Feb 012019
 


Vincent van Gogh Outskirts of Paris: Road with Peasant Shouldering a Spade 1887

 

Death Of 95% Of Indigenous People In Colonization Of America Cooled Earth (RT)
Who Bought the Gigantic $1.5 Trillion of New 2018 US Government Debt? (WS)
Central Bank Gold Buying Hits Highest Level In Half A Century (CNBC)
Refusal To Return Venezuelan Gold Means End Of Britain As Financial Center (RT)
Brexit Could Be Delayed Because Government Is Not Ready (Ind.)
What Corbyn Must Do To Rescue Britain From Its Brexit Torture (Varoufakis)
UK Homeless Crisis Is Worse Than Ever (Ind.)
US Home Sales to Get Even Uglier in Near Future (WS)
US New Home Prices Drop 12% as Supply Surges (WS)
Trump Says Border-Wall Talks ‘A Waste Of Money And Time’ (MW)
With World Bank and IMF In Crisis, Time To Push Radical New Vision (DiEM25)
Apple Punishes Facebook, Google Over App Rules (BBC)
Greece Raises Minimum Wage By 11% (K.)
25% of Greeks Cannot Afford To Heat Their Homes (K.)

 

 

The Great Dying of the Indigenous Peoples of the Americas. 95% of them, 56 million, had died by 1600. But who knows this? The history we’ve been told about is white man’s history, almost exclusively. In his lovely books 1491 and 1493, Charles Mann describes this from a different view. First, he says as many people lived in North America as in Europe when Columbus came 500 years ago. Second, the image of roaming herds of buffalo was not accurate then: there was no place for them, the land was farmed. Only after the people had died did the buffalo take over and multiply.

Death Of 95% Of Indigenous People In Colonization Of America Cooled Earth (RT)

European colonization of the Americas contributed to the advent of the 17th century ‘Little Ice Age,’ a new study says. As some 55 million indigenous people were wiped out, their farmland turned into forest and sucked out CO2. Much of the continental US may feel like it is living through a ‘mini ice age’ due to the polar vortex weather pattern. But while this will come and go, there was a proper global drop in temperatures about four centuries ago, which is commonly called the ‘Little Ice Age.’ A team of scientists from University College London says that humans were partially to blame for it – particularly Europeans traveling to the New World for treasure and new life. While there were some natural reasons behind the oddball phenomenon, much of it remains veiled in mystery.

The British researchers argue that they have found a missing link – the “Great Dying” of indigenous people as result of the European conquest. The scientists found that some 56 million hectares of land were abandoned by the native population of the Americas as they fled or died due to epidemics, war, slavery and subsequent famine. Those lands were reclaimed by forests that, in turn, absorbed so much carbon dioxide that the process cooled Earth. “The resulting terrestrial carbon uptake had a detectable impact on both atmospheric CO2 and global surface air temperatures in the two centuries prior to the Industrial Revolution,” according to the study, published in the Quaternary Science Reviews.

Using a combination of counting methods, the researchers found that prior to the arrival of Europeans in 1492, the Americans were inhabited by some 60.5 million people. About 95 percent of them, or 56 million, had died by 1600. Some 55.8 million hectares (138.3 million acres) of what was previously farmland was reclaimed by the forests and led to a 7.4 pentagram carbon uptake, according to the paper. One pentagram (Pg) of carbon is equivalent to a billion metric tons. “These changes show that the Great Dying of the Indigenous Peoples of the Americas is necessary for a parsimonious explanation of the anomalous decrease in atmospheric CO2,” the paper notes.

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Treasuries stay at home. Foreigners no longer want them. Japan, China, Russia are all selling.

Who Bought the Gigantic $1.5 Trillion of New 2018 US Government Debt? (WS)

Under the impact of a stupendous spending binge peppered with juicy tax cuts, the Treasury Department has had to issue a flood of Treasury securities to fund the cash outflow. So, over the past 12 months, the US gross national debt has ballooned by $1.5 trillion to $22 trillion as of January 30, according to Treasury Department data. And these are the good times when the economy is hopping. At the next recession, this is going to get cute. But who the heck is buying all this debt? That question will grow increasingly important and worrisome as we move forward with this gigantic ballooning debt, fueled by deficits that Fed chairman Jerome Powell calls “unsustainable” at every chance he gets:

So, who bought all this debt? US government debt, as expensive as it is in terms of interest payments for US taxpayers, is a mildly income-producing asset for the creditors of the US. Somebody has to buy it, every last dollar of it. The US relies on it. So, who bought this pile of debt that got issued in 12 months? China, Japan, other foreign investors? Nope. They’re gradually unloading this debt. All foreign investors combined slashed their holdings of marketable Treasury securities in November by $105 billion from November a year earlier, to $6.2 trillion, according to the Treasury Department’s TIC data released today.

The Treasury Department divides these foreign investors into two categories: “Foreign official” holders (foreign central banks and government entities) cut their holdings by $144 billion over the 12 months, to $3.9 trillion at the end of November. But private-sector investors (foreign hedge funds, banks, individuals, etc.) increased their holdings by $52 billion, to $2.3 trillion. The two largest foreign creditors of the US — China and Japan — have both been unloading their Treasury securities: • China’s holdings fell by $55 billion from a year earlier to $1.12 trillion. • Japan’s holdings fell by $47 billion from a year earlier to $1.04 trillion, having now reduced its stash by 16% since the peak at the end of 2014 ($1.24 trillion).

[..] American banks (very large holders), hedge funds, pension funds, mutual funds, and other institutions along with individual investors in their brokerage accounts or at their accounts with the US Treasury were huge net buyers, while nearly everyone else was selling, increasing their holdings by $1.36 trillion over the 12-month period. These American entities combined owned the remainder of the US gross national debt, $7.5 trillion, or 34.4% of the total!

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It’s mostly Russia really: The Russian central bank sold almost all of its U.S. Treasury stock to buy 274.3 tons of gold in 2018.

Central Bank Gold Buying Hits Highest Level In Half A Century (CNBC)

The amount of gold bought by central banks in 2018 reached the second highest annual total on record, according to the World Gold Council (WGC). Central banks bought the most gold by volume since 1967, according to the industry research firm, which also highlighted it was the largest amount since former U.S. President Nixon Richard’s decision to end the dollar’s peg to bullion in 1971. Central bank net purchases reached 651.5 metric tons in 2018, 74 percent higher than in the previous year when 375 tons were bought. The WGC has estimated that central banks now hold nearly 34,000 tons of gold. The Federal Reserve is reported to hold the most, amounting for almost three quarters of the nation’s foreign-exchange reserve pot.

Taking the current spot price of $1,321.15 per troy ounce, gold purchases by central banks in 2018 amounted to a $27.7 billion spending splurge on the precious metal. “Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets,” said the report released on Thursday. The WGC said the bulk of the buying was carried out by a handful of central banks with Russia leading the way as it looks to swap out dollars from its portfolio. The Russian central bank sold almost all of its U.S. Treasury stock to buy 274.3 tons of gold in 2018.

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Every country should hold its own gold. What’s the problem with that?

Refusal To Return Venezuelan Gold Means End Of Britain As Financial Center (RT)

The freezing of Venezuelan gold by the Bank of England is a signal to all countries out of step with US interests to withdraw their money, according to economist and co-founder of Democracy at Work, Professor Richard Wolff.
He told RT America that Britain and its central bank have shown themselves to be “under the thumb of the United States.” “That is a signal to every country that has or may have difficulties with the US, [that they had] better get their money out of England and out of London because it’s not the safe place as it once was,” he said. The Bank of England is currently withholding $1.2 billion in gold from Venezuelan President Nicolas Maduro’s government, but is being urged by Washington to release it to the chairman of the National Assembly, Juan Guaido.

Last week, the US backed Guaido as the legitimate president of Venezuela, after he declared himself interim president. According to Professor Wolff, control of Venezuela’s oil has always been an urgent issue for Washington. He also said that the collapse of Britain as a global power, which was accelerated by Brexit, is now about to take another step. “One of the few things left for Britain is to be the financial center that London has been for so long. And one of the ways you stay a financial center is if you don’t play games with other people’s money,” he said.

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Pretty much a given now.

Brexit Could Be Delayed Because Government Is Not Ready (Ind.)

Jeremy Hunt has said Brexit could be delayed as the government may need “extra time” to pass key legislation if Theresa May can agree a deal at the eleventh hour. The foreign secretary admitted that a technical delay to the Article 50 process could be necessary to prepare for Britain’s exit from the EU, which is legally due to take place on 29 March. MPs ordered the prime minister to go back to Brussels to renegotiate a key part of her Brexit deal after her plan was resoundingly defeated in the Commons earlier this month. But despite the Tory truce, Ms May faces an uphill battle to convince the EU to reopen talks on the withdrawal agreement, with European leaders lining up to rebuff her efforts.

Asked about Britain’s exit date, Mr Hunt told the Today programme: “I think that depends on how long this process takes. “I think it is true that if we ended up approving a deal in the days before 29 March then we might need some extra time to pass critical legislation. But if we are able to make progress sooner, then that might not be necessary. “We can’t know at this stage exactly which of those scenarios would happen.” There is growing concern among ministers that there is not enough time to pass the necessary legislation before exit day, amid reports that the February recess could be cancelled to give Ms May more time to win over the EU.

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Ironically, Varoufakis points out exactly why Corbyn is too late (all he’s done is wait):

“Irresolute princes, to avoid present dangers, generally follow the neutral path, and are generally ruined” – Niccolò Machiavelli, The Prince

What Corbyn Must Do To Rescue Britain From Its Brexit Torture (Varoufakis)

Britain’s prime minister has been remarkable in resolutely following a ruinous path that she keeps insisting remains the least perilous road to Brexit. Theresa May’s first crime against logic was to trigger Article 50 without a plan of what to do on 29 March 2019 if no deal had been struck with Brussels. Her second was to forfeit any bargaining power she had by accepting Michel Barnier’s two-phase negotiation (first London delivers all that Brussels demands, then Brussels considers what London wants). May’s two colossal errors combined to allow a gloating European Commission to dictate to her a withdrawal agreement that, independently of whether one is pro-Leave or pro-Remain, resembles the kind of treaty imposed upon a nation defeated at war.

Unsurprisingly, Brexit has turned into a process tearing Britain apart while revealing its constitutional inadequacies. The next few weeks are depressingly predictable. The prime minister will continue to run down the clock putting all the pressure on Remainers, both Tory and Labour, to avert a no-deal Brexit by accepting hers. That was the point of backing the Brady amendment on Tuesday: to take Brexit revocation off the table, gain two weeks during which to pretend to negotiate with a European Commission that does not have the mandate to negotiate and then take a version of the same withdrawal agreement, possibly with some pointless addenda, to parliament. If her blackmail fails again, she will apply for an extension of Article 50 until 1 July to start the same war of attrition anew.

It is imperative that May is prevented from following this path. Those who can stop her and fail to do so will not be forgiven by at least one generation of Britons. Which brings me to my friend and comrade Jeremy Corbyn and his team. Labour’s leadership understands that, with weeks to go before the cliff’s edge, Niccolò Machiavelli’s counsel applies just as much to them too. “Irresolute princes, to avoid present dangers, generally follow the neutral path, and are generally ruined” – Niccolò Machiavelli, The Prince

Until now it was right and proper for Labour to avoid distracting a Tory government while it was making a mess of things. Jeremy Corbyn’s critics were wrong to chastise him for delaying to call a vote of no confidence or for not backing a second referendum. Labour just did not have the numbers to win such votes. However, the time has come for Jeremy Corbyn to give a speech of hope for Britain, one that contains a clear vision of a country that heals itself after two years of wanton destruction by a short-sighted, clueless prime minister thinking solely of the unity of her divided government and party.

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Why Brexit?!

UK Homeless Crisis Is Worse Than Ever (Ind.)

Housing charities have criticised government claims of falling numbers of rough sleepers as homeless shelters across Britain report unprecedented demand. Communities secretary James Brokenshire said his department’s strategy was “starting to have an effect” as official figures showed that, on a “snapshot night in autumn”, the number of people sleeping on the street had dropped to 4,677 from 4,751 the year before. But Jon Sparkes, the chief executive of charity Crisis, said the count was widely believed to be an “unreliable” source which “significantly underestimated” the number of people experiencing the devastation of sleeping rough.

Shelters in England, Wales and Scotland contacted by The Independent all reported record levels of demand as temperatures in parts of the country dropped as low as -14C. On the snapshot count, Mr Sparkes said: “The problem is, these counts and estimates inevitably miss a significant number of people, including those not rough sleeping on that particular night, those hidden from view and who aren’t bedded down for the night.” Figures published by his organisation in December revealed levels of rough sleeping in the UK – including sleeping on public transport and in tents – had doubled in five years, rising by 20 per cent to 24,000 in just 12 months.

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Lawrence Yun still has a job. Amazing.

US Home Sales to Get Even Uglier in Near Future (WS)

What will home sales look like in January and February? Very, very lousy, according to pending home sales, a measure that counts how many contracts were signed. Contract signings run roughly one or two months ahead of when the sales close and are reported as sales. The measure of pending home sales for December projects actual home sales in January and February. To that tune, the National Association of Realtors (NAR) said that its Pending Home Sales Index for December fell to the lowest level since April 2014. “It’s been dripping down, down, down,” NAR chief economist Lawrence Yun said in the interview.

“Frustrating that the housing market is not recovering.” Compared to December a year earlier, contract signings dropped 9.8%, the 12th month in a row of year-over-year declines, and the worst year-over-year decline since the days of housing and mortgage crisis. To show the acceleration of the declines of contract signings toward the end of the year, I marked October, November, and December in red. The NAR’s report blamed the stock market swoon that had sapped consumer confidence, unaffordable home prices – that, after years of price gains had far outgrown wage gains – and mortgage rates. The latter is an interesting theory because mortgage rates, after a peak in early November, were falling starting in mid-November and fell throughout December.

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Let’s see the Fed tackle this one.

US New Home Prices Drop 12% as Supply Surges (WS)

The Commerce Department has reopened for business, and the good folks there are now in hyperdrive to put together and release the data that was blocked during the partial government shutdown that had also shut down the Commerce Department. This morning, it released the sales data for new homes whose sales closed in November. This report had originally been scheduled for the end of December. In the near future, the Commerce Department will further catch up and release the new-home sales data for December, which had been scheduled for last week. So, time to catch up, and here we go. The median prices of new single-family houses that sold across the US in November 2018 fell 11.9% from November 2017 to $302,400, the lowest median price since October 2016, and in the same range as the median price in November and December 2014:

This new-home sales data – produced jointly by the Census Bureau and the Department of Housing and Urban Development – is very volatile, and subject to revisions in the following months. But after a while, and despite the jumpiness of the data, as the above chart shows, the trend becomes clear. The year-over-year decline of 11.9% was the third months in a row of year-over-year declines, and the largest year-over-year decline since Housing Bust 1. Note the many double-digit year-over-year price increases in prior years, which attest to the boom in prices that has now outrun what the market can bear:

Just how far prices have ballooned before they began to deflate becomes apparent in this long-term chart of the median price of new houses. At the price peak in December 2017 ($343,300), the median price was 31% above the crazy bubble peak in March 2007, before it all blew apart:

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Pelosi will have to come with something. Does she understand this?

Trump Says Border-Wall Talks ‘A Waste Of Money And Time’ (MW)

Negotiations with Congress are a waste of time if Democrats won’t discuss border-wall funding, President Donald Trump said Thursday, vowing to build a wall with or without congressional approval. In a wide-ranging Oval Office interview published Thursday night by the New York Times, Trump also said he’s done playing nice with House Speaker Nancy Pelosi, expressed optimism over reaching a trade deal with China and issued numerous denials related to special counsel Robert Mueller’s investigation. Pelosi has adamantly opposed any funding to build a wall along America’s southern border, and the specter of another government shutdown looms in two weeks, when a temporary funding deal expires.

“If she doesn’t approve the wall, the rest of it’s just a waste of money and time and energy.” A 17-member panel of lawmakers has been tasked with reaching a border-funding compromise. Trump suggested in the interview that an emergency order could be issued if Congress won’t allocate the $5.7 billion that he’s demanded for the wall. “I’ll continue to build the wall, and we’ll get the wall finished,” he told the Times. “Now whether or not I declare a national emergency — that you’ll see.” About Pelosi, Trump said: “I’ve actually always gotten along with her, but now I don’t think I will any more. . . . I think she’s doing a tremendous disservice to the country.”

When asked about a number of other subjects, Trump said he ”never did” speak to Roger Stone about WikiLeaks during his campaign; denied he was tampering with witnesses through his tweets; and said testimony by his intelligence chiefs earlier this week was mischaracterized by the media, despite the fact that video of the hearing was shown, along with a 42-page written transcript. He also called being president a “loser” job, financially. “I lost massive amounts of money doing this job,” he said. “This is not the money. This is one of the great losers of all time. You know, fortunately, I don’t need money.”

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Varoufakis and David Adler. Personally, when someone says we need $8 trillion a year for a Green New Deal, I think: forget it. People think in terms of keeping present energy use levels alive, just switching to different sources. But the No. 1 issue should be to use less energy.

With World Bank and IMF In Crisis, Time To Push Radical New Vision (DiEM25)

“Prosperity, like peace, is indivisible,” said the US treasury secretary, Henry Morgenthau, in his inaugural speech to the Bretton Woods conference, which gave birth to the World Bank (then the International Bank for Reconstruction and Development) and to the IMF. “We cannot afford to have it scattered here or there among the fortunate or enjoy it at the expense of others.” The original Bretton Woods plan was for exchange rates to be fixed, with the IMF helping heavily indebted countries restructure their debt and a stabilization fund curbing capital flight. Meanwhile, the World Bank would offer development finance and an international commodity stabilization corporation would “bring about the orderly marketing of staple commodities at prices fair to the producer and consumer alike”.

Finally, the whole system would be dollar-denominated, with the greenback being the only currency exchangeable for gold at a fixed rate. John Maynard Keynes, the chief British negotiator at Bretton Woods, was worried that the new system could only rely on the dollar as long as America had a trade surplus. The moment the United States became a deficit country, the system would collapse. So, Keynes suggested that instead of building the new world order on the dollar, all major economies would subscribe to a multilateral International Clearing Union (ICU). While keeping their own currencies, and central banks, countries would agree to denominate all international payments in a common accounting unit, which Keynes named the bancor, and to clear all international payments through the ICU.

Once set up, the ICU would tax persistent surpluses and deficits symmetrically so as to balance out capital flows, volatility, global aggregate demand and productivity. Had it been instituted, the ICU would have worked alongside the World Bank to keep the global economy in balance and build shared prosperity worldwide. But Keynes’s ICU was rejected. The United States was unwilling to replace the dollar as the anchor of the new monetary system. And so the IMF was downgraded to a bailout fund, the World Bank was limited to lending from its own reserves (contributed by stressed member states) and, crucially, any possibility of the IMF leveraging the World Bank’s investments (like a central bank might have done) was jettisoned.

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They got young people ‘volunteering’ to be spied upon to an even higher degree than they already were.

Apple Punishes Facebook, Google Over App Rules (BBC)

Apple revoked Google’s ability to offer its employees internal-only iPhone apps, likely causing significant disruption to the search giant. Apple was punishing its rival for breaking its developers’ policy, a day after it took the same action against Facebook. The move came after both firms used special access for market research. Apple restored Google’s access to the software by the end of the working day on Thursday. After more than 24 hours of disruption, Facebook had its access restored earlier on Thursday. “We are in the process of getting our internal apps up and running” a spokeswoman told the BBC. “To be clear, this didn’t have an impact on our consumer-facing services.”

Apple allows companies the ability to exert special control over employee devices in order to add additional security and control. Many firms use this to distribute apps that might contain private information to employees but not the wider public. Some firms also distribute test or beta versions of apps the firm is working on such as, in Google’s case, Maps, Hangouts and Gmail. Both firms use internal iOS apps to help employees access services such as travel. However, Apple explicitly prohibits firms from using this access on regular consumers. On Monday it was revealed that Facebook had used its enterprise access to distribute a market research app to the public, including teenagers. On Tuesday it became known that Google was doing something similar with its own app, Screenwise.

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The Troika is not happy.

Greece Raises Minimum Wage By 11% (K.)

An 11 percent increase in Greece’s minimum wage and the abolition of the so-called subminimum wage paid to young employees which were announced by Prime Minister Alexis Tsipras during a cabinet meeting early this week came into effect on Friday. “Today, a new era begins for the country’s young employees. An era with more rights, more dignity,” Labor Minister Effie Achtsioglou told state-run news agency ANA-MPA. “With the increase in the minimum wage and the abolition of the sub-minimum wage, we restore part of what austerity policies deprived employees of. And this is an act of justice.” The hike, the first such wage change in the country in almost a decade, raises the minimum wage from €586 to €650. The measure, however, has generated concern on the part of Greece’s creditors during their recent visit to the country to assess its post-bailout compliance.

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Why those minimum wage were raised. Imagine if Greece were further north.

25% of Greeks Cannot Afford To Heat Their Homes (K.)

Almost one in four Greeks cannot afford to heat their home sufficiently, according to Eurostat data collected as part of the annual EU survey on income and living conditions in the bloc. Based on the report, 25.7 percent of Greeks said they were not able to keep their home adequately warm due to their economic condition. Greeks buy heating oil at an average price of 1,025 euros per liter when the average price for the whole of the European Union is 0.794 euros per litre and 0.781 euros in the eurozone. The largest share of people who shared the same view was recorded in Bulgaria (37 pct), followed by Lithuania (29 pct), Greece, Cyprus (23 pct) and Portugal (20 pct).

In contrast, the lowest shares – close to 2 percent – were recorded in Luxembourg, Finland, Sweden, the Netherlands and Austria. In 2017, eight percent of the EU population said in an EU-wide survey that they could not afford to heat their home sufficiently. This share peaked in 2012 with 11 percent, and has fallen continuously in subsequent years.

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Jan 232019
 
 January 23, 2019  Posted by at 9:45 am Finance Tagged with: , , , , , , , , , , , , ,  


Pablo Picasso The classical head 1922

 

 

David Attenborough And Prince William Urge World Leaders On Environment (G.)
The Super Rich At Davos Are Scared Of Ocasio-Cortez’s Tax Proposal (CNBC)
EU Fossil Fuel Subsidies Still At The Same Level As 2008 (G.)
Shutdown Reveals Most Americans Are Unprepared For The Next Recession (MW)
Unusually Large Drop In US Home Sales Has Real Estate Agents Baffled (CNBC)
Moonwalking with Theresa May: Unboxing Brexit ‘Plan C’ (George Galloway)
Companies Press Brexit Panic Button In Further Blow To Theresa May (G.)
Britain ‘Could Triple State Aid For Industry Under EU Rules’ (G.)
France And Germany Take Major Step Toward EU Army (ZH)
Trump Won’t Soften Hardline On China To Make Trade Deal (R.)
Chinese App ‘Live-Shames’ Debtors Within 500-Meter Radius (ZH)
‘Never Good News Having Particles in Your Brain’ (Spiegel)

 

 

This curious spectacle of the rich and famous pretending to tackle a crisis. As I was filing this article, Bloomberg ran a headline for a live event that went: “Bono and Christine Lagarde Discuss How to Address Income Inequality”

David Attenborough And Prince William Warn World Leaders On Environment (G.)

Sir David Attenborough has warned that humankind has the power to exterminate whole ecosystems “without even noticing”, and urged world leaders to treat the natural world with respect, during an interview with Prince William in Davos. Prince William also took world leaders to task at the World Economic Forum in Switzerland, asking Attenborough why those in key positions have “taken so long” to address climate change. Attenborough said the connection between the natural world and urban societies had been “remote and widening” since the industrial revolution, meaning humans do not realise the effect their actions have on the global ecosystem. The 92-year-old broadcaster added that it was “difficult to overstate” the urgency of the environmental crisis.

“We’re now so numerous, so powerful, so all-pervasive, the mechanisms we have for destruction are so wholesale and so frightening, that we can actually exterminate whole ecosystems without even noticing it. We have to now be really aware of the dangers of what we’re doing, and we already know that of course the plastic problem in the seas is wreaking appalling damage upon marine life, the extent of which we don’t yet fully know.” He stressed that the natural world “is not just a matter of beauty, interest and wonder” but a coherent ecosystem on which we depend for “every breath we take, every mouthful of food we take.” A healthy planet, Attenborough added, is an essential part of human life. “If we don’t recognise the kind of connections I’ve been describing, then the whole planet comes in hazard, and we are destroying the natural world and with it ourselves.”

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Catchy headline, but… She’ll be whistled back any time now. Can’t steal Kamala’s, or Warren’s, or Bernie’s headlights.

“I do think a system that allows billionaires to exist when there are parts of Alabama where people are still getting ringworm because they don’t have access to public health is wrong..”

The Super Rich At Davos Are Scared Of Ocasio-Cortez’s Tax Proposal (CNBC)

The elite financiers attending the World Economic Forum are worried about the 70 percent tax rate on earnings above $10 million proposed by freshman Rep. Alexandria Ocasio-Cortez, D-N.Y. “It’s scary,” Scott Minerd, global chief investment officer for $265 billion Guggenheim Partners, said in an interview. “By the time we get to the presidential election, this is going to gain more momentum,” said Minerd, who added that he would probably be personally impacted by it. “And I think the likelihood that a 70 percent tax rate, or something like that, becomes policy is actually very real.”

The billionaires and millionaires attending Davos had misgivings about Ocasio-Cortez’s proposal, which she made during a recent interview on CBS’ “60 Minutes.” A poll found that 59 percent of voters were in favor of the idea, and even 45 percent of Republicans liked it. The lawmaker has turned heads in Washington and on Wall Street with her left-wing economic rhetoric, despite only being sworn into office earlier this month. Ocasio-Cortez, who represents parts of Queens and the Bronx, identifies as a Democratic-Socialist. In Davos, Stephen Schwarzman, the billionaire CEO of private equity giant Blackstone and Republican megadonor, said sarcastically that he is “wildly enthusiastic” about the lawmaker’s proposed tax hike. He added that “the U.S. is the second most progressive tax regime in the world,” meaning that tax rates climb along with higher incomes.

The remarks at Davos came a day after Ocasio-Cortez had even more harsh words about how the U.S. economy works. “I do think a system that allows billionaires to exist when there are parts of Alabama where people are still getting ringworm because they don’t have access to public health is wrong,” she said at a New York event on Martin Luther King Day. Ocasio-Cortez addressed this article in a tweet Tuesday. “It’s wild that some people are more scared of a marginal tax rate than the fact that 40% of Americans struggle to pay for at least one basic need, like food or rent,” she wrote.

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They all talk green in Davos. But this is what they actually do. Your politicians won’t save the planet.

EU Fossil Fuel Subsidies Still At The Same Level As 2008 (G.)

The UK leads the European Union in giving subsidies to fossil fuels, according to a report from the European commission. It found €12bn (£10.5bn) a year in support for fossil fuels in the UK, significantly more than the €8.3bn spent on renewable energy. The commission report warned that the total subsidies for coal, oil and gas across the EU remained at the same level as 2008. This is despite both the EU and G20 having long pledged to phase out the subsidies, which hamper the rapid transition to clean energy needed to fight climate change. Germany provided the biggest energy subsidies, with €27bn for renewable energy, almost three times the €9.5bn given to fossil fuels.

Spain and Italy also gave more subsidies to renewable energy than fossil fuels. But along with the UK, France, the Netherlands, Sweden and Ireland all gave more to fossil fuels. The report is based on 2016 Eurostat data, the latest available, and found that across the EU renewable energy received 45% of subsidies and fossil fuels 33%. The commission report said policies were being pursued to cut carbon emissions and meet the Paris climate agreement goals of limiting global warming to well below 2C above pre-industrial levels. “However, despite this and the international commitments made in the context of G20 and G7, fossil fuel subsidies in the EU have not decreased,” it said. “EU and national policies might need to be reinforced to phase out such subsidies.”

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We already knew that. It’s just one more sign.

Shutdown Reveals Most Americans Are Unprepared For The Next Recession (MW)

The government shutdown, the longest in history, comes with a hidden revelation: Millions of Americans are financially unprepared for the next economic downturn. Worse, they are highly vulnerable, with few protections available to them. Ten years after the financial crisis, the economic recovery has left millions behind with little to no savings, and the government shutdown serves as a preview for what will happen once unemployment rises from 50-year lows. Within just a few weeks into the government shutdown, people are struggling to cope. [..] Why do a few weeks without pay turn into a crisis for many families? Simple: Nearly 80% of Americans live paycheck to paycheck. That’s a problem when you have little to no savings. In fact, it’s akin to playing financial Russian roulette.

And the problem is terrifyingly pervasive. According to a recent GoBankingRates survey, only 21% of Americans have more than $10,000 in savings, with nearly 60% having less than $1,000 in savings. This savings-free game of complacency works as long as people have a steady paycheck coming in and as long as interest rates stay low. But they are not staying low, even though the Federal Reserve may be patient again this year, as it has proclaimed in recent days. As a matter of fact, the cost of carrying debt, especially the revolving credit-card type, have exploded higher since the Fed tempered rate increases. Think I’m exaggerating? How about this: Interest rates on credit cards by commercial banks are now as high as they were in 2000:

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Baffled by the obvious.

Unusually Large Drop In US Home Sales Has Real Estate Agents Baffled (CNBC)

Real estate brokers are trying to figure out why sales of existing homes plunged in December. The 6.4 percent monthly move was unusually large, regardless of direction. The tally from the National Association of Realtors generally moves in the very low single digits month to month. In fact, the shift was one of the largest that didn’t involve some sort of change in government policy, like the homebuyer tax credit. “The latest decline is harder to explain. Perhaps it is the decline in consumer confidence that’s been occurring in the latter half of 2018,” said Lawrence Yun, chief economist for the Realtors. “The latest numbers do not reflect the lower, current mortgage rates compared to the November figures, so it’s really harder to explain.”

The supply of homes for sale also rose just more than 3 percent compared with a year ago. Low supply had been holding sales back last spring, despite strong demand, so it would make sense that more supply would boost sales, unless this is a sign that demand is weakening. “This weakness is certainly due to the sharp home price gains along with the rise in mortgage rates,” said Peter Boockvar, CIO at Bleakley. Affordability has been blamed for slower sales over the past six months, but sales in December matched the same pace as in 2000, and Yun argues that affordability is better now. “Today it is actually more affordable compared to year 2000, yet we have about 20 million more jobs, so for home sales to be roughly equivalent means that in 2018 there is an underperformance of the overall housing sector.”

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A very useful set of numbers from Galloway. As I said yesterday: the first to jump party lines wins. 200 Tories and 100 Labours want no Hard Brexit and no general election. Throw in fringe parties and you have a solid majority. Call it a national government.

Moonwalking with Theresa May: Unboxing Brexit ‘Plan C’ (George Galloway)

There are 317 Conservative MPs. At least 100 of them are Brexiteers who would never go quietly into the good night of the current political dispensation. But 200 of them conceivably could if it meant: a) avoiding a “Hard-Brexit” and b) avoiding a General Election. There are 256 Labour MPs. Most of them hate the idea of Brexit and many of them equally hate the idea of a General Election, which would bring their own leader to power. Mindful though that MacDonald became a historic by-word for treachery in the labor movement and that “all over the country Labour people turned his portrait to face the wall” in the wake of his betrayal, let’s imagine 100 of the current crop of Labour MPs “doing a MacDonald” and betraying their banner. That gives us a hypothetical 300 MPs in a House of 650.

That makes them the “biggest party” in the house by far and with a claim to the Speaker and the Queen for recognition as the “Government” of the UK. When you factor in the support (assured) of the 11 Liberal Democrats the 35 Scottish Nationalists (if their deal was right) the 8 independents, (assured) the 4 Welsh Nationalists (assured) the one Green MP (assured) and the assured abstention from the House of the 7 Sinn Fein MPs (Irish Republicans who cannot swear allegiance to the Queen and thus cannot take their seats) this would give the “National Government” bloc 359 MPs in a House of effectively 640 (650 less 7 SF and 3 Speakers and Deputy Speakers) A much more “strong and stable” government than Theresa May could even dream off. Their purpose – canceling Brexit.

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What took them so long?

Companies Press Brexit Panic Button In Further Blow To Theresa May (G.)

The scale of no-deal panic gripping major companies has been thrown into sharp focus by a series of damage-limitation announcements, as corporate Britain signalled it is running out of patience with Westminster gridlock. Sir James Dyson, the Brexit-backing billionaire, dealt a further blow to the government by revealing he is shifting his company headquarters to Singapore in a move that drew sharp criticism. Dyson’s decision to move his HQ out of the UK came on a day in which a series of high-profile names revealed measures to mitigate the impact of a disorderly departure from the EU:

• P&O announced that its entire fleet of cross-Channel ferries will be re-registered under the Cypriot flag, as the 182-year-old British maritime operator activated its Brexit plans. • Sony confirmed it is moving its European headquarters from London to Amsterdam. • The chief executive of luxury carmaker Bentley said the company was stockpiling parts and described Brexit as a “killer” threatening his firm’s profitability. • Retailers Dixons Carphone and Pets at Home announced plans to shore up supplies in the event of chaos at British ports.

P&O, which began life as the Peninsular and Oriental Steam Navigation company in 1837, said all six of its cross-Channel ferries will be re-registered from the UK registry in Cyprus to keep EU tax benefits. The ferries include, the Spirit of Britain, the Pride of Kent and the Pride of Canterbury. Sony confirmed it was merging its London-based European unit with a new entity based in Amsterdam that would become the new continental HQ. Sony said: “In this way we can continue our business as usual without disruption once the UK leaves the EU.”

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Corbyn can nationalize the rialways and hospitals, and remain.

Britain ‘Could Triple State Aid For Industry Under EU Rules’ (G.)

Britain could triple state aid spending to industry without breaching EU rules, according to a study that compares government subsidies to promote economic growth across Europe. EU state aid rules “do not prevent an active industrial policy”, the report found, giving the green light to the UK government for an increase in its £7bn of state aid to nearer £21bn. The report by the left-leaning IPPR thinktank found that the EU’s state aid rules would apply to the UK once it had left the union because officials in Brussels would enforce the measures through a trade deal. The IPPR director, Tom Kibasi, said: “If the UK government decided to match Denmark, it could invest £250bn over a decade in a more active industrial policy.

“That would give it huge scope to support key areas of the economy, whether we remain in the EU or leave it.” The IPPR has not taken a view on Brexit, but its intervention in the debate over state aid will be keenly examined by Labour party supporters who voted to leave the EU. Like the Labour leader, Jeremy Corbyn, many of them believed that rules imposed by Brussels would constrain a leftwing government from nationalising parts of the economy and from supporting cooperatives or providing funds through state-backed local banks.

State aid can range from a government tax relief scheme for investors to a local authority giving a subsidy to a property developer. It is normally prohibited to prevent trade and competition between firms from being distorted, discouraging investment and increasing costs to consumers. However, the EU has allowed hundreds of public investment programmes to go ahead that support businesses under a regime that the IPPR said was more flexible than it might appear.

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Doubling down on the very things that turns their people -and others- against them.

France And Germany Take Major Step Toward EU Army (ZH)

French President Emmanuel Macron’s push for what he previously called “a real European army” got a big boost on Tuesday amid France and Germany signing an updated historic treaty reaffirming their close ties and commitment to support each other during a ceremony in the city of Aachen, a border town connected to Charlemagne and the Holy Roman Empire. But the timing for the renewal of the two countries’ 1963 post-war reconciliation accord is what’s most interesting, given both the rise of eurosceptic nationalism, the uncertainty of Brexit, and just as massive ‘Yellow Vests’ protests rage across France for a tenth week.

Macron addressed this trend specifically at the signing ceremony with the words, “At a time when Europe is threatened by nationalism, which is growing from within… Germany and France must assume their responsibility and show the way forward. Germany’s Angela Merkel agreed, adding in her own remarks: “We are doing this because we live in special times and because in these times we need resolute, distinct, clear, forward-looking answers.” The agreement, which is being described as sparse on specifics or detail, focuses on foreign policy and defense ties between Berlin and Paris. “Populism and nationalism are strengthening in all of our countries,” Merkel told EU officials at the ceremony. “74 years – a single human lifetime – after the end of the second world war, what seems self-evident is being called into question once more.”

Macron said those “who forget the value of Franco-German reconciliation are making themselves accomplices of the crimes of the past. Those who… spread lies are hurting the same people they are pretending to defend, by seeking to repeat history.” And in remarks that formed another affirmation that the two leaders are seeking to form an “EU army” Merkel said just before signing the treaty: “The fourth article of the treaty says we, Germany and France, are obliged to support and help each other, including through military force, in case of an attack on our sovereignty.” The text of the updated treaty includes the aim of a “German-French economic area with common rules” and a “common military culture” that Merkel asserted could “contribute to the creation of a European army”.

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US position gets stronger as China struggles.

Trump Won’t Soften Hardline On China To Make Trade Deal (R.)

As much as U.S. President Donald Trump wants to boost markets through a trade pact with China, he will not soften his position that Beijing must make real structural reforms, including how it handles intellectual property, to reach a deal, advisers say. Offering to buy more American goods is unlikely by itself to overcome an issue that has bedeviled talks between the two countries. Those talks are set to continue when Chinese Vice Premier Liu He visits Washington at the end of January. The United States accuses China of stealing intellectual property and forcing American companies to share technology when they do business in China. Beijing denies the accusations.

With a March 1 deadline approaching to reach an agreement or risk an escalation of tariffs on another $200 billion worth of Chinese goods, the two sides are still far apart on key, structural elements critical for a deal, according to sources familiar with the talks. “We’re not yet in a position where our concerns have been addressed sufficiently,” one U.S. official said, speaking on condition of anonymity. The official said the Trump team, led by hardline U.S. Trade Representative Robert Lighthizer, was focused on such structural issues as well as trade imbalances. White House economic adviser Larry Kudlow told Reuters that forced technology transfers, IP theft and ownership restrictions remained a top priority for Trump. “The president’s said many times how crucial that is, and he’s not going to back down,” Kudlow said.

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Is Orwell available in China? How much longer for? Then again, it’s about what tech can do. And what it can do in China, it can and will do where you live.

Chinese App ‘Live-Shames’ Debtors Within 500-Meter Radius (ZH)

Authorities in the northern Chinese province of Hebei have rolled out an app over WeChat which can tell people if they’re walking near someone in debt, according to China Daily. The program, aptly named “map of deadbeat debtors,” flashes a warning if someone in debt is within a 500-meter radius – showing their exact location according to a screenshot of the app. Whether the app reveals the debtors’ names or photos is unknown, nor does China Daily mention how much money is owed or to whom – but according to paper the app allows people to “whistle-blow on debtors capable of paying their debts.” “It’s a part of our measures to enforce our rulings and create a socially credible environment,” said a spokesman for the Higher People’s Court of Hebei – which is behind the app.

The “map of deadbeat debtors” is yet the latest in China’s push towards a shame-based “social credit score” system which has already been deployed in several parts of the country. According to a November report, Beijing has an ambitious plan to control China’s citizens through a system of social scoring that punishes behavior it does not approve. [..] Hangzhou, the capital city of China’s Zhejiang province, rolled out its social credit system earlier this year, rewarding “pro-social behaviors” such as blood donations, healthy lifestyles, and volunteer work while punishing those who violate traffic laws, smoke and drink, and speak poorly about government.

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Plastics. “A standard 5-kilogram (11-pound) wash of polyester fabrics has been estimated to release up to 6,000,000 microfibers.” ” European shellfish consumers could potentially ingest 11,000 microplastic particles per year.”

‘Never Good News Having Particles in Your Brain’ (Spiegel)

Microplastics come from many sources, for example from the breakdown of larger items, abrasion from tires, microbeads from cosmetics or synthetic clothing fibers. A standard 5-kilogram (11-pound) wash of polyester fabrics has been estimated to release up to 6,000,000 microfibers. Through surface runoff, manufacturing processes, agriculture or waste water treatment facilities, most of this ends up in the environment, for example in rivers, and is eventually lost to the seas. Extrapolations suggest that up to 250 million tons of plastic will be present in the oceans by 2025.

Filter feeders like mussels seem to readily internalize microplastics, because they are of the same size as their preferred diet. It has been estimated that European shellfish consumers could potentially ingest 11,000 microplastic particles per year. A lot of the plastic particles in the environment are present in the atmosphere and transported by the wind. When you breathe in air, microscopic plastic particles are inhaled as well. Salt and sugar, for example, have also been reported to be contaminated with plastic, as well as honey and German beer. The analysis of tap water and bottled water found that a high proportion of drinking water contains plastic fragments.

Bigger particles are not readily absorbed. Most of these just seem to pass through the body without doing much harm. It is currently believed that these bigger particles do not penetrate deeply into organs and, if at all, can only cause some limited local inflammation or tissue abrasion. Smaller particles however, referred to as nanoplastics, are a different thing altogether. The smaller the size of the plastic particles, the more likely they are to cross biological barriers such as cell membranes. What we know is that nanoparticles in general can interact with proteins, lipids and carbohydrates in the body. Nanoparticles can even cross the blood-brain barrier and it seems probable that they can affect the central nervous system. Reports of behavioral changes in shrimp and fish exposed to nanoplastics support this hypothesis.

Plastic particles made fish eat slower and explore their surroundings less. There is no concrete evidence right now that nanoplastics penetrate brain tissue in humans, let alone affect behavior. But it has been reported that plastic particles cause oxidative stress in human cell lines. This could potentially cause a number of problems including tissue degradation or inflammation, and it flags up the possibility that an individual with a high concentration of plastic contamination in the central nervous system might have an adverse reaction. Depression for instance has been linked to nanoparticle toxicity in the central nervous system. The plastic fragments might even initiate plaque formation and make Alzheimer’s more likely. It is never good news having particles in your brain.

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Mar 012018
 
 March 1, 2018  Posted by at 11:03 am Finance Tagged with: , , , , , , , , , , ,  


Paramount Theater, Times Square NYC 1956

 

Donald Trump Stuns Allies By Signalling Backing For Tighter Gun Control (G.)
Members of Congress Are Petrified of The NRA, Says Trump (Ind.)
Where Did The Republican Trump-Haters Go? (BBC)
This Has Predicted Every Market Crash in History (Bonner)
US January Pending Home Sales Crash Most Since 2010 (ZH)
Hawk Or Dove? Fed’s Powell Showed Markets Both Sides In Debut (R.)
Trump Says US Will Use “All Available Tools” To Pressure China On Trade (BBG)
South Korea Cuts 68-Hour Working Week (G.)
John Major Tears Into Theresa May’s ‘Grand Folly’ Brexit Strategy (Ind.)
Russia Says US Is Training Europe To Use Nuclear Weapons Against It (CNBC)
American Hellenic Institute Urges Trump To Condemn Turkish Aggression (K.)
Greece Loosens Capital Controls, Raises Cash Withdrawal Limit (R.)
Greek Jan-Feb 2018 Retail Sales Down 8.8% y-o-y (K.)

 

 

I don’t normally like to open Debt Rattles with politics, but this leads the news.

Trump’s stance here should be a huge opening for Democrats, but it can’t be: they‘re too far gone in their demonizing of him. So if nothing happens -again- you’re going to have to wonder whose fault that is.

Note: a first reaction to a school shooting is easy, but you are talking fiddling with about the US constitution here.

Donald Trump Stuns Allies By Signalling Backing For Tighter Gun Control (G.)

Donald Trump has repeatedly endorsed a series of gun control proposals that put the Republican president at odds with the National Rifle Association and stunned lawmakers within his own party. The president made the remarks during an extraordinary, hour-long White House meeting on Wednesday with congressional Republicans and Democrats who are under pressure to address gun violence in the aftermath of the massacre at a Florida high school earlier this month. During the meeting, Trump called for a “beautiful” comprehensive bill that would expand background checks on gun purchases, remove guns from the hands of the mentally ill, bolster security on school campuses and restrict young people from purchasing certain weapons.

Within hours of the meeting’s conclusion, conservatives and some Republicans turned on Trump, who was elected with broad support from the gun lobby and claimed on Wednesday that the National Rifle Association had “no bigger fan”. Breitbart, the far-right news organization that fanned the flames of Trump’s rise, denounced the president as a “gun grabber” who “cedes” to Democrats. [..] Trump, who ran the meeting like a boardroom CEO, pointing at lawmakers for updates on their legislation, called on Congress to be “very strong” on background checks, repeatedly offering his support for a plan that failed to pass the Senate in April 2013, months after a gunman killed 20 young children and six staff members at Sandy Hook elementary school.

“You have to be very, very powerful on background checks. Don’t be shy,” Trump said during the televised session. He added: “I’d rather have you come down on the strong side than the weak side. The weak side is easier to do.” Two senators, Democrat Joe Manchin and Republican Pat Toomey, both of whom attended the meeting, plan to reintroduce their bill that would have imposed universal background checks for commercial gun purchases, including at gun shows and over the internet. 84% of Americans favor such a law [..] In a surprising exchange with Toomey, Trump asked if his measure included a provision to raise the age to buy assault weapons from 18 to 21. Toomey replied that it did not, and Trump shot back: “You know why? Because you’re afraid of the NRA.”

Trump rejected a demand by conservatives in the House that this so-called Fix Nics bill be paired with controversial concealed carry legislation, which is favoured by the NRA and would loosen restrictions by enabling gun owners with concealed-carry permits in their home states to take their firearms across state lines. “If you add concealed carry to this, you’ll never get it passed,” Trump told Steve Scalise, the House majority whip, who was last summer by a gunman targeting a congressional baseball practice. “Let it be a separate thing.” Trump repeatedly berated his Republican colleagues, accusing them of being afraid of the NRA, and appeared to take pleasure in stating his willingness to take on the gun lobby. “Some of you people are petrified of the NRA. You can’t be petrified,” he said.

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And they get their funding there.

Members of Congress Are Petrified of The NRA, Says Trump (Ind.)

President Donald Trump has accused members of Congress of being afraid of the National Rifle Association (NRA), as he called for an increase in the minimum age for buying a rifle. “[The NRA] has great power,” Mr Trump said at a bipartisan meeting with members of Congress on school safety. “They have great power over you people. They have less power over me. I don’t need it. What do I need? But I’ll tell you, they are well-meaning … We have to do what is right.” Members of Congress have again been anxious to find a solution to prevent mass shootings after an alleged 19-year-old gunman on Valentine’s Day open fired at Marjorie Stoneman Douglas high school in Florida, killing 17 people.

On the first day students of the school resumed their lessons following the shooting, several legislators gathered at the White House to discuss school safety and legislation aimed at combatting gun violence. One such proposal, drafted by Republican Senator Pat Toomey and Democratic Senator Joe Manchin, is primarily focused on expanding background checks for gun purchases. Mr Trump asked Mr Toomey about a proposal to raise the age limit for purchasing assault weapons from 18 to 21, a measure the NRA does not support.

“Now, this is not a popular thing in terms of the NRA, but I’m saying it anyway,” Mr Trump said. “Right now, you have to wait to buy a handgun until you’re 21, but you can buy the type of weapon used in a school shooting at 18. I can say the NRA is opposed to it… These are great patriots, they love our country, but that doesn’t mean we have to agree on it.” Mr Toomey said the age issue is not addressed in his bill with Mr Manchin. “You know why, because you’re afraid of the NRA,” the President responded.

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This fits in nicely with the gun issue. Scott “Dilbert” Adams’ view on Twitter: “Persuasion Phase 1 is complete. He’s coming for Democrats next.”

Where Did The Republican Trump-Haters Go? (BBC)

Once upon a time there was an active, vocal resistance among conservatives to the prospect of Donald Trump’s presidency. One year in, and the signs of dissent are rapidly fading. On Friday morning at the Conservative Political Action Conference on the outskirts of Washington, DC, Donald Trump took the stage and reminded the packed hall just how far he’d come. “Remember when I first started running?” the president asked. “People said, ‘Are you sure he’s a conservative?’ I think I proved I’m a conservative.” Mr Trump then launched into nearly an hour and a half of his trademark campaign-style oratory, often acknowledging that he was deviating from his “boring” speech text. On script and off, however, it was clear his intended objective was to drive home the point that he has governed as a true conservative.

He boasted of his tax cuts, right-wing judicial nominations, regulatory rollbacks and defence of religious liberty. Those are the sort of accomplishments attendees of this annual conference of young Republicans, grassroots activists, party functionaries, conservative media pundits, assorted merchants and special interests longed for through eight years of the Obama presidency, and now they’re getting. That’s got to make them thrilled, right? Well, sort of. According to straw poll of conference attendees, 93% approve of the job Mr Trump is doing in the White House. It’s a number not too far from the 80% of Republicans across the US who continue to tell pollsters they support the president. That, as the president acknowledged, was not always the case.

In 2016 – at the beginning of his long march to the Republican nomination and the presidency, Mr Trump abruptly cancelled an appearance at Cpac when faced with the prospect of a walkout from “never-Trump” conservatives. [A 2015] straw poll had Mr Trump as the presidential pick of just 3.5% of attendees, in eighth place, far behind libertarian-leaning Senator Rand Paul’s 25.7%. Another Republican presidential hopeful at that conference, former Texas Governor Rick Perry, would just a handful of months later describe Mr Trump’s politics as “a toxic mix of demagoguery and mean-spiritedness and nonsense” and call his candidacy a “cancer on conservatism”. Last week, Mr Perry – now Mr Trump’s energy secretary – was back at Cpac, referring to himself as “footsoldier in the army”. Donald Trump’s army, that is.

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Should that say “predicted after the fact”? (From Bill Bonner, Mish and Semper Augustus)

This Has Predicted Every Market Crash in History (Bonner)

“Buy the dip” has worked for the last 38 years. And now, investors are more than 100% convinced that it will work again. But they are wrong. Semper Augustus: “Every major stock market decline and every recession in the last 100 years was preceded by the Federal Reserve raising short-term interest rates by enough to provide the pin to prick the balloon. Note the emphasis on every. Yes, there have been periods where the Fed raised rates and a recession didn’t ensue. Everyone knows the famous saying about the stock market having predicted nine of the past five recessions! That may be true, that rising rates don’t necessarily cause a recession. But as an investor, you must be aware that every major stock market decline occurred on the heels of a tightening phase by the Fed. More importantly, there have been no substantive Fed tightening phases that did not end with a stock market decline”.


Going back to 1950, every U.S. recession (gray shaded area) has been preceded by the Fed hiking interest rates

A little debt may be a good thing; a lot of it is not. At a certain point, you have more than “too much debt,” and it becomes toxic. Where exactly in the cycle we are, we don’t know. But our guess is we are already way beyond the place where we are fully indebted. This is an economy built on debt. The whole capital structure – stocks, bonds, and real estate – now depends on excess debt… and more of it. In a correction, the only way to stop stock prices from falling and the economy from shrinking is to bring in some more debt. But when you do that a few times, you are soon beyond Peak Debt… which is to say, you’re way over the legal limit.

Debt has been growing three to six times faster than income for more than an entire generation. This makes the old 1.5-to-1 ratio of debt to income seem quaint. It is now 3.5-to-1 nationwide. Which is why deficits still matter. Every penny in debt that we add now is a penny that cannot be repaid, not by any plausible combination of economic projections. Because there is no way to “grow your way out of debt” when your income is falling while your debt is still increasing. Instead, you have to suffer the indignities of a correction, including a major reset in the stock market. That’s what happens when stocks that are more than fully priced meet a debt load that is beyond 100% of capacity.

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As noted earlier, new home sales were down 33.3% in the northeast. Pending home sales feel by 9% there.

US January Pending Home Sales Crash Most Since 2010 (ZH)

After New- and Existing-Home-Sales have already disappointed, Pending Home-Sales just collapsed too (to the lowest since Oct 2014) to confirm January was a bloodbath for the real estate market. Pending Home Sales plunged 4.7% in January (massively below the 0.5% expected rise in sales) – this is the biggest drop since May 2010. Year-over-year Pending home sales are down 1.7%. Purchases fell 9% in the Northeast, 6.6% in the Midwest, 3.9% in the South and 1.2% in the West.

NAR is desperate to convince home-buyers and sellers that this is nothing but an inventory issue, but it is affordability that is the real driver here. “There’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” Lawrence Yun, NAR’s chief economist, said in a statement. “With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or now having to delay their search entirely to save up for a larger down payment.” So, will higher rates break housing market momentum? The following chart suggest ‘yes’ – that surge in rates will have a direct impact on home sales (or prices will be forced to adjust lower) as affordability collapses…

And Homebuilder stocks are starting to look a lot less invincible…

As Bloomberg notes, economists consider pending sales a leading indicator because they track contract signings; purchases of existing homes are tabulated when a deal closes, typically a month or two later.

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Something for everyone. Useless.

Hawk Or Dove? Fed’s Powell Showed Markets Both Sides In Debut (R.)

Financial markets barely batted an eye on Tuesday when Jerome Powell’s first public statement as Federal Reserve chief saw daylight, interpreting it as a steady-handed commitment to the U.S. central bank’s policy of gradual interest rate increases. The calm evaporated about a couple of hours later, at 10:42 a.m. EST, when Powell, testifying before a U.S. House of Representatives committee, struck a bullish, and personal, tone on the strength of the economy. U.S. bond yields jumped as investors raised their bets for four rate increases this year, rather than the three that Fed policymakers projected in late December, and began asking one key question: Is a hawk or a dove now running the Fed?

“The message coming from the written portion of the testimony did not signal any change,” analysts from Barclays wrote on Tuesday, drawing a contrast with Powell’s live remarks that “point to a risk of a steeper policy rate path.” Fed policymakers consider their public statements an important tool in shaping public perceptions and, in doing so, making monetary policy more effective. Fed chiefs try to avoid off-the-cuff remarks that cause impromptu repricing, preferring to hew close to their job of representing the views of the Fed’s rate-setting committee and avoiding disclosing much about their personal opinions. Veteran Fed analysts were split over whether Powell had broken that unwritten rule in his remarks, which came just weeks after he took over from Janet Yellen.

“The tone of the testimony was definitely NOT hawkish,” said Cornerstone Macro economist and former Fed staffer Roberto Perli, who emphasized Powell’s written comments might be read as a willingness to allow the economy to run hot in order to boost inflation to the Fed’s 2% target on a sustained basis. “Powell more confident on growth, putting 2018 dots in play,” is how JP Morgan’s Michael Feroli summed up the day, referring to the quarterly “dot plot” of projected interest rates that Fed policymakers submit. Feroli argued that Powell’s “modestly hawkish” appearance in Congress strengthened the chance that policymakers’ rate outlook would rise when the central bank issues its next set of economic projections next month.

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Xi advocating against protectionism is a keeper.

Trump Says US Will Use “All Available Tools” To Pressure China On Trade (BBG)

President Donald Trump is warning the U.S. will use “all available tools” to prevent China’s state-driven economic model from undermining global competition, the latest warning to Beijing as America readies a host of trade actions. China hasn’t lived up to the promises of economic reforms it made when it joined the World Trade Organization in 2001, and actually appears to be moving further away from “market principles” in recent years, according to the president’s annual report to Congress on his trade-policy agenda. China’s “statist” policies are causing a “dramatic misallocation” of global resources that is leaving all countries poorer than they should be, said the report. Chinese President Xi Jinping has dispatched one of his top economic advisers, Liu He, this week to Washington to meet with senior administration officials amid signs of growing tension between the world’s two biggest economies.

“China is free to pursue whatever trade policy it prefers. But the United States, as a sovereign nation, is free to respond,” according to the report, which is prepared by the U.S. Trade Representative’s office. Xi has called for countries to avoid protectionism and stick to the current path of globalization. At the same time, Chinese officials are weighing raising tariffs on U.S. soybeans as tensions escalate. Trump’s warning comes as his administration considers a range of actions either directly aimed at China, or that could impact the Asian power. The president is weighing several options for curbing imports of steel and aluminum, and Trump has told confidants he’s considering a global tariff on steel of 24%, the most punitive alternative recommended by his officials. The administration is ready to act unilaterally if necessary to fight unfair trading practices, according to trade report.

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Well, it did get them the Olympics…

South Korea Cuts 68-Hour Working Week (G.)

Employees in one of the most overworked countries in Asia are about to get a break after South Korea passed a bill to reduce the typical work week in an effort to improve quality of life and boost employment. South Korea’s National Assembly overwhelmingly passed the law which cut the maximum weekly work hours to 52, down from 68. The law comes into force in July and will apply to large companies before being rolled out to smaller businesses. The cut was a campaign promise by President Moon Jae-in, who also secured a 16% increase in the minimum wage this year. The law faced opposition from businesses but was seen as necessary to improve living standards, create more jobs and boost productivity. It is also aimed at increasing the country’s birth rate, which hit record lows last year.

As South Korea’s economy boomed in the 80s and 90s, a workaholic culture took hold and the birth rate plummeted. Chung Hyun-back, the gender equality and family minister, has called the country’s working hours “inhumanely long” and said they were a factor in the South’s rapidly ageing society. South Koreans workers have some of the longest weeks in the developing world, behind only Mexico, according to data from the Organisation for Economic Co-operation and Development. The group of mostly developed economies does not include countries such as China and India, and developing countries tend to work more. But South Koreans still work about 400 more hours a year compared with workers in the UK and Australia, about 10 additional standard work weeks, despite having relatively similar average incomes.

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Just as she tries to strike a defiant pose…

John Major Tears Into Theresa May’s ‘Grand Folly’ Brexit Strategy (Ind.)

Former Conservative leader John Major has launched a devastating attack on Theresa May’s approach to Brexit, just 48 hours before the Prime Minister sets out her plans for future relations with the EU. In a significant intervention, Mr Major tore into Ms May’s negotiating red lines as “bad politics” and “grand folly” dictated by “ultra Brexiteers”. He demanded MPs be freed from the party whip and allowed to vote with their conscience on her final deal, and said Britain may need a second referendum to avoid years of damaging rows over Brexit. His explosive speech sparked a ferocious backlash from Tories that back hard Brexit, with one saying his arguments were “grubbing around in the weeds”.

The surgically timed intervention comes as Ms May prepares to reveal the final text of her next big Brexit speech to the Cabinet, before meeting European Council president Donald Tusk in Downing Street on Thursday. Mr Major’s intervention also appears to have been choreographed with another speech from ex-prime minister Tony Blair in Brussels on Thursday, in which the ex-Labour leader will address European politicians on Brexit. When the ex-Tory leader stood to make his speech on Wednesday, Ms May had already locked horns with Brussels negotiators who had in the morning published what she called an “unacceptable” draft withdrawal agreement.

Despite Ms May having repeatedly claimed she settled the withdrawal agreement last year, she argued in the Commons that a new draft had crossed her Brexit red lines. It was those very “red lines” that Mr Major took aim at when he began talking in London minutes later, claiming they had “boxed” Ms May in. He said: “They are so tilted to ultra-Brexit opinion, even the Cabinet cannot agree them – and a majority in both Houses of Parliament oppose them. “If maintained in full, it will be impossible to reach a favourable trade outcome.”

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The western press will simply continue to claim that Russia’s the aggressor, not NATO or the US. Case solved.

Russia Says US Is Training Europe To Use Nuclear Weapons Against It (CNBC)

Russian Foreign Minister Sergei Lavrov said Wednesday that the U.S. was still deploying “strategic arms” in Europe and was training European countries to use nuclear weapons, violating a major nuclear arms agreement called the Non-Proliferation Treaty (NPT). Lavrov said that nuclear disarmament was impossible without taking into account factors which destabilize “strategic stability and international security today,” including, he said, “the deployment of a global anti-missile system” and “the deployment of U.S. strategic arms in Europe and the continuing destabilizing practice of ‘joint nuclear missions,’ as they call them.” “As we all know, these nuclear missions violate the Non-Proliferation Treaty and non-nuclear states plan and take part in the U.S. exercises and learn how to use the nuclear weapons,” he said.

For its part, he said Russia had reduced its nuclear arsenal by 85% compared to the Cold War era. The Russian Foreign Ministry has complained about what it calls “joint nuclear missions” and says the U.S. has many nuclear weapons located in Europe. It also says the U.S. is training European countries to use these weapons. Last April, the foreign ministry issued a statement in which it said that “Washington’s approach to compliance with its obligations under the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) is still of great concern. The U.S. and its non-nuclear NATO allies continue their nuclear skill training as part of the so-called “nuclear sharing”,” it said.

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But Merkel wants her refugee treaty. Or she’s done.

American Hellenic Institute Urges Trump To Condemn Turkish Aggression (K.)

The American Hellenic Institute (AHI) sent a letter to US President Donald J. Trump in the wake of acts of Turkish provocation and aggression in the eastern Mediterranean and broader region that have dire implications to American security interests. In the February 27 letter, AHI President Nick Larigakis requests President Trump to condemn strongly Turkish aggression and acts of provocations that have been directed at the United States, Greece, Cyprus, and international oil and gas companies – all of which have occurred in the month of February.

Larigakis cites: a Turkish coastguard vessel colliding with a stationary Greek coastguard vessel, the harassment of Italian oil company Eni’s surveying vessel by Turkish warships, which threatened to sink Eni’s surveying vessel because it was on its way to survey for energy resources in the exclusive economic zone of Cyprus; and Turkish President Erdogan’s threat of an “Ottoman slap” to United States military forces if they continued to partner with Syrian Kurds in Syria.

In addition, Larigakis raised the concern among NATO allies about Turkey’s purchase of four divisions of S-400 missiles from Russia and how it potentially subjects Turkey to US sanctions. “Turkey’s aggressive and provocative actions directed at the United States and U.S. allies, Greece and Cyprus, are overt, egregious and dangerous. I urge the administration to act to uphold the rule of law and to call on Turkey, the provocateur of these tensions, to cease and desist with its aggressive actions that are a threat to peace and stability and are not in the best interests of the United States,” Larigakis concludes.

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Just about nobody has that kind of cash to withdraw anymore. Thanks a lot.

Greece Loosens Capital Controls, Raises Cash Withdrawal Limit (R.)

Greece on Wednesday moved to ease capital restrictions imposed since the summer of 2015, raising the monthly limit of cash that can be withdrawn from bank accounts by 28%. Athens first imposed capital controls in July 2015 to stem a flight of cash from its banks at the height of a debt crisis which led to its third financial bailout since 2010. Based on a finance ministry decree published in the government’s gazette, individuals will be allowed to withdraw lump sums of up to 2,300 euros in cash per month from bank accounts from 1,800 euros currently, effective from March 1.

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Just imagine the added job losses that come with this. And still, as I keep on saying, things can still only get worse from here.

Greek Jan-Feb 2018 Retail Sales Down 8.8% y-o-y, Up To 20% In Cities (K.)

Retail sales in the first two months of the year were down some half a billion euros on the same period in 2017, as households were left with less spending money after their Christmas shopping and purchases made during the Black Friday promotional event at the end of November. According to a survey conducted by the Hellenic Confederation of Commerce and Enterprises (ESEE), retail turnover declined this past January and February by 8.8% compared to 2017. In absolute figures, this reduction translates into the loss of 484 million euros, with turnover up until Wednesday amounting to 5.02 billion, against 5.5 billion in January-February 2017.

In certain areas of the country the drop in sales turnover in the first two months of the year reached up to 40%, while out of Greece’s 65 traders’ associations, only one reported an increase from last year. In the cities of Athens and Thessaloniki, sales declined between 11 and 20% year-on-year. The ESEE survey showed that one in three enterprises offered discounts of between 21 and 40%, while two out of five offered discounts in excess of 40%.

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Jun 242017
 


Fred Lyon San Francisco Cable Car rounding the curve at Jones Street 1946

 

US New Home Sales Jump, Median Price Surges To Record High (R.)
Sydney Prices To Jump ‘Overnight’ As First-Home Incentives Kick In (D.)
The World Has Been Fitted With Two Debt Straightjackets (Steve Keen)
The Future Prospects For Japanese Banks Look Like Hell (Makoto Utsumi)
Europe’s Banking Union Is Dying in Italy (BBG)
Two Italian Zombie Banks Toppled Friday Night (WS)
‘Emmangela’ Show Reasserts EU’s Franco-German Alliance (AFP)
Schaeuble Says British Were ‘Lied To’, ‘Deceived’ In Brexit Campaign (R.)
UK MPs Plan Cross-Party Alliance To Defeat May, Hard Brexit (Ind.)
Corbyn Vows To Force Early British Election (Ind.)
May Blocked Plan To Guarantee Rights Of EU Citizens In UK After Brexit (Ind.)
The Fed Needs to Acknowledge the Slowing Economy (DDMB)
Unfunded Liabilities Have Turned Illinois Into A Banana Republic (Lang)
America’s Health-Care Rain Dance (Jim Kunstler)
US-Led Coalition Kills Almost 500 Syrian Civilians In One Month (NW)
The Unfinished Negotiations For A Greek “Super-Memorandum” (Press Project)

 

 

They are determined to get all the suckers they can get before the implosion. There’s a huge empty bag to be passed on.

US New Home Sales Jump, Median Price Surges To Record High (R.)

New U.S. single-family home sales rose in May and the median sales price surged to an all-time high, suggesting the housing market had regained momentum. The Commerce Department said on Friday new home sales increased 2.9% to a seasonally adjusted rate of 610,000 units last month. April’s sales pace was also revised sharply higher to 593,000 units from 569,000 units. Economists polled by Reuters had forecast new home sales, which make up about 10% of all home sales, rising 5.4% to a pace of 597,000 units last month. Sales were up 8.9% on a year-on-year basis in May.

“While the data quality of the new home sales report is notoriously poor, the general picture from this report and the existing home sales report is one of solid housing demand in the important spring selling season,” said Michael Feroli, an economist with J.P. Morgan. The housing market has been bolstered by continued strong job growth. The unemployment rate fell to a 16-year low of 4.3% in May and mortgage rates are still favorable by historical standards. However, an increase in the cost of building materials and shortages of lots and labor have crimped homebuilding. With demand outstripping supply, house prices remain elevated. The median house price rose to a record high of $345,800 in May, from $310,200 in the prior month. The average sales price last month was $406,400, also a record high.

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Ditto in Australia. This is from real estate broker Domain, responsible for ad campaigns like the one in the photo -which I took in Melbourne in 2011.

Sydney Prices To Jump ‘Overnight’ As First-Home Incentives Kick In (D.)

Property prices in affordable areas are expected to jump “overnight” on the back of changes to first-home buyer stamp duty concessions starting in July, experts say. Strategic vendors in these locations are holding off accepting offers until next month to take advantage of the expected surge in demand. First-home buyers in NSW are set to save up to $24,740 with stamp duty concessions for homes up to $800,000 and a full exemption for homes under $650,000. Among those anticipating they will benefit from the changes is Quakers Hill home owner Bhugol Kansakar who bought his house for $611,000 in March 2015 – then a first-home buyer himself. Since May his three-bedroom home at 9 Nyngan Street has been on the market for $730,000 to $760,000. “We’ve had offers around $720,000 to $730,000 … we’re holding out until next month as stamp duty will be off for the first-home buyers,” Mr Kansakar said.

In this price bracket, first-home buyers would get a partial exemption from July. “It is a big block of land, three-bedrooms, perfect for a first home.” He anticipates he will be likely to get $760,000 or more for the home when the new rules come in. And he’s far from the only one anticipating he’ll get a premium, his sales agent Raine & Horne Blacktown business development manager Edwin Almeida said. About 40% of inquiries on homes he had listed across the Blacktown Council area priced under $750,000 were first-home buyers asking if they could formally exchange next month. He expects local prices would jump by $20,000 to $40,000. “Easy money does not make the market more accessible for first-home buyers. It just means vendors and developers will increase the price of property to meet demand,” Mr Almeida said.

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Two pieces from a PDF by “The International Economy” site, entitled: “Has the World Been Fitted With a Debt Straightjacket? Nearly forty distinguished experts offer their wisdom”. Click the link to see all.

First, Steve Keen…

The World Has Been Fitted With Two Debt Straightjackets (Steve Keen)

T he world has been fitted with not just one but two debt straightjackets: one made of public debt and the other of private debt. The situation in the United States is typical. The total U.S. debt level at the end of World War II was equivalent to 130% of GDP, with public debt being three-quarters of the total and private debt one-quarter. Today, it is 250% of GDP, with public debt being two-fifths of the total and private debt three-fifths. But there is a simple trick that could let the United States, like Harry Houdini, magically escape from one of these two straightjackets in a flash. Like any magic act, it’s ruined by the telling: despite all the political hand-wringing over the burden the public debt imposes on future generations, public debt could be eliminated by the stroke of a proverbial pen, for two simple reasons.

First, this debt is exclusively in U.S. dollars; second, the government is the only institution in the nation that “owns its own bank,” the Federal Reserve, which can create U.S. dollars at will. The Fed could buy up—and effectively cancel—this debt overnight. You might not like this trick, but it’s both possible and perfectly legal. That leaves the second straightjacket: private debt. Here Houdini’s escape is not possible, because if any individual tried to do what the U.S. government can do, that person would be gaoled for counterfeiting. All U.S. private debt is, like public debt, owed in U.S. dollars; but only the U.S. government has the privilege of owning its own bank. For the private sector, it’s effectively the banks that own the debtors. But paradoxically, most economists obsess about the public debt trap and ignore the private debt one.

Why? Because they believe that banks do not originate loans, but instead act as “intermediaries” between savers and borrowers. Therefore, they say, private debt doesn’t matter, because if the debtor can’t spend, the lender can, and vice versa. They therefore believe that the level of private debt, and its rate of growth or decline, are economically irrelevant. They can’t see a private straightjacket. Several central banks have recently loudly declared that this model is nonsense—including Germany’s ultraconservative Bundesbank. Banks are not “intermediaries of debt” but originators. They don’t lend pre-existing money, but create money when they make an entry in the borrower’s deposit account, which is matched precisely by an entry in the borrower’s debt account.

Since debtors borrow to spend, rising private debt boosts demand while falling debt reduces it. Demand in the United States was therefore boosted substantially as private debt rose almost fivefold from 1945 until 2008. Now demand from credit is stagnant and as likely to subtract from demand as add to it. So private debt is the real straightjacket constraining the economy. But with mainstream economists ignoring it and fretting about government debt, the U.S. economy is likely to remain in its debt straightjacket indefinitely. As the public has started to realize since the 2008 crisis took them by surprise, mainstream economists are inept magicians.

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…second, Makoto Utsumi, Chairman of the International Advisory Board, Tokai Tokyo F.H., and former Vice Minister of Finance for International Affairs, Japan.

The Future Prospects For Japanese Banks Look Like Hell (Makoto Utsumi)

Can Japan withstand the return to conventional monetary policy? The Bank of Japan has been conducting an unconventional monetary policy for almost two decades, drastically strengthening this policy since Governor Kuroda took office in 2013. As public debt accumulated to 250% of GDP and due to the massive holdings of Japanese Government bonds by the Japanese banking sector, some argue that Japan cannot withstand the return to conventional monetary policy. Here are my points of view: First, let us consider the impact of interest rates hikes on public finances. Many analysts argue that this move would be destructive to public finances due to increased interest payments. There is a point, however, almost all analysts neglect. When interest rates on the JGB rise, the rates on savings and deposits also rise.

As 20% of the interest income is withheld at source, the incremental tax revenue would offset to a great deal the increasing cost of the debt service to be paid by the government. Although the damage caused by the shift in monetary policy on the budget balance would be limited, the fiscal situation of Japan would become increasingly serious with a sustained lack of fiscal discipline. Japanese public finances seem to be on a path to breakdown and the Bank of Japan’s policy to purchase Japanese government bonds up to an amount equal to 80% of new issuances looks more and more like the monetization of the budget deficit. Next, let us see the impact on the banking sector. Two decades of unconventional monetary policy have been squeezing the banks’ profit margins through the extreme flattening of the yield curve.

From this view point, the return to conventional monetary policy is good news for the Japanese banking sector in the long run. On the other hand, in the short and medium terms, this would represent the harshest challenge for banks due to massive valuation losses on their bond holdings. According to the Bank of Japan’s survey, a 1 percentage point rise of interest rates on bonds would cause a loss of US$20 billion for mega-banks, US$25 billion for regional banks, and US$19 billion for credit unions. While the U.S. Federal Reserve is firmly committed toward exit and as the European Central Bank seems to be quietly probing a future exit strategy, where is the Bank of Japan going? If it continues to maintain zero or negative interest rates, current profits of the banking sector would be further squeezed.

If it starts to take steps toward conventional monetary policy, the banking sector would face serious valuation losses. Either way, the future prospects for Japanese banks look like hell. We will probably witness a clear distinction between two groups of banks: those who manage their business based on foresight and those who don’t. And we would see a deep reshuffle in the banking sector along with the exit process from the unconventional monetary policy of the Bank of Japan.

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To paraphrase Juncker: “When things get serious in Europe, no rules or laws are immune to lies.”

Europe’s Banking Union Is Dying in Italy (BBG)

The Italian government looks set to put Veneto Banca and Banca Popolare di Vicenza, two troubled regional lenders, into liquidation, selling off the good assets to a rival bank for a symbolic price. The toxic assets would be transferred to a bad bank, mostly funded by the government. Shareholders and junior bond-holders would contribute to the rescue, while senior creditors would be spared. The rival bank, Intesa Sanpaolo, would be getting a great deal for little risk. But for the Italian taxpayer, and the credibility of euro zone financial regulation, the plan is a loser and should be stopped. The Italian scheme is radically different from the one put in place two weeks ago, when the Spanish lender Banco Santander bought Banco Popular for one euro. In that case Santander also acquired Popular’s non-performing loans as well as all the future legal risks.

It also immediately went to the markets to raise capital to pay for it. Here, Intesa will only pick the assets it wants and insists that the operation not impact its capital ratio. This plan is a slap in the face of Italian taxpayers, who according to some estimates could end up paying around €10 billion ($11.1) for it. The government could have taken a less expensive route, involving the “bail in” of senior bondholders. It chose not to: Many of these instruments are in the hands of retail investors, who bought them without being fully aware of the risks involved. The government wants to avoid a political backlash and the risk of contagion spreading across the system. However, €10 billion is a whale of a premium to pay as an insurance against a contagion. And Rome may still face a backlash – from taxpayers who will feel defrauded.

Most importantly, this plan is a dagger in the heart of the euro zone banking union. This was one of Europe’s main responses to the sovereign debt crisis, designed to limit the contribution of taxpayers to bank rescues and to ensure all euro zone lenders faced a coherent set of rules. Italy is relying for its plan on its domestic liquidation regime. Rome will effectively by-pass the EU’s “single resolution board” which is supposed to handle bank failures in an orderly way and the “Banking Recovery and Resolution Directive,” which should act as the euro zone’s single rulebook. The advantage will be to spare senior bondholders but the cost will be huge: denting, perhaps irreversibly, the credibility of Europe’s newly formed institutions.

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And there we go. After years of trying to save them. One day we’ll realize just how epic this failure is.

Two Italian Zombie Banks Toppled Friday Night (WS)

When banks fail and regulators decide to liquidate them, it happens on Friday evening so that there is a weekend to clean up the mess. And this is what happened in Italy – with two banks! It’s over for the two banks that have been prominent zombies in the Italian banking crisis: Veneto Banca and Banca Popolare di Vicenza, in northeastern Italy. The banks have combined assets of €60 billion, a good part of which are toxic and no one wanted to touch them. They already received a bailout but more would have been required, and given the uncertainty and the messiness of their books, nothing was forthcoming, and the ECB which regulates them lost its patience. In a tersely worded statement, the ECB’s office of Banking Supervision ordered the banks to be wound up because they “were failing or likely to fail as the two banks repeatedly breached supervisory capital requirements.”

“Failing or likely to fail” is the key phrase that banking supervisors use for banks that “should be put in resolution or wound up under normal insolvency proceedings,” the statement said. This is the first Italian bank liquidation under Europe’s new Single Resolution Mechanism Regulation. The ECB explained: “The ECB had given the banks time to present capital plans, but the banks had been unable to offer credible solutions going forward. Consequently, the ECB deemed that both banks were failing or likely to fail and duly informed the Single Resolution Board (SRB), which concluded that the conditions for a resolution action in relation to the two banks had not been met. The banks will be wound up under Italian insolvency procedures.”

[..] nothing worked. Private sector money stayed away in droves. JP Morgan, which had been recruited to save the Italian banks, threw in the towel. These banks had been zombies for too long. Everybody knew it. But the government kept denying it. Just weeks ago, Italy’s Minister of Economy Pier Carlo Padoan insisted that the two banks would not be wound down. Last year, to dispel the mountain of evidence to the contrary, he insisted that that there would be no need of any future bail outs; and that, furthermore, Italy did not even have a banking problem. In early June, the two banks were instructed by the European Commission to raise an additional €1.25 billion in private capital. No one bit. Italy’s government then tried to persuade the European Commission and the ECB to water down the requirement to €600-800 million, and it urged Italian banks to chip in to the bank rescue fund. All that failed.

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That leaves 25 sovereign countries with nothing to say on issues that are vitally important to them. Who are we kidding?

‘Emmangela’ Show Reasserts EU’s Franco-German Alliance (AFP)

Emmanuel Macron and Angela Merkel used the French president’s first Brussels summit Friday to deliver an unmistakeable message: their countries intend to lead the EU’s post-Brexit revival. The Franco-German power couple held an unusual joint press conference after meeting their 26 European Union counterparts, against a backdrop of their respective flags and the bloc’s blue banner with yellow stars. “When France and Germany speak with one voice, Europe can move forward,” newcomer Macron told a room almost filled to bursting point with reporters as he stood alongside the German chancellor. “There can be no pertinent solution if it is not a pertinent solution for France and Germany,” the 39-year-old centre-right leader.

Despite her more pragmatic tone, the message from 62-year-old Merkel was the same. “This press conference shows that we are resolved to jointly find solutions to problems,” she said. The joint press conference came exactly a year after Britain’s shock referendum vote to become the first country to leave the European Union, which prompted dire predictions of the break-up of the bloc. But Europe has jumped on the bandwagon of Macron’s stunning election victory over French far-right leader Marine Le Pen to trumpet a newfound optimism after years of austerity and crisis despite Brexit. At the heart of that is the idea that Macron may be able to repair the traditional “engine” behind European integration – the post-war alliance of Paris and Berlin after centuries of conflict.

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Can the Greek finance minister please state that Schaeuble lies to Germans? Just to see the reaction?!

Schaeuble Says British Were ‘Lied To’, ‘Deceived’ In Brexit Campaign (R.)

British people were “endlessly lied to and deceived” in last year’s Brexit referendum campaign, German Finance Minister Wolfgang Schaeuble said on Friday. Speaking in Berlin on the first anniversary of the Brexit vote, Schaeuble was scathing about the “leave” campaigners who persuaded a majority of voters to opt to quit the EU. “The Britons were endlessly lied to and deceived,” Schaeuble told a conference of family-run companies. When the Brexit campaigners “happened to be successful, the ones who did it ran away because they said they can’t take responsibility”. The two sides in Britain’s referendum campaign swapped bitter accusations they were making misleading or untrue statements, such as the claim that leaving the EU would free up large sums for public health spending.

In the days after the vote, Prime Minister David Cameron, who called the referendum, resigned, and several prominent leave campaigners dropped out of the race to succeed him. Schaeuble said the 70 years of growth and prosperity Europe had known since World War Two was not based on pure majoritarianism but on sustainable democratic models. “(We need) not just mechanisms that consist of my promising something to a majority,” he said. “Then you only have to look at the demographics to see that you’ll end up with endless debates about redistribution that lead to jealousy.”

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May has become a very damaging force in Britain.

UK MPs Plan Cross-Party Alliance To Defeat May, Hard Brexit (Ind.)

MPs from all parties are already planning an alliance to defeat Theresa May’s plans for a hard Brexit, just days into the new Parliament. Strategies to amend future legislation – including a key immigration bill – to force ministers to listen to business groups and to show the EU that Parliament wants a “softer” exit are being drawn up, The Independent has learned. One Conservative MP said the aim was to give confidence to “bullied” ministers who are reluctant to “speak out”, despite sharing the view that the Prime Minister’s plans put Britain on the road to disaster. Another MP outlined the importance of convincing Brussels that Parliament can “coordinate” to present a different, more EU-friendly policy to that of the Government. “It would really show how power has shifted if Parliament can coordinate itself – and that’s not impossible,” the MP said.

Pro-EU Tory Anna Soubry told The Independent: “We are talking to each other and will continue to talk to each other – this is something that transcends normal party political considerations. “It doesn’t have to be about forcing votes, but it may come to that. Certainly, the threat of losing a vote will weigh very heavily on the Government’s mind.” Another MP spoke of giving voice to changing public opinion, amid the first evidence that some people who voted Leave a year ago are changing their minds. Ms Soubry added: “I am up for working with everybody. Hopefully something concrete will come out of it, because this is the most important thing that’s been done in decades.” She said she was in contact with some of the 34 Labour MPs who, this week, challenged Jeremy Corbyn to change course by fighting to stay in the single market.

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Noy much use, perhaps. Don’t say it out loud. Just wait for the Tories to blow up.

Corbyn Vows To Force Early British Election (Ind.)

Jeremy Corbyn has said he will look to “force an early general election” after claiming it was “ludicrous” to suggest Theresa May could stay in power. The Labour leader made the claim before speaking at Unison’s annual conference in Brighton and also added he was pleased with the party’s recent surge in opinion polls. Mr Corbyn’s approval rating has been on the rise since the general election and it appears he will now attempt to pile pressure on the Prime Minister. “Mrs May called the election so not to have a coalition of chaos, but that is exactly what we have got, they don’t seem to have come to an agreement with the DUP two weeks after the election,” Mr Corbyn told the Daily Mirror. “We will challenge this Government at every step and try to force an early general election.”

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George Osborne has some accounts to settle. And a very easy target to blame his own whoppers on.

May Blocked Plan To Guarantee Rights Of EU Citizens In UK After Brexit (Ind.)

Theresa May single-handedly blocked a plan to immediately guarantee the future rights of the 3m EU citizens in the UK last summer, George Osborne has revealed. The then-Home Secretary was the only member of the Cabinet to oppose David Cameron, who “wanted to reassure EU citizens they would be allowed to stay”, after Brexit. “All his Cabinet agreed with that unilateral offer, except his Home Secretary, Mrs May, who insisted on blocking it,” revealed the Evening Standard, now edited by Mr Osborne. The proposal was discussed “in the days immediately after the referendum” exactly one year ago, said the newspaper. Ms May has denied the accusation and said that “was certainly not my recollection” of events. But Tom Brake, the Liberal Democrat Brexit spokesman, said: “It is a badge of shame that Theresa May blocked attempts to guarantee the rights of EU nationals after the referendum.

“It shows how cold and heartless she is. “Now that mean-spirited decision is coming back to haunt her as we see an exodus of skilled EU workers, from nurses to academics.” The revelation comes after EU citizens in the UK protested that Ms May’s “generous” offer – outlined last night – will leave them with less rights after Brexit than “British jam”. The Prime Minister’s proposals also ran into trouble from other EU leaders who warned of “open questions” and a “long, long way to go” before agreement. Ms May was forced to defend her position and said she wants to give EU citizens in the UK “certainty” but the details of the arrangement would be outlined during the negotiation process. Since reaching No 10, Ms May has faced down pleas to act unilaterally, insisting she would only offer guarantees to EU citizens if British ex-pats in the EU were given the same protection.

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It’ll happen only after the round of rate hikes. There’s not enough room to go down right now.

The Fed Needs to Acknowledge the Slowing Economy (DDMB)

As any market veteran can tell you, those on the sell-side are the second-to-last to concede to a slowdown in economic activity. It’s unseemly to make negative calls when a firm’s main objective is keeping its clients fully invested in risky assets; the two aims naturally conflict. Hence the surprise when Bank of America Merrill Lynch said autos are headed for a “decisive downturn” that will trough in 2021 at around a 13-million-unit annualized rate, down from last year’s blistering record 17.6 million. A week earlier, Morgan Stanley, whose numbers are not quite as grim, also reduced its sales forecast, recognizing that the best days of the cycle have come and gone. The U.S. economy is consumption-centric. Growth in the current recovery has centered on three industries that have fed through to consumption in its various forms – autos, energy and financial services.

There’s something almost poetic in finance’s re-emergence, especially for those on Wall Street who’ve profited smartly from unprecedented levels of deal flow. Have a debt problem? Solve it with more debt. And why not? This system has worked for generations; insatiable demand for debt is why interest rates have staged their historic decline. Debt lit the fire that ignited the shale revolution. Debt put a floor under and then helped commercial real estate reach for the skies. Debt kept dying retailers alive. And debt made easier back-to-back years of record car sales. The question so many bullish economists must answer is what debt can do for the economy in the future. Much to the Saudis’ dismay, the energy industry is as lean and mean as it’s ever been; operating efficiency gains have been magnificent in a do-or-die environment. Energy is growth neutral going forward.

[..] It’s all good and well that strained industries want to extract what value remains from their CRE exposure as part of their exit strategies. But this only works in isolation. If motivated sellers move in tandem, you can bet teetering CRE valuations will be among the casualties, taking many over-exposed mid-size and small banks down with them. Call it a confluence of factors that bodes ill for the economic recovery, even as optimists hope the growth streak can stretch into a 10th year. By the way, leading the optimists’ charge is the Federal Reserve itself. Central bank policy makers’ expectations for future growth indicate the current economic recovery will unseat the record holder, the expansion that finally flamed out in 2001 after enjoying a life of exactly 10 years. But then it is the Fed that’s the very last to capitulate, to say nothing of forecast, a slowdown in economic activity.

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“The best thing to do is to break Illinois into pieces right now. Just wipe us off the map.”; “Illinois is merely the canary in the coal mine.”

Unfunded Liabilities Have Turned Illinois Into A Banana Republic (Lang)

Illinois is the perfect example of what happens when your state is run by fiscally irresponsible dunces for decades. The state is buried in debt, and hasn’t passed a budget in over 700 days. 100% of their monthly revenue is being consumed by court ordered payments, and the Illinois Department of Transportation has revealed that they may not be able to pay contractors (who are working on over 700 infrastructure projects) after July 1st if the state doesn’t pass a budget. To top it all off, the state’s credit rating is one step away from junk status, the lowest of any state. Because of these factors, Illinois may become the first state to declare bankruptcy since the Great Depression. Governor Bruce Rauner has gone so far as to call his state a “banana republic.” The state’s comptroller has admitted that “We are in massive crisis mode.”

And a reporter for the Chicago Tribune thinks Illinois has gone so far past the point of no return, that the state should be broken up. He recently wrote what basically sounds like a suicide note for Illinois. “Dissolve Illinois. Decommission the state, tear up the charter, whatever the legal mumbo-jumbo, just end the whole dang thing. We just disappear. With no pain. That’s right. You heard me. The best thing to do is to break Illinois into pieces right now. Just wipe us off the map. Cut us out of America’s heartland and let neighboring states carve us up and take the best chunks for themselves. The group that will scream the loudest is the state’s political class, who did this to us, and the big bond creditors, who are whispering talk of bankruptcy and asset forfeiture to save their own skins. But our beloved Illinois has proved that it just doesn’t deserve to survive.”

So how did it get to this point? The root of the problem is Illinois’ unfunded pension liabilities, which amount to $130 billion. The state’s leaders simply promised what could not be delivered. Most of their employees can retire in their 50’s, and many of them will receive 1-2 million dollars over the course of their retirements. As the debts associated with those pensions reached astronomical levels, the government increased taxes so much that many of the wealthiest and most productive citizens and businesses have moved away, leaving an even smaller tax base to draw from. In short, Illinois is in a death spiral, but it’s not alone. Illinois is merely the canary in the coal mine.

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Hopeless.

America’s Health-Care Rain Dance (Jim Kunstler)

The cost of everything medical is worked out in a private rain-dance between the aforementioned manifold concerned parties on the basis of what they think they can get away with in any particular case. In hospitals, this is enabled by the notorious ChargeMaster system which, to put it as simply as possible, allows hospitals to just make shit up. Any bill in congress that affects to reform the gross financial malfeasance in healthcare ought to start with the absolute requirement to publicly post the cost of everything that doctors and hospitals do, and enable the “service providers” to get paid only those publicly posted costs — obviating the lucrative rain-dance for dividing up the ransoms paid by hostage-patients who come to the “providers,” after all, in extremis. Notice that this crucial feature of the crisis is missing not only from the political debate but also from the supposedly public-interest-minded pages of The New York Times and other organs of the news media.

Perhaps this facet of the problem never entered the editors’ minds — in which case you really have to ask: how dumb are they? (The funniest claim about ObamaCare in today’s New York Times is the statement that 20 million citizens got access to health care under the so-called Affordable Care Act. Really? You mean they got health insurance policies with $8000-deductables, when they don’t even have $500 in savings to pay for car repairs? What planet do The New York Times editorial writers live on?) The corollary questions about deconstructing the insurance armature of the health care racket, and assigning its “duties” to a “single-payer” government agency is, of course, a higher level of debate. I’m not saying it would work, even if it was modeled on one of the systems currently working elsewhere, say in France.

But Americans have acquired an allergy to even thinking about that, or at least they’ve been conditioned to imagine they’re allergic by self-interested politicians. So, the current product of debate in the US Senate is just a scheme for pretending to reapportion the colossal flow of grift among the grifters. Spare yourself the angst of even worrying about the outcome of the current healthcare debate. It’s not going to get “fixed.” The medical system as we know it is going to blow up, and soon, just like the pension systems across the country, and the treasuries of the fifty states themselves, and the rest of the Potemkin US economy.

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“The coalition says it takes as many precautions as possible within the laws of warfare..”

US-Led Coalition Kills Almost 500 Syrian Civilians In One Month (NW)

The U.S.-led coalition’s strikes against the Islamic State militant group (ISIS) in two Syrian provinces killed 472 civilians in the last month, according to a monitor. The Syrian Observatory for Human Rights (SOHR), a U.K.-based monitoring group that has an extensive network of contacts on the ground in Syria, said the toll was more than double the month prior and the highest for a single month since raids began in September 2014. In Raqqa province, where the city of the same name is located, coalition strikes killed 250 civilians, including 53 children, SOHR said. In Deir ez-Zor, strikes killed 222 civilians, 84 of which were children. Rami Abdul Rahman, director of SOHR, told the AFP news agency that the total deaths caused by coalition strikes in Syria now amounted to 1,953. Of the deceased, 456 were children and 333 were women.

The coalition continues its bombing campaign in and around the eastern Syrian city of Raqqa, the largest under ISIS’s control in the country. It is supporting an Arab-Kurdish alliance waging a ground offensive against ISIS in the de facto capital of its self-declared caliphate that straddles the Iraqi-Syrian border. The coalition says it takes as many precautions as possible within the laws of warfare, but top coalition generals have admitted that civilian deaths are inevitable in the campaign to defeat ISIS. Some 100,000 civilians remain under ISIS control in the northern Iraqi city of Mosul, and thousands remain in Raqqa. Human rights groups have criticized the coalition for not exercising enough caution. One case in particular was a March 17 strike in Mosul that killed more than 100 civilians. The coalition investigated the incident and concluded that ISIS had placed booby traps in the building that maximized the damage on impact.

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Greece must refuse.

The Unfinished Negotiations For A Greek “Super-Memorandum” (Press Project)

They say that history repeats itself first as a tragedy then as a farce. It’s a commonplace expression that is nevertheless clearly true in crisis-ridden Greece. During the SYRIZA-AnEl coalition’s time in power(especially under the second mandate), even the seasons of the year have come to resemble each other. Winter is a time of tension, harsh disagreement and bluster. Spring is the season for gradual capitulation. May (2016 and 2017) is the month for government betrayal; June for further prerequisites and an “agreement.” The rest of the summer then marks a period of government euphoria, followed by an autumn of initial discussions with an eye to the next set of negotiations. By using what happened over the same span of time in 2016—along with the language of the Third (and “fourth”)Memorandum of Understanding—as a kind of textbook, it’s easy to tell where we are and where we’re headed.

The June 15 Eurogroup joint statement condenses all the results of the most recent set of negotiations. These are the most essential and specific points: “The reform measures cover areas such as pensions, income tax, the labour market as well as the financial and energy sectors. These should make Greece’s medium-term fiscal strategy more robust and support the growth-friendly rebalancing of the economy. The Eurogroup invited Greece together with the institutions and relevant third parties to develop and support a holistic, growth enhancing strategy.”

In this paragraph, the Eurozone Finance Ministers are essentially borrowing a page from 1984. In that legendary novel by George Orwell, war is peace; freedom is enslavement; ignorance is power. For the Eurogroup (as per usual), pension cuts, reductions in tax exemptions, an administration well-disposed to mass lay-offs, and the sale of Public Power Corporation shares all count as positive “reform measures.” Greece’s sentence to a “long-term memorandum,” requiring surpluses of 3.5% until 2022 and a little over 2% until 2060, constitutes “support [of] a holistic, growth enhancing strategy.” “The Eurogroup reconfirmed its approach to the sustainability of Greece’s public debt that was agreed in May 2016, while providing some further detail on the medium-term debt measures that could accrue to Greece. These measures would be implemented after successful completion of the programme, if a new debt sustainability analysis were to confirm that such measures are necessary.”

These two brief paragraphs finalize the results of the multi-month Greek debt negotiations. In short and as is plainly evident, the Greek government gained nothing in terms of its debt, while after months of Eurozone attempts to secure further relief the Eurogroup simply determined that everything decided back in May 2016 still holds. Even the government’s recent expectation that the (highly dangerous) phrase “if necessary” would be removed from the relief-program wording was ultimately frustrated. “The Eurogroup welcomed Greece’s commitment to maintain a primary surplus of 3.5% of GDP until 2022, and a fiscal path consistent with the European fiscal framework thereafter. According to analysis by the European Commission, such compliance would be achieved with a primary surplus of equal to or above but close to 2.0% of GDP in the period of 2023-2060.”

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May 012016
 
 May 1, 2016  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , ,  


George N. Barnard Nashville, Tennessee. Rail yard and depot 1864

This is The Biggest Fraud In The History Of The World (SHTF)
China’s Debt Reckoning Cannot Be Deferred Indefinitely (Magnus)
The Cult Of Central Banking Is Dead In The Water (Stockman)
The Real Story Behind The US New Home Sales Collapse (Adler)
Recent Rise In Yen ‘Extremely Worrying’: Japan Finance Minister (AFP)
UK ‘Is In The Throes Of A Housing Crisis’ (G.)
No, Russia Is Not In Decline – At Least Not Any More And Not Yet (FT)
Germany Should Stop Whining About Negative Rates (Economist)
Could Italy Be The Unlikely Saviour Of Project Europe? (PS)
Future Of Scandal-Hit Mitsubishi Motors In Doubt – Again (AFP)
Trump Saves American TV (Brown)
Greece Concludes Agreement With Creditors On Sale Of NPLs (Kath.)
EU Has Made A Mess Of Refugee Reception System In Greece: Oxfam (Kath.)
84 Migrants Missing After Boat Sinks Off Libya’s Coast (AFP)

“..We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function…”

This is The Biggest Fraud In The History Of The World (SHTF)

The stock market may be hovering near all-time highs, but according to Greg Mannarino of Traders Choice that doesn’t mean the valuations are actually real: We exist, beyond any shadow of any doubt, in an environment of absolute fakery where nothing is real… from the prices of assets to what’s occurring here with regard to the big Wall Street banks, the Federal Reserve, interest rates and everything in between. …All of this is being played in a way to keep people believing, once again, that the system is working and will continue to work:

President Obama has suggested that people like Greg Mannarino who are exposing the fraud for what it is are just peddling fiction. And just this week the President argued that he saved the world from a great depression and that the closing credits of the 2008 crash movie “The Big Short” were inaccurate when they claimed that nothing has been done to fundamentally curb the fraud and fix the system under his administration. But as Mannarino notes, the President and his central bank cohorts are making these statements because the system is so fragile that if the public senses even the smallest problem it could derail the entire thing:

“Let’s just look at the stock market… there’s no possible way at this time that these multiples can be justified with regard to what’s occurring here with the price action of the overall market… meanwhile, the market continues to rise. … Nothing is real. I can’t stress this enough… and we’re going to continue to see more fakery… and manipulation and twisting of this entire system… We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function… and that’s very scary. … We’ve never seen anything like this in the history of the world… The Federal Reserve has never been in a situation like this… we are completely in uncharted territory where the world’s central banks have gone negative interest rates… it’s all an illusion to keep the stock market booming.

… Every single asset now… I don’t care what asset… you want to look at currency, debt, housing, metals, the stock market… pick an asset… there’s no price discovery mechanism behind it whatsoever… it’s all fake… it’s all being distorted. … The system is built upon on one premise and that is confidence that it will work… if that confidence is rattled the whole thing will implode… our policy makers are well aware of this… there is collusion between central banks and their respective governments… and it will not stop until it implodes… and what I mean by implode is, correct to fair value.”

And when that confidence is finally lost and the fraud exposed – and it will be as has always been the case throughout history – the destruction to follow will be one for the history books. In a previous interview Mannarino warned that things could get so serious after the bursting of such a massive bubble that millions of people will die on a world-wide scale:

“It’s created a population boom… a population boom has risen in tandem with the debt. It’s incredible. So, when the debt bubble bursts we’re going to get a correction in population. It’s a mathematical certainty. Millions upon millions of people are going to die on a world-wide scale when the debt bubble bursts. And I’m saying when not if… … When resources become more and more scarce we’re going to see countries at war with each other. People will be scrambling… in a worst case scenario… doing everything that they can to survive… to provide for their family and for themselves. There’s no way out of it.”

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“..credit growth is probably running at about 25-30%, or about twice as fast as official data suggest, and roughly four times the growth in money GDP..”

China’s Debt Reckoning Cannot Be Deferred Indefinitely (Magnus)

[..] there is a bit of folklore about the topping out of skyscrapers: the builders’ ceremonial placing of the final beam often heralds the onset of grim economic news, coinciding with the end of a credit cycle that has funded a frenzy of lending for ever-bigger projects. And indeed, as the economy slows markedly, China is increasingly dependent on credit creation. The share of total credit in the economy is approaching 260% and, on current trends, could surpass 300% by 2020 – exceptional for a middle-income country with China’s income per head. The debt build-up must sooner or later end — and when it does it will have a significant impact on the global economy.

Back in 2008, as the western financial crisis spread, China tried to insulate itself with a big credit stimulus programme to counter factory closures and an accompanying return of millions of migrants to the countryside. By 2011 the growth rate had peaked. Its decline was led by a fall in investment in property, then manufacturing. Subsequent stimulus measures have not altered the trend for long but one constant is a relentless build-up in the indebtedness of property companies, state enterprises and local governments. Conventional measures of credit, however, do not fully reflect the growth of total banking assets. Local and provincial governments have been allowed to issue new bonds on yields a bit below bank loans, bought by banks — but they have not paid down more expensive earlier debts to banks as planned.

Banks, moreover, have also increased their lending, often through instruments such as securitised loans, to non-banking financial intermediaries, such as insurance companies, asset managers and security trading firms. When this is taken into account, credit growth is probably running at about 25-30%, or about twice as fast as official data suggest, and roughly four times the growth in money GDP, the cash value of national output. For now, China’s credit surge seems to have stabilised the economy after a sharp slowdown around the turn of the year. The property market has picked up, attracting funds from a stock market that has fallen out of favour with investors after pronounced instability in the middle of last year and early in 2016. The volume of property transactions has risen and prices have rebounded, especially in the biggest cities.

Timing the end of a credit boom is more luck than judgment. There is no question that lenders own bad loans, reckoned unofficially by some banks and credit rating agencies to amount to about 20% of total assets, the equivalent of around 60% of GDP. These will have to be written off or restructured, and the costs allocated to the state, banks, companies or households. Yet in a state-run banking system, where loans can be extended and there are institutional obstacles to realising bad debts, the day of reckoning can be postponed for some time. More likely, the other side of the lenders’ balance sheets, or their liabilities, is where the limits to the credit cycle will appear sooner.

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“..Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work..”

The Cult Of Central Banking Is Dead In The Water (Stockman)

The Fed has been sitting on the funds rate like some monetary mother hen since December 2008. Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months. There has never been a time in financial history when anything close to this happened, including the 1930s. Nor was interest-free money for eight years running ever even imagined in the entire history of monetary thought. So where’s the fire? What monumental emergency justifies this resort to radical monetary intrusion and repression? Alas, there is none. And that’s as in nichts, nada, nope, nothing! There is a structural growth problem, of course. But it has absolutely nothing to do with monetary policy; and it can’t be fixed with cheap money and more debt, anyway.

By contrast, there is no inflation deficiency – even by the Fed’s preferred measure. Indeed, the very idea of a central bank pumping furiously to generate more inflation comes straight from the archives of crank economics. The following two graphs dramatize the cargo cult essence of today’s Keynesian central banking regime. Since the year 2000 when monetary repression began in earnest, the balance sheet of the Fed has risen by 800%, while the amount of labor hours used in the US economy has increased by 2%. At a ratio of 400:1 you can’t even try to argue the counterfactual. That is, there is no amount of money printing that could have ameliorated the “no growth” economy symbolized by flat-lining labor hours.

 

Owing to the recency bias that dominates mainstream news and commentary, the massive expansion of the Fed’s balance sheet depicted above goes unnoted and unremarked, as if it were always part of the financial landscape. In fact, however, it is something radically new under the sun; it’s the footprint of a monetary fraud breathtaking in its magnitude. In essence, during the last 15 years the Fed has gifted the US economy with a $4 trillion free lunch. Uncle Sam bought $4 trillion worth of weapons, highways, government salaries and contractual services but did not pay for them by extracting an equal amount of financing from taxes or tapping the private savings pool, and thereby “crowding out” other investments.

Instead, Uncle Sam “bridge financed” these expenditures on real goods and services by issuing US treasury bonds on a interim basis to clear his checking account. But these expenses were then permanently funded by fiat credits conjured from thin air by the Fed when it did the “takeout” financing. Central bank purchase of government bonds in this manner is otherwise and cosmetically known as “quantitative easing” (QE), but it’s fraud all the same. In essence, Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work of catalyzing, coaxing and stimulating more jobs and growth out of the US economy. No it wasn’t! What it was actually doing was not stimulating the main street economy, but falsifying and inflating the price of financial assets.

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“ZIRP has enabled corporate CEOs to game the stock market to massively increase their own pay while encouraging them to cut worker salaries and shift higher paying jobs overseas.”

The Real Story Behind US New Home Sales Collapse (Adler)

Comparing the growth in the number of full time jobs versus the growth in new home sales starkly illustrates both the horrible quality of the new jobs, and how badly ZIRP has served the US economy. Growth in new home sales has always been dependent on growth in full time jobs. For 38 years until the housing bubble peaked in 2006, home sales and full time jobs always trended together, subject to normal cyclical swings. With the exception of 1981-83 when Paul Volcker pushed rates into the stratosphere, new home sales always fluctuated between 550 and 1,100 sales per million full time workers in the month of March. But in the housing crash in 2007-09 sales fell to a low of 276 per million full time workers. Since then the number of full time jobs has recovered to greater than the peak reached in 2007. In spite of that, new home sales per million workers remain at depression levels.

With 30 year mortgage rates now at 3.6% sales are lower today than they were when mortgage rates were above 17% in 1982. Sales have never reached 400 sales per million workers in spite of the recovery in the number of jobs, in spite of ZIRP, in spite of mortgage rates often under 4%. ZIRP has actually made the problem worse. It has caused raging housing inflation which has caused median monthly mortgage payments for new homes to rise by 20% since 2009. ZIRP has enabled corporate CEOs to game the stock market to massively increase their own pay while encouraging them to cut worker salaries and shift higher paying jobs overseas. That leaves the US economy to create only low skill, low pay jobs that do not pay enough for workers to be able to purchase new homes. The perverse incentives of ZIRP are why the housing industry languishes at depression levels.

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At WHAT point does WHO become a currency manipulator? The US issued a warning, also to Japan, this week. But Tokyo is being taken to task by the markets. The question becomes: what will seal the fate of Abenomics? A high yen or a low one?

Recent Rise In Yen ‘Extremely Worrying’: Japan Finance Minister (AFP)

Japan’s finance minister said late Saturday the recent sharp rise in the yen is “extremely worrying”, adding Tokyo will take action when necessary. The remarks, which suggest Tokyo’s possible market intervention, came after the Japanese unit surged to an 18-month high against the dollar in New York Friday. It extended the previous day’s rally, which was boosted by a surprising monetary decision made by the BoJ. On Thursday, the central bank shocked markets by failing to provide more stimulus, confounding expectations it would act after a double earthquake and a string of weak readings on the world’s number three economy. The dollar tumbled to 106.31 yen in New York Friday, its lowest level since October 2014, from 108.11 yen. The greenback had bought 111.78 yen in Tokyo before the BoJ announcement on Thursday.

“The yen strengthened by five yen in two days. Obviously one-sided and biased, so-called speculative moves are seen behind it,” Japanese Finance Minister Taro Aso told reporters. “It is extremely worrying,” he said. The finance minister left on a trip, which will also take him to an annual Asian Development Bank meeting in Germany. “Tokyo will continue watching the market trends carefully and take actions when necessary,” he added. A strong currency is damaging for Japan’s exporting giants, such as Toyota and Sony, as it makes their goods more expensive overseas and shrinks the value of repatriated profits. Aso has reiterated that Japan could intervene in forex markets to stem the unit’s steep rise, saying moves to halt the currency’s “one-sided, speculative” rally would not breach a G20 agreement to avoid competitive currency devaluations.

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You don’t say… Who figured that out?

UK ‘Is In The Throes Of A Housing Crisis’ (G.)

David Cameron’s pledge to build a property-owning democracy is called into serious question by a landmark survey revealing that almost four in 10 of those who do not own a home believe they will never be able to do so. According to an exclusive poll for the Observer on attitudes to British housing, 69% of people think the country is “in the throes of a housing crisis”. A staggering 71% of aspiring property owners doubt their ability to buy a home without financial help from family members. More than two-thirds (67%) would like to buy their own home “one day”, while 37% believe buying will remain out of their reach for good. A further 26% think it will take them up to five years. With affordable homes in short supply and demand for social housing rising, more than half of Britons cite immigration and a glut of foreign investment in UK property as factors driving prices beyond reach.

The findings cast doubt on the prime minister’s claim before last year’s general election that Tory housing policies would transform “generation rent” into “generation buy”. In April last year, as he launched plans to force local authorities to sell valuable properties to fund new “affordable homes”, Cameron said: “The dream of a property-owning democracy is alive and well and we will help you fulfil it.” The poll – which found that 58% of people want more, not less, social housing as a way to ease the crisis – comes as the government’s highly controversial housing and planning bill returns to the Commons on Tuesday. The bill will force councils to sell much of their social housing and curb lifelong council tenancies, introducing “pay to stay” rules that will force better-off council tenants to pay rents closer to market levels.

Described by housing experts as the beginning of the end of social housing, the bill has been savaged by cross-party groups in the Lords. They have inflicted a string of defeats on ministers and forced numerous concessions. The government’s flagship plan for “starter homes” has also been widely attacked on the grounds that the properties – which in London will cost up to £450,000 – will not be affordable. With local elections and the London mayoral election on Thursday, ministers now face the dilemma of whether to back down and accept many of the Lords’ amendments to the bill or face legislative deadlock.

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There is no credible news about Russia left in the west.

No, Russia Is Not In Decline – At Least Not Any More And Not Yet (FT)

A survey of recent writings on Russia by western scholars reveals a widely-held view that the largest of the 15 post-Soviet republics has continued to decline in the 21st century. Yet an examination of the data suggests that Russia has actually risen in comparison with some of its western competitors. Neil Ferguson, the British, Harvard-based historian, wrote in 2011 that Vladimir Putin’s Russia was in decline and “on its way to global irrelevance.” His Harvard colleagues Joseph Nye and Stephen Walt hold similar views. “Russia is in long-term decline,” Nye wrote in April 2015; also last year, Walt wrote of Russia’s decline at least twice. Other western thinkers who have pronounced Russia’s decline in the 21st century include John Mearsheimer of the University of Chicago, Ian Bremmer of Eurasia Group, Nicholas Burns of Harvard University and Stephen Blank of the American Foreign Policy Council.

Others go further. Alexander Motyl of Rutgers University recently wrote of a “coming Russian collapse”. Lilia Shevtsova, a Russian scholar affiliated with the Brookings Institution, believes the collapse has already begun. But is Russia really in decline, as western scholars claim? A comparison of its performance with the world as a whole or with the west’s leading economies suggests that the claim that post-Communist Russia has continued its decline into the 21st century is highly contestable at the very least. I have compared Russia with the US, the UK, France, Germany and Italy – the west’s biggest economy, western Europe’s four biggest and all of the west’s nuclear powers – in the period 1999 to 2015 (with some exceptions when data is not available). I relied on data supplied by the World Bank, the Stockholm International Peace Research Institute and the World Steel Association, turning to data from national governments only in the absence of data from the three organisations.

One traditional way of measuring nations’ power relative to each other is to compare their GDP. By this measure, Russia gained economically on all of its competitors as well as on the world as a whole in 1999-2015. Russian GDP was equal to less than 5% of US GDP in 1999. That share grew to 6% in 2015, a 36% increase. Over the same period, Russia’s share of global GDP increased by 23%, from 1.32% in 1999 to 1.6% in 2015. Meanwhile, the US, UK, French, German and Italian shares in global GDP declined by 10%, 11%, 19%, 20% and 32%, respectively. It is well known that the Russian economy has been declining since 2014. According to the World Bank, it is poised to contract by 1% yet again in 2016 before it resumes growth. However, this projected decline will not erase the cumulative gains that the Russian economy has made since 1999 against those of the US, UK, France, Germany and Italy and against the world as a whole.

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Germany doesn’t want a union, it wants a sales market.

Germany Should Stop Whining About Negative Rates (Economist)

Germany and the Netherlands are usually great supporters of central-bank independence. In the 1990s Germany blocked France’s push for a political say over monetary policy in the new ECB. The Dutchman who first headed that bank, Wim Duisenberg, said that it might be normal for politicians to express views on monetary policy, but it would be abnormal for central bankers to listen to them. That was then. Now German and Dutch politicians are trying to browbeat Mario Draghi, the ECB’s current president, into ending the bank’s policy of negative interest rates. The German finance minister, Wolfgang Schäuble, accused Mr Draghi of causing “extraordinary problems” for his country’s financial sector; wilder yet, he also pinned on the ECB half of the blame for the rise of the populist Alternative for Germany (AfD) party.

Both countries’ politicians attack low rates as a conspiracy to punish northern European savers and let southern European borrowers off the hook. ECB autonomy was sacred when rates suited Germany; now that rates do not fit the bill, and are imposed by an Italian to boot, it is another matter. The critics are not just hypocritical. They are partly responsible—let’s say 50% to blame—for the mess. As Mr Draghi has pointed out, his mandate is to raise the euro zone’s inflation rate back towards 2%. It is currently at zero, and periodically dips into negative territory. There is a legitimate debate to be had about how far a negative-interest-rate policy can go. The banks are unwilling to pass on negative rates to depositors, which means their own earnings are dented. And yes, savers are undoubtedly suffering at the moment. But raising rates would squash the recovery, and with it any chance of a normalisation of monetary policy.

The ECB’s policies of ultra-low rates and quantitative easing (printing money to buy bonds) are the same as those used by other central banks in the rich world since the onset of the financial crisis. Even the Bundesbank, whose allergy to inflation largely explains why the ECB was slower to embrace unconventional monetary policy than its peers, has felt compelled to defend Mr Draghi from attacks in Germany. The fundamental reason for Europe’s low interest rates and bond yields is the fragility of its economy. Its unemployment rate is stuck at 10%. While the ECB has been doing what it can to press down the accelerator, however, the austerity preached by the likes of the German and Dutch governments has slammed on the brakes. For years, Mr Draghi has been saying that monetary policy alone cannot speed up the economy, and that creditworthy governments must use fiscal policy as well, ideally by raising public investment.

If Mr Schäuble wants higher yields for German savers, he should be spending more money. Instead, his government is running a budget surplus. A hesitation to spend might be understandable if it were difficult for the German government to find good investment opportunities. But Germany has suffered from low infrastructure spending for decades. Investment by municipalities has fallen by about half since 1991, according to a 2015 report by the German Institute for Economic Research; since 2003 it has failed even to keep pace with the deterioration of infrastructure.

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Kaletsky’s dreaming in technicolor: “..The enormous programme of quantitative easing that Draghi pushed through, against German opposition, has saved the euro…”

Could Italy Be The Unlikely Saviour Of Project Europe? (PS)

As the EU begins to disintegrate, who can provide the leadership to save it? German chancellor Angela Merkel is widely credited with finally answering Henry Kissinger’s famous question about the Western alliance: “What is the phone number for Europe?” But if Europe’s phone number has a German dialling code, it goes through to an automated answer: “Nein zu Allem.” This phrase –“No to everything” –is how Mario Draghi, the ECB president, recently described the standard German response to all economic initiatives aimed at strengthening Europe. A classic case was Merkel’s veto of a proposal by Italian prime minister Matteo Renzi to fund refugee programmes in Europe, North Africa, and Turkey through an issue of EU bonds, an efficient and low-cost idea also advanced by leading financiers such as George Soros.

Merkel’s high-handed refusal even to consider broader European interests if these threaten her domestic popularity has become a recurring nightmare for other EU leaders. This refusal underpins not only her economic and immigration policies, but also her bullying of Greece, her support for coal subsidies, her backing of German carmakers over diesel emissions, her kowtowing to Turkey on press freedom, and her mismanagement of the Minsk agreement in Ukraine. In short, Merkel has done more to damage the EU than any living politician, while constantly proclaiming her passion for “the European project”. But where can a Europe disillusioned with German leadership now turn? The obvious candidates will not or cannot take on the role: Britain has excluded itself; France is paralysed until next year’s presidential election and possibly beyond; and Spain cannot even form a government.

That leaves Italy, a country that, having dominated Europe’s politics and culture for most of its history, is now treated as “peripheral”. But Italy is resuming its historic role as a source of Europe’s best ideas and leadership in politics, and also, most surprisingly, in economics. Draghi’s transformation of the ECB into the world’s most creative and proactive central bank is the clearest example of this. The enormous programme of quantitative easing that Draghi pushed through, against German opposition, has saved the euro by circumventing the Maastricht Treaty’s rules against monetising or mutualising government debts. Last month, Draghi became the first central banker to take seriously the idea of helicopter money – the direct distribution of newly created money from the central bank to eurozone residents.

Germany’s leaders have reacted furiously and are now subjecting Draghi to nationalistic personal attacks. Less visibly, Italy has also led a quiet rebellion against the pre-Keynesian economics of the German government and the European commission. In EU councils and again at this month’s IMF meeting in Washington, DC, Pier Carlo Padoan, Italy’s finance minister, presented the case for fiscal stimulus more strongly and coherently than any other EU leader. More important, Padoan has started to implement fiscal stimulus by cutting taxes and maintaining public spending plans, in defiance of German and EU commission demands to tighten his budget. As a result, consumer and business confidence in Italy have rebounded to the highest level in 15 years, credit conditions have improved, and Italy is the only G7 country expected by the IMF to grow faster in 2016 than 2015 (albeit still at an inadequate 1% rate).

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“It would be silly to buy a Mitsubishi car after this..”

Future Of Scandal-Hit Mitsubishi Motors In Doubt – Again (AFP)

Sales are falling off a cliff. Its reputation is in tatters. And even its top executive is talking about whether the automaker will survive. Mitsubishi Motors’ future is hanging in the balance for the second time in a decade after a bombshell admission that it has been cheating on fuel-economy tests for years. The crisis is threatening to put the company into the ditch permanently, but some analysts think the vast web of shareholdings among Japanese firms may just save it from the scrap yard. “I really think the future of Mitsubishi Motors is grim,” said Hideyuki Kobayashi, a business professor at Hitotsubashi University, who authored a book about the company’s struggles with an earlier cover-up. “It would be silly to buy a Mitsubishi car after this (scandal). This isn’t the first time this has happened.”

In 2005, the maker of the Outlander SUV and Lancer cars was pulled back from the brink of bankruptcy after it was discovered that it covered up vehicle defects that caused fatal accidents. The vast Mitsubishi group of companies stepped in with a series of bailouts, saving the embattled firm. But it is not clear if they would be so willing to help this time around as the automaker faces possibly huge fines, lawsuits and customer compensation costs. The scandal has shone a light on the cozy relationships between Japanese firms – including the big equity stakes they hold in each other – which have come under renewed scrutiny in recent years.

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Lowest common denominator.

Trump Saves American TV (Brown)

My friends in the TV news business are in a state of despair about Donald Trump, even as their bosses in the boardroom are giddy over what he’s doing for their once sagging ratings. “It feels like it’s over,” one old friend from my television days told me recently. Any hope of practicing real journalism on TV is really, finally finished. “Look, we’ve always done a lot of stupid shit to get ratings. But now it’s like we’ve just given up and literally handed over control hoping he’ll save us. It’s pathetic, and I feel like hell.” Said another friend covering the presidential campaign for cable news, “I am swilling antidepressants trying to figure out what to do with my life when this is over.” I’ve been there, and I sure am sympathetic.

When I left cable news in 2010 after 14 years as a correspondent and anchor for NBC News and CNN, this kind of ratings pressure was a big reason why (and I don’t take for granted that I had the luxury of being able to walk away). I was not so interested in night-after-night coverage of Michael Jackson’s death or Britney Spears’ latest breakdown—topics that were “breaking news” at the time. And yes, as my friend reminded me, we did “stupid shit” to get the numbers up when it came to political coverage then, too. (Anyone remember the correspondent’s hologram that appeared on set during CNN’s 2008 election coverage?) But it was nothing like what we’re seeing today. I really would like to blame Trump. But everything he is doing is with TV news’ full acquiescence. Trump doesn’t force the networks to show his rallies live rather than do real reporting.

Nor does he force anyone to accept his phone calls rather than demand that he do a face-to-face interview that would be a greater risk for him. TV news has largely given Trump editorial control. It is driven by a hunger for ratings—and the people who run the networks and the news channels are only too happy to make that Faustian bargain. Which is why you’ll see endless variations of this banner, one I saw all three cable networks put up in a single day: “Breaking news: Trump speaks for first time since Wisconsin loss.” In all these scenes, the TV reporter just stands there, off camera, essentially useless. The order doesn’t need to be stated. It’s understood in the newsroom: Air the Trump rallies live and uninterrupted. He may say something crazy; he often does, and it’s always great television.

This must be such a relief for the TV executives managing a business in decline, suffering from a thousand cuts from social media and other new platforms. Trump arrived on the scene as a kind of manna from hell. I admit I have been surprised by the public candor about this bounty. A “beaming” Jeff Zucker, president of CNN Worldwide, told New York Times media columnist Jim Rutenberg, “These numbers are crazy—crazy.” But if their bosses are frank about the great ratings, some of my friends left at the cable networks are in various degrees of denial. “Give me a break,” one told me. “You can’t put this on us. Reality has changed because of technology. Look at the White House. They’re basically running their own news organization. They bypass us every day. We’re just trying to keep up.” And then there’s this attempt to put the best face on things, which is the most universal comment I hear: “At least this shows how much we still matter.”

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Anything the EU agrees to can be seen as inconsequential.

Greece Concludes Agreement With Creditors On Sale Of NPLs (Kath.)

An agreement between Greece and its lenders will lead to the vast majority of non-performing loans (NPLs) linked to primary residences with a taxable value under 140,000 euros being protected from sale until 2018, Economy Ministry sources have said. The government said on Saturday that the framework for the sale to distressed debt fund of overdue bank loans had been agreed, a necessary condition for the current bailout review to be concluded. According to the Economy Ministry, income criteria will not apply to the primary residence-backed NPLs that will be excluded from sale.

When coupled with the 140,000-euro “objective value” ceiling, this means that 94% of mortgages linked to main homes will be exempt from sale, the government says. The ministry added that the homeowners whose loans will be sold by banks will not experience any major change. The organizations that buy the loans will be required to use debt collection agencies that are registered in Greece and which have been licensed by the Bank of Greece.

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And on purpose too.

EU Has Made A Mess Of Refugee Reception System In Greece: Oxfam (Kath.)

The EU is failing to deliver a fair and safe system for receiving people in Greece, according to charity group Oxfam. The Greek government’s limited capacity and the pressure to meet the terms of the EU-Turkey agreement has led to refugees and migrants being kept in poor conditions, stressed the humanitarian organization in a statement on Friday. “Europe has created this mess and it needs to fix it in a way that respects people’s rights and dignity,” said Giovanni Riccardi Candiani, Oxfam’s representative in Greece. “The EU says it champions the rights of asylum-seekers beyond its borders but these rights are not being respected within EU countries.” Oxfam highlighted problems at the hotspots on Lesvos, where there have been riots in the past few days.

“Moria center is now very overcrowded, holding more than 3,000 people. Non-Syrians are unable to access asylum processes and about 80 unaccompanied children are among those being held,” said the humanitarian organization. “Nearby Kara Tepe camp, which has freedom of movement and provides care for vulnerable people such as unaccompanied children, pregnant women and the elderly, is almost full, leaving people in need of special care and support stranded at Moria center,” added Oxfam. The organization said it is working at six sites across Greece: Kara Tepe on Lesbos island, and in Katsika, Doliana, Filipiada, Tsepelovo and Konista camps in North-West Greece. Oxfam suspended its presence at Moria after the EU-Turkey deal was agreed and the site was converted into a closed facility.

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Europe’s shame continues.

84 Migrants Missing After Boat Sinks Off Libya’s Coast (AFP)

84 migrants are still missing after an inflatable craft sank off the coast of Libya, according to survivors cited by the International Organization for Migration (IOM) on Saturday. Twenty-six people were rescued from the boat which sank on Friday and were questioned overnight. “According to testimonies gathered by IOM in Lampedusa 84 people went missing,” IOM spokesperson in Italy Flavio Di Giacomo wrote on his Twitter feed. Di Giacomo told AFP that the survivors indicated 110 people, all from assorted west African states, had embarked in Libya. In an email, he added that the vessel “was in a very bad state, was taking on water and many people fell into the water and drowned”.

“Ten fell very rapidly and several others just minutes later.” Earlier Saturday, Italy’s coastguard said an Italian cargo ship had rescued 26 migrants from a flimsy boat sinking off the coast of Libya but voiced fears that tens more could be missing. The coastguard received a call from a satellite phone late Friday that helped locate the stricken inflatable and called on the merchant ship to make a detour to the area about four miles (seven kilometres) off the Libyan coast near Sabratha. Rough seas and waves topping two metres (seven feet) hampered attempts to find any other survivors.

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Dec 232015
 
 December 23, 2015  Posted by at 9:11 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle December 23 2015


DPC Unloading bananas, New Orleans 1903

Macquarie Forecasts 13% Fall In Chinese Steel Export Prices (BBG)
U.S. Calls for 256% Tariff on Imports of Steel From China (BBG)
US Existing Home Sales Down 10.5% In November (Reuters)
Man Who Called China’s Boom and Bust Now Warns of Crisis Risks (BBG)
Canadian Oil Industry To Lose 100,000 Jobs By The End Of 2015 (FP)
Finland Should Never Have Joined Euro, Foreign Minister Says (BBG)
Finns’ Support For Euro Falls Ahead Of Referendum Debate (Reuters)
Singapore Stock Losses Set to Rival Greece in 2015 (BBG)
Hope And Fear In The Endless Greek Crisis (FT)
The Decline Of Europe Is A Global Concern (FT)
Mr. Schäuble’s Ultimate Weapon: Restructuring European Public Debts (Bastasin)
Greece Recalls Its Ambassador In Prague After Czech Grexit Comments (Kath.)
Christmas 2015: Will Syria & Iraq Become Washington’s Stalingrad? (Holland)
Military to Military (Seymour Hersh)
UN Blames Saudi-Led Coalition For Attacks On Yemeni Civilians (Reuters)
ExxonMobil and Sierra Club Agreed on Climate Policy – and Kept It Secret (BBG)
Britain Can No Longer Sit Out Refugee Crisis As EU Prepares For More (Guardian)
Turkey Moves to Clamp Down on Border, Long a Revolving Door (NY Times)
Some Catholics Heed Pope’s Call To Succor Refugees, Others Look Away (Reuters)
13 Refugees, 7 Children, Die as Boat Sinks Off Greek Island (Kath.)

“..the industry was built for demand growth that hasn’t come through..”

Macquarie Forecasts 13% Fall In Chinese Steel Export Prices (BBG)

The world needs to get used to cheap Chinese steel, with export prices poised to fall again next year as the world’s biggest producer adjusts to demand that’s dropping for the first time in a generation. The price of hot-rolled coil, used in everything from fridges to freight containers, may decline about 13% next year, Colin Hamilton, Macquarie’s head of commodities research, said. The nation’s steel exports, which have ballooned to more than 100 million metric tons this year, may stay at those levels for the rest of the decade as infrastructure and construction demand continues to falter. While falling steel prices are partly driven by the collapse in raw materials and lower output costs, “it’s just more to do with the fact the industry was built for demand growth that hasn’t come through,” Hamilton said last week.

“We’re past peak steel demand. I think provided there is overcapacity in the Chinese system and given where demand is, it’s going to be like this for some time.” The flood of Chinese supplies has roiled manufacturers around the world, triggering trade restrictions from India to Europe to the U.S. Continued low prices will pressure steel-making profits worldwide, and may trigger further measures against Chinese exports, according to Anjani Agrawal at Ernst & Young in Mumbai. China’s hot-rolled coil is a key reference price for the global steel market. The country is the biggest and one of the lowest-cost makers of a product used by manufacturers across the world. Macquarie is forecasting an average price next year of $267.50 a ton, down from $309 a ton in 2015.

Other banks, including JPMorgan Chase & Co., have said China’s outbound shipments will peak this year as low prices and trade tensions force Chinese producers to start paring output. China’s crude steel production shrank 2.2% to 738.38 million tons in the first 11 months of 2015. “What may slow down the exports is anti-dumping and protectionist measures that several countries have taken against cheap imports,” said Ernst & Young’s Agrawal. “We’re going to see an impact. More and more countries are raising their objections.” India plans to step up its protection for debt-laden domestic steelmakers by imposing a minimum price on steel imports among other measures, Steel Secretary Aruna Sundararajan said this week. The import curbs are necessary to ensure a “level-playing field” for Indian companies after restrictions imposed in September failed to stop a decline in prices, she said.

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We only like free trade when we profit from it.

U.S. Calls for 256% Tariff on Imports of Steel From China (BBG)

Corrosion-resistant steel imports from China were sold at unfairly low prices and will be taxed at 256%, according to a preliminary finding of the U.S. Department of Commerce. Imports from India, South Korea and Italy will be taxed at lower rates, the agency said Tuesday in a statement. Imports from Taiwan and Italy’s Marcegaglia will not face anti-dumping tariffs. The government found dumping margins of 3.25% for most South Korean steel imports, with Hyundai Steel’s shipments subject to duties of 3.5%. Imports from Italian companies excluding Marcegaglia will be taxed at 3.1%. Indian imports are subject to duties from 6.6% to 6.9%.

“We’re concerned that the dumping that’s occurring is at higher levels than these determinations reflect,” Tim Brightbill, a partner at Wiley Rein, a law firm representing U.S. steelmaker Nucor, said Tuesday in an interview. “We have serious concerns that these preliminary duties are not enough at a time when unfairly priced imports continue to surge into the U.S. market at unprecedented rates.” U.S. producers including Nucor, U.S. Steel and Steel Dynamics filed cases in June alleging that some products from China, India, Italy, South Korea and Taiwan had been dumped in the U.S., harming domestic companies. In November, the government found that all those countries, except Taiwan, subsidized their domestic production by as much as 236% of its price.

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Blamed on ‘paperwork’.

US Existing Home Sales Down 10.5% In November (Reuters)

U.S. home resales posted their sharpest drop in five years in November, a potential warning sign for the health of the U.S. economy although new regulations on paperwork for home purchases may have driven the decline. The National Association of Realtors said on Tuesday existing home sales plunged 10.5% to an annual rate of 4.76 million units. That was the sharpest decline since July 2010. October’s sales pace was revised slightly lower to 5.32 million units. Housing has been providing a sizable boost to U.S. economic growth this year as a strengthening labor market and low interest rates have helped young adults to leave their parents’ homes. Economists had forecast sales rising to a rate of 5.35 million units last month.

NAR economist Lawrence Yun said most of November’s decline was likely due to regulations that came into effect in October aimed at simplifying paperwork for home purchasing. Yun said it appeared lenders and closing companies were being cautious about using the new mandated paperwork. Also potentially weighing on home sales, the median price for a U.S. existing home rose to $220,300 in November, up 6.3% from the same month in 2014. Yun said the steep rise in prices and shrinking inventories could also be constraining home purchases. Sales dropped across the country, down 13.9% in the West, 6.2% in the South, 15.4% in the Midwest and 9.2% in the Northeast.

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“Historically, every time the U.S. current account improved, concurrent with dollar strength, some country somewhere in the world plunged into some sort of crisis..”

Man Who Called China’s Boom and Bust Now Warns of Crisis Risks (BBG)

One of the few forecasters to predict both the start and peak of China’s equity boom, is now warning the nation will be buffeted by the same forces that caused financial crises around the world over the past four decades. Hao Hong, chief China strategist at Bocom International, says a shortage of dollars was the common feature in the oil rout in the 1970s, Latin American debt turmoil in the 1980s, the Asian currencies collapse in 1997 and the global crisis in 2008. Next year will see Federal Reserve interest-rate increases, an improving U.S. current-account balance and a stronger greenback, putting strains on the most-leveraged parts of the world’s second-largest economy, he says. “Historically, every time the U.S. current account improved, concurrent with dollar strength, some country somewhere in the world plunged into some sort of crisis,” Hong said.

“The pressure from a Fed tightening and thus a dollar liquidity shortage scenario will more likely show up” in Hong Kong property as well as China’s online lending and high-yield corporate bonds, he said in an interview. The yuan, for many years Asia’s most-profitable carry trade when adjusted for volatility, has weakened 4.2% against the dollar in 2015 as the yield advantage of China’s sovereign debt over U.S. Treasuries fell to the narrowest in five years. Chinese companies that borrowed in foreign currency at a record pace in the past three years are now buying dollars to protect against losses. Hot money that entered China with fake export invoicing, metals purchases and disguised foreign investment is now heading for the exit. “All roads to hell are paved with positive carry,” said Hong.

“Over the past few years, one of the biggest carry trades was to borrow dollar debt unhedged given the one-way expectation for yuan appreciation. We are seeing companies paying down dollar-denominated debt fast, and thus alleviating some of the risks, but not all.” The yuan strengthened 13% against the dollar in the four years through 2013, before retreating 2.4% in 2014. This year’s loss is set to be the biggest in more than two decades. The currency’s Sharpe ratio, a gauge of rewards that factors in the risks investors take, is the highest among 22 emerging markets for the period since 2010, reflecting its appeal to investors who buy higher-yielding currencies with funds borrowed in countries that have lower interest rates.

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Loonie at $1.40. That hurts.

Canadian Oil Industry To Lose 100,000 Jobs By The End Of 2015 (FP)

The oil and gas sector will see 100,000 job losses by the end of this year, including 40,000 direct jobs, as a combination of policy uncertainties and low crude oil prices decimates the sector, the head of the country’s oil and gas industry group says. “Canadians should be concerned in times like these,” Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, said in an interview. “We have a lot of big policy pieces moving around. We need … to ensure we can compete in a slower price environment and if prices do bounce back , that we are the preferred investment jurisdiction and that we are picking up more than our fair share.”

Crude oil prices have halved in the space of a year to around US$35 per barrel and could slip further to the high US$20s as major producers continue to flood the market with record output, Citigroup estimates. Alberta alone has seen job losses of 63,500 jobs in the first eight months of the year, mostly related to the oil sector, according to Statistics Canada. Apart from the protracted price declines, Alberta’s oil and gas sector has also had to contend with a 20% hike in corporate taxes, a carbon tax and new regulatory policies to limit rein in carbon emissions. Meanwhile, a new provincial royalty regime is to be announced in January, leaving Alberta oil and gas producers under a cloud of uncertainty.

The new federal government also plans to unveil new policies, including a review of the regulatory process, which the sector sees as more burden in an already difficult environment for the industry. McMillan said those burdens are chipping away at Alberta’s competitiveness as an energy jurisdiction. In the 1990s, Canada attracted 37% of all oil and gas investments in North America, a figure that now stands at 17%, he said.

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Finland’s economy is tanking.

Finland Should Never Have Joined Euro, Foreign Minister Says (BBG)

Finland should never have signed up to the single currency union, according to its foreign minister. With the northernmost euro member now set to become the bloc’s weakest economy, the question of currency regime continues to resurface as Finland looks for explanations for its lost competitiveness. Timo Soini, who is also the leader of one of three members of the ruling coalition, the anti-immigration The Finns party, says the country could have resorted to devaluations had it not been for its euro membership. The comments come as a former foreign minister gathers signatures in an effort to force the government to hold a referendum on euro membership. While polls still show most Finns don’t want to go through the process of exiting the currency bloc, there are signs that a plurality of voters think they would be better off outside the euro.

Debate on the subject “will gather steam,” Soini, who rose to power on a platform of euro-skepticism, said in Helsinki on Tuesday. But he also warned that a referendum “wouldn’t provide solutions,” here and now, to Finland’s economic woes. “The fact is that Finland is a member of the euro area.” The country has seen its economy sink following the decline of a consumer electronics business once led by Nokia Oyj and a faltering paper industry, with political efforts to create new growth motors so far failing. Without the option of currency devaluation, the government has calculated that Finland needs to lower its labor costs as much as 15% to catch up with its main trade partners, Sweden and Germany. Finland’s economy has shrunk for the past three years and Nordea, the biggest Nordic bank, predicts further contraction in 2015. Finland will be the weakest EU economy by 2017, when it will grow at less than half the pace of Greece, according to the European Commission.

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Please, Finns, blow up the union! If you don’t do it, someone else will, anyway.

Finns’ Support For Euro Falls Ahead Of Referendum Debate (Reuters)

Support in Finland for keeping the euro currency has fallen to 54% amid persistent economic problems, an opinion poll showed on Tuesday, as parliament prepares for a debate next year on whether to hold referendum on euro membership. Despite recovery elsewhere in the euro zone, Finland has suffered three years of economic contraction and some Finns say its prospects would improve if it returned to the markka currency. Parliament had to agree to a debate on a possible referendum after a petition raised the necessary 50,000 signatures. The debate will probably be held in the first half of 2016. The move is unlikely to end membership, analysts say. The poll by public broadcaster YLE published on Tuesday showed that 54% of Finns supported remaining in the euro zone, while 31% wanted to leave. Asked whether Finland would do better outside the euro zone, 44% answered yes.

Last month, a Eurobarometer poll showed 64% of Finns backed the euro currency, down from 69% a year earlier. Finland’s foreign minister and the leader of eurosceptic The Finns party Timo Soini told reporters that even if many believed the euro was harmful for the country there was not enough political will to leave the currency bloc. “I think Finland should not have joined the euro. But how to dismantle that decision, that is a very complicated question.” He noted that Finland adopted the euro in 1998 without a referendum, while neighbors Sweden and Denmark voted down the idea of adopting the euro a few years later. Finland was once known for its prudent fiscal policy, but after the global financial crisis its recovery has been hit by a string of problems, including high labor costs and recession in neighboring Russia.

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Singapore gets hurt by China.

Singapore Stock Losses Set to Rival Greece in 2015 (BBG)

Singapore’s stocks are set for a 15% tumble this year, putting them in the same league as Greece. Baring Asset Management and UBS say shares need to get even cheaper before they’re prepared to buy. Commodity trader Noble and oil-rig builder Sembcorp fell at least 46% in 2015 through Monday amid a raw-materials price rout, while DBS Group has been the biggest drag on the Straits Times Index as property prices decline and bad debts increase. Among developed markets tracked by Bloomberg, the only benchmark measure that has fared worse is the ASE Index in Athens, which is poised for a 24% plunge. “While some value could emerge if Singapore drops another 10%, there’s not a lot of things to be wildly excited about Singapore at the moment,” said Soo Hai Lim, a Hong Kong-based money manager at Baring.

“Cheap valuations aren’t a good enough reason why these stocks would deliver the kind of performance we’re looking for. The growth outlook is still quite soft for 2016.” Following this year’s slump, shares on the MSCI Singapore Index trade at 1.1 times the value of its companies’ net assets, compared with a multiple of 2 on a measure of global equities. The gap between the two widened this month to the most since May 2003. The MSCI All-Country World Index is heading for a 5.5% retreat in 2015. While attractive valuations may spur a rebound in the early part of next year, the outlook for the whole year still looks pessimistic, according to Mixo Das at Nomura. “Growth overall is slowing, particularly in China, and that raises the risk for the earnings of banks and commodity companies,” Das said. “That’s going to drag on Singapore valuations.”

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The EU took any hope of a Greek recovery away. Martin Wolf should know that.

Hope And Fear In The Endless Greek Crisis (FT)

The Greek economic crisis has blighted the country and the eurozone for six years. The election last January, which brought Alexis Tsipras and his leftwing Syriza party to power, added further friction between Greece and the rest of the eurozone. Mr Tsipras vowed to undo austerity — a promise he could not deliver on his own. In the event, after winning a referendum in June against the terms offered by the eurozone, he agreed in July to a new €86bn three-year eurozone programme on terms not so different from those he had persuaded the Greek people to reject. After a split in his party, Mr Tsipras then won another election in September. Yet the capital controls imposed in June remain in force and the economy has fallen back into recession.

Is there a good chance that economic recovery will take hold in 2016? This was in my mind as I visited Athens last week. My conclusion was that a chance does exist. But it is not, alas, that good. The starting point has to be with the differences of view among the main players: the Greek government and wider political community; the IMF; and eurozone creditors, particularly Germany. As Mr Tsipras made clear last week, one of his aims is to avoid another programme with the IMF. He finds its demands hard to bear. More broadly, he thinks that “the sooner we get away from the [bailout] programme the better for our country”. He notes: “If Greece completes the first [progress] review in January, we’ll be covering more than 70% of fiscal and financial measures in the agreement.”

He hopes Greece will soon regain its sovereignty or, with the IMF out of the picture, at least will only have other Europeans to deal with. The Athens government is also optimistic about the economic future. Mr Tsipras expects remaining capital controls to be lifted by March 2016 and for Greece to regain access to international capital markets by the end of the year. Banks have been recapitalised more cheaply than feared and confidence in the banking sector is returning. The government also hopes economic growth will soon resume. Nevertheless, the government is hoping for further debt relief. The IMF agrees with it. This is also plausible. Interest due on public debt is forecast by the Bank of Greece to jump from 2% of gross domestic product up to 2021 to over 8% in 2022 and then stay over 4% until the 2040s.

Sustainability largely depends on the terms of the new debt. If the eurozone made it possible for Greece to borrow on triple-A terms forever, the debt would be sustainable. Otherwise, it probably would not be. The IMF argues that Greek debt has become unsustainable only because the government failed to meet its commitments. That is doubtful. The ability of Greece to deliver was never credible. Moreover, while the IMF does support Greece on debt relief, it is very sceptical of its ability to deliver structural reforms in the absence of a political consensus that the reforms are desirable. It insists, against the government, that the country is well behind where it was a year ago on reforms. It has backtracked in important areas.

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“..the EU is doomed always to be less than the sum of its parts”… “Europe’s leaders have a tried and tested method for coping with urgent problems. They find solutions that are temporary, barely satisfactory and designed chiefly to serve the purpose of somehow keeping the EU show on the road.”

The Decline Of Europe Is A Global Concern (FT)

In his 1898 poem “Waiting for the Barbarians”, the Greek poet CP Cavafy describes a polity that invents or exaggerates mysterious foreign threats to prop up its decaying power structures. The listless ruling elites, hollow public ceremonies and pervasive forebodings of doom depicted in Cavafy’s masterwork should serve in 2016 as a wake-up call for Europe. Whether it concerns terrorism, immigration, homegrown political extremism, the eurozone’s unity, unemployment, lacklustre economic growth or even Europe’s military defences, national governments and the EU apparatus in Brussels look increasingly as if they are not up to the numerous challenges bearing down simultaneously from every direction. This should worry not just Europeans but their friends and partners in the Americas and Asia.

The malaise goes much wider and deeper than the EU, which is not to blame for everything that happens or does not happen in Europe. It is partly a matter of Europe’s relative global decline, which makes it difficult to manage events even in its own neighbourhood. It is partly a matter of cultural, economic, political and technological change in western societies as a whole. This disrupts familiar patterns of life, undermines the trust of citizens in their rulers and weakens the ability of governments to act decisively. Nonetheless, the EU is the focus of concern. Its inadequate responses to one crisis after another create the unfortunate impression that, despite being a club of affluent democracies, with 28 member states and more than 500m inhabitants, the EU is doomed always to be less than the sum of its parts.

Rousing appeals from political leaders for a more efficient and closely integrated EU — and there have been lots of them in 2015 — turn out too often to be mere lip service to an ideal. The EU’s pitiful efforts at defence collaboration illustrate the problem. It was none other than Jean-Claude Juncker, the European Commission president, who said in October: “If I look at the common European defence policy, a bunch of chickens would be a more unified combat unit in contrast.” This is not to say that the EU is on the brink of falling apart. As they demonstrated during the eurozone crisis, and as they are demonstrating again in the refugee and migrant emergency, Europe’s leaders have a tried and tested method for coping with urgent problems.

They find solutions that are temporary, barely satisfactory and designed chiefly to serve the purpose of somehow keeping the EU show on the road. In this spirit they have arranged three hugely expensive financial rescues of Greece, but they have refused to grasp the nettle of a comprehensive write-off of Greek debt. They have created a semi-banking union which has common supervision and a common mechanism for winding up failed banks, but which lacks common deposit insurance. In both cases it is national political pressures, primarily in Germany, that are the obstacle. Just as the eurozone crisis split the currency union between northern and southern Europeans, so the refugee emergency is dividing the EU between its older western European member states and its newer central and eastern ones. The Schengen system of border-free travel, a cornerstone of EU integration, is already fragmenting along west-east lines.

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Germany never understood the meaning of ‘union’.

Mr. Schäuble’s Ultimate Weapon: Restructuring European Public Debts (Bastasin)

A German plan for revamping the euro-area proposes an automatic mechanism for sovereign debt-restructuring. This mechanism, designed by Berlin’s Ministry of Finance, is designed to prevent any form of risk-sharing between euro-area countries and to confine the costs of fiscal and financial instability primarily within the more fragile countries. From the perspective of debt defaults, the plan could enforce more discipline, but it also risks dramatizing any future episode of financial instability. The 18 countries sharing the euro are still struggling to recover from seven years of financial troubles that have jeopardized the very survival of the common currency. Since 2010, a slew of different proposals have been put forward for improving either the centralization of the area’s economic governance or, alternatively, for decentralizing the risks and limiting the amount of risk-sharing.

The German government seems to have lost faith in any form of centralized governance, and it would rather try to shield German taxpayers from sharing the potential costs of a sovereign debt crisis in other countries. The plan is described in a letter sent at the end of November by the Ministry of Finance to the heads of the Finance and Budget Committee of the German Parliament. The unpublished missive prescribes an automatic mechanism for restructuring the public debt of any country requesting financial assistance. Once a country asks for help through the European Stability Mechanism (the ad hoc fund established in 2012), for whichever reason, sovereign bond maturities will automatically be lengthened, reducing the market value of those bonds and causing severe losses for all bondholders.

The mechanism would turn euro-area sovereign bonds into riskier assets—the goal of another proposal by the German government, which scraps the regulatory exception for sovereign bonds that allows banks to hold them without hoarding capital reserves to cover eventual losses. According to a rather abstract interpretation of how European economies work, making sovereign bonds explicitly riskier encourages banks and households to refrain from underwriting them too lightly. Governments will have fewer incentives to pile up debt. Banks will also turn away from investing in government bonds and perhaps engage more intensely with the real economy. Economic efficiency across the euro area should increase.

Unfortunately, establishing an automatic mechanism for sanctioning undesirable financial predicaments could also make them more likely to happen. Sovereign bonds have a unique and pivotal role for the financial systems of the euro-area. So, once sovereign bonds in some euro-area countries become more risky, the whole financial system might turn frail, affecting growth and economic stability. Ultimately, rather than exerting sound discipline on some member states, the new regime could widen bond rate differentials and make debt convergence simply unattainable, increasing the probability of a euro-area break-up.

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The EU is tearing Europe apart.

Greece Recalls Its Ambassador In Prague After Czech Grexit Comments (Kath.)

In an unprecedented setback to diplomatic relations between the two EU members, Greece on Tuesday recalled its ambassador to the Czech Republic, Panayiotis Sarris, for consultations. The decision by Foreign Minister Nikos Kotzias came in response to comments by Czech President Milos Zeman to Slovak news agency TASR last week that his country would only join the eurozone after Greece had left the common currency area. “I was very disappointed from the result of the negotiations which almost led to the so-called Grexit, but eventually ended up with Greece staying in the eurozone,” said Zeman, adding that he would not like to see Greek debts being shouldered by Czech taxpayers.

Athens lodged a formal complaint with the Czech ambassador in Greece last week while Foreign Ministry spokesman Constantinos Koutras issued a laconic statement saying that “the Czech Republic is a member-state of the European Union thanks to Greece.” However, Athens made no further response to Zeman’s remarks in anticipation of a retraction from Prague. On Tuesday, Kotzias eventually decided to recall Sarris. Sources told Kathimerini that the move does not amount to a suspension of diplomatic ties between the two states, but it does mark a downgrade of relations between two EU partners. According to the same people, the diplomatic reaction is also aimed at conveying a signal to governments in Slovakia and Hungary, which appear to have been maintaining a skeptical stance toward Athens since the outset of the debt crisis in 2010 – a stance that has deteriorated since the summer due to the refugee crisis.

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The petrodollar.

Christmas 2015: Will Syria & Iraq Become Washington’s Stalingrad? (Holland)

[..] there are some scary parallels between the Nazi Empire of the 1940’s and the Washington Empire and conquests today that revolve around the Petrodollar system that has maintained the dollar reserve currency status since the end of World War Two. This dollar world reserve currency model required that oil was only priced and sold in dollars forced all foreign nations buying and importing oil to keep major dollar reserves to pay for their oil imports guaranteed a permanent and expanding demand for dollars around the world. Three Middle East countries first broke the oil/dollar requirement and threatened the petrodollar system including Iraq, Libya and Iran hence the US military attempts to violently overthrow these governments to maintain Washington hegemony and the dollar.

America has plenty of population to increase military forces unlike Germany in 1942 but we are reaching the limit to voluntary military enlistments in a time of permanent war and repeated overseas assignments. Also the continuous terror threats since 9/11 as well as real and orchestrated plots are being questioned by a growing number of alternative Internet media sites and polls show Americans no longer trust Congress or the media establishment. I fear the political leadership has determined a real war of limited scope and duration may be the best way to regain control of the situation and inspire the American people to sacrifice and support their political leadership.

Also a war scenario will allow Washington, Wall Street and the Federal Reserve to transfer the blame for the looming death of the Petrodollar to foreign adversaries like Russia, China and Iran. This will provide political cover to a decade long recession and dramatically reduced economic growth and prosperity as the death of the petrodollar works its way through the US economy over the next few years.

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US military shared info with Assad behind Washington’s back.

Military to Military (Seymour Hersh)

Barack Obama’s repeated insistence that Bashar al-Assad must leave office – and that there are ‘moderate’ rebel groups in Syria capable of defeating him – has in recent years provoked quiet dissent, and even overt opposition, among some of the most senior officers on the Pentagon’s Joint Staff. Their criticism has focused on what they see as the administration’s fixation on Assad’s primary ally, Vladimir Putin. In their view, Obama is captive to Cold War thinking about Russia and China, and hasn’t adjusted his stance on Syria to the fact both countries share Washington’s anxiety about the spread of terrorism in and beyond Syria; like Washington, they believe that Islamic State must be stopped.

The military’s resistance dates back to the summer of 2013, when a highly classified assessment, put together by the Defense Intelligence Agency (DIA) and the Joint Chiefs of Staff, then led by General Martin Dempsey, forecast that the fall of the Assad regime would lead to chaos and, potentially, to Syria’s takeover by jihadi extremists, much as was then happening in Libya. A former senior adviser to the Joint Chiefs told me that the document was an ‘all-source’ appraisal, drawing on information from signals, satellite and human intelligence, and took a dim view of the Obama administration’s insistence on continuing to finance and arm the so-called moderate rebel groups. By then, the CIA had been conspiring for more than a year with allies in the UK, Saudi Arabia and Qatar to ship guns and goods – to be used for the overthrow of Assad – from Libya, via Turkey, into Syria.

The new intelligence estimate singled out Turkey as a major impediment to Obama’s Syria policy. The document showed, the adviser said, ‘that what was started as a covert US programme to arm and support the moderate rebels fighting Assad had been co-opted by Turkey, and had morphed into an across-the-board technical, arms and logistical programme for all of the opposition, including Jabhat al-Nusra and Islamic State. The so-called moderates had evaporated and the Free Syrian Army was a rump group stationed at an airbase in Turkey.’ The assessment was bleak: there was no viable ‘moderate’ opposition to Assad, and the US was arming extremists.

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But they’re our friends…

UN Blames Saudi-Led Coalition For Attacks On Yemeni Civilians (Reuters)

The United Nations High Commissioner for Human Rights told the U.N. Security Council on Tuesday that a Saudi-led coalition’s military campaign in Yemen appeared to be responsible for a “disproportionate amount” of attacks on civilian areas. Speaking at the council’s first public meeting on Yemen since the Saudi-led bombing campaign began nine months ago, Zeid Ra’ad al Hussein said he had “observed with extreme concern” heavy shelling from the ground and air in civilian areas of Yemen including the destruction of hospitals and schools. He said all parties to the conflict were responsible, “although a disproportionate amount appeared to be the result of air strikes carried out by coalition forces.”

A Saudi-led Arab coalition intervened in Yemen’s civil war in March to try to restore the government after it was toppled by Iran-allied Houthi forces, but a mounting civilian death toll and dire humanitarian situation has alarmed human rights groups. Western nations have been quietly increasing pressure on Saudi Arabia to seek a political deal to end the conflict, U.N. diplomats have said. Diplomats said Tuesday’s session was convened to shine a spotlight on the conflict and pressure all sides to seek a negotiated end to the bloodshed. U.S. Ambassador to the United Nations, Samantha Power, president of the council for December, said all parties must abide by humanitarian law. She said the Houthis must stop indiscriminate shelling of civilians and cross-border attacks.

“We will also continue to urge the Saudi-led coalition to ensure lawful and discriminate targeting and to thoroughly investigate all credible allegations of civilian casualties and make adjustments as needed to avoid such incidents,” Power said. Warring parties in Yemen agreed to a renewable seven-day ceasefire under U.N. auspices that started Dec. 15, but it has been repeatedly violated. “I further call on the council to do everything within its power to help restrain the use of force by all parties and to urge all sides to abide by the basic principles of international humanitarian law,” Zeid said.

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What climate groups do with your donations.

ExxonMobil and Sierra Club Agreed on Climate Policy – and Kept It Secret (BBG)

ExxonMobil and Sierra Club may be thought of as natural enemies, particularly when it comes to a question so tricky as how to address climate change. That’s what two men named David thought, too, when they first met in 2008 to talk about a climate policy with very little support: a national tax on industrial carbon dioxide emissions. Secretly, however, they found that a common problem—the threat of unwieldy legislation—can for a time scramble the very idea of friends and enemies. “Demonizing people is not a good idea,” said David Bailey, who at the time managed climate policy for ExxonMobil in Washington. “I realized that people at the Sierra Club don’t all have horns and a tail, and—I think—likewise.” His negotiating partner at the time, David Bookbinder, was the chief climate counsel for the Sierra Club.

The two wonks, working for organizations that are typically locked in opposition, recognized a shared interest in finding an alternative direction for U.S. climate policy. It took nearly a year and more than a dozen meetings to come up with a short document that bridged a huge chasm. It turns out that America’s biggest oil company and one of its most iconic environmental groups could collaborate. What they came up with has gone unacknowledged until now—and it could provide a path past an intractable impasse on climate policy.
Congress’s first attempts to address climate change relied on the idea that markets and private enterprise can ratchet down greenhouse gas pollution faster, more efficiently, and more inexpensively than regulation. The first serious legislation, introduced in 2003 by Senator John McCain (R-Ariz.) and then-Senator Joseph Lieberman (D-Conn.), would have set a national limit on emissions that tightened them over time.

It also would have allowed heavy emitters to sell their pollution permits if they didn’t need them, or buy more permits from other companies if they exceeded their emissions quota. You might remember this proposal by its nickname: cap and trade. Despite the aura of inevitability around it in 2008, there were plenty of legitimate reasons not to like the cap-and-trade regime. Some businesses thought it overly complex, backed by a market-driven price for CO2 pollution permits that would prove too variable for careful planning. The complexity also scared off some environmentalists, particularly with the world undergoing a Wall Street-inflicted financial meltdown that began in the third quarter of 2008. Bailey and Bookbinder, the oilman and the environmentalist, independently started casting about for unlikely allies for an alternative to the cap-and-trade juggernaut.

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“The PM has firmly argued that it is better to keep the 4 million Syrian refugees “in-region”.. F**king stop bombing their homes then, you twit.

Britain Can No Longer Sit Out Refugee Crisis As EU Prepares For More (Guardian)

The difference in the response from the German chancellor and the British prime minister to the biggest refugee crisis Europe has faced since the second world war could not be more stark. Angela Merkel’s Germany has taken in more than 1 million asylum seekers this year. Her electrifying welcome announcement in August transformed the chancellor’s cautious reputation for leading from behind, to one of a moral pioneer. It is true that her open door response has provoked a backlash, particularly in Bavaria, through which most refugees and asylum seekers have entered Germany. But the backlash, while real enough in her own CDU party, appears to have been confined to a minority of the wider public.

A French-based IFOP poll of seven countries showed support for the principle of sheltering refugees from war and persecution has dropped in Germany from 79% in September to 75% in October. Fewer than half of Britons, French or Dutch say they feel the same way. While the demand for an upper limit on the number of refugees in Germany has damaged Merkel, it seems far from sweeping her from office. David Cameron and his home secretary, Theresa May, on the other hand, have not only kept the door firmly shut but have made a virtue of it. While Germany accepted 108,000 asylum seekers between September and November, Cameron was boasting last week of resettling just 1,000 Syrian refugees over a longer period.

The PM has firmly argued that it is better to keep the 4 million Syrian refugees “in-region”, underpinned by a generous cumulative £1bn aid programme and to end the incentive for those making the journey by “breaking the link between getting on a boat in the Mediterranean and getting the right to settle in Europe”.

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Yeah, so much better now: “Turkey at last seems to be getting serious about shoring them up.” “Whoever approaches the border is shot…” Whatever happened to humanity?

Turkey Moves to Clamp Down on Border, Long a Revolving Door (NY Times)

The Turkish Coast Guard has stepped up nighttime patrols on the choppy, wintry waters of the Aegean Sea, seizing rafts full of refugees fleeing war for Europe and sending them back to Turkey. Down south, at the border with Syria, Turkey is building a concrete wall, digging trenches, laying razor wire and at night illuminating vast stretches of land in an effort to cut off the flow of supplies and foreign fighters to the Islamic State. On land and at sea, Turkey’s borders, long a revolving door of refugees, foreign fighters and the smugglers who enable them, are at the center of two separate yet interlinked global crises: the migrant tide convulsing Europe and the Syrian civil war that propels it. Accused by Western leaders of turning a blind eye to these critical borders, Turkey at last seems to be getting serious about shoring them up.

Under growing pressure from Europe and the United States, Turkey has in recent weeks taken steps to cut off the flows of refugees and of foreign fighters who have helped destabilize a vast portion of the globe, from the Middle East to Europe. Smugglers who used to make a living helping the Islamic State, also known as ISIS or ISIL, bring foreign fighters into Syria say that it is increasingly difficult — though still not impossible — to do so now. Border guards who once fired warning shots, they say, now shoot to kill. “Whoever approaches the border is shot,” said Omar, a smuggler interviewed in the border town of Kilis who insisted on being identified by only his first name because of the illegal nature of his work. “And many have been killed.” Another smuggler, Mustafa, who also agreed to speak if only his first name was used, said, “Two months ago, you could get in whatever you liked.”

He said he used to bring in explosives and foreign fighters for the Islamic State, which allowed him to continue his regular business of smuggling food and other items, like cigarettes, into Syria. Now, he said, “the Turkish snipers shoot any moving object.” At the coast, Turkey’s efforts to interdict more boats full of migrants came after the European Union agreed to pay Ankara more than $3 billion to help with education and health care for the refugees in the country. Some rights groups have cried foul. Amnesty International recently accused Turkey of illegally detaining migrants and, in some cases, of sending them back to war zones. Turkish officials have said they detain relatively few migrants, and only ones they say have links to smuggling rings.

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Same reaction as Europe.

Some Catholics Heed Pope’s Call To Succor Refugees, Others Look Away (Reuters)

One Catholic parish in Germany tore out its pews to make space for refugees. Franciscan monks near Rome took a family into their hilltop convent. But in northern Italy, a rural priest faced hostility when he asked his flock to shelter Muslims. Four months after Pope Francis appealed to the parishes and religious communities of Europe to each take in one family of refugees, the response is decidedly mixed. Arms have opened wide in some places but indifference, bureaucracy, fear, and xenophobia have reared their heads elsewhere, particularly after the attack by Islamist militants who killed 130 people in Paris last month. Around a million migrants arrived by sea in Europe in 2015, with some 3,700 dying, according to the International Organisation for Migration.

Some of them, if Francis is heeded, should be heading to safety among the roughly 120,000 Catholic parishes in Europe But in Italy – which with more than 25,000 has the largest number of parishes – only about 1,000 have responded, according to Father Giancarlo Perego, head of the Church-affiliated Migrantes Foundation. Another 1,500 families had offered to host refugees. Perego and other Church officials pointed out, however, that many Catholic parishes were already supporting refugee services well before the pope’s appeal. Italian bishops have published a “How To” booklet for parishes, dealing with everything from how to prepare parishioners for the arrival of refugees, legal issues, and a glossary explaining terms such as asylum and repatriation.

When Francis announced the initiative on Sept. 6, he set the example by welcoming two families into the Vatican’s own two parishes. Many of the migrants entering Europe have headed to Germany, where the Catholic Church is one of the richest in Europe, partly because of a Church tax on members, and which has an institutional tradition of helping refugees. More than 3,000 staff members work full time to help refugees and are backed up by about 100,000 volunteers, according to a spokesperson. St. Benedikt’s parish in the northern port city of Bremen removed pews and confessionals and converted the church into a temporary refugee shelter. “This is our duty. We can’t sing Christmas carols about opening doors to those in need and at the same time refuse to let anyone enter,” said one of its priests, Father Johannes Sczyrba.

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Brussels should be taken to The Hague.

13 Refugees, 7 Children, Die as Boat Sinks Off Greek Island (Kath.)

Seven children, two women and four men drowned when their boat sank off the small Aegean island of Farmakonisi, Greek coastguard officials said early Wednesday. Another 15 people were rescued and one was still missing according to witnesses, the officials said adding that a Super Puma helicopter, a patrol boat and private vessels assisted the search-and-rescue operation. “The vessel, a 6-metre (20-foot) speed boat, sank under unknown circumstances,” one of the officials told Reuters. “They were in the water when they were spotted by a rescue boat.”

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Dec 242014
 
 December 24, 2014  Posted by at 1:09 pm Finance Tagged with: , , , , , , ,  


Frances Benjamin Johnston Courtyard, 620-621 Gov. Nicholls Street, New Orleans 1937

Merry Christmas!

Here Is The Reason For The “Surge” In Q3 GDP (Zero Hedge)
The US Economy ‘Grew’ By $140 Billion As Americans Became Poorer (Zero Hedge)
China’s Bubble Looks Bigger Than America’s, Says Steve Keen (Straits Times)
UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile (Bloomberg)
Oil Drillers Under Pressure to Scrap Rigs to Cope With Downturn (Bloomberg)
Can Canadian Oil Sands Survive Falling Prices? (BW)
T. Boone Pickens Says Oil Down Due To “Weak Demand” (Zero Hedge)
Existing Home Sales Collapse Most Since July 2010 (Zero Hedge)
U.S. Minimum Wage Hikes To Impact 1,400-Plus Walmart Stores (Reuters)
20 Stunning Facts About Energy Jobs In The US (Zero Hedge)
Asian Currencies Set For A Wild Ride In 2015 (CNBC)
Greeks Used to Years of Chaos Dismiss Samaras’s Warnings (Bloomberg)
US Families Prepare For ‘Modern Day Apocalypse’ (Sky News)
El Nino Seen Looming by Australia as Pacific Ocean Heats Up (Bloomberg)

How to cut through the crap.

Here Is The Reason For The “Surge” In Q3 GDP (Zero Hedge)

Back in June, when we were looking at the final Q1 GDP print, we discovered something very surprising: after the BEA had first reported that absent for Obamacare, Q1 GDP would have been negative in its first Q1 GDP report, subsequent GDP prints imploded as a result of what is now believed to be the polar vortex. But the real surprise was that the Obamacare boost was, in the final print, revised massively lower to actually reduce GDP! This is how the unprecedented trimming of Obamacare’s contribution to GDP looked like back then.

Of course, even back then we knew what this means: payback is coming, and all the BEA is looking for is the right quarter in which to insert the “GDP boost”. This is what we said verbatim:

Don’t worry though: this is actually great news! Because the brilliant propaganda minds at the Dept of Commerce figured out something banks also realized with the stub “kitchen sink” quarter in November 2008. Namely, since Q1 is a total loss in GDP terms, let’s just remove Obamacare spending as a contributor to Q1 GDP and just shove it in Q2. Stated otherwise, some $40 billion in PCE that was supposed to boost Q1 GDP will now be added to Q2-Q4. And now, we all await as the US department of truth says, with a straight face, that in Q2 the US GDP “grew” by over 5% (no really: you’ll see).

Well, we were wrong: it wasn’t Q2. It was Q3, albeit precisely in the Q2-Q4 interval we expected. Fast forward to today when as every pundit is happy to report, the final estimate of Q3 GDP indeed rose by 5% (no really, just as we predicted), with a surge in personal consumption being the main driver of US growth in the June-September quarter. As noted before, between the second revision of the Q3 GDP number and its final print, Personal Consumption increased from 2.2% to 3.2% Q/Q, and ended up contributing 2.21% of the final 4.96% GDP amount, up from 1.51%. So what did Americans supposedly spend so much more on compared to the previous revision released one month ago? Was it cars? Furnishings? Housing and Utilities? Recreational Goods and RVs? Or maybe nondurable goods and financial services? Actually no. The answer, just as we predicted precisely 6 months ago is… well, just see for yourselves.

In short, two-thirds of the “boost” to final Q3 personal consumption came from, drumroll, the same Obamacare which initially was supposed to boost Q1 GDP until the “polar vortex” crashed the number so badly, the BEA decided to pull it completely and leave this “growth dry powder” for another quarter. That quarter was Q3.

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“Of note: real spending on gasoline and other energy goods rose 4.1%. Wait, what? Wasn’t spending on energy supposed to drop?”

The US Economy ‘Grew’ By $140 Billion As Americans Became Poorer (Zero Hedge)

This is simply stunning. Regular readers will recall that last month, at the same time as the US Bureau of Economic Analysis reported was a far better than expected 3.9% GDP (since revised to 5.0% on the back of the previously noted Obamacare spending surge), it also released its Personal Spending and Income numbers for the month of October, or rather revised numbers, because as we explained exactly one month ago “Americans Are Suddenly $80 Billion “Poorer”” thanks to (upward) revised spending data and (downward) revised income. What this meant a month ago is that as a result of a plunge in the imputed US savings rate, some $80 billion in personal savings was revised away from the average American household and right into the US economy. After all, something had to grow the US GDP by a massive amount in order to give the Fed the green light it needs to hike rates eventually, just so it can then ease when the global dry powders from all the other central banks is used up.

And sure enough, this is how just one month ago, personal income was revised lower…

… Even as personal spending was revised higher:

Leading to an $80 billion revision lower in personal saving, and by mathematical identity, a comparable growth in US GDP. Fast forward to today when we find that… absolutely nothing has changed, and in order to boost US GDP some more, the BEA engaged in precisely the same data revision trick! On the surface, today’s Personal Income and Spending data were inline to a little bit better than expected: Personal Income supposedly rose 0.4% in November, up from a 0.3% revised growth in October, and in line with expectations. Personal Spending supposedly also rose, this time by 0.6%, up from an upward revised 0.3%, and just above the 0.5% expected. Of note: real spending on gasoline and other energy goods rose 4.1%. Wait, what? Wasn’t spending on energy supposed to drop?

So far so good: nothing abnormal (except for the clearly made up spending data), and in isolation this data would be good, suggesting the US consumer is getting more confident and is spending ever more as the year closes, on expectations of higher paying jobs, stronger economy, etc. And then we looked at the Personal Savings number: it was reported at 4.4% in November, down from 4.6% in October. Which is odd because last month, the October savings rate was disclosed as 5.0%, in turn down from a downward revised 5.6% in September. Wait, could the BEA be engaging in precisely the same deception in November as it did in October. Why yes, Virgina: not only did the US Department of Economic Truth completely fabricate its GDP numbers earlier, but the way it got to said fabrication is by fudging – for the second month in a row – both the entire Personal Income and Personal Spending data series.

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“The Chinese private sector debt… is higher now than America’s at its peak. And the acceleration of debt was faster… “The bubble in China is bigger and faster than the sub-prime bubble was in America.”

China’s Bubble Looks Bigger Than America’s, Says Steve Keen (Straits Times)

“Did you wake up before or after the sunrise today?” asks Professor Steve Keen “After,” I mutter sheepishly. “That’s a trick question. The sun doesn’t rise,” he says before letting out a guffaw. “The earth rotates… (But) it’s more natural for us to use that language than to say what actually happens.” The analogy is rather fitting for an Australian academic who wrote a book called Debunking Economics, and is now the chief economist of a global network of thinkers that declares it is “dedicated to the reform of economics”. In Bangkok recently for the launch of the Institute for Dynamic Economic Analysis, the 61-year-old professor in Britain’s Kingston University London equates mainstream economic theory with spurious astronomy assumptions.

Strangely enough, he says, it overlooks the role of money. Instead, it likens governments to households which ought to prize prudence, which in government terms means generating consistent surpluses. But the private sector, in order to pay the government enough to generate its surplus, has two options: It either “runs down the money it’s got, which means the economy is shrinking”, or borrows money to make such payments. Countries that run a trade surplus with others can maintain a permanent surplus without forcing its private sector into a debt crisis, but the good times don’t last. China – the world’s largest economy – is an example where the rise of private sector debt is bringing the country dangerously close to a crisis, he says.

Its central bank made a surprise cut in interest rate in November amid weakening economic data. Growth in the third quarter slackened to 7.3%, which is already its lowest since 2009. Prof Keen, who accurately predicted the last financial crisis before the 2008 crash, warns that another even bigger bubble is brewing in China. Chinese private sector debt, he points out, has risen from roughly 100% of its gross domestic product in 2008 to about 180% now, as the government encouraged lending to stimulate demand and make up for the shortfall in exports. “That’s an enormous increase,” he says. “The Chinese private sector debt… is higher now than America’s at its peak. And the acceleration of debt was faster… “The bubble in China is bigger and faster than the sub-prime bubble was in America.”

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“.. mainland companies deposit 20% to get a letter of credit from an onshore lender. They take that document to get a low-interest dollar loan from a Hong Kong bank, which treats it like a no-risk check fully backed by the guarantor. The companies flip those dollars back to the mainland, where they use them as collateral to get even more letters of credit..”

UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile (Bloomberg)

UBS is flagging risks from China’s $1 trillion worth of unhedged foreign debt as forecasters see bets against the greenback unwinding in 2015. The world’s second-largest economy is exposed to shifts in currency and interest rates as never before because of expanding international trade and easing foreign-exchange regulations, said Stephen Andrews, head of Asia banks research in Hong Kong at UBS. Daiwa Capital Markets has a $1 trillion estimate for carry-trade inflows since 2008, bets on the difference between yields in China and overseas. It sees a 5.7% drop in the yuan next year. The renminbi is heading for a 2.8% drop in 2014 as the dollar gains on Federal Reserve plans to raise interest rates and the People’s Bank of China cuts borrowing costs to support a flagging economy. Capital controls and record foreign-exchange reserves will help the PBOC cope with any similar situation to 1997’s Asian financial crisis, when firms struggled to repay debt as regional currencies slumped, Andrews said.

“This could get very uncomfortable very quickly,” he said in a Dec. 12 interview. “I boil it down to its basics. You’ve borrowed unhedged and leveraged: you’re at risk.” Andrews says the mechanics of what’s happening are this: mainland companies deposit 20% to get a letter of credit from an onshore lender. They take that document to get a low-interest dollar loan from a Hong Kong bank, which treats it like a no-risk check fully backed by the guarantor. The companies flip those dollars back to the mainland, where they use them as collateral to get even more letters of credit, leveraging even further, said Andrews. That money is then used to invest in China’s high-yield and often risky trust products or in the booming stock market. The profits are then used to pay off dollar borrowings.

Hong Kong banks mainland-related lending stood at HK$3.06 trillion ($394 billion) at the end of September, 14.7% of total assets, according to the city’s monetary authority. Andrews said his estimate is higher as he includes trade bills and other forms of lending not captured by the data, such as between sister companies in intergroup corporate transfers or letters of credit between onshore and offshore bank branches. “There were too many cheap dollars in the market for everyone to borrow,” Kevin Lai, an economist at Daiwa in Hong Kong, said Dec. 16. “If you just put the money in China, the carry plus appreciation is about 5%, so why not, right?” Lai estimates $1 trillion of carry-trade inflows since the first round of quantitative easing in 2008, of which $380 billion entered China disguised as commerce flows.

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Hundreds of rigs will be dropped.

Oil Drillers Under Pressure to Scrap Rigs to Cope With Downturn (Bloomberg)

Offshore oil-drilling contractors, who last year were able to charge record rates for their vessels, are now under pressure to scrap old rigs at an unprecedented pace. The recent five-year low in oil prices is threatening an industry already grappling with a flood of new vessels and weakening demand. More than 200 new rigs are scheduled to be delivered in the next six years. That’s a 25% jump from the number currently under contract. To cope, many rig owners will try to keep revenue up by culling older vessels to balance supply and demand. “The older assets, particularly those built before the 2000 time period, are really less desired by the industry,” James West, an analyst at Evercore ISI in New York, said in a phone interview.

Those vessels “are only causing the customer base to use those rigs against higher quality rigs to get pricing lower.” About 140 older rigs would need to be scrapped to make way for the new vessels scheduled for delivery by 2020, according to Andrew Cosgrove, an analyst at Bloomberg Intelligence. That pace would double the number scrapped in the previous six years and even eclipse the 123 vessels retired since 2000, according to data compiled by Bloomberg. Booming offshore exploration earlier in the decade encouraged a flurry of rig orders. That’s now leading to a potential market crash in a global industry pegged to generate revenue of $61.5 billion this year. Low oil prices are compounding the problem, alarming investors.

Three of the six worst performers in the Standard & Poor’s 500 Index this year are offshore rig contractors: Transocean, Noble and Ensco. Hercules Offshore, the largest provider of shallow-water rigs in the Gulf of Mexico, has fallen 84% as producers consolidated and drilling was postponed. “There is an old saying: If our customers get a cold, we get pneumonia,” John Rynd, chief executive officer of Houston-based Hercules, told investors this month. “We’re getting pneumonia right now.” Next year may be worse. Explorers and producers are expected to cut offshore spending by 15%, with “grievous” cuts coming for exploration, Bill Herbert, an analyst at Simmons & Co., said in an e-mail.

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“CNBC: “Peak Oil didn’t happen” .. Pickens: “That’s all bullshit .. I am the expert, not you.”

T. Boone Pickens Says Oil Down Due To “Weak Demand” (Zero Hedge)

Narrative, we have a problem! No lesser oil-man than T. Boone Pickens made quite an appearance on CNBC this morning – stunning the cheerleaders into first defense then silence as he broke the facts on oil’s collapse to them. Oil is down “mainly due to weak demand,” he explains… the anchors deny, “I am the expert, not you” Pickens rages as he warns drilling rigs will be laid down on a very wide scale (just as we have noted previously). Arguing over ‘peak oil’, he calls CNBC chatter “bullshit” and laid out a rather dismal short- to medium-term outlook for the oil & gas sector – not what the cheerleading tax-cut slurping media narrative wants to hear at all…

“demand is down” – “lower demand is the main driver” – “rig count is gonna fall – drop 500 rigs in next 6-9 months” Capex cuts coming… oil prices may be back at $90-100 Brent in 12-18 months but not without rig counts plunging. At 4:15 Pickens starts to discuss Peak Oil… enjoy – CNBC: “Peak Oil didn’t happen” .. Pickens: “That’s all bullshit… I am the expert not you” CNBC: “well you’re not much of an expert if you thought Peak Oil happened”

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Not a terribly intelligent piece.

Can Canadian Oil Sands Survive Falling Prices? (BW)

As oil prices have crashed over the past six months, a lot of attention has focused on what this means for frackers in the U.S., as well as the national budgets of a lot of large oil producing countries, such as Russia and Venezuela. In short, it’s not good. But what about Canada? The country is the world’s fifth-largest oil producer, and only Saudi Arabia and Venezuela have more proven reserves of crude. Almost all of Canada’s reserves (and production) are in the form of oil sands, which are among the most expensive types of crude to produce. There are pretty much two ways to do it. One is to inject steam into wells deep underground to heat up a thick, gooey type of oil called bitumen. The other is basically to strip mine large tracts of land and extract a synthetic blend of oil out of the earth and sand. Taken together, both methods require about 17% more energy and water than conventional oil wells and also result in similarly higher levels of carbon emissions.

That’s made oil sands a particular target of environmentalists. Now the Canadian oil sands producers have to contend with an even greater opposing force: economics. If Canadian oil sands are more expensive to produce than most other oil, how can they survive in the face of prices that are nearly 50% cheaper since June? A few things play to their favor. The first is that their costs are more akin to a mining operation than conventional oil drilling. Oil sands projects require massive upfront investments, but once those are made, they can go on producing for years with relatively low costs. That’s made oil sands, and the companies that produce them, quite profitable over the past few years. Suncor and Cenovus are two of the biggest oil sands producers in Canada. Both have profit margins that would be the envy of a lot of major oil companies.

At Suncor, earnings before interest, taxes, depreciation, and amortization (Ebitda), a basic measure of a company’s financial performance, have risen from 11.7% in 2009 to 31% through the first nine months of 2014. Exxon Mobil’s Ebitda so far this year is about half that at 14.3%. That cost structure may give oil sands producers an advantage over frackers in the U.S., who operate on a much shorter time horizon. Fracked wells in the U.S. tend to produce most of their oil within about 18 months or so. That means that to maintain production and rates of return, frackers need to keep reinvesting in projects with fairly short lifespans, whereas an oil sands project, once up and running, can continue to chug along, even in the face of lower prices, since its costs are spread out over a decade or more rather than over a couple years. That should keep overall oil sands production from falling and help insulate oil sands producers from lower prices, at least for now.

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But we’re doing great!

Existing Home Sales Collapse Most Since July 2010 (Zero Hedge)

Having exuberantly reached its highest level since September 2013 last month (despite the total collapse in mortgage applications), it appears the ugly reality of the housing market has peeked its head out once again. As prices rose, existing home sales plunged 6.1% – the most since July 2010 (against an expected 1.1% drop) to 4.93mm SAAR (the lowest in 6 months). So what was it this time: the polar vortex, the crude collapse, the crude vortex? Neither: According to the NAR’s endlessly amusing Larry Yun, this time it was the stock market: “The stock market swings in October may have impacted some consumers’ psyche and therefore led to fewer November closings. Furthermore, rising home values are causing more investors to retreat from the market.”

Supposedly he is referring to the tumble, not the resulting Bullard “QE4” mega-explosion in stocks that pushed everyhting to new all time highs. In other words, according to the NAR, even the tiniest downtick in stocks, and the housing market gets it. Sure enough, it is time to boost confidence in a rigged, manipulated ponzi scheme: DROP IN NOVEMBER COULD BE ONE-MONTH ‘ABERRATION,” YUN SAYS .. Unless, of course, stocks drop again, in which case all bets are off. Meanwhile, it appears investors have left the building…

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That’s what you get in a fake recovery.

U.S. Minimum Wage Hikes To Impact 1,400-Plus Walmart Stores (Reuters)

Minimum wage increases across the United States will prompt Wal-Mart Stores Inc to adjust base salaries at 1,434 stores, impacting about a third of its U.S. locations, according to an internal memo reviewed by Reuters. The memo, which was sent to store managers earlier this month, offers insight into the impact of minimum wage hikes in 21 states due to come into effect on or around Jan. 1, 2015. These are adjustments that Wal-Mart and other employers have to make each year, but growing attention to the issue has expanded the scope of the change. Thirteen U.S. states lifted the minimum wage in 2014, up from 10 in 2013 and 8 in 2012. Wal-Mart spokeswoman Brooke Buchanan said the company was making the changes to “ensure our stores in the 21 states comply with the law.”

For Wal-Mart, the biggest private employer in the United States with 1.3 million workers, minimum wage legislation is not a small thing. Its operating model is built on keeping costs under close control as it attracts consumers with low prices and operates on tight margins. In recent years, it has been struggling to grow sales after many lower-income Americans lost jobs or income in the financial crisis. The Wal-Mart memo shows that there will be changes to its pay structure, including a narrowing of the gap in the minimum premium paid to those in higher skilled positions, such as deli associates and department supervisors, over lower grade jobs. Wal-Mart will also combine its lowest three pay grades, which include cashiers, cart pushers and maintenance, into one base rate.

The changes appear in part to be an effort to offset the anticipated upswing in labor costs, according to a manager who was implementing the changes at his store. “Essentially that wage compression at the upper level of the hourly associate is going to help absorb that cost of the wage increase at the lower level,” said the manager, who spoke on condition of anonymity. Wal-Mart’s critics – including a group of its workers backed by labor unions – say the retailer pays its hourly workers too little, forcing some to seek government assistance that effectively provides the company with an indirect taxpayer subsidy. Labor groups have been calling for Wal-Mart, other retailers and fast-food chains to pay at least $15 an hour.

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Do read the entire piece, it has lots of goodies.

20 Stunning Facts About Energy Jobs In The US (Zero Hedge)

For all those who think the upcoming carnage to the shale industry will be “contained” we refer to the following research report from the Manhattan Institute for Policy Research:

  • The United States is now the world’s largest and fastest-growing producer of hydrocarbons. It has surpassed Saudi Arabia in combined oil and natural gas liquids output and has now surpassed Russia, formerly the top producer, in natural gas. [ZH: that’s about to change]
  • The increased production of domestic hydrocarbons not only employs people directly but also radically reduces the drag on growth and job formation associated with America’s trade deficit.
  • As the White House Council of Economic Advisors noted this past summer: “Every barrel of oil or cubic foot of gas that we produce at home instead of importing abroad means more jobs, faster growth, and a lower trade deficit.” [the focus now is not on the oil produced at home, which is set to plunge, but the consumer “tax cut” from plunging oil prices]
  • Since 2003, more than 400,000 jobs have been created in the direct production of oil & gas and some 2 million more in indirect employment in industries such as transportation, construction, and information services associated with finding, transporting, and storing fuels from the new shale bounty.
  • All told, about 10 million Americans are employed directly and indirectly in a broad range of businesses associated with hydrocarbons.
  • There are 16 states with more than 150,000 people employed in hydrocarbon-related activities. Even New York, which continues to ban the production of shale oil & gas, is seeing job benefits in a range of support and service industries associated with shale development in adjacent Pennsylvania.

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We all are, would be my guess.

Asian Currencies Set For A Wild Ride In 2015 (CNBC)

Asian currencies could be in for a wild ride in 2015, with central bank policy on track for further divergence as the Federal Reserve prepares to raise interest rates, analysts say. “The U.S. Federal Reserve will be hiking interest rates next year, while some Asian central banks will be acting in the opposite direction. Growth momentum is firmly in favor of the U.S., while structural and cyclical slowdowns in certain parts of Asia will see growth differentials narrow,” ANZ said in a note last week. The Federal Reserve is widely expected to hike interest rates in July after unwinding its quantitative easing program this year, according to CNBC’s latest Fed survey of economists, strategists and fund managers, released last week. By contrast, most of Asia’s central banks are easing.

The People’s Bank of China cut interest rates for the first time in two years in October, while the Bank of Korea cut rates to a record low that month. Meanwhile, the Bank of Japan remains committed to its massive stimulus effort, while calls for rate cuts in Thailand and Australia are growing. ANZ forecasts 3% depreciation in Asian currencies over 2015, “a similar decline to that seen in 2014,” noting that “risks are tilted towards a larger depreciation should tighter U.S. monetary policy lead to larger portfolio outflows from the region.” Saxo Capital Markets agrees. “The world’s major central banks and economies are entirely out of sync and the oil price collapse has added a dramatic new geopolitical and economic twist to global markets,” Saxo’s head of foreign-exchange strategy John Hardy said in a note last week.

He anticipates “U.S. dollar strength on U.S. outperformance” next year. There are four potential ‘what if’ catalysts for currency volatility next year, according to Hardy: U.S. junk bond outflows, the resignation of European Central Bank (ECB) president Mario Draghi, Chinese yuan devaluation and a substantial weakening in the Japanese yen. “There are already signs that the junk bond market in the U.S. is under severe strain here late in 2014. Liquidity is terrible in these bonds,” Hardy said. “Junk bonds related to the U.S. shale oil are the most clearly in the danger zone and investor flow out of bonds could see mayhem and see the Fed ceasing all thoughts of hiking rates,” which would see the dollar weaken sharply.

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“Evoking the fear of euro exit may not work this time with lawmakers and voters.”

Greeks Used to Years of Chaos Dismiss Samaras’s Warnings (Bloomberg)

As Prime Minister Antonis Samaras’s political maneuvers to avoid early elections edge toward a dead end, his warning of turmoil risks falling on deaf ears among Greeks numbed by years of upheaval. After losing a second vote in parliament yesterday on his candidate for a new president, Samaras needs to win over a dozen lawmakers before a final ballot on Dec. 29. Should he fail, the constitution dictates that elections must be called, with opposition party Syriza leading opinion polls. “We’ve already been living through chaos for years now,” said Kostas Grekas, a 23-year-old computer-technology student in Athens who graduates next year. “I’d prefer there to be elections now so that Syriza gets in, just to break up the old party system and to see something different.”

Greece marked 2014 by exiting a six-year recession that cost the country about a quarter of its economic output and tripled the unemployment rate. While Samaras’s pitch is that a change of government would endanger the incipient recovery, Syriza promises to abandon austerity measures tied to the country’s international bailout. Samaras, 63, garnered 168 votes out of 300 members of parliament to get approval for Stavros Dimas as the country’s largely ceremonial head of state. He needed 200 votes for victory and the threshold next week falls to 180 lawmakers. In the third vote, “each MP will come face to face with the anguish of the Greek people and the interests of the nation,” the prime minister said after the result.

The prospect of early parliamentary elections has roiled financial markets in Greece, evoking memories of the height of the financial crisis in 2012 when the country’s euro membership was in jeopardy and Samaras took power after two knife-edge ballots in the space of six weeks. Samaras says Syriza has revived the prospect of a euro exit, yet polls show the party would prevail in a vote. A survey by polling company Rass published on Dec. 21 showed Syriza ahead of Samaras’s New Democracy by 3.4 percentage points, albeit down from 5.3 points in November. “Samaras has cried wolf too many times,” said Dimitrios Triantaphyllou, assistant professor in the international relations department at Kadir Has University in Istanbul. “Evoking the fear of euro exit may not work this time with lawmakers and voters.”

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“Dangerous weather, terrorist attacks and economic collapses are all best dealt with by higher authorities, he said.”

US Families Prepare For ‘Modern Day Apocalypse’ (Sky News)

“We’re not talking about folks walking around wearing tin foil on their heads,” Jay tells Sky News. “We’re not talking about conspiracy theorists. “I’m talking about professionals: doctors and lawyers and law enforcement and military. Normal, everyday people. They can’t necessarily put their finger on it. But there’s something about the uncertainty of our times. They know something isn’t quite right.” Jay is a celebrity in the strange but increasingly mainstream world of preppers, writing prepper books and touring America, speaking at prepper expos where a bewildering range of survival supplies and techniques are on offer. Why is it happening? Partly, no doubt, because it allows Americans to indulge in some of their favourite pastimes: consuming, camping and buying lots and lots of guns.

And partly because fear sells, drives up numbers for cable news, and increases sales for everything from dried food to assault rifles. But it’s also arguably a sign of a country coping with economic decline. The end of the American Dream has left people more uncertain about their future, and their country’s. Katy Bryson is in Jay’s prepper network. Prepping, she says, puts Americans back in charge of their destiny. They’re not in control of whether they lose their job or not but they are in control of whether they are prepared. So I feel like that’s why the industry is just booming right now for preparedness,” Katy added. It is also a fundamentally American phenomenon. In a country built on the radical individualism of its founding fathers, people have an inbuilt mistrust in their government’s ability to protect them.

Sociologist Barry Glastner wrote The Culture of Fear. He told Sky News: “Americans are fairly unique as world citizens in that we tend to believe that we control our own destiny as individuals to a much greater extent than we really do.” Ironically, he points out preppers may actually be reacting to their fears in the least effective way. Dangerous weather, terrorist attacks and economic collapses are all best dealt with by higher authorities, he said. “Where there are real dangers, to take an individualistic approach is usually exactly the wrong thing to do. So the kinds of things that the preppers are preparing to protect themselves from are much better handled on a community-wide basis than they are in your own home.”

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It’s been predicted for a while now.

El Nino Seen Looming by Australia as Pacific Ocean Heats Up (Bloomberg)

El Nino-like weather may persist in coming months as the Pacific Ocean continues to warm and indicators approach thresholds for the event that brings drought to Asia and heavier-than-usual rains to South America. Sea-surface temperatures have exceeded the thresholds for a number of weeks and the Southern Oscillation Index has generally been negative for the past few months, Australia’s Bureau of Meteorology said today. While trade winds have been near-average along the equator, they have been weaker in the broader tropical belt, it said. A sustained weakening of trade winds is needed for the phenomenon to develop, the bureau says. El Ninos, caused by periodic warmings of the Pacific, can roil world agricultural markets as farmers contend with drought in Asia or too much rain in South America.

Palm oil, cocoa, coffee and sugar are among crops most at risk, Goldman Sachs says. Forecasters, including Australian scientists, raised the possibility of an El Nino earlier this year before tempering their outlook as conditions didn’t develop. “The tropical Pacific Ocean continues to border on El Nino thresholds, with rainfall patterns around the Pacific Ocean basin and at times further afield displaying El Nino-like patterns over recent months,” the bureau said. “If current conditions do persist, or strengthen into next year, 2014–2015 is likely to be considered a weak El Nino.” El Nino conditions appear to have formed and will probably continue, the Japan Meteorological Agency said on Dec. 10. The surface temperature of the Pacific was higher than normal in almost all areas in November, it said.

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