IMF Archives - Page 5 of 21 - The Automatic Earth

The problem is global. Central bank actions explain most of what you need to know. Italian bonds provide a good example. Despite the recent, massive selloff in Italian bonds, 10-year Italian bonds still trade at roughly the same yield as US 10-year bonds. Is there no default risk? No eurozone exit risk? Of course there is. But those bonds trade where they do because the ECB is engaged in QE to a far greater extent than the the Fed ever did. How nuts is that? 88% of the S&P is with Vanguard, BlackRock, and State Street. How nuts is that? Close to $7 trillion in bonds trade with a negative yield. The figure was close to $10 trillion at one point. How nuts is that?

According to LCD, covenant-lite loan now account for a record 75% of the roughly $970 billion in outstanding U.S leveraged loans. Covenant-lite agreements vary, but they allow things like paying interest with more debt rather than cash or skipping repayments entirely for periods of time. How nuts is that? This is totally nuts, across the board. Puplava calls it “mindless”. I suspect he would be the first to admit that he seriously understated the concern. My “totally nuts” position is also too mild, but I also struggle for the precise words. A global liquidity crisis looms. It is entirely central-bank sponsored. Just don’t expect me, Puplava, or anyone else to tell you precisely when the crisis will hit. But it will. And when it does, don’t fool yourself into believing that you can necessarily escape in time.

How to keep everything overpriced.

• The Trump Effect Is Keeping Bull Market Alive – Robert Shiller (CNBC)

Nobel Prize-winning economist Robert Shiller hasn’t been the most optimistic voice on Wall Street, but he isn’t writing off the bull market. His chief reason: President Donald Trump’s pro-business influence. “There is a sort of optimism about the markets under Trump, and that’s continuing. I don’t see a reason for it about to change,” the Yale professor said Tuesday on CNBC’s “Trading Nation.” “There’s something about how the world is reacting to the president. Something about his self-confidence which is gradually lifting our spirits.” Shiller believes the momentum is so powerful, it’s essentially propping up a bull market that is getting long in the tooth.

“We’ve seen an overpriced stock market. We’ve seen concerns about that for years now,” he said. Shiller acknowledged it’s definitely possible the U.S. stock market could generate gains this year, but he warned the Trump effect “is not a very reliable thing.” So, he said the best strategy is to diversify abroad in this environment. “If you have been overexposed to the United States in your portfolio, this is a time to reconsider that,” Shiller said. “Not to pull out, but to balance things … Europe is cheaper than the U.S..”

These clowns really believe this: “self-sustaining growth”.

• Global Growth Too Dependent On Cheap Borrowing – OECD (G.)

Unemployment will drop to its lowest level since 1980 across the world’s richest nations, but global growth remains dependent on cheap borrowing and government spending, the Organisation for Economic Cooperation & Development (OECD) has warned in its latest global economy health check. The rise of tit-for-tat protectionist trade barriers, the return of volatile financial markets, and soaring oil prices also spell trouble for the global economy as it heads towards the 10-year anniversary of the 2008 banking collapse, the OECD said.

“The economic expansion is set to continue for the coming two years, and the short-term growth outlook is more favourable than it has been for many years,” said Angel Gurría, secretary general of the OECD, the Paris based thinktank for the world’s 35 richest nations, including the US, Britain, Brazil, Mexico and Russia. “However, the current recovery is still being supported by very accommodative monetary policy, and increasingly by fiscal easing. This suggests that strong, self-sustaining growth has not yet been attained.” Central banks in Britain, the eurozone, Japan and the US have kept interest rates low and pumped funds into their economies via quantitative easing to maintain investment and promote growth. Governments have eased back on austerity measures, allowing more state funds for infrastructure projects and welfare payments, especially pensions.

In the end, people want to keep sovereignty. Which has largely been sold off by their leaders.

• The Euro Has To Be Abandoned If Europe Is To Be Saved (Syll)

The euro has taken away the possibility for national governments to manage their economies in a meaningful way – and in Italy, just as in Greece a couple of years ago, the people have had to pay the true costs of its concomitant misguided austerity policies. The unfolding of the repeated economic crises in euroland during the last decade has shown beyond any doubts that the euro is not only an economic project but just as much a political one. What the neoliberal revolution during the 1980s and 1990s didn’t manage to accomplish, the euro shall now force on us.

But do the peoples of Europe really want to deprive themselves of economic autonomy, enforce lower wages and slash social welfare at the slightest sign of economic distress? Is increasing income inequality and a federal Uberstate really the stuff that our dreams are made of? I doubt it. History ought to act as a deterrent. During the 1930s our economies didn’t come out of the depression until the folly of that time, the gold standard, was thrown on the dustbin of history. The euro will hopefully soon join it.

Countries will be forced to leave.

• Italy Crisis: Workers Are Paying For Decisions Made Nearly 30 Years Ago (Clark)

You could say that Italy’s current problems – indeed all of Europe’s economic woes – go back to the early 1990s, when wrong-headed decisions were made by the European elite and enshrined in the Maastricht Treaty – which workers have been paying for ever since. Cuts in public spending have increased unemployment, which in turn has increased the deficit, which has led to more cuts, and so on and so on. Italy‘s National Debt is now 132% of its GDP. Although growth rates are now positive, its average annual rate of growth from 1999-2016 was zero. With 31.7% youth unemployment, La Dolce Vita and Ryan Paris’s catchy song, is a long distance memory.

The tragedy is that it was all so predictable. One man who warned what Europe was letting itself in for in the rush to squeeze as many countries as possible into the Eurozone, was the late Labour politician Peter Shore, the UK’s secretary of state for economic affairs from 1967-69 and trade minister from 1974-6. In the early-to-mid 1990s I was teaching economics in Switzerland and was in correspondence with Shore. He very kindly sent me copies of parliamentary debates where he had railed against the Maastricht Treaty and its imposition of a financial strait-jacket on EEC/EU members – regardless of the state of their economies.

Shore told the House of Commons on March 24, 1993: “The most astonishing omission from the treaty is the fact that it never faces the issue of the counter-recession policy, about which it contains not a word. One lesson that we should have learned from the disasters of the inter-war years was that tendency to go too high in a boom, and too low in recession and slump. “Why is that aspect not written into the protocol? Why does it not say that we must recognise those counter-cyclical problems, and will certainly do so if unemployment grows by X per cent? Instead of having merely 3% and 60% for borrowing and debt, why not have 3, 4 or 5% of the level of unemployment or the fall in GDP?”

“Events in Italy are changing everything.”

• Italy Crisis Dents Greek Hopes Of Returning To Bond Markets (G.)

Greece is watching the unfolding crisis in Italy with growing nervousness. Events in Rome are eliciting a sense of deja vu in Athens, the capital long on the frontline of the eurozone crisis. And nerves are being rattled. “We want a stable, democratic and pro-European Italy,” the country’s foreign minister, Nikos Kotzias, told reporters. “We are worried that if there is instability and it has an impact on the financial situation, this could create problems for us.” The turmoil in Italy could not come at a worse time for Greece. After almost a decade of exclusion from international markets, the debt-stricken nation had set its sights on returning to much-needed normality this summer.

Hopes had been high that when it emerged from its third multi-billion EU-funded bailout programme, Athens would regain market access. But on Wednesday government officials, bankers and analysts were decidedly downbeat. All agreed that with political uncertainty raging across the Ionian Sea, and global investors jittery, the prospect of Greece tapping markets any time soon was beginning to resemble a pipe dream. With soaring bond yields – interest rates on government borrowing – it was out of the question the country could afford the interest rates that would allow it to assume the mantle of post-bailout normality.

“What is happening in Italy worries us immensely,” a senior Bank of Greece official said. “The bond markets have gone mad in southern Europe. With such yields it is totally prohibitive that Greece could return to them when the programme ends.” [..] Italy’s financial turmoil has put hopes of “a clean exit,” on the back burner. “The government’s narrative of clean breaks, and going it alone, is over for now,” a well-placed official conceded. “Events in Italy are changing everything.”

With Italy on the horizon? It amkes little difference, nobody wants to reduce the principal of the debt. And that is what is needed.

• Eurozone, IMF Seek Last-Minute Deal On Greek Debt Relief At G7 This Week (R.)

Euro zone policy-makers will seek last-minute backing this week from the IMF for their debt-relief offer to Greece, to ensure it is credible with markets and draws investors back to Greece after it exits its bailout. The talks are to take place on the sidelines of a meeting of in Canada of finance ministers and central bankers from the world’s top seven economies, the G7, in June, officials involved in the negotiations said. The bailout ends on Aug. 20. “This thing has to be done now,” one senior official involved in the talks said. If no deal is agreed by next Monday, the official said, the IMF would most likely not take part in the bailout at all.

After three successive bailouts since Athens lost market access in 2010, euro zone governments are now Greece’s main creditors, with total loans of €230 billion so far. The IMF took part in the first two bailouts, but has refused to join in the third, which began in 2015. It says the euro zone must agree on how to make Greek debt, now at 179% of GDP, sustainable. Euro zone finance ministers have argued they can only give such details towards the end of the three-year bailout. So the IMF has remained only an observer over the past three years. [..] The IMF and the euro zone agree there should be no “haircut” – a reduction in the principal of the debt – but only an extension of maturities and grace periods.

I smell bailouts.

• Fed Proposes Changes To Rule Limiting Risky Trading On Wall Street (AP)

The Federal Reserve is proposing to ease a rule aimed at defusing the kind of risk-taking on Wall Street that helped trigger the 2008 financial meltdown. The Fed under new leadership on Wednesday unveiled proposed changes to the Volcker Rule, which bars banks’ risky trading bets for their own profit with depositors’ money. The high-risk activity is known as proprietary trading. The proposed changes would match the strictest applications of the rule to banks that do the most trading – 18 banks with at least $10bn in trading assets and liabilities. They account for 95% of all US bank trading and include some foreign banks with US operations, Fed officials said.

Less stringent requirements would apply to banks that do less trading. The idea is to make it easier for banks to comply with the Volcker Rule without sacrificing the banks’ safety and soundness, the officials said. “The proposal will address some of the uncertainty and complexity that now make it difficult for firms to know how best to comply, and for supervisors to know that they are in compliance,” Fed chair Jerome Powell said at a meeting of the Fed governors. “Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements.”

The EU is not about to give in.

• US To Hit EU With Steel And Aluminum Tariffs (G.)

The Trump administration is reportedly planning to impose import tariffs on European steel and aluminum after finding no satisfaction in its effort to win trading concessions on the issue. An announcement dropping the EU from an exemption to global tariffs of 25% on imported steel, and 10% on aluminum, could come on Thursday, according to the Wall Street Journal. The move is likely to bring retaliatory action from European Union trade regulators who have warned they will target American products as motorcycles, jeans and bourbon if additional US tariffs are imposed.

Signs of increasing friction between the US and Europe over trade came early Wednesday when Wilbur Ross, the US commerce secretary, drew a sharp line with the EU over Chinese trade negotiations, telling counterparts at a trade development panel in Paris that Europe is using tariffs as an “excuse” to refuse trade negotiations. “China are paying their tariffs,” Ross told the panel. “China hasn’t used that as an excuse not to negotiate … It’s only the EU that is insisting we can’t negotiate if there are tariffs,” he added. Ross’s comments were made in response to EU criticism of import tariffs the Trump administration imposed on dozens of trade partners in March. On Tuesday, the White House added $50bn in new tariffs despite telling China the trade dispute was “on hold” while negotiations continued.

Make Detroit great again.

• Abe Slams US Vehicle Tariff Hikes As ‘Unacceptable’ (JT)

Prime Minister Shinzo Abe on Wednesday condemned U.S. President Donald Trump’s reported move to impose tariffs of up to 25% on imported vehicles as unwarranted and offensive. “If the U.S. slaps Japan, its ally, with tariffs like this, that would be incomprehensible and unacceptable,” Abe told the head of the Democratic Party for the People, Yuichiro Tamaki, during a debate between party leaders in the Diet. The Trump administration recently launched a Section 232 national security probe into whether vehicle and parts imports are harming the U.S.’s domestic auto industry — a step that could provide Trump with the legal basis to institute tariffs.

The move followed yet another surprise announcement by the Trump administration in March that Japan, unlike Washington’s other key allies and partners, wouldn’t be excluded from steel and aluminium tariffs. Tamaki said the hike, if realized, would “deal a severe blow to Japan’s economy.” “Did you get an advance notice on this measure?” Tamaki asked Abe. “You yourself often claim that Japan and the U.S. are 100% together. If there had been no heads-up from the U.S. side on this matter, I’d have to suspect that we may not be seen as their ally.” Abe dodged Tamaki’s question, but stressed he had explained to Trump in their past conversations that Japanese automobile makers are “vastly contributing” to the U.S. economy by creating jobs.

Why am I not surprised?

• George Osborne’s London Evening Standard Sells Its Editorial Independence (OD)

London’s Evening Standard newspaper, edited by the former chancellor George Osborne, has agreed a £3 million deal with six leading commercial companies, including Google and Uber, promising them “money-can’t-buy” positive news and “favourable” comment coverage, openDemocracy can reveal. The project, called London 2020, is being directed by Osborne. It effectively sweeps away the conventional ethical divide between news and advertising inside the Standard – and is set to include “favourable” news coverage of the firms involved, with readers unable to differentiate between “news” that is paid-for and other commercially-branded content.

Leading companies, most operating global businesses, were given detailed sales presentations by Evening Standard executives at the newspaper’s west London offices in an effort to sign them up to the lucrative deal. Among those that have paid half a million pounds each to be involved are international taxi-app firm Uber, which is facing an imminent court appeal against the decision to cancel its licence to operate in London. The Evening Standard has previously come under fire for not declaring Osborne’s £650,000-a-year part time job with the fund managers BlackRock, who hold a £500m stake in Uber.

The global tech giant, Google, still recovering from reputational damage over its low UK tax bills and criticism over its close relationship to the Cameron-Osborne government, has also signed up. Some companies, including Starbucks, walked away from the Evening Standard’s pitch, rejecting the offer of paying to boost their reputations through tailored news and comment. London 2020 is scheduled to start on June 5. Unbranded news stories, expected to be written by staff reporters – but paid for by the new commercial “partners” as part of the 2020 deal – have already been planned for inclusion in the paper’s news pages within a week of the project’s launch.

The London Evening Standard has a circulation of close to 900,000 and distributes more copies within a two-mile radius of Westminster than the Times does across the UK nationally. Many London commuters, who pick up their free copy of the Standard at underground and rail stations, will be unaware that they will be reading paid-for news coverage that is part of a wider commercial deal. An increasing number of British newspapers often carry “native advertising”, essentially paid-for commercials designed to look like independent editorial articles.

It is a sad day.

• Bayer Wins US Nod For Monsanto Deal To Create Agrochemical Giant (R.)

Bayer won U.S. approval for its planned takeover of Monsanto after agreeing to sell about $9 billion in assets, clearing a major hurdle for the $62.5 billion deal that will create by far the largest seeds and pesticides maker. Makan Delrahim, who heads the U.S. Justice Department’s (DoJ) Antitrust Division, said the asset sales agreed to by Bayer were the “largest ever divestiture ever required by the United States.” A Bayer spokesman said the planned sale of businesses with 2.2 billion euros ($2.54 billion) in sales to BASF already agreed to address antitrust concerns, mainly in Europe, were not materially different from the DoJ’s demands. “Receipt of the DOJ’s approval brings us close to our goal of creating a leading company in agriculture,” Bayer CEO Werner Baumann said in a statement.

Bayer’s move to combine its crop chemicals business, the world’s second-largest after Syngenta, with Monsanto’s industry-leading seeds business, is the latest in a series of major agrochemicals tie-ups. U.S. chemicals giants Dow Chemical and DuPont merged in September 2017 and are now in the process of splitting into three units. In other consolidation in the sector, China’s state-owned ChemChina purchased Syngenta and two huge Canadian fertilizer producers merged to form a new company, now called Nutrien. Bayer committed to selling its entire cotton, canola, soybean and vegetable seeds businesses and digital farming business, as well its Liberty herbicide, which competes with Monsanto’s Roundup.

As the industry that produces them gets bigger.

• The British Countryside Is Being Killed By Herbicides And Insecticides (G.)

In June 2011 I took a long drive up the A1, the Great North Road. At Scotch Corner I turned for Barnard Castle. The villages were well kept, the countryside was green, the fields dotted with sheep. Everything was normal. Or so I thought. Beyond Barnard Castle I took a narrow lane into part of Upper Teesdale and suddenly colours exploded along the roadside. I stopped the car and jumped out. There was a bed of orchids, hundreds of them, and behind that, billowing banks of violet, scarlet, white, yellow and cornflower blue. I had seen alpine meadows, but this took my breath away. Further into the dale I found a footpath that led me down beside a shady brook. There were more orchids of a different species and a grass snake hunting frogs in a pool.

Out in the open again, there was the haunting cry of curlews overhead, then redshanks, plovers and snipe. I spent two days up there, talking to environmentalists and farmers involved in the upland hay meadow project for the North Pennines area of outstanding natural beauty (AONB). The landowners were being paid to restrict the use of fertiliser, not employ herbicides, and stop grazing after mid-May. Together with some seeding programmes and careful monitoring, the meadows had become magnificent. When I drove back home, I came down to a countryside where the only flowers were dandelions, watched over by crows. The monotonous green of the rye grass was unbroken. Compared to what I had just experienced, it felt like a desert. I felt cheated. My entire adult life had been spent admiring a shoddy and simplified reproduction, a poor impersonation of a much-loved friend.

[..] Seven years on, the statistics for the British countryside are heartbreaking. Over a quarter of all British birds are under threat, eight species are almost extinct. Three-quarters of all flying insects have disappeared since 1945, including a staggering 60 different moths. Orchid ranges have shrunk by half; two species are gone. The State of Nature 2016 report described Britain as being “among the most nature-depleted countries in the world”. [..] 40% of all species are in moderate or steep decline. Over a quarter of the hedgehog population has disappeared in a decade. Toads are down 68% in 30 years, water voles are no longer found in 94% of the places where they once lived. Likewise mountain hares are in steep decline, as are rabbits. Even that great survivor, the fox, has lost over 40% of its population.

Debt Rattle May 21 2018

May 212018

May 21, 2018 Posted by Raúl Ilargi Meijer at 7:46 am Finance Tagged with: Airbnb, Argentina, bailout, community banks, consolidation, crisis, Draghi, homeless, IMF, Italy, novichok, pension cuts, repricing 6 Responses »

Margaret Bourke-White Great Ohio River Flood, Louisville, Kentucky 1937

• The Soaring Dollar Will Lead To An “Explosive” Market Repricing (ZH)

• Draghi Calls for Consolidation of Debts? (Martin Armstrong)

• Italy’s Organic Crisis (Thomas Fazi)

• Italy Has A New Government As Populist Parties Agree On New Premier (ZH)

• Argentina: From The “Confidence Fairy” To The -Still Devilish- IMF (CF)

• US-China Trade War ‘On Hold’ As America Backs Off On Tariffs (Ind.)

• Bill Aimed At Saving Community Banks Is Already Killing Them (Dayen)

• EU Blocking Cities’ Efforts To Curb Airbnb (G.)

• End Of Greek Bailout Means Fresh Cuts To Salaries, Pensions (K.)

• Why Boomtown New Zealand Has A Homelessness Crisis

• Hundreds Of Homeless People Fined And Imprisoned In UK (G.)

• Scientists Revise Their Understanding of Novichok (Slane)

Dollar shortage grows as interest rates grow.

• The Soaring Dollar Will Lead To An “Explosive” Market Repricing (ZH)

Something curious took place one month ago when the PBOC announced on April 17 that it would cut the reserve requirement ratio (RRR) by 1% to ease financial conditions: it broke what until then had been a rangebound market for both the US Dollar and the US 10Y Treasury, sending both the dollar index and 10Y yields soaring…

… which led to an immediate tightening in financial conditions both domestically and around the globe, and which has – at least initially – manifested itself in a sharp repricing of emerging market risk, resulting in a plunge EM currencies, bonds and stocks.

Adding to the market response, this violent move took place at the same time as geopolitical fears about Iran oil exports amid concerns about a new war in the middle east and Trump’s nuclear deal pullout, sent oil soaring – with Brent rising above $80 this week for the first time since 2014 – a move which is counterintuitive in the context of the sharply stronger dollar, and which has resulted in even tighter financial conditions across the globe, but especially for emerging market importers of oil.

Meanwhile, all this is playing out in the context of a world where the Fed continues to shrink its balance sheet – a public sector “Quantitative Tightening (QT)” – further tightening monetary conditions (i.e., shrinking the global dollar supply amid growing demand), even as high grade US corporate bond issuance has dropped off a cliff for cash-rich companies which now opt to repatriate cash instead of issuing domestic bonds, with the resulting private sector deleveraging, or “private sector QT”, further exacerbating tighter monetary conditions and the growing dollar shortage (resulting in an even higher dollar).

Europe has no bond market left. Japan has no bond market left. All they have is central banks.

• Draghi Calls for Consolidation of Debts? (Martin Armstrong)

COMMENT: You were here in Brussels a few weeks ago. Suddenly, the ECB is talking about the need to merge the debts to prevent a crisis. So your lobbying here seems to work. – RGV, Brussels. REPLY: I do not lobby. It is rather common knowledge I have made those proposals since the EU commission attended our World Economic Conference held back in 1998 in London. I focused on the reason the Euro would fail if the debts were not consolidated. So it is not a fair statement to say I meet in Brussels to lobby for anything. I meet with people who call me in because of a crisis brewing.

So everyone else understands what this is about, the ECB President Mario Draghi has come out and proposed interlocking the euro countries to create a “stronger” and “new vehicle” as a “crisis instrument” to save Europe. He is arguing that this should prevent countries from drifting apart in the event of severe economic shocks. Draghi has said it provides “an extra layer of stabilization” which is a code phrase for the coming bond crash. He has conceded that the legal structure is difficult because what he is really talking about is the consolidation of national debts into a single Eurobond market. There is no bond market that is viable in Europe after the end of Quantitative Easing. There will be NO BID.

There is no viable bond market left in Europe. The worst debt is below US rates only because the ECB is the buyer. Stop the buying and the ceiling comes crashing down. This is why what he is saying is just using a different label. He is not calling it debt consolidation, just an extra layer of stabilization to bind the members closer together. It will be a hard sell and it may take the crisis before anyone looks at this. You have “bail-in” policies because of the same problem. If the banks in Italy need a bailout from Brussels, then other members will look at it as a subsidization for Italy which is unfair. There is no real EU unity behind the curtain which is when the debt was NEVER consolidated from day one. They wanted a single currency, but not a single responsibility for the debt.

“..20% of Italy’s industrial capacity has been destroyed, and 30% of the country’s firms have defaulted..”

• Italy’s Organic Crisis (Thomas Fazi)

The Italian Marxist Antonio Gramsci coined the term “organic crisis” to describe a crisis that differs from ”ordinary” financial, economic, or political crises. An organic crisis is a “comprehensive crisis,” encompassing the totality of a system or order that, for whatever reason, is no longer able to generate societal consensus (in material or ideological terms). [..] Gramsci was talking about Italy in the 1910s. A century later, the country is facing another organic crisis. More specifically, it is a crisis of the post-Maastricht model of Italian capitalism, inaugurated in the early 1990s.

[..] The downfall of the political establishment—and the rise of the “populist” parties—can only be understood against the backdrop of the “the longest and deepest recession in Italy’s history,” as the governor of the Italian central bank, Ignazio Visco, described it. Since the financial crisis of 2007–9, Italy’s GDP has shrunk by a massive 10%, regressing to levels last seen over a decade ago. In terms of per capita GDP, the situation is even more shocking: according to this measure, Italy has regressed back to levels of twenty years ago, before the country became a founding member of the single currency. Italy and Greece are the only industrialized countries that have yet to see economic activity surpass pre–financial crisis levels.

As a result, around 20% of Italy’s industrial capacity has been destroyed, and 30% of the country’s firms have defaulted. Such wealth destruction has, in turn, sent shockwaves throughout the country’s banking system, which was (and still is) heavily exposed to small and medium-sized enterprises (SMEs). Italy’s unemployment crisis continues to be one of the worst in all of Europe. Italy has an official unemployment rate of 11% (12% in southern Italy) and a youth unemployment rate of 35% (with peaks of 60% in some southern regions). And this is not even considering underemployed and discouraged workers (people who have given up looking for a job and therefore don’t even figure in official statistics).

If we take these categories into consideration, we arrive at a staggering effective unemployment rate of 30%, which is the highest in all of Europe. Poverty has also risen dramatically in recent years, with 23% of the population, about one in four Italians, now at risk of poverty—the highest level since 1989.

Europe gets nervous.

• Italy Has A New Government As Populist Parties Agree On New Premier (ZH)

Taking the biggest step toward forming Italy’s next government, the head of the anti-immigration League party Matteo Salvini said he’s reached a deal with Five Star leader Luidi Di Maio on forming a populist government, and picked a premier. According to a report in Corriere, Florence University law professor Giuseppe Conte was chosen as prime minister, while Matteo Salvini would be proposed as interior minister, and Five Star head Luigi and Di Maio would be labor minister. On Saturday, Il Messaggero reported that Salvatore Rossi, the Bank of Italy’s director general, could be picked as finance minister.

Today, Ansa added that according to Di Maio, Five Star will head joint ministry of economic development and labor; separately Giancarlo Giorgetti, Matteo Salvini’s right-hand man, will be proposed as economy minister, while Nicola Molteni would become minister of the infrastructure and transport and Gian Marco Centinaio would head the department of Agriculture and Tourism. ANSA added that Salvini will present the proposal to President Sergio Mattarella on Monday. As Bloomberg adds, the endgame follows a week of turmoil in Italian bonds and stocks triggered by reports about the coalition’s spending plans and rejection of European Union budget rules.

Italy’s 10-year yield spread over German bonds shot up to 165 bps on Friday, the most since October, prompting a warning from Paris. French Finance Minister Bruno Le Maire said in a Sunday interview with Europe 1 radio that “if the new government took the risk of not respecting its commitments on debt, the deficit and the cleanup of banks, the financial stability of the entire euro zone will be threatened.” Salvini fired back on Twitter, suggesting the warning was “unacceptable” interference. “Italians first!” he said, clearly referencing Donald Trump.

No crisis until now because so much was borrowed. Crisis now because so much was borrowed. It’s like a blue print for the entire world.

• Argentina: From The “Confidence Fairy” To The -Still Devilish- IMF (CF)

[..] looking at the external front, one may even be forgiven for asking: why did this crisis take so long to burst? Argentina was haemorrhaging dollars for many years, and with no sign of reversal: since 2016 the domestic non-financial sector acquired an accumulated amount of USD 41 billion in external assets. During the same period, the current account deficit totalled another USD 30 billion, in the form of trade deficit, tourism deficit, profit remittances by foreign companies and increasing interest payments. The well-known factor that allowed all these trends to last until now is the foreign borrowing spree that involved the government, provinces, firms, and the central bank, including the inflow from short-term investors for carry trade operations.

In the case of debt issuance, since 2016 the central government, provinces and private companies, have issued a whopping USD 88 billion of new foreign debt (13% of GDP). In the case of carry trade operations, since 2016 the economy recorded USD 14 billon of short-term capital inflows (2% of GDP). The favourite peso-denominated asset for this operations were the debt liabilities of the central bank called LEBAC (Letters of the Central Bank). Because of this, the outstanding stock of this instrument has now become the centre of all attention. It is important to understand the LEBACs. They were originally conceived as an inter-bank and central bank liquidity management instrument.

Since the lifting of foreign exchange and capital controls and the adoption of inflation targeting, the stock of LEBACs grew by USD 18 billion. Moreover, the composition of holders has changed significantly since 2015: At that time, domestic banks held 71% of the stock, and other investors held 29%. In 2018 that proportion has reverted to 38% banks/62% to other non-financial institution holders, which includes other non-financial public institutions (such as the social security administration) (17%), domestic mutual investment funds (16%), firms (14%), individuals (9%), and foreign investors (5%). That means that a large part of all the new issuance of LEBAC is held by investors outside the regulatory scope of the central bank, especially individuals and foreign investors. [..] these holdings could easily be converted into foreign currency, causing a large FX depreciation.

They’re talking.

• US-China Trade War ‘On Hold’ As America Backs Off On Tariffs (Ind.)

The US will hold off on imposing steep tariffs on China that ignited fears of a trade war as both sides pursue a broader deal, a top economic official said. “We’re putting the trade war on hold,” Treasury secretary Steve Mnuchin said during an appearance on Fox News Sunday. “We have agreed to put the tariffs on hold”. The announcement of a detente in the escalating trade dispute came after Chinese officials visited Washington last week, leading the White House to release an optimistic statement about both sides agreeing to take “measures to substantially reduce the United States trade deficit in goods with China” and to work on expanding trade and protecting intellectual property.

Donald Trump has railed against trade imbalances, particularly with China, as he seeks to renegotiate America’s economic relationship with other nations he accuses of exploiting the US. Breaking with some of his top economic advisers, Mr Trump announced earlier this year that he would levy tariffs on steel and aluminium. He also signed a memorandum seeking tariffs on $60bn worth of Chinese goods. [..] Mr Mnuchin signalled that America was using the leverage from tariff threats to pivot to negotiation, saying talks with Chinese officials had produced “very meaningful progress” – including a “Very productive” oval office meeting between Mr Trump and a top Chinese official.

Unintended?

• Bill Aimed At Saving Community Banks Is Already Killing Them (Dayen)

After initial reluctance, House Republicans have finally reached an agreement to move forward on a bipartisan bank deregulation bill that the Senate passed in March. Its stated aim — to help rural community banks thrive against growing Wall Street power — appears to have been enough to power it across the finish line. But banking industry analysts say the bill is already having the opposite effect, and its loosening of regulations on medium-sized banks is encouraging a rush of consolidation — all of which ends with an increasing number of community banks being swallowed up and closed down. “We absolutely expect bank consolidation to accelerate,” Wells Fargo’s Mike Mayo told CNBC the day after the Senate passed the deregulation bill in March.

The reason? Banks no longer face the prospect of stricter and more costly regulatory scrutiny as they grow. And regional banks in Virginia, Ohio, Mississippi, and Wisconsin have already taken note before the bill has even passed into law, announcing buyouts of smaller rivals. The expected consolidation simply furthers an existing trend. Community banks have been struggling for decades against an epidemic of consolidation; the number of banks in America has fallen by nearly two-thirds in the past 30 years. Ironically, the one state that has seemingly figured out how to arrest this systemic abandonment of smaller communities is North Dakota, the home state of the bill’s co-author, Democratic Sen. Heidi Heitkamp. That’s because North Dakota has a public bank.

Using idle state tax revenue as its deposit base, the Bank of North Dakota partners with community lenders on infrastructure, agriculture, and small business loans. It has thrived, earning record profits for 14 straight years, which have funneled back into state coffers. And while Heitkamp has complained that the Dodd-Frank Act has been disastrous for community banks, in North Dakota they appear to be doing well. According to a Institute for Local Self-Reliance analysis of Federal Deposit Insurance Corp. data, North Dakota has more banks per capita than any other state, and lends to small businesses at a rate that is four times the national average.

The wonders of lobbying.

• EU Blocking Cities’ Efforts To Curb Airbnb (G.)

The explosive rise of short-stay Airbnb holiday rentals may be shutting locals out of housing and changing neighbourhoods across Europe, but cities’ efforts to halt it are being stymied by EU policies to promote the “sharing economy”, campaigners say. “It’s pretty clear,” said Kenneth Haar, author of UnfairBnB, a study published this month by the Brussels-based campaign group Corporate Europe Observatory. “Airbnb is under a lot of pressure locally across Europe, and they’re trying to use the top-down power of the EU institutions to fight back.” While it might have started as a “community” of amateur hosts offering spare rooms or temporarily vacant homes to travellers, Airbnb had seen three-digit growth in several European cities since 2014 and was now a big, powerful corporation with the lobbying clout to match, Haar said.

The platform lists around 20,500 addresses in in Berlin, 18,500 in Barcelona, 61,000 in Paris and nearly 19,000 in Amsterdam. Data scraped by the campaign group InsideAirbnb suggests that in these and other tourist hotspots, more than half – sometimes as many as 85% – of listings are whole apartments. Many of the properties are also rented out year-round, removing tens of thousands of homes from the residential rental market. Even in cities where short-term lets are now restricted, about 30% of Airbnb listings are available for three or more months a year, the data indicates. In those where they are not, such as Rome and Venice, the figure exceeds 90%.

[..] local attempts to protect residents’ access to affordable housing and preserve the face of city-centre neighbourhoods are being undermined, campaigners say, by the EU’s determination to see the “collaborative economy” as a key future driver of innovation and job creation across the bloc. “The commission seems almost hypnotised by the prospect of a strong sharing economy, and not really interested in its negative consequences,” said Haar. “Commissioners talk about ‘opportunities, not threats’. The parliament, too, recently condemned cities’ attempts to restrict lettings on online platforms.”

The torture never stops. Death by a thousand cuts.

• End Of Greek Bailout Means Fresh Cuts To Salaries, Pensions (K.)

Millions of salaried workers and pensioners stand to lose at least one monthly payment within two years, in 2019 and 2020. For Greece to boast of a successful – as the government desires – exit from the third bailout program without facing any obstacles by August, the Finance Ministry has ruled out the option of avoiding a reduction to pensions from 2019 and will also be proceeding with demands to reduce the minimum tax threshold as of 2020. [..] January 2019 is when the barrage of cuts to pensions is due to start, lasting at least until 2022, with reductions to main as well as auxiliary pensions and also the abolition of family benefits. The bulk of cuts will affect some 1.1 million retirees, who will see their main pension slashed as of this December (when the January 2019 pensions are paid out) by up to 18%.

In total, in the private and public sector, the reduction of pension expenditure from this particular measure in 2019 is estimated at 2.13 billion euros. Reductions will start at 5 euros a month and may reach up to 350 euros a month. There will even be cuts to pensions where there is no personal difference, owing to the abolition of family benefits currently being paid out with the pensions in the public and private sectors. This is expected to concern around 1 million pensioners. Some 200,000 pensioners will also be affected by the cut of the personal difference from auxiliary pensions. According to the midterm fiscal plan, the reduction in 2019 will amount to savings of 232 million euros for state coffers, which is the amount pensioners will also be deprived of.

According to the government’s plans, the sum of cuts that will become evident as of this December will mean that new pensions will eventually be 30 percent below the original level before the law introduced in May 2016 by then labor minister Giorgos Katrougalos. Therefore, the vast majority of monthly pensions will hover in the 700-euro range, even for retirees who used to bring in an average of 1,300 euros.

“They’re a long way down a hole that was created by somebody else..”

• Why Boomtown New Zealand Has A Homelessness Crisis

New Zealand’s dairy-fuelled economy has for several years been the envy of the rich world, yet despite the rise in prosperity tens of thousands of residents are sleeping in cars, shop entrances and alleyways. The emerging crisis has created a milestone that New Zealanders won’t be proud of: the highest homelessness rate among the 35 high-income OECD countries. It’s a curious problem afflicting boom towns where some residents get pushed onto the streets as they can no longer afford the rocketing rents in a flourishing economy – let alone purchase a house as the price of property has soared. “I have no assets at the moment,” said 64-year-old Victor Young, who spoke to Reuters at a soup kitchen in New Zealand’s capital, Wellington.

“It’s not a kind country, it’s not an easy country. I slept in my car 20 days last year. I worked 30 hours a week.” That sentiment is something the country’s popular Prime Minister Jacinda Ardern would like to reverse. Last Thursday, across town from the Sisters of Compassion Soup Kitchen, her Labour-led government unveiled its first budget with an ambitious plan to build social infrastructure. The government has allocated NZ$3.8 billion ($2.62 billion) of new capital spending over a five-year period. This includes an extra NZ$634 million for housing, on top of the NZ$2.1 billion previously announced to fund Kiwibuild, a government building program to increase affordable housing supply.

[..] But experts say the government’s first budget underwhelms on the radical reforms the wider public wanted. “They’re a long way down a hole that was created by somebody else and they haven’t really got a great or easy solution,” said John Tookey, professor of construction management at Auckland University of Technology. He said the government’s much-vaunted Kiwibuild could come unstuck because there weren’t enough skilled workers to deliver on its ambitious target to build 100,000 homes in the next decade.

Where does this originate? WIth Theresa May of course.

• Hundreds Of Homeless People Fined And Imprisoned In UK (G.)

Growing numbers of vulnerable homeless people are being fined, given criminal convictions and even imprisoned for begging and rough sleeping. Despite updated Home Office guidance at the start of the year, which instructs councils not to target people for being homeless and sleeping rough, the Guardian has found over 50 local authorities with public space protection orders (PSPOs) in place Homeless people are banned from town centres, routinely fined hundreds of pounds and sent to prison if caught repeatedly asking for money in some cases. Local authorities in England and Wales have issued hundreds of fixed-penalty notices and pursued criminal convictions for “begging”, “persistent and aggressive begging” and “loitering” since they were given strengthened powers to combat antisocial behaviour in 2014 by then home secretary, Theresa May.

Cases include a man jailed for four months for breaching a criminal behaviour order (CBO) in Gloucester for begging – about which the judge admitted “I will be sending a man to prison for asking for food when he was hungry” – and a man fined £105 after a child dropped £2 in his sleeping bag. Data obtained by the Guardian through freedom of information found that at least 51 people have been convicted of breaching a PSPO for begging or loitering and failing to pay the fine since 2014, receiving CBOs in some cases and fines up to £1,100. Hundreds of fixed-penalty notices have been issued. Lawyers, charities and campaigners described the findings as “grotesque inhumanity”, saying disadvantaged groups were fined for being poor.

“..one of its primary effects is to generate in its victims a strong desire to go out for a beer followed by a pizza.”

• Scientists Revise Their Understanding of Novichok (Slane)

Warning: This article is likely to contain traces of satire. In the aftermath of the poisoning of Sergei and Yulia Skripal in Salisbury on 4th March, scientists are currently re-evaluating their understanding of A-234 – or Novichok as it is more commonly known. Prior to the poisoning, it had been thought that the substance was around 5-8 times more toxic than VX nerve agent, and therefore that just a tiny drop would be likely to kill a person within minutes or possibly even seconds of them coming into contact with it. In the unlikely event of a person surviving, it was believed that their central nervous system would be completely destroyed, and that they would suffer numerous chronic health issues, including cirrhosis, toxic hepatitis, and epilepsy before dying a premature and miserable death, probably within a year or so.

However, according to an anonymous source at the Porton Down laboratory, which is located just a few miles down the road from Salisbury, scientists now believe they may have completely misunderstood the properties and effects of the chemical: “All the available information we had about Novichok before March this year suggested that it was by far the most lethal nerve agent ever produced, and we had assumed that even the tiniest drop would kill a person within minutes. However, after studying the movements of the Skripals after being poisoned, we have now revised our understanding, and we now believe that one of its primary effects is to generate in its victims a strong desire to go out for a beer followed by a pizza.”

Yet it’s not only the effects of the substance that have led to this reappraisal, but also its mysterious ability to move about from location to location, seemingly at will. According to the source: “At first, differing reports of the location of the poisoning baffled us. First it was the restaurant, then it was the pub, followed by the bench, the car, the cemetery, the flowers, the luggage, the porridge, and then finally the door handle three weeks after the incident. However, we now believe we have an explanation for this phenomena. When Novichok was developed, we think it may have been given the ability to appear in one place, only to then disappear and turn up in an entirely different place.

Debt Rattle May 16 2018

May 162018

May 16, 2018 Posted by Raúl Ilargi Meijer at 8:30 am Finance Tagged with: Airbnb, Argentina, Assange, chimpanzees, debt relief, deflation, Ecuador, Greece, IMF, mortgage rates, opioids, unemployment 4 Responses »

Alfred Wertheimer Elvis 1956

• What If Wall Street Is Waiting For The Wrong Disaster? (BI)

• US Mortgage Rates Surge To Highest Level In 7 Years (CNBC)

• Economic Numbers Are Less Than Meet the Eye (Rickards)

• Argentina Went From Selling 100-Year Bonds To An IMF Rescue In 9 Months (Q.)

• Turkey’s Economy Enters A ‘Slow Burning Crisis’ (CNBC)

• Investors In Turkey Stunned By Erdogan’s Fight With Markets (R.)

• Ecuador Spent Millions On Spy Operation For Julian Assange (G.)

• New York City Poised To Join Airbnb Crackdown (Pol.)

• US State Lawsuits Against Purdue Pharma Over Opioid Epidemic Mount (R.)

• Debt Relief Woes Threaten Greece’s Bailout Exit (K.)

• Greece Changes Asylum Rules To Fight Camp Overcrowding (AP)

• UK Government Wants To Put A Price On Nature – But That Will Destroy It (G.)

• Chimpanzees Have Much Cleaner Beds Than Humans Do (Ind.)

Deflation.

• What If Wall Street Is Waiting For The Wrong Disaster? (BI)

What if the entire world of money is preparing for the wrong disaster — which would be a disaster in and of itself? Since the financial crisis, Wall Street, central-bank heads, economists, and policymakers have been waiting for the return of inflation. At the beginning of this year, they thought they had found it. It came, so they thought, in the form of a weak dollar, wage growth, economic stability in China, and steadily rising interest rates. So here in the US, the Fed started talking about the importance of preparing to fight runaway inflation. In fact, it’s obsessed with the idea. According to Deutsche Bank analyst Torsten Slok, the Fed is talking more about inflation now (in its minutes and in its reports) than it did in 2006 when the economy was actually overheating, right before the crash.

This, even though personal-consumption expenditures haven’t grown by the Federal Reserve’s 2% target since the financial crisis. There’s a lot of noise, from data revisions and Trump tweets, trade-war threats and hopes of growth from tax policy, a wobbling stock market, and rising interest rates. But when it comes down to it, the things that everyone is saying will be sources of inflation may not be sources at all. Meanwhile, the weak dollar, wage growth, and a stable China elixir that got markets high in January have since faded. That should be a warning. If we play our cards wrong and pay attention to all the wrong signs, we may still be in a world tilting dangerously closer to our old enemy, deflation.

[..] As Slok said, aging can’t fully explain why wage growth has been suppressed, but he has other ideas too. “One important reason why the expansion since 2009 has been so weak is that wealth gains have been unevenly distributed (see chart below). A decline in the homeownership rate and the number of households holding stocks has dampened consumer spending growth for the bottom 90% of households,” he wrote in a note to clients back in March.

The deflationary impacts of economic inequality and an aging population are not going away with the flick of a wrist or the push of a button. They are long-term challenges that require imaginative, difficult policy solutions. It’s hard to see that coming from the Trump administration or an increasingly polarized, uncooperative world. So we need to ask ourselves: Are we waiting for the wrong disaster?

That’s the end?!

• US Mortgage Rates Surge To Highest Level In 7 Years (CNBC)

A sharp sell-off in the bond market is sending mortgage rates to the highest level in seven years. The average contract rate on the 30-year fixed will likely end the day as high as 4.875% for the highest creditworthy borrowers and 5% for the average borrower, according to Mortgage News Daily. Mortgage rates, which loosely follow the yield on the 10-year Treasury, started the year right around 4% but began rising almost immediately. They then leveled off in March and early April, only to begin rising yet again. Tuesday’s move follows positive economic data in retail sales, suggesting that newly imposed tariffs would not hit sales as hard as expected.

Rates have been widely expected to rise, as the Federal Reserve increases its lending rate and pulls back its investments in mortgage-backed bonds. But mortgage rates have reacted only in fits and starts. “The bottom line is that the writing on the wall has been telling rates to go higher since at least last September,” said Matthew Graham, chief operating officer of Mortgage News Daily. “Rates keep looking back to see if the writing has changed, and although there have been opportunities for hope (trade wars, stock selling-sprees, spotty data at times), it hasn’t. Today is just the latest reiteration of that writing.”

10% unemployment.

• Economic Numbers Are Less Than Meet the Eye (Rickards)

Let’s start with the employment report. The U.S. Department of Labor, Bureau of Labor Statistics report dated May 4, 2018, showed the official U.S. unemployment rate for April 2018 at 3.9%, with a separate unemployment rate for adult men of 4.1% and adult women of 3.7%. The 3.9% unemployment rate is based on a total workforce of 160 million people, of whom 153 million are employed and 6.3 million are unemployed. The 3.9% figure is the lowest unemployment rate since 2001, and before that, the early 1970s. The average rate of unemployment in the U.S. from 1948 to 2018 is 5.78%. By these superficial measures, unemployment is indeed low and the economy is arguably at full employment.

Still, these statistics don’t tell the whole story. Of the 153 million with jobs, 5 million are working part time involuntarily; they would prefer full-time jobs but can’t find them or have had their hours cut by current employers. Another 1.4 million workers wanted jobs and had searched for a job in the prior year but are not included in the labor force because they had not searched in the prior four weeks. If their numbers were counted as unemployed, the unemployment rate would be 5%. Yet the real unemployment rate is far worse than that. The unemployment rate is calculated using a narrow definition of the workforce. But there are millions of able-bodied men and women between the ages of 25–54 capable of work who are not included in the workforce.

These are not retirees or teenagers but adults in their prime working years. They are, in effect, “missing workers.” The number of these missing workers not included in the official unemployment rolls is measured by the Labor Force Participation Rate, LFPR. The LFPR measures the total number of workers divided by the total number of potential workers regardless of whether those potential workers are seeking work or not. The LFPR plunged from 67.3% in January 2000 to 62.8% in April 2018, a drop of 4.4percentage points. If those potential workers reflected in the difference between the 2018 and 2000 LFPRs were added back to the unemployment calculation, the unemployment rate would be close to 10%.

[..] Another serious problem is illustrated in Chart 1 below. This shows the U.S. budget deficit as apercentage of GDP (the white line measured on the right scale) compared with the official unemployment rate (the blue line measured on the left scale). From the late 1980s through 2009, these two time series exhibited a fairly strong correlation. As unemployment went up, the deficit went up also because of increased costs for food stamps, unemployment benefits, stimulus spending and other so-called “automatic stabilizers” designed to bring the economy out of recession. That makes sense. But as the chart reveals, the correlation has broken down since 2009 and the two time series are diverging rapidly. Unemployment is going down, but budget deficits are still going up.

Too late to get a new government?

• Argentina Went From Selling 100-Year Bonds To An IMF Rescue In 9 Months (Q.)

In financial markets, memories can be short. Last year, Argentina sold 100-year bonds, joining a select club of countries with the confidence to borrow for such an extended period. Yes, the same Argentina that has defaulted on its debt eight times in the past 200 years, including the largest sovereign default in history in 2001. Not long before investors decided it was a good idea to lend to the South American nation for 100 years, it was largely shut out of international capital markets. In June 2017, Argentina sold $2.75 billion of US dollar-denominated 100-year bonds at an effective yield of 8%. The history of defaults seemed to be forgotten—nearly $10 billion in bids were placed for the bonds.

The sale came at a time when investors were hungry for high-yielding debt, but it also showed confidence in president Mauricio Macri and his program of pro-market reforms. Less than a year later, Macri has asked the IMF for a $30 billion loan to help it combat a currency crisis and limit further damage to the Argentinian economy from a dangerous outbreak of market turmoil. What went wrong?

Not sure it’ll be all that slow. Turekey has borrowed in dollars up the wazoo.

• Turkey’s Economy Enters A ‘Slow Burning Crisis’ (CNBC)

Turkey’s economy is overheating and if the government doesn’t act then the country is in trouble, according to several analysts. “The government has no intention of tackling imbalances or overheating,” Marcus Chevenix, global political research analyst at TS Lombard, said in a research note this week. “It is this unwillingness to act that leads us to believe that we can now say that Turkey is entering a slow burning crisis.” The Turkish lira is at a record low against the dollar, and is ranked among the worst-performing currencies this year. After comments this week by Turkish President Recep Erdogan promising to lower interest rates after the country’s June election, the currency tanked to its lowest point yet against the greenback, hitting 4.4527 on Tuesday mid-afternoon.

The dollar has appreciated by around 18% against the lira so far this year. The reason? Erdogan has been sitting on interest rates, opting for a monetary policy that prioritizes growth over controlling its double-digit inflation. Turkey’s growth rate reached an impressive 7.4% for 2017 and leads the G-20, but at the expense of inflation, which has shot up to 10.9%. Market sentiment has driven much of the lira’s sell-off, as investors worry about government intervention in monetary policy and central bank independence. Investors have been hoping for a rate rise by the bank, but that now appears unlikely.

Erdogan plays an unusually heavy-handed role in deciding his country’s monetary policy, and many observers say he keeps the Central Bank of the Republic of Turkey’s (TCMB) hands tied. The bank finally raised its rates for the first time in several sessions in late April, moving its late liquidity window rate (which it uses to set policy) up by 75 basis points to 13.5%. The lira temporarily jumped on the news. But Erdogan aims to bring the rate back down, saying it must be done to ease pressure on Turkish households and drive the growth needed to create jobs for Turkey’s youth. “I’m seriously concerned about the Turkish lira,” Piotr Matys at Rabobank told CNBC via email. “Is Turkey the domino the market expects to fall next? It’s got all those problems — high current account deficit, government borrowing in other currencies.”

He went to the City for this?!

• Investors In Turkey Stunned By Erdogan’s Fight With Markets (R.)

“Shock and disbelief” – that’s how global money managers reacted to an attempt by Turkish President Tayyip Erdogan to re-assure foreign investors about his economic management as the lira went into tailspin. Fund managers who met Erdogan and his delegation in London on Monday, part of a three-day visit to Britain, were baffled about how he plans to tame rising inflation and a currency in freefall – while simultaneously seeking lower interest rates. Some said that while Erdogan has crushed his domestic enemies, he would find taking on international financial markets with policies that defy economic orthodoxy much tougher.

A resurgent dollar, rising oil prices and a jump in borrowing costs have caused havoc across emerging markets in recent weeks. However, Turkey has been among the worst affected due to its a gaping current account deficit and growing puzzlement over who exactly holds the reins of monetary policy. Erdogan’s comments that he planned to take greater control of the economy after snap presidential and parliamentary elections next month deepened investors’ worries about the central bank’s ability to fight inflation, helping to send the lira to a record low on Tuesday.

Rampant inflation dogged Turkey for decades before 2000 and has been back in double digits since the start of 2017. But Erdogan has styled himself as an enemy of high interest rates, defying orthodox monetary policy that prescribes tighter credit to keep a lid on prices. Speaking on condition of anonymity due to the political sensitivity of the meetings, investors told Reuters they were flabbergasted by his stance and willingness to go into battle with world markets at such a fragile time.

A suggestive and tendentious piece by the Guardian, which seems to prepare us for a justification of Ecuador throwing Julian out. Other articles in today’s paper have titles like “How Julian Assange became an unwelcome guest in Ecuador’s embassy” and “Why does Ecuador want Assange out of its London embassy?”

• Ecuador Spent Millions On Spy Operation For Julian Assange (G.)

Ecuador bankrolled a multimillion-dollar spy operation to protect and support Julian Assange in its central London embassy, employing an international security company and undercover agents to monitor his visitors, embassy staff and even the British police, according to documents seen by the Guardian. Over more than five years, Ecuador put at least $5m (£3.7m) into a secret intelligence budget that protected the WikiLeaks founder while he had visits from Nigel Farage, members of European nationalist groups and individuals linked to the Kremlin. Other guests included hackers, activists, lawyers and journalists.

[..] Documents show the intelligence programme, called “Operation Guest”, which later became known as “Operation Hotel” – coupled with parallel covert actions – ran up an average cost of at least $66,000 a month for security, intelligence gathering and counter-intelligence to “protect” one of the world’s most high-profile fugitives. An investigation by the Guardian and Focus Ecuador reveals the operation had the approval of the then Ecuadorian president, Rafael Correa, and the then foreign minister, Ricardo Patiño, according to sources. [..] Worried that British authorities could use force to enter the embassy and seize Assange, Ecuadorian officials came up with plans to help him escape.

They included smuggling Assange out in a diplomatic vehicle or appointing him as Ecuador’s United Nations representative so he could have diplomatic immunity in order to attend UN meetings, according to documents seen by the Guardian dated August 2012. In addition to giving Assange asylum, Correa’s government was apparently prepared to spend money on improving his image. A lawyer was asked to devise a “media strategy” to mark the “second anniversary of his diplomatic asylum”, in a leaked 2014 email exchange seen by the Guardian.

Force them to open the books.

• New York City Poised To Join Airbnb Crackdown (Pol.)

New York’s City Council is plotting a crackdown on Airbnb, the largest home-sharing platform in the world, as the hotel industry and its unionized workers push lawmakers in some of the nation’s biggest cities to blunt the $30 billion company’s growth. New York City’s push resembles a legislative effort underway in Los Angeles, and comes months after San Francisco passed a measure mandating that hosts of short-term rental platforms register their homes with the city, leading to a decline in listings. The coastal cities are among Airbnb’s largest markets in the United States.

The Council is crafting a bill that would require online home-sharing companies to provide the Mayor’s Office of Special Enforcement with the addresses of their listings — a potential blow to Airbnb if its users are revealed to be turning rent-regulated apartments into business enterprises in a city starved for more housing. The move is coming two years after New York’s state Legislature first took aim at Airbnb with a bill that banned the advertising of illegal short-term rentals — but ultimately did little to hurt the company. The New York push comes amid a well-funded advertising and lobbying campaign by the hotel industry, which has run ads supporting a recent report from City Comptroller Scott Stringer that was critical of Airbnb, and is accusing the company of reducing the amount of affordable housing in cities.

What’s taking so long?

• US State Lawsuits Against Purdue Pharma Over Opioid Epidemic Mount (R.)

Litigation against OxyContin maker Purdue Pharma is intensifying as six more U.S. states on Tuesday announced lawsuits, accusing the company of fueling a national opioid epidemic by deceptively marketing its prescription painkillers to generate billions of dollars in sales. U.S. state attorneys general of Nevada, Texas, Florida, North Carolina, North Dakota and Tennessee also said Purdue Pharma violated state consumer protection laws by falsely denying or downplaying the addiction risk while overstating the benefits of opioids. “It’s time the defendants pay for the pain and the destruction they’ve caused,” Florida State Attorney General Pam Bondi told a press conference.

Florida also sued drugmakers Endo Pharmaceuticals, Allergan, units of Johnson & Johnson and Teva Pharmaceutical Industries, and Mallinckrodt, as well as drug distributors AmerisourceBergen, Cardinal Health and McKesson. [..] Lawsuits have already been filed by 16 other U.S. states and Puerto Rico against Purdue. The privately-held company in February said it stopped promoting opioids to physicians after widespread criticism of the ways drugmakers market highly addictive painkillers. Bondi said state attorneys general from New York, California and Massachusetts were preparing similar lawsuits.

And on and on and on…

• Debt Relief Woes Threaten Greece’s Bailout Exit (K.)

The tug of war between the IMF and Berlin over the Greek debt issue is threatening Greece’s successful bailout program exit in August. Germany insists on granting Greece gradual debt relief under the condition that it will be approved every year by the Bundestag. For its part, the IMF disagrees with Berlin’s insistence on reviewing the measures every year and is threatening to leave the Greek program. If the IMF were to leave the program because it thinks that debt relief measures are inadequate to secure the sustainability of Greece’s debt, the country’s access to international market funding will be cast in doubt. This means that, inevitably, the government will have to resort to precautionary credit to shield itself from complications.

The chasm between Berlin and the IMF was clear during Monday’s session of the so-called Washington Group – representatives of Greece’s creditors as well as the governments of Germany, France, Spain and Italy, the biggest eurozone economies. Poul Thomsen, the head of the IMF’s European Department, who attended Monday’s meeting, countered that Berlin’s conditions were not acceptable. Thomsen said Tuesday that the Fund wants to activate the program for Greece but warned that time is running out and asked for final decisions on the matter by the next Eurogroup on May 24.

Speed up deportations and appeals, restrict freedom of movement. Lovely

• Greece Changes Asylum Rules To Fight Camp Overcrowding (AP)

Greece’s parliament approved legislation Tuesday that is designed to speed up the asylum process for migrants, ease the overcrowding at Greek island refugee camps and to deport more people back to Turkey. Under the new law, staff will be added at the office that handles asylum requests, the appeals process for rejected applications will be shortened and travel restrictions can be imposed on asylum-seekers who are moved from the Greek islands to the mainland. Currently, restrictions on asylum-seekers are mostly limited to five islands near the coast of Turkey, where strained refugee camps are trying to cope with up to three times more residents than planned.

More than 16,000 people are stuck there. A group of 13 Greek human rights organizations, however, has accused the government of ignoring refugee rights. The number of newly arriving migrants and refugees has risen sharply this year at the islands and Greece’s land border with Turkey, prompting the change in policy. Police cleared out two abandoned factory buildings used by migrants in the city of Patras in western Greece early Tuesday. More than 600 people will be moved from there to refugee camps on the mainland, police said.

Have we lost the ability to frame everything in anything else than monetary terms?

• UK Government Wants To Put A Price On Nature – But That Will Destroy It (G.)

Never mind that the new environmental watchdog will have no teeth. Never mind that the government plans to remove protection from local wildlife sites. Never mind that its 25-year environment plan is all talk and no action. We don’t need rules any more. We have a pouch of magic powder we can sprinkle on any problem to make it disappear. This powder is the monetary valuation of the natural world. Through the market, we can avoid conflict and hard choices, laws and policies, by replacing political decisions with economic calculations. Almost all official documents on environmental issues are now peppered with references to “natural capital” and to the Natural Capital Committee, the Laputian body the government has created to price the living world and develop a set of “national natural capital accounts”.

The government admits that “at present we cannot robustly value everything we wish to in economic terms; wildlife being a particular challenge”. Hopefully, such gaps can soon be filled, so we’ll know exactly how much a primrose is worth. The government argues that without a price, the living world is accorded no value, so irrational decisions are made. By costing nature, you ensure that it commands the investment and protection that other forms of capital attract. This thinking is based on a series of extraordinary misconceptions. Even the name reveals a confusion: natural capital is a contradiction in terms. Capital is properly understood as the human-made segment of wealth that is deployed in production to create further financial returns.

Concepts such as natural capital, human capital or social capital can be used as metaphors or analogies, though even these are misleading. But the 25-year plan defines natural capital as “the air, water, soil and ecosystems that support all forms of life”. In other words, nature is capital. In reality, natural wealth and human-made capital are neither comparable nor interchangeable. If the soil is washed off the land, we cannot grow crops on a bed of derivatives. A similar fallacy applies to price. Unless something is redeemable for money, a pound or dollar sign placed in front of it is senseless: price represents an expectation of payment, in accordance with market rates. In pricing a river, a landscape or an ecosystem, either you are lining it up for sale, in which case the exercise is sinister, or you are not, in which case it is meaningless.

Still more deluded is the expectation that we can defend the living world through the mindset that’s destroying it. The notions that nature exists to serve us; that its value consists of the instrumental benefits we can extract; that this value can be measured in cash terms; and that what can’t be measured does not matter, have proved lethal to the rest of life on Earth. The way we name things and think about them – in other words the mental frames we use – helps determine the way we treat them.

Make a fresh bed every day.

• Chimpanzees Have Much Cleaner Beds Than Humans Do (Ind.)

Chimpanzees have much cleaner beds – with fewer bodily bacteria – than humans do, scientists have found. A study comparing swabs taken from chimp nests with those from human beds found that people’s sheets and mattresses harboured far more bacteria from their bodies than the animals’ beds did from theirs. The researchers say their findings suggest that our attempts to create clean environments for ourselves may actually make our surroundings “less ideal”. More than a third – 35 per cent – of the bacteria in human beds comes from our own saliva, skin and faecal particles. By contrast, chimps – humans’ closest evolutionary relatives – appear to sleep with few such bacteria.

“We found almost none of those microbes in the chimpanzee nests, which was a little surprising,” said Megan Thoemmes, lead author of the paper. The researchers collected samples from 41 chimpanzee beds – or nests – in Tanzania and tested them for microbial biodiversity. At 15 primates’ nests, researchers also used vacuums to find out whether there were arthropods, such as insects, spiders, mites and ticks. “We also expected to see a significant number of arthropod parasites, but we didn’t,” said Ms Thoemmes. In addition, the team were shocked to find very few fleas, lice and bed bugs – ectoparasites – in the chimp nests.

“There were only four ectoparasites found, across all the nests we looked at. And that’s four individual specimens, not four different species,” said Ms Thoemmes, a PhD student at North Carolina State University. She believes chimps’ beds are cleaner because they make them freshly in treetops each day.

Debt Rattle May 10 2018

May 102018

May 10, 2018 Posted by Raúl Ilargi Meijer at 9:24 am Finance Tagged with: Argentina, bullshit jobs, debt bomb, Deep State, Democrats, IMF, Iran, Israel, Polanyi, RBS, Syria, Trump, Turkey 9 Responses »

Paul Gauguin Road in Tahiti 1891

• Beware of the Coming Economic Debt Bomb (Tanous)

• Argentina Looks To Be Headed For Another Economic Storm (CNBC)

• At Last, A Reason To Celebrate: House Prices Are Falling (G.)

• RBS Reaches $4.9 Billion Deal To Settle US Mortgage Bond Probe (R.)

• The Deep State First (Stockman)

• Turkey Detains Dozens Of Air Force Personnel Over Gulen Links (R.)

• Did Putin Green-Light Tonight’s Massive Israeli Strikes On Syria? (ZH)

• Trump Welcomes Home Three Americans Released By North Korea (G.)

• Democrats’ Lead Is Slipping In Generic Ballot Poll (Hill)

• Is Capitalism a Threat to Democracy?

• Bullshit Jobs: Why They Exist And Why You Might Have One (Vox)

“..over half of all personal income taxes will be required just to service the national debt.”

• Beware of the Coming Economic Debt Bomb (Tanous)

In 2009, the year President Obama took office, the national debt held by the public was $7.27 trillion. At the end of fiscal 2016, that had soared to approximately $14 trillion. Given that our marketable debt doubled from 2009 to 2016, it’s remarkable that the annual cost of the interest on the debt rose far less, from $185 billion to $223 billion. The long march of rising rates that began recently is a dramatic reversal after nearly 40-years of declining interest rates. The new trend portends a return to more historic rates. You may be asking: what are the historic rates? We calculate that the average rate paid on the federal debt over the last 30 years was close to 5%. The Congressional Budget Office (CBO) has just raised its estimate that debt held by the public will rise to $17.8 trillion in 2020.

Some economists believe that the figure will be much higher. For our exercise though, let’s stick with the CBO estimate. We are postulating that the interest rate on our national debt may return to the long-term, 30-year average of 5%. Note, too, that Treasury debt rolls over every 3 to 4 years so the maturing bonds at low interest rates will be refinanced at the then current higher rates. Let’s do the math together. Take the CBO estimate of debt held by the public of $17.8 trillion in 2020, a 5% average interest on that amount comes to annual debt service of $891 billion, an unfathomable amount. (In 2017, interest on the debt held by the public was $458.5 billion, itself a scary number.)

In its current report, the CBO added: “It also reflects significant growth in interest costs, which are projected to grow more quickly than any other major component of the budget.” Here’s the danger: • According to CBO, individual income taxes produced $1.6 trillion in revenue in fiscal year 2017. • Under this 2020 scenario, over half of all personal income taxes will be required just to service the national debt. • Annual debt service in 2020 will exceed our newly increased defense budget of $700 billion in FY 2018. • Annual debt service would exceed our Social Security obligations.

[The IMF] “..admitted shortly after the intervention that its support to keep the peso’s peg against the dollar prolonged the crisis in the country.”

• Argentina Looks To Be Headed For Another Economic Storm (CNBC)

Argentina has started talks with the IMF seeking financial rescue once again, as inflation soars and the currency sinks. Buenos Aires looks to be going through another economic nightmare, with prices rising rapidly while the Argentine peso drops. The central bank announced last week another increase in rates to 40% — as the 12-month inflation rate hit 25.4%, above its 15% target. At the same time, since the start of the year, the peso is down by more than 20% against the U.S. dollar. [..] Asking for help from the Fund is a contentious issue for the country. Back in 2001, Argentina defaulted on $132 billion of foreign debt. The Washington-based institution, which was helping the country at the time, admitted shortly after the intervention that its support to keep the peso’s peg against the dollar prolonged the crisis in the country.

Following Macri’s announcement Tuesday, several people protested against a new IMF intervention, still traumatized by the economic collapse at the start of the century, Reuters reported. “The IMF has a terrible reputation among Argentinians, and so this is a big political gamble for the government,” Fiona Mackie, regional director for Latin America at the Economist Intelligence Unit, told CNBC via email. “At present, though, (the government) clearly sees the need to regain the confidence of markets as more pressing, and is hoping that its program of adjustment gets back on track in time for the presidential election late next year,” she added.

“The Germans are right. Ever-rising house prices are a curse. They are bad for social mobility. They are bad for young people. And they are bad for the economy. ”

• At Last, A Reason To Celebrate: House Prices Are Falling (G.)

The housing market is dead. Britain’s biggest mortgage lender, the Halifax, says that prices fell in April by 3.1%, the biggest monthly drop in almost eight years. Newspapers bury this disastrous news way back in their editions for fear that it will spread gloom and despondency. We need to wean ourselves off this way of thinking. Falling house prices are not disastrous, and only in a country with such a perverted relationship with bricks and mortar could they be seen as such. In Germany, they scratch their heads in bemusement when they hear Britons boast of how the value of their house has soared. The Germans are right. Ever-rising house prices are a curse. They are bad for social mobility. They are bad for young people. And they are bad for the economy.

The billions that are spent pushing up property prices could be more productively invested elsewhere. Imagine for a second that the next time you went to the train station the rail operating company had unexpectedly cut fares by 5%. Or that when doing your weekly shop you discovered that the supermarket had slashed your normal bill by £10. Would you think this was an unwelcome development? Daft question. Of course you would be happy, because your money would go further. Conversely, you would be less than chuffed to find more of your pay being spent on getting to work or putting food on the table. That’s why there are no headlines in the papers screaming “Boom-boom Britain: joy for commuters as rail fares rise by 10% for third year in a row”, or “Good news for families as supermarkets add £10 a week to the average shop”.

The papers stand up for their readers when they think they are being gouged by train companies and supermarkets. They stick up for buyers rather than sellers. But different rules apply to property. If the average house price had risen rather than fallen by £7,000 in April, that would have been front-page news and hailed as a sign that all was well with the economy. The papers tend to side with owner-occupiers rather than the buyers of property getting the rough end of the deal. This fetishisation of rising house prices is relatively recent. For the first 25 years after the second world war, a combination of mass housebuilding and strict controls on credit meant that the cost of property rose only modestly.

But since 1970, financial deregulation, much lower levels of housebuilding and a tax system heavily weighted in favour of owner-occupation have meant demand for housing in parts of the country has tended to outstrip supply. There have been four big house-price booms – the early 1970s, the late 80s, the mid 00s and the mid 10s. None of them have ended well.

No criminal charges.

• RBS Reaches $4.9 Billion Deal To Settle US Mortgage Bond Probe (R.)

The British state-backed bank said that $3.46 billion of the proposed civil settlement will be covered by existing provisions and the bank will take a $1.44 billion incremental charge in 2018’s second quarter to cover the rest. The accord would resolve a major issue that has weighed on the company’s share price and complicated the UK government’s plan to sell down its more than 70 percent stake in the bank. RBS Chief Executive Ross McEwan called the deal a “milestone.” “Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer,” he said in a statement.

The U.S. Attorney’s Office in Massachusetts, which led the probe, confirmed it had reached an agreement in principle with RBS that would resolve potential civil claims related to mortgage-backed securities that were issued from 2005 to 2008. “Further details remain to be negotiated, however, before a formal agreement can be reached,” the office said. The implosion of markets for risky residential mortgage-backed securities and related derivatives contributed to the 2008 global financial crisis and prompted a series of investigations by authorities including the Justice Department. The U.S. Attorney’s Office in Massachusetts had also been conducting a criminal investigation into RBS and former employees who were involved in structuring and selling the securities.

But the settlement that RBS and the office disclosed on Thursday was only civil in nature, signaling no criminal charges were likely to result. RBS previously agreed in July 2017 to pay $5.5 billion to resolve a lawsuit by the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, claiming it misled the U.S. mortgage giants into buying mortgage-backed securities. It resolved similar claims by the National Credit Union Administration related to mortgage-backed securities RBS sold to credit unions that later failed for $1.1 billion in 2016.

“The mere threat of a military attack from the White House is madness because it arises from blatant lies that have absolutely nothing to do with US national security..”

• The Deep State First (Stockman)

At his so-called Cabinet meeting this morning, the Donald basically threatened Iran with annihilation if it does what 15 other signatories to the nuclear non-proliferation treaty (NPT) do every day: Namely, increase production of industrial grade nuclear fuel (3.5%-5.0% purity) at its enrichment plant at Natanz—which, in any event, is crawling with IAEA inspectors. Moreover, it really doesn’t matter whether Trump was play-acting in the style of Art of the Deal or that the JPAOC could be improved. The mere threat of a military attack from the White House is madness because it arises from blatant lies that have absolutely nothing to do with US national security. Nor, for that matter, the security of any other country in the region, including Saudi Arabia and Israel.

The real purpose of the Donald’s missile-rattling is nothing more than helping Bibi Netanyahu keep his coalition of right wing religious and settler parties (Likud, United Torah Judaism, Shas, Kulanu and the Jewish Home) together, thereby maintaining his slim 61-vote majority in the 120-seat Knesset. Netanyahu’s malefic political glue is the utterly false claim that Iran is an “existential threat” to Israel because it is hell-bent on getting the bomb. But that’s where the whopper comes in. It amounts to the ridiculous postulate that Iran is so fiendishly evil that if it is involved in the nuclear fuel cycle in any way, shape or form – presumably even just operating a uranium mine – it is only a matter of months before it will have a bomb.

As a matter of record, of course, Netanyahu has been saying this since the early 1990s and he has always been wrong because there were never any facts or logic to support his blatant fear-mongering.

Madman,

• Turkey Detains Dozens Of Air Force Personnel Over Gulen Links (R.)

Turkish police detained 65 suspects on Thursday in an operation targeting air force personnel accused of links to the U.S.-based preacher whom Ankara says orchestrated an attempted coup in 2016, state-run Anadolu news agency said. Prosecutors issued arrest warrants for a total 96 people, of which 91 were from the air force, and police were still seeking the remaining suspects in an operation focused on the western city of Izmir and spread across 15 provinces, it said. The suspects were said to have ties to the cleric Fethullah Gulen, whose network is accused of being behind the failed putsch in July 2016, during which 250 people were killed. Gulen has denied involvement.

In a separate operation, an Ankara prosecutor on Thursday issued detention warrants for 93 employees of a private tutoring center that was previously closed down on suspicion of links to Gulen’s network, Anadolu said. Turkish authorities have detained 160,000 people and dismissed nearly the same number of civil servants since the failed military intervention, the U.N. human rights office said in March. Among those detained, more than 50,000 have been formally charged and kept in jail during their trials.

Hmmm…

• Did Putin Green-Light Tonight’s Massive Israeli Strikes On Syria? (ZH)

Just off a 10-hour visit with Russian President Vladimir Putin in Moscow, and less than a day after Trump pulled out of the Iran nuclear deal, Israeli Prime Minister Benjamin Netanyahu said on Wednesday he doesn’t expect Russia to act against Israeli forces as they continue exchanging fire with Syria. It appears the meeting wrapped up at the very moments a major escalation began along the Golan Heights, with both Syria and Israel trading blame for an initial attack which quickly escalated into Israeli cruise missile launches and shelling on targets in southern Syria and notably, on Damascus itself. The question remains, did Putin give Netanyahu the green light for tonight’s events?

If it wasn’t clear over the past weeks and months of unprovoked Israeli strikes on Syria—ostensibly to roll back Iranian troop presence—then it should be very clear by now that Syria, Israel, and Iran are now in a state of war and all signs point to a continued intensification of the conflict. And crucially, there’s currently no sign that Russia came to the aid of its close ally as rockets rained down on Damascus overnight. Russia has routinely looked the other way while Israel has conducted, by its own admission, over one hundred major strikes on Syria—most of which have come after Russian intervention on behalf of Assad in 2015. As Reuters reported late in the day Wednesday, Netanyahu told reporters just before departing Moscow: “Given what is happening in Syria at this very moment, there is a need to ensure the continuation of military coordination between the Russian military and the Israel Defence Forces.”

The Russians and Israelis coordinate their actions through a direct military hotline intended to avoid accidental clashes which could lead to escalation between the two countries. A reportedly “upbeat” Netanyahu further said, “”In previous meetings, given statements that were putatively attributed to – or were made by – the Russian side, it was meant to have limited our freedom of action or harm other interests and that didn’t happen, and I have no basis to think that this time will be different.” Thus it appears Israel may have been given a green light by Putin to engage targets in Syria, however, at this point it is unclear what limitations or restrictions Putin may have issued, if any at all.

Victory.

• Trump Welcomes Home Three Americans Released By North Korea (G.)

Three Americans released by North Korea have landed in the US under cover of darkness, with Donald Trump waiting on the tarmac to greet their plane. The three men emerged from a US government plane, flashing peace signs high above their heads. A huge US flag hung between two fire trucks served as a backdrop against the night sky. “I want to thank Kim Jong-un,” Trump said. “I think he wants to do something and bring that country into the real world.” “We didn’t think this was going to happen, and it did. It was very important to all of us,” he said, referring to the prisoner release. “The true honour will be if we have a victory in getting rid of nuclear weapons.” The US secretary of state, Mike Pompeo, flew to Pyongyang for a surprise one-day visit on Wednesday, when he met the North Korean leader and secured the release of the three men.

What do Democrats stand for?

• Democrats’ Lead Is Slipping In Generic Ballot Poll (Hill)

The lead held by Democrats over Republicans on generic ballot polls ahead of the 2018 midterm elections is beginning to slip, a new CNN poll suggests. Overall, 31% of respondents in a poll released Wednesday told CNN that they believe the country would be better off with Democrats in control of Congress, while 30% said Republicans should hold the reins. However, the largest proportion of respondents, at 34%, said it makes no difference to them who is in charge. Among registered voters asked whether they would vote Democratic or Republican in their congressional district if the elections were held today, Democrats had a three-point advantage, at 44% to 41%, which is within the poll’s margin of error.

Democrats have seen a steady decline in their advantage over Republicans in recent months, according to CNN polling, falling from a 16-point advantage in February to a 6-point one in March, to just a 3-point lead this week, roughly six months away from the midterm elections. An ABC News/Washington Post poll similarly found last month that Democrats’ lead over Republicans among registered voters was only 4 points, at 47% to 43%, down from a 12-point lead the poll found Democrats held in January. Democrats still have an edge in enthusiasm, according to CNN. Among respondents who said they are excited to vote in November, more plan to vote Democratic than Republican, at 53% to 41%.

But enthusiasm does seem to be growing among GOP voters. According to the CNN poll, 44% of Republican and Republican-leaning registered voters said they were “very enthusiastic” about voting, which is a jump from 36% in March. [..] President Trump’s own job approval has increased recently, with his approval rating at 41% in the CNN poll and his approval over his handling of the economy at 52%.

On Polanyi.

• Is Capitalism a Threat to Democracy?

In a sweeping, angry new book, “Can Democracy Survive Global Capitalism?” (Norton), the journalist, editor, and Brandeis professor Robert Kuttner champions Polanyi as a neglected prophet. Like Polanyi, he believes that free markets can be crueller than citizens will tolerate, inflicting a distress that he thinks is making us newly vulnerable to the fascist solution. In Kuttner’s description, however, today’s political impasse is different from that of the nineteen-thirties. It is being caused not by a stalemate between leftist governments and a reactionary business sector but by leftists in government who have reneged on their principles.

Since the demise of the Soviet Union, Kuttner contends, America’s Democrats, Britain’s Labour Party, and many of Europe’s social democrats have consistently tacked rightward, relinquishing concern for ordinary workers and embracing the power of markets; they have sided with corporations and investors so many times that, by now, workers no longer feel represented by them. When strongmen arrived promising jobs and a shared sense of purpose, working-class voters were ready for the message.

[..] Polanyi starts “The Great Transformation” by giving capitalism its due. For all but eighteen months of the century prior to the First World War, he writes, a web of international trade and investment kept peace among Europe’s great powers. Money crossed borders easily, thanks to the gold standard, a promise by each nation’s central bank to sell gold at a fixed price in its own currency. This both harmonized trade between countries and stabilized relative currency values. If a nation started to sell more goods than it bought, gold streamed in, expanding the money supply, heating up the economy, and raising prices high enough to discourage foreign buyers—at which point, in a correction so smooth it almost seemed natural, exports sank back down to pre-boom levels.

The trouble was that the system could be gratuitously cruel. If a country went into a recession or its currency weakened, the only remedy was to attract foreign money by forcing prices down, cutting government spending, or raising interest rates—which, in effect, meant throwing people out of work. “No private suffering, no restriction of sovereignty, was deemed too great a sacrifice for the recovery of monetary integrity,” Polanyi wrote. The system was sustainable politically only as long as those whose lives it ruined didn’t have a say. But, in the late nineteenth and early twentieth centuries, the right to vote spread. In the twenties and thirties, governments began trying to protect citizens’ jobs from shifts in international prices by raising tariffs, so that, in the system’s final years, it hardened national borders instead of opening them, and engendered what Polanyi called a “new crustacean type of nation,” which turned away from international trade, making first one world war, and then another, inevitable.

More Graeber. Most jobs are bullshit.

• Bullshit Jobs: Why They Exist And Why You Might Have One (Vox)

Corporate lawyers. Most corporate lawyers secretly believe that if there were no longer any corporate lawyers, the world would probably be a better place. The same is true of public relations consultants, telemarketers, brand managers, and countless administrative specialists who are paid to sit around, answer phones, and pretend to be useful. A lot of bullshit jobs are just manufactured middle-management positions with no real utility in the world, but they exist anyway in order to justify the careers of the people performing them. But if they went away tomorrow, it would make no difference at all. And that’s how you know a job is bullshit: If we suddenly eliminated teachers or garbage collectors or construction workers or law enforcement or whatever, it would really matter. We’d notice the absence.

But if bullshit jobs go away, we’re no worse off. [..] We’re all taught that people want something for nothing, which makes it easy to shame poor people and denigrate the welfare system, because everyone is lazy at heart and just wants to mooch off other people. But the truth is that a lot of people are being handed a lot of money to do nothing. This is true for most of these middle-management positions I’m talking about, and the people doing these jobs are completely unhappy because they know their work is bullshit. I think most people really do want to believe that they’re contributing to the world in some way, and if you deny that to them, they go crazy or become quietly miserable.

[..] You expect this outcome with a Soviet-style system, where you have to have full employment so you make up jobs whether a need exists or not. But this shouldn’t happen in a free market system. I think one of the reasons is there’s huge political pressure to create jobs coming from all directions. We accept the idea that rich people are job creators, and the more jobs we have, the better. It doesn’t matter if those jobs do something useful; we just assume that more jobs is better no matter what. We’ve created a whole class of flunkies that essentially exist to improve the lives of actual rich people. Rich people throw money at people who are paid to sit around, add to their glory, and learn to see the world from the perspective of the executive class.

Debt Rattle May 9 2018

May 092018

May 9, 2018 Posted by Raúl Ilargi Meijer at 9:10 am Finance Tagged with: Airbus, Argentina, debt slaves, Greece, IMF, Iran, marijuana, palm oil, Pompeo, rainforest, retail, Single Market, Trump 5 Responses »

Edgar Degas Two laundresses 1876

• Fed Chair Powell To Emerging Markets: You Are On Your Own (ZH)

• Argentina Seeks IMF Aid ‘To Avoid Crisis’ (BBC)

• Europe On Collision Course With US Over Iran Deal (AFP)

• Mnuchin: Revoking Boeing, Airbus Licenses To Sell Jets To Iran (R.)

• Pompeo, In North Korea, To Return With Detained Americans (R.)

• Central Banks Rigged The Cost Of Money And The State Of The Markets (Prins)

• US Student Debt Just Hit $1.5 Trillion (MW)

• The State of the American Debt Slaves, Q1 2018 (WS)

• UK PM May Suffers Upper House Defeat Over Plans To Leave EU Single Market (R.)

• UK Retailers Suffer Sharpest Sales Drop For 22 Years In April (G.)

• Sharp Drop In UK Retail Job Vacancies As High Street Crisis Deepens (Ind.)

• Cynthia Nixon: Marijuana Industry Could Be ‘A Form Of Reparations’ (Hill)

• Record Drop In Greek Savings Last Year (K.)

• Debt Repayment Feasible if Greece ‘Implements Reforms’ – Regling (AMNA)

• British Diplomats: Saving The Rainforest Could Hurt Fighter Jet Sales (UE)

As the dollar keeps rising.

• Fed Chair Powell To Emerging Markets: You Are On Your Own (ZH)

Over the weekend, when commenting on the ongoing rout in emerging markets, Bloomberg published an article titled “Rattled Emerging Markets Say: It’s Over to You, Central Bankers.” Well, overnight the most important central banker of all, Fed Chair Jay Powell responded to these pleas to “do something”, and it wasn’t what EMs – or those used to being bailed out by the Fed – wanted to hear. As Powell explained, speaking at a conference sponsored by the IMF and Swiss National Bank in Zurich, the Fed’s gradual push towards higher interest rates shouldn’t be blamed for any roiling of emerging market economies – which are well placed to navigate the tightening of U.S. monetary policy. In other words, with the Fed’s monetary policy painfully transparent, Powell’s message to EM’s was simple: “you’re on your own.”

Arguing that the Fed’s decision-making isn’t the major determinant of flows of capital into developing economies (which, of course, it is especially as the Fed gradually reverses the biggest monetary experiment in history) Powell said the influence of the Fed on global financial conditions should not be overstated, despite Bernanke taking the blame five years ago for the so-called taper tantrum. “There is good reason to think that the normalization of monetary policy in advanced economies should continue to prove manageable for EMEs,” Powell said, adding that “markets should not be surprised by our actions if the economy evolves in line with expectations.”

[..] Meanwhile, as the Fed refuses to change course, other policy makers have been forced to step in to counter the sharp, sudden capital outflows, with Argentina’s central bank abruptly raising rates three times, to 40% to halt a sell-off in the peso. Russia has also put the brakes on further monetary easing. Turkey, which is a unique basket case in that Erdogan is expressly prohibiting the central bank from doing the one thing it should to ease the ongoing panic, i.e., raise rates, is seeking to bring down its current account deficit. Overnight, we learned that Indonesia was burning reserves to prop up its currency.

Meanwhile, also overnight, JPM CEO Jamie Dimon said it’s possible U.S. growth and inflation prove fast enough to prompt the Fed to raise interest rates more than many anticipate, and it would be wise to prepare for benchmark yields to climb to 4%. Such a scenario would be a disaster for EMs: “A sustained move higher would pressure local currencies and lure away foreign investors. The IMF warned last month that risks to global financial stability have increased over the past six months.” “Central banks may have to respond with interest rate hikes if the sell-off intensifies,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research in Singapore. Those most vulnerable include Ukraine, China, Argentina, South Africa and Turkey according to the Institute for International Finance.

IMF demand: austerity. Back to the hoovervilles.

• Argentina Seeks IMF Aid ‘To Avoid Crisis’ (BBC)

Argentina is to start talks about a financing deal with the International Monetary Fund (IMF) on Wednesday amid reports it is seeking $30bn (£22bn). Finance minister Nicolas Dujovne is due to fly to the IMF’s Washington offices. After recent turmoil that saw interest rates hit 40%, President Mauricio Macri said IMF aid would “strengthen growth” and help avoid crises of the past. The talks come 17 years after Argentina defaulted on its debts and 12 years since it severed ties with IMF. Mr Macri said in an address to the nation on Tuesday: “Just a few minutes ago I spoke with (IMF) director Christine Lagarde, and she confirmed we would start working on an agreement.”

“This will allow us to strengthen our program of growth and development, giving us greater support to face this new global scenario and avoid crises like the ones we have had in our history,” he said. Local media and Bloomberg reported that Argentina was seeking $30bn, although the government declined to comment. The peso has lost a quarter of its value in the past year amid President Macri’s pro-market reforms. Last week the central bank raised interest rates from 33.25% to 40%. Many people still blame IMF austerity requirements for policies that led to a financial and economic meltdown in 2001 to 2002 that left millions of middle class Argentines in poverty. Argentina eventually defaulted on its debts. And although its last IMF loan was paid down in 2006, the country severed ties with the Washington-based body.

“US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately,” tweeted the US ambassador in Berlin, Richard Grenell.

• Europe On Collision Course With US Over Iran Deal (AFP)

Donald Trump’s decision to pull out of the landmark 2015 deal curbing Iran’s nuclear programme is a bitter pill to swallow for European leaders and risks a creating a major transatlantic rift. French President Emmanuel Macron, who has spent the past year cultivating the closest ties with Trump among EU leaders, made saving the Iran deal one of his priorities during his state visit to Washington last month. German Chancellor Angela Merkel had also travelled to the US in late April and she worked closely with Macron and British Prime Minister Theresa May right up to the last minute.

In a joint statement issued shortly after Trump walked away from 2015 accord, they said they noted the decision with “regret and concern” but they said they would continue to uphold their commitments. “Our governments remain committed to ensuring the agreement is upheld, and will work with all the remaining parties to the deal to ensure this remains the case,” they said. They noted that this included the “economic benefits to the Iranian people that are linked to the agreement,” which means European firms would in theory continue to invest and operate there. This would appear to set the three countries, all signatories along with Russia, China and the EU, on a direct collision course with Washington.

European leaders have clashed with the White House already on issues ranging from climate change to trade and Trump’s decision to move the US embassy in Israel to Jerusalem. Trump’s hawkish National Security Advisor John Bolton said that European firms would have a “wind down” period to cancel any investments made in Iran under the terms of the accord. “US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately,” tweeted the US ambassador in Berlin, Richard Grenell. Under the 2015 deal, Iran was meant to benefit from increased trade and contracts with foreign firms in exchange for accepting curbs on its nuclear activity and stringent monitoring.

Airbus? But it’s European. Oh: “All the deals are dependent on U.S. licenses because of the heavy use of American parts in commercial planes.”

• Mnuchin: Revoking Boeing, Airbus Licenses To Sell Jets To Iran (R.)

Licenses for Boeing Co and Airbus to sell passenger jets to Iran will be revoked, U.S. Treasury Secretary Steven Mnuchin said on Tuesday after President Donald Trump pulled the United States out of the 2015 Iran nuclear agreement. Trump said he would reimpose U.S. economic sanctions on Iran, which were lifted under the agreement he had harshly criticized. The pact, worked out by the United States, five other world powers and Iran, lifted sanctions in exchange for Tehran limiting its nuclear program. It was designed to prevent Iran from obtaining a nuclear bomb. IranAir had ordered 200 passenger aircraft – 100 from Airbus SE, 80 from Boeing and 20 from Franco-Italian turboprop maker ATR.

All the deals are dependent on U.S. licenses because of the heavy use of American parts in commercial planes. Boeing agreed in December 2016 to sell 80 aircraft, worth $17 billion at list prices, to IranAir under an agreement between Tehran and major world powers to reopen trade in exchange for curbs on Iran’s nuclear activities. The U.S. Treasury Department, which controls licensing of exports, said the United States would no longer allow the export of commercial passenger aircraft, parts and services to Iran after a 90-day period. “The Boeing and (Airbus) licenses will be revoked,” Mnuchin told reporters at the Treasury. “Under the original deal, there were waivers for commercial aircraft, parts and services and the existing licenses will be revoked.”

Are they going to say they were well treated?

• Pompeo, In North Korea, To Return With Detained Americans (R.)

U.S. Secretary of State Mike Pompeo is expected to return from North Korea with three American detainees, as well as details of an upcoming summit between leader Kim Jong Un and U.S. President Donald Trump, a South Korean official said on Wednesday. Pompeo arrived in Pyongyang on Wednesday from Japan and headed to the Koryo Hotel in the North Korean capital for meetings, a U.S. media pool report said. Trump earlier broke the news of Pompeo’s second visit to North Korea in less than six weeks and said the two countries had agreed on a date and location for the summit, although he stopped short of providing details. An official at South Korea’s presidential Blue House said Pompeo was expected to finalize the date of the summit and secure the release of the three American detainees.

While Trump said it would be a “great thing” if the American detainees were freed, Pompeo told reporters en route to Pyongyang he had not received such a commitment but hoped North Korea would “do the right thing”. “We’ll talk about it again today,” he said. “I think it’d be a great gesture if they would choose to do so.” The pending U.S.-North Korea summit has sparked a flurry of diplomacy, with Japan, South Korea and China holding a high-level meeting on Wednesday. Chinese Premier Li Keqiang said concerned parties should seize the opportunity to promote denuclearization of the Korean peninsula, the official Xinhua news agency reported.

More Nomi.

• Central Banks Rigged The Cost Of Money And The State Of The Markets (Prins)

Nomi Prins: The word “collusion” has come to be associated with Russia, Trump and the US election. My book is about something entirely different, much more global: the collusion (or coordination) that the US central bank (the Federal Reserve) forged with other major countries to fabricate an abundance of money in the wake of the 2008 financial crisis to support the US financial system at first, and banks and select companies and markets worldwide, as well, since. The Fed conjured up this money to provide liquidity for Wall Street banks. The policy was then exported to the major central banks who acted as a lender and supplier of last resort to the world.

Some of the most notable central banks include the European Central Bank (ECB), the Bank of Japan and the Bank of England. Collusion is about these powerful institutions’ relationships with each other. The book dives into how central banks rigged the cost of money and the state of the markets, and ultimately created more inequality and instability as a result. They did all of this in order to subsidize private banks at the expense of people everywhere. The book reveals the people in charge of these strategies, their elite gatherings and public and private communications. It uncovers how their policies rerouted economies, geopolitics, trade wars and elections.

How do central banks relate to the world’s markets? Central banks have several functions from an official standpoint. The first is to regulate the smooth and orderly operation of private banks or public banks within a particular country or region (the ECB is responsible for many countries in Europe). The other function they are tasked with is setting interest rates (the cost of borrowing money) so that there’s adequate economic balance between full employment and a select inflation rate. The idea is that if the cost of money is cheap enough, private banks will lend to the general population and businesses. The ultimate goal is that the money can be used to expand enterprise, hire people and develop a strong economic posture.

What cannot be repaid will not be.

• US Student Debt Just Hit $1.5 Trillion (MW)

America’s student loan problem just surpassed a depressing milestone. Outstanding student debt reached $1.521 trillion in the first quarter of 2018, according to the Federal Reserve, hitting $1.5 trillion for the first time. Though the marker is somewhat arbitrary, it offers a reminder of how quickly student debt has grown—jumping from about $600 billion 10 years ago to more than $1.5 trillion today—and that the factors fueling the increase aren’t likely to disappear any time soon. “People pay attention to milestones,” said Mark Kantrowitz, a financial aid expert. When student debt surpassed $1 trillion in 2012, “it definitely caused a shift in coverage of student loans in the news media,” he said.

In theory, that helps raise awareness of the issue for student advocates, lawmakers and, in particular, borrowers when considering what college to attend. But Kantrowitz added, “What’s more important is the impact on individual borrowers.” And they are feeling it. College graduates leave school with about $37,000 in debt on average, according to Kantrowitz’s data, a sum that can be bearable for many, given that the average starting salary for a new college graduate last year hovered around $50,000. But a large share—as many as one in six college graduates, Kantrowitz estimates—will leave school with debt that exceeds their income. That will make it challenging for those borrowers to pay off their loans on a standard 10-year repayment plan, he said.

Now let’s throw in some rate hikes, see what happens.

• The State of the American Debt Slaves, Q1 2018 (WS)

Total consumer credit rose 5.1% in the first quarter, compared to a year earlier, or by $184 billion, to $3.824 trillion (not seasonally adjusted), according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. That 5.1% year-over-year increase isn’t setting any records – in 2011, year-over-year increases ran over 11%. But it does show that Americans are dealing with the economy and their joys and woes the American way: by piling on debt faster than the overall economy is growing. The chart below shows the progression of consumer debt since 2006. In line with seasonal patterns for first quarters, consumer credit (not seasonally adjusted) edged down from Q4, as the spending binge of the holiday shopping season turned into hangover, an annual American ritual:

Note how the dip after the Financial Crisis – when consumers deleveraged mostly by defaulting on those debts – didn’t last long. Over the 10 years since Q1 2008, consumer debt has now surged 47%. Over the same period, the consumer price index has increased 16.9%: Auto loans and leases for new and used vehicles rose by 3.8% from a year ago, or by $41 billion, to $1.118 trillion. It was one of the smaller increases since the Great Recession: The peak year-over-year jumps occurred at the peak of the new vehicle sales boom in the US in Q3 2015 ($87 billion or 9%). However, the still standing records were set in Q1 and Q2 2001 near the end of the recession, with each quarter adding around $93 billion, or 16%, year-over-year.

It really makes no difference; the EU will say no anyway to all plans acceptable to the UK.

• UK PM May Suffers Upper House Defeat Over Plans To Leave EU Single Market (R.)

Britain’s upper house of parliament on Tuesday inflicted another embarrassing defeat on Prime Minister Theresa May’s government on Tuesday, challenging her plan to leave the European Union’s single market after Brexit. May, who has struggled to unite the government behind her vision of Brexit, has said Britain will also leave the European Union’s single market and customs union after it quits the bloc next March. That stance has widened divisions not only within her own Conservative Party but also across both houses of parliament, which like Britons at large, remain deeply split over the best way to leave the EU after more than four decades of membership.

By a vote of 245 to 218, the unelected upper chamber, the House of Lords, supported an amendment to her Brexit blueprint, the EU withdrawal bill, requiring ministers to negotiate continued membership of the European Economic Area, meaning that it would remain in the single market. “The time has come over Brexit, really, for economic reality and common sense to prevail over political dogma and wishful thinking,” said Peter Mandelson, a member of the House of Lords from the main opposition Labour Party, who backed the amendment.

His comments drew criticism from pro-Brexit peers, including Conservative member Michael Forsyth who described the amendment as part of an attempt by “a number of people in this house who wish to reverse the decision of the British people”. Those proposing the amendment deny the charge. This is the 13th time in recent weeks that the government has been defeated in the House of Lords on the draft legislation that will formally terminate Britain’s EU membership.

Must have been the weather.

• UK Retailers Suffer Sharpest Sales Drop For 22 Years In April (G.)

Britain’s retailers suffered the sharpest drop in business in more than two decades last month as bad weather, the squeeze on household budgets and the timing of Easter led to a hefty cut in consumer spending. In the latest evidence of the slowdown in the economy since the turn of the year, the latest health check from the British Retail Consortium (BRC) and KPMG found that sales were down by 3.1% in April, the biggest decline since the survey was launched in 1995. Spending on non-food items has been particularly hard hit over the last three months, and retailers are braced for tough trading conditions to continue for the rest of the year even though wages have now started to rise more quickly than prices.

Retailers have been hit hard by a combination of problems on top of the squeeze on spending, including higher labour costs as a result of increases in the minimum wage, the shift to online shopping and rapidly changing spending patterns. Toys R Us and the electricals retailer Maplin collapsed in February and a number of retailers, including House of Fraser, New Look, Carpetright and Poundworld, are all pursuing agreements with their landlords to cut their rents and close stores. The industry had been expecting that year-on-year comparisons would look poor for April, but the BRC’s chief executive, Helen Dickinson, said the problem ran deeper.

Pickers and packers.

• Sharp Drop In UK Retail Job Vacancies As High Street Crisis Deepens (Ind.)

Wages rose in April amid strong demand for candidates, but the number of retail vacancies dropped sharply as the crisis on the high street worsened, a recruitment industry survey has found. Growth of overall job vacancies picked up to a three-month high in April, the Recruitment and Employment Confederation said. Demand for permanent staff increased in the “vast majority” of job categories during the month, with the notable exception of retail, the REC said. The study of 400 recruitment consultancies found that engineering and IT saw the steepest increases in vacancies. REC director of policy Tom Hadley said the high-profile struggles of many retailers indicated it was a good time for staff to consider how they could transfer their skills into other roles, such as in the technology sector or as pickers and packers in distribution centres. “Helping people make career transitions will become increasingly important in this fast-changing business and employment landscape,” he said.

Smart.

“..In New York in 2017, 86% of fifth-degree marijuana arrests were of people of color, while only 9% of those arrested were white..”

• Cynthia Nixon: Marijuana Industry Could Be ‘A Form Of Reparations’ (Hill)

New York gubernatorial candidate and actress Cynthia Nixon on Saturday expanded on her calls for marijuana legalization, saying that the industry could provide a form of “reparations” for communities of color. Nixon, who expressed her support for legalizing marijuana earlier this year, told Forbes that she views marijuana as a racial justice issue. “We’re incarcerating people of color in such staggering numbers,” she said. She expressed support for what is known as an “equity” program, which would prioritize giving marijuana business licenses to people who have received marijuana convictions in the past. “Now that cannabis is exploding as an industry, we have to make sure that those communities that have been harmed and devastated by marijuana arrests get the first shot at this industry,” she told Forbes.

“We [must] prioritize them in terms of licenses. It’s a form of reparations.” In New York in 2017, 86% of fifth-degree marijuana arrests were of people of color, while only 9% of those arrested were white, despite data showing that black and white people are about equally likely to use marijuana. “Arresting people — particularly people of color — for cannabis is the crown jewel in the racist war on drugs and we must pluck it down,” she said. “We must expunge people’s records; we must get people out of prison.” “The use of marijuana has been effectively legal for white people for a really long time,” she told Forbes. “It’s time that we legalize it for everybody else.”

Everything keeps going down. It’s guaranteed.

• Record Drop In Greek Savings Last Year (K.)

Household savings shrank by 32.5 billion euros in total in the period from 2011 to 2017, as families increasingly resorted to dipping into their deposits after finding that disposable incomes are no longer enough to cover their outgoings. Last year the drop in savings reached an historic high of 8.3 billion euros in current prices, according to an analysis by Eurobank. In addition, households have resorted to liquidating assets such as properties, deposits, shares and bonds, among other investments. Notably consumption shrank by almost a quarter from 2008 to 2017, falling from 163.3 billion euros to 123.3 billion last year, which was the sixth in a row with negative savings for Greek households; this means that disposable income was less than consumption.

Eurobank data showed that the wealth of the country’s households has been in constant decline since 2011, falling at an average rate of 6.6 billion euros per year, which is transformed from various forms of savings into consumption. The report by Eurobank’s analysis department highlighted that the economic recession, the stagnation in investments and the major fiscal adjustment Greece experienced from 2009 to 2017 have compressed households’ saving capacity, both in terms of incomes and their obligations to the state through taxes and social security contributions.

The figures reveal that Greek households’ net annual savings amounted to 11.4 billion euros in 2009, or 7% of their gross disposable income, while last year the balance was negative by 8.3 billion, or 6.7% of households’ gross disposable income. Shrinking private consumption has had a direct impact on investments: In 2009 investments had amounted to 18.3% of GDP and were 31.8% funded by domestic consumption and the rest from borrowing. In 2017 the investment rate slipped to 11.6% of GDP, with domestic consumption accounting for 91.1%.

Delusional or lying to our faces?

• Debt Repayment Feasible if Greece ‘Implements Reforms’ – Regling (AMNA)

“If the government in Athens implements all the remaining reforms decisively, Greece can successfully emerge from the ESM program in August 2018,” Klaus Regling, president of the European Stability Mechanism, has said. The ESM chief spoke at en event held in Aachen, Germany on the occasion of the awarding of the 60th International Charlemagne Prize to French President Emmanuel Macron. Regling expressed confidence that Greece could repay its loans, provided the maturity times are sufficiently extended and the obligations do not exceed 15-20% of the country’s economic performance. The ESM chief said that if the latest report on Greece’s bailout program is positive, there will be a final disbursement from the ESM, and then decisions will be made on possible further debt relief.

He argued that there was absolutely no alternative to the establishment of the rescue mechanism, without which, as he said, Greece, Portugal and Ireland would have probably come out of Economic and Monetary Union under “chaotic conditions,” while at the same time other countries such as Germany, would have problems. Regling also stressed that ESM interest rates are clearly below the level that countries would have to pay in the markets, and that is why they save a lot of money. In the case of Greece, “we estimate that ESM loans lead to savings of almost €10 billion [$11.8 billion] each year for the Greek budget”, he said and stressed that this is happening costing nothing to the European taxpayer.

“These savings are an expression of the solidarity shown by the member states of the euro zone,” he said, and referred to “great efforts” that Greece is making to fulfill the strict reform conditions. “Overall, Greece now has impressive adaptation efforts behind it. The budget deficit at the start of the 2009 crisis was above 15% of GDP. For two years, the country has been generating a budget surplus. Such a success is only possible with profound reforms,” Regling noted and said that if Greece implements all reforms, eurozone finance ministers would give Greece further debt relief, namely longer repayment times.

Finally, explaining the reasons why Greece remains in a program while the other countries have completed their own, referred to the country as a “special case” for three reasons: “Firstly, the Greek economy has had problems that are deeper rooted than for other countries in a program. Secondly, the country suffered from a much weaker public administration than the other eurozone member states. “And thirdly, the Greek government in the first half of 2015 went in the wrong direction with then finance minister (Yanis Varoufakis): major reforms were revoked and an effort was made to stop the agreed reform program. “As a result, the Greek economy had fallen into a recession. Grexit suddenly became a realistic scenario. The Bank of Greece estimates that this wrong move cost Greece €86 billion.”

How we think.

• British Diplomats: Saving The Rainforest Could Hurt Fighter Jet Sales (UE)

British government officials warned a proposed EU ban on palm oil in biofuels could harm UK defence sales to Malaysia, specifically Typhoon fighter jets, according to government emails obtained by Unearthed. The correspondence reveals that the British high commission in Kuala Lumpur even expected Malaysian Prime Minister Najib Razak to lobby Theresa May personally on the issue at last month’s Commonwealth Heads of Government meeting. In the event, Razak did not attend the meeting in London, a Number 10 spokeswoman told Unearthed. Correspondence between the Ministry of Defence, the Department for Environment, Food and Rural Affairs and the British high commission reveals British officials were concerned that EU moves to ban palm oil in biofuels could result in Malaysian trade reprisals against the UK.

MEPs voted in January to phase out the use of palm oil in biofuels, citing environmental concerns. The move sparked a furious response from the governments of Indonesia and Malaysia, which produce most of the world’s palm oil. The debate over palm oil is playing a significant role in the run-up to Malaysia’s general election, which will be held tomorrow. On the morning of 5 February, an official at the British high commission in Malaysia sent an email warning that the EU decision was “a big issue for Malaysia and, if not handled correctly, has the potential to impact on bilateral trade, particularly defence sales (Typhoon)”.

Debt Rattle April 22 2018

Apr 222018

April 22, 2018 Posted by Raúl Ilargi Meijer at 9:41 am Finance Tagged with: boycott, Greece, IMF, May, minimum wage, Mnuchin, Taleb, truce, Vancouver Model, Windrush, World Bank 17 Responses »

Vincent van Gogh Green Wheat Field With Cypress 1889

• US Hints at China Truce as World Warns of Trade-War Threat (BBG)

• US Banks Push Mortgage Apps As Home Lending Slows (R.)

• Chinese Gangs Are Laundering Drug Money Through Vancouver Real Estate (GN)

• New Zealand’s Ban On Home Sales To Foreigners Is “Discriminatory” – IMF (BBG)

• Whirling Whirling (Jim Kunstler)

• Home Office Under Theresa May Was Urged in 2014 To Act On Windrush (Ind.)

• Tory Ministers Milking The System Are The Real Shirkers (G.)

• Theresa May’s Hateful ‘Hostile Environment’ Immigration Policy (O.)

• Europe’s Depopulation Time Bomb Is Ticking in the Baltics (BBG)

• Members of European Parliament Call For Boycott of FIFA World Cup in Russia (UAW)

• World Bank Recommends That Countries Eliminate Minimum Wage (BB)

• Hopes For Greek Debt Deal Low Amid EU-IMF Discord (K.)

• Turkish Justice Minister: Greece ‘A Gathering Place For Criminals’ (K.)

• Nassim Nicholas Taleb Has Never Borrowed a Cent in His Life (Esq.)

At least in words, China has caved.

• US Hints at China Truce as World Warns of Trade-War Threat (BBG)

U.S. Treasury Secretary Steven Mnuchin said he’s considering a trip to China amid a trade dispute with Beijing that finance chiefs warn could derail the global economic upswing. Mnuchin said he’s “cautiously optimistic” of reaching an agreement with China that bridges their differences over trade. “A trip is under consideration,” Mnuchin told reporters on Saturday in Washington at the IMF’s spring meetings. “I’m not going to make a comment on timing, nor do I have anything confirmed.” China’s Ministry of Commerce said Sunday it is aware that the U.S. is considering a visit to Beijing to negotiate economic and trade issues and welcomes such a move.

A visit by the U.S. Treasury secretary to China could signal a breakthrough in the spat between the world’s two-biggest economies, whose threats to slap tariffs on each other have rattled markets and raised fears of a trade war. It would come at a sensitive time for the region’s geopolitics, with negotiations under way on a planned meeting between President Donald Trump and North Korean leader Kim Jong-Un. Mnuchin’s remarks came as finance ministers and central bankers at the IMF meetings gave their latest economic assessments, often citing trade as a threat looming over the strongest upswing in seven years.

[..] Mnuchin said he met with Yi Gang, governor of the People’s Bank of China, at the IMF gathering this week. The discussions focused on issues related to the Chinese central bank, not trade, said the secretary. Mnuchin said they also discussed China’s planned further opening of some markets, a move that U.S. has encouraged and “appreciated.” “China will vigorously push forward the reform and opening-up of the financial sector, significantly relax market access restrictions, create a more attractive investment environment, strengthen the protection of intellectual properties and actively expand imports,” Yi said in a statement on Saturday. China has announced plans to gradually remove foreign ownership caps for limits for car-, ship- and aircraft-makers.

“Buying a house is supposed to be a joyful thing..”

• US Banks Push Mortgage Apps As Home Lending Slows (R.)

Big U.S. banks are racing to launch websites and mobile apps to make getting a mortgage faster and easier, investments that may have modest near-term payoffs as home lending activity slows. Lenders have been spending on digital tools to cut costs, eliminate error-prone paperwork and appeal to younger home buyers. However, they are chasing a shrinking pool of refinancing business and new home loan volumes are still below pre-crisis levels. Bank of America has spent $1 billion on its digital banking services in the last six years and launched its lineup of techy mortgage products last week. Wells Fargo rolled out its website and app service during the first quarter, and JPMorgan Chase, which is investing $1.4 billion in technology in 2018, plans to launch its offering later this year.

Bank of America’s app automatically fills in a customer’s address, employment history and other information that the bank already has, cutting out hundreds of boxes customers would otherwise have to fill. JPMorgan’s lets customers e-sign important documents. Quicken Loans was the first to gain traction with digital home loans following its 2016 Rocket Mortgage launch. The app is now key to its mortgage sales with more than 98 percent of the $20 billion in first-quarter lending volume accessing Rocket Mortgage at some point in the mortgage process, Quicken spokeswoman Brianna Blust said.

Quicken was the biggest home lender by volume in the fourth quarter of 2017 and first quarter of 2018, Blust said. It was the second-largest U.S. mortgage lender for the full year 2017, according to data from Inside Mortgage Finance Publications. “Buying a house is supposed to be a joyful thing,” said Steve Boland, Bank of America’s head of consumer lending. “Filling out 330 fields is not, I think, something that brings you joy.” Refinancing volumes have plunged as interest rates have risen, meaning lenders must compete for a much smaller revenue pie in fresh home purchases.

Bit over the top?

• Chinese Gangs Are Laundering Drug Money Through Vancouver Real Estate (GN)

Criminal syndicates that control chemical factories in China’s booming Guangdong province are shipping narcotics, including fentanyl, to Vancouver, washing the drug sales in British Columbia’s casinos and high-priced real estate, and transferring laundered funds back to Chinese factories to repeat this deadly trade cycle, a Global News investigation shows. The flow of narcotics and chemical precursors — and a rising death count in western Canada caused by synthetic opioids — is driven by sophisticated organized crime groups known as Triads. The Triads have infiltrated Canada’s economy so deeply that Australia’s intelligence community has coined a new term for innovative methods of drug trafficking and money laundering now occurring in B.C.

It is called the “Vancouver Model” of transnational crime. Details of the Vancouver Model are outlined in a November 2017 report obtained by Global News from B.C.’s provincial government, in a freedom of information request. The report, by John Langdale of the department of security studies and criminology at Macquarie University, was presented to Australian intelligence officers and Austrac, the country’s anti-money laundering agency. B.C. Attorney General David Eby has reviewed the report, and recently travelled to Ottawa to inform a federal committee of his concerns. His message was blunt. Eby testified that Canada’s anti-money laundering system has completely failed. He told the committee that gangsters have been openly carrying hockey bags stuffed with hundreds of thousands in drug cash into B.C. casinos, and there has not been a single prosecution.

In an interview with Global, Eby said the Australian report shows “that Vancouver is now recognized internationally as a hub of transnational money laundering.”

Is this also about Chinese gangs?

• New Zealand’s Ban On Home Sales To Foreigners Is “Discriminatory” – IMF (BBG)

The IMF has criticized New Zealand’s “discriminatory” ban on home sales to foreigners, saying it’s unlikely to improve housing affordability. “Foreign buyers seem to have played a minor role in New Zealand’s residential real estate market recently,” the IMF said in a statement Tuesday, after concluding its annual Article IV mission to New Zealand. If the government’s broader housing policy agenda is fully implemented, that “would address most of the potential problems associated with foreign buyers on a less discriminatory basis,” it said. The new Labour-led government has pledged to fix the nation’s housing crisis with a raft of measures, including a ban on foreign speculators buying residential property, removal of tax distortions and an ambitious building program.

House prices have surged more than 60% in the past decade amid record immigration and a construction shortfall, shutting many out of the housing market. [..] Proposed changes to the Overseas Investment Act, which the government says will bring New Zealand into line with neighboring Australia, will classify residential land as “sensitive,” meaning non-residents or non-citizens can’t purchase existing dwellings without the consent of the Overseas Investment Office. While non-resident foreigners will be allowed to invest in new construction, they will be forced to sell once the homes are built.

“Their parting shot to an unjust world was voting for Donald Trump. Next time, they won’t even be around.”

• Whirling Whirling (Jim Kunstler)

It begins to look like The USA will litigate itself into Civil War Two with the first battle being half the lawyers in the Department of Justice prosecuting the other half until Anthropogenic Global Warming puts the DC Swamp completely underwater and all parties concerned scuttle off into the deep blue sea. It was rather a shock to see the photo lineup of all those familiar faces — Comey, Hillary, McCabe, Loretta Lynch et. al. — in the criminal referral “matters” sent over to the DOJ by congress on Wednesday, as if they were some mob of goombahs caught running a waste management kickback racket in the Hackensack mud-flats.

But the evidence trail has been in plain sight for more than a year that Justice Department officials of various ranks and stripes colluded to bring off a legalistic coup d’etat against the loathed and despised winner of the 2016 election — with a little help from (of all things and personae) Russia, as in that political smallpox blanket known as the Steele Dossier. Mixed metaphors aside, it looks like all the clones of Ricky Ricardo and Lucy engineered in some CIA black lab will never satisfy the amount of ’splainin’ that needs to be done, and that the ensuing trials may last longer than the lifetimes of millennials still struggling on campus with their gender presentation. There may be even more line-ups to come.

I’m thinking players like Susan Rice, the Podesta brothers, Huma Abedin, John Brennan, James Clapper, Debbie Wasserman-Schultz, and perhaps the gentleman who preceded the Golden Golem of Greatness in the oval office. This melodrama will make The Lord of the Rings look like a knock-knock joke. Meanwhile, the Republic actually whirls around the drain, both as a legitimate polity between Montauk Point and the Farallon Islands, and as an actor on the world stage. The Washington bureaucracy is not the only swamp that needs to be drained. There’s also the reeking Okeefenokee wasteland known as the US economy, led by its financial avatars on Wall Street who engineered the orgy of asset-stripping that chewed through the industrial states like some flesh-eating bacteria.

There is nothing left in Flyover-land. I drove through part of it yesterday on a book-reporting chore: the “quiet corner” of northeastern Connecticut south of Worcester, Mass, a valley of decrepitating mill towns and opiate addiction, like some place out of H.P. Lovecraft’s demon-haunted imagination, where the sun comes up twenty minutes later than anywhere else, and a dwindling population of malevolent diseased imbeciles shriek their lonesome agonies of failure and destitution to a God that never returned from lunchbreak one day in 1985. Their parting shot to an unjust world was voting for Donald Trump. Next time, they won’t even be around.

No accident.

• Home Office Under Theresa May Was Urged in 2014 To Act On Windrush (Ind.)

Home Office officials were urged four years ago to act on the growing problems facing the Windrush generation, it has emerged, including recommendations to create a specialist taskforce which was only set up this week. It follows intense pressure on the government department and Theresa May over their handling of the Windrush scandal that has highlighted the plight of members of a generation of immigrants who arrived as British citizens in the mid-twentieth century. This week both Amber Rudd, the home secretary, and the prime minister have personally apologised for the debacle, promising compensation for those affected and setting up a new dedicated team in the Home Office tasked with helping members of the Windrush generation prove their right to British citizenship.

But the government now faces renewed criticism after it emerged that a similar recommendation – the creation of specialist Home Office unit – was made in October 2014 while Ms May was in charge of the department as home secretary. In a detailed report, published in October 2014 by the Legal Action Group, it was also warned that thousands of migrants who have been in Britain legally for decades were falling victim to the “hostile immigration” policies aimed at illegal immigrants in the UK. The recommendations of the Chasing Status report also included maintaining applicants’ ability to work and claim benefits while their status is resolved.

[..]The Labour MP David Lammy, who has been a leading campaigner for those members of the Windrush generation experiencing difficulties, told The Independent: “It is utterly extraordinary that the Home Office was clearly aware of the impact that their pernicious policies would have, yet ignored all the warnings and impact assessments. “The apologies made by the home secretary and prime minister are merely crocodile tears given that they were fully aware of the human cost that their policies would have. It’s time for a proper and independent review of our immigration policy and the hostile environment.”

“Lose one form, and you lose cancer treatment and your liberty – lose a generation’s forms, and you’re the effing PM..”

• Tory Ministers Milking The System Are The Real Shirkers (G.)

If I were editing a tabloid newspaper this week – and I’m always open to guest stints – I would have had advertising vans out since Monday. They would have been crawling v-e-r-y slowly back and forth past the houses of Theresa May, Amber Rudd, Nick Timothy and David Cameron – and those just for starters. Instead of the repulsive GO HOME message that adorned the infamous vans May’s Home Office sent out, which resulted in the eventual deportation of precisely 11 migrants, I would have something along the lines of STAY HOME. Stay home, permanently. Whether they would get the message is uncertain. Collectively, Britain did its very best to provide a hostile environment for May with the election result. The message was very clear: take a hike. Not a hiking holiday, but the full hike.

Yet the import does not seem to have got through to the prime minister, or the various arse-coverers around her. It’s fair to say we are dealing with a very specific class of unworthy here. There are few groups who take less responsibility for their actions, as this week in the Windrush scandal has laid starkly bare. Some of the most senior political figures in the land are – in the purest sense of one of their favourite terms – shirkers. They are feckless. They act like these things are happening to them, as opposed to because of them. Given the judgments they like to visit on the weaker members of society for comparatively minuscule transgressions, this makes them the most raging hypocrites too.

[..] And on they all go. If the government is in any doubt as to why so many millions think it’s one rule for them and another for the little people, then this week couldn’t be a better primer. You lose one form and you lose your job, your cancer treatment, your benefits, your liberty; you lose a generation’s forms and you’re the effing prime minister. Those condemned to battle the systems that ministers design know what happens if they make tiny errors. Furthermore, they know that if they messed up a tenth as badly in their jobs, they’d be sacked. But in the arse-over-tit world of government, you’re safe because your sacking would make the big boss – May – look weak. Just like your HR department, right? Except on crystal meth.

I don’t want to fall back on a series of politicians’ best-loved cliches, but this level of irresponsibility is just scrounging with a red box. They play for high stakes – but never their own. It’s the sort of system-milking demonised in a benefits office in Grimsby but regarded as career progression in Westminster. It makes it appear there’s no glass ceiling in modern political life, just a reinforced lead floor. Once you’re in, you basically have to die to stop earning rewards.

“Children as young as 10 who were born in the UK are subjected to a “good character” test when they apply for citizenship..”

• Theresa May’s Hateful ‘Hostile Environment’ Immigration Policy (O.)

History will judge Theresa May harshly. In recent weeks, the appalling stories about the impact of the government’s “hostile environment” policy reported by our sister paper, the Guardian, have continued to grow in number. They paint a shocking picture of a Kafkaesque state that has denied people who came to the UK from the Commonwealth as children their rightful entitlement to work, to housing and to healthcare. May has maintained these are people who have been wrongly caught up in her 2013 decision as home secretary to create a “really hostile environment” for people living in Britain illegally. But their tragic stories are the direct consequence of a policy so punitive that it would inevitably make life intolerable for legal British residents.

People without a passport are now being required to provide an absurd level of proof – four pieces of documentary evidence for each year of residence – of their legal status. Without this, they can no longer work, rent a home, open a bank account or access NHS care and may be detained and threatened with deportation. Doctors, bank clerks and landlords have become obliged to snoop on their fellow citizens by checking up on their immigration status.

[..] Those who become caught up in this are confronted with a cruel Home Office bureaucracy that operates outside the principles of natural justice. Officials are incentivised to reject applications for the tiniest of technical errors; immigration application fees are so high they are generating profits of up to 800% for the state, and there is no longer any right of appeal or legal aid available in most types of immigration cases. Children as young as 10 who were born in the UK are subjected to a “good character” test when they apply for citizenship; if they have been cautioned, their application can be refused.

The EU fails everywhere, and spectacularly. It sucks the periphery dry. Just like Rome did.

• Europe’s Depopulation Time Bomb Is Ticking in the Baltics (BBG)

With much of Eastern Europe already in the European Union or looking to join, living standards have been rising in the cities that dot these former Soviet satellites. More storefronts beckon to western tourists, who have grown more eager to wander among the cobblestones of historic capitals that were once less than hospitable. But a closer look outside the central squares reveals a different reality. According to the UN’s Department of Economic and Social Affairs, nine of the world’s countries most at risk of losing citizens over the next few decades are former East bloc nations. Porous borders and greater opportunity in the west have lured people away. Meanwhile, the populist wave sweeping the continent has made it next-to-impossible for African or Middle Eastern refugees to take their place.

Former Latvian economic minister Vjaceslavs Dombrovskis, now head of the Certus think tank, compared the westward migration of young eastern Europeans to the industrial revolution, when peasants rushed to large urban centers. He said these countries risk turning into what ancestral villages are for city dwellers: “a lovely place where you might spend an odd weekend with your folks.” The trend is hitting especially hard in the Baltics. Latvia, with a current population of 1.96 million, has lost about 25% of its residents since throwing off Soviet control in 1991. The UN predicts that by 2050, it will have lost an additional 22% of its current population—second only to Bulgaria—and by 2100, 41%.

In Estonia, with a population of 1.32 million, the UN foresees a 13% decline by 2050, growing to 32% by 2100. And in Lithuania, the current population of 2.87 million is expected to drop by 17% in 2050. By 2100, it will have lost 34%. As bad as those numbers look, the trend looks even worse for Ukraine and Moldova. The UN predicts 36% and 51% declines in those nations by the end of the century, respectively. Russia, meanwhile, is expected to lose 13% by 2100. Several factors are contributing to the depopulation of Eastern Europe, and Latvia has all of them: low income, compared with more developed EU nations; insufficient growth; and strong anti-immigrant sentiment. The average annual take-home pay among all EU nations was 24,183 euros ($29,834) in 2015, according to Eurostat, while in Latvia it was only 6,814 euros ($8,406).

There are 751 members. 60 support this.

• Members of European Parliament Call For Boycott of FIFA World Cup in Russia (UAW)

60 members of the European Parliament called on EU member states to boycott the FIFA World Cup in Russia, DW reports. The initiator of this appeal is a representative of the Green Party, Rebecca Harms. She believes that Russian President Vladimir Putin cannot be a host of the World Cup while the war continues in Syria and Ukraine. She also pointed out that Russia supports right-wing extremist and anti-democratic parties in the EU and has been trying to influence elections. Overall, the statement was signed by representatives of 5 factions of the European Parliament from 16 countries. The authors of the document indicate that Russia itself is pushing Europe towards such steps.

A group of deputies reminded others about the poisoning of former GRU agent Sergei Skripal and his daughter Yulia, which they called a mockery of European values. MEPs believe that EU member states should take the UK and Iceland as good examples of the countries which counter the “strengthening of the authoritarian and anti-Western course of the Russian president.” The authors also draw attention to the unsatisfactory situation with human rights and freedoms in Russia, especially the violation of freedom of speech. Earlier, a White House representative urged British and American fans to think twice before going to the World Cup in Russia.

Let’s shut down the World Bank. It’s been rotting for too long.

• World Bank Recommends That Countries Eliminate Minimum Wage (BB)

A draft of the World Bank’s annual flagship World Development Report says that its creditor-states (the poorest countries in the world) should eliminate their minimum wage rules, allow employers to fire workers without cause, and repeal laws limiting abusive employment contract terms. The bank argues that this is necessary to stop employers from simply investing in automation and eliminating workers altogether. The report does not contemplate the possibility that the world’s governments would just raise taxes on corporations and their investors to provide for all their citizens.

Poor countries – especially decolonized countries – are often in debt to organizations like the World Bank and IMF, sometimes because they were forced to literally buy their freedom (like Haiti, whose slave-descended population had to remit a sizable portion of its annual GDP to the descendants of French slavers until 1947), sometimes because their wealth was looted by colonists during and after the colonial period, and sometimes because rich creditor nations were complicit in the exfiltration of the nation’s treasure by gangster-politicians, a practice that continues to this day.

Countries generally carry more debt than they can hope to repay, and teeter on the brink of continuous default, putting them at the mercy of creditor-organizations, who can order changes to national laws, sell-offs of public industries and assets, and other measures that further reduce debtor-states’ ability to prosper, creating more debt and deeper concessions. The World Bank’s recommendations feel like the beginning of the end-game of late-stage capitalism, a recognition that the post-war era in which cruel exploitation of workers was considered a bug rather than a feature is drawing to a close, and a return to a kind of market feudalism, where property rights – no matter how corrupt their origins – always trump human rights.

Divide and rule.

• Hopes For Greek Debt Deal Low Amid EU-IMF Discord (K.)

Hopes for a breakthrough on the issue of Greek debt relief at a summit of eurozone finance ministers in Sofia on Friday are muted following a lack of progress in talks between European officials and representatives of the IMF in Washington over the weekend. Talks involved all of the key players in the debate on Greece’s debt, including IMF chief Christine Lagarde, European Monetary and Economic Affairs Commissioner Pierre Moscovci, and the finance ministers of Germany, Italy, Spain and France. But a long-standing rift between EU and IMF officials over how a debt relief mechanism should operate continued, with the Fund representatives insisting that it should be automatic and the Europeans saying it should be tied to conditions.

In view of the resistance put up chiefly by Germany, the EU’s largest economy, Finance Minister Euclid Tsakalotos expressed his concern that the debt relief being considered for Greece would be inadequate. Another worry is over creditors’ objections to a growth plan proposed by Greece. European officials responded with a 30-page memo to Greece’s 85-page proposal, requesting more detail and a stricter time frame. The growth plan was one of the issues discussed by leftist SYRIZA’s political secretariat during a session chaired by Prime Minister Alexis Tsipras on Saturday.

What you say about a neighbor you want good relations with.

• Turkish Justice Minister: Greece ‘A Gathering Place For Criminals’ (K.)

Turkish Justice Minister Abdulhamit Gul has written to his Greek counterpart Stavros Kontonis saying “Greece is becoming a gathering place for criminals” following a court ruling releasing one of eight Turkish servicemen seeking asylum in Greece, Anadolu reported on Saturday. Gul’s letter came a day after Turkish Prime Minister Binali Yildirim slammed the Council of State ruling, saying Greece was becoming a “safe haven” for Turkey’s enemies. The ruling issued on Thursday by Greece’s highest administrative court relates to Süleyman Özkaynakçı, who piloted the helicopter in which he and seven other Turkish servicemen fled to Greece in July 2016 following Turkey’s failed coup.

However it is expected to apply to all eight servicemen. In his comments on Friday, Yildirim said it was “unacceptable” for people who took part in the coup attempt in the summer of 2016 to be protected by Greece. “Unfortunately, recently, criminals of the FETO organization have started seeing Greece as a safe haven,” he said, referring to what Ankara describes as a terrorist group led by exiled cleric Fethullah Gulen. “I hope they will extradite the members of this organization,” he said, adding that Turkish authorities “do not desire a negative impact on Greek-Turkish relations because of members of the FETO organization.”

“We have to worry about the 2 percent—the intellectuals and politicians making the big decisions who don’t have skin in the game and are messing the whole thing up for everybody else.”

• Nassim Nicholas Taleb Has Never Borrowed a Cent in His Life (Esq.)

People ask me my forecast for the economy when they should be asking me what I have in my portfolio. Don’t make pronouncements on what could happen in the future if you’re immune from the consequences. In French, they use the same word for wallet and portfolio. I have never, ever borrowed a penny. So I have zero credit record. No loans, no mortgage, nothing. Ever. When I had no money, I rented. I have an allergy to borrowing and a scorn for people who are in debt, and I don’t hide it. I follow the Romans’ attitude that debtors are not free people. I carry euros, dollars, and British pounds. What I do with my money is personal. People who say they give it to charity, that’s a no-no in my book. Nobody should ever talk about a charitable act in public.

Better to miss a zillion opportunities than blow up once. I learned this at my first job, from the veteran traders at a New York bank that no longer exists. Most people don’t understand how to handle uncertainty. They shy away from small risks, and without realizing it, they embrace the big, big risk. Businessmen who are consistently successful have the exact opposite attitude: Make all the mistakes you want, just make sure you’re going to be there tomorrow. Don’t invest any energy in bargaining except when the zeros become large. Lose the small games and save your efforts for the big ones. There’s nothing wrong with being wrong, so long as you pay the price. A used-car salesman speaks well, they’re convincing, but ultimately, they are benefiting even if someone else is harmed by their advice.

A bullshitter is not someone who’s wrong, it’s someone who’s insulated from their mistakes. There is less “skin in the game” today than there was fifty years ago, or even twenty years ago. More people determine the fates of others without having to pay the consequences. Skin in the game means you own your own risk. It means people who make decisions in any walk of life should never be insulated from the consequences of those decisions, period. If you’re a helicopter repairman, you should be a helicopter rider. If you decide to invade Iraq, the people who vote for it should have children in the military. And if you’re making economic decisions, you should bear the cost if you’re wrong.

Ninety-eight percent of Americans—plumbers, dentists, bus drivers—have skin in the game. We have to worry about the 2 percent—the intellectuals and politicians making the big decisions who don’t have skin in the game and are messing the whole thing up for everybody else. Thirty years ago, the French National Assembly was composed of shop owners, farmers, doctors, veterinarians, and small-town lawyers—people involved in daily activities. Today, it’s entirely composed of professional politicians—people who are just divorced from real life. America is a little better, but we’re heading that way.

Debt Rattle April 21 2018

Apr 212018

April 21, 2018 Posted by Raúl Ilargi Meijer at 9:00 am Finance Tagged with: Comey, DNC, DOJ, Fed, IMF, May, North Korea, racism, Trump, Wells Fargo, Wikileaks, Windrush, yield curve 1 Response »

James McNeill Whistler Morning Glories 1869

• A US Recession Ahead? Fed Policymakers Say Not To Worry (R.)

• If Treasuries Reach 3%, That Would Be Big (BBG)

• Kim Jong-Un Halts Nuclear & Missile Tests, Shuts Down Testing Site (RT)

• DNC Sues Russia, Trump, Wikileaks For Conspiring To Hurt Hillary in 2016 (ZH)

• DNC Lawsuit Against WikiLeaks a Serious Threat to Press Freedom (IC)

• Trump To “Counter” DNC Lawsuit (ZH)

• Comey Memos Probed By DOJ For Classified Info Leaks (ZH)

• Wells Fargo’s $1 Billion Pact Gives U.S. Power to Fire Managers (BBG)

• IMF’s Thomsen Proposes Broadening Greek Tax Base (K.)

• Windrush: When Even Legal Residents Face Deportation (Atlantic)

The illusion of control. Watch the hand.

• A US Recession Ahead? Fed Policymakers Say Not To Worry (R.)

As the gap between short- and long-term borrowing costs hovers near its lowest in more than 10 years, speculation has risen over whether the so-called yield curve is signaling that a recession could be around the corner. Not to worry, two influential Federal Reserve policymakers said on Friday. Another, whose views are typically outside the mainstream at the Fed, disagreed. Growth prospects look pretty strong, which is why the Fed is raising short-term interest rates, the two sanguine policymakers explained. Those rate hikes, they said, are in and of themselves acting to flatten the yield curve. In addition, they argued, the curve will likely steepen as the U.S. government runs a bigger deficit and issues more debt.

The calming comments, from the New York Fed’s incoming chief John Williams and from Chicago Fed President Charles Evans in back-to-back but separate appearances, appeared calculated to allay concern about a potential slowdown ahead. “The yield curve is not nearly as much of a concern as I might have pointed to a couple months ago,” Evans said in Chicago after a speech, in response to a reporter’s question. Williams, who will leave his current job as San Francisco Fed president in June to take over at the New York Fed, also said he expects the Fed’s shrinking balance sheet will help steepen the curve by putting upward pressure on longer-term rates.

In January the U.S. Congress passed a budget deal that boosts U.S. government spending, following a December tax package that slashes corporate tax rates. Both changes are expected to lead to an increase in government borrowing in coming years. The Fed policymakers reason that a bigger supply of debt should put downward pressure on Treasury prices and deliver a corresponding lift to yields. “We’ve got more fiscal debt in train in the U.S. That has to be funded,” and will likely push up long rates and steepen the yield curve, Evans said. At their March meeting, Fed officials “generally agreed that the current degree of flatness of the yield curve was not unusual by historical standards,” according to the meeting minutes.

Where the Fed loses control.

• If Treasuries Reach 3%, That Would Be Big (BBG)

The global bond market’s primary benchmark, the 10-year U.S. Treasury yield, is knocking on the door of 3 percent, a level it hasn’t topped in more than four years. That’s more than just a nice round number. Higher yields make the burden of everything from mortgages to student loans and car payments even heavier. Some market gurus see it as a turning point with effects that could be felt for years — and not just in bonds. With the Federal Reserve signaling interest rates are going up even more, investors in riskier assets like stocks and high-yield debt are left to wonder if this is how their post-recession party ends.

1. What’s so important about yield? A bond’s yield is a measure of the return an investor can expect from buying it. It’s determined by the bond’s interest rate and the price paid for it. For instance, buying a security that pays a fixed 2 percent (the “coupon”) at face value (known as “par”) results in a yield of 2 percent. Buying it at a cheaper price would raise the yield for the investor, while paying a premium would reduce the overall yield. (Maybe the most confusing aspect of the bond market to outsiders is the inverse relationship between price and yield.)

2. How do you determine the benchmark 10-year yield?In the $14.9 trillion Treasuries market, the benchmark is based on the most recently auctioned 10-year security (known as the “on-the-run”). It’s the best measure because it tends to have a price close to par and a coupon close to the current yield. On Friday, the 10-year yield closed at 2.96 percent.

3. Why are yields going up?The Fed is raising its short-term lending rate as the U.S. economy strengthens, after holding it near-zero in the wake of the financial crisis. The three rate hikes last year pushed up two- and five-year Treasury yields in particular, but they’ve also affected 10-year yields as central bankers expect more boosts this year. Another reason: inflation is showing signs of picking up, which erodes the value of bonds’ fixed payments and leads investors to demand higher yields.

4. Why is 3 percent a milestone?Since 2011, it’s been touched only twice, briefly, in 2013 and early 2014, before a bond bull market drove yields to record lows. But 3 percent has also been cited by prominent fixed-income investors like Jeffrey Gundlach at DoubleLine Capital and Scott Minerd at Guggenheim Partners as critical to determining whether the three-decade bull market in bonds is at an end. In the mind of analysts who look at market patterns, once the yield breaks much beyond the 3.05 percent, to levels last reached in 2011, that threshold could flip to a floor from a ceiling.

5. Why does it matter?The 10-year Treasury yield is a global benchmark for borrowing costs. Corporations will have to pay more to issue debt, which they’ve done cheaply in recent years. So will state and local governments, which could jeopardize investments in public infrastructure. Homeowners will face higher mortgage rates (or lose out on refinancing at a lower cost). Taking out loans for cars or college could also become more expensive.

A Nobel Peace Prize.

• Kim Jong-Un Halts Nuclear & Missile Tests, Shuts Down Testing Site (RT)

North Korea’s nuclear and ballistic missile programs have allowed it to secure strategic stability and peace, so there is no need for additional missile and nuclear tests anymore, Kim Jong-un has proclaimed. “From April 21, 2018, nuclear tests and intercontinental ballistic missile tests will be discontinued,” the Korean Central News Agency cited Kim as saying at a plenary meeting of the central committee of the ruling Worker’s Party of Korea (WPK). Furthermore, since North Korea’s nuclear test center has “completed” its mission, it “will be discarded in order to ensure the transparency of the nuclear test suspension,” KCNA reported.

Announcing the new course, the ruling party has declared that North Korea “will never use nuclear weapons, unless there is nuclear threat or nuclear provocation to our country, and in no case we will proliferate nuclear weapons and nuclear technology.” In the announcement, North Korea noted that the “suspension of nuclear testing is an important process for global nuclear disarmament.” Therefore, North Korea is willing to join international denuclearization efforts. North Korea’s last major missile test took place on November 29. Pyongyang announced at the time that it had tested a new type of intercontinental ballistic missile known as the Hwasong-15 that could reach the entire continental United States.

US President Donald Trump, who has traded insults and threats with Kim since taking office, tweeted that the latest decision by Pyongyang is “good news for North Korea and the world,” calling it “big progress.” China has also hailed the move, expressing hope that Pyongyang will continue towards the path of denuclearization and “political settlement” on the Korean Peninsula. “Denuclearization of the peninsula and lasting peace in the region are in line with the common interests of the people of the peninsula,” the Chinese Foreign Ministry said in a statement on Saturday.

Have they really thought this through?

• DNC Sues Russia, Trump, Wikileaks For Conspiring To Hurt Hillary in 2016 (ZH)

Did The Democrats’ “The Russians did it” narrative just jump the shark? The Washingtoin Post reports that The Democratic National Committee filed a multimillion-dollar lawsuit Friday against the Russian government, the Trump campaign and the WikiLeaks organization alleging a far-reaching conspiracy to disrupt the 2016 campaign and tilt the election to Donald Trump. The lawsuit alleges that in addition to the Russian Federation, the General Staff of the Armed Forces of the Russian Federation, Wikileaks and Guccifer 2.0, top Trump campaign officials, including Donald Trump Jr, Roger Stone, Jared Kushner, Paul Manafort and pretty much everyone else who has been mentioned in the same paragraph as Trump….

… conspired with the Russian government and its military spy agency to hurt Democratic presidential nominee Hillary Clinton and help Trump by hacking the computer networks of the Democratic Party and disseminating stolen material found there. [..] The suit filed today seeks millions of dollars in compensation to offset damage it claims the party suffered from the hacks. The DNC argues that the cyberattack undermined its ability to communicate with voters, collect donations and operate effectively as its employees faced personal harassment and, in some cases, death threats.

And Julian Assange is not allowed to see this. Let alone defend himself. A pattern in his life.

• DNC Lawsuit Against WikiLeaks a Serious Threat to Press Freedom (IC)

The Democratic National Committee (DNC) filed a lawsuit this afternoon in a Manhattan federal court against the Russian Government, the Trump campaign and various individuals it alleges participated in the plot to hack its email servers and disseminate the contents as part of the 2016 election. The DNC also sued WikiLeaks for its role in publishing the hacked materials, though it does not allege that WikiLeaks participated in the hacking or even knew in advance about it; its sole role, according to the DNC’s lawsuit, was publishing the hacked emails.

The DNC’s suit, as it pertains to WikiLeaks, poses a grave threat to press freedom. The theory of the suit – that WikiLeaks is liable for damages it caused when it “willfully and intentionally disclosed” the DNC’s communications (paragraph 183) – would mean that any media outlet that publishes misappropriated documents or emails (exactly what media outlets quite often do) could be sued by the entity or person about which they are reporting, or even theoretically prosecuted for it, or that any media outlet releasing an internal campaign memo is guilty of “economic espionage” (paragraph 170).

It is extremely common for media outlets to publish or report on materials that are stolen, hacked, or otherwise obtained in violation of the law. In October, 2016 – one month before the election – someone mailed a copy of Donald Trump’s 1995 tax returns to the New York Times, which published parts of it even though it is illegal to disclose someone’s tax returns without the taxpayer’s permission; in March, 2017, MSNBC’s Rachel Maddow did the same thing with Trump’s 2005 tax returns.

In April, 2016, the Washington Post obtained and published a confidential internal memo from the Trump campaign. Media outlets constantly publish private companies’ internal documents. Just three weeks ago, BuzzFeed obtained and published a secret Facebook memo outlining the company’s internal business strategies, the contents of which were covered by most major media outlets. Some of the most important stories in contemporary journalism have come from media outlets obtaining and publishing materials that were taken without authorization or even in violation of the law. Both the New York Times and Washington Post published thousands of pages from the top secret Pentagon Papers after Daniel Ellsberg took them without authorization from the Pentagon – and they won the right to publish them in the U.S. Supreme Court.

The Guardian and the Washington Post won the 2014 Pulitzer Prize for Public Service for publishing and reporting on huge numbers of top secret documents taken by Edward Snowden from the NSA. The Guardian, the New York Times, and numerous papers from around the world broke multiple stories by publishing classified classified documents downloaded by Chelsea Manning without authorization and sent to WikiLeaks. In 2016, more than 100 newspapers from around the world published and reported on millions of private financial documents known as the “Panama Papers,” which were taken without authorization from one of the world’s biggest offshore law firms and revealed the personal finances of people around the world.

Did the DNC see this coming, and is that why they sued first?

• Trump To “Counter” DNC Lawsuit (ZH)

President Trump is eager to go head-to-head with the DNC which filed a multimillion-dollar lawsuit on Friday against several parties, including the Russian government, the Trump campaign and the WikiLeaks organization – alleging a “far-reaching conspiracy to disrupt the 2016 campaign and tilt the election to Donald Trump.” Hours after the Washington Post broke the news of the lawsuit, Trump tweeted “Just heard the Campaign was sued by the Obstructionist Democrats. This can be good news in that we will now counter for the DNC server that they refused to give to the FBI,” referring to the DNC email breach. Trump also mentioned “the Debbie Wasserman Schultz Servers and Documents held by the Pakistani mystery man and Clinton Emails.”

The “Pakistani mystery man” is a clear reference to former DNC CHair Debbie Wasserman Schultz’s longtime IT employee and personal friend, Imran Awan – whose father, claims a Daily Caller source, transferred a USB drive to the former head of a Pakistani intelligence agency – Rehman Malik. Malik denies the charge. Of note, the DNC would not allow the FBI to inspect their servers which were supposedly hacked by the Russians – instead relying on private security firm Crowdstrike. Meanwhile, the “Wasserman Schultz Servers” Trump mentions is likely in reference to the stolen House Democratic Caucus server – which Imran Awan had been funneling information onto when it disappeared shortly after the House Inspector General concluded that the server may have been “used for nefarious purposes.”

Imran Awan, his wife Hina Alvi and several other associates ran IT operations for at least 60 Congressional Democrats over the past decade, along with the House Democratic Caucus – giving them access to emails and computer data from around 800 lawmakers and staffers – including the highly classified materials reviewed by the House Intelligence Committee.

Napolitano: He was arrested for some financial crime – that’s the tip of the iceberg. The real allegation against him is that he had access to the emails of every member of congress and he sold what he found in there. What did he sell, and to whom did he sell it? That’s what the FBI wants to know. This may be a very, very serious national security situation.

“..all of Comey’s memos – all of them, were classified at the time they were written, and they remain classified.”

• Comey Memos Probed By DOJ For Classified Info Leaks (ZH)

The Department of Justice (DOJ) inspector general is now conducting an investigation into classification issues concerning the “Comey memos” leaked to the New York Times by former FBI Director James Comey. Sources tell the Wall St. Journal that at least two of the memos which Comey leaked to his “good friend,” Columbia Law Professor Daniel Richman, contained information that officials now consider classified – prompting the review by the Office of the Inspector General, headed by Michael Horowitz. “Of those two memos, Mr. Comey himself redacted elements of one that he knew to be classified to protect secrets before he handed the documents over to his friend. He determined at the time that another memo contained no classified information, but after he left the Federal Bureau of Investigation, bureau officials upgraded it to “confidential,” the lowest level of classification.” -WSJ

Comey told Congressional investigators that he considered the memos to be personal rather than government documents. The memos – leaked through Richman, were a major catalyst in Deputy Attorney General Rod Rosenstein’s decision to appoint former FBI Director Robert Mueller as special counsel to investigate Russian interference in the 2016 US election. While Richman told CNN “No memo was given to me that was marked ‘classified,’ and James Comey told Congressional investigators he tried to “write it in such a way that I don’t include anything that would trigger a classification,” it appears the FBI’s chief FOIA officer disagrees.

We previously reported that Senator Chuck Grassley (R-IA) said four of the 7 Comey memos he reviewed were “marked classified” at the “Secret” or “Confidential” level – however in January the FBI’s chief FOIA officer reportedly told Judicial Watch – in a signed declaration, that every single Comey memo was classified at the time. “We have a sworn declaration from David Hardy who is the chief FOIA officer of the FBI that we obtained just in the last few days, and in that sworn declaration, Mr. Hardy says that all of Comey’s memos – all of them, were classified at the time they were written, and they remain classified.” -Chris Farrell, Judicial Watch

Therefore, Farrell points out, Comey mishandled national defense information when he “knowingly and willfully” leaked them to his friend at Columbia University. It’s also mishandling of national defense information, which is a crime. So it’s clear that Mr. Comey not only authored those documents, but then knowingly and willfully leaked them to persons unauthorized, which is in and of itself a national security crime. Mr. Comey should have been read his rights back on June 8th when he testified before the Senate. Farrell told Lou Dobbs “Recently retired and active duty FBI agents have told me – and it’s several of them, they consider Comey to be a dirty cop.”

“Wells Fargo fined twenty days worth of net income sounds a lot less daunting than $1 billion..”

• Wells Fargo’s $1 Billion Pact Gives U.S. Power to Fire Managers (BBG)

Wells Fargo’s $1 billion fine won’t close the book on fallout from its consumer scandals. The nation’s third-largest bank submitted to an unprecedented order Friday that would give the Office of the Comptroller of the Currency the right to remove some of the lender’s executives or board members. That comes on top of the penalties Wells Fargo will pay to settle U.S. probes into mistreatment of consumers, the largest sanction of a U.S. bank under President Donald Trump. The OCC said it “reserves the right to take additional supervisory action, including imposing business restrictions and making changes to executive officers or members of the bank’s board of directors.” The agency could also veto potential executive candidates.

The bank will pay $500 million in penalties each to the OCC and the Consumer Financial Protection Bureau, according to a statement Friday. Wells Fargo warned shareholders last week it would soon face a fine of that size, which it will book retroactively in the first quarter. The bank remains under a Federal Reserve penalty that bans growth in total assets. “CEOs who hoped the Trump administration would be universally lenient regulators missed the difference between a dislike for rules that stifle innovation and employment and a dislike for rules against wrongdoing,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

Squeezing that stone for all he’s worth.

• IMF’s Thomsen Proposes Broadening Greek Tax Base (K.)

Poul Thomsen, director of the International Monetary Fund’s European department, on Friday spoke in favor of broadening Greece’s tax base though he stopped short of determining whether the IMF would call for reductions to the tax-free threshold (due to come into effect in January 2020) to apply a year in advance. Speaking in Washington, where the IMF is holding its Spring Meetings, Thomsen said that raising taxes had played a large part in the country’s fiscal adjustment in recent years but that Greece must find a way of meeting fiscal targets that is “growth-friendly.” The IMF will not impose any specific policies, he said but proposed a “discussion” about the timing of tax reforms.

As regards the Fund’s potential role in Greece’s third international bailout, which expires in August, he said at least one bailout review must be carried out before a decision can be made as well as agreement to lighten Greece’s debt. “Time is running short for us to be able to activate the program,” he said. A discussion on debt measures is likely to take place at the next meeting of eurozone finance ministers, scheduled for April 27 in Sofia. Talks there will also focus on a growth plan that the government has presented to bailout auditors. Finance Minister Euclid Tsakalotos on Friday met in Washington with European Economic and Monetary Affairs Commissioner Pierre Moscovici, Eurogroup Chairman Mario Centeno and European Central Bank President Mario Draghi and is to meet Thomsen and IMF chief Christine Lagarde on Saturday.

If this doesn’t bring down the government, Britain has a whale of a problem. And no excuses. May suddenly offering them money now, after being exposed, is perhaps the worst part of it. You can’t buy off blatant racism with taxpayer money. And those taxpayers should let that be known, very loudly. Or they’re just as guilty.

• Windrush: When Even Legal Residents Face Deportation (Atlantic)

In the aftermath of World War II, the British government invited thousands of people from Caribbean countries in the British Commonwealth to immigrate to the United Kingdom and help address the war-torn country’s labor shortages. Now, nearly 70 years later, many of those same people, now elderly, are having their legal status in the country questioned and are facing deportation. Though the deportation threats date as far back as October, the crisis burst into wider view this week after Caribbean diplomats representing a dozen Commonwealth nations chastised the U.K. government publicly. “This is about people saying, as they said 70 years ago, ‘Go back home.’ It is not good enough for people who gave their lives to this country to be treated like this,” Guy Hewitt, the high commissioner from Barbados to the U.K., said at a gathering of the diplomats.

The migrants are known as the “Windrush generation,” named for the HMT Empire Windrush that brought the first group of them to the U.K. in June 1948. Of the half a million people who immigrated to the U.K. from the Commonwealth between then and 1971, an estimated 50,000 lack the proper documentation to prove it. In a meeting with Caribbean leaders on Tuesday, U.K. Prime Minister Theresa May apologized “for any anxiety that has been caused” and promised no deportations would take place. Still, such assurances won’t necessarily convince those who remain skeptical of the U.K.’s strict immigration policies—ones May herself championed when she served as home secretary between 2010 and 2016.

During that time, May sought to meet then-Prime Minister David Cameron’s goal of reducing net immigration to the tens of thousands by making the U.K. a “hostile environment” for illegal immigration. In practice, this meant requiring doctors, employers, landlords, and schools to confirm that those whom they served were in the country legally. “The determination was to go systematically through any interaction people might have with the state, short of putting checkpoints in the road, just to have people’s immigration status checked,” Polly Mackenzie, the director of cross-party think tank Demos and the former policy director to Deputy Prime Minister Nick Clegg, told me. The Windrush generation wasn’t supposed to be part of that calculus—they had immigrated to the country legally and were thereby entitled to public services, including the right to education, healthcare, and social security.

But after the implementation of the “hostile environment” policies in 2012, these individuals suddenly had to prove their right to live and work in the country—a right which was guaranteed to them under the Immigration Act of 1971, though not everyone obtained the documentation to confirm it. This documentation problem arose in part from the fact that so many people belonging to the Windrush generation immigrated to the U.K. as children, often on their parents’ passport. What’s more, the British government didn’t keep records of who was permitted to stay in the country, nor did they issue documentation confirming it. What little records the government did keep, such as the landing cards documenting the arrival dates of Windrush-era immigrants, were discarded in 2010.

For some, the result was catastrophic. In one case, a woman had lived and worked in the U.K. for 50 years before she was wrongfully declared an illegal immigrant and almost forced on a plane to her native Jamaica. In another, a man who had lived in the U.K. for 59 years received a letter that not only informed him of his illegal status in the country, but also offered him “help and support on returning home voluntarily.” Perhaps one of the most severe cases concerned a man who, after living in the U.K. for 44 years, had his cancer treatment through the National Health Service withheld because he couldn’t provide sufficient documentation to prove he lived in the country continuously since immigrating from Jamaica in 1973.

Debt Rattle April 19 2018

Apr 192018

April 19, 2018 Posted by Raúl Ilargi Meijer at 8:35 am Finance Tagged with: Brexit, criminal referral, Facebook, food waste, Greece, IMF, pardons, Porsche, Triffin, Turkey, VIX 8 Responses »

Edgar Degas The laundress 1873

• Triffin Warned Us (Lebowitz)

• Global Debt Has Reached A Record High, And 3 Countries Are To Blame – IMF (MW)

• Dollar Bears Beware, Trump Tweets May Not Be Enough (Karamanlis)

• Facebook Says Users Must Accept Targeted Ads Even Under New EU Law (R.)

• Facebook To Put 1.5 Billion Users Out Of Reach Of New EU Privacy Law (R.)

• VIX Rigging Talk Erupts on Wall Street After Another Wild Swing (BBG)

• UK Government Loses Key Brexit Vote (CNN)

• Lawmakers Make Criminal Referral on Clinton, Comey, Lynch to DOJ (Carter)

• New York Attorney General Wants Power To Bypass Trump Pardons (R.)

• German Prosecutors Raid Homes Of Porsche Executives Over Dieselgate (Pol.)

• Turkey Disputes Sovereignty of 152 Greek Islets (GR)

• Top Greek Court To Rule Irrevocably On Asylum For Turkish Servicemen (K.)

• Americans Waste 150,000 Tons Of Food Each Day – A Pound Per Person (G.)

We sold our souls to the Debt Devil. There has been no growth for years. We borrowed it all.

• Triffin Warned Us (Lebowitz)

Folklore states that Robert Johnson went down to the crossroads in Rosedale, Mississippi and made a deal with the devil in which he swapped his soul for musical virtuosity. In 1944, the United States and many nations made a deal at the crossroads in Bretton Woods, New Hampshire. The agreement, forged at a historic meeting of global leaders, has paid enormous economic benefits to the United States, but due to its very nature, has a flawed incongruity with a dear price that must be paid. In 1960, Robert Triffin brilliantly argued that ever-accumulating trade deficits, the flaw of hosting the reserve currency and the result of Bretton Woods, may help economic growth in the short run but would kill it in the long run.

Triffin’s theory, better known as Triffin’s Paradox, is essential to grasp the current economic woes and, more importantly, recognize why the path for future economic growth is far different from that envisioned in 1944. We believe the financial crisis of 2008 was likely an important warning that years of accumulating deficits and debts associated with maintaining the world’s reserve currency may finally be reaching their tipping point. Despite the last nine years of outsized fiscal spending and unprecedented monetary stimulus, economic growth is well below the pace of recoveries of years past. In fact, as shown below, starting in 2009 the cumulative amount of new federal debt surpassed the cumulative amount of GDP growth going back to 1967. Said differently, if it were not for a significant and consistent federal deficit, GDP would have been negative every year since the 2008 financial crisis.

[..] In 1960, 11 years before Nixon’s suspension of gold convertibility and essentially the demise of the Bretton Woods Agreement, Robert Tiffin foresaw this problem in his book Gold and the Dollar Crisis: The Future of Convertibility. According to his logic, the extreme privilege of becoming the world’s reserve currency would eventually carry a heavy penalty for the U.S. Although initially his thoughts were generally given little consideration, Triffin’s hypothesis was taken seriously enough for him to gain a seat at an obscure congressional hearing of the Joint Economic Committee in December the same year. What he described in the book, and his later testimony, became known as Triffin’s Paradox.

Events have played out largely as he envisioned it. Essentially, he argued that reserve status affords a good percentage of global trade to occur in U.S. dollars. For this to occur the U.S. must supply the world with U.S. dollars. In other words, to supply the world with dollars, the United States would always have to run a trade deficit whereby the dollar amount of imports exceeds the dollar amount of exports. Running persistent deficits, the United States would become a debtor nation. The fact that other countries need to hold U.S. dollars as reserves tends to offset the effects of consistent deficits and keeps the dollar stronger than it would have been otherwise.

The increase in Chinese debt is staggering. And worrisome.

• Global Debt Has Reached A Record High, And 3 Countries Are To Blame – IMF (MW)

Global debt has reached a record high, and three countries account for more than half of it, according to a new International Monetary Fund report released Wednesday. The IMF’s fiscal monitor said total debt reached $164 trillion in 2016, or 225% of global gross domestic product. That includes the debt of governments, households and companies. Compared with the previous peak in 2009, the world is now 12% of GDP deeper in debt, the IMF said. Just three countries — China, Japan and the U.S. — account for more than half of global debt, and China alone accounts for almost three-quarters of the increase in private debt since the financial crisis.

The IMF warns that countries with elevated government debt are vulnerable to a sudden tightening of global financing conditions, and it said advanced economies were resting on their laurels, with deficits remaining unchanged on average. It said the U.S. was the only advanced economy expecting an increase in debt-to-GDP ratio over the next five years. That’s due to the recently enacted tax cuts as well as the big increase in spending. The IMF said its U.S. forecasts are similar to those published by the Congressional Budget Office.

Trump as currency manipulator?

• Dollar Bears Beware, Trump Tweets May Not Be Enough (Karamanlis)

The entrenched bearish dollar view has all the ingredients to become the pain-trade of the year. It has become super crowded based on occasional utterances from the White House while ignoring a fundamental shift at the Fed. The Bloomberg Dollar Spot Index is hovering near a three-year low as uncertainties surrounding the Trump administration weigh on investor confidence. Be it verbal intervention toward a weaker currency, personnel changes or trade protectionism, the U.S. President has had a way of frustrating dollar longs. As a result, any rebounds in the U.S. currency this year have been short- lived. That’s led to a massive build in short-dollar positions. Hedge funds and other large speculators haven’t been more bearish on the greenback in more than five years, CFTC data show.

With less room for additional short exposure, dollar bears are going to need something more than the short-term turbulence generated by Trump. Those hoping for an assist from monetary policy are likely to be sorely disappointed. The Fed isn’t just retaining its bullish stance, it’s looking for a more aggressive rate-hike trajectory than the market anticipates. With almost half of Fed policy makers projecting at least four interest rate increases for 2018, upside risks prevail. Those risks may become more pronounced should the U.S. Senate confirm Richard Clarida as vice chairman. Clarida, no stranger to the notion of a total of four hikes this year, may spark another round of speculation on whether the FOMC could include a price-level target in its policy framework.

Soon-to-be New York Fed President John Williams also advocates such a shift, which Clarida said, in a Pimco commentary back in 2014, would – in theory – result in higher yields on longer-duration bonds. Given the dollar has been feeling the pressure of a flatter curve since late 2016, the all-new Fed may bring an end to fears that the curve’s shape portends a U.S. recession. After all, the composition of voting members this year has shifted from 2017’s dovish roster. Dollar pricing hasn’t reflected that. Even if Trump shifts away from weak-dollar rhetoric and the market catches up with the Fed’s dot plot, the dollar may struggle to gain the 6% needed to retest October’s highs. But that doesn’t mean we’ll see a slide to fresh, sustainable year-to-date lows.

Users must leave instead.

• Facebook Says Users Must Accept Targeted Ads Even Under New EU Law (R.)

Facebook said on Tuesday it would continue requiring people to accept targeted ads as a condition of using its service, a stance that may help keep its business model largely intact despite a new European Union privacy law. The EU law, which takes effect next month, promises the biggest shakeup in online privacy since the birth of the internet. Companies face fines if they collect or use personal information without permission. Facebook Deputy Chief Privacy Officer Rob Sherman said the social network would begin seeking Europeans’ permission this week for a variety of ways Facebook uses their data, but he said that opting out of targeted marketing altogether would not be possible.

“Facebook is an advertising-supported service,” Sherman said in a briefing with reporters at Facebook’s headquarters. Facebook users will be able to limit the kinds of data that advertisers use to target their pitches, he added, but “all ads on Facebook are targeted to some extent, and that’s true for offline advertising, as well.” Facebook, the world’s largest social media network, will use what are known as “permission screens” – pages filled with text that require pressing a button to advance – to notify and obtain approval. The screens will show up on the Facebook website and smartphone app in Europe this week and globally in the coming months, Sherman said.

The screens will not give Facebook users the option to hit “decline.” Instead, they will guide users to either “accept and continue” or “manage data setting,” according to copies the company showed reporters on Tuesday. “People can choose to not be on Facebook if they want,” Sherman said.

Time to get Facebook out of its misery?!

• Facebook To Put 1.5 Billion Users Out Of Reach Of New EU Privacy Law (R.)

If a new European law restricting what companies can do with people’s online data went into effect tomorrow, almost 1.9 billion Facebook Inc users around the world would be protected by it. The online social network is making changes that ensure the number will be much smaller. Facebook members outside the United States and Canada, whether they know it or not, are currently governed by terms of service agreed with the company’s international headquarters in Ireland. Next month, Facebook is planning to make that the case for only European users, meaning 1.5 billion members in Africa, Asia, Australia and Latin America will not fall under the European Union’s General Data Protection Regulation (GDPR), which takes effect on May 25.

The previously unreported move, which Facebook confirmed to Reuters on Tuesday, shows the world’s largest online social network is keen to reduce its exposure to GDPR, which allows European regulators to fine companies for collecting or using personal data without users’ consent. That removes a huge potential liability for Facebook, as the new EU law allows for fines of up to 4 percent of global annual revenue for infractions, which in Facebook’s case could mean billions of dollars. [..] The change affects more than 70 percent of Facebook’s 2 billion-plus members. As of December, Facebook had 239 million users in the United States and Canada, 370 million in Europe and 1.52 billion users elsewhere.

[..] In practice, the change means the 1.5 billion affected users will not be able to file complaints with Ireland’s Data Protection Commissioner or in Irish courts. Instead they will be governed by more lenient U.S. privacy laws, said Michael Veale, a technology policy researcher at University College London. Facebook will have more leeway in how it handles data about those users, Veale said. Certain types of data such as browsing history, for instance, are considered personal data under EU law but are not as protected in the United States, he said.

If possible, it’ll be done.

• VIX Rigging Talk Erupts on Wall Street After Another Wild Swing (BBG)

The Cboe Volatility Index is how Wall Street measures anxiety. Lately it’s the gauge’s own plumbing that’s making people nervous. It’s a recurrent claim – the VIX is rigged. It got a fresh airing Wednesday, when the index swung wildly just as derivatives on it were expiring. Billions of dollars are earned or lost as VIX futures settle. The concern is that owners of those wagers are willing to spend a few million to make them pay off. The suspicions are only that, suspicions. Volatility markets are too complex for easy conclusions to be drawn, and reasonable explanations have been offered for the patterns. But strange-looking outcomes have happened enough on VIX settlement day that the debate keeps being revived.

Cboe Global Markets declined to comment. Last month, Cboe CEO Ed Tilly said at a conference that “the integrity of our VIX products and markets is paramount. And, if our regulatory team were to uncover any manipulation, it would be rooted out, swiftly and decisively. Period.” Evidence the VIX is anything less than a pure readout on trader nerves would raise thorny questions for its overseers, who have succeeded in making it a central piece of Wall Street wiring. Its ability to turn stomachs was on display in February’s stock correction, whose worst moments came when the VIX doubled and wiped out bets on calm.

“You have people watching and using it as a barometer for all sorts of trading decisions,” Steve Sosnick, chief options strategist at Interactive Brokers in Greenwich, Connecticut, said by phone. “People take clues from what it’s doing as to what the market’s psychology is out there. But when the settlement time comes around, it can take on a life of its own.”

Lost a second one as well, on throwing out Carribeans who’ve lived in Britain for 50+ years.

• UK Government Loses Key Brexit Vote (CNN)

The UK Government has lost a key Brexit vote, with the upper House of Parliament backing calls to remain in the EU customs union after Brexit. The House of Lords voted 348 to 225 to amend the government’s EU Withdrawal Bill, which will now return to the House of Commons where the defeat is likely to spur renewed opposition. The amendment requires the government to report to Parliament by October 31 on what steps it has taken to remain in the customs union, which allows goods to flow freely across the EU. The government opposed the amendment. Prime Minister May had previously said Britain will not remain in the customs union after Brexit takes effect. The House of Lords is now considering other amendments to the proposed legislation.

The customs union enables the 28 EU member states, and other countries such as Turkey that have signed up to its rules, to function as a single trading area. In practice, it means that cars made in France can be sent to Italy without facing tariffs or a customs check at the border. Goods made outside the union are allowed to circulate freely once they’ve gained initial entry. However, membership prevents a country from negotiating its own bilateral trade deals with other nations. The ability to agree new trade deals – with the United States or China, for example – is central to Prime Minister Theresa May’s vision for Britain after Brexit. In a speech in September, she ruled out staying in the customs union.

The Empire strikes back.

• Lawmakers Make Criminal Referral on Clinton, Comey, Lynch to DOJ (Carter)

Congressional lawmakers made a criminal referral Wednesday to the Department of Justice Attorney General Jeff Sessions against former senior-level Obama administration officials, including employees of the FBI connected with the unverified dossier alleging collusion between the Trump campaign and Russia, as well as those involved in the warrants used to spy on a former Trump campaign volunteer, this reporter has learned. The lawmakers also made a criminal referral on former Attorney General Loretta Lynch and threats made by her DOJ against the FBI informant, who provided the bureau with information on the Russian nuclear industry and the approval in 2010 to sell roughly 20 percent of American uranium mining assets to Russia.

House Oversight and Government Reform Committee member Rep. Ron DeSantis, R-Florida, along with ten other colleagues sent the letter Wednesday to Sessions and FBI Director Christopher Wray criminally referring former FBI Director James Comey, former Secretary of State Hillary Clinton, former Attorney General Loretta Lynch, and former FBI Deputy Director Andrew McCabe for their involvement in the investigations into President Trump and alleged violations of federal law. FBI Special Agent Peter Strzok and his paramour FBI lawyer Lisa Page, whose anti-Trump text messages obtained by the DOJ Inspector General Michael Horowitz, were also included in the referral.

Limiting presidential powers may not be such a bad idea in the US. But to do it through a single state governor?

• New York Attorney General Wants Power To Bypass Trump Pardons (R.)

New York’s attorney general on Wednesday asked Governor Andrew Cuomo and state legislators to give him and other local prosecutors power to bring criminal charges against people pardoned by U.S. President Donald Trump. In a letter, Attorney General Eric Schneiderman urged Cuomo and legislative leaders to close a loophole in New York’s double jeopardy law shielding recipients of presidential pardons from state prosecution. A change could make it more difficult for Trump aides and others who might be pardoned to escape criminal prosecution, even if special counsel Robert Mueller’s probe into possible Russian interference in the 2016 presidential election were curbed or shut down.

The president has no constitutional power to pardon state crimes, but Schneiderman said the current law means defendants pardoned for serious federal crimes could be freed from “all accountability” under state criminal law. Schneiderman, a Democrat in his eighth year as attorney general, has made his office a central figure in blue state challenges to Trump, tangling with the Republican president on such matters as consumer finance, the environment, immigration and the 2020 census. Cuomo, a Democrat, is reviewing Schneiderman’s proposal, and “believes that the federal legal system should not provide a basis for any wrong doers to escape justice,” press secretary Dani Lever said in a statement.

33 prosecutors alone were involved.

• German Prosecutors Raid Homes Of Porsche Executives Over Dieselgate (Pol.)

German police carried out raids at properties linked to three current and former executives at Porsche today in connection with allegations of emissions cheating by the Volkswagen subsidiary. The raids covered ten properties across the states of Baden-Württemberg and Bavaria. The Stuttgart prosecutors office said in a statement they were “in connection with the manipulation of the emission control system of diesel cars.” Two of the executives still work for the carmaker, with one former employee also investigated as part of the probe. The individuals were not named by the prosecutor.

Porsche confirmed that documents were taken as part of the raids, adding that an Audi facility in Ingolstadt was also visited by authorities on Wednesday. The two carmakers said they are cooperating with investigating teams. Previously, authorities in Stuttgart, where Porsche is based, and Munich have launched smaller raids on homes and offices connected with officials at Audi and BMW over alleged emissions cheating. Volkswagen was caught out by U.S. authorities in September 2015 for installing defeat device software in 11 million diesel vehicles sold worldwide. Since then, the carmaker has agreed to pay out some $25 billion in compensation and settlements in the U.S.

Erdogan called a snap poll on June 24. Then he can really act as an emperor. Beware.

• Turkey Disputes Sovereignty of 152 Greek Islets (GR)

Ankara has issued a list of 152 Greek islets, disputing their sovereignty and the international treaties that have established the status quo in the Aegean. The list is called EGAYDAAK, the acronym for “Egemenligi Anlasmalarla Yunanistan’a Devredilmemis Ada Adacıkve Kayaliklar”, meaning “islands, islets and rocky islets the sovereignty of which was not granted to Greece under international agreements and treaties”. The list includes more than 20 islet formations belonging to the Fournoi Complex, a cluster of uninhabited islets between Ikaria, Samos and Patmos. Turkey’s aim is to bring Greece to the table and revise the 1923 Treaty of Lausanne and the 1947 Treaty of Paris, the two international agreements that granted the islets to Greece, establishing the sea borders between the two countries in the Aegean.

The issue has been brought up again after Turkish Prime Minister Binali Yildirim said that the Turkish coast guard removed a Greek flag on the Mikros Anthropofas rocky formation. However, new photos show the flag is still flying. The two Anthropofas islets are between Ikaria, Lemnos, Samothraki, Lesvos, Chios and Samos; therefore they are included in Article 12 of the Treaty of Lausanne that says all the above belong to Greece. Turkey, however, claims that since the islets and rocky formations are not specifically listed by name in the two international treaties, their sovereignty is contestable.

The EGAYDAAK list is comprised of the Zourafas complex and the Oinousses complex of islets in the North Aegean; the Kalogeroi complex of islets in the Central Aegean; the Fournoi complex in the East Aegean; the Arkoi, Agathonissi, Farmakonissi, SE Nissyros, SA Astpalea, NW Karpathos complexes of islets in the South Aegean; and the Cretan Sea complex of islets.

Independent judiciary.

• Top Greek Court To Rule Irrevocably On Asylum For Turkish Servicemen (K.)

Greece’s top administrative court is expected to rule on Thursday on whether the country can provide asylum to the eight Turkish officers whose extradition has repeatedly been demanded by Ankara. The Council of State carries the burden of resolving the asylum issue, in a high-profile case that has rattled relations between Greece and Turkey. The Supreme Court has ruled irrevocably against their extradition arguing they will not be given a fair trial in Turkey. The decision drew an angry rebuke from Ankara which accuses the eight of involvement in the country’s foiled coup attempt in July 2016.

If the court grants protection to “Turkey’s eight,” as they have become known, they will have to be immediately released from detention where they have remained for months while they wait for their application to be examined. An asylum appeals committee had ruled in favour of one of the servicemen in December 2017 but the government appealed the decision. If the court decides to reject their asylum request, then the government will have to issue documents that will allow them to remain in the country under a special status.

Whatever the ruling, the soldiers will have to be released at the end of May, when the maximum detention period of 18 months expires. Justice Minister Stavros Kontonis confirmed earlier this week the Turkish servicemen will be allowed to walk free when this period is completed. The eight men, three majors, three captains and two sergeant-majors, flew with a helicopter into northern Greece a day after the failed coup and sought asylum, saying they feared for their lives if they remained in Turkey.

This is what our economies run on. Waste. Cutting the waste is an economic threat.

• Americans Waste 150,000 Tons Of Food Each Day – A Pound Per Person (G.)

Americans waste about a pound of food per person each day, with people who have healthier diets rich in fruit and vegetables the most wasteful, research has found. About 150,000 tons of food is tossed out in US households each day, equivalent to about a third of the daily calories that each American consumes. Fruit and vegetables were the most likely to be thrown out, followed by dairy and then meat. This waste has an environmental toll, with the volume of discarded food equivalent to the yearly use of 30m acres of land, 780m pounds of pesticide and 4.2tn gallons of irrigated water. Rotting food also clogs up landfills and releases methane, a powerful greenhouse gas.

Researchers at the US Department of Agriculture analysed eight years of food data, up to 2014, to see where food is wasted and also what members of the public say they do at mealtimes. The research has been published in Plos One. The study found that the healthiest Americans are the most wasteful, because of their high consumption of fruits and vegetables, which are frequently thrown out. Fruit and vegetables require less land to grow than than other foods, such as meat, but require a large amount of water and pesticides. Lisa Jahns, a nutritionist at USDA and co-author of the study, said: “We need a simultaneous effort to increase food quality as well as reduce food waste. We need to put both of those things out.”

Jahns’s study recommends educating consumers on fruit and vegetable storage in order to reduce food waste. She said: “Consumers aren’t connecting the dots, [and] they don’t see the cost when they throw food in the trash. At the same time, we don’t want to undermine legitimate food safety concerns and we need to be aware it’s not just the cost of food that’s the issue. It’s the time and energy required to prepare and store food, which often isn’t a priority in a busy household.”

Debt Rattle April 18 2018

Apr 182018

April 18, 2018 Posted by Raúl Ilargi Meijer at 9:25 am Finance Tagged with: aluminum, bitcoin, Deep State, Douma, Germany, IMF, junk, plastics, refugees, Syria, Trump, Turkey, whale 2 Responses »

Franco Fontana Prague 1967

• Junk Bond Market Still in Total Denial, Fighting the Fed (WS)

• World Trade System In Danger Of Being Torn Apart, Warns IMF (G.)

• Eurozone Engine Sputters as German Downturn Risk Sharpens (BBG)

• Bitcoin Tumbles After Mystery “Whale” Dumps $50 Million In One Trade (ZH)

• Japan Asks Rusal To Stop Aluminum Shipments (ZH)

• The Deep State And The Big Lie – Douma (Stockman)

• Theresa May’s Husband Made A Killing From The Bombing Of Syria (EP)

• Trump Tweets Support For American Pastor On Trial In Turkey (R.)

• New Refugees In Greece Can Move Freely, Says Court (K.)

• Recycling Is Not The Answer (G.)

• 30 KIlos Of Plastic Bags Killed Whale Washed Ashore On Santorini (KTG)

The wonderful world of junk.

• Junk Bond Market Still in Total Denial, Fighting the Fed (WS)

The Fed’s efforts to raise interest rates across the spectrum have borne fruit only in limited fashion. In the Treasury market, yields of longer-dated securities have not risen (prices fall when yields rise) as sharply as they have with Treasuries of shorter maturities. The two-year yield has surged to 2.41% on Tuesday, the highest since July 2008. But the 10-year yield, at 2.82%, while double from two years ago, is only back where it had been in 2014. So the difference (the “spread”) between the two has narrowed to just 0.41 percentage points, the narrowest since before the Financial Crisis:

This disconnect is typical during the earlier stages of the rate-hike cycle because the Fed, through its market operations, targets the federal funds rate. Short-term Treasury yields follow with some will of their own. But the long end doesn’t rise at the same pace, or doesn’t rise at all because there is a lot of demand for these securities at those yields. Investors are “fighting the Fed”— doing the opposite of what the Fed wants them to do – and the difference between the shorter and longer maturities dwindles, and it dwindles, and it causes a lot of gray hairs, and it dwindles further, until it stops making sense to investors and they open their eyes and get out of the chase, and suddenly long-term yield surge higher, as bond prices drop sharply.

That’s why short sellers have taken record positions against the 10-year Treasury recently: they’re waiting for yields to spike to the next level. But this disconnect – this symptom of investors fighting the Fed – in the Treasury market is mild compared to the disconnect in the junk bond market. There, investors have completely blown off the Fed. At least in the Treasury market, 10-year yields have risen since the Fed started getting serious about rate increases in December 2016. In the junk bond market, yields have since fallen. In other words, despite the Fed’s tightening, the junk bond bubble has gotten bigger. And investors are not yet showing any signs of second thoughts.

Because the IMF made sure it would be skewed towards the rich.

• World Trade System In Danger Of Being Torn Apart, Warns IMF (G.)

The postwar global trading system risks being torn apart, the International Monetary Fund has warned, amid concern over the tariff showdown between the US and China. In a sign of its growing concern that protectionism is being stimulated by voter scepticism, the IMF used its half-yearly health check for the world economy to tell policymakers they needed to address the public’s concerns before a better-than-expected period of growth came to an end. Maurice Obstfeld, the IMF’s economic counsellor, said: “The first shots in a potential trade war have now been fired.” He said Donald Trump’s tax cuts would suck imports into the US and increase the size of the trade deficit 2019 by $150bn – a trend that could exacerbate trade tensions.

“The multilateral rules-based trade system that evolved after world war two and that nurtured unprecedented growth in the world economy needs strengthening. Instead, it is in danger of being torn apart.” Obstfeld said there was more of a “phoney war” between the US and China than a return to the widespread use of tariffs in the Great Depression, but that there were signs that even the threat of protectionism was already harming growth. “That major economies are flirting with trade war at a time of widespread economic expansion may seem paradoxical – especially when the expansion is so reliant on investment and trade,” Obstfeld added.

Too much surplus?

• Eurozone Engine Sputters as German Downturn Risk Sharpens (BBG)

The euro area’s economic expansion is standing on increasingly shaky ground after reports showed German investor confidence tumbling to its lowest level since late 2012 and the risk of a recession in the nation jumping. The sentiment gauge from ZEW showed more investors now see a worsening in Europe’s largest economy than forecast an improvement, a mood swing that ZEW President Achim Wambach blamed on the U.S. trade dispute combined with weak domestic retail and production numbers. The drop in confidence came as the Dusseldorf-based Macroeconomic Policy Institute (IMK) said the probability of a recession in Germany over the next three months has jumped to 32%.

While that outcome remains unlikely, the gauge is up sharply from 6.8% in March. It follows U.S. attempts to rewrite international trade rules by imposing import tariffs, triggering a tit-for-tat response by China. Even though the European Union has temporarily been exempted from the metal levies, risks of far-reaching retaliatory measures could still hurt Germany’s export-driven economy – feeding into signs that growth in the euro area is coming off its peak. At the IMK, the recession gauge, which uses data that have signaled downturns in the past is now orange – the middle of its traffic-light warning system – for the first time since March 2016. That was just as the German economy was entering a mild slowdown.

“Volatility in financial markets, which has been evident for several months, is now accompanied by a noticeable deterioration in sentiment and subdued production,” according to IMK. “This has recently become a typical constellation for the end phase of a cycle.”

For now, still a casino.

• Bitcoin Tumbles After Mystery “Whale” Dumps $50 Million In One Trade (ZH)

The price of several cryptocurrencies took a sudden hit Tuesday over the course of 20 minutes, which some suspect may be the result of a single Bitcoin whale who unloaded over $50 million worth of the digital currency in one Bitfinex trade. The drop comes one day after the third largest bitcoin wallet also unloaded around $50 million of the digital currency. As Marketwatch first noted , “the balance of wallet 3D2oetdNuZUqQHPJmcMDDHYoqkyNVsFk9r — an anonymous digital account which is valued at $1.49 billion — fell by 6,500 bitcoin Tuesday, with the average sale price sale being $8,146.70, a total value of just over $50 million, according to bitinfocharts.”

The sale comes a day after the third-largest wallet, which famously purchased over $400 million in bitcoin in February, let go of 6,600 bitcoin at an average price of $8,026. Combined, the two whales unloaded over $100 million of bitcoin within 24 hours. As there was no immediate news or catalyst, some attributed the sale to Tuesday’s report that New York Attorney General Eric Schneiderman had launched an investigation into 13 cryptocurrency exchanges including Coinbase, Gemini and Bit Trust. The probe seeks information on fees, volume data and procedures governing margin trading among other things. However, the news hit some 4 hours prior to the sale.

Unintended sanctions consequences?! Aluminum much more expensive for US firms too.

• Japan Asks Rusal To Stop Aluminum Shipments (ZH)

One week ago, when the Trump administration unveiled the most draconian Russian sanctions yet which among others targeted Putin-ally Oleg Deripaska and the Russian oligarch’s aluminum giant, Rusal, we said that aluminum prices are going higher, much higher, for one reason: excluding China’s zombie producers, Rusal is the world’s largest producer of aluminum. Well, prices have since surged, largely as expected, and one week later we also learned just how “radioactive’ Rusal’s products have become as a result of the US sanctions: overnight Reuters reported that major Japanese trading houses asked the Russian aluminum producer to stop shipping refined aluminum and other products in light of U.S. sanctions on the world’s No.2 producer and are scrambling to secure metal elsewhere, according to industry sources.

“We have requested Rusal stop shipments of aluminum for our term contracts as we can’t make payment in U.S. dollars and we don’t want to take the risk of becoming a secondary sanction target by the United States,” said a source at a trading house [..] It is unclear how and where Japan can find alternative sources of aluminum: Japan buys about 300,000 tonnes of refined aluminum from Russia, about 16% of the nation’s total import, according to the Japan Aluminium Association. “Everyone has been on a search for substitutes and that pushed local spot premiums to around $200-$250 per tonne by last Friday,” he said. That’s sharply higher than Japan term premiums for April-June quarter shipments at $129 per tonne.

Pearson Sharp and Robert Fisk were both on the ground in Douma. Both say the same.

• The Deep State And The Big Lie – Douma (Stockman)

The contra-narrative about Assad’s alleged gas attack is gaining traction as the evidence comes in. It increasingly seems probable that some folks suffocated or were overcome with smoke inhalation and hypoxia (oxygen deprivation) when buildings, tunnels and underground bunkers collapsed into clouds of dust during the final battle for Douma last Saturday. Then the desperate remnant of the jihadist Army of Islam (Jaysh al-Islam) holed up there piled the bodies in a basement, spread shaving cream on their lips and proceeded to videotape furiously. Thereafter, they charged into a nearby hospital (which was treating hypoxia victims) with their video cameras in hand, yelling “chemical attack” while water-hosing one and all, thereby setting off the pandemonium seen on social media around the world.

We haven’t gotten to Douma yet to check out this contra-narrative, but an intrepid young reporter named Pearson Sharp did. Along with his camera crew, he visited the site of the attack, the hospital and the nearby rebel weapons dump – and interviewed dozens of people in the immediate vicinity. According to Sharp, none of them witnessed the alleged gas attack or believed it happened, and several personnel at the Douma hospital corroborated the phony water-dousing melee. Indeed, the head surgeon insisted to him that no one had died at the hospital from chemical agents. And he also saw and videoed room after room stacked with rockets, mortars and other military gear and filmed the debris and dilapidated remnants of buildings in the town.

[..] Self-evidently, a visiting Martian might have an altogether different interpretation of which nation had ventured down the “dark path” and which one was a “force for stability and peace”. And that would especially be the case with just a few more reports like the new missive from veteran war correspondent, Robert Fisk of the Independent (UK). Unlike young Mr. Pearson Sharp, Fisk has been a war correspondent in the Middle East for four decades and has won endless awards for reporting from the front lines. But his chops were earned when he became one of the few reporters in history to conduct face-to-face interviews with Osama bin Laden on three separate occasions during the 1990s.

Fisk’s dispatch filed Monday night speaks for itself and merits quoting at length because it not only skewers Washington’s narrative about Assad’s gas attack, but also provides vivid context: Whatever happened last Saturday erupted in the fog of war and could not possibly have been instantly assessed objectively or correctly by officials 6,000 miles away, who admit to having no “assets” on the ground in Damascus.

Yes, this is pretty crazy.

• Theresa May’s Husband Made A Killing From The Bombing Of Syria (EP)

The fact that Philip May is both a Senior Executive of a hugely powerful investment firm, and privy to reams of insider information from the Prime Minister – knowledge which, when it becomes public, hugely affects the share prices of the companies his firm invests in – makes Mr May’s official employment a staggering conflict of interest for the husband of a sitting Prime Minister. However, aside from the ease at which he is able to glean insider information from his wife about potential decisions which could go on to make huge profits for his firm, there is a far darker conflict of interest that has so far gone undiscussed.

Philip May is a Senior Executive of Capital Group, an Investment Firm who buy shares in all sorts of companies across the globe – including thousands of shares in the world’s biggest Defence Firm, Lockheed Martin. According to Investopedia, Philip May’s Capital Group owned around 7.09% of Lockheed Martin in March 2018 – a stake said to be worth more than £7Bn at this time. Whilst other sources say Capital Group’s shareholding of Lockheed Martin may actually be closer to 10%. On the 14th April 2018, the Prime Minister Theresa May sanctioned British military action on Syria in response to an apparent chemical attack on the city of Douma – air strikes that saw the debut of a new type of Cruise Missile, the JASSM, produced exclusively by the Lockheed Martin Corporation.

The debut of this new – and incredibly expensive – weapon was exactly what US President Donald Trump was referring to when he tweeted that the weapons being fired on Syria would be “nice and new and ‘smart!’” Every single JASSM used in the recent bombing of Syria costs more than $1,000,000, and as a result of their widespread use during the recent bombing of Syria by Western forces, the share price of Lockheed Martin soared.

Now let them tell Erdogan about it.

• Trump Tweets Support For American Pastor On Trial In Turkey (R.)

U.S. President Donald Trump voiced his support on Tuesday for Pastor Andrew Brunson, who is on trial in Turkey on charges he was linked to a group accused of orchestrating a failed 2016 military coup, in a case that has compounded strains in U.S.-Turkish relations. “Pastor Andrew Brunson, a fine gentleman and Christian leader in the United States, is on trial and being persecuted in Turkey for no reason,” Trump tweeted. “They call him a spy, but I am more a spy than he is. Hopefully he will be allowed to come home to his beautiful family where he belongs!” Brunson, a Christian pastor from North Carolina who has lived in Turkey for more than two decades, was indicted on charges of helping the group that Ankara holds responsible for the failed 2016 coup against President Tayyip Erdogan.

He faces up to 35 years in prison. Brunson has been the pastor of Izmir Resurrection Church, serving a small Protestant congregation in Turkey’s third largest city. Brunson’s trial is one of several legal cases roiling U.S.-Turkish relations. The two countries are also at odds over U.S. support for a Kurdish militia in northern Syria that Turkey considers a terrorist organization. Washington has called for Brunson’s release while Erdogan suggested last year his fate could be linked to that of U.S.-based Muslim cleric Fethullah Gulen, whose extradition Ankara has repeatedly sought to face charges over the coup attempt.

It’s the EU that demanded refugees would be confined to the islands.

• New Refugees In Greece Can Move Freely, Says Court (K.)

New refugee and migrant arrivals in Greece will soon be able to move around the country freely without being restricted to the islands of the eastern Aegean where they arrive from neighboring Turkey, according to a Council of State ruling that emerged on Tuesday and upends a 2016 decision by the Greek asylum service that forced them to remain in so-called hotspots until their asylum application was processed. According to the leaked ruling by the country’s highest administrative court, there are no reasons of public interest or migration policy to justify their geographical restriction to the islands of Lesvos, Chios, Samos, Leros, Kos and Rhodes.

Migration Policy Minister Dimitris Vitsas said he would comment on the ruling once he is informed of it officially. Once the ruling is published, new refugees who apply for asylum will be allowed to reside in any part of the country they choose. The asylum service’s May 2016 decision restricting migrants to the Aegean islands was challenged by the Greek Council for Refugees, an NGO which filed an appeal for its cancellation. “The imposition of restrictions on movement blocked the distribution of those people throughout Greek territory and resulted in their unequal concentration in specific regions and the significant burdening and decline of those regions,” the court said in its reasoning.

However, taking into account the large number of arrivals, the court said the ruling does not have a retroactive effect, which means it will not relate to the refugees who are already languishing in reception centers. The so-called hotspots have been operating beyond capacity and the country is now witnessing a fresh spike in arrivals of often flimsy boats carrying desperate passengers from Turkey.

Indeed. But plastics are a huge industry.

• Recycling Is Not The Answer (G.)

We all know, in theory, that we ought to use less plastic. We’ve all been distressed by the sight of Blue Planet II’s hawksbill turtle entangled in a plastic sack, and felt chastened as we’ve totted up our weekly tally of disposable coffee cups. But still, UK annual plastic waste is now close to 5m tonnes, including enough single-use plastic to fill 1,000 Royal Albert Halls; the government’s planned elimination of “avoidable” plastic waste by 2042 seems a quite dazzling task. It was reported this week that scientists at the University of Portsmouth have accidentally developed a plastic-eating mutant enzyme, and while we wait to see if that will save us all, for one individual the realisation of just how much plastic we use has become an intensely personal matter.

One early evening in mid-2016, Daniel Webb, 36, took a run along the coast near his home in Margate. “It was one of those evenings where the current had brought in lots of debris,” he recalls, because as Webb looked down at the beach from his route along the promenade he noticed a mass of seaweed, tangled with many pieces of plastic. “Old toys, probably 20 years old, bottles that must have been from overseas because they had all kinds of different languages on them, bread tags, which I don’t think had been used for years …” he says. “It was very nostalgic, almost archaeological. And it made me think, as a mid-30s guy, is any of my plastic out there? Had I once dropped a toy in a stream near Wolverhampton, where I’m from, and now it was out in the sea?”

Webb decided that he would start a project to keep all the plastic he used in the course of an entire year. He would not modify his plastic consumption in that time (although he had already given up buying bottled water), and each item would be carefully washed and stored in his spare room.

Daniel Webb in front of his Mural-by-the-Sea. Photo: Ollie Harrop 2018/Everyday Plastic

Where your plastic ends up. Never again can you say you didn’t know. From now on it’s you didn’t care.

• 30 Kilos Of Plastic Bags Killed Whale Washed Ashore On Santorini (KTG)

More than 30 kg of plastic, mainly plastic bags, were found in the stomach of the whale that was washed out on the island of Santorini last week. The conducted autopsy showed that the huge mammal died of a gastric shock. The whale was unable to digest or excrete the rubbish through its digestive system. The problem caused peritonitis inflammation in its intestines that led to the animal’s death, local media report. The dead whale brings back to the spotlight the problem of tonnes of plastic landing into the waters, polluting the environment and leading to death of marine life. The body of the 9-meter long sperm whale – or Physeter macrocephalus as the scientific name is – was washed ashore on Akrotiri area on the island of Santorini in the Aegean island group of Cyclades on April 10th. The body weighting more than 7 tones was in condition of advanced sepsis.

Debt Rattle January 27 2018

Jan 272018

January 27, 2018 Posted by Raúl Ilargi Meijer at 10:58 am Finance Tagged with: 1987, Bombardier, Brexit, budget, crypto, Davos, EM, IMF, leverage, refugees, sweet spot, Trump 10 Responses »

Grete Stern Bertolt Brecht 1934

• Bankers, Policy Makers at Davos Revel in ‘Sweet Spot’ Economy (BBG)

• IMF Chief Warns Trump’s Tax Cuts Could Destabilise Global Economy (G.)

• China Set To Lose ‘Emerging Market’ Status As Growth Declines (F.)

• This was 1987. Start Rebalancing – David Rosenberg (ZH)

• What Could Possibly Go Wrong? (Lance Roberts)

• Equity Allocations At Record Highs As Investor Cash Hits All Time Low (ZH)

• Japanese Cryptocurrency Exchange Loses $535 Million To Hackers (CNBC)

• How Bitcoin Regulation Will Happen, And What It Will Mean (Ind.)

• Bombardier Gets Surprise Win After U.S. Rebuffs Boeing Trade Case (BBG)

• Canada Illegally Subsidized Bombardier: Embraer (R.)

• More Than Half Of New-Build Luxury London Flats Fail To Sell (G.)

• Building More Homes Will Not Solve Britain’s Housing Crisis (Pettifor)

• Brexit Saddles EU With A Huge Budget Problem (CNBC)

• Deal With France ‘Could Bring Hundreds More Child Refugees To UK’ (G.)

Not much longer.

• Bankers, Policy Makers at Davos Revel in ‘Sweet Spot’ Economy (BBG)

The global elites have rediscovered their animal spirits. As the World Economic Forum drew to a close in the Swiss ski resort, the overarching mood of the executives, policy makers and investors was that their economies are in fine shape and that stock markets have every reason to extend their run. “Let’s celebrate what could go right for the moment because we are in a sweet spot,” IMF Managing Director Christine Lagarde said on the closing panel discussion. The Standard & Poor’s 500 Index has gained about a quarter since the start of 2017 and the IMF is forecasting the strongest worldwide economic growth this year since a brief post-recession bounce in 2011. Some 57% of executives polled by PricewaterhouseCoopers saw the economy improving in 2018, about double the number of a year ago.

The rise of cryptocurrencies was evident in the Swiss town both in conference sessions and on the promenade where companies rent shopfronts to promote their wares. “The greatest worry I’ve heard over the past days in Davos is that there is not enough worry,” Mary Callahan Erdoes, JPMorgan asset-management unit CEO, said on the panel. “It’s O.K. to not be worried, to celebrate how we got here.” Erdoes thanked the policy makers on the stage for working “tirelessly” and “giving all of these government jobs such fabulous prestige and something that I know all of us now perhaps aspire to do.” “Wow,” said Bank of England Governor Mark Carney. “This is fantastic.” Such sentiment led delegates to declare that it was the most upbeat Davos gathering since before the financial crisis. Yet the giddiness also gave some investors pause as they warned against turning too exuberant.

Lagarde gets what she wants and then turns against it. Cover all your bases.

• IMF Chief Warns Trump’s Tax Cuts Could Destabilise Global Economy (G.)

Donald Trump’s huge tax cuts are a threat to the stability of the global economy, the managing director of the IMF has warned. Christine Lagarde singled out Trump’s tax reforms as one of three risks that could destabilise the current economic recovery, especially given the boom in stock markets in the past year. “While the US tax reforms certainly will have positive effects in the short term, for the US and other countries around, it might also lead to serious risks,” Lagarde told the World Economic Forum in Davos. “That has an impact on financial vulnerability, particularly given the high asset prices that we see around the world, and the easy financing that it still available,” she added. She was speaking shortly after the US president told Davos that his tax reforms had created “a big, beautiful waterfall” of pay rises for US workers, as American companies passed the tax cut on.

However, the IMF is concerned that cutting taxes will lead to a bigger US budget deficit, and that extra borrowing by the US Treasury will force up long-term American interest rates. As a result, it fears growth could be choked off in the longer term, making the stock market vulnerable to a sudden downward lurch. Lagarde cautioned against people becoming too complacent about the pick-up in global growth reported by the IMF at the start of the WEF’s annual meeting. The IMF raised its forecasts for global expansion to 3.9% this year and in 2019, reporting that all major economies – the US, EU and Japan – are doing better. “I don’t think that we’ve completed the job,” said Lagarde, who fears that the growing economic inequality in many countries is creating “fractures”. “Having growth is good, improving productive is good, but [policymakers should] make sure that the results of that growth are properly allocated,” said the IMF chief, adding that inequality is growing in many advanced economies, and very high in emerging markets.

An emerging market that’s stopped emerging.

• China Set To Lose ‘Emerging Market’ Status As Growth Declines (F.)

China has been considered an emerging market for over 25 years due to its rapid reform process. Generally speaking, emerging markets are defined as developing countries moving toward an open market economy. Unfortunately, if one takes a close look at growth levels and reform factors, China has shed some of the key characteristics of an emerging market, due to a sharp slowdown in the reform process, an increasingly state centered economy, and lower levels of true growth. China is an upper middle income country that enjoyed gangbusters growth through the 1990s and 2000s, but that is now suffering from a major economic slowdown that has no end in sight. One major reason for slowing growth is that market forces have been quashed by a a buildup in the state sector and mounting economic and financial risks that would result in economic collapse if the reform process is restarted.

Under President Xi Jinping, China’s economic policy has shifted toward enhancing the organization and financial sources of state owned enterprises, and away from liberalizing the currency and financial sector. Strides that were made toward internationalizing the RMB and bringing about a more market-based financial system have been reversed. A simultaneous over-reliance on easy credit has created plenty of risks in the financial sector that now prevent officials from even considering making the financial sector more market-based. Slow reform of the service sector and strong state presence in service subsectors like health and education have contributed to declining growth.

When fear is gone, all that’s left is greed. No balance.

• This was 1987. Start Rebalancing – David Rosenberg (ZH)

When discussing today’s unexpectedly weak Q4 GDP print, which came in at 2.6%, far below consensus and whisper estimates in the 3%+ range, and certainly both the Atlanta and NY Fed estimates, we pointed out the silver lining: personal spending and final sales, which surged 4.6% Q/Q (vs 2.2% in Q3), although even this number had a major caveat: “as we discussed previously, much of it was the result of a surge in credit card-funded spending while the personal savings rate dropped to levels last seen during the financial crisis.” Indeed, recall the stunning Gluskin Sheff chart we presented a month ago, which showed that 13-week annualized credit card balances in the U.S. had gone “completely vertical” in the last few months of 2017 which we said “should make for some great Christmas.”

Meanwhile, even more troubling was the ongoing collapse in the US personal savings rate, which last month tumbled to the lowest level since the financial crisis as US consumers drained what little was left of their savings to splurge on holiday purchases.

And while we highlighted and qualified two trends as key contributors to the spending surge in Q4 personal spending, Gluskin Sheff’s David Rosenberg – who is once again firmly in the bearish camp – did one better and quantified the impact. Not one to mince words, the former Merrill chief economist described what is going on as “The Twilight Zone Economy” for the following reason: “how many times in the past have we seen a 2.6% savings rate coincide with a 4.1% jobless rate? How about never…huge ETF flows driving equities higher, but these metrics are screaming ‘late cycle’.” He then proceeded to give “some haunting math” from the GDP number: “The savings rate fell from 3.3% to 2.6%. If it had stayed the same, real PCE would have been 0.8% (annualized) instead of 3.8% and GDP would have been 0.6% instead of 2.6%.”

[..] a more troubling development is that the conditions observed ahead of the Black Monday crash are becoming increasingly apparent. Here is Rosenberg’s stark assessment of where we stand: “Rising bond yields. Full employment. Fed tightening. Trade frictions. Weak dollar. Rising twin deficits, spurred by tax reform. Sound familiar? It should. This was 1987. Start rebalancing.”

More 1987.

• What Could Possibly Go Wrong? (Lance Roberts)

What goes up, eventually comes down. That is just reality. The bull market that began in 2009, has now entered the final stage of “capitulation” as investors throw caution to the wind and charge headlong into the markets with reckless regard for the consequences.

Of course, it isn’t surprising given the massive amounts of liquidity continually injected into the financial markets and global Central Banks have now figured out that continually rising financial markets solve much of the world’s ills. Simply, with enough liquidity, you can cover up bad (credit risks) by guaranteeing holders they will never default. It’s genius. It’s a “no lose” investment scheme. Unfortunately, we have seen this repeatedly in the past. In the 1980’s it was “Portfolio Insurance” – a “no lose” investment program that eventually erupted into the crash of 1987. But not before the market went into a parabolic advance first.

In the 1990’s – it was the dot.com phenomenon which was “obviously” a “no lose” proposition. Even after Alan Greenspan spoke of “irrational exuberance,” two years later the market went parabolic once again.

Then in 2006-2007, banks invented the CDO-squared, a collateralized derivative obligation based on other collateralized derivative obligations. It was a genius way to invest with “no risk” because the real estate market had never crashed in history.

Today, it is once again an absolute “certainty” that markets will rise from here as global Central Banks have it all under control. What possibly could go wrong?

Leverage squared.

• Equity Allocations At Record Highs As Investor Cash Hits All Time Low (ZH)

While Bank of America may or may not be right in its forecast that as a result of the market meltup, buying panic and sheer euphoria to get into stocks, which just pushed the bank’s proprietary “Bull and Bear” indicator to a level which on 11 out of 11 prior occasions always presaged a ~12% selloff…

… a market correction or worse is imminent, one thing that is indisputable is the funding status of the Private Clients served by BofA’s Global Wealth and Investment Management (GWIM) team. What it shows is that investor cash allocation has just dropped to a record low of just 10%…

… while investor equity exposure is rising at fastest pace in 10 years.

… and total equity allocations are back to record highs.

In other words: ‘bear capitulation’ as everyone is now long stocks in what BofA called a “non-stop euphoric cabaret.” When will this stop, or reverse? According to BofA, keep an eye on the dollar, which as long as it keeps sliding is supporting of risk assets, however the risk is once it bounces, to wit, the “US dollar key catalyst; note US-Europe FX spat sparked ’87 crash” and “higher US$ “pain trade” = risk-off coming weeks”

Even if cryptos don’t have a security issue, they certainly appear to have one.

• Japanese Cryptocurrency Exchange Loses $535 Million To Hackers (CNBC)

Hackers stole several hundred million dollars’ worth of a lesser-known cryptocurrency from a major Japanese exchange Friday. Coincheck said that around 523 million of the exchange’s NEM coins were sent to another account around 3 a.m. local time (1 p.m. ET Thursday), according to a Google translate of a Japanese transcript of the Friday press conference from Logmi. The exchange has about 6% of yen-bitcoin trading, ranking fourth by market share on CryptoCompare. The stolen NEM coins were worth about 58 billion yen at the time of detection, or roughly $534.8 million, according to the exchange. Coincheck subsequently restricted withdrawals of all currencies, including yen, and trading of cryptocurrencies other than bitcoin. Bloomberg first reported the hack. A CNBC email sent to Coincheck’s listed address bounced back.

Cryptocurrency NEM, which intends to help businesses handle data digitally, briefly fell more than 20% Friday before recovering to trade about 10% lower near 85 cents, according to CoinMarketCap. Most other major digital currencies, including bitcoin, traded little changed on the day. Coincheck management said in the press conference that it held the NEM coins in a “hot” wallet, referring to a method of storage that is linked to the internet. In contrast, leading U.S. exchange Coinbase says on its website that 98% of its digital currency holdings are offline, or in “cold” storage. The Japanese exchange said it did not appear that hackers had stolen other digital currencies.

There will never be a global consensus. Just a lot of poorly understood laws.

• How Bitcoin Regulation Will Happen, And What It Will Mean (Ind.)

Bitcoin has been surging and falling in recent weeks. And it seems mostly to come down to one thing: regulation. The lack of regulation is, for now, a large part of bitcoin and other cryptocurrencies’ intrigue: they seem to allow people to avoid the traditional restrictions in place in money and other assets. But they’re also part of their bad reputation, with the same anonymity and decentralisation allowing them to be used for crime. Many governments have suggested they could introduce such rules. But it’s still not clear what they’d look like, or how they’d arrive; here’s an attempt to predict what might be to come in that most unpredictable of markets. In recent weeks, bitcoin has plunged after the threat of regulation in South Korea.

But it was part of a much broader trend – countries around the world have already introduced new rules, and those that haven’t are talking about it. The price has mostly levelled out in recent weeks, after regulation brought volatility and a slowly sliding price. But there might be more disruption coming, as countries look towards regulation, worried about the activity and behaviour that bitcoin could be enabling. That was obvious as world leaders arrived in Davos and were asked their opinion. The event could be a preview of far more wide-ranging controls that could be introduced in March, when the G20 governments’ financial and economic leaders meet in Argentina – a number of the countries attending have specifically said they will focus on fixing regulation of cryptocurrencies at that meeting.

They include France and Germany, which are said to be working together on bitcoin regulation. Many other countries have called for the international community to work together to bring regulation to bitcoin. Davos has been a platform for various world leaders to give their opinion on bitcoin. And they all seem to agree on one thing. “My number-one focus on cryptocurrencies, whether that be digital currencies or bitcoin or other things, is that we want to make sure that they’re not used for illicit activities,” said Steven Mnuchin, Donald Trump’s most senior financial policymaker, told the World Economic Forum in Davos, Switzerland. “We encourage fintech and we encourage innovation, but we want to make sure all of our financial markets are safe,” Mnuchin said. “We want to make sure that the rest of the world – and many of the (Group of) 20 countries are already starting on this – have the same regulations.”

Airplane makers wars are set to intensify.

• Bombardier Gets Surprise Win After U.S. Rebuffs Boeing Trade Case (BBG)

Bombardier can start shipping C Series jets to Delta Air Lines after a surprise ruling by a U.S. trade panel that said the proposed imports won’t hurt American industry. U.S. companies and workers aren’t being harmed by sales of 100- to-150-seat aircraft from Canada, the International Trade Commission said Friday. The tribunal’s unanimous vote blocks a Commerce Department decision last month to impose duties of almost 300%. Friday’s vote deals a blow to Boeing, which said Bombardier sold the C Series in the U.S. at less than fair value while benefiting from government subsidies. The ruling also opens the door for Montreal-based Bombardier to woo new American customers while potentially easing U.S. trade tensions with Canada and the U.K., where the company builds wings for the aircraft. “I’m shocked,” said Chris Murray, an analyst in Toronto. “This clears the way for the jets being to delivered to Delta,” Murray said. “It also removes any concerns about potential future orders in the U.S.”

Bombardier goes from one lawsuit to another. Should have stuck to making skidoos.

• Canada Illegally Subsidized Bombardier: Embraer (R.)

Brazilian planemaker Embraer said on Friday that the U.S. Department of Commerce has shown that the Canadian government “heavily and illegally subsidized” Bombardier and its C Series aircraft, allowing the company to survive and distorting the aviation industry. The statement came just after Bombardier won an unexpected trade victory against U.S. planemaker Boeing when a U.S. agency rejected imposing hefty duties on sales of Bombardier’s new CSeries jet to American carriers.

Oh well, there’s plenty homeless people.

• More Than Half Of New-Build Luxury London Flats Fail To Sell (G.)

Developers have 420 towers in pipeline despite up to 15,000 high-end flats still on the market. More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”. The swanky flats, complete with private gyms, swimming pools and cinema rooms, are lying empty as hundreds of thousands of would-be first-time buyers struggle to find an affordable home. The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes.

Builders started work last year on 1,900 apartments priced at more than £1,500 per sq ft, but only 900 have sold, according to property data experts Molior London. A typical high-end three-bedroom apartment consists of around 2,000 sq ft, which works out at a sale price of £3m. There are an extra 14,000 unsold apartments on the market for between £1,000-£1,500 per sq ft. The average price per sq ft across the UK is £211. Molior says it would take at least three years to sell the glut of ultra-luxury flats if sales continue at their current rate and if no further new-builds are started. However, ambitious property developers have a further 420 residential towers (each at least 20 storeys high) in the pipeline, says New London Architecture and GL Hearn. Henry Pryor, a property buying agent, says the London luxury new-build market is “already overstuffed but we’re just building more of them”.

Building more is the worst of all options. See above. But it’s alos the only option that lets the illusion last a bit longer.

• Building More Homes Will Not Solve Britain’s Housing Crisis (Pettifor)

Everyone – from the government, to housing charities, to housebuilders – has bought into the conventional wisdom that the dysfunction that racks our housing market is a matter of demand and supply. We’re not building enough houses, so house prices have been sent rocketing, taking home-ownership out of reach for growing numbers of young people. But in reality, our housing problems are not a simple feature of supply and demand. Rather, our housing market has a bitcoin problem. What has bitcoin mania got in common with house prices, especially in the capital? For starters, both are speculative bubbles. Vast sums of money have been poured into finite supplies of bitcoins and London property. Both have consequently exploded in value, albeit over different time periods.

And so both have become financialised assets that deliver capital gains far in excess of people’s ability to earn income from work, or from investment in the real economy. And as with bitcoin, so with London property: speculators are convinced that prices will continue to rise for ever. It’s speculation in the property market that is fuelling stratospheric house price rises, not shortage of supply. When the “fuel” of private capital, mortgage credit and cash from the bank of mum and dad is supplemented by government subsidies and tax breaks, house prices rise. Moreover, wealthy global and non-resident buyers have funnelled more than £100bn into London property over recent years, making the problem even worse.

So, rather counterintuitively, building more houses is not the right prescription. House prices won’t fall until the tide of cash flowing into the market abates, for example by tightening mortgage credit, or shrinking the pool of buy-to-let investors. That may already be starting to happen as real incomes continue to fall, the Bank of England toughens up buy-to-let mortgages, and stamp duty rises are phased in for second properties. Despite this, the government pretends the real cause of unaffordable housing is a shortage of new builds. It uses this argument to provide cover for further taxpayer-funded subsidies and tax breaks that benefit its property-owning core voters, its close allies in the construction industry and property market, and its supporters in the City of London.

Germany crony Holland wants to pay less toward Brexit because its economy is hit harder than others. It also wants the entire EU budget cut. Juncker wants to raise that budget and buy more Europe. This could blow up. Expect more heavy handedness from Brussels.

• Brexit Saddles EU With A Huge Budget Problem (CNBC)

Brexit is leaving the EU with a big problem on its hands and a “very tough” negotiation ahead, European Commission Vice-President Jyrki Katainen told CNBC on Friday. The U.K. has been one of the main contributors to the European budget, but once it has left the bloc there will be a gap in the EU budget that will have to be worked out somehow, Katainen said. “It is certainly a problem and we have to address it,” he said at the World Economic Forum (WEF) in Davos, Switzerland. “If I should bet something, we need to adjust the budget to a certain extent but also we need fresh money from member states. We also have to look at how money is spent, how we could get more out of less.”

But many EU members do not want to pay more to compensate for the U.K.’s decision to leave the union. Denmark, for example, made it clear last year that it would not step up its financial commitment because of Brexit. Katainen told CNBC that one solution could be using more financial instruments, including equity investments, to finance European projects rather than direct financial contributions. “This is what we are planning or exploring at the moment… it’s going to be a very though negotiation,” he said.

The current EU budget is planned out until 2020. The European Commission is due to come up with proposals on the future of the budget in May. During a speech in September, EC President Jean-Claude Juncker said: “An important element will be the budgetary plans the commission will present in May 2018. Here again, we have a choice — either we pursue the European Union’s ambitions in the strict framework of the existing budget, or we increase the European Union’s budgetary capacity so that it might better reach its ambitions. I am for the second option.”

Yeah, the ones they previously promised to take but never did.

• Deal With France ‘Could Bring Hundreds More Child Refugees To UK’ (G.)

Charities working to bring unaccompanied refugee children to safety are optimistic that agreements signed by Theresa May and Emmanuel Macron could lead to hundreds more receiving permission to travel legally to the UK. Details emerging from last week’s summit show that officials agreed to extend an eligibility deadline so that children fleeing conflict and arriving in Europe before last Friday could be considered under the Dubs amendment, the scheme launched in 2016 under which the government agreed to offer a safe and legal route to refugee children travelling alone. Previously, refugee children had to have arrived in Europe before March 2016 to be considered for acceptance under the scheme. This deadline meant large numbers of vulnerable young people who had arrived in France, Germany and Italy more recently were not eligible.

Lord Dubs, the Labour peer who forced the government to commit to helping more young refugees in January 2016, welcomed the development. “We hope dozens more will be transferred, but it is crucial that they get a move on. In France they are sleeping under the trees in very bleak conditions.” Although the May-Macron agreement focused on France, concerns are growing for the large number of unaccompanied refugee children in Greece where there are currently 3,150 refugee children, travelling without families, and only 1,109 spaces in shelters, according to the charity Safe Passage, which has campaigned to bring more young refugees to the UK. The charity hopes that a further 250 could be brought to safety under the Dubs scheme. The government has committed to accommodating 480 refugee children under the scheme, but has so far only transferred about 220.

Campaigners hope the announcement could reduce the number of young refugees killed on roads outside Calais, after a spike in deaths in recent weeks among asylum seekers attempting to climb on to lorries in order to travel illegally to the UK. The UK government also agreed to speed up the time it spends considering applications from young refugees for transfer to the UK, committing to providing an answer in 10 days, and to transferring them within 15 days after that. George Gabriel, at Safe Passage, said: “For those who are awaiting family reunion, these changes will mean that there is a much lower incentive to make a dangerous journey to reunite with a loved one.”

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