Jan 132018
 
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Rembrandt van Rijn The flight into Egypt – a night piece 1651

 

The Household Debt Ticking Time Bomb (IRD)
The Stock Market Never Goes Down Anymore (BBG)
Fed Pays Banks $30 Billion on “Excess Reserves” for 2017 (WS)
Fed’s Rosengren Faults Inflation Target, Warns Of Harm (R.)
Goldman Warns Treasury Issuance To More Than Double In 2019 (ZH)
The Company That Runs Britain Is Near To Collapse. Watch And Worry (G.)
Spanish and Dutch Agree to Seek Soft Brexit Deal (BBG)
Economics Is Too Important To Be Left To The -Academic- Economists (Steve Keen)
Who Moved My Xanax? (Jim Kunstler)
Dolphins Show Self-Recognition Earlier Than Human Children (NYT)
The Ocean Is Suffocating—But Not For The First Time (Atlantic)

 

 

It’s your borrowing that will do you in.

The Household Debt Ticking Time Bomb (IRD)

I fully expect the Government’s Census Bureau to post a mind-blowing headline retail sales number for December. Hyperbolic headline economic statistics derived from mysterious “seasonal adjustments” based on questionable sampling methodology is part of the official propaganda policy mandated by the Executive Branch of Government. But I also believe that retail sales were likely more robust than saner minds were expecting because it appears that households have become accustomed to the easy credit provided by the banking system to make ends meet. Borrow money to “spend and pretend.” The Fed reported that consumer credit hit an all-time record in November. The primary driver was credit card debt, which hit a new all-time high (previous record was in 2008). Credit debt also increased a record monthly amount in November.

“Speaking of signposts, households have grown increasingly comfortable with leverage to maintain their living standards, which of course economists cheer. That’s worked for 24 straight months as credit card spending growth has outrun that of income growth” – Danielle DiMartino Booth, who was an advisor for nine years to former Dallas Fed President, Richard Fisher. The graph above shows the year over year monthly percentage change in revolving credit – which is primarily credit card debt – and real disposable personal income. Real disposable personal income is after-tax income adjusted for CPI inflation. As you can see, the growth in the use of credit card debt has indeed outstripped the growth in after-tax household income. The credit metric above would not include home equity lines of credit.

At some point, assuming the relationship between the two variables above continues along the same trend, and we have no reason to believe that it won’t, credit card debt will collide with reality and there will be a horrifying number of credit card defaults. Worse than 2008-2010. [The next] chart shows household debt service payments as a percentage of after-tax income: “Debt service” is interest + principal payments. With auto loan and credit card debt, most of the debt service payment is interest. This metric climbed to a 5-year high during a period of time when interest rates hit all-time record lows. Currently the average household is unable to make more than the minimum principle payment per the information conveyed by the first graphic. What happens to the debt service:income ratio metric as households continue to pile on debt to make ends meet while interest rates rise?

Household debt service includes mortgage debt service payments. Household mortgage debt outstanding is not quite at the all-time high recorded in Q2 2008. The current number from the Fed is through Q3 2017. At the current quarterly rate of increase, an new all-time high in mortgage debt outstanding should occur during Q2 2018. However, it should be noted that the number of homes sold per quarter during this current housing bubble is below the number of units sold per quarter at the peak of the previous housing bubble. This means that the average size of mortgage per home sold is higher now than during the earlier housing bubble. This is a fact that overlooked by every housing and credit market analyst, either intentionally or from ignorance (I’ll let you decide).

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Until it does.

The Stock Market Never Goes Down Anymore (BBG)

The New Year’s rally has pushed the S&P 500 Index to its best start since the administration of George W. Bush. Now it’s bumping against speed barriers that marked the upper limits of bull markets for decades. Up eight times in the first nine days of 2018, the S&P 500 has broken away from a trend line, its 200-day moving average, with a velocity unseen since 2013, the best year for equities in a generation. The benchmark now sits more than 11% above the level, putting it in the 92nd percentile of momentum, data going back 20 years show. Something has changed in equities. If 2017 was a slow but steady slog, 2018 has been off to the races, with shares rising at four times last year’s daily rate on the back of Donald Trump’s tax package and gathering signs of economic strength.

Forty seven companies in the S&P 500 are already up at least 10% this year, compared with just two down as much. “Even if you were the bullest of the bulls, this crazy rally start to the year took you off guard,” said Michael Antonelli at Robert W. Baird & Co. “We’ve completely run out of ways to describe what’s happening. We get asked a lot, are you seeing anything different that could explain the rally? The answer is no.” Fear of missing out is rampant not just on Wall Street but worldwide. Globally, stock funds saw a $24 billion inflow in the five days through Thursday, the sixth largest weekly total ever. Concern the U.S. stocks have jumped too much too fast prompted Morgan Stanley’s Andrew Sheets to cut the U.S. stocks’s exposure in favor of European equities this week.

Sheets isn’t the only one having a hard time keeping up. The average of 23 strategists predictions is for the S&P 500 to reach 2,914 at year-end. If stocks were to maintain the same upward trajectory they’ve exhibited in the last nine days, it would take roughly two more weeks to reach the strategists’ target. At 3.4 times its book value, the S&P 500 trades at the most expensive level since 2002, while its 14-day relative strength index reached a level unseen since 1996. The S&P 500 rose 1.6% to 2,786 this week, pushing the spread between the gauge and its 200-day moving average to 11.5%, the widest in five years.

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Because it can.

Fed Pays Banks $30 Billion on “Excess Reserves” for 2017 (WS)

The Federal Reserve’s income from operations in 2017 dropped by $11.7 billion to $80.7 billion, the Fed announced today. Its $4.45-trillion of assets – including $2.45 trillion of US Treasury securities and $1.76 trillion of mortgage-backed securities that it acquired during years of QE – produce a lot of interest income. How much interest income? $113.6 billion. It also made $1.9 billion in foreign currency gains, resulting “from the daily revaluation of foreign currency denominated investments at current exchange rates.” For a total income of about $115.5 billion. Those are just “estimates,” the Fed said. Final “audited” results of the Federal Reserve Banks are due in March. This “audit” is of course the annual financial audit executed by KPMG that the Fed hires to do this.

It’s not the kind of audit that some members in Congress have been clamoring for – an audit that would try to find out what actually is going on at the Fed. No, this is just a financial audit. As the Fed points out in its 2016 audited “Combined Financial Statements,” the audit attempts to make sure that the accounting is in conformity with the accounting principles in the Financial Accounting Manual for Federal Reserve Banks. Given that the Fed prints its own money to invest or manipulate markets with – which makes for some crazy accounting issues – the Generally Accepted Accounting Principles (GAAP) that apply to US businesses to do not apply to the Fed. This annual audit by KPMG reveals nothing except that the Fed’s accounting is in conformity with the Fed’s own accounting manual.

The Fed pays the banks interest on their “Required Reserves” and on their “Excess Reserves” at the Fed. Excess Reserves are the biggie: As a result of QE, they jumped from $1.7 billion in July 2008, to $2.7 trillion at the peak in September 2014. They’ve since dwindled, if that’s the right word, to $2.2 trillion:

When the Federal Open Markets Committee (FOMC) meets to hash out its monetary policy, it also considers what to do with the interest rates that it pays the banks on “Required Reserves” and on “Excess Reserves.” In this cycle so far, every time the Fed has raised its target range for the federal funds rate (now between 1.25% and 1.50%) it also raised the interest rates it pays the banks on “required reserves” and on “excess reserves,” which went from 0.25% since the Financial Crisis to 1.5% now:

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They’ve been working to achieve it for a decade, and now they manage to fool themselves into thinking they got it, it’s not what they want.

Fed’s Rosengren Faults Inflation Target, Warns Of Harm (R.)

“I‘m disagreeing with that framework,” Rosengren said at the Global Interdependence Center in San Diego, referring to the Fed’s “balanced” approach to achieving a 2% inflation target and full employment. The Fed adopted this framework six years ago and has reaffirmed it each year since. Now, as Fed Governor Jerome Powell prepares to take the reins as Fed chief from Janet Yellen when her term ends early next month, a growing number of Fed policymakers want to rethink that framework. Rosengren’s comments Friday put the sharpest point to date on the debate, suggesting that a strict 2-percent inflation target could force the Fed to slam the brakes on the economy with aggressive rate hikes if the unemployment rate, now at 4.1%, continues to sink. It is already below the level that many economists think can be sustained without putting upward pressure on inflation.

While inflation running stubbornly below 2% has so far allowed the Fed to lift rates only gradually, that may change, Rosengren warned. “My concern is if we get too far away from where we want to be on a sustainable unemployment rate, and we use this current framework, then we will get to a situation where we have to raise rates fast enough that we will actually find it very difficult to get back to full employment without causing a recession,” Rosengren said. Rosengren suggested replacing the 2% inflation target with a target range for inflation of between 1.5% and 3%, in line with actual experience over the last 20 years. Under current conditions of low productivity and labor force growth, he said, the Fed would target inflation at the upper end of that range, and would be more patient with rate hikes.

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“Marketable borrowings..”

Goldman Warns Treasury Issuance To More Than Double In 2019 (ZH)

During yesterday’s surprisingly candid remarks by Bill Dudley, the second most important person in the Federal Reserve – the organization that is responsible for the third consecutive and largest ever yet asset bubble in history – said that one risk he was increasingly worried about was, drumroll, elevated asset prices. Because, supposedly, the Fed has little to input in how asset prices came to be where they are… Just as ominous was Dudley’s admission that the second risk he was concerned about is “the long-term fiscal position of the United States” i.e. US debt. Specifically, Dudley said that the Trump tax cut “will increase the nation’s longer-term fiscal burden, which is already facing other pressures, such as higher debt service costs and entitlement spending as the baby-boom generation retires.”

Oddly there was no mention of which administration doubled US debt from $10 trillion to $20 trillion in under a decade, and which organization enabled this to happen by keeping rates at record low levels, while crushing savers, and bailing out habitual gamblers. In any case, now that the narrative has shifted, and Donald Trump will be scapegoated not only for the upcoming “tremendous” market crash – something he has made especially easy by taking credit for every single uptick in the S&P – but also for the inevitable fiscal collapse of the United States, it is time to provide the backing for this particular strawman, and to do that, this morning Dudley’s former employer, Goldman Sachs released a report in which the bank’s chief economist said the he is updating his Treasury issuance forecast to account for recent revised deficit projections.

As a result, US marketable borrowings will more than double from below $500 billion in 2018 to over $1 trillion in 2019 as the debt tsunami finally get going. To build up the strawman, Goldman explains that US borrowing needs will rise for three reasons: First, recently enacted tax reform legislation is estimated to raise the deficit by more than $200bn, on average, each of the next four years, and Congress looks likely approve substantial new spending as well. Second, Fed portfolio runoff will increase the amount of debt the Treasury must issue to the public. Third, the Treasury’s cash balance is likely to rise by around $200bn once a longer-term debt limit suspension is enacted, which will also necessitate additional borrowing.

Goldman expects that the “substantial increase” in borrowing needs will be announced by the Treasury when it lays out its plans at the February quarterly refunding. What Goldman has left unsaid is what happens to interest rates at a time when on one hand US debt supply is set to double and on the other the Fed is set to continue shrinking its balance sheets, the ECB and BOJ are set to accelerate (and begin) tapering their own QEs and when global inflation is expected to keep rising. What is also unsaid is just who will be the marginal buyer of this debt tsunami when central banks increasingly shift away from debt monetization.

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2018 will show us just what bad shape Britain is in.

The Company That Runs Britain Is Near To Collapse. Watch And Worry (G.)

You may never have heard of Carillion. There’s no reason you should have. Its lack of glamour is neatly summed up by the name it sported in the 90s: Tarmac. But since then it has grown and grown to become the UK’s second-largest building firm – and one of the biggest contractors to the British government. Name an infrastructure pie in the UK and the chances are Carillion has its fingers in it: the HS2 rail link, broadband rollout, the Royal Liverpool University Hospital, the Library of Birmingham. It maintains army barracks, builds PFI schools, lays down roads in Aberdeen. The lot. There’s just one snag. For over a year now, Carillion has been in meltdown. Its shares have dropped 90%, it’s issued profit warnings, and it’s on to its third chief executive within six months. And this week, the government moved into emergency mode.

A group of ministers held a crisis meeting on Thursday to discuss the firm. Around the table, reports the FT, were business secretary Greg Clark, as well as ministers from the Cabinet Office, health, transport, justice, education and local government. Even the Foreign Office sent a representative. Why did Chris Grayling give the HS2 contract to a company that was already in existential difficulties? That roll call says all you need to know about the public significance of what happens next at Carillion. This is a firm that employs just under 20,000 workers in Britain – and the same again abroad. It has a huge chain of suppliers – and its habit of going in for joint ventures with other construction businesses means that a collapse at Carillion would send shockwaves through the industry and through the government’s public works programme.

To see what this means, take the HS2 rail link, where Carillion this summer was part of a consortium that won a £1.4bn contract to knock tunnels through the Chilterns. If Carillion goes under, what happens to the largest infrastructure project in Europe? What happens to its partners on the deal, British firm Kier, and France’s Eiffage? The project will need to be put back and the taxpayer will almost certainly have to step in. Imagine that same catastrophe befalling dozens of other projects across the UK and you get a sense of what’s at stake. Jobs will be cut, schools will go unbuilt (just a couple of months ago, Oxfordshire county council pulled the plug on a 10-year schools project) – and the government’s entire private finance initiative (PFI) model for building this country’s essential services will be shaken to the core.

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Good cop bad cop.

Spanish and Dutch Agree to Seek Soft Brexit Deal (BBG)

Spanish and Dutch finance ministers have agreed to push for a Brexit deal that keeps Britain as close to the European Union as possible, according to a person familiar with the situation. Spanish Economy Minister Luis de Guindos and his Dutch counterpart Wopke Hoekstra met earlier this week and discussed their common interests in Brexit, according to the person, who declined to be identified. Both have close trade and investment ties and are concerned about the impact of tariffs. They are also worried about losing U.K. contributions to the EU budget, the person said. The pound jumped to the strongest level since the referendum in 2016, trading 1.2% higher at $1.3690.

A spokeswoman for the Spanish Economy Ministry stressed that both ministers support chief EU negotiator Michel Barnier’s efforts, and said they’re not working together toward a soft Brexit deal. Earlier, a Spanish economy ministry official said that the two finance chiefs had underlined the importance of U.K. ties for both countries, and agreed to keep track of their common interests. A spokesman for Hoekstra declined to comment. The 27 remaining EU nations maintained a united front in the first phase of divorce talks, though the solidarity is already showing signs of strain as national interests diverge in the face of future trade discussions. French President Emmanuel Macron has warned countries to be disciplined and stick together to protect all their interests, in a kind of prisoner’s dilemma. EU countries have delegated the job of negotiations to Barnier.

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Steve reply to the one-dimensional Oxford Review of Economic Policy’s latest issue.

Economics Is Too Important To Be Left To The -Academic- Economists (Steve Keen)

Modern Economics is as conformist, and bland, as country and western music. This leaves radical thinkers singing the Blues as their voices go unheard. I’ve had an epiphany about my place in the Universe, and I owe it to the Oxford Review of Economic Policy and its special issue on “Rebuilding Macroeconomic Theory.” I am Elwood Blues, and the Universe (the part I inhabit anyway) is Bob’s Country Bunker. Halfway through the classic movie The Blues Brothers, Jake Blues cons the band into performing at a bar called Bob’s Country Bunker. When his incredulous brother Elwood asks the bar owner’s wife “What kind of music do you usually have here?” she cheerily replies “Oh, we got both kinds. We got Country and Western”.

So that’s it. I’m a Blues singer, and I’m surrounded by Country and Western fans—otherwise known as Mainstream Economists. Their musical spectrum ranges from Hank Williams to Dolly Parton, and if I play anything outside it — say, some Otis Redding or Muddy Waters — they’ll throw beer bottles at me. Sometimes, even full ones. Suddenly, it all makes sense. This epiphany arrived, not as a Divine revelation, but as a tweet (as they would, were Moses alive today; so much more convenient than stone tablets) on January 1, as the Review touted its soon-to-be-released special issue.

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“..how much of a “shithole” is our own country these days?”

Who Moved My Xanax? (Jim Kunstler)

The moral panic of “the Resistance” is back in DefCon 1 mode overnight just as the righteousness orgasm of the Golden Globe Awards was wearing off. Mr. Trump’s casual question to a couple of Senators vis-à-vis immigration policy — “Why do we want all these people from ‘shithole countries’ coming here?” — pushed the “racism” button at Resistance Central and CNN staged yet another of the orchestrated anxiety attacks it has perfected over the past year. The spotlight in this three-ring circus of perpetual offense, indignation, and alarm shifts back from the alleged sufferings of movie actresses to another intersectional victim group from the Dem/Prog pantheon of oppressed minorities: would-be immigrants-of-color. The President’s vulgar animus proves the charge that at least half the country is a lynch mob.

Of course, the most interesting feature of this neurotic zeitgeist is the displacement dynamic among the political Left as its frantic virtue-signaling attempts to distract everybody else in the room from its own dark and shameful emotions about the composition of American culture. As a born-and-bred Boomer (ex-)liberal from Manhattan’s Upper East Side, I can assure you from direct experience that this group has, at best, ambiguous feelings about the lower orders of mankind — my Gawd, did he actually say that? — and, at worst, a certain unmanageable contempt that stirs deep fears of moral failure. Mr. Trump’s remark raises another interesting question that has not received much analysis amidst the latest panic: namely, how much of a “shithole” is our own country these days?

I would avouch, contrary to the limp narrative of boom times, that the USA is visibly whirling around the drain in just about every way that matters. Except for the centers of financialization — New York, Washington, San Francisco — most of our cities are hollowed-out wrecks, and visitors to San Francisco will tell you that the place is literally a shithole, from the army of homeless people who, by definition, have no bathrooms. Our ghastly suburbs, where so many formerly middle-class Americans are now marooned in debt, despair, and civic alienation, have no prospects for serving as a plausible living arrangement anymore, and were so badly built in the first place that their journey to ruin is destined to be an epically short leap that will amaze historians of the future roasting ‘possums around their campfires.

All of the important activities in this land have been converted into odious rackets, by which I mean nakedly dishonest money-grubbing scams, especially the two sectors that used to be characterized by first, doing no harm (medicine), and seeking the truth (education). But everything else we do is infected by engineered falsehood and mendacity, including the news media, the law, banking, government, retail commerce, you name it. We’re living in a culture of pervasive control fraud, in which authorities set up looting and asset-stripping operations without any restraint.

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They should be testing us, not the other way around.

Dolphins Show Self-Recognition Earlier Than Human Children (NYT)

Humans, chimpanzees, elephants, magpies and bottle-nosed dolphins can recognize themselves in a mirror, according to scientific reports, although as any human past age 50 knows, that first glance in the morning may yield ambiguous results. Not to worry. Scientists are talking about species-wide abilities, not the fact that one’s father or mother makes unpredictable appearances in the looking glass. Mirror self-recognition, at least after noon, is often taken as a measure of a kind of intelligence and self-awareness, although not all scientists agree. And researchers have wondered not only about which species display this ability, but about when it emerges during early development. Children start showing signs of self-recognition at about 12 months at the earliest and chimpanzees at two years old.

But dolphins, researchers reported Wednesday, start mugging for the mirror as early as seven months, earlier than humans. Diana Reiss a psychologist at Hunter College, and Rachel Morrison, then a graduate student working with Reiss, studied two young dolphins over three years at the National Aquarium in Baltimore. Dr. Reiss first reported self-recognition in dolphins in 2001 with Lori Marino, now the head of The Kimmela Center for Animal Advocacy. She and Dr. Morrison, now an assistant professor in the psychology department at the University of North Carolina Pembroke collaborated on the study and published their findings in the journal PLoS One. Dr. Reiss said the timing of the emergence of self-recognition is significant, because in human children the ability has been tied to other milestones of physical and social development.

Since dolphins develop earlier than humans in those areas, the researchers predicted that dolphins should show self-awareness earlier. Seven months was when Bayley, a female, started showing self-directed behavior, like twirling and taking unusual poses. Dr. Reiss said dolphins “may put their eye right up against the mirror and look in silence. They may look at the insides of their mouths and wiggle their tongues.” Foster, the male, was almost 14 months when the study started. He had a particular fondness for turning upside down and blowing bubbles in front of the one-way mirror in the aquarium wall through which the researchers observed and recorded what the dolphins were doing.

The animals also passed a test in which the researchers drew a mark on some part of the dolphin’s body it could not see without a mirror. In this so-called mark test, the animal must notice and pay attention to the mark. Animals with hands point at the mark and may touch it. The dolphins passed that test at 24 months, which was the earliest researchers were allowed to draw on the young animals. Rules for animal care prohibited the test at an earlier age because of a desire to have the animals develop unimpeded. During testing, the young animals were always with the group of adults they live with, and only approached a one-way mirror in the aquarium wall when they felt like it.

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A loss of 2% oxygen is all it takes.

The Ocean Is Suffocating—But Not For The First Time (Atlantic)

The ocean is losing its oxygen. Last week, in a sweeping analysis in the journal Science, scientists put it starkly: Over the past 50 years, the volume of the ocean with no oxygen at all has quadrupled, while oxygen-deprived swaths of the open seas have expanded by the size of the European Union. The culprits are familiar: global warming and pollution. Warmer seawater both holds less oxygen and turbocharges the worldwide consumption of oxygen by microorganisms. Meanwhile, agricultural runoff and sewage drives suffocating algae blooms. The analysis builds on a growing body of research pointing to increasingly sick seas pummeled by the effluent of civilization. In one landmark paper published last year, a research team led by the German oceanographer Sunke Schmidtko quantified for the first time just how much oxygen human civilization has already drained from the oceans.

Compiling more than 50 years of disparate data, gathered on research cruises, from floating palaces of ice in the arctic to twilit coral reefs in the South Pacific, Schmidtko’s team calculated that the Earth’s oceans had lost 2% of their oxygen since 1960. Two% might not sound that dramatic, but small changes in the oxygen content of the Earth’s oceans and atmosphere in the ancient past are thought to be responsible for some of the most profound events in the history of life. Some paleontologists have pointed to rising oxygen as the fuse for the supernova of biology at the Cambrian explosion 543 million years ago. Similarly, the fever-dream world of the later Carboniferous period is thought to be the product of an oxygen spike, which subsidized the lifestyles of preposterous animals, like dragonflies the size of seagulls.

On the other hand, dramatically declining oxygen in the oceans like we see today is a feature of many of the worst mass extinctions in earth history. “[Two%] is pretty significant,” says Sune Nielsen, a geochemist at the Woods Hole Oceanographic Institution in Massachusetts. “That’s actually pretty scary.” Nielsen is one of a group of scientists probing a series of strange ancient catastrophes when the ocean lost much of its oxygen for insight into our possible future in a suffocating world. He has studied one such biotic crisis in particular that might yet prove drearily relevant. Though little known outside the halls of university labs, it was one of the most severe crises of the past 100 million years. It’s known as Oceanic Anoxic Event 2.

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Jan 122018
 
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Do these people ever consider this perhaps helps Trump? The Man’s on Fire!

 

Bitcoin Steadies But Set For Worst Weekly Slide Since 2015 (BBG)
Cryptos Surge As South Korea Backs Away From Trading Ban (ZH)
South Korea Is Talking Down The Idea Of A Cryptocurrency Trading Ban (CNBC)
China’s Trade Surplus With The US Hit A Record High In 2017 (CNBC)
China Sets New Records for Gobbling Up the World’s Commodities (BBG)
Household Debt Boom Sows The Seeds For A Bust (CBR)
Markets Still Blow Off the Fed, Dudley Gets Nervous, Fires Warning Shot (WS)
We’re Going To See A Radically Changing World In 2018 – (Nomi Prins)
Why We Have to Talk About a Bubble (BBG)
Uber’s Secret Tool for Keeping the Cops in the Dark (BBG)
Monsanto Seeks To Cash In On The Organic Food Market (CP)
Electric Car Dreams Run Into Metal Crunch (BBG)
Greece Is Now Worse Off Than When It Defaulted For The First Time (ZH)

 

 

It’s a slide! It’s a surge! Depends who you ask, and what time of day. Ask again every half hour, or you may miss the big moves. Translation: bitcoin is far from ready for the big leagues. It’s about stability.

Bitcoin Steadies But Set For Worst Weekly Slide Since 2015 (BBG)

Bitcoin steadied Friday after four days of losses for the largest cryptocurrency amid increasing scrutiny from regulators around the world with concerns ranging from investor losses to strains on power systems. Bitcoin was little changed on the day, at $13,467 as of 1:27 p.m. Hong Kong time, reversing an earlier decline. It was down as much as 23% for the week at one point, on track for the deepest decrease since January 2015, according to Bloomberg composite pricing, and is now down about 20%. The token peaked in mid-December soon after the introduction of futures trading on regulated exchanges in Chicago. Among the blows to cryptocurrencies this week was the South Korean justice minister’s reiteration of a proposal to ban local cryptocurrency exchanges, though the comments were later downplayed by a spokesman for the president.

Meanwhile, bitcoin mining is set to become more expensive as China’s government cracks down on the industry, in part out of concerns about power use. In the U.S., scrutiny is set to increase amid concerns about the potential use of cryptocurrencies for fraudulent purposes such as money laundering. Securities and Exchange Commission Chairman Jay Clayton and Commodity Futures Trading Commission Chairman J. Christopher Giancarlo are set to testify to the Senate Banking Committee on risks tied to bitcoin and its counterparts, according to a person with direct knowledge of the matter. The committee intends to hold a hearing in early February, the person said.

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The reaction scared the sh*t out of Seoul. But they still have to act, because bitcoin’s wide acceptance in the country means it’s a real danger to the whole economy.

Cryptos Surge As South Korea Backs Away From Trading Ban (ZH)

After what has seemed like a non-stop barrage of bad news for crypto bulls from South Korea, we noted some cracks in the foundation of the anti-cryptocurrency push as the ministry of finance refused to support the ministry of justice’s exchange shutdown bill. Tonight we get further clarification that the end of South Korean crypto trading is not nigh as Yonhap reports the various government ministries need more time and more consultations over the mininstry of justice’s plan to ban crypto-exchanges. “The issue of shutting down (cryptocurrency) exchanges, told by the justice minister yesterday, is a proposal by the justice ministry and it needs consultations among ministries,” Kim said.

Ministers reportedly seek a “soft-landing” considering the shock the measures may have on the market is an issue that can result in huge social, economic damage. Additionally Yonhap notes that even if pursued, shutdown of exchanges would take some time as it needs discussion at parliament (it would take months or even years for a bill to become a law). All of which can be roughly translated as – we have no idea of the impact of banning this stuff and just how much damage to the nation’s wealth could occur if we do… The result is a broad-based rally across the major cryptocurrencies… Tens of thousands of people filed an online petition, asking the presidential office to stop the clampdown against cryptocurrency trading. South Korea is home to one of the world’s biggest private bitcoin exchanges, with more than 2 million people estimated to own some of the best-known digital currency.

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Stand up comedian minister: “..a balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.”

South Korea Is Talking Down The Idea Of A Cryptocurrency Trading Ban (CNBC)

South Korea’s finance minister on Friday said that relevant officials need to hold more consultations over the justice ministry’s plan to ban cryptocurrency exchanges in the country. “All government ministries agree on the need for a government response to an overheating in cryptocurrency speculation and for a degree of regulation,” Minister Kim Dong-yeon told reporters, according to news agency Yonhap. “The issue of banning exchanges that the justice minister talked about yesterday is a proposal by the Justice Ministry and it needs more coordination among ministries,” Kim added. He also said that discussion was under way on how the government could reasonably regulate cryptocurrency trading that’s overheating with irrational and speculative behavior, Yonhap reported.

Kim said “a balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.” Kim’s comments followed news that the country’s justice ministry appeared to have softened its stance after remarks from its chief on Thursday saw billions wiped off the global cryptocurrency market. The justice ministry explained, according to Yonhap, that the ban was not a done deal in a text message to reporters on Thursday. “The ministry has been preparing a special law to shut down all cryptocurrency exchanges, but we will push for it after careful consideration with related government agencies,” the justice ministry said.

[..] “Justice Minister Park Sang-ki’s remarks regarding the shutdown of cryptocurrency exchanges is one of the measures that have been prepared by the Justice Ministry, but it is not a finalized decision and will be finalized through discussion and a coordination process with each government ministry,” the chief press secretary to President Moon Jae-in said in a statement reported by Yonhap. Even if a bill aiming to ban all cryptocurrency trading is drafted, it will require a majority vote in the country’s National Assembly before it can be enacted into law. That process could take months — or even years.

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This must worry Xi. China sets itself up for a strong reaction. And then? Withdraw back into its own cocoon? Not an option for an export-dependent economy. The shift to domestic consumption has so far failed miserably.

China’s Trade Surplus With The US Hit A Record High In 2017 (CNBC)

China’s 2017 trade surplus with the U.S. was $275.81 billion, the country’s customs data showed Friday, according to Reuters. By that data, last year’s surplus is a record high, the wire service reported. For comparison, the previous record was a surplus of $260.8 billion in 2015. The world’s second-largest economy had a surplus of $25.55 billion in December, data showed, compared to $27.87 billion in November. Trade with China is politically sensitive as the world’s second-largest economy runs surpluses against many of its trading partners. President Donald Trump has repeatedly signaled tougher action on what he calls unfair practices that have lead to a massive trade deficit with China. Overall, China’s trade balance for 2017 was a surplus of $422.5 billion

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Stocking up on oil and gas instead of Treasuries, just in case Trump launches a trade war.

China Sets New Records for Gobbling Up the World’s Commodities (BBG)

China continues to gobble up the world’s commodities, setting new records for consumption of everything from crude oil to soybeans. In a year of flux marked by industrial capacity cuts, environmental curbs and financial deleveraging, demand for raw materials has continued to grow in the world’s biggest consumer, helping drive a second annual gain in global commodity returns. As President Xi Jinping consolidates power behind an economy that may have posted its first full-year acceleration since 2010, there are few signs of the Chinese commodity juggernaut slowing as it rolls into 2018. “China’s economic expansion has been beating expectations since the second half of last year, boosting demand for all kinds of commodities,” Guo Chaohui at China International Capital, said by phone. “We are expecting continued strength in economic growth in 2018 which will keep up the nation’s import appetite.”

Inbound shipments from across the globe – Russia to Saudi Arabia and Venezuela – jumped about 10% to average 8.43 million barrels a day in 2017, data from China’s General Administration of Customs showed on Friday. The unprecedented purchases may be bettered in 2018, if import quotas granted by the government to China’s independent refiners are a signal. The first batch of allocations was 75% higher than for 2017. The world’s second-biggest economy is also realizing that the key to winning its war on smog may lie overseas. Record amounts of less-polluting grades of iron ore – typically not available within China – are being pulled in to feed the nation’s mammoth steel industry, with imports rising 5% to 1.07 billion metric tons in 2017.

Purchases of less-polluting ore is only one tactic in China’s war against pollution. Another is curbing coal use and encouraging the use of cleaner natural gas instead. Imports of the fuel via both sea and pipeline surged almost 27% to 68.57 million tons in 2017.

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Coherent.

Household Debt Boom Sows The Seeds For A Bust (CBR)

What causes the ebbs and flows of the business cycle? In the first of two videos, Chicago Booth’s Amir Sufi argues that one key factor is the financial sector and its willingness to lend. As credit becomes more and more available, the economy booms—but when household debt becomes unsustainable, it sows the seeds for a bust.

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Financial stress at a record low. There’s no stronger stress indicator.

Markets Still Blow Off the Fed, Dudley Gets Nervous, Fires Warning Shot (WS)

“So, what am I worried about?” New York Fed President William Dudley, who is considered a dove, asked rhetorically during a speech on Thursday at the Securities Industry and Financial Markets Association in New York City. “Two macroeconomic concerns warrant mention,” he continued. And they are: One: “The risk of economic overheating.” He went through some of the mixed data points, including “low” inflation, “an economy that is growing at an above-trend pace,” a labor market that is “already quite tight,” and the “extra boost in 2018 and 2019 from the recently enacted tax legislation.” Two: The markets are blowing off the Fed. He didn’t use those words. He used Fed-speak: “Even though the FOMC has raised its target range for the federal funds rate by 125 basis points over the past two years, financial conditions today are easier than when we started to remove monetary policy accommodation.”

When the Fed raises rates, its explicit intention is to tighten “financial conditions,” meaning that borrowing gets a little harder and more costly at all levels, that investors and banks become more risk-averse and circumspect, and that borrowers become more prudent or at least less reckless – in other words, that the credit bonanza cools off and gets back to some sort of normal. To get there, the Fed wants to see declining bond prices and therefor rising yields, cooling equities, rising risk premiums, widening yield spreads, and the like. These together make up the “financial conditions.” There are various methods to measure whether “financial conditions” are getting “easier” or tighter. Among them is the weekly St. Louis Fed Financial Stress Index, whose latest results were published on Thursday.

The Financial Stress Index had dropped to a historic low of -1.6 on November 3, meaning that financial stress in the markets had never been this low in the data series going back to 1994. Things were really loosey-goosey. On Thursday, the index came in at -1.57, barely above the record low, despite another rate hike and the Fed’s “balance-sheet normalization. And this rock-bottom financial stress in the markets is occurring even as short-term interest rates have rocketed higher in response to the Fed’s rate hikes, with the two-year Treasury yield on Thursday closing at 1.96% for the third day in a row, the highest since September 2008.

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Nomi doesn’t really clarify what is radical about events.

We’re Going To See A Radically Changing World In 2018 – (Nomi Prins)

In last year’s roadmap, I forecast that 2017 would end with gold prices up and the dollar index down, both of which happened. I underestimated the number of Fed hikes by one hike, but globally, average short term rates have remained around zero. That will be a core pattern throughout 2018. Central banks may tweak a few rates here and there, announce some tapering due to “economic growth”, or deflect attention to fiscal policy, but the entire financial and capital markets system rests on the strategies, co-dependencies and cheap money policies of central banks. The bond markets will feel the heat of any tightening shift or fears of one, while the stock market will continue to rush ahead on the reality of cheap money supply until debt problems tug at the equity markets and take them down.

Central bankers are well aware of this. They have no exit plan for their decade of collusion. But a weak hope that it’ll all work out. They have no dedicated agenda to remove themselves from their money supplier role, nor any desire to do so. Truth be told, they couldn’t map out an exit route from cheap money even if they wanted to. The total books of global central banks (that hold the spoils of QE) have ballooned by $2 Trillion in assets (read: debt) over 2017. That brings the amount of global central banks holdings to more than $21.7 trillion in assets. And growing. Teasers about tapering have been released into the atmosphere, but numbers don’t lie.

That’s a hefty cushion for international speculation. Every bond a central bank buys or holds, gets a price-lift. Trillions of dollars of such buys have artificially lifted all bond prices, and stocks because of the secondary-lift effect and rapacious search for self-perpetuating returns. Financial bubbles pervade the world. Central bank leaders may wax hawkish –manifested in strong words but tepid actions. Yet, overall, policies will remain consistent with those of the past decade to combat this looming crisis. US nationalistic trade policies will push other nations to embrace agreements with each other that exclude the US and shun the US dollar.

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Jean-Michel Paul, founder and Chief Executive of Acheron Capital in London, says: “..one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash.. “. Well, not in my circles, which talk ONLY about that.

Why We Have to Talk About a Bubble (BBG)

Back in November, former Fed chief Janet Yellen described the current low level of inflation as a “mystery.” Despite a small pickup in prices, Europe has the same mystery to solve: Economic confidence in the euro area is at its highest point for a decade, according to the European Commission’s measure, released this week. But there’s no sign of the inflation that you’d normally expect with that kind of economic upsurge. The ECB minutes from December, released Thursday, show some in the ECB are similarly baffled by what they call a “disconnect” between the real economy and prices. With QE having multiplied the amount of fiat money issued by central banks in just a few years, it’s fair to wonder: How come it didn’t trigger much higher levels of inflation than what we now see?

The technical answer is that the money created has ended up full circle – on the books of the central banks. The more fundamental answer is that QE resulted in a wealth increase for the richest, who consume relatively little of their revenue, while the middle class and the neediest largely failed to reap any benefit. Having not gained from QE, their consumption has not risen, leaving prices pretty much flat. There are many problems with this, from growing inequality to pressures on social cohesion. But one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash, as Jeremy Grantham, co-founder of the investment firm GMO, argued in a note last week. He predicts a “melt-up” – where investors pile into assets as prices rise – followed by a significant decline “of some 50%.”

[..] central bankers are still using inflation as a measure to gauge how much more QE they should proceed with. The ECB has repeatedly justified QE expansion because its goal of 2 percent consumer inflation remains unmet. [..] British journalist Ambrose Evans-Pritchard, commenting on the Grantham thesis recently in the Daily Telegraph, put the challenge now in the starkest possible terms, as a threat not simply to the recovery but to democracy: “The central banks themselves entered into a Faustian Pact from the mid-Nineties onwards, falsely thinking it safe to drive real interest rates ever lower with each cycle, until they became ensnared in what the Bank for International Settlements calls a policy “debt trap”. This has gone on so long, and pushed debt ratios so high, that the system is now inherently fragile. The incentive to let bubbles run their course has become ever greater.”

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Can’t decide if this is hard to believe, or entirely normal by now.

Uber’s Secret Tool for Keeping the Cops in the Dark (BBG)

In May 2015 about 10 investigators for the Quebec tax authority burst into Uber Technologies Inc.’s office in Montreal. The authorities believed Uber had violated tax laws and had a warrant to collect evidence. Managers on-site knew what to do, say people with knowledge of the event. Like managers at Uber’s hundreds of offices abroad, they’d been trained to page a number that alerted specially trained staff at company headquarters in San Francisco. When the call came in, staffers quickly remotely logged off every computer in the Montreal office, making it practically impossible for the authorities to retrieve the company records they’d obtained a warrant to collect. The investigators left without any evidence.

Most tech companies don’t expect police to regularly raid their offices, but Uber isn’t most companies. The ride-hailing startup’s reputation for flouting local labor laws and taxi rules has made it a favorite target for law enforcement agencies around the world. That’s where this remote system, called Ripley, comes in. From spring 2015 until late 2016, Uber routinely used Ripley to thwart police raids in foreign countries, say three people with knowledge of the system. Allusions to its nature can be found in a smattering of court filings, but its details, scope, and origin haven’t been previously reported. The Uber HQ team overseeing Ripley could remotely change passwords and otherwise lock up data on company-owned smartphones, laptops, and desktops as well as shut down the devices.

This routine was initially called the unexpected visitor protocol. Employees aware of its existence eventually took to calling it Ripley, after Sigourney Weaver’s flamethrower-wielding hero in the Alien movies. The nickname was inspired by a Ripley line in Aliens, after the acid-blooded extraterrestrials easily best a squad of ground troops. “Nuke the entire site from orbit. It’s the only way to be sure.” [..] Uber deployed Ripley routinely as recently as late 2016, including during government raids in Amsterdam, Brussels, Hong Kong, and Paris, say the people with knowledge of the matter. The tool was developed in coordination with Uber’s security and legal departments, the people say. The heads of both departments, Joe Sullivan and Salle Yoo, left the company last year.

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Monsanto wants a monopoly on all the world’s food. If you don’t stop them now, it’ll soon be too late.

Monsanto Seeks To Cash In On The Organic Food Market (CP)

At the recent Codex meeting in Berlin, there was an attempt to define genetically engineered (GE) food ingredients as ‘biofortified’ and therefore mislead consumers. This contravened the original Codex mandate for defining biofortification. That definition is based on improving the nutritional quality of food crops through conventional plant breeding (not genetic engineering) with the aim of making the nutrients bioavailable after digestion. The attempt was thwarted thanks to various interventions, not least by the National Health Federation (NHF), a prominent health-freedom international non-governmental organization and the only health-freedom INGO represented at Codex. But the battle is far from over.

The Codex Alimentarius Commission’s Codex Committee on Nutrition and Foods for Special Dietary Uses (CCNFSDU) convened in Berlin during early December and drafts provisions on nutritional aspects for all foods. It also develops international guidelines and standards for foods for special dietary uses that will be used to facilitate standardized world trade. Based upon previous meetings, the initial intention of the Committee was to craft a definition for biofortification that could then be used uniformly around the World. Biofortification originally referred to increasing certain vitamin and mineral content of basic food crops by way of cross-breeding, not genetic engineering, for example by increasing the vitamin or iron content of sweet potatoes so that malnourished populations would receive better nutrition.

However, according to president of the NHF, Scott Tips, Monsanto wants to redefine the definition to include GE ‘biofortified’ foods and it has seemingly influenced Codex delegates in that direction. Tips says, “I am sure that Monsanto would be thrilled to be able to market its synthetic products under a name that began with the word ‘bio’.” [..] Including GE foods within any definition of biofortification risks consumer confusion as to whether they are purchasing organic products or something else entirely. “Monsanto seeks to cash in on the organic market with the loaded word ‘bio’,” argues Scott Tips. At the Codex meeting in Berlin, Tips addressed the 300 delegates in the room. “Although NHF was an early supporter of biofortification, we have since come to see that the concept is in the process of being hijacked and converted from something good into something bad,” explained Tips.

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Luckily the CIA is still dividing the people in the Congo. And making money selling all sides weapons.

Electric Car Dreams Run Into Metal Crunch (BBG)

When BMW revealed it was designing electric versions of its X3 SUV and Mini, the going rate for 21 kilograms of cobalt—the amount of the metal needed to power typical car batteries—was under $600. Only 16 months later, the price tag is approaching $1,700 and climbing by the day. For carmakers vying to fill their fleets with electric vehicles, the spike has been a rude awakening as to how much their success is riding on the scarce silvery-blue mineral found predominantly in one of the world’s most corrupt and underdeveloped countries. “It’s gotten more hectic over the past year,” said Markus Duesmann, BMW’s head of procurement, who’s responsible for securing raw materials used in lithium-ion batteries, such as cobalt, manganese and nickel. “We need to keep a close eye, especially on lithium and cobalt, because of the danger of supply scarcity.”

[..] Complicating the process is the fact that the cobalt trail inevitably leads to the Democratic Republic of the Congo, where corruption is entrenched in everyday business practices. The U.S. last month slapped sanctions on Glencore’s long-time partner in Congo, Israeli billionaire Dan Gertler, saying he used his close ties to Congolese President Joseph Kabila to secure mining deals. There’s also another ethical obstacle to negotiate. The African nation produces more than 60 percent of the world’s cobalt, a fifth of which is drawn out by artisanal miners who work with their hands — some of whom are children. The country is also planning to double its tax on the metal.

“There just isn’t enough cobalt to go around,” said George Heppel, a consultant at CRU. “The auto companies that’ll be the most successful in maintaining long-term stability in terms of raw materials will be the ones that purchase the cobalt and then supply that to their battery manufacturer.” To adjust to the new reality, some carmakers are recruiting geologists to learn more about the minerals that may someday be as important to transport as oil is now. Tesla Inc. just hired an engineer who supervised a nickel-cobalt refinery in New Caledonia for Vale to help with procurement. But after decades of dictating terms with suppliers of traditional engine parts, the industry is proving ill-prepared to confront what billionaire mining investor Robert Friedland dubbed “the revenge of the miner.”

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Never use Greece and Recovery in one sentence together. Because you’d be spouting nonsense.

Greece Is Now Worse Off Than When It Defaulted For The First Time (ZH)

According to the market, the situation in Greece has staged a tremendous recovery. So much so, in fact, that Greek 2Y bonds are now trading inside US 2Y Treasurys. Yes, according to the market, Greece is now a safer credit than the US. And yet, a quick peek inside the actual Greek economy, reveals that nothing has been fixed. In fact, one can argue that things are now worse than they were when Greece defaulted (for the first time), According to statistics from IAPR, unpaid taxes in Greece currently make up more than 55% of the country’s GDP due to – well – the inability of people to pay the rising taxes. Overdue debt to the state has reached nearly €100 billion with only €15 billion possible to be returned to the government’s coffers, as most are due to bankrupt businesses and deceased individuals.

The Greek tax authorities seized pensions, salaries, and assets of more than 180,000 taxpayers in 2017, meanwhile bad debt to the state treasury continue to grow. The Independent Authority for Public Revenue confiscated nearly €4 billion in the first 10 months of this year with forced measures to be reportedly taken against 1.7 million defaulters in 2018. Bad debt owed to the state in Greece has been growing at €1 billion a month since 2014, and nearly 4.17 million taxpayers currently owe money to the country, which means that every second Greek is directly indebted. Demonstrating the full extent of the economic mess, a recent report from Kathimerini revealed that Greek lenders are proposing huge haircuts, as high as 90%, for borrowers with debts from consumer loans, credit cards or small business loans without collateral.

In the context of the sale of a 2.5-billion-euro bad-loan portfolio named Venus, Alpha Bank is using the incentive of major haircuts in letters it has sent to some 156,000 debtors. The fact that this concerns some 240,000 bad loans means that some debtors may have two or three overdue loans. Another major local lender, Eurobank, is employing the same strategy for a set of loans adding up to 350 million euros. Most of them range between 5,000 and 7,000 euros each and have been overdue for over a decade. Yes, most Greek are unable to repay a few thousands euros and would rather default. This means that the banks are expecting to collect a small amount of those debts, coming to 250 million euros for Alpha and 35 million for Eurobank – whopping 90% haircuts – accepting that the rest of the debt is uncollectible.

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Jan 012018
 
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US Dollar Refuses to Die as Top Global Reserve Currency (WS)
The Rise And Fall Of The Eurodollar (ZH)
Behind Korea, Iran & Russia Tensions: The Lurking Financial War (Crooke)
Polanyi Best Explains Trump, Brexit And The Failure Of Neoliberalism (Prime)
UK Government Relies On Rising Household Debt To Hit Targets – Labour (G.)
‘Desperate Times’ For Overcrowded British Hospitals (PA)
China’s Growth Engine Stutters As Factories Slow Down (G.)
Greece Dismisses Turkey’s Threats Over Asylum Row (GR)
Greece: Turkish Soldiers Won’t Be Extradited Regardless Of Asylum Process (K.)
UK ‘Faces Build-Up Of Plastic Waste’ (BBC)

 

 

The graphs seem to say it all: the demise of the dollar (and petrodollar, eurodollar -dollars held outside US-) has been greatly exaggerated.

US Dollar Refuses to Die as Top Global Reserve Currency (WS)

Over the decades, there have been a number of efforts to deflate the dollar’s hegemony as a global reserve currency, which it has maintained since World War II. Some of these efforts – such as the creation of the euro – have made a visible dent into the dollar’s status. Other efforts have essentially passed unnoticed. Now there’s a new contender: the Chinese yuan. On December 31, the IMF released its report on the Currency Composition of Official Foreign Exchange Reserves (COFER) for Q3 2017. So how has the US dollar fared as the top world reserve currency, now that the Chinese yuan has also been anointed as one, and that the euro has emerged from its debt crisis? First things, first. The IMF doesn’t really disclose all that much. The COFER data for the individual countries – the level of their reserve currencies and how they allocate them – is “strictly confidential,” it says.

So what we get to look at is the global allocation by currency. Total global foreign exchange reserves rose to $11.3 billion in Q3 2017, within the range of the past three years, between $10.7 trillion (Q4 2016) and $11.8 trillion (Q3, 2014). But something is happening to “allocated reserves.” Not all central banks disclose to the IMF how their foreign exchange reserves are allocated. In Q3 2017, 14.6% of the reserves hadn’t been allocated. But this number is plunging. In Q3 2014, just three years ago, it was still 41.2%. This means that more and more central banks report to the IMF their allocation of foreign exchange reserves, and the COFER is getting broader.

So of the 85.4% of the officially “allocated” reserve currencies in Q3 2017: • US dollar: 63.5% share, down from 64.6% in Q3 2014. • Euro: 20% share, down from 22.6% in Q3 2014. • Yen: 4.5% share, up from 3.6% in Q3 2014. • Pound Sterling: 4.5% share, up from 3.75% in Q3 2014. The Australian and Canadian dollars had a share of 1.8% and 2.0% respectively. • The Chinese yuan – that thin red sliver in the chart below – had a share of 1.1%, up from 1.08% in the prior three quarters, and up from zero before then. • The Swiss franc, the hair-fine black line in the chart below, has a share of 0.2%. • And a number of “other” currencies have a combined share of 2.4%.

The Chinese yuan made its entry after IMF boss Christine Lagarde and the IMF staff declared in mid-November 2015 that they were gung-ho about adding it to the IMF’s currency basket, the Special Drawing Rights (SDR), which is an important step toward becoming a major global reserve currency. At the end of November 2015, it was approved by the board. And it took effect in October 2016. Sure enough, in Q4 2016, the Chinese yuan started showing up in the COFER data as a global reserve currency with a share of 1.08%. But rather than soaring, it didn’t move at all over the first two quarters in 2017. And in Q3, it ticked up to a still minuscule 1.1%. Central banks do not appear to be overeager to hold this currency in large amounts. The chart below shows the changes since Q3 2014. The black line at the top is the US dollar – its hegemony unbroken.

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Russia experienced dollar shortages with oil prices still at $95 a barrel. It can’t do without dollars. Maybe sometime in the future, but that may well be a long time away.

The Rise And Fall Of The Eurodollar (ZH)

Gromen, who largely sat out this segment, offers a few thoughts toward the end that add to the picture of weakness defining the contemporary eurodollar system. Looking back to the summer of 2014, Gromen posits that the largest oil exporters were able to maintain current account surpluses because they’d already started settling an increasing percentage of their oil sales in dollars.

“It’s interesting, Jeff and Mark (this is Luke of course) when you look back to September – and we put this in our slide deck (which we can touch on later) – but if you look back at the actual timing of events it’s kind of interesting. And it’s, to me it hints to motive. So I’d love to get your thought on it, Jeff or Mark, of – if you go back to August of 2014, actually back even to May of ‘14, you had the Holy Grail gas and energy deal signed between China and Russia. It was rumored that that deal was going to be done in non-dollars, but no proof of that. It was later proven to be the case. In August of 2014, Putin announced that they wanted to start moving away from the dollar in oil trade, because the dollar’s monopoly in the global energy trade was damaging their economy.

And, what’s kind of interesting – and we wrote about this at the time – at this point oil is still $100 a barrel. And then, all of a sudden, by late September, with oil still $96 a barrel, $95 a barrel, Russia’s having dollar shortages. Russia was still – and they weren’t the only ones – Venezuela, Ecuador, a couple of others – you have three major oil exporters that are running still current account surpluses in the low- to mid-single digits at this point, starting to run into dollar shortages. And it was, I think, an underappreciated point at the time that, basically, if you’re an oil exporter you’re only selling in dollars, you’re running a current account surplus.

And so, if you’re only selling in dollars, in theory, there’s only two explanations for that, for those dollar shortages that began to pop up well before the price of oil crashed. Which was (#1) Russia and other places got dramatically more corrupt in the three months versus the three months before. Or they were starting to sell energy at an accelerating rate in non-dollar terms. And, as a result, you were seeing – where you were getting $100 before, now you were getting whatever, $90, $80, whatever the mix was. And at that point, then you started to see some of the devaluations etc. I guess I’d love to hear your thoughts on that.”

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Alastair Crooke also looks at the dollar demise.

Behind Korea, Iran & Russia Tensions: The Lurking Financial War (Crooke)

What have the tensions between the US and North Korea, Iran and Russia in common? Answer: It is that they are components to a wider financial war. Russia and Iran (together with China) happen to be the three key players shaping a huge (almost half the global population) alternative currency zone. The North Korean issue is important as it potentially may precipitate the US – depending on events – towards a more aggressive policy toward China (whether out of anger at Chinese hesitations over Korea, or as part and parcel of the US Administration’s desire to clip China’s trading wings). The US has embarked on a project to restore America’s economic primacy through suppressing its main trade competitors (through quasi-protectionism), and in the military context to ensure America’s continued political dominance.

The US ‘America First’ National Security Strategy made it plain: China and Russia are America’s ‘revisionist’ adversaries, and the US must and intends to win in this competition. The sub-text is that potential main rivals must be reminded of their ‘place’ in the global order. This part is clear and quite explicit, but what is left unsaid is that America is staking all on the dollar’s global, reserve currency status being maintained, for without it, President Trump’s aims are unlikely to be delivered. The dollar status is crucial – precisely because of what has occurred in the wake of the Great Financial crisis – the explosion of further debt. But here is a paradox: how is it that a Presidential Candidate who promised less military belligerence, less foreign intervention, and no western cultural-identity imposition, has, in the space of one year, become, as President, a hawk in respect to Korea and Iran.

What changed in his thinking? The course being pursued by both states was well-known, and has offered no sudden surprise (though North Korea’s progress may have proved quantitatively more rapid than, perhaps, US Intelligence was expecting: i.e. instead of 2020 – 2021, North Korea may have achieved its weapons objective in 2018 – some two years or so earlier that estimated)? But essentially Korea’s desire to be accepted as a nuclear weapon state is nothing new. It is ‘the Federal debt’, and a pending ‘debt ceiling’ that is crucial. There is little doubt that the US military is not what it used to be, and the Republican Party possesses a wing that is quite fundamentalist about limiting debt (Freedom Caucus). A serious military crisis is possibly the only way Trump is likely to get a huge ramp-up of military expenditure past Congress’ fiscal hawks.

President Trump – the Tax Bill saga tells us — is going to be a big spender as part of MAGA (Make America Great Again). The increase in proposed US defence spending alone, more or less equates to the whole annual Russian defence spending. US Federal debt is already above $20 Trillion, and accelerating fast: the borrowing requirement is ballooning and interest payments to service this additional borrowing, normally would be expected to rise. But Trump is also explicitly a low interest rate, expanding balance-sheet, sort of guy. So, how does one finance a truly ballooning budget deficit, whilst keeping interest rates low, or at zero? Well a fear-driven rush by foreigners into ‘risk free’ US Treasuries (i.e. military crisis again), historically serves to keep rates low – and dollars plentiful — as ‘overseas dollars’ return ‘home’ to Wall Street.

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No sure why economists et al have such a hard time understanding why limitless liberalization must by definition backfire.

Polanyi Best Explains Trump, Brexit And The Failure Of Neoliberalism (Prime)

It’s good to see the latest (21 December) New York Review of Books give space to a review – by Robert Kuttner of American Prospect– of a biography of “Karl Polanyi: a Life on the Left” by Gareth Dale. For as we have been arguing for a long time, it was Polanyi who better than any other historian/analyst got to the heart of the contradictions of free market globalised liberalism, and saw that it was such economic liberalism, pushed too far, that is likely to lead to authoritarian, or even fascist, outcomes. As Kuttner puts it, “Global capitalism has escaped the bounds of the postwar mixed economy that had reconciled dynamism with security through the regulation of finance, the empowerment of labor, a welfare state, and elements of public ownership”.

The outcome is extreme inequality and instability. However, as Kuttner reminds, “We have been here before. During the period between the two world wars, free-market liberals governing Britain, France, and the US tried to restore the pre–World War I laissez-faire system. They resurrected the gold standard and put war debts and reparations ahead of economic recovery. It was an era of free trade and rampant speculation, with no controls on private capital. The result was a decade of economic insecurity ending in depression, a weakening of parliamentary democracy, and fascist backlash. Right up until the German election of July 1932, when the Nazis became the largest party in the Reichstag, the pre-Hitler governing coalition was practicing the economic austerity commended by Germany’s creditors.”

It was these extremist policies of free market liberalism that Polanyi dissected in his most famous work, “The Great Transformation”, published in 1944. The worst consequences were in Germany and other continental European states, but declining imperial Britain was still the heart of ultra-liberal ideology. I am currently reading David Kynaston’s rambling History of the Bank of England, which sets out the disgraceful pressure that Governor Montagu Norman and the City of London put on elected governments to return to the Gold Standard (at the pre-war rate) and impose harsh austerity, with terrible economic consequences. [..] “[T]he simple proposition that all factors of production must have free markets implies in practice that the whole of society must be subordinated to the needs of the market system.” We see Polanyi’s key insight – in the essays and in the later book – as encapsulated in these passages:

“The real nature of the dangers thus become apparent which are inseparable from the market-utopia. For the sake of society the market mechanism must be restricted. But this cannot be done without grave peril to economic life and therefore to society as a whole. We are caught up on the horns of a dilemma: – either to continue on the paths of a utopia bound for destruction, or to halt on this path and risk the throwing out of gear of this marvellous but extremely artificial system.” “A self-regulating market-system is a utopia. No society could stand its devastating effects once it got really going. Hardly had laissez-faire started when the State and voluntary organizations intervened to protect society through factory laws, Trade Union and Church action from the mechanism of the market.”

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All western countries do. It’s why interest rates are so low.

UK Government Relies On Rising Household Debt To Hit Targets – Labour (G.)

John McDonnell has accused the government of relying on millions of British families going further into debt in order to meet Treasury targets. The shadow chancellor said families were set to borrow £445bn by the end of the parliament. He also highlighted official figures showing the ratio between household debt and income had reached a five-year high, with forecasts suggesting it will hit 150% by 2022. That means families will have amassed debts worth a year and a half’s income – which Labour warned could result in people falling into financial difficulties. McDonnell is planning for the Labour party to focus heavily on the question of household debt as part of its new year strategy. “The alarming increase in household debt at a time when wages are not keeping up with prices is creating the perfect storm for our economy,” McDonnell told the Guardian.

“There needs to be more done to protect working households from extortionate rates of interest, and also ensure that their earnings are not being squeezed just so Philip Hammond can pretend to meet his own targets, which he has so far failed to meet.” The Labour frontbencher said his party had already promised to cap interest on insecure lending, but would be unveiling a string of further interventions in 2018 about how to protect households from burgeoning debt. He has described the situation as a “personal debt crisis” with levels of unsecured borrowing predicted to hit a record of £19,000 per household by the end of this parliament. Analysis from Labour shows unsecured debt is on course to exceed £15,000 per household next year and could go on to exceed £19,000 per household by 2022 if it follows the current trajectory.

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They had an excellent health care service. Those days are gone. The poor have become expendable.

‘Desperate Times’ For Overcrowded British Hospitals (PA)

Pressures on the NHS have “escalated rapidly” over the festive period, with hospitals experiencing significant bed shortages, a leading doctor has warned. Dr Nick Scriven, president of the Society for Acute Medicine (SAM), said many hospitals reported more than 99% capacity in the week before Christmas. He said services are being placed under significant strain as they enter the new year and called for non-urgent operations to be postponed until at least the end of January. Doctors have described corridors overflowing with patients and used social media in a bid to find extra staff to cope with demand. Portsmouth hospitals NHS trust, in Hampshire, tweeted on Sunday: “The hospital is extremely busy at the moment and we are asking any medical or nursing staff available for a shift tonight or tomorrow to make contact.”

Epsom and St Helier University hospitals trust, in London, also appealed for staff to work on New Year’s Eve “due to sickness and high volumes of patients”. Dr Richard Fawcett, from the Royal Stoke University hospital, wrote on Saturday that it had run out corridor space in A&E after ambulances were diverted from County hospital, Stafford. NHS England said hospitals were “generally coping”, with overall bed occupancy levels down from 95% in the lead-up to Christmas to about 93%. Scriven said: “Since the bank holiday, things have escalated rapidly and we are on the cusp of a major issue at least as bad as last year when it was described by the Red Cross as a humanitarian crisis. “There is an awful lot of respiratory illness causing a lot of severe symptoms in the old and young and 10- to 12-hour delays in emergency departments are now not uncommon – along with patients being placed on inappropriate wards.”

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Good story for 2018.

China’s Growth Engine Stutters As Factories Slow Down (G.)

Growth in China’s manufacturing sector slowed in December as a punishing crackdown on air pollution and a cooling property market start to weigh on the world’s second-largest economy. The data supports the view that the Chinese economy is beginning to gradually lose steam after growing by a forecast-beating 6.9% in the first nine months of the year. However, signs of a sharper slowdown – a major fear among global investors – have yet to materialise. The official Purchasing Managers’ Index (PMI) released on Sunday dipped to 51.6 in December, down from 51.8 in November and in line with forecasts from economists in a Reuters poll. The 50-point level divides growth from contraction on a monthly basis. The figures showed that China’s full-year 2017 economic growth would be at about 6.9% and 6.5% for 2018, according to the China Federation of Logistics and Purchasing, which compiles the data.

Boosted by hefty government infrastructure spending, a resilient property market and unexpected strength in exports, China’s manufacturing and industrial firms have driven solid economic growth this year, with their strong appetite for raw materials boosting global commodity prices. However, a slowdown has started to take hold in the last few months due to a wide-ranging combination of government measures, from a crackdown on smog in some heavily industrialised provinces to continued curbs on the housing market, which are weighing on property investment. Chinese steelmakers in 28 cities have been ordered to curb output between mid-November and mid-March, while a campaign to promote cleaner energy by converting coal to natural gas has also hampered manufacturing activity in some cities, leading to shortages and price rises.

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Any politician seen as giving in to Turkish strong-arming faces a huge problem at home. Long history and all that.

Greece Dismisses Turkey’s Threats Over Asylum Row (GR)

Greece dismissed Turkish angry threats on Sunday over its decision to grant asylum to a soldier who Ankara accuses of involvement in the abortive coup against President Tayyip Erdogan in July 2016. Turkey said on Saturday the decision by a Greek asylum board undermined relations between the two countries. The soldier was one of eight who fled after the July 15 coup attempt. It also accused Athens of harbouring “coup plotters”, a charge Greece denies. Turkey also threatened that the incident would affect bilateral relations over a host of issues from ethnically split Cyprus to sovereignty over airspace. The asylum board rejected the applications by the other seven soldiers, and the Greek government has appealed the decision to grant the soldier asylum and sought its annulment.

The government announcement that it will appeal the decision has caused a minor political storm, with opposition parties accusing the PM of hypocrisy and of bowing to Turkish threats. the row began when the government added to its appeal release that the country’s judiciary is independent. “Our faith in democratic principles and practices is not a weakness, but a source of strength,” the Greek foreign ministry said in a statement on Sunday. “Democracies do not threaten, or can be threatened,” the foreign ministry said. “On the contrary, they work responsibly and methodically to promote understanding and entrench stability and good neighbourly relations. Greece will continue this path and hopes its neighbours will do the same.” The eight soldiers had flown by helicopter to Greece in the early hours of July 16, 2016, as the attempted coup against Erdogan crumbled. They have denied any involvement in the attempt.

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Erdogan is not going to like this one.

Greece: Turkish Soldiers Won’t Be Extradited Regardless Of Asylum Process (K.)

Greek government spokesman Dimitris Tzanakopoulos has said the eight Turkish soldiers wanted by Ankara in connection with a failed coup attempt in 2016 “will not be extradited regardless of the outcome of their asylum applications.” In a message posted on social media late Sunday, Tzanakopoulos said the asylum claims submitted by the soldiers concerns their granting of refugee status. “This is a completely different from their non-extradition,” he said. Turkey said on Saturday the decision by a Greek asylum board to grant asylum to one of the eight soldiers undermined relations between the two countries. It also accused Athens of harboring “coup plotters.”

On Sunday, Tzanakopoulos said it was up to the Greek justice system to decide if the suspect in question is entitled to refugee protection, “in light of the enormous political significance of the issue which directly impacts on relations with the neighboring country.” “The political position of the Greek government is nevertheless clear,” Tzanakopoulos said. “Those suspected of being involved in Turkey’s coup are not welcome.”

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It’s not as if this is a British issue. Just refuse to use all the packaging etc.

UK ‘Faces Build-Up Of Plastic Waste’ (BBC)

The UK’s recycling industry says it doesn’t know how to cope with a Chinese ban on imports of plastic waste. Britain has been shipping up to 500,000 tonnes of plastic for recycling in China every year, but now the trade has been stopped. At the moment the UK cannot deal with much of that waste, says the UK Recycling Association. Its chief executive, Simon Ellin, told the BBC he had no idea how the problem would be solved in the short term. “It’s a huge blow for us… a game-changer for our industry,” he said. “We’ve relied on China so long for our waste… 55% of paper, 25% plus of plastics. “We simply don’t have the markets in the UK. It’s going to mean big changes in our industry.”

China has introduced the ban from this month on “foreign garbage” as part of a move to upgrade its industries. Other Asian nations will take some of the plastic, but there will still be a lot left. Environment Secretary Michael Gove has admitted that he was slow to spot the problem coming. The UK organisation Recoup, which recycles plastics, said the imports ban would lead to stock-piling of plastic waste and a move towards incineration and landfill. Peter Fleming, from the Local Government Association, told the BBC: “Clearly there’s a part to play for incineration but not all parts of the country have incinerators.

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Dec 012017
 
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Edward S. Curtis Mosa Mohave girl c. 1903

 

The Mean Reverting History Of Profit Growth (Roberts)
US Household Debt Is Rising 60% Faster Than Wages (ZH)
We Give Up! Government Spending And Deficits Soar Everywhere (Rubino)
Lemmings In Full Stampede Toward The Fiscal Cliff (Stockman)
Brexit Risks Leaving Banks on the Hook for Impossible Contracts (BBG)
I’m Glad Morgan Stanley Has Warned Us About Jeremy Corbyn (Ind.)
US Senate Suspends Tax Bill Votes to Friday Morning (BBG)
Australian Banks Face Public Inquiry Amid String of Scandals
Gold Trader Implicates Erdogan In US Sanctions Breaking Case (BBC)
From The Caucasus To The Balkans, China’s Silk Roads Are Rising (Escobar)
Paris – The Financial Capital Of West And Central Africa (Gefira)
Chinese Satellite Closes In On Dark Matter Mystery (AFP)

 

 

Another great set of graphs from Lance Roberts, who just keep churning them out. I picked these two to show how dependent economies have become on suppressing wages. Problem is, that threatens economies. You need money rolling at the ground level to keep your economy going.

The Mean Reverting History Of Profit Growth (Roberts)

Since 2000, each dollar of gross sales has been increased to more than $1 in operating and reported profits through financial engineering and cost suppression. The next chart shows that the surge in corporate profitability in recent years is a result of a consistent reduction of both employment and wage growth. This has been achieved by increases in productivity, technology, and off-shoring of labor. However, it is important to note that benefits from such actions are finite. (Note the acceleration in profits starting with the Reagan Tax Cuts in the 1989’s. There is no evidence that cutting taxes for corporations leads to higher wages for employees.)

Given the economic landscape of recent years, large offsetting sectoral deficits and surpluses are not surprising, but they should not be taken as evidence that the long-term profitability of the corporate sector has permanently shifted higher. Stocks are not a claim to a few years of cash flows, but decades and decades of them. By pricing stocks as if current profits are representative of the indefinite future, investors have ensured themselves a rude awakening over time. Equity valuations are decidedly a long-term proposition, and from present levels, the implied long-term returns are quite dim.

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And then you get this…

US Household Debt Is Rising 60% Faster Than Wages (ZH)

The good news: total mortgage debt has decreased since 2008, to $8.743 trillion from $9.29 trillion, but as of the third quarter of 2017, still accounts for 67.5% of overall consumer debt. The bad news: since 2008, the growth in total debt has been attributable to the auto loan and student loan sectors. Auto loan debt has increased by 50% since 2008, to slightly over $1.2 trillion from approximately $800 billion. The most dramatic growth rate, as Zero Hedge readers know well, has been in student loan debt which has grown by 122% since 2008, to $1.357 trillion from $611 billion. But a bigger concern flagged by DBRS is that the growth in consumer debt is raising concerns when viewed in the context of the existing wage stagnation hampering the current economic environment.

The rating agency cites a paper published in October 2017 by the Harvard Business Review which stated that the inflation-adjusted hourly wage has grown by only 0.2% per year since the mid-1970s and labor’s share of income has decreased to its current level of 57% from 65%. Meanwhile, in the second quarter of 2017, wages were only 5.7% higher than they were a decade earlier. In comparison, the Federal Reserve Bank of New York/Equifax data shows that consumer debt growth over the same period was 9.3%. In other words, the purchasing power of US households has been largely a function of rapidly rising debt, which over the past decade has risen 60% faster than wages. There is another concern: while overall delinquency rates have stabilized in recent years, the one stubborn outlier remains student debt, where 90+ day delinquencies have risen to more than 10%.

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“Obviously debts of this magnitude can’t and therefore won’t be repaid. Which means the coming decade will be defined by how — and how quickly — we end up defaulting.”

We Give Up! Government Spending And Deficits Soar Everywhere (Rubino)

A recurring pattern of the past few decades involves governments promising to limit their borrowing, only to discover that hardly anyone cares. So target dates slip, bonds are issued, and the debts keep rising. This time around the timing is especially notable, since eight years of global growth ought to be producing tax revenues sufficient to at least moderate the tide of red ink. But apparently not. In Japan, for instance, government debt is now 250% of GDP, a figure which economists from, say, the 1990s, would have thought impossible. Over the past decade the country’s leaders have proposed a series of plans for balancing the budget, and actually did manage to shrink debt/GDP slightly in 2016. But now they seem to have given up, and are looking for excuses to keep spending.

[..] To put the above in visual terms, here’s an infographic from Howmuch.com that shows per-capita government debt for the world’s major countries. Note that a Japanese family of five’s share of its government’s debt is close to $450,000 while in the US a similar family owes $300,000. That’s in addition to their mortgages, car loans, credit cards, etc. Obviously debts of this magnitude can’t and therefore won’t be repaid. Which means the coming decade will be defined by how — and how quickly — we end up defaulting.

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More of that same story.

Lemmings In Full Stampede Toward The Fiscal Cliff (Stockman)

The lemmings are now in full stampede toward the cliffs. You can literally hear the cold waters churning, foaming and crashing on the boulders far below. From bitcoin to Amazon, the financials, the Russell 2000 and most everything else in between, the casinos are digesting no information except the price action and are relentlessly rising on nothing more than pure momentum. The mania has gone full retard. Certainly earnings have nothing to do with it. As of this morning, the Russell 2000, for instance, was trading at 112X reported LTM earnings. Likewise, Q3 reporting is all over except for the shouting and reported LTM earnings for the S&P 500 came in $107 per share. That’s of signal importance because fully 36 months ago, S&P earnings for the September 2014 LTM period posted at $106 per share.

That’s right. Three years and $1 of gain. They talking heads blather about “strong earnings” only because they think we were born yesterday. What happened in-between, of course, was the proverbial pig passing through the python. First, the global oil, commodities and industrial deflation after July 2014 took earnings to a low of $86.44 per share in the March 2016 LTM period. After that came the opposite—the massive 2016-2017 Xi Coronation Stimulus in China. The new Red Emperor and his minions pumped out an incredible $6 trillion wave of new credit, thereby artificially stimulating a global rebound and a profits recovery back to where it started three years ago.

The difference of course is that $106 of earnings back then were priced at an already heady (by historical standards) 18.6X, whereas $107 of earnings today are being priced at a truly lunatic 24.6X. After all, nothing says earnings bust ahead better than an aging business cycle, a cooling Red Ponzi, an epochal shift toward central bank QT (quantitative tightening) and a massive Washington Fiscal Cliff. Yet every one of those headwinds are self-evident and have made their presence known with a loud clang in the last few days.

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For good measure, let’s throw in some Catch 22.

Brexit Risks Leaving Banks on the Hook for Impossible Contracts (BBG)

As far as Brexit headaches go, John McFarlane, who chairs Barclays and London’s bank lobby, says that while his firm is on top of job moves, he’s more concerned about rewriting “hundreds of thousands” of contracts. He’s not alone. Andrew Bailey, head of the U.K. Financial Conduct Authority, said “contract continuity” was among the biggest potential disruptions from a no-deal, no-transition Brexit. Both men were testifying to lawmakers Wednesday. Bank of England Governor Mark Carney and ECB President Mario Draghi have also expressed concern about the issue and the dearth of time left for a fix. A week ago, data from the European Banking Authority showed the scope of the issue, and that money is already on the move for precisely this reason: European banks have slashed their U.K. assets by $425 billion, driven by a 35% drop in derivatives exposures.

Insurance policies are affected too: Carney estimates about 20 billion pounds of insurance liabilities in Britain could be affected without swift action. The issue arises because one side or the other of a contract can meet its obligations only thanks to an authorization that’s set to disappear once the U.K. leaves the European Union in 2019. This might result in a firm being obliged by contract law to do something that regulation prohibits it from carrying out, and impossibility generally isn’t a defense against non-performance of a contract, said Simon Gleeson at Clifford Chance in London. “A bank which enters into a contract which becomes illegal to perform by reason of Brexit may well be liable in damages for its non-performance to the counterparty,” said Gleeson. “Dealing with this is so much in everyone’s interest that I’m amazed it hasn’t been addressed.”

[..] Cross-border revolving credits – credit lines that can be drawn down, repaid, then drawn down again – are among such contracts. Many of these are issued to EU companies by syndicates with members based in the U.K. For example, lenders to Volkswagen Financial Services’s €2.5 billion ($3 billion) line include London-based entities for Bank of America and Citigroup, as well as the U.K. units of the major British banks, data compiled by Bloomberg show. A lender that lost its authorization but made an advance to the company under the revolver might find itself in breach of local law in jurisdictions including Germany and France, according to Clifford Chance. On the other hand, it might be in breach of contract if it failed to make the loan.

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Because Morgan Stanley exposes itself this way. As Corbyn himself said: Yes, we’re a threat. To you.

I’m Glad Morgan Stanley Has Warned Us About Jeremy Corbyn (Ind.)

This week, Morgan Stanley claimed that “Corbyn would be more of a danger to markets than hard Brexit”, something which I saw as supremely ironic. Because the actions of Morgan Stanley, and others like it, laid the foundations for Leave because of their role in the financial crisis: a crisis of capitalism, which ushered in seven years of austerity, falling wages and insecure work. Precisely the conditions that would encourage the majority of British people to vote against the status quo and opt for Leave. Morgan Stanley’s role in the financial crisis cannot be understated; and, given describing things as a “danger to markets” appears to be in fashion right now, let’s remind ourselves what they got up to just over a decade ago.

Essentially, they packaged up sub-prime mortgages as something called Collateralised Debt Obligations (CDOs), got credit ratings agencies – who were entirely conflicted as their clients were the investment banks – to rate these absolute garbage CDOs triple-A investments. Morgan Stanley then misled investors who bought them. Because they knew what those investments were actually worth, Morgan Stanley’s traders bought what are known as “credit default swaps” on those CDOs – effectively amounting to a bet on it defaulting. You can buy or sell a credit default swap even if you don’t own the investment. They did this thousands of times.

[..] the right-wing press, which gleefully reported on this Corbyn/Brexit warning, clearly has a short memory about what really happened. After all, the lie that Labour caused the financial crisis, and not investment banks like Morgan Stanley, was a convenient pretext for maintaining the economic status quo while cutting to public spending. This forced ordinary working people to pay for a financial crisis they did not cause. It’s little wonder that people voted Leave having been totally shafted by the system. But the opportunity to do so only arose because the narrative that “Labour crashed the economy” helped secure David Cameron a majority in 2015 on a manifesto that promised a referendum.

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Make it 2018.

US Senate Suspends Tax Bill Votes to Friday Morning (BBG)

Senate Majority Leader Mitch McConnell said votes on the tax bill will resume at 11 a.m. on Friday as the collapse of a key compromise to win a majority for a Senate tax overhaul left Republicans scrambling to salvage the legislation. Debate over the bill may continue into the evening, McConnell said. It’s unclear when the unlimited amendment vote series known as “vote-a-rama” would begin. After seeming to gain momentum during the day, the GOP’s tax cut plan smacked into a decision from the Senate’s rule-making office that said a so-called trigger proposed by GOP holdouts didn’t pass procedural muster. At least three Republicans – Bob Corker of Tennessee, Jeff Flake of Arizona and James Lankford of Oklahoma – had tied their votes to the mechanism, which would have increased taxes if revenue targets weren’t met.

The trio is now demanding that leaders agree to other changes in the bill to avoid a huge deficit increase. Republicans have a slim majority in the Senate and can only afford to lose two members if they want to pass the tax bill without Democratic support. Adding to the difficulty was a ruling by a key fiscal referee that the tax plan would blow a $1 trillion hole in the nation’s debt – even after accounting for economic growth. The day’s events left GOP leaders contemplating a variety of potentially unpalatable measures — including making some tax cuts on the individual and corporate side end within six or seven years. The current version of the Senate bill would sunset individual breaks in 2026.

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Wait till home priced start to plummet. That’s when the scandals will break.

Australian Banks Face Public Inquiry Amid String of Scandals

Australia’s banks will be subject to a wide-ranging public inquiry after Prime Minister Malcolm Turnbull bowed to pressure to address scandals besetting the industry. The yearlong royal commission will examine the conduct of the nation’s banks, insurers, financial services providers and pension funds, and consider whether regulators have enough power to tackle misconduct, Turnbull said Thursday. He pledged the inquiry would not put “capitalism on trial.” The announcement came just minutes after Commonwealth Bank of Australia, Australia & New Zealand Banking, Westpac and National Australia Bank dropped their opposition to an inquiry, saying in an open letter to the government that months of political squabbling over the issue risked undermining offshore investor confidence.

More than A$8 billion ($6 billion) was wiped off the market value of the big four lenders in early Sydney trading, with Commonwealth Bank declining as much as 2.7%. “Ongoing speculation and fear-mongering about a banking inquiry or royal commission is disruptive and risks undermining the reputation of Australia’s world-class financial system,” Turnbull said. The inquiry will “further ensure our financial system is working efficiently and effectively.” The main opposition Labor party has for months been demanding a royal commission into the finance industry, amid a string of scandals ranging from misleading financial advice, attempted rate-rigging and alleged breaches of anti-money laundering laws. Pressure was growing on Turnbull to hold an inquiry, with some lawmakers in his Liberal-National coalition threatening to force a vote in parliament next week.

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A big problem for Erdogan. The US takes its sanctions seriously.

Gold Trader Implicates Erdogan In US Sanctions Breaking Case (BBC)

A controversial Turkish-Iranian gold trader has told a US court that Turkish President Recep Tayyip Erdogan personally approved his sanction-breaking deals with Iran. Reza Zarrab, 34, is a key witness in the criminal trial of a Turkish banker whom he allegedly worked with to help Iran launder money. Mr Erdogan has denied that Turkey breached US sanctions on Iran. The case has strained relations between Ankara and Washington. In his testimony, Mr Zarrab implicated Mr Erdogan in an international money laundering scheme that he and the banker, Mehmet Hakan Atilla, ran between 2010 and 2015 that allegedly allowed Iran to access international markets despite US sanctions.

He said that he was told in 2012 by the then economy minister that Mr Erdogan, who was prime minister at the time, had instructed Turkish banks to participate in the multi-million dollar scheme. Mr Erdogan said earlier on Thursday that Turkey did not breach US sanctions on Iran, Turkish media report. His government has described the case as “a plot against Turkey”. The Turkish president is yet to respond to the new allegations about him made in court. Mr Atilla has pleaded not guilty. Nine people have been charged in total. Mr Zarrab was arrested by US officials in 2016 and accused of engaging in hundreds of millions of dollars’ worth of transactions on behalf of the Iranian government, money laundering and bank fraud. But he decided to cooperate with prosecutors and is now their star witness in the New York trial.

On Wednesday, he told the court he paid Zafer Caglayan, then Turkey’s economy minister, bribes amounting to more than €50m to facilitate deals with Iran. Turkey’s Deputy Prime Minister, Bekir Bozdag, responded to the allegations, saying that Mr Zarrab had been “pressured into committing slander”. Speaking to state-run news agency Anadolu, Mr Bozdag called the trial a “theatre”. The Turkish government had previously said that Mr Caglayan acted within Turkish and international law.

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Overcapacity export.

From The Caucasus To The Balkans, China’s Silk Roads Are Rising (Escobar)

The 19th Chinese Communist Party Congress made it clear that the New Silk Roads – aka, the Belt and Road Initiative (BRI) – launched by President Xi Jinping just four years ago, provides the concept around which all Chinese foreign policy is to revolve for the foreseeable future. Up until the symbolic 100th anniversary of the People’s Republic of China, in 2049, in fact. Virtually every nook and cranny of the Chinese administration is invested in making the BRI Grand Strategy a success: economic actors, financial players, state-owned enterprises (SOEs), the private sector, the diplomatic machine, think tanks, and – of course – the media, are all on board. It’s under this long-term framework that sundry BRI projects should be examined. And their reach, let’s be clear, involves most of Eurasia – including everything from the Central Asian steppes to the Caucasus and the Western Balkans.

Representatives of no fewer than 50 nations are currently gathered in Tbilisi, Georgia, for yet another BRI-related summit. The BRI masterplan details six major economic “corridors,” and one of these is the Central Asia-West Asia Economic Corridor. That’s where Georgia fits in, alongside neighboring Azerbaijan: both are vying to position themselves as the key Caucasus transit hub between Western China and the European Union. [..] The action in the Caucasus was mirrored in Europe earlier in the week as Chinese Premier Li Keqiang and Hungary’s Prime Minister Viktor Orban opened the sixth “16+1” summit, involving China and 16 Central and Eastern European nations, in Budapest. “16+1” is yet another of those trademark Chinese diplomatic “away wins.”

Some of these nations are part of the EU, some part of NATO, some neither. From Beijing’s point of view, what matters is the relentless BRI infrastructure and connectivity drive. Beijing may have invested as much as US$8 billion so far in Central and Eastern Europe. China is having a ball in the Western Balkans – especially in Serbia, in Montenegro, and in Bosnia and Herzegovina, where EU financial muscle is absent. China has invested in multiple connectivity and energy projects in Serbia – including the much-debated Belgrade-Budapest high-speed rail link. Construction of the Serbian stretch started this week, with 85% of the total cost (roughly €2.4 billion) coming from the Export-Import Bank of China.

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Dream of power are always costly.

Paris – The Financial Capital Of West And Central Africa (Gefira)

France’s current zone of influence in Africa is the result of the policies of President Charles de Gaulle, who was unable to come to terms with his defeats in Indochina (1954) and Algeria (1962) and therefore sought to achieve the dominance of France in his former colonies. After de Gaulle, however, other presidents did not refrain from using military force and violence in Africa to defend their interests, on the pretext of protecting human rights and democracy. The French often achieved the opposite, because they made the same mistakes in their military actions as Americans made elsewhere in the world: they supported people who later became their enemies or violated human rights.

For example, it was the regime of Juvenal Habyariman in Rwanda that was supported by Paris: the French supplied Hutu combat groups with weapons, thus contributing to the Tutsi massacre. Hollande, who in Paris and Europe was perceived as a weakling, showed the face of a warrior and sent heavy units and fighter planes to Mali in 2013. This would not have been necessary if French President Sarkozy and the USA had not overthrown Qaddafi. It was Sarkozy that initiated the NATO led airstrikes against Libya. The removal of Colonel Qaddafi gave rise to the creation of the Caliphate with the help of Tuaregs in the north of Niger and Mali. After a few years since the start of the mission in Mali one wonders: has it made Europe safer?

Has the flow of migrants been stopped through Sahel countries? Are the Jihadists of African descent a lesser threat in Europe? The cost of the military action in Mali in 2013 amounted to €650 million. Operation Barkhane (as it is called) continues to this day and costs the French budget €500 million per year. Of course, democracy in Mali is a top priority for most Europeans, right? A total of 9,000 French soldiers are currently stationed in Chad, Niger, Mali, Burkina Faso, Senegal, Gabon, the Central African Republic and Djibouti. The growing military presence is intended to support the fight against terrorism and crime, in fact it is about the French elites extending their power to the south, reaching for cheap raw materials and outlet markets.

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“..if we can identify it is dark matter for sure then that is very significant. And if not, it is even more significant because they would be fresh new particles that no one had predicted before..”

Chinese Satellite Closes In On Dark Matter Mystery (AFP)

Scientists have detected cosmic ray energy readings that could bring them closer to proving the existence of dark matter, a mysterious substance believed to comprise a quarter of our universe, a study revealed on Thursday. Likely made up of unknown sub-atomic material, dark matter is invisible to telescopes and can be perceived only through its gravitational pull on other objects in the universe. Beijing’s first astronomical satellite launched two years ago detected 1.5 million cosmic ray electrons and protons, the study said, and unprecedented measurements found curiously low-energy rays. The team of researchers from China, Switzerland and Italy, who published their first results in the journal Nature, said the data may cast light on “the annihilation or decay of particle dark matter”.

“This new unseen phenomena can bring breakthroughs,” Bai Chunli, president of the Chinese Academy of Sciences, said at a briefing. “After collecting more data, if we can identify it is dark matter for sure then that is very significant. And if not, it is even more significant because they would be fresh new particles that no one had predicted before,” Bai added, to applause from fellow scientists. The Dark Matter Particle Explorer (DAMPE) is now collecting more data from space to help researchers figure out what it could be. DAMPE was launched from the Jiuquan Satellite Launch Centre in the Gobi desert in December 2015, after nearly 20 years in development. Its designers boast that DAMPE is superior to its US counterpart, the AMS-02 (Alpha Magnetic Spectrometer) that NASA installed on the International Space Station in 2011.

“Our cosmic ray detection range is 10 times that of AMS-02 and three times as accurate,” said DAMPE chief scientist Chang Jin. “Proving the existence of dark matter takes a lot of time. Now we have worked out the most precise spectrum, but we are not 100% sure that this can lead us to the location of dark matter,” he said.

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Nov 272017
 
 November 27, 2017  Posted by at 10:00 am Finance Tagged with: , , , , , , , , ,  14 Responses »
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Guatave Courbet The cliffs of Étretat after the storm 1870

 

Why Are We Addicted To Debt? (Forbes)
China Debt Grows At Faster Pace Despite Years Of Efforts To Contain It (R.)
Maybe China Shouldn’t Open Up (Pettis)
OECD Warns on Rising Debt Risk as Canadians Most in the Red (BBG)
Bitcoin – Too Far Too Fast? (Peter Tchir)
Italy’s 5-Star, Stung By Fake News Claims, Wants OSCE Election Monitors (R.)
The Problem Isn’t Populism: the Problem Is the Status Quo Has Failed (CHS)
Britain Must Accept High Immigration Or Forget Trade Deal With India (BI)
Why There Is No Peace On Earth (Stockman)
Australia’s Final Solution (Connelly)
Fears For World’s Rarest Penguin As Population Plummets (G.)

 

 

Asia, that is. Check the marginal productivity of debt graph. And remember, once you’re at zero, you’re done. I’d venture you’re done way before even.

Why Are We Addicted To Debt? (Forbes)

Almost everyone is familiar with Asia’s rags to riches story. The recent economic miracle led to huge increases in living standards across the region. Average incomes rose by factors of 100% to even 400% in some areas. Not to mention the number of people surviving on less than $2 USD a day was cut in half. A major turning point for this economic wonder was when China joined of the World Trade Organization in 2002. Shortly after, Asia’s contribution to the global GDP jumped from 11% to 21%. However, debt distorts these figures in a variety of ways. So, that begs the question; was it a miracle or just an illusion? What tricks does Asia have up its sleeve? Many are becoming increasingly anxious over Asia’s debt-fueled economy. Their fears may soon become a reality.

[..] Asia’s ability to consume credit seems never ending. Even during the recent financial crisis, Asia witnessed governments working hard to maintain cheap money flowing into their financial systems. The Chinese government implemented a stimulus package with record low interest rates. They wanted to mimic the methods used by other global central banks during the 2007 and 2008 financial crisis. Despite the large amount of media attention China’s borrowing levels received, they’re not special. As you can see in the chart below, credit levels have soared throughout Asia. Singapore, Hong Kong, Thailand, and Malaysia all have increased their debt to GDP ratios since 2001.

An increased dependency on cheap, available credit produced household debt to shoot up in South Korea and Taiwan. What are the possible outcomes? In many of these economies, high debt levels could lead to tragedy. The main culprit would be GDP growth rate’s inability to balance out spiraling debt levels. This situation is called the marginal productivity of debt. Or put more simply, new debt is not as efficient at creating new growth. Look at the chart below to see how the marginal productivity of debt plays out in Asian economies. Even major, regional growth contributors like South Korea, Japan and China, have experienced this downward trend. Indonesia is the only exception.

Since 2001 China’s marginal productivity has declined by a factor just short of 50%. Since investment has been one of China’s main growth drivers (almost entirely financed by debt), this is concerning. To add fuel to the fire, much of that debt has been funneled into China’s state-owned enterprises (SOEs). For instance, while corporate debt was at 165% of the GDP in 2015, SOEs made up 71% of it. Meanwhile, those SOEs only contributed around 20% to China’s total GDP.

Read more …

Unstoppable?

China Debt Grows At Faster Pace Despite Years Of Efforts To Contain It (R.)

For years China’s top officials have touted their ambitious policy priority to wean the world’s second-largest economy off high levels of debt, but there is not much to show for it. On the contrary, a Reuters analysis shows the debt pile at Chinese firms has been climbing in that time, with levels at the end of September growing at the fastest pace in four years. The build-up has continued even as policymakers roll out a series of measures to end the explosive growth of debt, including persuading state firms and local governments to prune borrowing and tighter rules and monitoring of banks’ short-term borrowing. By some estimates, China’s overall debt is now as much as three times the size of its economy.

Without a comprehensive strategy to tackle the overhang, there is a growing risk China will have a banking crisis or sharply slower growth or both, the IMF said last year. China’s central bank governor, Zhou Xiaochuan, made global headlines with a warning last month of the risks of a “Minsky moment”, referring to a sudden collapse in asset prices after long periods of growth, sparked by debt or currency pressures. On the sidelines of a key, twice-a-decade Communist Party Congress in October, Zhou referred to relatively high corporate debt and the fast pace of growth in household lending. While also pledging to fend off such risks, Zhou has acknowledged it will take some time to bring debt down to more manageable levels.

Reuters analysis of 2,146 China listed firms showed their total debt at the end of September jumped 23% from a year ago, the highest pace of growth since 2013. The analysis covered three-fifths of the country’s listed firms, but excluded financials, which have seen the brunt of government de-risking and deleveraging efforts so far.

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Michael Pettis still sees isolationism as an answer. But isn’t China too open for that already?

Maybe China Shouldn’t Open Up (Pettis)

China needs reform. This has long been the consensus advice from economists and multilateral institutions such as the World Bank, whose recent “China 2030” report argues that Chinese leaders should strengthen the role of markets and liberalize legal, financial and other institutions governing the economy. Their to-do list is virtually gospel by now: free up trade and investment, unshackle the exchange rate and ease capital controls. Such reforms are held not only to be worthy in themselves, but critical to solving China’s biggest problem: its debt, which has skyrocketed to well over 260% of GDP from 162% in 2008. The speed and scale of credit expansion has raised fears of a financial crisis, even from such normally staid figures as central bank governor Zhou Xiaochuan. The hope is that reforms will boost productivity enough to allow China to outgrow its debt burden before that crisis hits.

This logic is flawed for two reasons. First, China is unlikely to suffer a financial crisis, and this is precisely because of the government’s ability to restructure banking-sector liabilities at will. The real threat is different. Once a country’s debt burden is high enough to create uncertainty about allocating future debt-servicing costs, the debt itself becomes an obstacle to growth. This process – known as “financial distress” – is well-understood in finance theory but is still unfamiliar to many economists. So, unfortunately, is the corroborating history. In the past two centuries, there have been dozens of cases of overly-indebted countries whose policymakers have promised to implement liberalizing reforms meant to allow the country to outgrow its debt. None has succeeded. No excessively indebted country has ever outgrown its debt until a meaningful portion has been forcibly assigned to one economic sector or another.

There are many ways this can occur. Mexico restructured its debt at a discount in 1990, thereby forcing the cost onto creditors. Germany inflated the debt away after 1919, forcing the cost onto pensioners and others with fixed incomes. A decade ago, China forced the cost onto household savers through negative real interest rates. If it is going to regain sustainable growth, China, too, must deleverage. The only healthy way to do so is first, to force local governments to liquidate assets and assign part of the proceeds to debt reduction, and second, to wean China off its dependence on excessive investment by transferring wealth from local governments to households, so they can consume more.

Read more …

I wanted to include this article because it raises a serious question. The countries with arguably the highest household debt levels (or close) are New Zealand, Australia, Holland, Sweden, Denmark, Norway. They are all missing from the OECD numbers. How can that be a coincidence?

OECD Warns on Rising Debt Risk as Canadians Most in the Red (BBG)

The OECD warned that rising private debt loads in both advanced and developing economies pose a risk to growth as Canada, South Korea and the U.K. lead the world in household borrowing. “Household and corporate debt in many advanced and emerging market economies is high,” the OECD said Thursday in a pre-released section of a report to be presented next week. “While higher indebtedness does not necessarily imply that problems are just around the corner, it does increase vulnerability to shocks”. With the global economy showing its most even expansion since the financial crisis, debt levels and credit quality are among the risks that could trigger a downturn. Consumer debt tops 100% of GDP in Canada, with South Korea and Britain both above 80%. On corporate borrowing, the OECD warned about a shift in risk from banks to the bond market and a “substantial” decrease in credit quality.

Read more …

As bitcoin nears $10K, Tchir reflects.

Bit from Twitter: @JorgeStolfi: “Bitcoin’s market cap just passed 150 billion USD. For those who do not know, that is how much money NEW bitcoin “investors” will have to spend, in order for the current bitcoin holders to get the money that they THINK they have.”

Bitcoin – Too Far Too Fast? (Peter Tchir)

As Bitcoin surges above $9,250 on the open this Sunday, I have to admit to having some real trepidation at these levels. I have been a proponent of the view that Bitcoin and cryptocurrencies would benefit from the launch of ETFs and futures. My view is that allowing for easier ‘adoption’ of Bitcoin will help fuel its growth as it lets new investors participate indirectly. I should not limit that theory to just more traditional ways to invest, like ETFs and futures, but should also include easier ways to establish wallets and to own Bitcoin (and other cryptocurrencies) the ‘traditional’ way. There are a growing number of ‘easy’ to use guides to getting Bitcoin (I have glanced at many but haven’t followed through to verify how well they work of don’t work).

I am convinced that ease of access and the potential for more mainstream products linked to Bitcoin has helped fuel its surge. But now, I am concerned it has gone too far, too fast. I have three major concerns that could slow the price rise or even cause it to have a significant correction (yes, I am converting from bullish Bitcoin to at best neutral). Here are the three concerns:

1) Are all the ETF and Futures launches a ‘sell the news’ event? Basically the question is, while I believe that easier adoption will lead to inflows, how much of that is priced in? Have speculators loaded their electronic wallets with Bitcoin hoping to capitalize on the expected gains to the point, there won’t be more expected gains? Understanding when something is ‘already’ priced in is difficult at the best of times, let alone with something as complex and growing exponentially like Bitcoin, but, I can’t help but wonder. I have felt a switch in discussions I’m having over the last few weeks. A subtle switch, but one where the Bitcoin bulls seem more eager to name ever higher price targets, while the agnostics seem more willing to do work and think about it more, rather than in a rush to get some money into Bitcoin. The sort of behavior that may be indicating a ‘sell the news’ type of environment.

2) There are becoming too many competing investments which are causing some investors to question how ‘real’ the existing ones are. Yes, I understand that ICO’s aren’t necessarily dilutive, if you can purchase them with Bitcoin, but it does start to appear odd when it seems like virtually every day, someone or some entity is announcing some new variation on the theme.

3) Fedcoin, the potential for the Fed could be classified within concern number 2, but is really only part of a larger, separate concern – that governments or central banks will push back. I read this week, along with a lot of other people, an article describing that Bitcoin was now worth more than McDonald’s. While that sort of article is designed to ‘shock’ investors, especially more conservative investors, I think it represents a larger, growing concern that the ‘establishment’ has surrounding cryptocurrencies. Whether the concerns are more focused on the potential for illegal funds to enter the system, taxation, controlling ‘pump and dump’ schemes or making your own job more difficult to manage, I’m sensing they are rising to the surface again. I think we have hit another tipping point where to expect a response to attempt to slow down the growth and valuation of crytpocurrencies should be expected.

Something that has risen almost a ‘ten-bagger’ in less than a year is bound to attract attention. Bitcoin rebounded strongly after the China crackdown, so this fear might be over-rated, but a more organized government or central bank crackdown shouldn’t come as a surprise to anyone. The bigger question, in my mind, is whether Bitcoin can withstand that – but that is a question for another day. I am torn, because my thesis of ‘ease of adoption’ seems to be playing out and in general it is a long way from being fully played out, which by itself is supportive of greater price appreciation. But, at the moment, my concerns are winning out and I’d be taking some chips, or bits, as the case may be, off the table.

Read more …

Russigate spreads its wings. But what if Russiagate is the real fake news?

Italy’s 5-Star, Stung By Fake News Claims, Wants OSCE Election Monitors (R.)

Italy’s anti-establishment 5-Star Movement wants international observers to monitor next year’s national election campaign to help ward off “fake news”, party leader Luigi Di Maio said on Sunday. His comments came after the ruling Democratic Party (PD) accused 5-Star supporters of using interlinked internet accounts to spread misinformation and smear the center-left government. Di Maio, who was elected 5-Star leader in September, said his party was often misrepresented by the traditional media and said the Organization for Security and Cooperation in Europe (OSCE) should oversee the forthcoming election. “The problem of fake news exists and we think it is necessary to have the OSCE monitor news and political debate during the election campaign,” Di Maio said on Facebook.

Such a request is unlikely to gain traction with 5-Star’s opponents, who allege that the maverick group is to blame for some of the most egregious smear campaigns. Last week unofficial Facebook accounts that back 5-Star published a photograph purportedly showing a close ally of PD leader Matteo Renzi attending the funeral of Mafia boss Salvatore Riina. In fact it was a photo taken in 2016 at the funeral of a murdered migrant. “Di Maio says he wants to call up OSCE monitors. Why doesn’t he call up U.N. peacekeepers and the Red Cross, and while he is at it, why not telephone (his associates) who are continuing to post this filth,” Renzi told a conference on Sunday. The sharing of false or misleading headlines and mass postings by automated social media “bots” has become a global issue, with accusations that Russia tried to influence votes in the United States and France. Moscow has denied this.

Some PD leaders called this weekend for legislation ahead of the elections, which are due by May, to crack down on the spread of false news. Renzi ruled that out on Sunday, but said his party would release twice-monthly reports on web abuses. “We do not want to shut down any website, but we want accountability,” Renzi said. The 5-Star party complains that it is unfairly treated by mainstream media, saying state broadcaster RAI is under the sway of the government, while the largest private media group is controlled by the family of former center-right prime minister Silvio Berlusconi. Italy’s leading newspapers, which are owned by large industrial concerns, have also been highly critical of 5-Star, which has promised a campaign against corruption and is seen as unfriendly to big business.

Latest polls show 5-Star has built a stable lead over other parties, with support of around 28% against 24% for the PD and 15% for Forza Italia. A new electoral law which encourages coalition building ahead of the vote, means Berlusconi’s center-right bloc should emerge as the single largest political force, albeit without a clear parliamentary majority.

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Or the problem is that nobody wants to understand this.

The Problem Isn’t Populism: the Problem Is the Status Quo Has Failed (CHS)

The corporate/billionaires’ media would have us believe that the crisis we face is populism, a code word for every ugly manifestation of fascism known to humanity. By invoking populism as the cause of our distemper, the mainstream media is implicitly suggesting that the problem is “bad people” -those whose own failings manifest in an attraction to fascism. If we can successfully marginalize these troubled troglodytes, then our problem, populism, would go away and the wonderfulness, equality and widespread prosperity of pre-populist America will be restored. The problem isn’t populism -the problem is the status quo has failed 95% of the populace.

Life isn’t wonderful, prosperous and filled with expansive equality except in the Protected Elite of the top 5% of technocrats, corporate executives, tenured academics, bureaucrats, financiers, bankers, lobbyists and wealthy (or soon to be wealthy) politicos. The bottom 95% need a time machine to recover any semblance of prosperity. They need a time machine that goes back 20 years so they can buy a little bungalow on a postage-stamp lot for $150,000 on the Left and Right Coasts, because now the little bungalows cost $1 million and up. Housing valuations have become so detached from what people earn that even the top 5% has trouble qualifying for a jumbo mortgage without the help of the Bank of Mom and Dad or the family trust fund. The bottom 95% need a time machine to return to the days when college tuition and fees were semi-affordable–say, 30 years ago.

The bottom 95% also need a time machine to return to a time when they could afford healthcare insurance without government subsidies–a generation ago, or better yet, two generations ago. In an age where phantom wealth sprouts like poisoned mushrooms from speculative bubbles, the bottom 95% need a time machine that goes back 8 years so they buy the S&P 500 at 670, or better yet, buy bitcoin for $1 or $10, just to make up the loss in the purchasing power of their wages. Populism is the dismissive propaganda term that the media uses to distract us from the real cause of our problems: the total failure of the status quo, the corrupt, predatory, exploitive, inefficient, rentier pay-to-play-“democracy” cartel-state hierarchy that has failed the bottom 95%.

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Boomerang. Right back at you.

Britain Must Accept High Immigration Or Forget Trade Deal With India (BI)

Britain will struggle to sign new free trade deals with economic powerhouses like India after Brexit unless it is willing to accept high levels of immigration from these countries into Britain. That’s according to Lord Bilimoria, co-founder of Cobra beer, and one of Britain’s most well-known entrepreneurs. Bilimoria spoke to Business Insider on Friday following International Trade Secretary Liam Fox’s claim that his efforts to make Britain a great trading nation are being undermined by the unwillingness of British businesses to export. The Indian-born British businessman described Fox as “utterly unfit” to serve as International Trade Secretary and claimed that nobody “across the board” in British business “has any respect” for the Conservative minister. “Nobody takes him seriously. That’s a fact,” Bilimoria told BI.

Bilimoria then described what he felt was a contradiction at the heart of the case for Brexit, in that Britain will not be able to significantly reduce inward migration — as many have Brexiteers promised — if it wants any hope of ambitious and wide-ranging free trade deals with countries like India. “What trade deals has he [Fox] actually done?” the life peer said. “The Indian high commissioner has warned that an agreement [between Britain and India] might not be in place until 2030 — and said talks haven’t even begun. “He said India will want the movement of professionals; the movement of doctors, the movement of engineers. He said both sides will benefit from this exchange. It won’t be a one-way street.”

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Excellent expansive overview of the past 100 years.

Why There Is No Peace On Earth (Stockman)

After the Berlin Wall fell in November 1989 and the death of the Soviet Union was confirmed two years later when Boris Yeltsin courageously stood down the red army tanks in front of Moscow’s White House, a dark era in human history came to an end. The world had descended into what had been a 77-year global war, incepting with the mobilization of the armies of old Europe in August 1914. If you want to count bodies, 150 million were killed by all the depredations which germinated in the Great War, its foolish aftermath at Versailles, and the march of history into the world war and cold war which followed inexorably thereupon. To wit, upwards of 8% of the human race was wiped-out during that span.

The toll encompassed the madness of trench warfare during 1914-1918; the murderous regimes of Soviet and Nazi totalitarianism that rose from the ashes of the Great War and Versailles; and then the carnage of WWII and all the lesser (unnecessary) wars and invasions of the Cold War including Korea and Vietnam. [..] The end of the cold war meant world peace was finally at hand, yet 26 years later there is still no peace because Imperial Washington confounds it. In fact, the War Party entrenched in the nation’s capital is dedicated to economic interests and ideological perversions that guarantee perpetual war; they ensure endless waste on armaments and the inestimable death and human suffering that stems from 21st century high tech warfare and the terrorist blowback it inherently generates among those upon which the War Party inflicts its violent hegemony.

In short, there was a virulent threat to peace still lurking on the Potomac after the 77-year war ended. The great general and president, Dwight Eisenhower, had called it the “military-industrial complex” in his farewell address, but that memorable phrase had been abbreviated by his speechwriters, who deleted the word “congressional” in a gesture of comity to the legislative branch. So restore Ike’s deleted reference to the pork barrels and Sunday afternoon warriors of Capitol Hill and toss in the legions of beltway busybodies that constituted the civilian branches of the cold war armada (CIA, State, AID etc.) and the circle would have been complete. It constituted the most awesome machine of warfare and imperial hegemony since the Roman legions bestrode most of the civilized world. In a word, the real threat to peace circa 1991 was that Pax Americana would not go away quietly in the night.

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What’s happening to us? Manus, Greece, let alone Yemen, Myanmar, Syria, where are we heading?

Australia’s Final Solution (Connelly)

Over the weekend, 620 refugees were forcibly removed from the now decommissioned prison on Manus Island, following a ruling in October that their incarceration was unconstitutional. Under instruction from Australia’s Immigration Minister Peter Dutton, prisoners were beaten with steel bars by Papua New Guinea’s paramilitary guards, starved of food, water, and electricity. They are forbidden access to doctors, nurses, social workers, urgently needed medication, and legal representation. Water supplies were deliberately destroyed. Makeshift wells were poisoned. The Australian government claims the prisoners were relocated to new facilities in nearby town, Lorengau, however those at the site say the facilities are both still under construction and at excess capacity. Prisoners forced onto buses were turned away at the gates, left sitting out in the heat for hours with no word on when they would be allowed to enter their new makeshift prisons.

[..] Australia, the ‘innovation nation’, the country of the fair go, could not possibly entertain a system of incarceration whose cruelty wasn’t entirely by design. So anchored are they to the lie that they ‘stopped the boats’, they will let more than 620 refugees fleeing civil war and religious persecution die from starvation, malnutrition, heart-problems and disease than find them a permanent home, lest they appear soft on national security. (FYI, they haven’t stopped the boats. The government has simply stopped reporting on their arrival. I have been told by members of the defence force who work on refugee ‘intercept vessels’ of mothers whose children had died in their arms, being sent back out to sea to drift aimlessly towards… anywhere but here. The boats haven’t stopped).

New Zealand’s Labour government has already volunteered to resettle the prisoners on both Manus and Nauru but their offers have been met with vitriol, scorn and diplomatic threats. Taking responsibility for a mess of its own making is a response too compassionate for this government. It needs to be barbaric. That’s the point of deterrence. If the barbarism isn’t obviously, outrageously cruel, then the system has failed. This is Australia’s final solution: ‘Deterrence’. Robbed of even the right to their own name, the refugees languishing in detention on Manus Island were literally issued numbers that would become their formal identity and how they are referred to by the prison guards (who incidentally have a long and “well-documented history of rapes, sexual assaults, physical abuse, murders and other serious human rights abuses”, according to a report from The Age).

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We’re picking off species one by one. We no longer respect life itself. Who are the gods we’re praying to, and why would they listen?

Fears For World’s Rarest Penguin As Population Plummets (G.)

Almost half the breeding population of the world’s most endangered penguin species, the yellow-eyed penguin, has disappeared in one part of New Zealand and conservation groups believe commercial fishing is to blame. The yellow-eyed penguin is endemic to New Zealand’s South Island and sub-Antarctic islands, where there are just 1,600 to 1,800 left in the wild, down from nearly 7,000 in 2000. During a recent survey of the island sanctuary of Whenua Hou (Codfish Island), department of conservation staff made the alarming discovery that close to half the island’s breeding population of penguins had vanished. Elsewhere in New Zealand the bird’s population is at its lowest level in 27 years. Forest & Bird’s chief executive Kevin Hague said because the island was predator-free the evidence pointed to the animals being caught and drowned in the nets of commercial fishing trawlers.

Only 3% of commercial trawlers have independent observers on them to report bycatch deaths. “Unlike previous years where disease and high temperatures caused deaths on land, this year birds have disappeared at sea,” said Hague. “There is an active set net fishery within the penguins’ Whenua Hou foraging ground, and the indications are that nearly half the Whenua Hou hoiho population has been drowned in one or more of these nets.” Last year 24 nests were recorded on Whenua Hou, but this year rangers only found 14. Penguin numbers are declining in other parts of the South Island as well, and researchers fear the beloved bird, which appears on the New Zealand $5 note, is heading ever closer to extinction. University of Otago’s Thomas Mattern, a penguin expert, told the Otago Daily Times he believed time was running out for the birds. “Quite frankly, the yellow-eyed penguins, in my professional opinion, are on their way out,” Mattern said.

Read more …

Nov 252017
 
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Walter Kelleher 13th Macy’s Thanksgiving Day Parade NYC 1937

 

Canada’s Household Debt Levels Higher Than Any Other Country (CNBC)
As America Gives Thanks, Homelessness Sets New Records (Snyder)
UK Council Proposes £1,000 Fines For Homeless People Sleeping In Tents (G.)
UK Faces Longest Fall in Living Standards on Record (BBG)
Britain Has 10-Day Absolute Deadline On Key Brexit Issues: Tusk (R.)
Germany’s Voice Suddenly Missing in Brussels (Spiegel)
Tesla’s Newest Promises Break the Laws of Batteries (BBG)
The Old Songs (Jim Kunstler)
Let’s Adopt The U.S. Naval Policy of 1890 (Rossini)
The US-Saudi Starvation Blockade (Buchanan)
Horrified By Libya Slave Trade, Rwanda Offers Refuge To Migrants (IBT)
Mediterranean ‘By Far World’s Deadliest Border’ For Migrants – IOM (R.)
The Refugee Scandal on the Island of Lesbos (Spiegel)
Endangered Butterfly, Mexican Shrub May Be Hurdles to Trump Wall (BBG)

 

 

Canada, Australia, New Zealand; and Sweden, Denmark and Norway.

Canada’s Household Debt Levels Higher Than Any Other Country (CNBC)

Household debt levels in Canada are higher than in any other country, according to a report by the Organization for Economic Cooperation and Development (OECD). In a preliminary version of the report, set to be released fully next month, the OECD found Canada’s household debt ranked as the highest among the 35 developed and developing countries the group monitors. The rapid accumulation of household debt for Canadians could also leave its economy particularly vulnerable to shocks, the organization said. “Although in part this reflects strong population growth, these developments may entail significant risk to financial stability given the direct exposure of the financial system to the housing market,” the OECD said. The group found Canada’s household debt-to-GDP ratio had ballooned to 101% — significantly higher than any other nation studied.

In comparison, the ratio for South Korea was the next highest at slightly under 93%, with the U.K. third at over 88%. In the U.S., the household debt-to-GDP ratio was around 80%, while Germany and France had a ratio below 60%. “Research points to a number of links between high indebtedness and the risks of severe recessions,” the group said. While virtually all countries witnessed soaring debt loads ahead of the credit crisis a decade ago, most have seen their indebtedness reduce over time. However, for Canada — and some countries in Scandinavia — this has not been the case, with OECD pinning the blame on inflated house prices. “OECD countries that have experienced the strongest increases in household debt since the crisis have also the steepest rise in house prices,” the group said.

Read more …

Highest since the Great Depression.

As America Gives Thanks, Homelessness Sets New Records (Snyder)

If the U.S. economy was actually in good shape, we would expect that the number of people that are homeless would be going down or at least stabilizing. Instead, we have a growing national crisis on our hands. In fact, within the past two years “at least 10 cities or municipal regions in California, Oregon and Washington” have declared a state of emergency because the number of homeless is growing so rapidly. Things are particularly bad in southern California, and this year the Midnight Mission will literally be feeding a small army of people that have nowhere to sleep at night… “Thanksgiving meals will be served to thousands of homeless and near-homeless individuals today on Skid Row and in Pasadena and Canoga Park amid calls for donations and volunteers for the rest of the year. The Midnight Mission will serve Thanksgiving brunch to nearly 2,500 homeless and near-homeless men, women and children, according to Georgia Berkovich, its director of public affairs.”

Overall, the Midnight Mission serves more than a million meals a year, and Berkovich says that homelessness hasn’t been this bad in southern California “since the Great Depression”… “Berkovich said the group has been serving nearly 1 million meals a year each year since 2013. “We haven’t seen numbers like this since the Great Depression,” she said.” And of course the official numbers confirm what Berkovich is claiming. According to an article published earlier this year, the number of homeless people living in Los Angeles County has never been higher…”The number of homeless people in Los Angeles has jumped to a new record, as city officials grapple with a humanitarian crisis of proportions remarkable for a modern American metropolis. Municipal leaders said that a recent count over several nights found 55,188 homeless people living in a survey region comprising most of Los Angeles County, up more than 25% from last year.”

If the California economy is truly doing well, then why is this happening? We see the same thing happening when we look at the east coast. Just check out these numbers from New York City… “In recent years the number of homeless people has grown. Whereas rents increased by 18% between 2005 and 2015, incomes rose by 5%. When Rudy Giuliani entered City Hall in 1994, 24,000 people lived in shelters. About 31,000 lived in them when Mike Bloomberg became mayor in 2002. When Bill de Blasio entered City Hall in 2014, 51,500 did. The number of homeless people now in shelters is around 63,000. For New York, this is the highest that the homeless population has been since the Great Depression, and city leaders are trying to come up with a solution.”

Read more …

It’s getting to be time for Hoovervilles.

UK Council Proposes £1,000 Fines For Homeless People Sleeping In Tents (G.)

A council has been called “cruel and callous” for proposing £1,000 fines to homeless people sleeping in tents in the city centre. Stoke-on-Trent council in Staffordshire is consulting on a public space protection order (PSPO) that will make it an offence for a person to “assemble, erect, occupy or use” a tent unless part of a council-sanctioned activity such as a music festival. Under such a scheme anyone who fails to pay their £100 on-the-spot penalty notice can be prosecuted and could be fined up to £1,000 in court. Though only currently at the consultation stage, the PSPO would cover the city centre, Hanley park, Festival park and Octagon retail park.

Ruth Smeeth, the Labour MP for Stoke-on-Trent North and Kidsgrove, said: “This is a cruel and callous policy to inflict on our most vulnerable in the lead-up to Christmas. We do have a growing problem with homelessness here in Stoke-on-Trent, but punishing people for their misfortune is no way to fix it. “It’s right and proper that the police take action to stop antisocial behaviour on our streets, but punishing the homeless simply for being homeless is appalling. “In recent years we’ve seen local funding for drug and alcohol treatment slashed and support to tackle homelessness cut to the bone. Locking these people up or saddling them with debt they can’t pay will only make the problem worse.”

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Incompetence.

UK Faces Longest Fall in Living Standards on Record (BBG)

Britons were warned they are on course for the longest fall in living standards since records began 60 years ago after the U.K.’s fiscal watchdog took the ax to its outlook for economic growth. In an analysis of the government’s latest budget and accompanying report by the Office for Budget Responsibility, the Resolution Foundation said on Thursday that the economy is set to be 42 billion pounds ($56 billion) smaller in 2022 than the OBR predicted in March. It also calculated wages will not return to their pre-financial crisis levels of 2007 until at least 2025 once inflation is taken into account. Average annual pay is now projected to be 1,030 pounds lower in 2022 than the March forecasts and household disposable incomes will fall for an unprecedented 19 straight quarters between 2015 and 2020, according to Resolution.

The analysis was reinforced by the Institute for Fiscal Studies, which said the OBR’s forecasts implied average earnings would be almost 1,400 pounds lower in 2021 than predicted before the 2016 Brexit referendum and still below their 2008 level. “We are in danger of losing not just one but getting on for two decades of earnings growth,” IFS Director Paul Johnson told a briefing in London on Thursday. The warnings underscore the challenge Chancellor of the Exchequer Philip Hammond faced on Wednesday when he released a budget that left him little room for fiscal maneuver as Brexit looms. The OBR slashed its growth forecasts as a result of weak productivity, and Hammond piled further pressure on the budget by pledging extra cash for the health service and abolishing the tax on some housing purchases for first-time buyers.

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Tusk pretends to speak with a powerful mandate, but…

Britain Has 10-Day Absolute Deadline On Key Brexit Issues: Tusk (R.)

Britain has only 10 days left to deliver on all three areas of its divorce terms with the European Union if London wants to start talks on a transition period after Brexit and a future relationship, the chairman of EU leaders Donald Tusk said. “We need to see progress from UK within 10 days on all issues, including on Ireland,” Tusk tweeted on Friday after a meeting with British Prime Minister Theresa May in Brussels. “Sufficient progress in Brexit talks at December council is possible but still a huge challenge,” he said on Twitter. An EU official said that May agreed in the one-hour discussions that Dec. 4 was the “absolute deadline” to allow the EU’s Brexit negotiator Michel Barnier to recommend moving onto the next stage on trade and future ties.

“Tusk presented the timeline ahead of the December European Council, with Dec. 4 as the absolute deadline for the UK to make additional efforts, allowing Barnier to be in a position to recommend sufficient progress,” the official said. “May agreed to this timeframe,” the official said. The official said Tusk had warned that if there was no progress within next 10 days, that would make moving forward impossible. The official said that the way Ireland’s border with Northern Ireland functioned after Britain leaves the EU in March 2019 was still an issue.

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… that mandate has severely weakened now Germany’s in trouble…

Germany’s Voice Suddenly Missing in Brussels (Spiegel)

European Union Budget Commissioner Günther Oettinger wanted to know what is going on in Germany. To find out, he set up a number of meetings in Berlin this week, including one in the Chancellery. He also arranged to chat with Christian Lindner, the head of the Free Democrats (FDP) and the man who unexpectedly turned his back on German coalition talks in Berlin last Sunday night. The reason for Oettinger’s interest in the political developments in Germany is simple. He has been assigned with writing a draft EU budget for the next 10 years and his due date is next May. He is currently traveling from capital to capital on the Continent to determine how member states envision EU spending for the period from 2018 to 2027.

But the German voice, which generally carries significant weight when it comes to budgetary questions,is silent these days. “The long process of assembling a government is weakening Germany’s influence in Brussels,” says Oettinger. “German influence on important issues is currently undiscernible.” The failure of German coalition negotiations in Berlin has caught the European Union completely off guard. Ahead of elections in France and the Netherlands earlier this year, there had been widespread concern about the rise of the right wing and potential difficulties when it came to assembling a governing coalition in those countries. Few such concerns were voiced ahead of Germany’s general election on Sept. 24. Everyone assumed that Germany was solid.

Now, though, French President Emmanuel Macron has taken center stage in the EU with his ambitious reform proposals while European Council President Donald Tusk has already come up with a detailed timeline for transforming Macron’s vision into concrete policy decisions. And suddenly, Germany has vanished. “You’re ruining our entire presidency,” complained Kaja Tael, Estonia’s permanent representative in Brussels. Estonia currently holds the EU’s rotating presidency.

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Still surprised by these things?

Tesla’s Newest Promises Break the Laws of Batteries (BBG)

Elon Musk knows how to make promises. Even by his own standards, the promises made last week while introducing two new Tesla vehicles—the heavy-duty Semi Truck and the speedy Roadster—are monuments of envelope pushing. To deliver, according to close observers of battery technology, Tesla would have to far exceed what is currently thought possible. Take the Tesla Semi: Musk vowed it would haul an unprecedented 80,000 pounds for 500 miles on a single charge, then recharge 400 miles of range in 30 minutes. That would require, based on Bloomberg estimates, a charging system that’s 10 times more powerful than one of the fastest battery-charging networks on the road today—Tesla’s own Superchargers.

The diminutive Tesla Roadster is promised to be the quickest production car ever built. But that achievement would mean squeezing into its tiny frame a battery twice as powerful as the largest battery currently available in an electric car. These claims are so far beyond current industry standards for electric vehicles that they would require either advances in battery technology or a new understanding of how batteries are put to use, said Sam Jaffe, battery analyst for Cairn Energy Research in Boulder, Colorado. In some cases, experts suspect Tesla might be banking on technological improvements between now and the time when new vehicles are actually ready for delivery.

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“There is some kind of revolution coming to American life.”

The Old Songs (Jim Kunstler)

It probably all comes down to money. Money represents the mojo to keep on keeping on, and there is probably nothing more unreal in American life these days than the way we measure our money — literally, what it’s worth, and what everything related to it is worth. So there is nothing more unreal in our national life than the idea that it’s possible to keep on keeping on as we do. The weeks ahead may be most illuminating on this score. The debt ceiling suspension runs out on December 8, around the same time that the tax reform question will resolve one way or another. The debt ceiling means that the treasury can’t issue any more bonds, bills, or notes. That is, it can’t borrow any more money to pretend the government can keep running.

[..] There’s a fair chance that congress may not be able to resolve the debt ceiling deadline. The votes may just not be there. If the deadline comes and goes, the treasury can only use incoming tax revenues to cover its costs, and it won’t be enough. It will have to choose whether it issues paychecks to the roughly 2.7 million US government employees, or pays the vendors that sell things like warplanes to the military, or pay out so-called entitlements like Medicare and SNAP cards, or pay the interest on the previously-issued bonds, debts, and bills that the US has racked up over the years. Believe it or not, making those interest payments is probably the top priority, because failing to do that would shove the nation officially into default for the first time and destroy the country’s credit standing. The full faith and credit in the US dollar would shatter.

And then the fun and games would really cease. The country would discover it doesn’t have its mojo working, as another old song goes. The reality of being truly broke will set in. After all, there are two basic ways of going broke as a nation: you can run out of money; or you can have plenty of money that is worthless. Take your pick. There is some kind of revolution coming to American life. One way or another, it amounts to a much lower standard of living. The journey there may take the public by surprise, a la Ernest Hemingway’s crack about how a character in one of his stories went broke: slowly, and then all at once. The main question about this journey must be whether it is accompanied by political violence. One would have to think the potential for that is pretty high, given levels of animosity and delusional thinking among the two opposing factions — can we even call them Left and Right anymore? — which may even exceed the ill-feeling of 1861.

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Amen.

Let’s Adopt The U.S. Naval Policy of 1890 (Rossini)

Back in 1890, the U.S. Naval Policy Board said in a report: “We fear no encroachments on our territory, nor are we tempted at present to encroach on that of others. We have no colonies, nor any desire to acquire them.” First, let’s discuss the aspect of the statement that has not changed one iota since 1890: “We fear no encroachments on our territory”. In 2017, we can say the exact same statement with total confidence. No state on the planet has any interest in conquering America. No one is interested in ruling over our WalMart/McDonald’s society. No one is interested in taking over Washington D.C. and inheriting 20,000,000,000,000 in debt. No one is interested in ruling a nation of people who are in debt up to their eyeballs with student loans, auto loans, mortgage loans, credit card loans….loans…loans…loans…loans…loans… No one is interested!

Which leads to the part of the statement that has changed since 1890: “..nor are we tempted at present to encroach on that of others.” In 1898, that aspect changed, and the U.S. federal government has never looked back. In 1898, the U.S. got its first taste of the conquering game. It swiftly took control of the Philippines, Guam, Puerto Rico, Cuba, and Hawaii. All of a sudden 11 million people were under a new American Empire. A few decades later, after the first high wore off, one of the worst decisions in the history of the world was made: U.S. President Woodrow Wilson tricked the American public into entering an exhausted and stalemated European war between princes. The “war to end all wars” was the war that would lead to the death of hundreds of millions over the next century.

The rest, of course, is history, and here we are: Broke….A country with middle-class that is disappearing, and 50% of the American public receiving some kind of welfare from a bankrupt government. U.S. Naval Policy in 1890 is where it’s at. The sooner we adopt it, the better.

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History repeats AND rhymes.

The US-Saudi Starvation Blockade (Buchanan)

Our aim is to “starve the whole population – men, women, and children, old and young, wounded and sound – into submission,” said First Lord of the Admiralty Winston Churchill. He was speaking of Germany at the outset of the Great War of 1914-1918. Americans denounced as inhumane this starvation blockade that would eventually take the lives of a million German civilians. Yet when we went to war in 1917, a U.S. admiral told British Prime Minister Lloyd George, “You will find that it will take us only two months to become as great criminals as you are.” After the Armistice of Nov. 11, 1918, however, the starvation blockade was not lifted until Germany capitulated to all Allied demands in the Treaty of Versailles.

As late as March 1919, four months after the Germans laid down their arms, Churchill arose in Parliament to exult, “We are enforcing the blockade with rigor, and Germany is very near starvation.” So grave were conditions in Germany that Gen. Sir Herbert Plumer protested to Lloyd George in Paris that morale among his troops on the Rhine was sinking from seeing “hordes of skinny and bloated children pawing over the offal from British cantonments.” The starvation blockade was a war crime and a crime against humanity. But the horrors of the Second World War made people forget this milestone on the Western road to barbarism. A comparable crime is being committed today against the poorest people in the Arab world – and with the complicity of the United States.

[..] Almost 90% of Yemen’s food, fuel and medicine is imported, and these imports are being cut off. The largest cities under Houthi control, the port of Hodaida and Sanaa, the capital, have lost access to drinking water because the fuel needed to purify the water is not there. Thousands have died of cholera. Hundreds of thousands are at risk. Children are in danger from a diphtheria epidemic. Critical drugs and medicines have stopped coming in, a death sentence for diabetics and cancer patients. If airfields and ports under Houthi control are not allowed to open and the necessities of life and humanitarian aid are not allowed to flow in, the Yemenis face famine and starvation. What did these people do to deserve this? What did they do to us that we would assist the Saudis in doing this to them?

The Houthis are not al-Qaida or ISIS. Those are Sunni terrorist groups, and the Houthis detest them. Is this now the American way of war? Are we Americans, this Thanksgiving and Christmas, prepared to collude in a human rights catastrophe that will engender a hatred of us among generations of Yemeni and stain the name of our country?

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We can’t afford Yemen, and we can’t afford Libya. We need to stop these medieval situations.

Horrified By Libya Slave Trade, Rwanda Offers Refuge To Migrants (IBT)

Rwanda has opened its doors to migrants stuck in Libya and announced plans to take in as many as 30,000 people. The offer of help comes in response to an exposé into Libya’s underbelly where slave trade is flourishing. It involves migrants from other parts of Africa who are stuck in the country as they wait for an opportunity to cross into Europe. The government is still ironing out the details regarding how it plans to move interested parties from the northern part of the continent to the east. “Rwanda is currently under discussions… to see how we can help in welcoming migrants held captive in Libya,” Rwanda’s Foreign Minister Louise Mushikiwabo told AFP. “It has just been decided, so numbers and means are still under discussion, but Rwanda estimates the number to be welcomed around 30,000,” she said.

“For Africans being sold in Libya: Rwanda is small, but we will find some space!” she tweeted. In its investigation into the slave market in Libya, CNN was able to capture footage of auctions held in the capital city of Tripoli, where bids were accepted for men to be used for manual labour. While the videos only featured males, they have raised concerns over a similar fate for women and children who escaped their countries to come to Libya. “Rwanda, like the rest of the world, was horrified by the images of the tragedy currently unfolding in Libya, where African men, women and children who were on the road to exile, have been held and turned into slaves,” Mushikiwabo continued. “Given Rwanda’s political philosophy and our own history, we cannot remain silent when human beings are being mistreated and auctioned off like cattle,” she said. The minister was referring to her nation’s own dark history wherein over 800,000 people (mostly Tutsi) were killed in 1994 in one of the worst genocides in world history.

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You see, Angela, the power you crave comes with responsibilities.

Mediterranean ‘By Far World’s Deadliest Border’ For Migrants – IOM (R.)

More than 33,000 migrants have died at sea trying to reach European shores this century, making the Mediterranean “by far the world’s deadliest border”, the United Nations migration agency said on Friday. After record arrivals from 2014 to 2016, the European Union’s deal with Turkey to stop arrivals from Greece, and robust patrols off Libya’s coast have greatly reduced the flow, the International Organization for Migration (IOM) said. Professor Philippe Fargues of the European University Institute in Florence, author of the report, said the figures probably underestimated the actual scale of the human tragedy. “The report states that at least 33,761 migrants were reported to have died or gone missing in the Mediterranean between the year 2000 to 2017. This number is as of June 30,” IOM’s Jorge Galindo told a Geneva news briefing.

“It concludes that Europe’s Mediterranean border is by far the world’s deadliest,” he said. So far this year some 161,000 migrants and refugees have arrived in Europe by sea, about 75% of them landing in Italy with the rest in Greece, Cyprus and Spain, according to IOM figures. Nearly 3,000 others are dead or missing, it said. “Shutting the shorter and less dangerous routes can open longer and more dangerous routes, thus increasing the likelihood of dying at sea,” Fargues said. The report said: “Cooperation with Turkey to stem irregular flows is now being replicated with Libya, the main country of departure of migrants smuggled along the central route; however, such an approach is not only morally reprehensible but likely to be unsuccessful, given the context of extremely poor governance, instability and political fragmentation in Libya.”

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Brussels and Athens have run out of excuses.

The Refugee Scandal on the Island of Lesbos (Spiegel)

Those wishing to visit ground zero of European ignominy must simply drive up an olive tree-covered hill on the island of Lesbos until the high cement walls of Camp Moria come into view. “Welcome to prison,” someone has spray-painted on the walls. The dreadful stench of urine and garbage greets visitors and the ground is covered with hundreds of plastic bags. It is raining, and filthy water has collected ankle-deep on the road. The migrants who come out of the camp are covered with thin plastic capes and many of them are wearing only flipflops on their feet as they walk through the soup. Children are crying as men jostle their way through the crowd. Welcome to one of the most shameful sites in all of Europe. Camp Moria was originally built to handle 2,330 refugees. But currently it is home to 6,489.

[..] Conditions on the island of Lesbos haverarely been as precarious as they are today. Just as winter is arriving in Greece, some 15,000 refugees find themselves trapped in the five “hotspots” located on Greek islands in the Aegean Sea. Fully 8,357 of them are on Lesbos, living in horrific conditions in overcrowded, completely inadequate shelters. A huge number of refugees are forced to sleep in tents designed for summer conditions and many of them fear for their safety because of the close quarters and the repeated clashes in the main camp. Dozens of refugees have begun a hunger strike on Lesbos. The European Union’s refugee deal with Turkey may have managed to cut the number of people reaching Greece by 97%, but dozens of migrants continue to arrive every day.

Thus far this year, around 11,000 people have crossed over to the island from Turkey – a tiny number compared to the 12,500 who arrived on a single day in August 2015. But back then, newcomers were taken to the mainland and allowed to continue their journeys through the Balkans toward Hungary, Austria and, ultimately, Germany. Now, though, the former registration facilities have essentially been transformed into prisons. [..] he government in Athens has had plenty of time to learn its lesson from last winter, when five refugees died in Camp Moria, some of them because they were trying to heat their tents. Now, the country’s immigration minister is seeking to solve the problem at the last minute ahead of this winter by renting hotels on Lesbos and bringing in two ships from Piraeus that can accommodate a total of 3,000 refugees.

On the island of Lesbos though, where residents have shown remarkable patience thus far, there is widespread opposition to the plan. On Monday, the mayor of Lesbos, known for being a moderate, called for a general strike and declared war on the Greek government. He accuses Athens of seeking to use the need to establish winter facilities as an excuse to transform Lesbos into a prison island.

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Let’s finish on a lighter note.

Endangered Butterfly, Mexican Shrub May Be Hurdles to Trump Wall (BBG)

Environmentalists suing to block President Donald Trump from constructing a wall along the Mexican border say the project would imperil endangered species including the Quino checkerspot butterfly and the Mexican flannel bush. The Homeland Security Department has asserted authority under federal immigration law to waive compliance with environmental protection statutes because 14 miles of existing fencing near San Diego is “no longer optimal for border patrol operations.”

Defenders of Wildlife, the Animal Legal Defense Fund, the Sierra Club and the Center for Biological Diversity argued in court filings this week that the Trump administration’s attempts to sidestep the National Environmental Policy Act and the Endangered Species Act are unconstitutional. A hearing over the dispute is set for February before U.S. District Judge Gonzalo Curiel, whom Trump scorned during the presidential campaign over the San Diego jurist’s handling of the Trump University fraud litigation. Trump attacked Curiel as being biased against him because of his Mexican heritage, saying the Indiana-born judge had issued rulings against him as retribution for his pledge to build a wall between the U.S. and its neighbor to the south.

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Jan 102017
 
 January 10, 2017  Posted by at 11:07 am Finance Tagged with: , , , , , , , ,  4 Responses »
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Jack Delano Truck service station on U.S. 1, NY Avenue, Washington, DC 1940

Pity the Sad Legacy of Barack Obama (Cornel West)
State Dep.: Presenting Evidence Of Russian Hacking Would Be Irresponsible (ZH)
Breakaway Senate Republicans Push to Delay Obamacare Repeal (BBG)
If Trump Tries To Lower Drug Prices, God Help Him: Top Medicare Official (MW)
Democrats Seek 9/11-Style Commission To Investigate Russian Hacking (G.)
Jeremy Corbyn: UK Can Be Better Off Out Of The EU (G.)
Britain’s Dangerous Post-Brexit Borrowing Binge (BBG)
Shadow Lending Leaves Chinese Banks Looking Exposed (BBG)
Thousands Of US Troops Arrive In Europe (ZH)
Top Economists Grapple With Public Disdain (WSJ)
The Harsh Reality (Kath.)
European Commission: ‘Untenable’ Situation In Greek Refugee Camps (AP)

 

 

“..a depressing decline in the highest office of the most powerful empire in the history of the world.”

Pity the Sad Legacy of Barack Obama (Cornel West)

Eight years ago the world was on the brink of a grand celebration: the inauguration of a brilliant and charismatic black president of the United States of America. Today we are on the edge of an abyss: the installation of a mendacious and cathartic white president who will replace him. This is a depressing decline in the highest office of the most powerful empire in the history of the world. It could easily produce a pervasive cynicism and poisonous nihilism. Is there really any hope for truth and justice in this decadent time? Does America even have the capacity to be honest about itself and come to terms with its self-destructive addiction to money-worship and cowardly xenophobia?

Ralph Waldo Emerson and Herman Melville – the two great public intellectuals of 19th-century America – wrestled with similar questions and reached the same conclusion as Heraclitus: character is destiny (“sow a character and you reap a destiny”). The age of Barack Obama may have been our last chance to break from our neoliberal soulcraft. We are rooted in market-driven brands that shun integrity and profit-driven policies that trump public goods. Our “post-integrity” and “post-truth” world is suffocated by entertaining brands and money-making activities that have little or nothing to do with truth, integrity or the long-term survival of the planet. We are witnessing the postmodern version of the full-scale gangsterization of the world. The reign of Obama did not produce the nightmare of Donald Trump – but it did contribute to it. And those Obama cheerleaders who refused to make him accountable bear some responsibility.

A few of us begged and pleaded with Obama to break with the Wall Street priorities and bail out Main Street. But he followed the advice of his “smart” neoliberal advisers to bail out Wall Street. In March 2009, Obama met with Wall Street leaders. He proclaimed: I stand between you and the pitchforks. I am on your side and I will protect you, he promised them. And not one Wall Street criminal executive went to jail. We called for the accountability of US torturers of innocent Muslims and the transparency of US drone strikes killing innocent civilians. Obama’s administration told us no civilians had been killed. And then we were told a few had been killed. And then told maybe 65 or so had been killed. Yet when an American civilian, Warren Weinstein, was killed in 2015 there was an immediate press conference with deep apologies and financial compensation. And today we still don’t know how many have had their lives taken away.

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Because the 9/11 commission was so successful?

Democrats Seek 9/11-Style Commission To Investigate Russian Hacking (G.)

Democratic members of the US Congress called on Monday for the creation of an independent commission to investigate Russia’s attempts to intervene in the 2016 election, similar to the September 11 panel that investigated the 2001 attacks on the United States. Their “Protecting our Democracy Act” would create a 12-member, bipartisan independent panel to interview witnesses, obtain documents, issue subpoenas and receive public testimony to examine attempts by Moscow and any other entities to influence the election. The panel members would not be members of Congress. The legislation is one of many calls by lawmakers to look into Russian involvement in the contest, in which Republican Donald Trump defeated Democrat Hillary Clinton in the White House race, confounding opinion polls.

Republicans also kept control of the Senate and House of Representatives by larger-than-expected margins. US intelligence agencies on Friday released a report saying that President Vladimir Putin of Russia ordered an effort to help Trump’s electoral chances by discrediting Clinton. Russia has denied the hacking allegations. A Kremlin spokesman said on Monday they were “reminiscent of a witch-hunt”. “There is no question that Russia attacked us,” Senator Ben Cardin, the top Democrat on the Senate foreign relations committee, told a news conference. Versions of the bill were introduced in both the Senate and House. In the Senate it has 10 sponsors. In the House it is backed by every member of the Democratic caucus, said Representative Elijah Cummings, the top Democrat on the House oversight committee. However, no Republicans currently back the bill, so its prospects are dim, given Republican control of both houses of Congress.

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And then after that commission is done investogating, they won’t tell anyone?

State Dep.: Presenting Evidence Of Russian Hacking Would Be Irresponsible (ZH)

One recurring lament throughout the theatrically dramatic campaign involving reports and emotional appeals by US intelligence agencies such as the CIA (whose primary function is the creation of disinformation) to ordinary Americans, that Russia had “hacked the US presidential election” is that for all the bluster and “conviction”, there has been zero evidence. And, as it turns out, there won’t be any, because according to the US State Department, US intelligence agencies were right to not reveal evidence of their proof that Russia interfered in US elections, and comparisons with intelligence reports that Iraq had WMDs were not relevant in the current year.

Asked by RT’s Gayane Chichakyan if Friday’s public intelligence report should have contained any proof of Russian intervention, State Department spokesman John Kirby said that no one should be surprised that US intelligence agencies were keeping evidence secret in order to protect sources and methods. “Most American people understand that they have the responsibility to protect their sources and methods,” Kirby said, adding it would be “irresponsible” to do otherwise. Actually, with the Iraq WMD fiasco strill fresh in “American people’s” minds, it is irresponsible to think most Americans are still naive idiots who will believe whatever the “intelligence agencies” will tell them.

Alas, none of that has filtered through to the appropriate authorities, and Kirby said that it was “up to the agencies to decide which information they share with the public. We rely on them to make that determination for themselves.” And, in this case, it meant sharing no information at all. The assessment in Friday’s report was made “by all 17 intelligence communities. All of them came to the same basic conclusion: that Russia interfered in the US election,” Kirby said. “All of our intelligence communities came to the same basic conclusion, over and over again.” They just couldn’t prove it, instead hoping that by repeating the same statement over and over would be sufficient.

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Get an alternative is place first, makes sense.

Breakaway Senate Republicans Push to Delay Obamacare Repeal (BBG)

A breakaway group of five moderate Senate Republicans pushed Monday to delay a bill repealing Obamacare until March — potentially enough pressure to force the party’s leadership to comply. The step is the latest sign of some Republicans’ growing uneasiness about their leadership’s plan to repeal the law with no consensus on a replacement as part of an effort to deliver swiftly on one of President-elect Donald Trump’s top campaign promises. Senators Bob Corker of Tennessee, Rob Portman of Ohio, Susan Collins of Maine, Bill Cassidy of Louisiana and Lisa Murkowski of Alaska offered an amendment Monday to the budget resolution that would extend the target date for the committees to write an Obamacare repeal bill to March 3 from Jan. 27.

“As President-elect Trump has stated, repeal and replace should take place simultaneously, and this amendment will give the incoming administration more time to outline its priorities,” Corker said in a statement. “By extending the deadline for budget reconciliation instructions until March, Congress and the incoming administration will each have additional time to get the policy right.” With Democrats opposed to a straight repeal bill, Republicans can lose no more than one backer if they want to fast-track their approach before Trump takes office. Republican leaders in the Senate are hoping to adopt the budget resolution – which would allow an Obamacare repeal bill to pass with 50 votes and escape a Senate filibuster – early Thursday after a marathon session of amendment votes.

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The power of the US pharmaceutical industry is scary.

If Trump Tries To Lower Drug Prices, God Help Him: Top Medicare Official (MW)

President-elect Donald Trump said on the campaign trail that Medicare should negotiate for lower drug prices. “God help him,” Acting Centers for Medicare and Medicaid Administrator Andy Slavitt said at the JP Morgan Health Care Conference in San Francisco on Monday. “He’s not wrong, but you need a lot of … to coin a phrase that’s been used, a fair amount of stamina if you are going to deal with the pharmaceutical industry on this topic.” Drug-pricing talk has been in the air at the JP Morgan conference, with a new administration about to take office and adding tremendous regulatory uncertainty to this sector. Despite critical comments made during election season, the president-elect has largely been seen by pharmaceutical and biotechnology companies as a positive, deregulatory force for their industry.

But the issue, still very much in the public eye, may not be off the table. Trump vowed to “bring drug prices down” in December comments to Time. The U.S. pays far more than other countries for pharmaceutical drugs, and has for a long time. “If [Trump] has the stamina he will see two things… the American public is being taken advantage of. And secondly, we are funding the R&D for free riders across the world,” Slavitt said. “And I don’t think the president-elect… is going to take too well to that.” While other countries use government negotiations to bring down drug costs, the tactic is often seen as anathema to the American free-market system. But, “this is a topic that will eventually be dealt with,” Slavitt predicted. “It’s easier to deal with this in 2017 than it will be in 2021 or 2022, when it is crippling the finances of health care.”

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Too many people are already invested in the opposite idea.

Jeremy Corbyn: UK Can Be Better Off Out Of The EU (G.)

Jeremy Corbyn will use his first speech of 2017 to claim that Britain can be better off outside the EU and insist that the Labour party has no principled objection to ending the free movement of European workers in the UK. Setting out his party’s pitch on Brexit in the year that Theresa May will trigger article 50, the Labour leader will also reach for the language of leave campaigners by promising to deliver on a pledge to spend millions of pounds extra on the NHS every week. He will say Labour’s priority in EU negotiations will remain full access to the European single market, but that his party wants “managed migration” and to repatriate powers from Brussels that would allow governments to intervene in struggling industries such as steel.

Sources suggested that the economic demands were about tariff-free access to the single market, rather than membership that they argued did not exist. Corbyn’s speech and planned media appearances represent the first example of a new anti-establishment drive designed by strategists to emphasise and spread his image as a leftwing populist to a new set of voters. They hope the revamp will help overturn poor poll ratings across the country, particularly with a looming byelection in Copeland, Cumbria. Speaking in Peterborough, chosen because it is a marginal Tory seat that voted heavily in favour of Brexit, and which Labour is targeting, Corbyn will lay into May’s failure to reveal any Brexit planning, and say that Labour will not give the government a free pass in the negotiations.

After comparing the prime minister’s refusal to offer MPs a vote on the final Brexit deal to the behaviour of Henry VIII in a Guardian interview, Corbyn will say: “Not since the second world war has Britain’s ruling elite so recklessly put the country in such an exposed position without a plan.”

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This should scare people.

Britain’s Dangerous Post-Brexit Borrowing Binge (BBG)

For the U.K. economy, the good news is that following the Brexit vote, the sky hasn’t fallen as many predicted; on the contrary, it’s been a period of unexpected fair weather. The bad news is that the benign outlook is encouraging a surge in borrowing, leaving households vulnerable if the Bank of England decides to tighten monetary policy. Andy Haldane, the chief economist at the central bank, said last week that as far as the British consumer is concerned, “it’s almost as though the referendum had not taken place.” That, he says, helps explain why the central bank’s gloomy prognosis of what a vote to leave the European Union would do to the economy has thus far turned out to be wrong. The nation appears to have been in celebratory mood this Christmas.

Credit-card company Visa said on Monday that U.K. spending jumped 2.6% in December from a year earlier, led by a 7.3% jump in hotels, restaurants and bars. In the final three months of 2016, overall spending posted its strongest growth in two years, Visa said. Britons have been loading up on debt. At the start of 2000, households had debts about equivalent to their disposable income. The ratio surged in the following years, peaking at 160% in the first quarter of 2008. As the financial crisis took its toll, people scaled back on borrowing, and the ratio had dropped to about 137% by September 2015. But it then rose for four consecutive quarters, with the most recently available figures showing a jump to 143% in the third quarter of last year:

As the chart shows, Brits are more indebted than their peers in either the U.S. or the euro zone. Perhaps unsurprisingly, while British households are still making their payments on secured loans such as mortgages, defaults on unsecured loans surged as the total debt burden climbed:

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“Of late [..] liquidity in China has been a mere accounting artifact.”

Shadow Lending Leaves Chinese Banks Looking Exposed (BBG)

In their obsession with China’s falling foreign-exchange reserves, investors may be ignoring a more painful Catch-22: a growing shortage of bank deposits. Left unaddressed, the lenders’ liquidity squeeze could leave them dangerously exposed to fickle wholesale financing, while trying to ease the shortage could worsen capital flight. Take Bank of Jinzhou. With just 0.3% of the $22 trillion in assets of the 35 publicly traded Chinese lenders, the bank appears remarkably liquid. Its 57% loan-to-deposit ratio in June was below the median reading of 67%. The Hong Kong-listed institution’s 200 billion yuan ($30 billion) deposit base offered ample support to a loan portfolio only a little higher than half that amount.

Of late, however, liquidity in China has been a mere accounting artifact. Customers’ deposits aren’t sufficient to finance Bank of Jinzhou’s 213 billion yuan in shadow loans, which are debt securities that the lender classifies as receivables. To make up the shortfall, it has borrowed 142 billion yuan from other financial institutions. Of this, as much as 78% is short-term financing. After adjusting for shadow lending, S&P Global Ratings pegged Bank of Jinzhou’s loan-to-deposit ratio at the end of 2015 at 153%. Bank of Jinzhou is hardly the only Chinese bank flirting with illiquidity: Almost all are sitting on a pile of debt masquerading as receivables.

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Nobel Peace Prize.

Thousands Of US Troops Arrive In Europe (ZH)

Just days after we reported that the US had begun deploying some 2,800 tanks, trucks and other military equipment to Germany, from where they would be transported by rail and road to Eastern Europe as part of a buildup of NATO reinforcements against “Russian expansion”, the next US deployment has made its way to Europe over the weekend, when some 4,000 US troops arrived in the German port of Bremerheven, on their way to Wroclaw, Poland under a planned NATO operation to “reassure the alliance’s Eastern European allies” in the face of what NATO has dubbed mounting Russian aggression. The American soldiers landed in Wroclaw, home to a key Nato and Polish air base in south-west Poland.

The troops will be followed by the roughly 2,800 tanks and other pieces of military equipment which are currently en route from Germany. The delivery of US Abrams tanks, Paladin artillery, and Bradley fighting vehicles, as well as supporting troops, marks a new phase of America’s continuous presence in Europe, which will now be based on a nine-month rotation. Why provoke Russia with yet another mass deployment? Because as NATO Major General Timothy McGuire told reporters, last week, when asked if the large deployment was meant to send a message to Russia, “The best way to maintain the peace is through preparation.” And while we are quoting, here is another good line from the movie Spice Like Us: “A weapon unused is a useless weapon.” The US military industrial complex is doing everything in its power to make sure a lot of weapons are used in the future.

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The priesthood is aghast.

Top Economists Grapple With Public Disdain (WSJ)

The nation’s leading economists are suffering an identity crisis as many of the institutions they helped build and causes they advanced have come in for public scorn and rejection at the ballot box. The angst was on display this weekend at the annual conference of the American Economic Association, the profession’s largest gathering. The conference is a showcase for agenda-setting research, a giant job fair for the nation’s most promising young economists and, this year, the site of endless discussion about how to rebuild trust in the discipline. Many academic economists have been champions of free trade and globalization, ideas under assault among rising populist movements in advanced economies around the world.

The rise of President-elect Donald Trump, with his fierce rhetoric against elites, in particular, left many at this conference questioning their place in the world. “The economic elite did many things to undermine their credibility while people’s economic fortunes were taking a turn for the worse,” said Steven Davis, an economist at the University of Chicago. But a road map for regaining trust is elusive. “I used to think facts and analysis will ultimately carry the day but now I’m not quite sure.” [..] Surveys from the Pew Research Center have documented dwindling support for free trade. In 2014, 60% of Democratic voters and 55% of Republican voters supported such trade agreements. In an October survey, however, support among Democrats had fallen to 56% and support among Republicans had nose-dived to 24%.

Over a billion people moved out of poverty in developing countries in the last 25 years, lifted in part by global trade and other economic prescriptions, but those same policies created winners and losers in the West. Another Pew study last year compared views of whether it was good for the U.S. to be so involved in the global economy: 86% of scholars said it was good, and just 2% bad. Among the general public, 49% thought it was bad, and just 44% good.

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A lot of snow in Athens overnight. Very cold too. It’s worse on the islands. And all we get is blame games.

The Harsh Reality (Kath.)

The refugees and migrants, thousands of people from Asia and Africa who are wintering in Greece in the hope that their dream will come true and that they will move on to central and northern Europe (imagined as hospitable by need) are harboring no illusions about this country. Greece is a country with real problems: economic, social and now weather-related. These people have to put up with the same problems as we do but the place where they are doing it from is far more difficult: They have no safe accommodation, no money and limited freedom. The additional shows of solidarity that may have come with the holiday season (even if mere publicity stunts designed for the television cameras) were soon to be wiped out by the cold snap, which also affected the islands of the Aegean. There will be no such thing as halcyon days for these people.

Official assurances by government officials that the authorities managed to provide warm and safe shelter for all asylum seekers and migrants offer little comfort, as no amount of political will, or plain desire for that matter, can reverse the situation on the ground. The problems faced by the refugee population are not tackled by prohibiting photographers from documenting the situation inside the Moria camp on Lesvos island. You cannot remedy reality by banning its representation. Is it that we do not want to taint the nation’s image in the eyes of our European partners? But the image of Greece is only part of the bigger European image. What is now happening at Moria, or any other migrant camp in Greece or Italy, is not disconnected from the values and priorities in the rest of Europe, in Poland, Austria, Slovakia or Denmark.

European Union countries, which had pledged to take in 160,000 people from Greece and Italy, have so far absorbed below 5% of that figure. Just 6,212 lucky few have been relocated from Greece and 1,950 from Italy, making a total of 8,162. The inaction, the indifference and the amoralistic policy of Europe (which is also fed by electoral concerns and growing far-right intolerance) should not serve as an alibi for the Greek government. In dealing with the migrant crisis, the SYRIZA-led administration has reacted without a clear plan or good coordination with other governments. And one last thing: The decision of Lesvos’s hoteliers to close their doors to refugees and migrants is barely in line with all the idealized rhetoric about a community’s obligations toward a supplicant – and it seems even more out of line under the existing circumstances.

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The EU hands 10s of millions in taxpayer funds to NGOs. As these fail to do what they receive the money for, it’s back to blaming Greece.

European Commission: ‘Untenable’ Situation In Greek Refugee Camps (AP)

The European Commission says conditions for refugees on Greek islands and in other camps where they are housed in tents despite severe cold weather, is “untenable.” Heavy snowfall has hit large swaths of Greece, including the eastern Aegean islands where thousands of refugees are stranded. Giorgos Kyritsis, spokesman for the government’s crisis committee on migration, told Greece’s Skai television that just under 1,000 people remain housed in tents on the islands. The severe weather had been forecast well in advance, and the government has come under fire for not acting fast enough to ensure all refugees are adequately housed. Commission spokeswoman Natasha Bertaud said the commission “is aware that the situation is currently untenable, but we also have to be clear” that conditions in reception centers are the responsibility of Greek authorities.


January 10 : homeless man sleeps on Athens beach Photo: Eurokinisi

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Dec 222015
 
 December 22, 2015  Posted by at 9:06 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle December 22 2015
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DPC Old Absinthe House, bar, New Orleans 1906

Global Investors Are More Exposed To Interest-Rate Hikes Than Ever (BBG)
The Keynesian Recovery Meme Is About To Get Mugged, Part 1 (Stockman)
Brent Oil Hits 11-Year Low As Global Supply Balloons (Reuters)
US Gas Prices Fall Below $2 – In Some Places Under $1.60 (MarketWatch)
The Real “Death Cross” Of Oil Markets (ZH)
Risk Of Insolvency Hangs Over UK High Street Retailers (Guardian)
UK Economy Concerns As Household Debt Balloons To £40 Billion (PA)
The Bank of Japan’s $2.5 Billion Plan to Buy Non-Existent ETFs (BBG)
China ‘Suspends’ Another Unofficial PMI Data Set For A ‘Major Adjustment’ (ZH)
Zimbabwe To Make Chinese Yuan Legal Currency After Beijing Cancels Debts (AFP)
Russia, EU Trade Talks Fail, Kiev Set To Face Retaliation (Reuters)
Political Uprising In Spain Shatters Illusion Of Eurozone Recovery (AEP)
Portugal Taxpayers Face €3 Billion Loss After 2nd Bank Bailout In 2 Years (ZH)
Christmas Present (Jim Kunstler)
Et Tu, Brute? – How Empires Die (Thomas)
Do We Need The Fed? (Ron Paul)
Apple Says UK Surveillance Law Would Endanger All Customers (BBG)
Half of World’s Coal Must Go Unmined to Meet Paris Climate Target (BBG)
It’s ‘Almost Too Late’ To Stop A Global Superbug Crisis (PA)

Because the entire system is leveraged to the hilt.

Global Investors Are More Exposed To Interest-Rate Hikes Than Ever (BBG)

With any luck, the world economy will eventually be strong enough for central banks to follow the U.S. Federal Reserve in ending what has been an unprecedented period of extremely low interest rates. If and when they do, they’ll run straight into the same issue that the Fed now faces: Raising rates will precipitate unusually large losses for investors. Over the past several years, investors have gone to great lengths in their search for returns in a low-rate environment. They’ve done so in part by buying longer-maturity bonds, which tend to offer higher yields but are also more sensitive to changes in rates. One gauge of this risk is effective duration, which estimates the percentage decline in a bond’s price given a one-percentage-point increase in yield.

The measure is near all-time highs in the U.S., according to a report issued last week by the Office of Financial Research. The situation globally is no less precarious. Consider the effective duration for the BofA Merrill Lynch Global Broad Market Index, which tracks about $45 trillion in investment-grade bonds issued in major currencies – including government, corporate, mortgage and other asset-backed securities. As of last week, it stood at 6.6, meaning that a one-percentage-point increase in yield would wipe almost $3 trillion off the value of all the bonds included in the index. That’s a larger potential loss than at just about any point since the index’s inception in 1996. Here’s how that looks:

The high level of interest-rate risk illustrates a dilemma for central bankers everywhere. The power of traditional monetary stimulus depends in large part on the willingness of people and companies to borrow for new projects and purchases. But as the debt burden grows, it makes markets and the entire economy more susceptible to rate increases. It can also undermine the effect of rate cuts, as borrowers increasingly struggle under the weight of their existing obligations.

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“These academic pettifoggers are so blinded by their tinker toy macro-model that they can’t even see the flashing red lights warning of recession just ahead.”

The Keynesian Recovery Meme Is About To Get Mugged, Part 1 (Stockman)

Yellen said at least one thing of importance last week, but not in a good way. She confessed to the frightening truth that the FOMC formulates its policies and actions based on forecasts of future economic developments. My point is not simply that our monetary politburo couldn’t forecast its way out of a paper bag; that much they have proved in spades during their last few years of madcap money printing. Notwithstanding the most aggressive monetary stimulus in recorded history – 84 months of ZIRP and $3.5 trillion of bond purchases – average real GDP growth has barely amounted to 50% of the Fed’s preceding year forecast; and even that shortfall is understated owing to the BEA’s systemic suppression of the GDP deflator.

What I am getting at is that it’s inherently impossible to forecast the economic future, but that is especially true when the forecasting model is an obsolete Keynesian relic which essentially assumes a closed US economy and that balance sheets don’t matter. Actually, balance sheets now matter more than anything else. The $225 trillion of debt weighing on the world economy – up an astonishing 5.5X in the last two decades – imposes a stiff barrier to growth that our Keynesian monetary suzerains ignore entirely. Likewise, the economy is now seamlessly global, meaning that everything which counts such as labor supply and wage trends, capacity utilization and investment rates and the pace of business activity and inventory stocks is planetary in nature. By contrast, due to the narrow range of activity they capture, the BLS’ deeply flawed domestic labor statistics are nearly useless. And they are a seriously lagging indicator to boot.

Nevertheless, Yellen & Co. are obsessed with the immeasurable and largely irrelevant level of “slack” in the domestic labor market. They falsely view it as a proxy for the purported gap between potential and actual GDP. Not surprisingly, they are now under the supreme illusion that the labor slack has been largely absorbed and the output gap nearly closed. So they are raising money market rates by a smidgeon to confirm the US economy’s strength and that the Keynesian nirvana of full employment is near at hand. No it isn’t! These academic pettifoggers are so blinded by their tinker toy macro-model that they can’t even see the flashing red lights warning of recession just ahead.

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Oil went up a whiff overnight. I always look at the spread between WTI and Brent. The smaller it gets, the higher the risks. Usually, it hovers between $2-3. Right now, it’s at 50 cents.

Brent Oil Hits 11-Year Low As Global Supply Balloons (Reuters)

Brent oil cratered to its lowest price in more than 11 years on Monday, as demand for heating oil slumped on warmer-than-normal temperatures and traders tested for a bottom. U.S. crude remained above its 2009 low and settled up a penny a barrel as traders squared positions ahead of the January contract’s expiration. The February contract declined and analysts expect stockpiles to build again this week, signaling further oversupply in already glutted market. Concerns about swelling global crude supply and slow demand sparked by economic weakness in China have been recurring themes during this year’s rout. Analysts said the market was still testing for a bottom. “The key in finding the bottom of the market comes in a tightening of the supply side,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

OPEC and Russia will keep producing at high volumes, increasing pressure on U.S. producers to throttle back production, he said. “I think we’re getting ready for another round of capex cuts in North America,” he said. Heating oil futures weighed down the crude complex, hitting a new July 2004 low warmer-than-expected temperatures have hit seasonal demand. “The market is waiting for the next announcement,” said Tyche Capital Advisors senior research analyst John Macaluso. “The equity markets are waiting on crude oil, and crude oil is waiting for a bounce before shorts will come back into the market.” Crude short-sellers will be reluctant to return before U.S. crude recovers to $35.50, he said. Global oil production is running close to record highs. With more barrels poised to enter the market from nations such as Iran and Libya, the price of crude is set for its largest monthly percentage decline in seven years.

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“..1% of stations selling gas at $1.59 a gallon..”

US Gas Prices Fall Below $2 – In Some Places Under $1.60 (MarketWatch)

Christmas came early for U.S. drivers on Monday, as the national average gasoline price fell below $2 a gallon for the first time since March 2009. AAA put the average U.S. gas price at $1.998 per gallon on Monday, while fuel-price tracking service GasBuddy.com calculated the national average at $1.995 a gallon. That’s the lowest price by either measure since March 25, 2009. Unsurprisingly, drivers can credit a global glut of crude oil for the steady pressure on gas prices. Brent crude the global oil benchmark, plumbed levels last seen in 2004 on Monday, while the January contract for the U.S. benchmark CLF6, -0.20% West Texas Intermediate crude, was down 49 cents, or 1.4%, ahead of expiration at $34.24 a barrel on Nymex. The most-active February contract is down 1.3% at $35.58.

“In areas where there are no refinery bottlenecks, we’ve been able to see the falling price of crude oil translated directly into cheaper gas prices,” said Patrick DeHaan, senior petroleum analyst at GasBuddy.com, in a phone interview. Nymex reformulated gasoline futures for January delivery slumped 6.33 cents, or 5%, to $1.2114 a gallon. So how low are gas prices? In much of the country, the price is already well under $2 a gallon, AAA notes, with 1% of stations selling gas at $1.59 a gallon. On a state-by-state basis, Missouri has the lowest average price at $1.77, followed by Oklahoma and South Carolina at $1.78, and Tennessee and Kansas at $1.79.

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China. That’s all.

The Real “Death Cross” Of Oil Markets (ZH)

The ‘death cross’ of these two energy market indicators is all one needs to know about the oil market… As Bloomberg notes, total industry oil stocks reported by the International Energy Agency rose for a third month, increasing by 0.5% to the highest on record at 2.99 billion barrels. China’s Beige Book, released last week, showed further economic deterioration in one of the world’s largest commodity-consuming nations in the fourth quarter. Until these two indicators change direction, lower-er for longer-er will remain.

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Lots of last legs there.

Risk Of Insolvency Hangs Over UK High Street Retailers (Guardian)

A string of retailers could face insolvency in the new year with tough trading on the high street in the run-up to Christmas leaving businesses fighting for survival, two influential industry bodies have warned. Widespread discounting and warmer-than-average weather have cranked up the pressure on high street retailers over the festive period. In the last few years a number of high street retailers have called in administrations either just before or after Christmas, including Woolworths, HMV, Zavvi, and Jessops. Retailers generate roughly 40% of their annual profits between October and December, underlining the importance of the period. However, if a high street business struggles during the festive season then its death knell is typically the quarterly rental payment they have to make to landlords at the end of December.

Atradius, one of the world’s largest trade credit insurers, has warned that retailers face a “perfect storm” that could lead to a bleak start to 2016 and a “fresh wave of insolvencies”. The comments from Atradius are significant because if a credit insurer refuses to back a retailer then suppliers will be unable to insure their orders with the business and could decide not to provide it with products. Owen Bassett, senior risk underwriter at Atradius, said: “Those who went into the fourth quarter needing – rather than wanting – a strong performance could be looking at a troubled future. “Experience tells us that when retailers need an exceptional seasonal sales period and then hit financial difficulty, we often see failures in the first quarter. It is not unusual in this sector to be loss-making during Q1 and with the first payment of quarterly rent due in January it can be difficult to survive after a poor Q4.”

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Private debt. Should have a lot more attention. And not just in Britain.

UK Economy Concerns As Household Debt Balloons To £40 Billion (PA)

Families are expected to run up £40bn of debt this year, sparking fears about Britain’s economic recovery. Labour raised concerns that millions of households would face “serious hardship” if interest rates rise and warned the borrowing trend could harm the economy. The latest Office for Budget Responsibility (OBR) forecasts have found that households have moved from a surplus of £67bn in 2010, the year the coalition took power, to a £40bn deficit this year. Unsustainable borrowing is on course to near the levels reached in the run-up to the 2008 financial crash, according to Labour. Seema Malhotra, the shadow chief secretary to the Treasury, said: “George Osborne is relying on millions of British families going further into debt to hit his growth targets.

“This is risky behaviour from a chancellor whose policy decisions are hurting, not helping, British families. Alarm bells should be ringing. There is a real risk that millions of families will face serious hardship if interest rates start to rise. “Of course families need access to credit and the ability to borrow to invest for the future. George Osborne should be seeking to rebalance the economy away from an over-reliance on borrowing and debt. “Labour is clear about the need for a strong and sustainable economic recovery. Osborne’s short-term political decisions risk real long-term damage to the finances of millions of British families and the nation’s economy.” The former business secretary Sir Vince Cable warned Britain was returning to “old and unhappily discredited” methods of economic growth. He told the Independent: “We’re back on the treadmill of growth being sustained by personal borrowing. Much of it is against an inflating housing stock.

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Abenomics is a different way of saying anything goes.

The Bank of Japan’s $2.5 Billion Plan to Buy Non-Existent ETFs (BBG)

Haruhiko Kuroda has a new plan. He’s going to buy $2.5 billion of something that doesn’t exist. Markets were roiled Friday after the Bank of Japan unveiled measures including purchasing exchange-traded funds that track companies which are “proactively making investment in physical and human capital.” The central bank will spend 300 billion yen ($2.5 billion) a year from April buying such securities to offset the market impact as it resumes selling stocks purchased earlier from financial institutions. The only problem is such ETFs have never been made in Japan, at least not yet. Even as fund providers start hundreds of so-called “smart beta” products that choose stocks based on everything from dividends to volatility, ETFs that pick companies for how they deploy their cash are rare in global markets.

“These kinds of ETFs don’t exist now. Using capital spending as a factor in deciding what goes in an ETF is quite unusual,” said Koei Imai, who oversees $25 billion of ETFs at Nikko Asset Management Co. in Tokyo. “I think the message from the BOJ is for us to go out and make them.” The central bank is aware such products aren’t yet available and in the meantime will buy ETFs tracking the JPX-Nikkei Index 400, a government-backed equity measure started last year that chooses companies based on return on equity and operating profit. The BOJ also already purchases ETFs linked to the Nikkei 225 Stock Average and Topix index and owns roughly half of the market for ETFs in Japan.

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How to kill confidence.

China ‘Suspends’ Another Unofficial PMI Data Set For A ‘Major Adjustment’ (ZH)

For the second time in two months, an economic data series that indicate drastically weak performance in China has been “suspended.” Having seen Markit/Caixin’s flash gauge of China’s manufacturing discontinued in October (having plunged notably divergently from the government’s official data), Bloomberg reports that the publishers of the alternative China Minxin PMI will stop updating the series to make a “major adjustment.” Guess which time series was just “suspended”…

As Bloomberg details,

Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended starting this month, the Beijing-based academy said in an e-mailed statement Monday, about six hours before the latest monthly data were scheduled for release.

Minxin’s suspension is the second in recent months as policy makers in the world’s second-largest economy struggle to arrest a deceleration in growth. Another early estimate of China’s manufacturing sector, a flash gauge of a purchasing managers index compiled by Markit Economics and sponsored by Caixin Media, was discontinued Oct. 1. Minxin’s PMI readings are based on a monthly survey covering more than 4,000 companies, about 70% of which are smaller enterprises. The private gauges have shown a more volatile picture than the official PMIs in the past year.

The manufacturing PMI declined to 42.4 in November from 43.3 in October, while the non-manufacturing reading fell to 42.9 from 44.2, according the the latest release. The factory gauge fell to a record low of 41.9 in August. China’s official PMI from the National Bureau of Statistics fell to a three-year low of 49.6 in November.

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Humor?

Zimbabwe To Make Chinese Yuan Legal Currency After Beijing Cancels Debts (AFP)

Zimbabwe has announced that it will make the Chinese yuan legal tender after Beijing confirmed it would cancel $40m in debts. “They [China] said they are cancelling our debts that are maturing this year and we are in the process of finalising the debt instruments and calculating the debts,” minister Patrick Chinamasa said in a statement. Chinamasa also announced that Zimbabwe will officially make the Chinese yuan legal tender as it seeks to increase trade with Beijing. Zimbabwe abandoned its own dollar in 2009 after hyperinflation, which had peaked at around 500bn%, rendered it unusable. It then started using a slew of foreign currencies, including the US dollar and the South African rand.

The yuan was later added to the basket of the foreign currencies, but its use had not been approved yet for public transactions in the market dominated by the greenback. Use of the yuan “will be a function of trade between China and Zimbabwe and acceptability with customers in Zimbabwe,” the minister said. Zimbabwe’s central bank chief John Mangudya was in negotiations with the People’s Bank of China “to see whether we can enhance its usage here,” said Chinamasa. China is Zimbabwe’s biggest trading partner following Zimbabwe’s isolation by its former western trading partners over Harare’s human rights record.

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Europe’s dumb struggle with Moscow continues.

Russia, EU Trade Talks Fail, Kiev Set To Face Retaliation (Reuters)

The EU failed to allay Russia’s concerns about Ukraine’s free-trade accord with the 28-nation bloc on Monday, leaving Kiev to face Russian retaliation through tighter bilateral trade rules from 2016. Closer ties between Ukraine and the EU, including the free trade deal, were at the heart of a battle for influence between Brussels and Moscow in Russia’s former satellite. When the then-Ukrainian president, Viktor Yanukovich, ditched the accord in early 2014 under pressure from Russia, protests erupted on the street of Kiev leading to a crisis in which he fled power and a pro-Europe leadership took over. The EU and Ukraine delayed implementation of their trade deal by a year out of deference to Moscow’s concerns that it could lead to a flood of European imports across its borders, damaging the competitiveness of Russian exports.

But comments by EU and Russian officials on Monday indicated that numerous meetings between the two sides to try to narrow differences and assuage Moscow’s concerns had failed. EU Trade Commissioner Cecilia Malmstrom raised doubts about the validity of the Russian concerns, saying some were “not real.” “We have been very open in listening to some of the concerns of Russia. Some of them we think are not real in economic terms. Some of them could potentially be real,” Malmstrom told a news conference following final talks in Brussels. Russian Economy Minister Alexei Ulyukayev, speaking in Brussels, said there was no deal and Moscow would scrap trade preferences dating back to 2011 for Ukraine as of 2016, when the bilateral EU-Ukraine deal will be implemented. “An agreement has not been reached. We were left with our concerns on our own and we are forced to safeguard our economic interest unilaterally,” Ulyukayev told reporters.

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A stalemate that seems to end in either a fragile left government or new elections.

Political Uprising In Spain Shatters Illusion Of Eurozone Recovery (AEP)

Spain risks months of political paralysis and a corrosive showdown with Germany over fiscal austerity after insurgent movements smashed the traditional two-party system, leaving the country almost ungovernable. The electoral earthquake over the weekend in one of the eurozone’s ‘big four’ states has echoes of the shock upsets in Greece and Portugal this year, a reminder that the delayed political fuse from years of economic depression and mass unemployment can detonate even once the worst seems to be over. Bank stocks plummeted on the Madrid bourse as startled investors awoke to the possibility of a Left-wing coalition that included the ultra-radical Podemos party, which won 20.7pc of the votes with threats to overturn the government’s bank bail-out and to restructure financial debt.

Pablo Iglesias, the pony-tailed leader of the Podemos rebellion, warned Brussels, Berlin, and Frankfurt that Spain was retaking control over its own destiny after years of kowtowing to eurozone demands. “Our message to Europe is clear. Spain will never again be the periphery of Germany. We will strive to restore the meaning of the word sovereignty to our country,” he said. The risk spread on Spanish 10-year bonds jumped eight basis points to 123 over German Bunds, though there is no imminent danger of a fresh debt crisis as long as the European Central Bank is buying Spanish bonds under quantitative easing. The IBEX index of equities slid 2.5pc, with Banco Popular and Caixabank both off 7pc. Premier Mariano Rajoy has lost his absolute majority in the Cortes.

Support for the conservative Partido Popular crashed from 44pc to 29pc, costing Mr Rajoy 5m votes as a festering corruption scandal took its toll. The electorate punished the two mainstream parties that have dominated Spanish politics since the end of the Franco dictatorship in the 1970s, and which by turns became the reluctant enforcers of eurozone austerity. The Socialists (PSOE) averted electoral collapse but have lost their hegemony over the Left and risk being outflanked and ultimately destroyed by Podemos, just as Syriza annihilated the once-dominant PASOK party in Greece. It had been widely assumed that Mr Rajoy would have enough seats to form a coalition with the free-market and anti-corruption party Ciudadanos, but this new reform movement stalled in the closing weeks of the campaign.

“There is enormous austerity fatigue and the country as a whole has clearly shifted to the Left,” said sovereign bond strategist Nicholas Spiro. Yet the Left has not won enough votes either to form a clear government. “The issue now is whether Spain is governable. All the parties are at daggers drawn and this could drag on for weeks. I don’t see any sustainable solution. We can certainly forget about reform,” he said. Mr Spiro said Spain has already seen a “dramatic deterioration” in the underlying public finances over the last eighteen months, although this has been disguised by a cyclical rebound, the stimulus of cheap oil and a weak euro, and QE from Frankfurt. “They have simply gone for growth,” he said.

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Posterchild no more.

Portugal Taxpayers Face €3 Billion Loss After 2nd Bank Bailout In 2 Years (ZH)

Back in August of 2014, Portugal had an idea. Lisbon would use some €5 billion from the country’s Resolution Fund to shore up (read: bailout) Portugal’s second largest bank by assets, Banco Espirito Santo. The idea, basically, was to sell off Novo Banco SA (the “good bank” that was spun out of BES) in relatively short order and use the proceeds to pay back the Resolution Fun. That way, the cost to taxpayers would be zero. You didn’t have to be a financial wizard or a fortune teller to predict what was likely to happen next. Unsurprisingly, the auction process didn’t go so well.

As we recounted in September, there were any number of reasons why Portugal had trouble selling Novo, not the least of which was that two potential bidders – Anbang Insurance Group and Fosun International which, you’re reminded, is run by the recently “disappeared” Chinese Warren Buffett – suddenly became far more risk-averse in the wake of the financial market turmoil in China. Talks with US PE (Apollo specifically) also went south, presumably because no one knows if this “good” bank will actually turn out to need more capital going forward given that NPLs sit at something like 20% while the H1 loss totaled €250 million thanks to higher provisioning for said NPLs. Now, the auction process has been mothballed and will restart in January. This matters because if the bank can’t be sold, the cost of the bailout ends up being tacked onto Lisbon’s budget.

The impact is substantial. In September, when the effort to sell Novo collapsed, the government restated its 2014 deficit which, after accounting for the bailout, ballooned to 7.2% of GDP from 4.5%. Portugal will tell you that this is only “temporary,” but let’s face it, if they haven’t managed to sell it by now, then one has to believe the prospects are grim – at least in terms of fetching anything that looks like a decent price. Well don’t look now, but Portugal’s seventh-largest bank, Banco Internacional do Funchal, now needs a bailout too. Banif (as it’s known) will be split into a “good” and “bad” bank, and its “healthy” assets will be sold to Banco Santander for €150 million. The government will inject up to €2.2 billion the European Commission said on Monday, to cover “future contingencies.”

Hilariously, the bailout was necessary because the bank was unable to repay a previous government cash injection. “The government injected €1.1 billion of fresh capital into the lender in January 2013 to allow it to meet minimum capital thresholds imposed by the banking regulator,” WSJ writes. For its trouble, Lisbon got a 60% stake in the bank and several hundred million worth of CoCos which the bank missed a payment on last year. “That,” WSJ goes on to note, “triggered close scrutiny by the European Commission, which opened an investigation into the legality of the state aid.” “The commission had said that Banif’s restructuring plan might not be enough to allow the bank to repay the state,” Bloomberg adds. “The Bank of Portugal said in the statement on Sunday that a ‘probable’ decision from the commission declaring the state aid illegal would create a shortage of capital at the bank.”

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“We now enter the “discovery” phase of financial collapse, where things labeled “capital” and “credit” turn out to be mere holograms.”

Christmas Present (Jim Kunstler)

Theory du jour: the new Star Wars movie is sucking in whatever meager disposable lucre remains among the economically-flayed mid-to-lower orders of America. In fact, I propose a new index showing an inverse relationship between Star Wars box office receipts and soundness of the financial commonweal. In other words, Star Wars is all that remains of the US economy outside of the obscure workings of Wall Street — and that heretofore magical realm is not looking too rosy either in this season of the Great Rate Hike after puking up 623 points of the DJIA last Thursday and Friday. Here I confess: for thirty years I have hated those stupid space movies, as much for their badly-written scripts (all mumbo-jumbo exposition of nonsensical story-lines between explosions) as for the degenerate techno-narcissism they promote in a society literally dying from the diminishing returns and unintended consequences of technology.

It adds up to an ominous Yuletide. Turns out that the vehicle the Federal Reserve’s Open Market Committee was driving in its game of “chicken” with oncoming reality was a hearse. The occupants are ghosts, but don’t know it. A lot of commentators around the web think that the Fed “pulled the trigger” on interest rates to save its credibility. Uh, wrong. They had already lost their credibility. What remains is for these ghosts to helplessly watch over the awesome workout, which has obviously been underway for quite a while in the crash of commodity prices (and whole national economies — e.g. Brazil, Canada, Australia), the janky regions of the bond markets, the related death of the shale oil industry, and the imploding hedge fund scene. As it were, all credit these days looks shopworn and threadbare, as if the capital markets had by stealth turned into a swap meet of previously-owned optimism.

Who believes in anything these days besides the allure of fraud? Capital is supposedly plentiful these days — look how much has rushed into the dollar from the nervous former go-go nations with their wobbling ziggurats of bad loans and surfeit of production capacity — but what actually constitutes that capital? Answer: the dwindling faith anyone will pay you back next Tuesday for a hamburger today. We now enter the “discovery” phase of financial collapse, where things labeled “capital” and “credit” turn out to be mere holograms. Fed Chair Janet Yellen herself had a sort of hologramatic look last Wednesday when she stepped onto her Delphic platform to reveal the long-heralded interest rate news. Perhaps Mrs. Yellen is a figment conjured by George Lucas’s Industrial Light & Magic shop (now owned by Disney). What could be more fitting in a smoke-and-mirrors culture?

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Recognizable patterns.

Et Tu, Brute? – How Empires Die (Thomas)

The state-owned Bank of China has been ordered by an American court to hand over customer information to the US. The bank has refused to comply, as to do so would violate China’s privacy law. The US court has subsequently ordered the Bank of China to pay a fine of $50,000 per day. Any guess as to how this is likely to turn out? China is a sovereign nation, halfway around the globe from the US, yet the US seems to feel that it’s somehow entitled to set the rules for China (as well as the other nations in the world). When China sees fit to develop islands in the South China Sea that it has laid claim to for centuries, it begins to hear threatening noises from the US military. A candidate for US president declares that he would buzz the islands with Air Force One, the Presidential jet, saying, “They’ll know we mean business.”

All over the world, those who live outside the US are increasingly observing that the US has become so drunk with power that they’re threatening both friend and foe with fines, trade restrictions, monetary sanctions, warfare, and invasions. And in so-observing, those of us who have studied the history of empires note that history is once again repeating itself. Time and time again, great empires build themselves up through industriousness and sound economic management only to subsequently decline into debt, complacency, and an entitlement mind-set. Over the millennia, empires as disparate as Persia, Rome, Spain, and Great Britain rose to dominate the world. Of course, we know how those empires turned out and, by extension, we might hazard an educated guess as to how the present American Empire will end.

In the final throes of empire-decline, we invariably observe the more sociopathic trends of a failing power, such as we’re seeing today from the US. First and foremost, any empire declines as a result of economic mismanagement. Decline from within (pandering to the populace with “bread and circuses”) and without (endless conquest and/or maintenance of dominance over far-flung geography) drain even the wealthiest government. Even eighteenth-century Spain, with all its billions in stolen New World gold, could not pay its ever-increasing bills and warfare-driven debt. Typically, the empire of the day enjoys the world’s greatest fighting force/armada/weapons build-up yet, when the money runs out, the war machine simply stops. Soldiers think more about their empty bellies than how much ammunition they have left.

Generals continue to issue orders, but they cease to be followed after the supply lines begin to dry up. And the leaders of a collapsing empire invariably make a fatal mistake: they assume that all the goodwill the empire gained when it was on its rise is permanent – that it will continue, even if the empire behaves like the world’s foremost bully. This is never the outcome. Invariably, as the decline nears its end, allies, without ever saying so, begin to withdraw their support. We see this today, as European leaders (America’s most essential allies) realise that the empire is becoming an arrogant liability and they begin cutting deals with the other side, as European leaders are now doing with Russia and others.

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“The only way to avoid future crashes is for the Fed to stop creating inflation and bubbles.”

Do We Need The Fed? (Ron Paul)

Stocks rose Wednesday following the Fed’s announcement of the first interest rate increase since 2006. However, stocks fell just two days later. One reason the positive reaction to the Fed’s announcement did not last long is that the Fed seems to lack confidence in the economy and is unsure what policies it should adopt in the future. At her Wednesday press conference, Fed Chair Janet Yellen acknowledged continuing “cyclical weakness” in the job market. She also suggested that future rate increases are likely to be as small, or even smaller, then Wednesday’s. However, she also expressed concerns over increasing inflation, which suggests the Fed may be open to bigger rate increases. Many investors and those who rely on interest from savings for a substantial part of their income cheered the increase.

However, others expressed concern that even this small rate increase will weaken the already fragile job market. These critics echo the claims of many economists and economic historians who blame past economic crises, including the Great Depression, on ill-timed money tightening by the Fed. While the Federal Reserve is responsible for our boom-bust economy, recessions and depressions are not caused by tight monetary policy. Instead, the real cause of economic crisis is the loose money policies that precede the Fed’s tightening. When the Fed floods the market with artificially created money, it lowers the interest rates, which are the price of money. As the price of money, interest rates send signals to businesses and investors regarding the wisdom of making certain types of investments.

When the rates are artificially lowered by the Fed instead of naturally lowered by the market, businesses and investors receive distorted signals. The result is over-investment in certain sectors of the economy, such as housing. This creates the temporary illusion of prosperity. However, since the boom is rooted in the Fed’s manipulation of the interest rates, eventually the bubble will burst and the economy will slide into recession. While the Federal Reserve may tighten the money supply before an economic downturn, the tightening is simply a futile attempt to control the inflation resulting from the Fed’s earlier increases in the money supply. After the bubble inevitably bursts, the Federal Reserve will inevitability try to revive the economy via new money creation, which starts the whole boom-bust cycle all over again. The only way to avoid future crashes is for the Fed to stop creating inflation and bubbles.

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The more they can infringe on privacy, the more they will.

Apple Says UK Surveillance Law Would Endanger All Customers (BBG)

Apple outlined its opposition to a proposed U.K. surveillance law, saying threats to national security don’t justify weakening privacy and putting the data of hundreds of millions of users at risk. The world’s most valuable company is leading a Silicon Valley challenge to the proposed U.K. law, called the Investigatory Powers bill, which attempts to strengthen the capabilities of law-enforcement agencies to investigate potential crimes or terrorist attacks. The bill would, among other things, give the government the ability to see the Internet browsing history of U.K. citizens. Apple said the U.K. government already has access to an unprecedented amount of data.

The Cupertino, California-based company is particularly concerned the bill would weaken digital privacy tools such as encryption, creating vulnerabilities that will be exploited by sophisticated hackers and government spy agencies. In response to the U.K. rules, other governments would probably adopt their own new laws, “paralyzing multinational corporations under the weight of what could be dozens or hundreds of contradictory country-specific laws,” Apple said. “The creation of backdoors and intercept capabilities would weaken the protections built into Apple products and endanger all our customers,” Apple said in an eight-page submission to the U.K. committee considering the bill. “A key left under the doormat would not just be there for the good guys. The bad guys would find it too.”

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And that will not happen.

Half of World’s Coal Must Go Unmined to Meet Paris Climate Target (BBG)

Coal, the fuel that powered the industrial revolution, is in hiding. While the world still has 890 billion tons of reserves, enough to last more than 65 years, about half must stay underground if nations are to meet environmental limits agreed to earlier this month in Paris, Bank of America Corp. said in a report. Burning less coal is the easiest way to lower emissions blamed for climate change, the bank said. The pact reached by 195 nations doesn’t target specific fuels, yet coal remains the world’s largest source of planet-warming carbon dioxide. A global oversupply of the power plant fuel has pushed producers into bankruptcy and sent prices to at least seven-year lows. The Paris agreement only further diminishes prospects for a recovery.

“The latest carbon initiatives are the nail in the coffin for global coal,” Sabine Schels, Peter Helles and Franciso Blanch, analysts at Bank of America said in the Dec. 18 report. If emissions limits take hold, “50% of the world’s current coal reserves may never be dug out.” Coal demand stopped growing in 2014 for the first time since the 1990s as China’s economy cooled, the Paris-based International Energy Agency said Dec. 18. Coal for delivery to Amsterdam, Rotterdam, and Antwerp, an Atlantic benchmark, is trading near an eight-year low. Newcastle coal, a barometer for the Asia-Pacific market, is at the cheapest in records going back to 2008, data compiled by Bloomberg show.

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Last month, the warning came from China. Now it’s England and Wales.

It’s ‘Almost Too Late’ To Stop A Global Superbug Crisis (PA)

It is “almost too late” to stop a global superbug crisis caused by the misuse of antibiotics, a leading expert has warned. Scientists have a “50-50” chance of salvaging existing antibiotics from bacteria which has become resistant to its effects, according to Dr David Brown. The director at Antibiotic Research UK, whose discoveries helped make more than £20bn ($30bn) in pharmaceutical sales, said efforts to find new antibiotics are “totally failing” despite significant investment and research. It comes after a gene was discovered which makes infectious bacteria resistant to the last line of antibiotic defence, colistin (polymyxins). The resistance to the colistin antibiotic is considered to be a “major step” towards completely untreatable infections and has been found in pigs and humans in England and Wales.

Public Health England said the risk posed to humans by the mcr-1 gene was “low” but was being monitored closely. Performing surgery, treating infections and even travelling abroad safely all rely to some extent on access to effective antibiotics. It is feared the crisis could further penetrate Europe as displaced migrants enter from a war-torn Middle East, where countries such as Syria have increasing levels of antibiotic resistance. Dr Brown told said: “It is almost too late. We needed to start research 10 years ago and we still have no global monitoring system in place. “The issue is people have tried to find new antibiotics but it is totally failing – there has been no new chemical class of drug to treat gram-negative infections for more than 40 years.

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Nov 092014
 
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DPC League Island Navy Yard, Philadelphia. USS Brooklyn spar deck 1898

Fed to Markets: Brace for Volatility (WSJ)
Central Banks Warn of Possible Bumpy Ride for Markets (Bloomberg)
US Earnings Outlook Might Be Less Rosy Than Investors Think (Reuters)
Gorbachev Warns US, Allies Put World On ‘The Brink Of A New Cold War’ (FT)
Hungary Under ‘Great Pressure’ From US Over Its Energy Deals With Russia (RT)
Kuroda Sprang Easing Surprise To Head Off Damaging Inflation Forecast (Reuters)
It’s a Bad Time to Be a Saver in Europe (Bloomberg)
We Can Control Risks Facing The Economy, Says China’s Xi Jinping (Reuters)
Sweden Grapples With Massive Household Debt As Rates Hit Zero (Reuters)
UK Condemned Over Arms Sales To Repressive States (Observer)
It’s Official: Spain is Unraveling (Don Quijones)
Catalans Prepare to Open the Polls in Defiance of Spain (Bloomberg)
The Albanian World Cup Gambler Who Robbed The National Vault (Reuters)
Prepare For An Invasion From The North: “Polar Vortex, The Sequel” (CBS)
Harsh Winter Outlook Made More Dire by Siberia Snow (Bloomberg)
Bird Decline Poses Loss Not Just For Environment, But Human Soul (Guardian)

As rate hikes come.

Fed to Markets: Brace for Volatility (WSJ)

Federal Reserve officials are warning investors and foreign central bankers to brace for market turbulence as the Fed prepares to raise short-term interest rates next year. In a speech to central bankers Friday in Paris, Fed Chairwoman Janet Yellen said rate increases, when they materialize in advanced economies, “could lead to some heightened financial volatility.” New York Fed President William Dudley, at the same conference, issued a more detailed alert. “This shift in policy will undoubtedly be accompanied by some degree of market turbulence,” he said of future rate increases in the U.S. “Moreover, it could create significant challenges for those emerging market economies that have been the beneficiaries of large capital inflows in recent years.”

They offered their warnings as the Labor Department released new data showing the U.S. job market is improving faster than the Fed expects. The unemployment rate, at 5.8% in October, was below the 6.3% to 6.6% range the Fed projected last December for the end of 2014. In September, the Fed revised that projection to 5.9%-6.0%, still higher than the October rate. Other metrics being watched closely by the Fed showed continued gains. For instance, the percentage of the U.S. population that is employed rose to 59.2%, its highest level since July 2009. This employment-to-population ratio increased one percentage point from a year earlier, its largest one-year gain since March 1995. The Fed is eyeing rate increases as unemployment declines and slack in the economy slowly diminishes. Higher rates will be aimed at preventing the economy from overheating.

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“Normalization could lead to some heightened financial volatility .. ”

Central Banks Warn of Possible Bumpy Ride for Markets (Bloomberg)

Global central bankers said financial markets could suffer a bout of turbulence – again – when they begin to withdraw monetary stimulus. Janet Yellen and William Dudley of the Fed, Mexico’s Agustin Carstens and Bank of England Governor Mark Carney were among those to use a Paris conference of policy makers yesterday to talk about potential fallout from the eventual shift from record-low interest rates used to revive growth since the global financial crisis in 2008. “Normalization could lead to some heightened financial volatility,” Yellen told the gathering convened by the Bank of France. Carney said “the transition could be bumpy.” The comments suggest central bankers are trying to prepare better for the global effects of any withdrawal than in 2013, when then-Chairman Ben S. Bernanke unexpectedly signaled the Fed could soon start reducing bond purchases. That pushed up yields and rattled investors worldwide in the so-called taper tantrum.

Fed Chair Yellen and Dudley, president of the Fed Bank of New York, recognized the importance of U.S. officials being clear in their plans. “The Federal Reserve will strive to clearly and transparently communicate its monetary policy strategy in order to minimize the likelihood of surprises that could disrupt financial markets,” Yellen said. [..] Given a likely increase in U.S. rates next year will “undoubtedly be accompanied by some degree of market turbulence,” Dudley said the central bank has an obligation to provide global stability. “It is clear in retrospect that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants,” Dudley said. With that episode in mind, Carstens said there is a “potential for financial market disruption” amid the unwinding of unconventional monetary policy.

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They’re hot air.

US Earnings Outlook Might Be Less Rosy Than Investors Think (Reuters)

With the U.S. Q3 earnings season almost at an end, many investors are breathing a sigh of relief as more companies surpassed profit expectations than in any quarter since 2010. But some analysts say investors may be brushing off their worries about corporate profits a little too soon. While most S&P 500 companies beat analysts’ expectations for third-quarter earnings, many just barely topped estimates, said Pankaj Patel at Evercore ISI in New York. Of the S&P 500 companies that had reported results as of early this week, 66% exceeded expectations, according to Evercore’s data analysis. But that figure falls to just 43% after stripping away companies that beat expectations by 5% or less, Patel’s research shows. The figure excluding beats of 5% or less is also well below the%age of beats according to data based on Thomson Reuters polls of analysts. On that data, 74% of S&P 500 companies so far have exceeded analysts’ expectations, which is the highest for any quarter since the second quarter of 2010.

Results have come in from 88% of the S&P 500. The results could mean that an increasing number of companies are trying to “manage their beat rate,” possibly to mask profit weakness, Patel said, noting that companies that exceed expectations by 5% or less typically see their share prices decline in the three days following results. “The beat rate is artificially high, but people still watch that %,” Patel said. “They keep buying and the market goes higher.” The S&P 500 has risen more than 3% since Oct. 8, roughly when this earnings season began. The index is up 9.1% from its Oct. 15 low. In addition, analysts’ keep trimming their profit forecasts. Estimates for fourth-quarter earnings are down from the start of the quarter, along with estimates for the first part of 2015. Earnings growth for the fourth quarter now is estimated at 7.6% compared with an Oct. 1 forecast for 11.1% growth, Thomson Reuters data showed. For the 2015 first quarter, profit growth is seen at 8.8%, down from an Oct. 1 forecast for 11.5% growth.

Moreover, the magnitude by which Q4 estimates are falling has increased compared with the previous quarter, said Nick Raich, chief executive officer of The Earnings Scout, a research firm specializing in earnings trends. In outlooks given by companies themselves – done by only a minority of companies – the news is not good. Negative outlooks outnumber positive ones for Q4 so far by a ratio of 3.9 to 1, up from the third quarter’s ratio of 3.3 to 1, Thomson Reuters data showed. “That’s a worsening trend,” Raich said. “The outlooks have gotten a little bit worse this quarter.” Outlooks could become even dimmer if lackluster demand overseas translates into weak results for the fourth quarter. “The United States clearly is the bright spot in the world,” said Uri Landesman, president of Platinum Partners in New York. “The rest of the world isn’t nearly as strong, so demand coming from certain places is weaker, and the currency is going to have an enormous impact going forward.”

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How many western officials have you seen trying to address Gorby’s accusations?

Gorbachev Warns US, Allies Put World On ‘The Brink Of A New Cold War’ (FT)

Former Soviet Union leader Mikhail Gorbachev warned on Saturday that the Ukraine crisis had brought the world to “the brink of a new Cold War”. “The world is on the brink of a new Cold War. Some say it has already begun, ” said the 83-year-old former Kremlin chief in a sombre speech delivered in Berlin at an event to mark the 25th anniversary of the fall of the Berlin Wall this weekend. He was speaking as reports from eastern Ukraine suggested that Kiev’s troops and the Russia-backed rebels may be preparing for renewed fighting. Agency reporters in eastern Ukraine said they saw more than 80 unmarked military vehicles on the move on Saturday in rebel-controlled areas of eastern Ukraine. The apparent escalation threatens the fragile ceasefire agreed in Minsk in early September and increases the danger of further pressure on east-west relations.

Speaking at a conference within a few metres of the iconic Brandenburg Gate, Mr Gorbachev accused the west, led by the US, of “triumphalism” after the fall of the Berlin Wall ended Soviet dominance in eastern Europe. Trust between Russia and the west had “collapsed” in the last few months, he said, highlighting the damage done by the Ukraine crisis. He called for new initiatives to restore trust, including a lifting of personal sanctions imposed by the US and the EU on top Russian officials in response to Moscow’s actions in Ukraine. Mr Gorbachev clearly sees the west as the culprit in the crisis, having given his unequivocal backing to Mr Putin last week. He said, before arriving in Germany, that he was “absolutely convinced that Putin protects Russia’s interests better than anyone else.”

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Hungary PM Orban is an interesting man. The country is doing quite well, relatively.

Hungary Under ‘Great Pressure’ From US Over Its Energy Deals With Russia (RT)

Washington is exerting heavy pressure on Hungary over the country’s decision to give a green light for the construction of the South Stream gas pipeline and expedite the construction by allowing companies without licenses to participate in the project. “The US is putting Hungary under great pressure fearing Moscow’s rapprochement with Budapest,”Hungarian media cited Prime Minister Viktor Orban saying in Munich, Germany after a meeting with Bavarian state premier Horst Seehofer. Orban said that Hungary’s relations with Russia have become “entangled in geopolitical and military and security policy issues,” AFP reports. The PM said that US is retaliating for Budapest’s willingness to endorse the South Stream gas pipeline development as well as a deal that would see Russia’s Rosatom expand Hungary’s nuclear power.

Under a deal worth up to €10 billion Rosatom will build a 2,000 megawatt addition to Hungary’s state-owned nuclear power plant MVM Paksi Atomeromu. Russia is Hungary’s largest trade partner outside of the EU, with exports worth $3.4 billion in 2013. Also it is highly dependent on Russian energy. “We don’t want to get close to anyone, and we don’t intend to move away from anybody,” Orban said.“We are not pursuing a pro-Russian policy but a pro-Hungarian policy,” as expansion of the nuclear plant was the “only possible means” to lower dependence on external energy resources. The PM remained firm that “cheap energy is key in strengthening Hungary’s competitiveness” as he also defended the law which gave a green light for the construction of the South Stream pipeline that would bypass Ukraine as a transit nation in EU gas supply chain. It “ensures Hungary gas supplies by eliminating risks posed by situation in Ukraine,” Orban said.“Even if South Stream does not diversify gas sources, it diversifies delivery routes.”

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A forecast based on slumping oil prices.

Kuroda Sprang Easing Surprise To Head Off Damaging Inflation Forecast (Reuters)

The Bank of Japan Governor not only surprised the markets with his latest splurge of monetary easing. He sprang it on his own board members just two days earlier, jolted into action to stop them making a low-ball forecast that might have sunk his flagship inflation target. To achieve maximum effect for the shock decision, Haruhiko Kuroda and right-hand man Masayoshi Amamiya kept only a handful of elite central bank bureaucrats in the loop as they laid the ground for the expansion of their quantitative and qualitative easing (QQE) program. They didn’t even give the usual forewarning to senior bureaucrats at the Ministry of Finance, according to interviews with nearly a dozen insiders and government sources with knowledge of the bank’s deliberations.

No leaks reached the media, and the announcement at the Oct. 31 policy meeting pushed the Nikkei stock average to seven-year highs and the yen to seven-year lows against the dollar. The market reaction will have been welcome news to Kuroda, but the impact he wanted above all was to alter inflation expectations in a country that has struggled with crippling deflation for two decades. Timing was critical – and not of his choosing. At the policy meeting the board would also issue a new consumer inflation forecast for the next fiscal year, based on the median estimate from the nine members. But two days before publication, the preliminary estimate was only around 1.5%, three of the sources said. That was well below the 1.9% forecast made in July, and if published could have been fatal to his key goal of hitting 2% from April next year.

Since price expectations play a key role in the consumer behaviours that ultimately determine prices, doubts about the target could be self-fulfilling. There were other triggers for action, including October’s plunge in oil prices and the fact that an easing burst would have more market impact in the week the U.S. Federal Reserve decided to turn its own liquidity taps off. But it was the inflation forecast that convinced Kuroda and his aides to go for another burst of stimulus, three sources said. Board members would then have to revisit their estimates in light of the new action.

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“If you’re a central bank, it’s not a good sign when institutions actively seek to deter customers from owning your currency.”

It’s a Bad Time to Be a Saver in Europe (Bloomberg)

In the post-crisis economic environment, with record-low interest rates in many countries, it’s better to be a borrower than a lender, despite Shakespeare’s admonition to be neither. These days, however, it’s even worse to be a saver. Since the European Central Bank in June sought to prod banks to lend more – by imposing negative interest rates on banks’ ECB deposits – savers are discovering that banks aren’t the only ones paying for the privilege of having cash on hand. At least three banks – State Street Corp., Bank of New York Mellon, and Deutsche Skatbank – have introduced negative rates for large euro deposits. It makes financial sense for the banks: If the ECB is charging them 0.2% for holding their cash, banks have a fiduciary duty to try to recoup that cost.

The result is that depositors suffer the consequences of the ECB’s interest-rate tyranny. They would do better to stash their money in mattresses. The ECB addressed the implications of its monetary-policy shift on its website after it cut its deposit rate below zero. It asked the question: “Do I now have to pay my bank to keep my savings for me? What is the effect of this negative deposit rate on my savings?” And then it answered itself:

There will be no direct impact on your savings. Only banks that deposit money in certain accounts at the ECB have to pay. Commercial banks may of course choose to lower interest rates for savers. The ECB’s interest rate decisions will in fact benefit savers in the end because they support growth and thus create a climate in which interest rates can gradually return to higher levels.

So the first sentence turned out to be incorrect. And the final sentence provides scant comfort to a depositor whose hard-earned cash is dribbling away and is too pessimistic about the future of the European economy to find more productive uses for the money, such as spending it or investing it. We’ve been here before, including in 2012 when depositors fled the euro and piled into other currencies. Credit Suisse imposed negative rates on Swiss franc cash balances, for example, and said it would “invite our customers to keep cash balances as low as possible to avoid negative credit charges.” State Street also imposed negative rates on Danish kroner deposits. If you’re a central bank, it’s not a good sign when institutions actively seek to deter customers from owning your currency.

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Sure.

We Can Control Risks Facing The Economy, Says China’s Xi Jinping (Reuters)

The risks faced by China’s economy are “not so scary” and the government is confident it can head off the dangers, president Xi Jinping told global business leaders on Sunday to dispel worries about the world’s second-largest economy. In a speech to chief executives at the Asia Pacific Economic Cooperation (Apec) CEO summit, Xi said even if China’s economy were to grow 7%, that would still rank it at the forefront of the world’s economies. China’s economy, the world’s second-largest, has had a rocky year. Growth slid to a low not seen since the 2008/09 global financial crisis in the third quarter dragged by a housing slowdown, softening domestic demand and unsteady exports. “Some people worry that China’s economic growth will fall further, can it climb over the ridge?” Xi said. “There are indeed risks, but it’s not so scary.

“Even at growth of around 7%, regardless of speed or volume, (we) are among the best in the world,” he said, noting that China’s economy remained “stable”. The remarks from Xi came a day after data showed annual growth in Chinese exports and imports cooled in October, in another sign of fragility in the economy that could prompt policymakers to take further action to stoke growth. To shore up activity, policymakers have loosened monetary and fiscal policies since April to ensure that the economy can grow by around 7.5% this year. A marked slowdown in growth would hit countries all over the world, but especially commodity producers such as Australia, Indonesia and Brazil that have benefited from strong Chinese demand.

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This will not end well. There are limits.

Sweden Grapples With Massive Household Debt As Rates Hit Zero (Reuters)

Sweden’s new center-left government and its financial authorities are under huge pressure when they meet on Tuesday to tackle a mountain of household debt that is casting a long shadow over one of Europe’s few economic bright spots. Having slashed rates to zero to fight the risk of deflation, top Swedish officials are now in a quandary over how to rein in borrowing and house price rises without sending the real estate market into a downward spiral. The country’s AAA-rated economy is still one of Europe’s strongest, with low public debt, sound state finances and banks among the best capitalized and most profitable in Europe. But consumers, barely touched by the financial crisis, have loaded up on cheap mortgages and caused Swedish property prices to triple over the last 20 years, prompting a warning from the IMF that the market is 20% overvalued. Adding to the problem: Sweden has built too few houses for the last 20 years and its capital Stockholm is one of Europe’s fastest growing cities.

Critics say the former center-right government added fuel to the fire by slashing real estate taxes and leaving 30% mortgage tax relief untouched. Meanwhile, Sweden’s household debt-to-income ratio has risen to above 170% – among Europe’s highest. The worry is that private consumption, nearly half of GDP, would suffer if rates rose or property prices fell. “The longer we wait, the bigger the imbalances are,” said Bengt Hansson, analyst at the Swedish National Board of Housing Planning and Building. “We already have a bubble, but we will avoid an even bigger bubble.” It will be hard to dissuade bullish Swedish consumers. In Stockholm’s frenzied housing market, buyers make multi-million crown offers to snap up flats they may only have seen in photographs. And cranes and scaffolding are common sights in suburbia as householders take advantage of generous tax breaks for home improvements.

“We don’t think it will crash badly,” said Peter, a 47 year-old investment advisor, who with his wife Maria has just bought a house in Stockholm for around 12 million Swedish crowns ($1.62 million). “It might stop going up for a while, but over the longer term we expect it to go up,” he added, suggesting the lack of housing and population growth in Stockholm would support prices. Attempts by regulators so far to slow credit growth – squeezing banks by making them put aside more capital and draw up voluntary mortgage pay-down plans – have not worked because interest rates have continued to fall. Last week the central bank cut rates to zero in an attempt to answer criticism that it is not doing enough to tackle another economic risk – deflation – even while it acknowledged the problem that would create in containing household debt. “There is a fairly large consensus that household debt is a concern,” Swedish central bank chairman Stefan Ingves said after the cut. “If households continue to borrow, we could end up with very big problems later on, and this is what we want to avoid.”

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They all do it. We have no morals left.

UK Condemned Over Arms Sales To Repressive States (Observer)

The government has been accused of dishonesty over arms sales as new figures reveal that the value of British weapons sales to “countries of concern” has already hit £60m this year. Former Tory defence minister Sir John Stanley, who chairs the Commons committees on arms export controls, says ministers failed to come clean on a “significant change in policy” that makes it easier to export arms to countries with a poor human rights record. He said in a recent parliamentary debate that the government has not acknowledged that such a change has taken place, and it “should consider most carefully whether they should now offer an apology to the committees”.

The government used to reject arms export licences where there was concern they might be used for “internal repression”, but now a licence will be refused only if there is a “clear risk” that military equipment might be used in violation of international law. Former Foreign Office minister Peter Hain, who established the strict criteria on arms sales, last night demanded that the government be transparent about the change and called for parliament to be allowed a vote. He said: “The present government has run a coach and horses through our arms export controls, circumventing the legislation we put in place by putting a particular spin on it. It has enabled them to sell arms to countries and for purposes that should not be allowed under the legislation.

“There is a clear policy in the legislation that arms should only be sold to countries for defensive purposes and not for internal suppression or external aggression. In the case of Gaza over the summer, that has clearly been flouted. Bahrain is another example.” Data from the Department for Business, Innovation and Skills reveals that in the first six months of 2014 the UK granted licences worth £63.2m of arms sales to 18 of the 28 states on its official blacklist, countries about which the Foreign Office has the “most serious wide-ranging human rights concerns”. Israel, Saudi Arabia, the Central African Republic, Sri Lanka and Russia were among the countries that Britain approved military equipment for.

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How much corruption can one government shake off?

It’s Official: Spain is Unraveling (Don Quijones)

Since taking office in late 2011, Rajoy’s government has been embroiled in one sordid political scandal after another. In the latest episode, the Punica Affair, more than 100 politicians have been arrested and charged with varying acts of white collar crime, including taking kick backs from private sector companies. Payment often came in the form of cash-stuffed envelopes although, as El Confidencial reports, it could also include completely free-of-charge construction work on a politicians’ property, luxury holidays, hunting trips and even an intimate evening or two with a high-class prostitute. Most of the politicians involved in the scandal are – or at least were – members of the governing Popular Party. The rest belong – or at least belonged – to the other partner in Spain’s (until now) two-party system, the not-really-socialist-at-all party, the PSOE.

The good news is that some of Spain’s corrupt politicians and business figures are finally seeing the sharp (or at least not entirely blunt) end of the law. Scores have been arrested and some are even going down. The bad news is that Rajoy’s scandal-tarnished government of self.serving mediocrities still stands, albeit more precariously than ever. In El Pais‘ latest poll of voters’ intentions in next year’s general election, the Popular Party (PP) was, for the first time in decades, relegated to third place. Indeed, the two incumbent parties – the PP and PSOE – were unable to muster 50% of the vote between them. The most popular party in the poll was Podemos, a stridently left-wing political movement founded just at the beginning of this year. In May’s European elections the party picked up five seats; now, six months later, it is apparently the hottest contender for the spoils in next year’s general election, picking up 27% of the votes polled – 6%% more than PP and one more than PSOE.

Lead by Pablo Iglesias, a firebrand (or as the right-wing media like to call him “demagogic”) 35-year-old professor of political science, Podemos has masterfully exploited the general public’s disaffection with a political establishment that serves no one’s interests but its own – and, of course, those of the country’s biggest businesses and banks. The political establishment is quite rightly blamed for stoking and feeding the country’s biggest ever real estate bubble. Thanks to a change in the property laws enacted in 1997 by the Aznar government, local and regional administrations were encouraged to part-finance themselves through granting authorization for ever larger public and private construction projects, many of which turned out to be white elephants (empty toll roads, high-speed train stations planted slap bang in the middle of nowhere, ghost airports…).

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That same corrupt government demands the moral high road when it comes to Catalunya.

Catalans Prepare to Open the Polls in Defiance of Spain (Bloomberg)

In more than 900 towns across Catalonia, an army of volunteers is preparing to open polling stations today and offer compatriots a vote on independence in defiance of Spain’s central government and its highest court. The informal ballot, stripped of legal validity by a Constitutional Court ruling in September, poses two questions: Do you want Catalonia to be a state? And should that state be independent? Separatists led by regional president Artur Mas aim to win a majority in favor of breaking up Spain and use that mandate to force Prime Minister Mariano Rajoy to negotiate. The runup to the vote has been marked by legal salvos: Rajoy’s government reminded public officials in Catalonia of their obligation to respect the Constitutional Court ban as Mas had an appeal to that ruling thrown out by the Supreme Court.

The Catalan government talked of filing a lawsuit against Spain in an international court while an activist group in Madrid responded with its own suit to state prosecutors demanding police halt the balloting. “The Spanish government is being really short-sighted,” said Alex Quiroga, a lecturer in Spanish history at Newcastle University in England. “Continually saying ‘no’ and appealing to the Constitutional Court doesn’t help. It’s clear that only through negotiation can they solve the problem.” Spain’s prosecutor’s office in Catalonia asked regional police to report on any public-sector premises such as schools being used for the vote and to gather information about the persons responsible for allowing their use, according to an e-mailed statement from the prosecutor. It also requested Catalonia’s Education Department to explain whether it asked principals to allow the schools to be used for the vote.

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Great story. “All three keys needed to access the vault were kept in his personal safe.”

The Albanian World Cup Gambler Who Robbed The National Vault (Reuters)

In the end, it wasn’t the security cameras or the audit inspections in the vault of Albania’s central bank that brought down Ardian Bitraj. It was the high blood pressure and lack of sleep, the burden of a multi-million-dollar secret. Sitting down with his boss this July, Bitraj confessed his deception: over a four-year period he had stolen the equivalent of $6.5 million from the vault, covering his tracks by stuffing the empty cash boxes with books and balls of string. The revelation brought down the central bank governor, led to the arrest of 18 employees and tarnished the reputation of an institution once lauded for its professionalism. And all for the sake of a gambling habit that led to massive losses, culminating in a series of fatal bets on the soccer World Cup.

The full story of the Balkan bank heist is only just emerging, gleaned by Reuters in interviews with bankers, investigators and others involved, and from legal documents including a transcript of Bitraj’s confession. It started in May 2010, when Bitraj, who had risen to become head of the cash processing department at the bank, first opened the metal and plastic clasps to the wooden boxes that hold its cash reserves in the cryptically named X Building on the outskirts of the capital Tirana. Bitraj, 45, had a penchant for placing bets on soccer matches, so roughly once a month he would wait for his co-workers to leave the room and swipe up to 2 million leks, roughly $18,000, according to the confession.

Choosing carefully how he returned the boxes, Bitraj would make sure those he had tampered with were not in line for delivery to Albania’s commercial banks, nor likely to be picked on in the regular random audit of the vault. As the thefts mounted, he would stuff the boxes with packaging, balls of string and books to replace the weight of the cash. All three keys needed to access the vault were kept in his personal safe. In statements to police, bank employees said they had not received any directive on how or where to store the keys. Bitraj says auditors checked only 2% of the cash boxes in the vault. Fired governor Ardian Fullani says it was 5%, maintaining that checks in the former communist country were comparable with other central banks in Europe.

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Beware the US economy, or rather the reports and excuses that will be written on the cold.

Prepare For An Invasion From The North: “Polar Vortex, The Sequel” (CBS)

Prepare yourself for an invasion from the north. A blast of polar air is about to send temperatures plunging in the heart of America. It’s the return of the polar vortex that brought misery a year ago. A mass of whirling cold air will dip southward this weekend, sending the mercury plunging. As the cold air moves south and east, it has the potential to affect as many as 243 million people with wind chills in the single digits in some places and snow. It’s all triggered by a Super Typhoon named Nuri. Images from the European Space Station show that Nuri is a growing meteorological bomb blanketing the Bering Sea. The 50-foot waves and 100 mile-an-hour winds will make conditions similar to those we had two years ago, and could make Nuri the biggest storm of the year.

But it would be wrong to think that it will affect only Alaska’s far-flung Aleutian Islands or those famous fishermen who work in the North Pacific. WBBM’s meteorologist Megan Glaros in Chicago explains. “The remnants of Super Typhoon Nuri will create a big buckle in the jet stream,” Glaros says. “And in several days time, it’s going to mean a big dip in the jet which will connect us with a big mass of Arctic air – taking temperatures east of the Rockies down to 10 to 30 degrees below average.” Say “a big mass of arctic air” to anyone who lives in the Midwest and it conjures painful memories of the dreaded polar vortex that hit the region last winter.

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“A rapid advance of Eurasian snow cover during the month of October favors that the upcoming winter will be cold across the Northern Hemisphere …”

Harsh Winter Outlook Made More Dire by Siberia Snow (Bloomberg)

Remember how evidence was mounting last month that early snowfall was accumulating across Siberia? And remember how there’s a theory that says this snowfall signals a cold winter? So in the two and a half weeks since, the news for the winter-haters has, unfortunately, only gotten worse. About 14.1 million square kilometers of snow blanketed Siberia at the end of October, the second most in records going back to 1967, according to Rutgers University’s Global Snow Lab. The record was in 1976, which broke a streak of mild winters in the eastern U.S. In addition, the speed at which snow has covered the region is the fastest since at least 1998. Taken together they signal greater chances for frigid air to spill out of the Arctic into more temperate regions of North America, Europe and Asia, said Judah Cohen, director of seasonal forecasting at Atmospheric and Environmental Research in Lexington, Massachusetts, who developed the theory linking Siberian snow with winter weather.

“A rapid advance of Eurasian snow cover during the month of October favors that the upcoming winter will be cold across the Northern Hemisphere,” Cohen said in an interview yesterday. “This past October the signal was quite robust.” There are a few steps to get from the snows of Siberia to the chills in New York City. Cold air builds over the expanse of snow, strengthening the pressure system known as a Siberian high. The high weakens the winds that circle the North Pole, allowing the cold air to leak into the lower latitudes. The term Polar Vortex actually refers to those winds, not the frigid weather.

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The connection between our souls and our living world was lost in our heads long ago. 147 million fewer sparrows, a drop of 62% of their total population, since 1980; starling numbers have fallen by 45 million or 53%; skylarks are down by 37 million (46%).

Bird Decline Poses Loss Not Just For Environment, But Human Soul (Guardian)

‘That’s a buzzard!” says Richard Gregory, gesturing at a tall birch tree stump 50 metres or so away, from which a flapping streak of brown and white has just disappeared. “That was a buzzard. That’s one of the ones I was telling you about. It’s back.” When Gregory was a young child, toddling around the green bits of Cheshire with a monocular, a glimpse of a buzzard made for a thrilling day out – though he was mad about birds by the age of four, he was in his teens before he ticked the large raptor off his list. Now, though, thanks to reintroduction projects and legal protections, its number and that of several other birds of prey is on the up in Britain.

We glimpse another one, as it happens, a few minutes later, and while I suppose there is just a possibility it was the same bird on a second swoop, I’m counting that as a double sighting. The recovery in recent decades of Britain’s raptor population is welcome for a number of reasons. Firstly, it means I was right after all that time I spotted a red kite while driving up the A1 and everyone else in the car said I was talking rubbish. Secondly, it’s a snatch of good news in what could otherwise seem an unrelentingly grim picture. These are bad days to be a bird. A study released this week found that the most common birds in Europe are declining at an alarming rate, and that is not an idle term.

By studying 30 years of data across 25 countries, conservationists estimated that there are now a brain-boggling 421 million fewer birds flapping across the continent’s skies than were around in 1980. House sparrows alone account for a third of that decline, with 147 million fewer birds, a drop of 62% of their total population; starling numbers have fallen by 45 million or 53%; skylarks are down by 37 million (46%). Yes, the marsh harrier has recovered a bit, and feral pigeons and ring necked parakeets are doing well in cities, but overall, concluded the report, “global biodiversity is undergoing unprecedented decline”, and some of the species taking the hardest hit are birds which were once, not so long ago, abundant in our skies.

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