis as I look at it, down the road. There is no saving this (global financial) system. All they can do is continue to push the current policies to make it look as if things are operating functionally — as if these banks are solvent and as if these markets are somehow elevated on the basis of value and not on the basis of the cheap money that they are infusing into the system. That’s all they can do. They just hope that somewhere along the line this will work out.”

Read more …

That’s right, might as well elect the biggest dunce.

Liars, Cowards, Freaks & Fools: Trump for President? (Paul Craig Roberts)

Perhaps it has occurred to you as it has to me that the United States is no longer capable of producing political leadership. In the current issue of Trends Journal, Gerald Celente describes the eight candidates (at the time he went to press) for the US presidential nomination as “Liars, cowards, freaks & fools.” Celente put it well. If you look at the sorry collection that aspires to be the CEO of what continues to be described as the “exceptional, indispensable, most important country with the largest economy and military, the world’s only Superpower, the Uni-power,” you see a collection of nobodies. America is like the last days of Rome when contenting factions fought to put their puppet on the throne.

There is no known politician in America who measures up to Vladimir Putin’s ankle, or to the knee of China’s leaders, or to the waist of Ecuador’s, Bolivia’s, Venezuela’s, Argentina’s, Brazil’s, or to the chests of India’s and South Africa’s. In Europe, the UK, Australia, and Canada, the natural leaders are also frozen out of the corrupt system. In the US, “leadership” positions depend on financial support from the ruling economic interests. American presidents and politicians represent about six powerful private interest groups and no one else. After Celente went to press, Donald Trump announced to much mirth. A “con man” they say, but what else is the President of the United States? Do you think you weren’t conned by Clinton, George W. Bush, and Obama? What universe do you live in?

In actual fact, Trump might be our best candidate to date. By all accounts, he is very rich. Thus, he doesn’t need the office in order to become rich by selling out America to interest groups. By all accounts, Trump has a healthy ego. Thus, he could be capable of standing up to the powerful interest groups that generally determine the governance of the American serfs. Trump’s ego might even be strong enough for him to stand up to the Israel Lobby, something my former colleague, Admiral Thomas Moorer, Chairman of the Joint Chiefs of Staff, said publicly that no American President was capable of doing. As Celente makes clear in the current Trends Journal, all politicians are con men or con women.

We are going to have them regardless, so why not try a rich one who might decide to break with tradition and serve the interests of the citizenry. This would be a unique accomplishment, affording Trump the elevation in history books that would satisfy his ego. When a person reaches Trump’s state, does he need another couple of billion dollars or is historical recognition as the savior, however temporary, more valuable? This is not my endorsement of Trump for President. It is merely my speculations on how we might think of how large egos might be brought into our service. When we put the Clintons in office, they decided to make money so that they could outdo Hollywood and show their arrival with the $3 million they spent on their daughter’s wedding. For Trump, $3 million is pocket change.

Read more …

Let’s first see where it goes.

Why the Pope’s Environment Encyclical Is a Big Deal (Newsweek)

The pope’s encyclical on climate change is a big deal. Sure, past popes have written on the importance of protecting the environment, on favoring the poorest and on rethinking our direction as a species. But this is a major piece of work, and an ardent call from one of our world’s major leaders for us to work together to address this existential problem. Most interesting and heartening to me is Francis’s linking of the fate of the poor and the future of climate change. This point is well documented in research on the injustice of climate change. For example, Bradley Parks and I found that the poorest nations of the world are far more likely to suffer the impacts of climate-related disasters, and are also far less responsible for the problem.

The timing of the pope’s remarks is also very important. This year countries are both negotiating to reach a global agreement in Paris in December and also individually putting forward their own pledges on what they will do, called INDCs (Intended Nationally Determined Contributions) in the cumbersome U.N. lingo. The pope’s statement puts it very plainly to those leaders of nations who might be laggards: It’s time to face climate change very thoughtfully, justly and aggressively. Finally, having this strong and very considered statement about the urgency and moral imperative of addressing climate change coming from a religious leader is very proper, and part of an important larger movement.

Read more …

Just to put you on the wrong paw (do skippys have paws?).

All Kangaroos Are Left-Handed (Discovery)

All kangaroos are left-handed, according to new research. Previously it was thought that “true”-handedness, meaning predictably using one hand over the other, was a feature unique to primates. The new research, published in the journal Current Biology, not only negates that but also goes one step further: kangaroos are even more true-handed than we are. “According to a special-assessment scale of handedness adopted for primates, kangaroos pulled down the highest grades,” said project leader Yegor Malashichev in a press release. “We observed a remarkable consistency in responses across bipedal species in that they all prefer to use the left, not the right, hand.”

Malashichev, a researcher from Saint Petersburg State University in Russia, and his team observed that wild kangaroos show a natural preference for their left hands when performing particular actions, such as grooming their noses, picking leaves, or bending tree branches. Left-handedness was particularly apparent in eastern grey and red kangaroos. The kangaroos that they studied were at various locations in the wild at Tasmania and Australia. The term “hand” really does apply here, because kangaroos have five-fingered hands that somewhat resemble human hands, save for the kangaroos’ long claws in place of fingernails. Not all marsupials were found to exhibit such handedness. The researchers determined that red-necked wallabies, for example, prefer their left hand for some tasks and their right for others.

Generally speaking, these wallabies use their left forelimb for tasks that involve fine manipulation and the right for tasks that require more physical strength. The researchers also found less evidence for handedness in species that spend their days in the trees. The discovery about kangaroos was unexpected because, unlike other mammals, kangaroos lack the same neural circuitry that bridges the left and right hemispheres of the brain. Now the researchers are very curious about marsupial brains, which differ from those of other mammals in additional respects too. Such studies could yield important insight into neuropsychiatric conditions, including schizophrenia and autism, the researchers said, noting links between those disorders and handedness.

Read more …

Doesn’t leave much space for ‘interpretation’.

The Latest Global Temperature Data Are Literally Off The Chart (Guardian)

Just today, NASA released its global temperature data for the month of May 2015. It was a scorching 0.71°C (1.3°F) above the long-term average. It is also the hottest first five months of any year ever recorded. As we look at climate patterns over the next year or so, it is likely that this year will set a new all-time record. In fact, as of now, 2015 is a whopping 0.1°C (0.17°F) hotter than last year, which itself was the hottest year on record. Below, NASA’s annual temperatures are shown. Each year’s results are shown as black dots. Some years are warmer, some are cooler and we never want to put too much emphasis on any single year’s temperature. I have added a star to show where 2015 is so far this year, simply off the chart. The last 12 months are at record levels as well. So far June has been very hot as well, likely to end up warmer than May.

So why talk about month temperatures or even annual temperatures? Isn’t climate about long-term trends? First, there has been a lot of discussion of the so-called ‘pause.’ As I have pointed out many times here and in my own research, there has been no pause at all. We know this first by looking at the rate of energy gain within the oceans. But other recent publications, like ones I’ve written about have taken account of instrument and measurement quality and they too find no pause. Second, there has been a lot of discussion of why models were running hotter than surface air temperatures. There was a real divergence for a while with most models suggesting more warming. Well with 2014 and 2015, we see that the models and actual surface temperatures are in very close agreement.

When we combine surface temperatures with ocean heat content, as seen below, a clear picture emerges. Warming is continuing at a rapid rate.

Read more …

What we do best.

The Sixth Mass Extinction Is Here (Stanford.edu)

Stanford biologist Paul Ehrlich calls for fast action to conserve threatened species, populations and habitat before the window of opportunity closes. There is no longer any doubt: We are entering a mass extinction that threatens humanity’s existence. That is the bad news at the center of a new study by a group of scientists including Paul Ehrlich, the Bing Professor of Population Studies in biology and a senior fellow at the Stanford Woods Institute for the Environment. Ehrlich and his co-authors call for fast action to conserve threatened species, populations and habitat, but warn that the window of opportunity is rapidly closing. “[The study] shows without any significant doubt that we are now entering the sixth great mass extinction event,” Ehrlich said.

Although most well known for his positions on human population, Ehrlich has done extensive work on extinctions going back to his 1981 book, Extinction: The Causes and Consequences of the Disappearance of Species. He has long tied his work on coevolution, on racial, gender and economic justice, and on nuclear winter with the issue of wildlife populations and species loss. There is general agreement among scientists that extinction rates have reached levels unparalleled since the dinosaurs died out 66 million years ago.

However, some have challenged the theory, believing earlier estimates rested on assumptions that overestimated the crisis. The new study, published in the journal Science Advances, shows that even with extremely conservative estimates, species are disappearing up to about 100 times faster than the normal rate between mass extinctions, known as the background rate. “If it is allowed to continue, life would take many millions of years to recover, and our species itself would likely disappear early on,” said lead author Gerardo Ceballos of the Universidad Autónoma de México.

Using fossil records and extinction counts from a range of records, the researchers compared a highly conservative estimate of current extinctions with a background rate estimate twice as high as those widely used in previous analyses. This way, they brought the two estimates – current extinction rate and average background or going-on-all-the-time extinction rate – as close to each other as possible. Focusing on vertebrates, the group for which the most reliable modern and fossil data exist, the researchers asked whether even the lowest estimates of the difference between background and contemporary extinction rates still justify the conclusion that people are precipitating “a global spasm of biodiversity loss.” The answer: a definitive yes.

Read more …

Oct 092014
 
 October 9, 2014  Posted by at 11:03 am Finance Tagged with: , , , , , , , , , , ,  


DPC R.H. Macy & Co, Herald Square, Broadway at 34th Street, NYC 1908

The IMF’s $3.8 Trillion Warning To The Fed (MarketWatch)
IMF Warns Ultra-Low Interest Rates Pose Fresh Crisis Threat (Guardian)
US Home Prices Headed For A Triple Dip (CNBC)
Can Saudis Beat North Dakota In An Oil Price War? (MarketWatch)
The Keystone Killer the Enviros Didn’t See Coming (Bloomberg)
Will China Spark a Currency War? (Bloomberg)
German Model Is Ruinous For Germany, And Deadly For Europe (AEP)
German Exports Plunge 5.8%, Most Since 2009, as Economy Stumbles (Bloomberg)
Hollande Falls Into Line as Merkel Fends Off EU Spending (Bloomberg)
Draghi Policies Blunted in Berlin as German Protests Grow (Bloomberg)
Where Did The German ‘Strongman’ Go? (CNBC)
‘Bad Choices’ Have Put French Economy Under Pressure, Says EDF Boss (TiM)
‘France Is Doing Badly, But German Energy Sector Is A Disaster’ (Telegraph)
Europe In Danger Of Another ‘Lost Decade’: Ifo’s Sinn (CNBC)
Samaras ‘Fully Comfortable’ Seeking Early Exit for Greece (Bloomberg)
Banks in Sweden Beat Regulator With Plan to Cut Record Debt Load (Bloomberg)
Brussels Backs New UK Nuclear Plant As Cost Forecasts Soar (FT)
Japan Solar Boom Fizzling as Utilities Limit Grid Access (Bloomberg)
U.S. to Check Temperatures of West Africa Passengers at Five Airports (WSJ)
Kondratieff Winter: The Consequences of the Economic Peace (Grant Williams)

They could have given any other number, and it would have been just as believable and relevant. How does $5.6 trillion sound? Bit heavy, let’s do $3.8 trillion. Adjust your models accordingly. And then let’s play a round of golf.

The IMF’s $3.8 Trillion Warning To The Fed (MarketWatch)

A rocky exit from low interest rates by the Federal Reserve risks $3.8 trillion of losses to global bond portfolios, the International Monetary Fund warned Wednesday in its latest global financial stability report. The IMF was at pains to emphasize that it’s not forecasting such losses, but it did point out that tightening in the past has been a key trigger for declines in fixed-income markets. The IMF came up with the $3.8 trillion figure by assuming a rapid adjustment that causes term premiums to go back to historic norms and credit risk premiums to normalize, with moves of 100 basis points each. That would trigger losses by more than 8%, which could “trigger significant disruption in global markets.”

The IMF also pointed to the low volatility term structure for the S&P 500, suggesting equities also may be underpricing the risk of higher volatility in the future. It’s these concerns that have led the Federal Reserve to increase their communication to the public, through quarterly press conferences as well as interest-rate and economic forecasts. Observers both inside and outside the Fed expect the first rate hike to occur in the middle of 2015. But there remains considerable debate over the pace of subsequent hikes. Meanwhile, while the IMF warned about the Fed lifting interest rates, they also note the risks of the Fed and other central banks keeping rates low for so long. The IMF pointed out that asset price appreciation, spread compression and record low volatility have occurred simultaneously across broad asset classes and countries.

Read more …

Put ’em up, Calamity Janet.

IMF Warns Ultra-Low Interest Rates Pose Fresh Crisis Threat (Guardian)

A prolonged period of ultra-low interest rates poses the threat of a fresh financial crisis by encouraging excessive risk taking on global markets, the International Monetary Fund has said. The Washington-based IMF said that more than half a decade in which official borrowing costs have been close to zero had encouraged speculation rather than the hoped-for pick up in investment. In its half-yearly global financial stability report, it said the risks to stability no longer came from the traditional banks but from the so-called shadow banking system – institutions such as hedge funds, money market funds and investment banks that do not take deposits from the public.

José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.” He added that traditional banks were safer after the injection of additional capital but not strong enough to support economic recovery. Viñals said the IMF had analysed 300 large banks in advanced economies, making up the bulk of their banking system. It found that institutions representing almost 40% of total assets lacked the financial muscle to supply adequate credit in support of the recovery. In the eurozone, this proportion rose to about 70%. “And risks are shifting to the shadow banking system in the form of rising market and liquidity risks,” Viñals said. “If left unaddressed, these risks could compromise global financial stability.”

Read more …

At last. Let’s get some real prices.

US Home Prices Headed For A Triple Dip (CNBC)

The headline for much of this year has been that home price gains are easing. Prices are still higher compared to last year, but not nearly as much as they had been. Now, suddenly, it looks as if home values could actually go negative on a national level. “That will be the first time collectively, as a nation, we’ve seen prices drop since the low point or the trough of the housing crisis,” said Alex Villacorta, vice president of research and analytics at data firm Clear Capital. Villacorta points to a 1% quarterly home price gain from the second to the third quarter of this year. Last year that quarterly gain was 3%. “The discouraging thing about that is, yes, we’re still in the positive, but that 1% has been waning from that three%, and this comes after what should have been the most active buying season in the housing market for the summer that just ended,” he added.

The West, which has some of the largest metropolitan markets in the nation, has seen a huge drop in distressed sales, as fewer properties go to foreclosure. At their peak in 2009, just over half of all sales in the West were of distressed properties; today that share is just over 12%, according to Clear Capital. Investors, consequently, are moving on to other markets in the South and Midwest, where there are still bargains to be had. The West is therefore seeing sharper drops in home price appreciation. “And that is why the West is really that leading indicator, the canary in the coal mine, because as the West goes, both on the downturn and in the recovery,we’ve seen the rest of the country go as well,” said Villacorta.

Read more …

Pretty useless ‘analysis’. Is Saudi battling America? I wouldn’t be so sure. There might be something else going on.

Can Saudis Beat North Dakota In An Oil Price War? (MarketWatch)

With oil prices tumbling — and dragging gasoline prices at U.S. pumps further below $4 a gallon — investors wonder if Saudi Arabia will cut production in an effort to stop the slide. Don’t count on it. In a note, commodity strategists led by Seth Kleinman at Citi argue that the Saudis aren’t likely to throttle back output, in part because they apparently “think that they can win any price war” with U.S. shale producers. In other words, Saudi producers are playing a long game, confident that “full cycle” shale production costs are considerably more than their own. As Julian Jessop, head of commodities at Capital Economics points out, there is precedent. Saudi Arabia responded to a glut of non-OPEC oil in the latter half of the 1980s by increasing its own output, successfully eroding the profitability of other producers, including those in the North Sea, he said.

Oil futures remained under pressure Wednesday, with the price of light, sweet crude for November delivery on the New York Mercantile Exchange falling $1.54, or 1.7%, to $87.31 a barrel, hitting the lowest price for a most-active contract since April 2013 after data showed a further rise in U.S. crude supplies. ICE November Brent crude futures fell 58 cents, or 0.6%, to $91.53 a barrel, setting a two-year low. Saudi Arabia earlier this month cut the official selling price for its crude, according to news reports, a move that put additional pressure on oil prices at the time. The Citi analysts say the Saudis might be right to think they can win a price war, but only up to a point.

Read more …

What if they built a pipeline and nobody came?

The Keystone Killer the Enviros Didn’t See Coming (Bloomberg)

When it comes to oil, U.S. is king. Discoveries in North Dakota and Texas have pushed American oil production past Saudi Arabia and Russia this year. The new supplies have boosted the economy and dialed down the price of oil everywhere – gasoline at $3 a gallon anyone? The price of oil has fallen so low it’s threatening the feasibility of controversial and expensive drilling projects proposed in the Canadian Oil Sands and the Arctic. West Texas Intermediate, the U.S. benchmark for crude, is going for less than $90 a barrel. That’s approaching the break-even point for profitability at many of the very wells driving the American oil boom.

“If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, told Bloomberg News reporter Isaac Arnsdorf. “It will be uncharted territory.” At the current price of about $87 a barrel, cheap American crude undercuts many of the most aggressive oil projects under consideration by the oil majors. About $1.1 trillion of capital expenditures have been earmarked through 2025 for projects that require a market price of more than $95 a barrel, according to a May study by the Carbon Tracker Initiative, a London-based think tank and environmental advocacy group.

Read more …

No, the US will.

Will China Spark a Currency War? (Bloomberg)

Is China about to devalue? The question seems to pop up everywhere I go – most recently in Frankfurt, Sydney and New York. Economists here in Tokyo, too, are buzzing about the chances of a big decline in the yuan in the next few months. A new report from Lombard Street Research explains why all these folks may have reason for concern. According to London-based Charles Dumas, China’s slowdown will soon drag down gross domestic product growth below 5% (whether Beijing admits it or not). Dumas joins long-time Asia investor Marc Faber in thinking China will find itself in the 4% range by year end. A continued downtrend, Dumas says, would represent “a major, slow-motion shock for the world economy and financial markets” that will slam everything from commodities to growth rates from Japan to Germany.

Growth significantly below Beijing’s 7.5% target also complicates President Xi Jinping’s efforts to shift China to a services-based economy from an export-and-investment-led one. The obvious solution: a weaker exchange rate that boosts exports and thus buys Xi time to recalibrate growth drivers. While Chinese leaders aren’t dropping clear hints of a devaluation, it’s a logical next step. Even before the 2008 global crisis, Lombard Street says, capital spending in China had already reached an unsustainable 42% of GDP. Then the regime responded to the crisis with an unprecedented investment surge, beginning with a $651 billion stimulus package in 2009. By the end of that year, capital spending had jumped to 48% – where it remained until last year. It’s simply not possible for an economy that carries a consumer-spending ratio of about 36% to thrive long-term with an investment ratio on the cusp of 50%.

Since the crisis, Chinese corporate debt has also reached $14.2 trillion, topping that of the U.S., according to Standard & Poor’s. Recently, China’s central bank set out to measure activity in China’s $6 trillion shadow banking industry, implying that officials worry it’s even bigger than we know. And while estimates of the true size of liabilities facing local governments differ widely, roughly $1.65 trillion of their debt is already held by major banks, including Industrial and Commercial Bank of China and China Construction Bank. Borrowing more to gin up growth isn’t an option for a highly-indebted developing nation. Debt must be reduced.

Read more …

Ambrose wants you to spend! He also says France will overtake Germany soon because of the birthrate.

German Model Is Ruinous For Germany, And Deadly For Europe (AEP)

The German economy has already stalled. Output contracted in the second quarter. Factory orders fell 5.7pc in August. Germany’s “Five Wise Men” council of economic experts will slash the country’s growth forecast to 1.2pc next year in a report on Friday. Prof Fratzscher accuses Germany’s elites of losing the plot in every important respect. Investment has fallen from 23pc to 17pc of GDP since the early 1990s. Net public investment has been negative for 12 years. Growth has averaged 1.1pc since the beginning of the decade, placing Germany 13th out of 18 in the eurozone (or 156th out of 166 countries worldwide over the past 20 years). This chronic weakness been masked by slightly better growth since the Lehman crisis, and by the creditor-debtor dynamics of the EMU debt crisis. German looks healthy only because half of Europe looks deathly. The Hartz IV reforms – so widely praised as the foundation of German competitiveness, and now being foisted on southern Europe – did not raise productivity, the proper measure of labour reform.

Data from the OECD show that German productivity growth slumped to 0.3pc a year in the period from 2007 to 2012, compared with 0.5pc in Denmark, 0.7pc in Austria, 0.9pc in Japan, 1.3pc in Australia, 1.5pc in the US and 3.2pc in Korea. Britain has been negative, of course, but that is no benchmark. Prof Fratzscher says the chief effect was to let companies compress wages through labour arbitrage. Real pay has fallen back to the levels of the late 1990s. The legacy of Hartz IV is a lumpen-proletariat of 7.4m people on “mini-jobs”, part-time work that is tax-free up to €450. This flatters the jobless rate, but Germany has become a split society, more unequal than at any time in its modern history. A fifth of German children are raised in poverty. Philippe Legrain, a former top economist at the European Commission, says Germany’s “beggar-thy-neighbour economic model” works by suppressing wages to subsidise exports, to the benefit of corporate elites. This is “dysfunctional”, and the more that EU officials try to extend the model across the eurozone, the more dangerous it becomes.

Read more …

The numbers keep coming in bad.

German Exports Plunge 5.8%, Most Since 2009, as Economy Stumbles (Bloomberg)

German exports slumped the most since January 2009 in the latest sign Europe’s largest economy is struggling to rebound from its second-quarter contraction. Exports dropped 5.8% in August, after a 4.8% increase in July, the Federal Statistics Office in Wiesbaden said today. Economists surveyed by Bloomberg News predicted a decline of 4%. While the typically volatile data was influenced by the timing of German school holidays in late summer, it still depicts an economy that is stumbling as the euro-area recovery grinds to a halt. The European Central Bank has added unprecedented stimulus to try to revive inflation and economic growth in the 18-nation currency bloc.

German imports declined 1.3% in August, after dropping 1.4% in July, today’s report showed. The country’s trade surplus narrowed to €14.1 billion ($18 billion) from a record €23.5 billion. The current account surplus shrank to €10.3 billion from €20.1 billion. German gross domestic product fell 0.2% in the three months through June. Data earlier this week showed factory orders and industrial production each declined by the most since January 2009 in August.

Read more …

Power battle between France and Germany.

Hollande Falls Into Line as Merkel Fends Off EU Spending (Bloomberg)

German Chancellor Angela Merkel sidestepped French President Francois Hollande’s call to use stimulus measures to counter Europe’s faltering recovery, saying investments need to be carefully considered. With Germany’s economy slowing, France barely growing and Italy in its third recession since 2008, Hollande arrived at a jobs summit in Milan yesterday saying Germany should “do more to support demand” and that the European Union as a whole should provide €20 billion ($25 billion) to support joblessness over six years. Barely four hours later Merkel shied away from any commitment and Hollande fell into line. “We need to invest, yes, but we need to know where to invest, we need to know where the jobs are,” Merkel said. “We need to know what the professions of the future are. In the whole digital area I see the opportunities for the future. That’s where we should train people.”

Hollande and Italian Prime Minister Matteo Renzi want the European Union to use flexibility in its budget rules in the face of slowing growth and are pushing for the bloc to spend more creating jobs for the one in five young people who are out of work. Currently €6 billion has been set aside for the issue in 2014 and 2015. “I’d like to see more by 2020,” Hollande said. “If Europe can’t provide opportunities for the young, then people will turn away from Europe,” he said. France and Italy are also under pressure as lack of growth distances them from deficit-cutting commitments made earlier in the year. France now expects its budget deficit to rise this year for the first time in half a decade and doesn’t see the shortfall shrinking to the EU limit of 3% of gross domestic product before 2017. Italy has pushed back its plan to achieve a structural balance to next year from this year.

After lobbying for more EU spending on job creation on the way into yesterday’s meeting, Hollande echoed Merkel’s view that existing funds must spent first as he sat alongside her at the press conference afterward. “I’d like to see more by 2020, I’ve spoken of €20 billion, but before we must see these sums are spent,” he said. “We need simplification and speeding up of this disbursement.” Euro-area countries including France and Italy have until Oct. 15 to submit their 2015 budgets to the European Commission under the region’s fiscal rules. The commission will have to then judge their plans and decide whether governments have made sufficient efforts or need to be prodded to do more. The 3% limit was “conceived more than 20 years ago, in a different world,” Renzi said. “I respect the decisions of other countries such as France today or Germany in the past with a different government to breach the limit,” adding that Italy will meet its target all the same to bolster its credibility.

Read more …

Better leave now, Mario.

Draghi Policies Blunted in Berlin as German Protests Grow (Bloomberg)

Mario Draghi’s policy tools are being blunted in Berlin. The European Central Bank president has stopped short of large-scale sovereign-bond purchases as efforts to mollify Germany’s political elite do little to silence criticism of his ever-more expansionary measures. Support for anti-euro groups such as Alternative for Germany has risen and the ECB’s latest plan to buy assets sparked an outcry within all major parties. “German public opinion matters an awful lot,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “Draghi wants the ECB to be a central bank like any other, one that can go and buy government debt. But he’s perfectly aware of Germany’s opposition, and the storm now is a clear signal that it’ll be much more difficult.” Draghi may be pressured at the International Monetary Fund meetings in Washington this week to take further measures to revive the 18-nation currency bloc’s recovery.

That won’t be easy in the face of a German aversion to quantitative easing that is rooted in the 1920s, when money-printing laid the foundation for a society that still fears rising prices more than deflation. The debate over sovereign-debt purchases will be raised again on Oct. 14 when the European Union’s highest court hears arguments about the ECB’s still-unused OMT program. Germany’s Federal Constitutional Court has already expressed doubts about the legality of the two-year-old pledge to buy bonds of stressed countries after a challenge by a German lawmaker and a group of academics.

Read more …

The German ‘Strongman’ went home. And he’s going to stay there.

Where Did The German ‘Strongman’ Go? (CNBC)

This week’s disappointing German manufacturing data are the latest sign the “strongman” of Europe is weakening, in what could mark a worrying turn for the rest of Europe. Tuesday’s industrial output numbers for Germany missed forecasts, with production slowing by 4% month-on-month in August. German factory orders, out on Monday, also showed a steep—and unexpected—decline. “The data from Germany is persistently dreadful,” said Societe Generale’s Kit Juckes in a note on Wednesday. The warning comes after the International Monetary Fund (IMF) cut Germany’s growth outlook for this year and next on Tuesday. It now sees the economy growing by 1.4% in 2014 and 1.5% in 2015. This is better than the euro zone average, but below peers like the U.K., where the economy is expected to expand by 3.2% this year and 2.7% next.

Here we take a look at some of the reasons why Germany could be losing its economic clout: France has criticized Germany for hoarding cash rather than using it to stimulate domestic demand, which could help boost growth throughout the euro zone. “Germany must fulfil its responsibilities,” French Prime Minister Manuel Valls declared at a policy meeting last month. Now, some economists say the zealous fiscal prudence exercised by Chancellor Angela Merkel and colleagues is harming Germany, as well as its neighbors. “The figures should provide something of a wake-up call to those in the German government still resisting calls to loosen the fiscal reins and provide the euro zone’s biggest economy with more support,” said Jonathan Loynes, chief European economist at Capital Economics, in a note on Wednesday.

Read more …

Sure, let’s turn to the rich to solve our problems.

‘Bad Choices’ Have Put French Economy Under Pressure, Says EDF Boss (TiM)

One of France’s leading businessmen has admitted the economy is ‘under pressure’ and lashed out against high taxes. Henri Proglio is the chairman and chief executive of EDF, the French energy giant with more than 150,000 employees worldwide. He was speaking as EDF received approval from the EU for its nuclear power plants at Hinkley Point in Somerset. Brussels revealed the price of the work has risen to £24.5billion from the projected £16billion once debt financing is included. It could rise to as high as £34billion in a worst-case scenario. Proglio’s comments on the French economy come only days after John Lewis boss Andy Street said that France was ‘finished’ because it is ‘sclerotic, hopeless and downbeat’.

The French Prime Minister Manuel Valls, on an official trip to Britain, subsequently responded to the comments by suggesting that the John Lewis chief had ‘drunk too much beer’. Speaking yesterday, Proglio said: ‘France today is in a poor situation. It’s a country under pressure.’ He admitted that France ‘made some bad choices for a few years’ that have led to ‘overtaxation’. He added: ‘It’s not a brilliant situation.’ He said the country should be ‘forced’ to slash government spending – currently at more than 50 per cent of GDP – and ‘drive more investment’.He said: ‘It’s too easy to say today France is doing bad, because it’s obvious. ‘How can you make it better? This is the point.’

Read more …

I’m bad, but you’re worse.

‘France Is Doing Badly, But German Energy Sector Is A Disaster’ (Telegraph)

France’s economy may be doing badly but Germany’s energy sector is a “disaster”, the head of French state-owned energy company EDF has said. Henri Proglio, EDF chief executive, acknowledged his country was “in a poor situation” and “under pressure”. But he said different industries should be considered in their own right, highlighting the German energy sector, where the country’s phase-out of nuclear power and drive for renewables has severely damaged its two biggest companies. “When it comes to energy they are in a disaster. Their two major companies – E.On and RWE – are under huge pressure. One is more or less dead, the other one is in a very difficult situation,” he said. By contrast, he said EDF was doing “quite well” and the French aerospace industry was “number one in the world”.

Mr Proglio was speaking after his company was granted EU state aid approval to build Britain’s first new nuclear plant in a generation at Hinkley Point in Somerset. “It’s too easy to say today France is doing bad, because it’s obvious,” he said, adding attention should focus on “how can you make it better”. “On the fiscal point of view, France, in my view, made some bad choices for a few years. Over-taxation is very negative for the country,” he said. “On the other hand, we have some very good companies.” Mr Proglio said it was “very important to consider industry as a key driver for growth”. “You have to force a country to make some improvements in overheads, public overheads and to drive more investment.” Earlier this week French Prime Minister Manuel Valls admitted the country’s economic growth had been in “long breakdown” but insisted that his government was “pro-business”.

Paul Massara, the head of RWE’s UK supply business npower, did attack the Hinkley Point subsidy deal, suggesting it was poor value for consumers. “We recognise the need for Britain to have modern, efficient energy infrastructure with a diverse mix of technologies, but this must happen at the lowest possible cost to the consumer. “We are concerned that today’s decision around guaranteed revenue from new nuclear power stations in return for their delivery could force the next three generations of British consumers to pay unnecessarily high energy bills,” he said.

Read more …

“We have already lost, under the euro, one decade because of these enormous capital flows into users in southern Europe which were not so productive and we will lose another decade if we don’t act … ”

Europe In Danger Of Another ‘Lost Decade’: Ifo’s Sinn (CNBC)

If euro zone countries like France do not complete vital structural reforms, the currency union faces another “lost decade,” Hans-Werner Sinn, president of the Munich-based Ifo Institute, told CNBC. Rather than the breakup of the single currency, Sinn warned that the euro zone will see another prolonged period of stagnation with weak growth unless countries can boost productivity and complete tough rebalancing programs. “We have already lost, under the euro, one decade because of these enormous capital flows into users in southern Europe which were not so productive and we will lose another decade if we don’t act,” he told CNBC on Thursday.

The euro zone’s main problem over the last decade has been that savings have been shifted into southern European nations that have “eaten up” that capital rather than using it to increase productivity in their economies, he said. He now believes that struggling southern European nations should undergo painful devaluation in order for them to grow again. So, instead of continuing to borrow at low interest rates through the current period of low growth and low inflation, Sinn says that painful reforms need to be implemented. “If you take the pain anyway it won’t happen,” he said.

Read more …

With unemployment numbers like Greece has, this sounds like nonsense.

Samaras ‘Fully Comfortable’ Seeking Early Exit for Greece (Bloomberg)

Prime Minister Antonis Samaras said he aims to sever the international lifeline that has kept Greece afloat since 2010 by forgoing disbursements of emergency loans scheduled over the next two years. “We feel fully comfortable” that Greece can cover its financing needs from the bond markets in the coming years, Samaras, 63, said in an interview in Milan yesterday after a European Union summit. An improvement in public finances and low interest rates have emboldened Samaras, who said the Greek parliament will discuss the end of aid from the euro area and International Monetary Fund, which have granted the country €240 billion ($306 billion) in bailout loans, in a confidence-vote debate scheduled to run through tomorrow. Greek bonds are the best-performing securities in the Bloomberg indexes this year, having earned 20% through yesterday.

The yield on 10-year debt fell as low 5.52% on Sept. 8, the lowest since early 2010. Even after a sell off in the past month, that compares to a record high of 44% in March 2012, on the eve of the world’s biggest-ever debt restructuring. Samaras’s confidence contrasts with fellow euro-area and IMF officials, who insist Greece should retain access to bailout funds next year. The prevailing view among those officials is that Greece’s market access remains fragile, according to two people directly involved in the negotiations. European Central Bank President Mario Draghi weighed into the debate last week, saying the country needs to remain in some kind of program for Greek banks’ junk-rated asset-backed securities to be eligible for the ECB’s ABS purchase program. The bailout loans came with belt-tightening conditions that exacerbated a six-year Greek recession, left more than a quarter of the workforce jobless and triggered a social backlash. Aid next year would also come with strings attached.

Read more …

“A plan by the Swedish Bankers’ Association to require borrowers to pay down new loans to 50% of property values may be enough”. Sounds like trouble for borrowers.

Banks in Sweden Beat Regulator With Plan to Cut Record Debt Load (Bloomberg)

Sweden’s financial regulator may not push ahead with formal rules on amortization after the country’s banks presented a proposal targeting a reduction in mortgage debt. A plan by the Swedish Bankers’ Association to require borrowers to pay down new loans to 50% of property values may be enough, Martin Andersson, head of the Swedish Financial Supervisory Authority, said yesterday in a phone interview. If banks “present a proposal that’s very similar to what we ourselves think is a very good proposal it’s absolutely a conceivable alternative,” he said. Banks can implement such a plan quicker and it provides “the flexibility needed for particularly vulnerable households that for a period of time are unemployed, or sick, or whatever it may be that makes it hard to amortize,” Andersson said.

Sweden is trying to stem an increase in private debt that has soared to record levels while protecting the most vulnerable households from new requirements. Finance Minister Magdalena Andersson, Riksbank Deputy Governor Cecilia Skingsley and Klas Danielsson, chief executive officer of state-owned bank SBAB, have urged policy makers to exempt some demographic groups from amortization requirements. The Bankers’ Association this week proposed new guidelines that would force homeowners to pay down their mortgage debt to 50% of property values after lowering it to 70% from 75% in March. The group said it hopes the measure aimed at fostering a better amortization culture will prevent the regulator from introducing formal legislation.

Read more …

Let’s cheer?!

Brussels Backs New UK Nuclear Plant As Cost Forecasts Soar (FT)

Britain won EU approval for a new nuclear power plant in Somerset on Wednesday, allowing the government to commit to 35 years of financial support for Europe’s biggest and most controversial infrastructure project. Hinkley Point C will cost £24.5bn to build, EU officials revealed – a much higher figure than the £16bn disclosed last year by EDF, the French utility running the project. The lower figure was in 2012 prices and excluded interest payments made during construction and other pre-building costs, said EDF. Joaquín Almunia, the EU competition commissioner, said the project’s total costs would be about £34bn, including cash the developers had to show they could come up with in the event of problems during construction.

Formal state aid approval from the European Commission, on the condition of some minimal revisions, came after a deeply divided debate that led to four EU commissioners voting against the decision. Mr Almunia said the final decision had been taken, despite initial doubts, because the UK had shown there was a “genuine market failure” which meant that “without public support this investment could not take place”. “This decision will not create any kind of precedent,” he added, describing Hinkley Point as a project of “unprecedented nature and scale”.

Read more …

Another baseload issue.

Japan Solar Boom Fizzling as Utilities Limit Grid Access (Bloomberg)

Japan’s solar energy boom is starting to fizzle after two years of rapid expansion left utilities saying they’re unable to accept electricity from so many new sources that generate power only when the sun shines. At least five of the nation’s biggest utilities are restricting the access of new solar farms to their grids. Struggling to compensate for nuclear shutdowns after the Fukushima reactor meltdowns, the government of Prime Minister Shinzo Abe offers some of the highest incentives for solar in the world. That’s helped make Japan the second-biggest market for photovoltaic panels, providing an alternative to downturns in Germany and Spain, nations that once led the industry. “Everyone was entering the solar market because it was lucrative, and that has strained the market,” said Yutaka Miki, who studies clean energy at the Japan Research Institute.

Japan’s trade ministry has approved plans for about 72 gigawatts of renewable energy projects since July 2012. The country installed almost 7.1 gigawatts of solar capacity last year, more than currently exists in all of Spain, according to Bloomberg New Energy Finance. A gigawatt is about the size of a nuclear reactor. Japan’s investment in the technology more than tripled to $29.6 billion in 2013 from 2010 levels, data from London-based BNEF show. Kyushu Electric Power, which supplies power to the southern island of Kyushu, said in late September that it will suspend giving new grid access to clean-energy producers while examining how much more capacity it can take on. The question is whether Japan’s grid can handle intermittent power deliveries from solar systems that only generate when the sun is shining.

Read more …

What good is this going to do?

U.S. to Check Temperatures of West Africa Passengers at Five Airports (WSJ)

\The U.S. plans to start checking the temperatures of passengers arriving at major airports from West African countries with high rates of Ebola, federal officials said Wednesday. The measure is part of a growing list of steps aimed at detecting travelers infected with the disease to stop it from spreading inside the U.S. Authorities plan to start the new screenings at John F. Kennedy International in New York on Saturday. Next week, they’ll add it at O’Hare International in Chicago, Hartsfield-Jackson International in Atlanta, Washington Dulles International near Washington, D.C., and Newark Liberty International in Newark, N.J. Authorities said more airports may follow.

After their passports are reviewed, passengers arriving from Liberia, Guinea and Sierra Leone will be pulled aside to a separate screening area where U.S. Customs and Border Protection staff will question them about their health and exposure to Ebola, take their temperature with an infrared thermometer and collect their contact information in the U.S. If that screening suggests exposure to the disease, an officer from the Centers for Disease Control and Prevention will evaluate the traveler more, take his temperature again and decide whether the person needs to be taken to a hospital or be monitored by local health authorities. Coast Guard medical staff could also be involved in the screenings, according to a person briefed on the plans. “These measures are really just belt-and-suspenders,” President Barack Obama said in a conference call with state and local officials. “It’s an added layer of protection on top of the procedures already in place at several airports.”

Read more …

Real economics. And real scary too.

Kondratieff Winter: The Consequences of the Economic Peace (Grant Williams)

In 1920, a year AFTER the Treaty of Versailles, a Russian economist called Nikolai Kondratieff founded something he named The Institute of Conjuncture, at which he and a team of fellow economists studied, yes, conjuncture — or business cycles, with a particular focus on the long waves they identified within those cycles. Over the years since Kondratieff first laid out his theory on long-wave cycles, a tremendous debate has ensued as to the usefulness of such long-term prognostication; but there is one very good reason why I (and many others) believe there to be a significant advantage gained through the study of long-wave cycles… (Wikipedia: Long-wave theory is not accepted by most academic economists.)

Kondratieff, being a Russian, of course took the long view. He took Schumpeter’s four stages (expansion, crisis, recession, and recovery) and equated them to the four seasons in a year. Once he had identified what he felt to be the length of each “Spring,” “Summer,” “Autumn,” and “Winter,” Kondratieff had his “Wave;” and, as it turned out, that Wave ran for approximately 53 years. In 1925, when he published his book The Major Economic Cycles, using existing data, Kondratieff overlaid his wave on world history and projected it forward — meaning that everything for the 89 years that followed was conjecture on his part… How’d he do? Well, as it turns out, surprisingly well. Kondratieff nailed far too many major turns to have his work simply dismissed, and his most recent turn into Winter occurred in 2000 or, for those of you who measure the passing of time by such things, precisely at the bursting of the tech bubble.

The blue shaded area shows how far into the current Kondratieff downwave we are and — far more importantly — how much farther we have to go before things are supposed to turn around. But what do the inner workings of a Kondratieff Winter look like? And are we in the middle of one, as a nearly 90-year-old forecast would have us believe? Like Schumpeter’s cycles, the four seasons in a Kondratieff Wave are broken down and characterised by the phenomena usually seen during each specific phase of the full cycle. I won’t go through all four seasons now, as we don’t have time, but rather we’ll focus on the longest phase — Winter — as it’s the one we find ourselves mired in.

Read more …

Aug 252014
 
 August 25, 2014  Posted by at 10:03 pm Finance Tagged with: , , , ,  


Dorothea Lange Saturday afternoon. 10 cent store, Siler City, North Carolina July 1939

Well, it’s not as if nothing ever happens. One government and one parliament down, all in one day. One planned, the other not so much.

Ukraine president Poroshenko dissolved parliament so he can have sole control for the next two months. And smile with a smirk at Putin when they meet tomorrow. Wonder what ‘progress’ they’ll make. Judging from all the accusations thrown around just today, and the plans announced, they’re not going to be short of material.

RT has the rebels claim they have thousands of Ukraine soldiers cornered, Kiev claims Russian tanks have entered the country on their way to Mariupol on the Azov Sea. A city where Ukraine did some unpalatable things earlier this year, by the way.

But the Ukraine battle is going to go on long enough to get back to on some other day, it’s not even close to being over. France is the potentially more interesting situation in today’s news.

French prime minister Manuel Valls has offered the resignation of his 4 month old (young?!) government. President François Hollande has accepted (after first insisting he’d do it) and ordered him to form a new one as soon as tomorrow. All this came after a hefty weekend in which Hollande and Valls’ policies were criticized by their own economy minister, Arnaud Montebourg.

The cabinet shuffle is aimed at getting rid of him, and of education minister Benoît Hamon and culture minister Aurélie Filippetti, who openly agreed with Montebourg’s criticisms.

Whether the shuffle would have taken place if Montebourg wouldn’t have included Germany in his tirade will probably remain an open question. What is sure is that Angela Merkel and the Bundesbank will, certainly in France, come under increasing fire for their insistence that all of Europe obey the harsh austerity measures Berlin has hammered into the EU and ECB.

And it’s not an easy position Hollande has maneuvered himself into. It may even be hopeless. It’s by no means sure that the new cabinet Valls is set to unveil tomorrow will be accepted by the French parliament. And that may be the end of that parliament too, and new elections. Which Marine Le Pen’s right wing Front National has already called for anyway.

And with Hollande’s approval rating at 17%, a more than 50-year low for a French president, that could mean big changes. Valls’ approval is at 36%, not sparkly either.

The critical voices are all part of Hollande’s own Socialist party, they’re just more left than he is. And that left is still a strong voice in France. Seeing it split into multiple factions cannot possibly be good for a president with that sort of ratings. He’ll soon be in single digits.

Then again, the right is growing stronger too. France is becoming a vastly more polarized nation, at a time when the truth about its economy is seeping through the cracks of the political system.

The options on the table are: Hollande and Valls stay in power, and continue to adhere to the Berlin/Brussels austerity model. If, and only if, they can guide a new cabinet through the National Assembly tomorrow. But they’ve now lost the far left wing of their own party, which is opposed to more austerity, though it does want the EU.

Option no. 2 is the far left gets the power, where it would have to either get Brussels to do a 180º on austerity or flip it the bird and start spending no matter what. Not an easy thing to when your central bank effectively resides in Frankfurt.

Option no. 3 is new elections, and the very real risk of Marine Le Pen and the Front National coming out on top. They want out of the euro and out of the EU.

Those new elections may well be written in stone already. The left has failed its constituents, because France is in the doldrums economically and there’s really no way out other than through means that will lead to mass protest. Which the French are very good at.

The left could try to save the very large entitlement programs, but that would mean ever more debt, and a potential rift with Germany and Brussels. The right would certainly tell everyone who’s not French to go stuff themselves, but it would still have to deal with millions upon millions of people who officially have jobs but in reality live off the state. Not to mention the workers, still organized in strong unions.

Does Le Pen want a civil war, or a revolution and counter revolution? She may think her party’s strong enough to do any of the above. Plenty of French will listen to a message that says Berlin should not dictate Paris, especially when it means poverty for the French people.

Can Brussels conjure up an autocrat, like they did in Italy, Greece, Portugal? That looks quite a bit harder to do in France. But we shouldn’t ignore the ruling classes under the surface, which have governed the country for a very long time, the landowners and industrialists who’ve all attended the same schools for generations. And who now, no doubt, start feeling the crisis too, even though its true numbers haven’t even been published yet.

France is a very proud nation. It’s also very large in the European context. Without it there is no EU, and no euro. We might just have seen the beginning of the end for both.

French Government Dissolved Amid Row Over Economy (RTE)

France has been thrown into fresh crisis after President Francois Hollande told his prime minister to form a new government. This followed a much-criticised show of insubordination by the country’s firebrand economy minister. Mr Hollande ordered Prime Minister Manuel Valls to form a new cabinet “consistent with the direction he has set for the country”, the presidency said in a statement. It did not give any reasons, but the move came after Economy Minister Arnaud Montebourg bad-mouthed the country’s economic direction and ally Germany at the weekend in a move that angered Mr Valls. This morning, Mr Valls offered the resignation of his government. Mr Valls was asked by President Francois Hollande to form a new team only four months ago but has continually had to reconcile policy differences between leftists such as Mr Montebourg and more centrist members of his Socialist-led government.

President Hollande’s office said in a statement a new government would be formed on Tuesday in line with the “direction he (the president) has defined for our country.” Mr Montebourg at the weekend said deficit-reduction measures carried out since the 2008 financial crisis were crippling the eurozone’s economies and urged governments to change course or lose their voters to populist and extremist parties. Finance Minister Michel Sapin acknowledged this month that weak growth would mean France missing its deficit-reduction target for this year but stressed the government would continue cutting the deficit “at an appropriate pace”. The weakness of the economy was a major factor in Mr Valls seeing his approval rating drop to a new low of 36% this month, while Mr Hollande remained the most unpopular president in more than half a century, an Ifop poll showed on Sunday. Mr Valls was appointed to lead the government in a cabinet reshuffle in March, after the ruling Socialists suffered a bruising defeat in local elections.

Read more …

French Ministers Criticize Economic Austerity Policies (WSJ)

Senior French ministers called for changes to President François Hollande’s tax and spending cuts plan over the weekend, saying alternatives are possible and attacking austerity policies in France and the euro zone. In interviews with the French press and speeches at a Socialist gathering Sunday, Economy Minister Arnaud Montebourg and Education Minister Benoît Hamon said forcibly reducing budget deficits as the economy wilts is driving up unemployment, fueling political extremism and risks tipping the economy into recession. “The priority must be exiting crisis and the dogmatic reduction of deficits should come second,” Mr. Montebourg said in an interview with Le Monde published ahead of the annual Fête de la Rose meeting of Socialist Party activists at Frangy-en-Bresse in eastern France.

The minister also turned on Germany: “We need to raise the tone. Germany is caught in the trap of austerity that it is imposing across Europe.” Mr. Hamon joined Mr. Montebourg’s call for a change of course. He said the Socialist government needs to reconnect with its electorate and boost demand by increasing tax cuts for households after defeats in local and European elections this year . “The worst thing would be to think of French people as children who haven’t understood,” Mr. Hamon said, speaking after Mr. Montebourg at the Socialist meeting. This isn’t the first time the Mr. Montebourg has attacked French government policy. In July, he proposed a string of measures to boost domestic demand and advocated handing more tax cuts to consumers.

But the criticism comes at a difficult moment for the French president, who said earlier this week he will push ahead with a three-year plan to cut public spending to fund tax cuts for business even as the economy stagnates. Businesses continued cutting investment in the second quarter despite receiving the first payouts from labor-tax reductions. Critics of Mr. Hollande’s plans have seized on the economy’s disappointing performance in the first half of the year to argue the Socialist leader needs to rethink the balance of cuts. “Promising to get the economy going again, on the path to growth and full employment, hasn’t worked. Honesty obliges us to acknowledge this,” Mr. Montebourg said in a speech to supporters. “The role of the economy minister and any statesman in his place is to confront the truth—even it is cruel—and propose alternative solutions,” he added.

Read more …

And everything lese.

Fears Of Slowdown As German Business Morale Drops (CNBC)

Fears of a German economic slowdown were further heightened on Monday, as a key business survey fell short of analyst expectations. The Ifo Business Climate index, which measures German business sentiment, showed signs of continued weakness in August, falling for the fourth consecutive month. The index slipped to 106.3 in August, down from 108.0 in July and missing analyst expectations of 107.0 “The German economy continues to lose steam,” Hans-Werner Sinn, the president of the Ifo Institute, said in a statement, adding that this month’s reading marked the index’s lowest level since July 2013. Ifo economist and deputy director Klaus Wohlrabe told Reuters that domestic consumption in the country remained solid, but warned that the Ukraine crisis was a “burdensome factor” for the country’s economy.

Germany is the European country with the highest exposure to Russia, and Wohlrabe added that German firms with business ties to Russia were “more pessimistic”. The weak number follows disappointing gross domestic product (GDP) data for the country earlier this month. The figures showed that the economy in Germany – often referred to as Europe’s growth engine – had contracted for the first time in over a year in the second quarter. It showed a marked slowdown from the January to March period, when the economy grew strongly. Wohlrabe told Reuters that Ifo was now likely to reduce its GDP forecast for the country to 1.5% growth, down from the 2% predicted.

Read more …

Yeah right.

IMF Chief Lagarde: Germany Should Drive Economic Recovery In Europe (AFP)

IMF chief Christine Lagarde wants Germany to play a bigger role in propelling economic recovery in Europe, she hinted in an interview broadcast on Monday, suggesting that German wages should rise. Part of her remarks may be interpreted by personalities on the left of French politics as going in the same direction as criticism of French, German and European Union austerity policies by French Economy Minister Arnaud Montebourg at the weekend. Montebourg’s attack on the thrust of the French Socialist government’s policy caused a crisis on Monday when President Francois Hollande told Prime Minister Manuel Valls to form a new government. Lagarde told Swiss public broadcaster RTS: “What I think is very important for Germany is to participate in the recovery movement in a very intense way. It has the means to do so.”

Describing the European economic recovery as “labourious”, the head of the International Monetary Fund stressed that the continent’s economic powerhouse had “room for manoeuvre”, as seen in recent wage negotiations. “That leeway has been disclosed in the salary negotiations between the unions and the employers’ organisations,” she said, adding that “hopefully that movement will be amplified and will help propel the European recovery.” Last month, Bundesbank chief Jens Weidmann said that German wages had scope to rise by up to to three% because “we are practically in a situation of full employment”. But this runs counter to many on the German right, including Chancellor Angela Merkel, who believe that low-wage policy has given the country its competitive edge.

Read more …

A disgrace.

Over 50% Of Americans On Welfare Or Other Government Assistance (Mish)

As a result of Obamacare Medicaid expansion coupled with means-tested Obamacare assistance, I estimate welfare rolls expanded from 35.4% of the population in 2012 to about 40% in 2014. Let’s go through the math to see how I make that estimate. The latest welfare statistics are from year-end 2012. Those figures show 35.4%] 109,631,000 on Welfare.

109,631,000 living in households taking federal welfare benefits as of the end of 2012, according to the Census Bureau, equaled 35.4% of all 309,467,000 people living in the United States at that time.

When those receiving benefits from non-means-tested federal programs — such as Social Security, Medicare, unemployment and veterans benefits — were added to those taking welfare benefits, it turned out that 153,323,000 people were getting federal benefits of some type at the end of 2012. Subtract the 3,297,000 who were receiving veterans’ benefits from the total, and that leaves 150,026,000 people receiving non-veterans’ benefits. The 153,323,000 total benefit-takers at the end of 2012, said the Census Bureau, equaled 49.5% of the population. The 150,026,000 taking benefits other than veterans’ benefits equaled about 48.5% of the population. In 2012, according to the Census Bureau, there were 103,087,000 full-time year-round workers in the United States (including 16,606,000 full-time year-round government workers). Thus, the welfare-takers outnumbered full-time year-round workers by 6,544,000.

Read more …

Fewer Economists Believe US Policy On Right Track (CNBC)

The Federal Reserve’s monetary policy is headed in the right direction, but the U.S. also needs to enact structural policies in order to stimulate stronger economic growth, according to a new survey released Monday. The National Association for Business Economics’ economic policy survey found 53% believe U.S. monetary policy is on the right track, that’s down slightly compared with 57% in February 2014. And 39% felt that the current economic policy was too stimulative. When asked how policy makers should address deficit problems and their impact on gross domestic product, 36% of respondents said the U.S. should enact structural policies to spur stronger GDP. Last year, only 20% supported this approach. According to the survey, a majority of economists were less concerned about fiscal policy uncertainty in comparison to earlier polls. “While there is no clear consensus on current fiscal policy, the share expressing approval has increased markedly to 42% compared to just 31% one year ago,” says NABE president Jack Kleinhenz.

“Over this same period, the panel’s approval of Federal Reserve policy has edged downward.” The semiannual survey of 257 members was conducted between July 22 and August 4, around the same time as the Fed’s most recent policy meeting—which concluded on July 30. The Federal Open Market Committee intends to end its monthly asset purchases by October, but the plan hinges on whether the economy improves as it expects. However, the Fed will continue to reinvest principal payments of Treasury debt and agency mortgage-backed securities. Some 30% of panelists said the Fed should stop such reinvestment by the end of 2014, but only 7% expect it to do so by then. Over half of the respondents, 54%, said they expect the Fed to stop in 2015, while nearly a quarter, 23%, expect it to stop in 2016 or later. Similar to the results of the previous survey, nearly 70% consider the Fed’s quantitative easing a success.

Read more …

S&P broke 2000.

‘Groundbreaking’ Draghi Brings Cheer To Markets (CNBC)

European markets cheered dovish words by Mario Draghi at the start of the week, after the president of the European Central Bank (ECB) delivered a wide-ranging speech which many deemed to mark a key turning point in rhetoric. Draghi’s comments, at the Jackson Hole meeting of central bankers in Wyoming on Friday, raised expectations of further policy easing by the central bank. Hopes of further stimulus pushed stocks in Europe higher on Monday. The euro, meanwhile, stumbled to 1.3189 against the dollar – a level not seen since September 2013. German sovereign bond yields also eased lower amid expectations that the ECB could begin a major asset-buying program. “This could actually go down as one of the major speeches by Draghi, signaling another potential policy shift that is in the making,” Christoph Rieger, head of fixed-income strategy at Commerzbank, told CNBC on Monday morning. Taking the stage after U.S. Federal Reserve Chair Janet Yellen on Friday, Draghi’s words on weak inflation in the region were of particular interest to analysts.

Notably, the ECB President bulked out his speech and drifted away from pre-prepared comments. Draghi cited the risks of a further drop in euro zone inflation, which stood at just 0.4% in July, and said the bank would use all available instruments within its mandate to ensure price stability over the medium term. He also highlighted that market-based long-term inflation expectations had recently fallen. Philippe Gudin, an economist at Barclays, called Draghi’s speech a “major breakthrough”, and said his comments on inflation were a sign the bank could be readying additional easing measures in the near term, such as a quantitative easing (QE) program. “This speech represents a significant breakthrough in the ECB rhetoric and will probably have significant implications regarding the debate just about to start between European governments on policies that need to be deployed to avoid a ‘triple-dip recession’ and a fall in outright deflation,” he said in a research note on Sunday evening.

Read more …

There’s A Big Problem With The Dow (CNBC)

If you follow the Dow Jones industrial average, you may be wasting your time. And if you invested in the Dow instead of the S&P 500 this year, you’ve actually missed out on a lot of gains. Despite a 1% rally on Monday, the Dow is up just 1.6% since the start of 2014. Meanwhile, the S&P 500 has gained 6.7%. So what explains the discrepancy? “For at least the past decade, if not longer, [the Dow] really is too concentrated, too focused on large caps,” said Erin Gibbs, equity chief investment officer at S&P Capital IQ. “Inherently, [it] has some problems with it being representative of the overall market.” While the Dow is composed of just 30 stocks, the S&P 500 index is a market capitalization-weighted index of 500 companies. The funny thing is that both are among the 830,000 indexes administered by S&P Dow Jones Indices.

“The S&P 500 really just has a much more diverse and broad array of industries and sectors you can have exposure to,” said Gibbs. “So our preference is heavily the S&P 500, but mainly because of the valuations and the growth when you look at the two indexes.” According to Gibbs , the outperformance may continue. The S&P 500 is valued at roughly 15.6 times the next 12 months’ earnings, while the Dow is at 16.2 times its forward earnings. Ari Wald, head of technical analysis at Oppenheimer, agrees with Gibbs. “I don’t think the Dow is a great reflection of the market anymore,” Wald said. “It only covers 30 stocks. It also puts too much emphasis on the price rather than a market’s capitalization.”

Read more …

It’s not as if anyone else does.

Russia Plans to Send Second Aid Convoy to Eastern Ukraine (Bloomberg)

Russia plans to send a second convoy loaded with humanitarian aid to eastern Ukraine, Foreign Minister Sergei Lavrov said, days after the first delivery sparked international condemnation by crossing its neighbor’s border without authorization. The government in Moscow has informed Ukraine of plans to dispatch another column of trucks this week, with the convoy taking the same route through rebel-held territory as the lorries that returned to Russia two days ago, Lavrov told reporters in Moscow today. Lavrov said Russia hoped for no delays and called on the Red Cross and Ukraine to help with the delivery as the humanitarian situation continues to deteriorate in the war-torn regions.

Speaking a day before the leaders of Russia and Ukraine meet in the Belarus capital of Minsk, Lavrov said the talks between President Vladimir Putin and his Ukrainian counterpart Petro Poroshenko will focus on economic ties, the humanitarian crisis and the prospects for a political resolution in Ukraine. The armed conflict with pro-Russian rebels has shown no signs of abating since the insurrection started after Putin’s takeover of the Crimean peninsula in March. All of about 280 trucks that carried what Russia says is humanitarian aid have returned on Aug. 23, according to the Foreign Ministry in Moscow. The U.S. and the European Union condemned the decision to send the convoy, which the government in Kiev called an “invasion.”

Read more …

Russia Asks If US Still Fit To Help Solve International Problems (Zero Hedge)

Yesterday it was China slamming America’s superpower status (and thus dollar reserve currency status) when in Sina News it stated the following:

Their various reconnaissance aircraft have been wandering around foreign airspace for decades and watching the military secrets of other countries like a disgusting thief spying over his neighbor’s fence. However, when the neighbor comes back with a big stick, the thief will turn tail and run away, blaming the neighbor. [..] When you show people weakness, they will bully you. When you show people strength, they will respect you. [..] We [the newspaper] believe the Chinese Air Force and Naval aviation should maintain a high level of vigilence and morale in southeast coastal region to prevent the further US action. America has lost face and does not want to show the world they are sick. They have been lording over other countries for so long, and they will never let it go after they eat this loss.

Now it is Russia’s turn, whose Ministry of Foreign Affairs issued a statement on Friday, following the UN’s delay in adopting a statement calling for a ceasefire in Ukraine after the US once again opposed Russia, which claimed among other things that “if the US opposes an absolutely non-confrontational, reconciliatory text, there can be no doubts that Washington intends to have the armed confrontation in Ukraine continued. It could be seen only as an attempt to ‘undermine’ the humanitarian mission.” A mission which Russia greenlighted despite stern US opposition, and also concluded without incident as we reported yesterday, when the convoy returned to Russia after a brief stay in east Ukraine. Moscow believes that such policy is hypocritical, the ministry added. Of course, if indeed the Ukraine economic crisis is the direct result of US and CIA meddling as the Victoria Nuland intercepted recording validates, then Russia has every right to such an opinion. The punchline:

“Cynical disregard for the fate of civilians and ‘couldn’t care less’ attitude toward the international humanitarian law when it comes to geopolitical interests, becomes the core of the policy of the United States and its European satellites regarding Ukrainian,” the statement read. [..] “More and more questions are being raised about the ability of the current US administration to participate in the development of realistic and pragmatic approaches to international problems, to adequately assess the situation in the various regions of the world,” the Russia Foreign Ministry noted.

One wonders if based on his recent track record in the international arena, the president of the US wouldn’t agree.

Read more …

How wrong is he?

‘Russia Seems Only Party Still Interested In MH17 Investigation’ (RT)

Russian Foreign Minister Sergey Lavrov has announced plans for a second humanitarian convoy to be sent to eastern Ukraine, urging all foreign actors and agencies to participate. Failure to do so would constitute a violation of international law, he warned. “Anyone in need of aid shall receive it,” the FM said, stressing that it is important to learn from the mistakes of the first attempt and to look forward to closer cooperation with the Ukrainian authorities this time around. He stressed that as the indiscriminate shelling of areas such as Lugansk continues, the humanitarian need for water and food grows. This has been acknowledged by humanitarian agencies and itnernational actors at large. The distribution of aid is currently underway, and is headed by the ICRC. The FM also added that the shelling of schools, hospitals, kindergartens and other vulnerable institutions and structures can no longer be excused by claims of “wrongful shooting” or be written off as “accidental.”

Minister Lavrov emphasized that Russia is willing and ready to participate in full in any type of negotiations on ending hostilities in the east, and expressed hope that Tuesday’s meeting in Minsk will include a focus on the crisis in Ukraine. “We certainly expect that tomorrow’s meeting in Minsk will feature a discussion on the humanitarian crisis,” Lavrov said. “We express hope that all participants will urge for the removal of any obstacles to smooth aid delivery to those who are most in need of it,” he added. The upcoming gathering will be attended by the Customs Union, the Ukrainian authorities and members of the EU. Sergey Lavrov was asked a wide range of questions on the situations in Ukraine, including the claims that Russian arms were crossing the border. Allegations of Russian attempts to smuggle military equipment into Ukraine are false and are the latest in a string of bad information that has been circulating in recent days, the minister said. No one, including Ukraine’s special services, could confirm those suspicions.

Lavrov went on to stress that reports of Russian forces crossing into Ukraine have not been confirmed by the OSCE, which is evidenced in their report. He further mentioned OSCE concerns that indiscriminate arrests carried out by the militias are beginning to resemble a “witch hunt.” The people migrating into the west are not being taken in, nor are their children being given places in schools, he stressed. If this is the sort of national unity Klichko, Tyangibok and Yatsenyuk spoke of, they lied to their own people, he said, referring to national unity agenda promoted by the leaders of opposition to former president Viktor Yanukovich. The minister was dismayed at the ongoing investigation into the downing of flight MH17 over eastern Ukraine, which aroused much controversy and finger-pointing. He said that at this point it would appear that Russia “seems to be the only interested party in giving this serious issue any further attention.”

Read more …

War In East Ukraine Leaves Economy In Ashes. Who Will Pay For Recovery? (RT)

The turmoil in eastern Ukraine has devastated the economy, putting the International Monetary Fund (IMF) and other Western backers under pressure to save the sinking financial wreck. “If the conflict lingers for another few months in its current form the cost to the Ukrainian economy would be huge,” Vitaly Vavryshchuk, an analyst at Kiev-based SP Advisors, told the Financial Times. The MF has delayed Ukraine’s second $1.4 billion aid installment, and now Kiev is asking to combine the third and fourth tranche into a $2.2 billion package, according to Ukraine’s Finance Minister Oleksandr Shlapak. In order for the loans to be disbursed, the IMF has to confirm the multi-billion dollar debt restructuring plan is sustainable, which it may not be at present. Gabriel Sterne of Oxford Economics predicts that Ukraine’s GDP-to-debt ratio is on the rise, and by 2018 could hit 87%. “We think the Ukraine economy and the IMF program face such difficulties that a default is likely, possibly imminent,” Sterne wrote in an August report.

“It could take the form of a ’precautionary’ default in which debt falling due over the next three years is forcibly rolled over. If there is a full-blown Russian invasion then deeper haircuts may be required,” Sterne wrote. The IMF approved a two-year $17 billion loan package in April, and the first disbursement of $3.2 billion was delivered in May. If the IMF program falls apart, the country faces default, which would further discredit the lending institution after its failed efforts in Greece and other debt-ridden economies. Before, the IMF money was a sure thing; now many analysts predicted Ukraine could default by the end of the year. Another looming financial burden hanging over Kiev is the $3 billion in Eurobonds issued from Russia in December 2013. Moscow can demand repayment before the bonds are due in 2015 if Ukraine’s debt-to-GDP surpasses 60%, which at present, seems likely. [..]

Gaping holes in Ukraine’s state budget and foreign reserves, and instability in financial markets have brought havoc to Ukraine’s macroeconomic situation. Ukraine’s Economy Minister Pavel Sheremeta resigned on Thursday frustrated with the slow pace of economic reform. Sheremeta, who was appointed soon after the ousting of President Viktor Yanukovich in February, said on his Facebook page that he no longer wanted to “fight against yesterday’s system.” Fitch Ratings predicts the economy will contract by 5% in 2014, a pretty conservative estimate compared to other analysis, which predict a 6.5% drop (IMF) or even 8% (Oxford Economics). In 2013, GDP growth was zero.

Read more …

Sanctions? Not us.

Russian Oil Company Rosneft To Take 30% Stake In Norwegian Driller (RT)

Russia’s biggest oil company Rosneft has agreed to purchase a stake in Norway’s North Atlantic Drilling (NADL) through an asset swap, which appears to show businesses remain undeterred by political sanctions. Rosneft has agreed to take a 30% of North Atlantic in return for 150 onshore drilling assets in Russia, and some cash. The final terms of the deal, including the amount of investments in the Norwegian company, will be set after it passes due diligence, which is expected to be done by the end of the year, Rosneft said in a statement Friday. Rune Magnus Lundetrae, Chief Financial Officer of Seadrill, which owns 70% of North Atlantic, told Bloomberg Rosneft would also buy 100 million new shares at $9.25 apiece. The deal comes amidst sanctions tension between Russia and the West and shows that foreign businesses still want to cooperate with Russia, leaving politics aside. “We’re very pleased with the execution of this important transaction and welcome Rosneft as an equity partner and to our board of directors,” Alf Ragnar Lovdal, CEO of North Atlantic, said in a statement.

“We’re not very worried” that the sanctions will affect any part of these deals, Lundetrae told Bloomberg by phone. “Rosneft is a very good and constructive partner for us.” Friday’s deal marks the second step under a framework agreement signed in May. Last month, just days before the EU imposed tighter economic sanctions against Russia; the two companies completed the lease of offshore rigs. Under the July agreement, Rosneft and NADL will cooperate in shelf drilling, with the Norwegian company providing Rosneft with six sea drilling units till 2022 to conduct shelf drilling in harsh weather conditions. ExxonMobil and Norway’s Statoil have also confirmed they would continue offshore Arctic drilling with Rosneft, despite politicians in the EU and the US seeking to make Russia change its policy over Ukraine by putting on economic pressure. On Thursday, the Financial Times reported Vitol, the world’s largest independent oil trader, was shelving its $2 billion deal with Rosneft.

Read more …

Is China About To Step On Stimulus Pedal Again? (CNBC)

As China’s fragile economic recovery loses momentum, expectations are growing that Beijing will unleash fresh stimulus to ensure delivery on its growth target of 7.5%. The last month has seen a slew of disappointing economic data – from manufacturing to credit growth – raising concerns that the world’s second-largest economy may be headed into a renewed soft patch. HSBC’s preliminary reading of China’s manufacturing purchasing managers’ index (PMI) for the month of August dipped to 50.3 from July’s 18-month high of 51.7, missing forecasts for 51.5. Meanwhile, lending unexpectedly slowed in July. A broad measure of new credit stood at 273.1 billion yuan ($44.3 billion) the lowest monthly total since October 2008. Policymakers appear more nervous, particularly on the back of the weak credit growth, and will roll out more measures to bolster the economy, said Dariusz Kowalczyk, senior economist and strategist, Asia ex-Japan at Credit Agricole. He expects a re-acceleration of fiscal spending, expansion of the pledged supplementary lending program and a relaxation of the window guidance for bank lending.

Last Thursday, he raised his estimate on the likelihood of a system-wide reserve requirement ratio (RRR) cut in the second-half to 35% from 25%. In June, the People’s Bank of China cut the level of reserves banks must hold for certain banks that have sizable loans to the farming sector and small- and medium-sized firms. “July will prove to be a bump on the road rather than the beginning of a serious downturn. Perhaps second half will be more difficult than first half was, but China will still achieve its growth target of ‘about 7.5%’,” he said. So far this year, the government has implemented targeted measures to support growth including accelerating spending on railways and other infrastructure projects and lowering tax rates for smaller companies, refraining from big-bang stimulus. Jiang Chang, China economist at Barclays agrees more policy easing is unavoidable. “The government faces a trade-off between ‘tolerating lower growth’ and ‘rolling out more stimulus’ amid a property market correction and uncertain external demand,” Chang wrote in a note published on Thursday.

Read more …

One trick pony.

Western Australia State Stripped of Top Credit Rating by Moody’s (Bloomberg)

Western Australia was stripped of its top credit rating by Moody’s Investors Service as the state’s increasing reliance on resource royalties threatens efforts to repair its finances. Moody’s lowered the state’s ranking to Aa1 from Aaa and changed its outlook to stable from negative, according to a statement today. The government’s assumptions for mining royalties are based on a “fairly optimistic forecast” for iron ore prices, while the state faces spending pressures due to rapid population growth, the ratings company said. “Western Australia’s debt burden has risen sharply in recent years,” Moody’s said. “The state will be hard pressed to meet its very low spending growth targets, unless the government’s fiscal resolve strengthens and new measures are identified.”

The spot price of iron ore, the state’s largest export, has dropped 33% since Dec. 31 to $90.10 a ton, according to The Steel Index. While Western Australia has based its spending plans on the price averaging $122.70 a ton this fiscal year, analysts surveyed by Bloomberg predict the steelmaking material will hold closer to current levels through 2018. The downgrade by Moody’s follows Standard & Poor’s decision to remove its top credit grade last September. The state’s operating surplus for the current period was forecast at just A$175 million ($163 million) and the iron-ore plunge means inflows could be trailing estimates, according to revenue sensitivities provided in the state’s May budget. The government’s plans to address its fiscal problems “are positive steps but are not expected to lead to significant improvements in the near term,” Moody’s said. “Minimal improvement is expected in the financial performance in” the current financial year.

Read more …

Oh, great!

Microplastic Contaminates Found In Sydney Harbor Threat To Food Chain (ABC)

The bottom of Sydney Harbour has been contaminated by widespread microplastic pollution which could be entering the food chain, scientists say. Professor Emma Johnston from the Sydney Institute of Marine Science said the microplastics, or fragments of plastic less than five millimetres long, represented the “emergence of new contaminants in our harbours and waterways”. In the first study of its kind, 27 sites were tested across the harbour, with researchers discovering up to 60 microplastics per 100 milligrams of sediment. The environmental effects of the contaminants are largely unknown, but there have been moves to ban their use in products overseas. Professor Johnston said some of the microplastic contamination was coming directly into the harbour. “For example when we wash our fleecy jackets in the washing machine, lots of particles of microplastics, thin threads, come off and enter our waterways,” she said. “But there are also microplastics from facial scrubs and there are breakdown products from macro debris, like plastic bags or plastic bottles.”

A PhD candidate at the University of New South Wales, Vivian Sim, said several hotspots were identified and the worst-affected area was in the pristine-looking waters of Middle Harbour. “Something interesting is going on here, but we’re not sure what,” she said. In Middle Harbour, microplastic threads were more common than flakes or balls, but it was unclear where they came from. “We should be worried about it,” Ms Sim said. “We actually managed to pull up a sipunculid worm today. “It’s got sand going through all of it, so you can see that it’s ingesting it. “So if your microplastic fragments are as small as a sand grain, then [the worm] is going to take up the plastics and contaminants, and then if something else comes along and eats that worm it’s going to go further up the food chain.” It was not clear what impact microplastics were having on the organisms that were eating them, but Professor Johnston said some contained materials such as flame retardants.

Read more …

Lots of areas where it’s hard to keep track of what goes on. And densely populated.

British Ebola Victim Flown Home As Epidemic Spreads To Congo (Reuters)

A British medical worker was flown home from West Africa on Sunday after becoming the first Briton infected in an Ebola epidemic, and a separate new outbreak of the disease was detected in Democratic Republic of Congo. A specially adapted Royal Air Force cargo plane picked up the male healthcare worker in Sierra Leone on Sunday after British Foreign Secretary Philip Hammond authorized his repatriation for treatment. The Department of Health said the patient – whose identity has not been disclosed – was “not currently seriously unwell”. The man will be transported to an isolation unit at the Royal Free Hospital in London.

The hemorrhagic fever has killed at least 1,427 people, mostly in Sierra Leone, Liberia and neighboring Guinea, the deadliest outbreak of the disease to date. The disease also has a toehold in Nigeria, where it has killed five people. In Democratic Republic of Congo, Health Minister Felix Kabange Numbi said an Ebola outbreak had been confirmed in the remote northern Equateur province – 1,200 km (750 miles) from the capital Kinshasa – but it was a different strain of the virus from the West African one. There have been six outbreaks of Ebola in Democratic Republic of Congo since the disease was discovered there in 1976, with a total of more than 760 deaths. The World Health Organization (WHO) has said that more than 225 health workers have fallen ill and nearly 130 have lost their lives to Ebola since the West African outbreak was detected in the jungles of southeast Guinea in March.

Read more …

Sierra Leone ‘Hero’ Doctor’s Death Exposes Slow Ebola Response (Reuters)

When two American aid workers recovered from Ebola after being treated with an experimental drug, the grieving family of Sierra Leone’s most famous doctor wondered why he had been denied the same treatment before he died from the deadly virus. Sheik Umar Khan was a hero in his small West African country for leading the fight against the worst ever outbreak of the highly contagious hemorrhagic fever, which has killed 1,427 people mostly in Sierra Leone, Liberia and Guinea. When Khan fell sick in late July, he was rushed to a treatment unit run by Medecins Sans Frontieres (MSF) where doctors debated whether to give him ZMapp, a drug tested on laboratory animals but never before used on humans. Staff agonised over the ethics of favouring one individual over hundreds of others and the risk of a popular backlash if the untried treatment was perceived as killing a national hero. In the end, they decided against using ZMapp. Khan died on 29 July, plunging his country into mourning.

A few days later, the California-manufactured pharmaceutical was administered to US aid workers Kent Brantly and Nancy Writebol who contracted Ebola in Liberia and were flown home for treatment. It is not clear what role ZMapp played in their recovery but the two left hospital in Atlanta last week. Khan is among nearly 100 African healthcare workers to have paid the ultimate price for fighting Ebola, as the region’s medical systems have been overwhelmed by an epidemic which many say could have been contained if the world had acted quicker. In their village of Mahera, in northern Sierra Leone, Khan’s elderly parents and siblings asked why he did not get the treatment. Khan saved hundreds of lives during a decade battling Lassa fever – a disease similar to Ebola – at his clinic in Kenema and was Sierra Leone’s only expert on haemorrhagic fever. “If it was good enough for Americans, it should have been good enough for my brother,” said C-Ray, his elder brother, as he sat on the porch of the family home. “It’s not logical that it wasn’t used. He had nothing to lose if it hadn’t worked.”

Read more …

Cascading dominoes.

500 Methane Vents Detected On Ocean Floor Off US East Coast (BBC)

Researchers say they have found more than 500 bubbling methane vents on the seafloor off the US east coast. The unexpected discovery indicates there are large volumes of the gas contained in a type of sludgy ice called methane hydrate. There are concerns that these new seeps could be making a hitherto unnoticed contribution to global warming. The scientists say there could be about 30,000 of these hidden methane vents worldwide. Previous surveys along the Atlantic seaboard have shown only three seep areas beyond the edge of the US continental shelf. The team behind the new findings studied what is termed the continental margin, the region of the ocean floor that stands between the coast and the deep ocean. In an area between North Carolina and Massachusetts, they have now found at least 570 seeps at varying depths between 50m and 1,700m.

Their findings came as a bit of a surprise. “It is the first time we have seen this level of seepage outside the Arctic that is not associated with features like oil or gas reservoirs or active tectonic margins,” said Prof Adam Skarke from Mississippi State University, who led the study. The scientists have observed streams of bubbles but they have not yet sampled the gas within them. However, they believe there is an abundance of circumstantial evidence pointing to methane. Most of the seeping vents were located around 500m down, which is just the right temperature and pressure to create a sludgy confection of ice and gas called methane hydrate, or clathrate. The scientists say that the warming of ocean temperatures might be causing these hydrates to send bubbles of gas drifting through the water column. They do not appear to be reaching the surface. “The methane is dissolving into the ocean at depths of hundreds of metres and being oxidised to CO2,” said Prof Skarke.

Read more …

Flaring, though it’s not mentioned in the article, is a very polluting “acitivity”.

Inside North Dakota’s Latest Fracking Problem (CNBC)

From his driveway, Tom Wheeler’s view of North Dakota’s sprawling grasslands seems endless. Fields of soy, wheat and canola stretch to the horizon in all directions. But as drillers flock to the state to cash in on North Dakota’s booming shale play, that horizon has become increasingly marked by natural gas flares. Wheeler, 59, owns 3,000 acres of farmland in Ray, the heart of the state’s oil-rich Bakken Basin, one of the world’s largest shale formations. Shale gas is natural gas, which is found trapped within shale formations. Still farming the land his grandfather homesteaded in 1902, Wheeler can give a first-hand account of the oil industry’s boom and bust cycles in North Dakota, sometimes known as the “Roughrider State.” During the area’s last boom in the ’70s, Wheeler spent his winters working on an oil rig. And while he knows just how much an energy surge can change a community, he’s never experienced one that’s transformed the landscape quite like the recent boom. “In the ’70s we had so many dry holes that you never noticed the flares,” Wheeler said.

“But now every well is productive—and the flares are everywhere.” In the Bakken, flaring has become synonymous with drilling. The prairies—once dotted only with cattle and an occasional lazy oil derrick—are now marked by thousands of flares, open pits or steel pipes burning off excess natural gas, a byproduct of the rapid rise in oil drilling. New wells are coming online so quickly that the pipeline infrastructure for natural gas has not been able to keep pace. Hydraulic fracturing, or fracking, forces natural gas and crude oil out of shale buried deep below the earth by using highly pressurized and treated water. Drillers seek out valuable crude oil, but natural gas comes out of the ground, too. Flaring is the burning of natural gas that can’t be processed or sold.All those flares, meanwhile, are adding up. They burn so brightly that NASA astronauts have taken pictures of their glow from space. Many oil drillers are unable to direct the flow of natural gas coming off wells into existing pipelines, which already are at full capacity.

Now regulators are cracking down. North Dakota passed new flaring standards, with the goal of capturing more natural gas. Energy companies are scrambling to meet the rules and curb flaring—some with creative technologies. In Ray, Hess has a gas compression station bordering Wheeler’s property. Natural gas is pumped from several surrounding oil wells, before being transported to a larger processing facility in Tioga. A four-burner flare sounds like a jet engine, and the 20-foot flame, sitting atop the 30-foot torch, can be seen for miles. “It’s not just a waste to the landowner or the tax collector, it’s a waste of the land’s natural product,” Wheeler said. “When I was growing up, we were taught not to waste anything.” Every day, drillers in the Bakken burn off about 350 million cubic feet of natural gas. That comes to more than $100 million worth of gas burned off each month – a figure that makes the state’s mineral rights holders’ unhappy. There are at least 12 class-action law suits filed against the drillers by mineral rights holders seeking lost revenue.

Read more …