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Debt Rattle October 16 2018

Oct 162018

October 16, 2018 Posted by Raúl Ilargi Meijer at 9:15 am Finance Tagged with: Assange, Brexit, carry trade, deficit, Ecuador, famine, insects, liquidity, Powell, Syria, tree of life, Yemen 7 Responses »

M. C. Escher Doric columns 1945

• Yemen On Brink Of ‘World’s Worst Famine In 100 Years’ (G.)

• Humanity Is ‘Cutting Down The Tree Of Life’ (G.)

• ‘Hyperalarming’ Study Shows Massive Insect Loss (WaPo)

• America’s Budget Deficit Jumps By 17% As Spending Surges (CNBC)

• More Free Money: A Carry Trade in Liquidity (Mish)

• Powell Has Lost His North Star, And The Fed Is Flying Blind (MW)

• Facebook Paid £15.8 Million In UK Tax On £1.2 Billion In 2017 Revenues (BBC)

• Ecuador To Assange: No Talking Politics, Pay Own Bills, Look After Cat (RT)

• Brexit Deal Slipping To December Amid Deadlocked Talks (Ind.)

• No-Deal Brexit Is ‘More Likely Than Ever Before’ – Tusk (Ind.)

• Syria’s Chessboard (Hallinan)

As Stormy Daniels and Elizabeth Warren see their ‘cases’ blow up in their faces 3 weeks before the midterms, the best PR and legal teams that money can buy are framing a Khashoggi narrative nobody will be able to credibly deny. Or at least Erdogan is not showing his hand. But now that Pompeo’s in the region anyway, let’s put this on his agenda. 12 to 13 million at risk of starvation.

• Yemen On Brink Of ‘World’s Worst Famine In 100 Years’ (G.)

Yemen could be facing the worst famine in 100 years if airstrikes by the Saudi-led coalition are not halted, the UN has warned. If war continues, famine could engulf the country in the next three months, with 12 to 13 million civilians at risk of starvation, according to Lise Grande, the agency’s humanitarian coordinator for Yemen. She told the BBC: “I think many of us felt as we went into the 21st century that it was unthinkable that we could see a famine like we saw in Ethiopia, that we saw in Bengal, that we saw in parts of the Soviet Union – that was just unacceptable. “Many of us had the confidence that would never happen again and yet the reality is that in Yemen that is precisely what we are looking at.”

Yemen has been in the grip of a bloody civil war for three years after Houthi rebels, backed by Iran, seized much of the country, including the capital, Sana’a. The Saudi-led coalition has been fighting the rebels since 2015 in support of the internationally recognised government. Thousands of civilians have been caught in the middle, trapped by minefields and barrages of mortars and airstrikes. The resulting humanitarian catastrophe has seen at least 10,000 people killed and millions displaced. Speaking on Sunday evening, Grande said: “There’s no question we should be ashamed, and we should, every day that we wake up, renew our commitment to do everything possible to help the people that are suffering and end the conflict.”

And it’s not just people that we’re killing:

• Humanity Is ‘Cutting Down The Tree Of Life’ (G.)

Humanity’s ongoing annihilation of wildlife is cutting down the tree of life, including the branch we are sitting on, according to a stark new analysis. More than 300 different mammal species have been eradicated by human activities. The new research calculates the total unique evolutionary history that has been lost as a result at a startling 2.5bn years. Furthermore, even if the destruction of wild areas, poaching and pollution were ended within 50 years and extinction rates fell back to natural levels, it would still take 5-7 million years for the natural world to recover. Many scientists think a sixth mass extinction of life on Earth has begun, propelled by human destruction of wildlife, and 83% of wild mammals have already gone.

The new work puts this in the context of the evolution and extinction of species that occurred for billions of years before modern humans arrived. “We are doing something that will last millions of years beyond us,” said Matt Davis at Aarhus University in Denmark, who led the new research. “It shows the severity of what we are in right now. We’re entering what could be an extinction on the scale of what killed the dinosaurs. “That is pretty scary. We are starting to cut down the whole tree [of life], including the branch we are sitting on right now.” Ecosystems around the world have already been significantly affected by the extermination of big animals such as mammoths, he said.

[..] Davis said each lost species had its own intrinsic value, but the loss of the most distinct creatures was most damaging: “Typically, if you have something that is off by itself, it does some job that no other species is doing.” The losses are already affecting ecosystems, he said, particularly the vanishing of “megafauna”. These huge creatures roamed much of Earth until humans arrived and included giant cats, deer, beavers and armadillos. “We are now living in a world without giants,” said Davis. “So the seeds of big fruit are not dispersed any more because we don’t have mammoths or gomphotheres or giant ground sloths eating those fruits.” Another example, he said, is the widespread loss of wolves. This means smaller predators like coyotes thrive and more birds are killed, radically changing food chains.

“Between January 1977 and January 2013, the catch rate in the sticky ground traps fell 60-fold..”

“..our study indicates that climate warming is the driving force behind the collapse of the forest’s food web. ”

• ‘Hyperalarming’ Study Shows Massive Insect Loss (WaPo)

Insects around the world are in a crisis, according to a small but growing number of long-term studies showing dramatic declines in invertebrate populations. A new report suggests that the problem is more widespread than scientists realized. Huge numbers of bugs have been lost in a pristine national forest in Puerto Rico, the study found, and the forest’s insect-eating animals have gone missing, too. In 2014, an international team of biologists estimated that, in the past 35 years, the abundance of invertebrates such as beetles and bees had decreased by 45 percent. In places where long-term insect data are available, mainly in Europe, insect numbers are plummeting. A study last year showed a 76 percent decrease in flying insects in the past few decades in German nature preserves.

The latest report, published Monday in the Proceedings of the National Academy of Sciences, shows that this startling loss of insect abundance extends to the Americas. The study’s authors implicate climate change in the loss of tropical invertebrates. “This study in PNAS is a real wake-up call — a clarion call — that the phenomenon could be much, much bigger, and across many more ecosystems,” said David Wagner, an expert in invertebrate conservation at the University of Connecticut who was not involved with this research. He added: “This is one of the most disturbing articles I have ever read.”

[..] “We went down in ’76, ’77 expressly to measure the resources: the insects and the insectivores in the rain forest, the birds, the frogs, the lizards,” Lister said. He came back nearly 40 years later, with his colleague Andrés García, an ecologist at the National Autonomous University of Mexico. What the scientists did not see on their return troubled them. “Boy, it was immediately obvious when we went into that forest,” Lister said. Fewer birds flitted overhead. The butterflies, once abundant, had all but vanished. García and Lister once again measured the forest’s insects and other invertebrates, a group called arthropods that includes spiders and centipedes. The researchers trapped arthropods on the ground in plates covered in a sticky glue, and raised several more plates about three feet into the canopy.

The researchers also swept nets over the brush hundreds of times, collecting the critters that crawled through the vegetation. Each technique revealed the biomass (the dry weight of all the captured invertebrates) had significantly decreased from 1976 to the present day. The sweep sample biomass decreased to a fourth or an eighth of what it had been. Between January 1977 and January 2013, the catch rate in the sticky ground traps fell 60-fold. “Everything is dropping,” Lister said. The most common invertebrates in the rain forest — the moths, the butterflies, the grasshoppers, the spiders and others — are all far less abundant. “Holy crap,” Wagner said of the 60-fold loss.

Comparison of the average dry-weight biomass of arthropods caught per 12-h day in 10 ground (A) and canopy (B) traps within the same sampling area in the Luquillo rainforest.

If there are no insects left, who cares about deficits? What’s the use?

• America’s Budget Deficit Jumps By 17% As Spending Surges (CNBC)

The U.S. federal budget deficit rose in fiscal 2018 to the highest level in six years as spending climbed, the Trump administration said Monday. The deficit jumped to $779 billion, $113 billion or 17 percent higher than the previous fiscal period, according to a statement from Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Mick Mulvaney. It was larger than any year since 2012, when it topped $1 trillion. The budget shortfall rose to 3.9 percent of U.S. GDP. The deficit increased by $70 billion less than anticipated in a report published in July, according to the two officials.

Federal revenue rose only slightly, by $14 billion after Republicans chopped tax rates for corporations and most individuals. Outlays climbed by $127 billion, or 3.2 percent. A spike in defense spending, as well as increases for Medicaid, Social Security and disaster relief, contributed to the increase.

“If the goal was to bail out the banks at public expense (and it was) it’s clear Bernanke had a far better plan than the ECB.”

• More Free Money: A Carry Trade in Liquidity (Mish)

Not only do banks earn free money on excess reserves, they can borrow money and make guaranteed free money on that.

The Federal Reserve Bank of St. Louis discusses the Carry Trade in Liquidity: “The IOER [interest on excess reserves] has been the effective ceiling of other short-term interest rates. The figure above compares the IOER with overnight rates on deposits and repos. As we can see, the IOER has mostly remained above these two rates, implying that (at least some) banks have been able to borrow funds overnight, deposit them at the Fed and earn a spread, in essence engaging in carry trade in liquidity markets.”

How Much Free Money?

While the Fed has been busy giving banks free money by paying interest on excess reserves, banks in the EU have suffered with negative interest rates, essentially taking money from banks and making them more insolvent. If the goal was to bail out the banks at public expense (and it was), it’s clear Bernanke had a far better plan than the ECB.

The Fed’s been flying blind at least since Bernanke talked about ‘entering uncharted territory’. That’s what that means.

• Powell Has Lost His North Star, And The Fed Is Flying Blind (MW)

Federal Reserve Chairman Jerome Powell is in an unenviable position. Folks expect him to fine-tune interest rates to keep the economy going and inflation tame but he can’t make things much better — only worse. Growth is nearly 3% and unemployment is at its lowest level since 1969. What inflation we have above the Fed target of 2% is driven largely by oil prices and those by forces beyond the influence of U.S. economic conditions — OPEC politics, U.S. sanctions on Iran, and dystopian political forces in Venezuela and a few other garden spots. When the current turbulence in oil markets recedes, we are likely in for a period of headline inflation below 2%, just as those forces are now driving prices higher now.

Overall, long-term inflation has settled in at the Fed target of about 2%. The Fed should not obsess about it but keep a watchful eye. Amid all this, Powell’s inflation compass has gone missing. The Phillips curve, as he puts it, may not be dead but just resting. To my thinking, it’s in a coma if it was ever alive at all. That contraption is a shorthand equation sitting atop a pyramid of more fundamental behavioral relationships. Those include the supply and demand for domestic workers and in turn, an historically large contingent labor force of healthy prime-age adults sitting on the sidelines, the shifting skill requirements of a workplace transformed by artificial intelligence and robotics, import prices influenced by weak growth in Europe and China, and immigration.

Of course, Mariner Powell has his North Star — what economists affectionately call R* (R-Star), but it is no longer at a fixed position in Powell’s sky. R* is the federal funds rate that neither encourages the economy to speed up or slow down. However, with businesses needing much less capital to get started or grow these days and for decades China and Germany—the second and fourth largest economies globally—racking up current account surpluses and savings to invest abroad, it is no wonder the forces of supply and demand have been driving R* down to historically low levels.

They use what they don’t pay in taxes, to spy on you.

• Facebook Paid £15.8 Million In UK Tax On £1.2 Billion In 2017 Revenues (BBC)

Facebook’s UK tax bill has tripled to £15.8m – but the social media giant will see an immediate cut because of a tax credit. The final bill comes to £7.4m, since Facebook will see tax relief of £8.4m after awarding shares to employees. In 2016, Facebook’s tax bill rose to £5.1m, following a major overhaul of the social media firm’s tax structure. However, the company’s profits only climbed by £4m year-on-year from £58.4m to £62.7m in 2017. The company’s UK office provides marketing services and sales and engineering support to the company. Facebook’s revenue rose by a third year-on-year to £1.2bn in 2017, because of increased revenues from inter-company and advertising reseller services in 2017.

“We have changed the way we report tax so that revenue from customers supported by our UK teams is recorded in the UK and any taxable profit is subject to UK corporation tax,” said Facebook’s Northern Europe vice-president, Steve Hatch. [..] The publication of Facebook’s 2017 tax accounts follows extensive criticism from policymakers and the media over the last 12 months of how much tax tech giants typically pay in Europe. Large technology companies have been condemned for moving sales through other countries and paying modest amounts of tax in the UK.

Hard to gauge what exactly this means, time must tell. Seems good that they talk of medical help. but will he be able to get it?

• Ecuador To Assange: No Talking Politics, Pay Own Bills, Look After Cat (RT)

WikiLeaks supporters were thrilled to hear that Ecuador would restore Julian Assange’s internet connection. But his hosts – who have in some ways become his jailers – reportedly imposed a long list of restrictions on his behavior. While stating that he is allowed to exercise his “right of communication and freedom of expression,” a nine-page document already leaked online forbids the journalist from engaging in political activity or doing anything to interfere in the affairs of other states. The document expressly states that Ecuador cannot be held liable for the content of Assange’s communications, but nevertheless prohibits him from engaging in activities that might damage the relationship between Ecuador and other states.

Assange’s communications were cut seven months ago, after he criticized Spanish authorities’ treatment of voters during the Catalan independence referendum. Assange must pay for his own WiFi. He must use only his own devices, absent written government permission, and provide the embassy with serial number, model number, and brand name for those devices. He must also pay for his own medical evaluations, with the option of transferring to a hospital in case of an emergency – an option repeatedly denied him by UK authorities, who refused to guarantee safe passage without arrest in the event of such a transfer. Assange’s health has been the subject of much concern during his six-year confinement in the Embassy.

Visitors are also slapped with new restrictions. They must submit visit requests in writing to the embassy chief, giving their name, nationality, profession and place of work, reason for visiting, email and social media accounts, and even the serial numbers for phones and other devices they wish to bring inside. The new rules even mandate the collection of IMEIs, unique identification numbers specific to a phone handset. While repeat visitors receive a less restrictive screening process, they can have their access revoked at any time without an explanation. All visitor data will be turned over to the Ecuadorian Ministry of Foreign Affairs and other unspecified parties.

The restrictions include a threat to use UK police to arrest visitors or seize communications equipment should the journalist violate the lengthy list of rules. Adding insult to injury, the embassy threatened to remove Assange’s cat to a shelter should they decide he is not cleaning up after the animal properly.

They lost two years doing nothing but fight amongst themselves. That time was always badly needed.

• Brexit Deal Slipping To December Amid Deadlocked Talks (Ind.)

A Brexit deal now looks unlikely until just before Christmas after Theresa May admitted “weeks” may be needed to break the deadlock in talks with Brussels. The delay was also signalled by Ireland’s prime minister who warned of log-jammed negotiations dragging into December, increasing concern that stalled talks could simply collapse into a “disaster” no-deal situation. In a veiled swipe at Brexiteers, European Council President Donald Tusk said solving the vexed issue of the Irish border had proved “more complicated than some may have expected” and said no deal is now “more likely than ever”.

A further sign of slippage came when the EU confirmed it would take a decision this week on whether a special summit once proposed for November to publicly seal a Brexit deal, will be needed given the state of talks. But despite the deadlock, Ms May again came under intense pressure from Conservative Eurosceptics to refuse anything resembling the EU’s proposals, amid signs she is diluting her stance to secure a deal. The October summit was once supposed to be the moment a withdrawal deal was locked in, with expectations already having slipped to a potential specially arranged meeting in November – even under those circumstances the outline would have had to have been agreed at this week’s meeting.

More likely by the day.

• No-Deal Brexit Is ‘More Likely Than Ever Before’ – Tusk (Ind.)

A no-deal Brexit is “more likely than ever before”, the president of the European Council has warned, ahead of a make-or-break summit of EU leaders in Brussels. Donald Tusk, who has described this week’s top-level meeting as “the moment of truth”, said Brexit had “proven to be more complicated than some may have expected”. But he said that “that we are preparing for a no-deal scenario must not, under any circumstances, lead us away from making every effort to reach the best agreement possible”.

Mr Tusk’s warning, made in a letter to EU leaders formally inviting them to the summit, comes a day after negotiations between the European Commission and UK Government hit a a wall over the question of how to prevent a hard border in Northern Ireland. Over dinner on Wednesday night the heads of state or government of the 27 remaining EU member states will decide whether there is any pointing holding a special Brexit summit in November – or whether the horse has already bolted. It is now confirmed that Theresa May will address the 27 leaders before the dinner in a last-ditch bid to win them over; though she will not be allowed into the main discussion itself.

Russia and Assad delayed their final offensive to offer the jihadists a way out. But now these are refusing to leave.

• Syria’s Chessboard (Hallinan)

The Syrian civil war has always been devilishly complex, with multiple actors following different scripts, but in the past few months it appeared to be winding down. The Damascus government now controls 60 percent of the country and the major population centers, the Islamic State has been routed, and the rebels opposed to Syrian President Bashar al-Assad are largely cornered in Idilb Province in the country’s northwest. But suddenly the Americans moved the goal posts—maybe—the Russians have fallen out with the Israelis, the Iranians are digging in their heels, and the Turks are trying to multi-task with a home front in disarray. So the devil is still very much at work in a war that has lasted more than seven years, claimed up to 500,000 lives, displaced millions of people, destabilized an already fragile Middle East, and is far from over.

There are at least three theaters in the Syrian war, each with its own complexities: Idilb in the north, the territory east of the Euphrates River, and the region that abuts the southern section of the Golan Heights. Just sorting out the antagonists is daunting. Turks, Iranians, Americans and Kurds are the key actors in the east. Russians, Turks, Kurds and Assad are in a temporary standoff in the north. And Iran, Assad and Israel are in a faceoff near Golan, a conflict that has suddenly drawn in Moscow. Assad’s goals are straightforward: reunite the country under the rule of Damascus and begin re-building Syria’s shattered cities. The major roadblock to this is Idilb, the last large concentration of anti-Assad groups, Jihadists linked with al-Qaeda, and a modest Turkish occupation force representing Operation Olive Branch. The province, which borders Turkey in the north, is mountainous and re-taking it promises to be difficult.

For the time being there is a stand down. The Russians cut a deal with Turkey to demilitarize the area around Idilb city, neutralize the jihadist groups, and re-open major roads. The agreement holds off a joint Assad-Russian assault on Idilb, which would have driven hundreds of thousands of refugees into Turkey and likely have resulted in large numbers of civilian casualties. But the agreement is temporary—about a month—because Russia is impatient to end the fighting and begin the reconstruction. However, it is hard to see how the Turks are going to get a handle on the bewildering number of groups packed into the province, some of which they have actively aided for years. Ankara could bring in more soldiers, but Turkey already has troops east of the Euphrates and is teetering on the edge of a major economic crisis.

Debt Rattle June 18 2018

Jun 182018

June 18, 2018 Posted by Raúl Ilargi Meijer at 8:15 am Finance Tagged with: bananas, BIS, coup, crypto, false flag, FARC, Greece, insects, intervention, May, Merkel, Morales, NHS 16 Responses »

Paul Klee Pflanze und Fenster Stillleben 1927

• The US Should Break The German Lock On The European Economy (CNBC)

• Merkel Gets Extra Time To Reach Deal With EU Over Asylum Row (G.)

• Eurozone Braces For Row With Greece Over Bailout Exit Terms (G.)

• The Bigger Cryptocurrencies Get, The Worse They Perform: BIS (R.)

• May’s NHS ‘Brexit Dividend’ Claim Draws Scepticism And Doubt (G.)

• FARC Peace Deal At Risk As Conservative Duque Wins Colombia Presidency (AFP)

• Bolivia’s Morales Condemns US Intervention in Venezuela, Latin America (TSur)

• Russia-Syria Warnings of Coming False-Flag Attack Have Ring of Truth (MPN)

• Refugee Camps Reopening On Greek Mainland (K.)

• Scientists Scramble To Stop Bananas Being Killed Off (G.)

• Losing The Buzz (ODT)

• Where Have All Our Insects Gone? (G.)

• Bringing Julian Assange Home (John Pilger)

There’s a thought.

• The US Should Break The German Lock On The European Economy (CNBC)

Germany may only account for 3.4% of the world economy, but it is more than a quarter of the European Union’s demand and output. The EU, in turn, is close to 20% of the world economy, and, based on last year’s numbers, it takes $283.5 billion of U.S. exports, or 18.3% of America’s total goods sold overseas. What the U.S. sells to the EU is more than 40% of all the goods America exports to China and Japan. That shows that the damage caused to the U.S. economy transcends, by far, Germany’s surplus of $64.2 billion on American trades in 2017. Imagine, for example, what would happen to the EU economy, to the rest of the world — and to U.S. export sales in general — if Germany were not living off its fellow Europeans with a massive €164.4 billion trade surplus.

That German surplus is stifling the economic growth in the rest of Europe, because it is a deficit for countries trading with Germany. You can think of those €164.4 billion as a large wealth transfer to Germany. Indeed, it is a structural foundation of Germany’s export-driven economy, where sales to the rest of the world account for nearly a half of German GDP (compared with 14% in the U.S. case). What Europe, the U.S. and the rest of the world need here is a radical change of German economic policies. Germany should be generating more growth from domestic demand to give an opportunity to its trade partners to sell more of their goods and services on German markets. That would boost intra-European growth and create opportunities for more American sales to Europe — its largest overseas customer.

There is nothing new here. It’s a very old story Germans don’t even want to talk about. And why should they? France is meekly taking it on the chin with annual deficits of 36 to 41 billion euros on its German trades, and the rest of Europe does not dare question what it wrongly sees as a virtuously strong German economy.

There will be no such deal. Not a comprehensive one.

• Merkel Gets Extra Time To Reach Deal With EU Over Asylum Row (G.)

Germany’s interior minister, Horst Seehofer, has signalled he is open to giving Angela Merkel more time to reach a deal with Germany’s EU partners over an asylum row that has threatened to bring down her government. As the German chancellor met leaders of her Christian Democratic Union (CDU) on Sunday in an attempt to divert the collapse of her fledgling administration, Seehofer emerged from emergency talks with his Christian Social Union (CSU) saying he had no intention of toppling Merkel. Seehofer wants police stationed at borders to turn back refugees and migrants arriving from other EU countries but signalled he would give Merkel two weeks’ grace to reach migration agreements with EU partners.

“No one in the CSU is interested in bringing the chancellor down, or dissolving the CDU/CSU parliamentary partnership or destroying the coalition,” Seehofer told the Bild am Sonntag newspaper, adding that he did not want the asylum row to endanger the coalition government, which is less than 100 days old. Seehofer said his party was keen to find a way to limit the number of asylum seekers arriving in Germany. “We finally want to have a solution for the return of refugees at our borders which is fit for the future,” he added. But he was quoted in the Welt am Sonntag as having voiced his scepticism about the future of the CDU/CSU alliance in a meeting of the CSU’s leadership. “I cannot work with this woman any more,” he was quoted as saying.

A row with the IMF, you mean.

• Eurozone Braces For Row With Greece Over Bailout Exit Terms (G.)

Eurozone finance ministers are braced for a row this week with the Greek government over the terms of a “golden goodbye” as the country prepares to exit its third bailout programme. Concerns that Greece will suffer a fourth financial collapse unless an agreement is signed with the EU to write off some of its debt mountain are likely to surface before a showdown in Brussels on Thursday. The IMF, which has lent Greece several billion euros and has taken part in a tripartite monitoring of reforms with the European commission and ECB, is expected to pull out of the arrangement unless Brussels reduces Greece’s debt burden. Without the IMF on board, Germany and other hardline countries such as Finland and Austria could demand stricter clauses in the reform programme due to be imposed on Greece as the price of its final bailout payoff.

“Everyone has an interest to alleviating the burden, for Greece and the rest of the creditors,” said Olivier Bailly, the chief adviser to the EU’s finance commissioner, Pierre Moscovici. “If we leave too much burden, this will slow down Greece’s recovery.” He played down the impact of the IMF pulling out of the first stage of surveillance that will last until at least 2022. “What is important is that the IMF give its view on debt measures. What the markets expect is that it says they are credible enough,” he said, admitting that the lack of involvement by the Washington-based lender of last resort puts pressure on Germany. Finance ministers from the 19-member currency bloc will meet on Thursday to agree a package of measures that will include a final loan payment of between €10bn and €12bn and a cash buffer of up to €20bn. The payments are due to be the last of the €86bn bailout agreed in 2015.

[..] Hans Vijlbrief, the top EU official advising eurogroup ministers, said: “It’s very important that Greece can stand on its own feet. If it’s not credible, we won’t come out. This is the first condition.” The Eurogroup is seeking to reduce Greek debt payments by extending loans until beyond 2040 and reducing the interest rate to near 1%, well below the rate Greece would need to pay international investors. The IMF, however, has insisted that reducing the overall debt mountain from the outset is the only way to stabilise Athens’ public finances. Vijlbrief said the EU charter prevented the Eurogroup from offering debt write-offs, but this assertion has never been tested and is still the basis for IMF involvement in the next stage of Greece’s recovery.

The bank of banks feels threatened.

• The Bigger Cryptocurrencies Get, The Worse They Perform: BIS (R.)

Cryptocurrencies are not scalable and are more likely to suffer a breakdown in trust and efficiency the greater the number of people using them, the Bank of International Settlements (BIS)said on Sunday in its latest warning about the rise of virtual currencies. For any form of money to work across large networks it requires trust in the stability of its value and in its ability to scale efficiently, the BIS, an umbrella group for the world’s central banks, said in its annual report. But trust can disappear instantly because of the fragility of the decentralized networks on which cryptocurrencies depend, the BIS said.

Those networks are also prone to congestion the bigger they become, according to the BIS, which noted the high transaction fees of the best-known digital currency, bitcoin, and the limited number of transactions per second they can handle. “Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded,” the Switzerland-based group said in its report. “Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value.”

The BIS’ head of research, Hyun Song Shin, said sovereign money had value because it had users, but many people holding cryptocurrencies did so often purely for speculative purposes. “Without users, it would simply be a worthless token. That’s true whether it’s a piece of paper with a face on it, or a digital token,” he said, comparing virtual coins to baseball cards or Tamagotchi. [..] Agustin Carstens, general manager of the BIS, has described bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster”.

The claim is so out there it’s funny.

• May’s NHS ‘Brexit Dividend’ Claim Draws Scepticism And Doubt (G.)

Theresa May’s promise of £400m extra in weekly NHS spending within five years has been overshadowed by scepticism among experts and her own backbenchers over her claim it can be financed through a windfall delivered by Brexit. Ahead of a major speech by the prime minister in which she will pledge a £20bn annual real-terms NHS funding increase by 2023-24, May was ridiculed for arguing that some of the money would come from a so-called Brexit dividend. “At the moment, as a member of the European Union, every year we spend significant amounts of money on our subscription, if you like, to the EU,” she said in an interview on BBC One’s Andrew Marr show.

“When we leave we won’t be doing that. It’s right that we use that money to spend on our priorities, and the NHS is our number-one priority.” The Institute for Fiscal Studies (IFS) said, however, that even the government had accepted the idea of an immediate post-Brexit boost to coffers would not happen. The decision to announce extra spending for the NHS and to frame it specifically as a benefit of leaving the EU has been widely seen as a sop by May to hardline Brexiters in her cabinet and on the Tory backbenches ahead of some potentially crucial votes this week on the EU withdrawal bill.

Finally there’s peace, and now this. Colombia is set to become a NATO member.

• FARC Peace Deal At Risk As Conservative Duque Wins Colombia Presidency (AFP)

Conservative Ivan Duque won Colombia’s presidential election Sunday after a campaign that turned into a referendum on a landmark 2016 peace deal with FARC rebels that he pledged to overhaul. Duque, 41, polled 54 percent to his leftist rival Gustavo Petro’s 42 percent with almost all the votes counted, electoral authority figures showed. Petro, a leftist former mayor and ex-guerrilla, supports the deal. Tensions over the deal became apparent in the immediate aftermath of Duque’s victory, after the president-elect lost no time in pledging “corrections” to the peace deal. “That peace we long for — that demands corrections — will have corrections, so that the victims are the center of the process, to guarantee truth, justice and reparation,” Duque told supporters in his victory speech at his campaign headquarters.

“The time has come to build real change,” Duque said, promising a future for Colombians “of lawfulness, freedom of enterprise and equity,” after decades of conflict. His vanquished opponent Petro promised to resist any fundamental changes to the deal. “Our role is not to be impotent and watch it being destroyed,” he said. FARC, which disarmed and transformed into a political party after the peace deal but did not contest the election, immediately called on Duque to show “good sense” in dealing with the agreement. “What the country demands is an integral peace, which will lead us to the hoped-for reconciliation,” the FARC said in a statement after Duque’s presidential win. The former rebels also called for an early meeting with Duque.

A US supported coup soon?

• Bolivia’s Morales Condemns US Intervention in Venezuela, Latin America (TSur)

Bolivian President Evo Morales said Saturday that Latin America “is no longer the United States’ backyard” while denouncing the United States’ attempt to convince its South American allies to help it orchestrate a military intervention or coup in Venezuela. In an interview with news agency EFE, Morales explained that several Latin American leaders have confided in him that U.S. Vice president Mike Pence is “trying to convince some United States-friendly countries” help them seize control of the South American country and replace the current government led by Nicolas Maduro. The real target, Morales explained, is not the Venezuelan president but “Venezuelan oil, and Venezuelans know that.”

Drawing parallels to 2011 military intervention in Libya, Morales said the U.S. isn’t interested in helping with alleged humanitarian crisis since, despite the current political and social turmoil in Libya, the U.S. will not intervene there since “the country’s oil is now owned by the U.S. and some European oil companies,” Morales asserted. “One military intervention (in the region) would only create another armed conflict,” he added pointing to Colombia’s membership in the North Atlantic Treaty Organization (NATO) as a general sign of an escalation of “military aggression to all Latin America and the Caribbean” region. Morales explained, however, that U.S. interventionism is not only militaristic.

“When there are no military coups, they seek judicial or congressional coups” as in the case of former Brazilian President Dilma Rousseff’s impeachment and the Luiz Inacio Lula da Silva’s imprisonment, which is barring him from running in the upcoming 2018 elections.

They warned of the last one as well.

• Russia-Syria Warnings of Coming False-Flag Attack Have Ring of Truth (MPN)

In recent days, speculation has swirled regarding whether another chemical-weapons attack will soon take place in Syria, as sources in both Syrian intelligence and the Russian military have warned that U.S.-backed forces in the U.S.-occupied region of Deir ez-Zor are planning to stage a chemical weapons attack to be blamed on the Syrian government. Concern that such an event could soon take place has only grown since the U.S. government announcement this past Thursday that the U.S. would provide $6.6 million over the next year to fund the White Helmets, the controversial “humanitarian” group that has been accused of staging “false flag” chemical weapons attacks in the past.

Notably, the White Helmets were largely responsible for staging the recent alleged chlorine gas attack in Eastern Ghouta, which led the United States, the United Kingdom and France to attack Syrian government targets. That same attack in Eastern Ghouta had been predicted weeks prior by the Russian military and Syrian government, who are warning once again that a similar event is likely to occur in coming weeks. An additional and largely overlooked indication that another staged attack could soon take place has been the recent movements of U.S. military assets to the Syrian coast, particularly the deployment of the Harry S. Truman Carrier Strike Group (HSTCSG). As MintPress previously reported, the deployment of the HSTCSG – which consists of some 6,500 sailors — was first announced in April prior to the U.S., France and U.K. bombing of Syria. However, the group did not arrive until after that bombing had taken place.

While the April bombing was called a “one-time shot” by U.S. Secretary of Defense James Mattis, the fact that the Truman strike group’s deployment to the region was not canceled after the bombings occurred led some to suggest that the U.S. may have been anticipating more strikes against Syria’s government in the coming months. Indeed, soon after the U.S.-led bombing of Syria, U.S. Ambassador to the UN, Nikki Haley, declared the U.S. was “locked and loaded” should the Syrian government again be accused of using chemical weapons. Now, amid claims from both the Syrian and Russian governments of another chemical weapons provocation, as well as the U.S.’ renewed funding of the White Helmets, the strike group’s deployment directly off the Syrian coast has only given greater credence to those previously voiced concerns.

12,000 refugees so far this year.

• Refugee Camps Reopening On Greek Mainland (K.)

While European Union countries shut their doors to migrants – Italy and Malta last week refused to allow a rescue ship carrying more than 600 migrants to dock at their ports – Greek authorities are reopening unused camps and facilities across the mainland to accommodate the swelling number of asylum seekers. Following a series of meetings last week, sources told Kathimerini, the Ministry for Migration Policy decided to reopen four camps, first set up at the peak of the refugee crisis in 2015, raising the total number of operational centers to 25. More specifically, tents have been set up again at the Malakasa camp, north of Athens, to house 300 people.

The Vagiochori camp near Thessaloniki, in northern Greece, is also expected to open in the coming days, providing accommodation for 400 individuals. The facility at Elefsina, west of the capital, has been hosting 250 refugees since late April, while another 350 migrants and refugees were transferred to the reception center at Oinofyta, north of Attica. A drop in the migrant population at the Skaramangas refugee center, meanwhile, was reversed after September last year, with the current number estimated at more than 2,000. An average 75 migrants land daily on Greece’s Aegean islands. A total of 12,065 people had entered the country until June 11 this year.

“..the plant is heavily cloned so if you have a disease that can kill one tree, it can potentially wipe out the entire industry.”

• Scientists Scramble To Stop Bananas Being Killed Off (G.)

A British company has joined the race to develop a banana variety resistant to diseases and climatic changes that threaten to disrupt the availability of the country’s favourite fruit – or even kill it off altogether. The UK alone consumes more than 5bn bananas a year, while the fruit is a staple food in many poor countries and accounts for an export industry worth $13bn (£9.8bn) a year. But the global supply chain is threatened by a virulent disease that has been attacking plantations in Australia, south-east Asia and parts of Africa and the Middle East. As experts warn the fungus known as “fusarium wilt”, or Panama disease, could spread to Latin America, from where the majority of bananas are exported, scientists are scrambling to create a more robust variety that could help sustain the crop.

A single type of banana, called the Cavendish, accounts for 99.9% of bananas traded globally. It replaced a tastier variety wiped out by disease in the 1950s. Now researchers at the Norwich-based startup Tropic Biosciences are using gene editing techniques to develop a more resilient version of the Cavendish after securing $10m from investors. The company’s CEO, Gilad Gershno, : “In the developed world we tend to take bananas for granted. A banana found in your local supermarket grown in Costa Rica and shipped to the UK probably costs less than an apple grown 20 miles away. “If you look at the broader consumption on top of exports, the banana industry is worth a massive $30bn a year. However,people have been getting increasingly worried because the plant is heavily cloned so if you have a disease that can kill one tree, it can potentially wipe out the entire industry.”

“10,000,000,000,000,000,000. 10 quintillion. That equals more than 1500 million insects for every person.”

• Losing The Buzz (ODT)

He starts at the beginning, with a black and white photocopy of a pie chart representing the animal kingdom and its various, speciated slices of pie. 80 percent of all known species of animals are insects, he says. You can tell an insect – if you can get it to hold still for long enough – by its six legs, exoskeleton divided into a head, thorax and abdomen and its two waggling antennae. By far the biggest orders of insects are the coleoptera (beetles) and the hymenoptera (wasps, bees and ants), followed by the lepidoptera (butterflies and moths), then diptera (flies and mosquitoes) and, finally, other insects, such as grasshoppers and silverfish. “The total number of individual insects alive worldwide today is …” He writes it out. 10,000,000,000,000,000,000. “… 10 quintillion. That equals more than 1500 million insects for every person.”

[..] The total biomass, that is the total weight of all organisms on earth, is estimated at 545.2 Gt C (gigatons of carbon), the researchers say. More than 80% of this, 452.5Gt C, is plants. Next comes bacteria (16%, 87.2Gt C) and fungi (2%, 10.9 Gt C). Animals make up just 0.4% of the total biomass. The globe’s 7.6 billion people account for just 0.01% of all living things. And yet our impact on the globe has been enormous – some would say catastrophic. According to the Proceedings article, humans are responsible for the possibly irreparable loss of large chunks of the animal and plant kingdoms; more than 80% of all wild animals and half of all plants.

Anthony Harris finds it deeply disturbing. “Farmed poultry now makes up 70% of all birds on the planet, with just 30% wild,” he says with a shocked tone. “The picture for mammals is worse. 60 percent of all mammals on earth are livestock, mostly cattle and pigs, 36% are humans and just 4% of all mammals are wild.’ [..] Without insects, we face total ecological collapse and global famine. It is being called the Sixth Mass Extinction. The Fifth Mass Extinction was the one that killed off the dinosaurs, 66 million years ago. Harvard entomologist Prof E.O. Wilson has estimated that, without insects and other land-based invertebrates, humanity would only last a few months. Land-based plants and animals would be next to go. The planet would fall quiet and still. The last time the earth was like that was 440 million years ago.

Anyone seen any initiative to stop this?

• Where Have All Our Insects Gone? (G.)

Certainly, the statistics are grim. Native ladybird populations are crashing; three quarters of butterfly species – such as the painted lady and the Glanville fritillary – have dropped significantly in numbers; while bees, of which there are more than 250 species in the UK, are also suffering major plunges in populations, with great yellow bumblebees, solitary potter flower bees and other species declining steeply in recent years. Other threatened insects include the New Forest cicada, the tansy beetle and the oil beetle. As for moths, some of the most beautiful visitors to our homes and gardens, the picture is particularly alarming. Apart from the tiger moth, which was once widespread in the UK, the V-moth (Marcaria wauaria) recorded a 99% fall in numbers between 1968 and 2007 and is now threatened with extinction, a fate that has already befallen the orange upperwing, the bordered gothic and the Brighton wainscot in recent years.

An insect Armageddon is under way, say many entomologists, the result of a multiple whammy of environmental impacts: pollution, habitat changes, overuse of pesticides, and global warming. And it is a decline that could have crucial consequences. Our creepy crawlies may have unsettling looks but they lie at the foot of a wildlife food chain that makes them vitally important to the makeup and nature of the countryside. They are “the little things that run the world” according to the distinguished Harvard biologist Edward O Wilson, who once observed: “If all humankind were to disappear, the world would regenerate back to the rich state of equilibrium that existed 10,000 years ago. If insects were to vanish, the environment would collapse into chaos.”

Beginning and end of a speech by Pilger in Sydney. Tomorrow there are many rallies for Assange, especially in Australia. There is also a UN Human RIghts Commission meeting in Genava.

• Bringing Julian Assange Home (John Pilger)

The persecution of Julian Assange must end. Or it will end in tragedy. The Australian government and prime minister Malcolm Turnbull have an historic opportunity to decide which it will be. They can remain silent, for which history will be unforgiving. Or they can act in the interests of justice and humanity and bring this remarkable Australian citizen home. Assange does not ask for special treatment. The government has clear diplomatic and moral obligations to protect Australian citizens abroad from gross injustice: in JulianE’s case, from a gross miscarriage of justice and the extreme danger that await him should he walk out of the Ecuadorean embassy in London unprotected. We know from the Chelsea Manning case what he can expect if a US extradition warrant is successful — a United Nations Special Rapporteur called it torture.

[..] Malcolm Turnbull is now the Prime Minister of Australia. Julian Assange’s father has written to Turnbull. It is a moving letter, in which he has appealed to the prime minister to bring his son home. He refers to the real possibility of a tragedy. I have watched Assange’s health deteriorate in his years of confinement without sunlight. He has had a relentless cough, but is not even allowed safe passage to and from a hospital for an X-ray . Malcolm Turnbull can remain silent. Or he can seize this opportunity and use his government’s diplomatic influence to defend the life of an Australian citizen, whose courageous public service is recognised by countless people across the world. He can bring Julian Assange home.

The Science of a Vanishing Planet

Mar 262018

March 26, 2018 Posted by Raúl Ilargi Meijer at 1:46 pm Finance Tagged with: Bayer, biodiversity, birds, chemicals, extinction, food, GMOs, insects, Monsanto, pesticides, Precautionary Principle, science, Taleb 11 Responses »

Dorothea Lange Gravestone St. George, Utah 1953

There are numerous ways to define the Precautionary Principle. It’s something we can all intuitively understand, but which many parties seek ways to confuse since it has the potential to stand in the way of profits. Still, in the end it should all be about proof, not profits. That is exactly what the Principle addresses. Because if you first need to deliver scientific proof that some action or product can be harmful to mankind and/or the natural world, you run the risk of inflicting irreversible damage before that proof can be delivered.

In one of many definitions, the 1998 Wingspread Statement on the Precautionary Principle says: “When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically.”

Needless to say, that doesn’t easily fly in our age of science and money. Cigarette makers, car manufacturers and oil companies, just to name a few among a huge number of industries, are all literally making a killing while the Precautionary Principle is being ignored. Even as it is being cited in many international treaties. Lip service “R” us. Are these industries to blame when they sell us our products, or are we for buying them? That’s where governments must come in to educate us about risks. Which they obviously do not.

Nassim Nicholas Taleb -of Black Swan and Antifragile fame- has made the case, in his usual strong fashion, for applying the Precautionary Principle when it comes to GMOs. His argument is that allowing genetically modified organisms in our eco- and foodsystems carries unknown risks that we have no way of overseeing, and that these risks may cause irreversible damage to the very systems mankind relies on for survival.

Taleb is not popular among GMO producers. Who all insist there is no evidence that their products cause harm. But that is not the point. The Precautionary Principle, if it is to be applied, must turn the burden of proof on its head. The absence of evidence is not evidence of absence. Monsanto et al must prove that their products do no harm. They can not. Which is why they have, and need, huge lobbying, PR and legal departments.

But I didn’t want to talk about GMOs today, and not about Precautionary Principle alone. I wanted to talk about this: Paragraph 2 of article 191 of the European Union’s Lisbon Treaty (2009) states that:

“Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay.”

In other words, the EU has committed itself to the Precautionary Principle. Well, on paper, that is. However, then we get to a whole series of reports on wildlife in Europe, and they indicate all sorts of things, but not that Brussels cares even one bit about adhering to the Precautionary Principle, either for its people or its living environment. One voice below calls it a “state of denial”, but I would use some other choice words. Let’s start with the Guardian this morning, because they have an interesting perspective:

Most Britons remain blithely unaware that since the Beatles broke up, we have wiped out half our wildlife…

…since the fall of the Berlin Wall in 1989, the number of flying insects on nature reserves in Germany had dropped by at least 76% – more than three-quarters…

Things like ‘since you were born’, ‘since man landed on the moon’, ‘since the wall came down’ or ‘since 9/11’ may be a bit clearer than 100 years, or 25 years. Moreover, I read somewhere that since Columbus landed in 1492, America has lost on third of all its biodiversity, but that doesn’t yet explain the rate of acceleration that is taking place.

In October last year, the Guardian had this:

Three-Quarters Of Flying Insects In Germany Have Vanished In 25 Years

The abundance of flying insects has plunged by three-quarters over the past 25 years , according to a new study that has shocked scientists. Insects are an integral part of life on Earth as both pollinators and prey for other wildlife and it was known that some species such as butterflies were declining. But the newly revealed scale of the losses to all insects has prompted warnings that the world is “on course for ecological Armageddon”, with profound impacts on human society.

The new data was gathered in nature reserves across Germany but has implications for all landscapes dominated by agriculture, the researchers said. The cause of the huge decline is as yet unclear, although the destruction of wild areas and widespread use of pesticides are the most likely factors and climate change may play a role. The scientists were able to rule out weather and changes to landscape in the reserves as causes, but data on pesticide levels has not been collected.

“The fact that the number of flying insects is decreasing at such a high rate in such a large area is an alarming discovery,” said Hans de Kroon, at Radboud University in the Netherlands and who led the new research. “Insects make up about two-thirds of all life on Earth [but] there has been some kind of horrific decline,” said Prof Dave Goulson of Sussex University, UK, and part of the team behind the new study. “We appear to be making vast tracts of land inhospitable to most forms of life , and are currently on course for ecological Armageddon. If we lose the insects then everything is going to collapse.”

[..] When the total weight of the insects in each sample was measured a startling decline was revealed. The annual average fell by 76% over the 27 year period, but the fall was even higher – 82% – in summer, when insect numbers reach their peak. Previous reports of insect declines have been limited to particular insects, such European grassland butterflies, which have fallen by 50% in recent decades. But the new research captured all flying insects, including wasps and flies which are rarely studied, making it a much stronger indicator of decline.

Then last week from AFP:

France’s Bird Population Collapses As Pesticides Kill Off Insects

Bird populations across the French countryside have fallen by a third over the last decade and a half, researchers have said. Dozens of species have seen their numbers decline, in some cases by two-thirds, the scientists said in a pair of studies – one national in scope and the other covering a large agricultural region in central France. “The situation is catastrophic,” said Benoit Fontaine, a conservation biologist at France’s National Museum of Natural History and co-author of one of the studies. “Our countryside is in the process of becoming a veritable desert,” he said in a communique released by the National Centre for Scientific Research (CNRS), which also contributed to the findings.

The common white throat, the ortolan bunting, the Eurasian skylark and other once-ubiquitous species have all fallen off by at least a third, according a detailed, annual census initiated at the start of the century. A migratory song bird, the meadow pipit, has declined by nearly 70%. The museum described the pace and extent of the wipe-out as “a level approaching an ecological catastrophe”. The primary culprit, researchers speculate, is the intensive use of pesticides on vast tracts of monoculture crops, especially wheat and corn. The problem is not that birds are being poisoned, but that the insects on which they depend for food have disappeared.

“There are hardly any insects left, that’s the number one problem,” said Vincent Bretagnolle, a CNRS ecologist at the Centre for Biological Studies in Chize. Recent research, he noted, has uncovered similar trends across Europe, estimating that flying insects have declined by 80%, and bird populations has dropped by more than 400m in 30 years. Despite a government plan to cut pesticide use in half by 2020, sales in France have climbed steadily, reaching more than 75,000 tonnes of active ingredient in 2014, according to EU figures. “What is really alarming, is that all the birds in an agricultural setting are declining at the same speed, even ’generalist’ birds,” which also thrive in other settings such as wooded areas, said Bretagnolle.

Not that it’s just Europe, mind you. Still ‘ove’ this one from Gretchen Vogel in ScienceMag, about a year ago, on a phenomenon most of you stateside will have noticed too:

Where Have All The Insects Gone?

Entomologists call it the windshield phenomenon. “If you talk to people, they have a gut feeling. They remember how insects used to smash on your windscreen,” says Wolfgang Wägele, director of the Leibniz Institute for Animal Biodiversity in Bonn, Germany. Today, drivers spend less time scraping and scrubbing. “I’m a very data-driven person,” says Scott Black, executive director of the Xerces Society for Invertebrate Conservation in Portland, Oregon. “But it is a visceral reaction when you realize you don’t see that mess anymore.”

Some people argue that cars today are more aerodynamic and therefore less deadly to insects. But Black says his pride and joy as a teenager in Nebraska was his 1969 Ford Mustang Mach 1—with some pretty sleek lines. “I used to have to wash my car all the time. It was always covered with insects.” Lately, Martin Sorg, an entomologist here, has seen the opposite: “I drive a Land Rover, with the aerodynamics of a refrigerator, and these days it stays clean.”

Though observations about splattered bugs aren’t scientific, few reliable data exist on the fate of important insect species. Scientists have tracked alarming declines in domesticated honey bees, monarch butterflies, and lightning bugs. But few have paid attention to the moths, hover flies, beetles, and countless other insects that buzz and flitter through the warm months. “We have a pretty good track record of ignoring most noncharismatic species,” which most insects are, says Joe Nocera, an ecologist at the University of New Brunswick in Canada.

After all those numbers, and before they get worse -which they will, it’s already baked in the cake-, you would expect the EU to remember the Precautionary Principle all its member nations signed on to for the Lisbon Treaty. You would expect wrong. Instead Brussels vows to continue with the exact same policies that have led to its mind-boggling biodiversity losses.

EU In ‘State Of Denial’ Over Destructive Impact Of Farming On Wildlife

Europe’s crisis of collapsing bird and insect numbers will worsen further over the next decade because the EU is in a “state of denial” over destructive farming practices, environmental groups are warning. European agriculture ministers are pushing for a new common agriculture policy (CAP) from 2021 to 2028 which maintains generous subsidies for big farmers and ineffectual or even “fake” environmental or “greening” measures, they say. In a week when two new studies revealed drastic declines in French farmland birds – a pattern repeated across Europe – the EU presidency claimed that the CAP continued to provide safe food while defending farmers and “protecting the environment”.

“The whole system is in a state of denial,” said Ariel Brunner, head of policy at Birdlife Europe. “Most agriculture ministers across Europe are just pushing for business as usual. The message is, keep the subsidies flowing.” Farm subsidies devour 38% of the EU budget and 80% of the subsidies go to just 20% of farmers , via “basic payments” which hand European landowners £39bn each year.

Because these payments are simply related to land area, big farmers receive more, can invest in more efficient food production – removing hedgerows to enlarge fields for instance – and put smaller, less intensive farmers out of business. France lost a quarter of its farm labourers in the first decade of the 21st century, while its average farm size continues to rise.

A smaller portion – £14.22bn annually – of EU farm subsidies support “greening” measures but basic payment rules work against wildlife-friendly farming: in Britain, farmers can’t receive basic payments for land featuring ponds, wide hedges, salt marsh or regenerating woodland. Signals from within the EU suggest that the next decade’s CAP [..] will continue to pay farmers a no-strings subsidy, while cash for “greening”, or wildlife-friendly farming, may even be cut. Birdlife Europe said the “greening” was mostly “fake environmental spending” and wildlife-friendly measures had been “shredded” by “loophole upon loophole” introduced by member states.

[..] This week studies revealed that the abundance of farmland birds in France had fallen by a third in 15 years – with population falls intensifying in the last two years. It’s a pattern repeated across Europe: farmland bird abundance in 28 European countries has fallen by 55% over three decades, according to the European Bird Census Council. Conservationists say it’s indicative of a wider crisis – particularly the decimation of insect life linked to neonicotinoid pesticides.

20% of farmers work 80% of the land in Europe. That is used as an argument to single them out to pay them billions in subsidies. But it simply means these 20% use the most detrimental farming methods, most pesticides, most chemicals. The subsidies policy guarantees further deterioration of an already disastrous situation. The polluter doesn’t pay, as the Lisbon Treaty demands, but the polluter gets paid.

And even that is apparently still not enough for the fast growing bureaucracy. In a move perhaps more characteristic of the EU than anything else, it approved something last week that a million people had vehemently protested: the Bayer-Monsanto merger. The European parliament may have thrown out all Monsanto lobbyists recently, and voted to ban Roundup, but the die has been cast.

A million citizens can protest in writing, many millions in France and Germany and elsewhere may do the same on the street, none of it matters. The people who brought you WWII nerve gases and Agent Orange can now come together to take over your food supply.

EU Approves Buyout Of Monsanto By German Chemical Firm Bayer

German conglomerate Bayer won EU antitrust approval on Wednesday for its $62.5bn (£44.5bn) buy of US peer Monsanto, the latest in a trio of mega mergers that will reshape the agrochemicals industry. The tie-up is set to create a company with control of more than a quarter of the world’s seed and pesticides market. Driven by shifting weather patterns, competition in grain exports and a faltering global farm economy, Dow and Dupont, and ChemChina and Syngenta had earlier led a wave of consolidation in the sector. Both deals secured EU approval only after the companies offered substantial asset sales to boost rivals.

Environmental and farming groups have opposed all three deals, worried about their power and their advantage in digital farming data, which can tell farmers how and when to till, sow, spray, fertilise and pick crops based on algorithms. The European Commission said Bayer addressed its concerns with its offer to sell a swathe of assets to boost rival BASF [..] “Our decision ensures that there will be effective competition and innovation in seeds, pesticides and digital agriculture markets also after this merger,” European Competition Commissioner Margrethe Vestager said in a statement. “In particular, we have made sure that the number of global players actively competing in these markets stays the same.”

[..] Vestager said the Commission, which received more than a million petitions concerning the deal, had been thorough by examining more than 2,000 different product markets and 2.7 million internal documents to produce a 1,285-page ruling. [..] Online campaigns group Avaaz criticised the EU approval. “This is a marriage made in hell. The Commission ignored a million people who called on them to block this deal, and caved in to lobbying to create a mega-corporation which will dominate our food supply,” Avaaz legal director Nick Flynn said.

Dow-Dupont, ChemChina and Bayer Monsanto have a lot more political influence than a million Europeans, or ten million Americans. They have even convinced numerous, if not most, people that without their products the world would starve. That their chemicals are needed to feed a growing human population. Farming based on algorythms.

They are not ‘seed companies’. They are ‘seeds-that-need-our-chemicals-to-grow’ companies. And they are out to conquer the entire world. A 100-times worse version of Facebook. And our governments subsidize the use of their products. As we not-so-slowly see our living world be massacred by those products.

We don’t know how bad GMOs will turn out to be. Which is in itself a very good reason to ban them. Since once they spread, they can’t be stopped anymore. Then the chemical boys will own all of our food. But we do know how bad the pesticides and other chemicals they produce are. And we’re not even banning those. We just eat all that sh*t and shut up.

It’s a failure to understand what science is: that you must proof harm first before banning stuff. The only real science is the one that has adopted the Precautionary Principle. Because science is supposed to be smart, and there’s nothing smart about destroying your own world. Because science should never be used to hurt people or nature. Science can only be good if it benefits us. Not our wallets, but our heads and hearts and forests, and our children. Do no harm.

Yeah, I know, who am I fooling, right?

Debt Rattle December 14 2017

Dec 142017

December 14, 2017 Posted by Raúl Ilargi Meijer at 10:35 am Finance Tagged with: bitcoin, Brexit, China, die off, Fed, Heloc, insects, Mueller, rate hike, reparations, VIX, Yellen 21 Responses »

Joseph Mallord William Turner Norham Castle, Sunrise 1845

• Fed Boosts Benchmark Rate For Third Time This Year (AP)

• PBOC Raises Borrowing Costs In Surprise Move Following Fed Hike (BBG)

• European Bond-Buying ‘Tsunami’ Is Set to Fade as ECB Tapers (BBG)

• Risk May Be Low But Uncertainty Just Hit Record Highs (ZH)

• Canadian Homeowners Take Out HELOCs to Fund Subprime Buyers (WS)

• These Guys Want to Lend You Money Against Your Bitcoin (BBG)

• Druckenmiller: Central Banks Are Financial World’s ‘Darth Vader’ (CNBC)

• Theresa May’s EU Summit Marred By Embarrassing Defeat in Commons (Ind.)

• The Virtual Economy Is The End Of Freedom (Smith)

• Trey Gowdy: “What The Hell Is Going On?” (YT)

• Germany Owes Greece €185billion In WWII Reparations – German Researchers (KTG)

• ‘A Different Dimension Of Loss’: Inside The Great Insect Die-Off (G.)

2018 will be something to watch.

• Fed Boosts Benchmark Rate For Third Time This Year (AP)

The Federal Reserve is raising its benchmark interest rate for the third time this year, signaling its confidence that the U.S. economy remains on solid footing 8Ω years after the end of the Great Recession. The Fed is lifting its short-term rate by a modest quarter-point to a still-low range of 1.25% to 1.5%. It is also continuing to slowly shrink its bond portfolio. Together, the two steps could lead over time to higher loan rates for consumers and businesses and slightly better returns for savers. The central bank says it expects the job market and the economy to strengthen further. Partly as a result, it foresees three additional rate hikes in 2018 under the leadership of Jerome Powell, who succeeds Janet Yellen as Fed chair in February. Investors will look to Yellen’s final scheduled news conference as Fed chair for any clues to what the central bank might have in store for 2018 under Powell.

Powell has been a Yellen ally who backed her cautious stance toward rate hikes in his five years on the Fed’s board. Yet no one can know for sure how his leadership or rate policy might depart from hers. What’s more, Powell will be joined by several new Fed board members who, like him, are being chosen by President Donald Trump. Some analysts say they think that while Powell might not deviate much from Yellen’s rate policy, he and the new board members will adopt a looser approach to their regulation of the banking system. Most analysts have said they think the still-strengthening U.S. economy will lead the Fed to raise rates three more times next year. A few, though, have held out the possibility that a Powell-led Fed will feel compelled to step up the pace of rate hikes as inflation finally picks up and the economy, perhaps sped by the Republican tax cuts, begins accelerating.

Two centrally controlled economies.

• PBOC Raises Borrowing Costs In Surprise Move Following Fed Hike (BBG)

China’s central bank edged borrowing costs higher in an unexpected move after the Federal Reserve’s decision to tighten monetary policy. Hours after the Fed’s quarter%age-point move, the People’s Bank of China, citing market expectations, increased the rates it charges in open-market operations and on its medium-term lending facility, though making smaller adjustments than the U.S. Markets took the announcement in stride. Analysts said the modest adjustment shows the PBOC wants to balance the need to tighten monetary policy with avoiding jolting its markets. China’s rate adjustments “help markets form reasonable expectations for interest rates,” the PBOC said in a statement on its website on Thursday.

It also prevents financial institutions from adding excessive leverage and expanding broad credit supply, it said. The cost of seven-day and 28-day reverse-repurchase agreements was raised by five basis points. That followed an increase in mid-March. The PBOC skipped the use of 14-day reverse repos Thursday. The cost of funds lent via MLF was also increased by five basis points, with the 1-year rate raised to 3.25%. “This action seems to follow the Fed,” said Raymond Yeung at Australia & New Zealand Bank. “Since it only lifted the rate by just five basis points the central bank does not want to jeopardize the market with an aggressive hike. It does indicate the tightening bias of the policy makers and this stance will continue in 2018.”

Why does the ECB hold all that American debt? Is that its mandate?

• European Bond-Buying ‘Tsunami’ Is Set to Fade as ECB Tapers (BBG)

European investors have been plowing so much capital abroad they’ve taken up about half the boom in U.S. corporate debt in recent years, but now that liquidity tap is poised to be shut off, according to Oxford Economics. “The global debt issuance boom is likely to lose steam, given the extent to which it has relied on the support of European investors,” Guillermo Tolosa, an economic adviser to Oxford Economics in London who has worked at the IMF, wrote in a forthcoming research note. “Issuers better seize the opportunities while they last.” ECB asset purchases took up so great a supply of bonds that it pushed euro area investors into markets abroad, to the tune of €400 billion ($473 billion) a year over the past three years, Oxford Economics estimates. With the ECB poised to halve its monthly buying pace to 30 billion euros starting in January, next year might see just €200 billion in European investor outflows, the research group calculates.

“This is a large enough fall to risk causing disruption in some markets, including emerging markets, which have come to rely heavily on European flows recently,” Tolosa wrote. “A global tsunami of euros” benefited borrowers during the past three years, and accounted for a “staggering” 50% of net U.S. corporate-debt issuance, he wrote. European funds have slashed the domestic share of their fixed-income securities holdings by more than 7 percentage points, to less than 70%, since the ECB’s program began. As flows head back into the domestic markets, that could temper the impact of the ECB’s policy normalization on the region’s securities. Upward pressure on European debt valuations may last “for a protracted period,” Tolosa wrote.

Is VIX as compromised as GDP?

• Risk May Be Low But Uncertainty Just Hit Record Highs (ZH)

The decline in the VIX this year has befuddled investors and traders of all stripes, given the host of geopolitical uncertainties in locations like North Korea and political skirmishes in Washington. Not to mention, stocks have been rising relentlessly for years, unnerving some investors who say that stocks are trading too high relative to expected earnings. As The Wall Street Journal reports, two academics are rolling out a new measure of market fear that suggests investors aren’t nearly as complacent as they seem. In separating out ambiguity from common measures of risk, Menachem Brenner of New York University and Yehuda Izhakian of Baruch College are picking up on a concept that traces back nearly a century.

Economist Frank Knight in 1921 wrote about the difference between risk and uncertainty. If volatility measures the uncertainties for which one can determine a probability, or the “known unknowns,” ambiguity measures the “unknown unknowns,” to use a term popularized by former Defense Secretary Donald Rumsfeld, according to Mr. Brenner. In October, the gauge hit 2.42, its highest reading in monthly data that extends back to 1993. That’s above the gauge’s previous peak of 2.41 at the height of the financial crisis in October 2008. While none of the academics is willing to call a ‘top’ or any imminent decline, it is noteworthy that this new measure quantifies what many have noted – that market-based ‘non-normal’ tail risk remains elevated while ‘normal risk’ is repressed.

Make your home someone else’s ATM.

• Canadian Homeowners Take Out HELOCs to Fund Subprime Buyers (WS)

The HELOC (Home Equity Line of Credit) has been a blessing and a curse for Canadian households. While it has helped spur house prices and simultaneously provided consumers the ability to tap into their new found equity, it has also crippled many Canadian households into a debt trap that seems insurmountable. Between 2000 and 2010, HELOC balances soared from $35 billion to $186 billion, according to the Financial Consumer Agency of Canada, an average annual growth rate of 20%. As of 2016, HELOC balances sit at $211 billion, a 500% increase since the year 2000. While also pushing Canadian household debt to incomes to record highs of 168%. Scott Terrio, a debt consultant, says the situation is a full blown “extend and pretend,” meaning borrowers are just continuously refinancing or taking on more and more debt in order to sustain their lifestyle.

Canadians can extend their debt repayment terms and pretend to live a lifestyle they can’t otherwise obtain. What the HELOC has also been able to do is help spur the private lending space which has ultimately supported rising house prices. Seth Daniels of JKD Capital, one of the most astute Canada-Watchers, says there’s a growing trend where “a homeowner acts as a sub-prime lender by drawing a HELOC at 3% interest only, and lends it to a subprime borrower at 8-12% for one year (interest only).” This is something I’ve been hearing on an ongoing basis from mortgage brokers and lawyers who help facilitate these deals. Especially since mortgage lending conditions tightened, starting with OSFI’s first mortgage stress test back in November, 2016. The financial regulator required “high-ratio” borrowers (those with less than 20% down payment) to qualify for a mortgage at the borrowing rate plus 2%. So basically you’re getting qualified on what you can borrow at 5% even though you’re borrowing at 3%.

Probably inevitable, but it doesn’t feel good.

• These Guys Want to Lend You Money Against Your Bitcoin (BBG)

The woes of an early bitcoin investor. Until recently, people who paid virtually nothing for the virtual currency and watched it soar had only one way to enjoy their new wealth – sell. And many weren’t ready. Lenders on the fringe of the financial industry are now pitching a solution: loans using a digital hoard as collateral. While banks hang back, startups with names like Salt Lending, Nebeus, CoinLoan and EthLend are diving into the breach. Some lend – or plan to lend – directly, while others help borrowers get financing from third parties. Terms can be onerous compared with traditional loans. But the market is potentially huge. Bitcoin’s price hovered around $17,000 much of this week, giving the cryptocurrency a total market value of almost $300 billion.

Roughly 40% of that is held by something like 1,000 users. That’s a lot of digital millionaires needing houses, yachts and $590 shearling eye masks. “I would be very interested in doing this with my own holdings, but I haven’t found a service to enable this yet,” said Roger Ver, widely known as “Bitcoin Jesus” for his proselytizing on behalf of the cryptocurrency, in which he in one of the largest holders. People controlling about 10% of the digital currency would probably like to use it as collateral, estimates Aaron Brown, a former managing director at AQR Capital Management who invests in bitcoin and writes for Bloomberg Prophets. “So I can see a lending industry in the tens of billions of dollars,” he said.

One problem is that bitcoin’s price swings violently, which can make it dangerous for lenders to hold. That means the terms can be steep. Someone looking to tap $100,000 in cash would probably need to put up $200,000 of bitcoin as collateral, and pay 12% to 20% in interest a year, according to David Lechner, the chief financial officer at Salt, which has arranged dozens of loans.

“Every serious deflation I’ve looked at is preceded by an asset bubble and then it bursts..”

• Druckenmiller: Central Banks Are Financial World’s ‘Darth Vader’ (CNBC)

Stanley Druckenmiller believes the overly easy monetary policies by global central banks will have disastrous consequences. “The way you create deflation is you create an asset bubble. If I was ‘Darth Vader’ of the financial world and decided I’m going to do this nasty thing and create deflation, I would do exactly what the central banks are doing now,” he told CNBC’s Kelly Evans in an exclusive interview airing Tuesday on “Closing Bell.” “Misallocate resources [with low interest rates], create an asset bubble and then deal with the consequences down the road,” he said. The investor noted how this boom-and-bust cycle has happened time and time again. “Deflation just doesn’t appear out of nowhere and it doesn’t happen because you are near the zero bound. Every serious deflation I’ve looked at is preceded by an asset bubble and then it bursts,” he said.

“Think about the ’20s, a big asset bubble that burst, you have the Depression. Think about Japan. Asset bubble in the ’80s. It burst. You have the consequences follow. Think about 2008, 2009.” Druckenmiller said if the Federal Reserve raised interest rates more quickly, the U.S. would have avoided the worst of the housing bubble and last recession. “If they had moved earlier and more aggressively in the early 2000s, we would have had a recession in ’08 and ’09, but not a financial crisis,” he said. The investor believes the Fed should raise rates and normalize monetary policy as soon as possible. “The longer this goes on, the worse it’s going to be,” he added. “The sooner they can stop what’s going on … the better.”

She might as well step down now.

• Theresa May’s EU Summit Marred By Embarrassing Defeat in Commons (Ind.)

Theresa May is set to arrive in Brussels for a key EU summit on Thursday having suffered a damaging defeat in Parliament over her central piece of Brexit legislation. The Prime Minister is to use the EU event to try and make the case for moving Brexit talks on to trade negotiations quickly, but European leaders will now be left wondering if she still has the political support in London to deliver any deal. There were cheers from opposition MPs in the House of Commons when it emerged the Government had been forced to accept changes to its EU Withdrawal Bill, which it is now claimed will guarantee Parliament a “meaningful” final vote on any Brexit deal Ms May agrees. he embarrassing defeat – the first inflicted on Ms May as she pushes through her Brexit plans – came after Jeremy Corbyn ordered Labour MPs to back an amendment to her legislation proposed by ex-Conservative attorney general Dominic Grieve.

The result immediately exposed deep divisions on the Conservative benches, with reports of a heavy-handed Government whipping operation creating tension, blue-on-blue clashes in the Commons and one Tory rebel sacked from his senior party position within moments of opposing Ms May. Rebels braced themselves for a wave of abuse from the Brexit-backing media, but insisted they had no choice but to put principle before party and vote against the Government. Ms May was supposed to enjoy something of a victory at the EU council summit on Thursday, expected to rubber-stamp the judgment that “sufficient progress” has been made on divorce issues to move on to the next phase of talks. But with difficult obstacles already arising in Brussels, the defeat in London lays bare the difficulties Ms May will have in delivering anything she agrees on the continent.

“..cryptocurrencies are built upon an establishment designed framework, and they are entirely dependent on an establishment created and controlled vehicle (the internet)..”

• The Virtual Economy Is The End Of Freedom (Smith)

Millenials and others think that they are going to rebel and “take down the banking oligarchs” with nothing more than digital markers representing “coins” tracked on a digital ledger created by an anonymous genius programmer/programmers. Delusional? Yes. But like I said earlier, it is an appealing notion. Here is the issue, though; true money requires intrinsic value. Cryptocurrencies have no intrinsic value. They are conjured from nothing by programmers, they are “mined” in a virtual mine created from nothing, and they have no unique aspects that make them rare or tangibly useful. They are an easily replicated digital product. Anyone can create a cryptocurrency. And for those that argue that “math gives crypto intrinsic value,” I’m sorry to break it to them, but the math is free.

In fact, for those that are not already aware, Bitcoin uses the SHA-256 hash function, created by none other than the National Security Agency (NSA) and published by the National Institute for Standards and Technology (NIST). Yes, that’s right, Bitcoin would not exist without the foundation built by the NSA. Not only this, but the entire concept for a system remarkably similar to bitcoin was published by the NSA way back in 1996 in a paper called “How To Make A Mint: The Cryptography Of Anonymous Electronic Cash.” The origins of bitcoin and thus the origins of crytpocurrencies and the blockchain ledger suggest anything other than a legitimate rebellion against the establishment framework and international financiers. I often cite this same problem when people come to me with arguments that the internet has set the stage for the collapse of the globalist information filter and the mainstream media.

The truth is, the internet is also an establishment creation developed by DARPA, and as Edward Snowden exposed in his data dumps, the NSA has total information awareness and backdoor control over every aspect of web data. Many people believe the free flow of information on the internet is a weapon in favor of the liberty movement, but it is also a weapon in favor of the establishment. With a macro overview of data flows, entities like Google can even predict future social trends and instabilities, not to mention peek into every personal detail of an individual’s life and past. To summarize, cryptocurrencies are built upon an establishment designed framework, and they are entirely dependent on an establishment created and controlled vehicle (the internet) in order to function and perpetuate trade. How exactly is this “decentralization”, again?

How much longer can the Mueller vehicle last?

• Trey Gowdy: “What The Hell Is Going On?” (YT)

Tyler Durden: “If there is any remaining doubt in your mind that Special Counsel Mueller’s probe is anything but a farcical, politically-motivated witch hunt, then you’ll be summarily relieved of those doubts after watching the following exchange from earlier this morning between Trey Gowdy (R-SC) and Deputy Attorney General Rod Rosenstein.”

There are much higher sums floating around.

• Germany Owes Greece €185billion In WWII Reparations – German Researchers (KTG)

Does Germany owe indeed Greeks billions of euros in World War II reparations for the damages and the enforced loan during the occupation of the country by the Nazis? So far, Berlin has vehemently rejected any Greek claims. However, two German researchers dug into the documents of the dispute. have discovered and calculated that the German state owes Greece 185 billion euros. Of this not even a 1% has been paid to Greece. In their book “Reparation debt. Mortgages of German occupation in Greece and Europe” publishers Karl Heinz Roth, a historian, and Hartmut Rübner, a researcher, unfold the documents of the dispute and come to the conclusion that the reparations issue was not solved in 1960, as Berlin has been claiming.

According to the book review published in German conservative daily Sueddeutsche Zeitung, Roth and Rübner have researched German documents only and came to the conclusion that: USA allies and “the power elites of West Germany” have systematically ignored Greece’s demands for WWII reparations. In SZ article “Athens – Berlin: Open Bill, Open Wounds” it is said among others that: At the Paris Reparations Conference in 1946, the Greek government presented a damage record of $7.2 billion – eventually earning a share of $25 million. The leitmotiv of the book is that an alliance between the US and the “West German power elite” has systematically ignored Greek demands for decades.

“Undeniable, however, is the diplomatic arrogance with which the Federal Republic rejected the Greek demands for decades. If you do not believe it, you are welcome to make your own impression in Hartmut Rübner’s carefully edited extensive documentary appendix,” SZ notes. In the first part of the book, Roth analyzes the decades-long efforts of Athens to receive reparations. When the Wehrmacht withdrew from Greece in October 1944 after three and a half years of occupation, it literally left behind “scorched land”: the economy, currency and infrastructure were completely destroyed. The health of the surviving population was catastrophic – by the end of the war about 140,000 people had died as a result of malnutrition.

Long read. First step: ban all pesticides.

• ‘A Different Dimension Of Loss’: Inside The Great Insect Die-Off (G.)

The Earth is ridiculously, burstingly full of life. Four billion years after the appearance of the first microbes, 400m years after the emergence of the first life on land, 200,000 years after humans arrived on this planet, 5,000 years (give or take) after God bid Noah to gather to himself two of every creeping thing, and 200 years after we started to systematically categorise all the world’s living things, still, new species are being discovered by the hundreds and thousands. In the world of the systematic taxonomists – those scientists charged with documenting this ever-growing onrush of biological profligacy – the first week of November 2017 looked like any other. Which is to say, it was extraordinary. It began with 95 new types of beetle from Madagascar. But this was only the beginning. As the week progressed, it brought forth seven new varieties of micromoth from across South America, 10 minuscule spiders from Ecuador, and seven South African recluse spiders, all of them poisonous.

A cave-loving crustacean from Brazil. Seven types of subterranean earwig. Four Chinese cockroaches. A nocturnal jellyfish from Japan. A blue-eyed damselfly from Cambodia. Thirteen bristle worms from the bottom of the ocean – some bulbous, some hairy, all hideous. Eight North American mites pulled from the feathers of Georgia roadkill. Three black corals from Bermuda. One Andean frog, whose bright orange eyes reminded its discoverers of the Incan sun god Inti. About 2m species of plants, animals and fungi are known to science thus far. No one knows how many are left to discover. Some put it at around 2m, others at more than 100m. The true scope of the world’s biodiversity is one of the biggest and most intractable problems in the sciences. There’s no quick fix or calculation that can solve it, just a steady drip of new observations of new beetles and new flies, accumulating towards a fathomless goal.

Debt Rattle October 24 2017

Oct 242017

October 24, 2017 Posted by Raúl Ilargi Meijer at 9:10 am Finance Tagged with: China, Dalio, decentralization, glyphosate, HSBC, insects, Monsanto, opioids, quantum 4 Responses »

Bill Brandt After the celebration 1934

• Everything We Think We Know About Chinese Finances is Wrong (Balding)

• China’s Greatest Vulnerabilities (ZH)

• Ray Dalio Explains Why 3 in 5 Americans Are Struggling (Fortune)

• To Understand the Next 10 Years, Study Spain (Krieger)

• HSBC Trader’s Conviction Will Rattle $5 Trillion FX Market (BBG)

• The Family That Built an Empire of Pain (New Yorker)

• America’s Forever Wars (NYT)

• China Speeds Ahead Of US As Quantum Race Escalates (McC.)

• EU On Brink Of Historic Decision On Pervasive Glyphosate Weedkiller (G.)

• Hidden Danger of Ecological Collapse (CP)

As Xi Jinping is being written into the Chinese constitution(!), Christopher Balding comes with a long and excellent expose of China’s real debt situation. Makes one wonder what Xi will actually be remembered for.

• Everything We Think We Know About Chinese Finances is Wrong (Balding)

China has long faced doubts about the veracity of its economic data and concerns about its rapidly rising level of indebtedness. While defaults and individual incidents raised questions about debt discrepancies, there was no systematic evidence that the financial system faced systemic misstatement. The People’s Bank of China changed that with a few sentences. By some estimate, the widely watched debt to GDP metric in China has already surpassed 300%. While this is level is worrying given financial stress associated with countries that reached similar levels, this is only half the story. There have long been suspicions that Chinese debt numbers are not entirely accurate but data that would demonstrate a systemic difference from data has never emerged.

However, every time a company collapsed, there would inevitably come out a mountain of undeclared debt. While this raised suspicions, there was never systematic evidence. The Financial Stability Board (FSB), formed after the 2008 Global Financial Crisis, aggregates data for major countries that includes a broader measure of assets by banks, insurance companies, and other major asset holders. According to their data, at the end of 2015, China financial system assets had already reached 401% of GDP.

[..] China itself, gave us evidence that its financial data is wildly off. The annual PBOC Financial Stability Report with little fanfare more than doubled its estimates of financial system assets. In a little noticed paragraph the PBOC noted that “the outstanding balance of the off-balance sheet of banking institutions….registered 253.52 trillion yuan.” [..] Nor does the PBOC provide many clues as to what these off balance assets are holding. They do note that roughly two-thirds of the 253 trillion is held as “financial asset services” which may mean everything from structured products sold to clients who believe the bank will stand behind the product, special purpose vehicles holding non-traditional assets, or certain types of financial flows. If we revise our earlier estimate of financial system assets to GDP based upon the new PBOC numbers, China’s position changes dramatically.

[..] If we take the FSB data, add in the new PBOC data, and estimate forward to 2016 Chinese financial system assets are equal to 833% of nominal GDP ahead of Japan at 657% and behind only international banking center United Kingdom at 1008%. This level of asset accumulation imposes real costs. Where as Japan and Europe have close to zero or negative interest rates, China has significantly higher. If we make the simple cheap assumption that these assets earn the short term interbank deposit rate of return of 3.5%, this would imply a financial servicing cost to the economy of 29% of nominal GDP. Conversely, Japan with financial assets of 657% of GDP but using the higher long term loan rates of 1% instead, would need only 6.6% of GDP to service its asset costs.

What makes this disclosure concerning is how extreme the numbers are. Even the FSB placed China among developed country financialization and well outside the range of other emerging markets. The new numbers place China on the extremity of all major economies behind only a major international banking center even in front of Japan who has run strongly expansionary monetary policy for years to try and push inflation. Many analysts have raised concerns about asset bubbles and debt growth in China but even the most bearish would have had trouble believing this level of financialization.

Victor Shih from the Mercator Institute for China Studies has a few subtle points on China as well.

• China’s Greatest Vulnerabilities (ZH)

[..] while some categories of shadow finance, including bill finance and non-loan trust credit, have actually declined in recent months (duly noted here), most other categories rose by double digits in percentage terms in the year and half between the end of 2015 and May 2017. Of note, credit held by funds, rose by 116%. So with credit soaring, Shih – like Goldman clients – asks “how much longer can this go on?” and answers that “the amount of interest that debtors in China must pay creditors provides clues on the costs of such a high debt level. If interest servicing exceeds incremental increase in nominal GDP, the debtor would need to pursue one of two courses of action to avoid a crisis. This ultimately goes to the question whether China has hit its “Minsky Moment” or is still in the Ponzi Finance stage, a discussion popularized by Morgan Stanley first in 2014.

Here are Shih’s observations: First, creditors can extend even more credit to the debtors so that interest payments are serviced with new credit. This mechanism renders China more of a Ponzi unit, which requires new credit to service interest payments. Alternatively, a rising share of income for households, firms, or government will go toward servicing interest. While the first dynamic would cause the acceleration of debt accumulation, the second dynamic is tantamount to a massive tax which will slow growth for an extended period. The problem with both approaches is that China as a whole is a Ponzi unit. And, as Shih calculates and as shown in the chart below, total interest payments from June of 2016 to June of 2017 exceeded incremental increase in nominal GDP by roughly 8 trillion RMB.

And since we have not see large-scale defaults in China, the new additional interest burden must have been financed in some way. Most likely, the Merics analysis notes, roughly this amount or more was capitalized as new loans, contributing to the rapid rise in total debt. As the chart above shows, this was not always the case. Prior to 2011, incremental nominal GDP roughly matched or even exceeded interest payments. The advent of high-yielding shadow banking led to the explosive growth in interest payments, and thus the need to capitalize interest payments, starting in 2012. This is a dynamic which will drive debt growth in China for years to come, or until the debt bubble ends.

So what ends the bubble? According to the Merics analysis, there are 4 possible channels for a financial crisis in China. First, it should be noted that despite the enormous debt load, a domestically triggered crisis is not likely in the next five years. Trouble is more likely to come from some combination of capital flight and sudden withdrawal of external credit.

Are people finally waking up to what makes societies viable, and what destroys them?

• Ray Dalio Explains Why 3 in 5 Americans Are Struggling (Fortune)

The founder of the world’s largest hedge fund has serious concerns about the U.S. economy. In a LinkedIn note published Monday, Ray Dalio, who founded Bridgewater Associates, said that average statistics about what’s going on in the economy mask deep divisions that could lead to “dangerous miscalculations.” To explain this divide, Dalio splits up the economy into two separate sections: the top 40% and the bottom 60%. He then runs through a number of different statistics showing that the economy for the bottom 60% of the population – or three in five Americans – is much less stable than that for those in the top bracket. For example, Dalio notes that, since 1980, real incomes have been flat or down for the average household in the bottom 60%.

Those in the top 40% also now have an average of 10 times as much wealth as households in the bottom 60% — an increase from six times as much in 1980. Other points include that only about one-third of people in the bottom 60% save any of their income and a similar number have retirement savings accounts. These three in five Americans have also seen an increasing rate of premature death and spend an average of four times less on education than those in the top 40%, Dalio wrote. Those without a college education see lower income rates and higher divorce rates. Dalio wrote that all of these concerns will likely intensify in the next five to 10 years, and that he believes policy makers need to take them into consideration. Dalio added that if he were running the Federal Reserve, he would “keep an eye on the economy of the bottom 60%.”

Can’t stop decentralization.

• To Understand the Next 10 Years, Study Spain (Krieger)

Some of you may be confused as to why a U.S. citizen living in Colorado has become so completely obsessed with what’s going on in Spain. Bear with me, there’s a method to my madness. I believe what’s currently happening in Spain represents a crucial microcosm for what we’ll see sweep across the entire planet over the next ten years. Some of you will want to have a discussion about who’s right and who’s wrong in this particular affair, but that’s besides the point. It doesn’t matter which side you favor, what matters is that Madrid/Catalonia is an example of the forces of centralization duking it out with forces of decentralization. Madrid represents the nation-state as we know it, with its leaders claiming Spain is forever indivisible according to the constitution.

Madrid has essentially proclaimed there’s no possible avenue to independence from a centralized Spain even if various regions decide in large number they wish to be independent. This sort of attitude will be seen as unacceptable and primitive by increasingly large numbers of humans in the years ahead. Catalonia should be seen as a canary in the coal mine. The forces of decentralization are rising, but entrenched centralized institutions and the bureaucrats running them will become increasingly terrified, panicked and oppressive. As I’ve discussed, this isn’t coming out of nowhere. Humanity’s current established centralized institutions and nation-states have become clownishly corrupt, merely existing to protect and enrich the powerful/connected as opposed to benefiting the population at large.

As such, legitimacy has been shattered and people have begun to demand a new way. Whether we see this with the rising popularity of Bitcoin, or the UK decision to leave the EU, evidence is everywhere and we’ve already passed the point of no return. This is precisely why EU leaders are rallying around Madrid. They’re scared to death and fear they might be next. They’re probably right.

Maybe this is good, though one must wonder why the case wasn’t brought before a UK court.

• HSBC Trader’s Conviction Will Rattle $5 Trillion FX Market (BBG)

Global currency traders and compliance officers who monitor them were put on high alert after a New York jury convicted a former HSBC executive of fraud for front-running a large client order. The verdict is a victory for U.S. prosecutors in their first attempt to hold individuals accountable since a global currency-rigging probe that led to banks paying more than $10 billion in penalties. Mark Johnson faces a maximum sentence of 20 years in prison, although he’s likely to get much less. Traders will almost certainly come under pressure to avoid conduct that could be seen as harming their clients and profiting unfairly at their expense, said Mayra Rodriguez Valladares, a former foreign-exchange analyst for the Federal Reserve Bank of New York.

“Front-running is a crime,” she said. “This should be a lesson to senior executives that they should invest in more training of ethics for traders and more in systems to detect irregularities.” The verdict is likely to echo worldwide. Although Johnson, HSBC’s global head of foreign exchange in 2011, was in New York at the time of the transaction, the trade was executed primarily in London, where Johnson’s co-defendant, Stuart Scott, was overseeing it. Scott, the bank’s former head of currency trading in Europe, remains in the U.K. as he fights extradition to the U.S. “This conviction will embolden the U.S. in other cases,” said Peter Henning, a law professor at Wayne State University in Detroit. “The U.S. authorities have shown they’re able to police global markets.”

“At its very essence,” he added, “this was a theft case.” Johnson, the first banker to go on trial following the investigation over foreign-exchange trading, was convicted of defrauding Cairn Energy Plc in what prosecutors said was a clear case of front-running the company’s $3.5 billion order. London-based HSBC wasn’t accused of wrongdoing, but the bank has been under investigation over currency trading and is in talks with the Justice Department and U.S. regulators to resolve the matters, according to a July 31 regulatory filing.

An absolutely crazy story. 145 Americans die every day from opioid overdoses.

• The Family That Built an Empire of Pain (New Yorker)

According to Forbes, the Sacklers are now one of America’s richest families, with a collective net worth of thirteen billion dollars—more than the Rockefellers or the Mellons. The bulk of the Sacklers’ fortune has been accumulated only in recent decades, yet the source of their wealth is to most people as obscure as that of the robber barons. While the Sacklers are interviewed regularly on the subject of their generosity, they almost never speak publicly about the family business, Purdue Pharma—a privately held company, based in Stamford, Connecticut, that developed the prescription painkiller OxyContin. Upon its release, in 1995, OxyContin was hailed as a medical breakthrough, a long-lasting narcotic that could help patients suffering from moderate to severe pain. The drug became a blockbuster, and has reportedly generated some thirty-five billion dollars in revenue for Purdue.

But OxyContin is a controversial drug. Its sole active ingredient is oxycodone, a chemical cousin of heroin which is up to twice as powerful as morphine. In the past, doctors had been reluctant to prescribe strong opioids—as synthetic drugs derived from opium are known—except for acute cancer pain and end-of-life palliative care, because of a long-standing, and well-founded, fear about the addictive properties of these drugs. “Few drugs are as dangerous as the opioids,” David Kessler, the former commissioner of the Food and Drug Administration, told me. Purdue launched OxyContin with a marketing campaign that attempted to counter this attitude and change the prescribing habits of doctors. The company funded research and paid doctors to make the case that concerns about opioid addiction were overblown, and that OxyContin could safely treat an ever-wider range of maladies.

Sales representatives marketed OxyContin as a product “to start with and to stay with.” Millions of patients found the drug to be a vital salve for excruciating pain. But many others grew so hooked on it that, between doses, they experienced debilitating withdrawal. Since 1999, two hundred thousand Americans have died from overdoses related to OxyContin and other prescription opioids. Many addicts, finding prescription painkillers too expensive or too difficult to obtain, have turned to heroin. According to the American Society of Addiction Medicine, four out of five people who try heroin today started with prescription painkillers. The most recent figures from the Centers for Disease Control and Prevention suggest that a hundred and forty-five Americans now die every day from opioid overdoses.

They’re everywhere.

• America’s Forever Wars (NYT)

The United States has been at war continuously since the attacks of 9/11 and now has just over 240,000 active-duty and reserve troops in at least 172 countries and territories. While the number of men and women deployed overseas has shrunk considerably over the past 60 years, the military’s reach has not. American forces are actively engaged not only in the conflicts in Afghanistan, Iraq, Syria and Yemen that have dominated the news, but also in Niger and Somalia, both recently the scene of deadly attacks, as well as Jordan, Thailand and elsewhere.

An additional 37,813 troops serve on presumably secret assignment in places listed simply as “unknown.” The Pentagon provided no further explanation. There are traditional deployments in Japan (39,980 troops) and South Korea (23,591) to defend against North Korea and China, if needed, along with 36,034 troops in Germany, 8,286 in Britain and 1,364 in Turkey — all NATO allies. There are 6,524 troops in Bahrain and 3,055 in Qatar, where the United States has naval bases.

A quantum computer would turn the world upside down.

• China Speeds Ahead Of US As Quantum Race Escalates (McC.)

U.S. and other Western scientists voice awe, and even alarm, at China’s quickening advances and spending on quantum communications and computing, revolutionary technologies that could give a huge military and commercial advantage to the nation that conquers them. The concerns echo – although to a lesser degree – the shock in the West six decades ago when the Soviets launched the Sputnik satellite, sparking a space race. In quick succession, China in recent months has utilized a quantum satellite to transmit ultra-secure data, inaugurated a 1,243-mile quantum link between Shanghai and Beijing, and announced a $10 billion quantum computing center. “To me, what is alarming is the level of coordination of what they’ve done,” said Christopher Monroe, a physicist and pioneer in quantum communication at the University of Maryland.

Perhaps more than the accomplishments of the Chinese scientists, it is the resources that China is pouring into the research into how atoms, photons and other basic molecular matter can harness, process and transmit information. “It doesn’t necessarily mean that their scientists are better,” said Martin Laforest, a physicist and senior manager at the Institute for Quantum Computing at the University of Waterloo in Ontario, Canada. “It’s just that when they say, ‘We need a billion dollars to do this,’ bam, the money comes.” The engineering hurdles that China has cleared for quantum communication means that the United States will lag in that area for years.

But building a functioning quantum computer sets forth different kinds of challenges than mastering quantum communication, and may involve creating materials and processes that do not yet exist. Once thought to be decades off, scientists now presume a quantum computer may be built in a decade or less. The stakes are so high that advances by the U.S. government remain secret. “We don’t know exactly where the United States is. I fervently hope that a lot of this work is taking place in a classified setting,” said R. Paul Stimers, a lawyer at K&L Gates, a Washington law firm, who specializes in emerging technologies. “It is a race.”

“..its residues were recently found in 45% of Europe’s topsoil – and in the urine of three quarters of Germans tested, at five times the legal limit for drinking water.”

Seems a simple case. But it is not.

• EU On Brink Of Historic Decision On Pervasive Glyphosate Weedkiller (G.)

A pivotal EU vote this week could revoke the licence for the most widely used herbicide in human history, with fateful consequences for global agriculture and its regulation. Glyphosate is a weedkiller so pervasive that its residues were recently found in 45% of Europe’s topsoil – and in the urine of three quarters of Germans tested, at five times the legal limit for drinking water. Since 1974, almost enough of the enzyme-blocking herbicide has been sprayed to cover every cultivable acre of the planet. Its residues have been found in biscuits, crackers, crisps, breakfast cereals and in 60% of breads sold in the UK. But environmentalists claim that glyphosate is so non-selective that it can even kill large trees and is destructive to wild and semi-natural habitats, and to biodiversity.

The CEO of the Sustainable Food Trust, Patrick Holden, has said that a ban “could be the beginning of the end of herbicide use in agriculture as we know it, leading to a new chapter of innovation and diversity”. But industry officials warn of farmers in open revolt, environmental degradation and crops rotting in the fields if glyphosate is banned. Alarm at glyphosate’s ubiquity has grown since a 2015 study by the World Health Organisation’s IARC cancer agency found that it was “probably carcinogenic to humans”. More than a million people have petitioned Brussels for a moratorium. On Tuesday, MEPs will vote on a ban of the chemical by 2020 in a signal to the EU’s deadlocked expert committee, which is due to vote on a new lease the next day.

Anca Paduraru, an EC spokeswoman, said that a decision was needed before 15 December or “for sure the European commission will be taken to court by Monsanto and other industry and agricultural trade representatives for failing to act. We have received letters from Monsanto and others saying this.” France is resisting a new 10-year licence. Spain is in favour. Germany is in coalition talks and likely to abstain. The UK would normally push for a new lease of the licence but is less engaged due to Brexit. There may not be a qualified majority for any outcome.

And the EU dithers on glyphosate. Tragic species.

• Hidden Danger of Ecological Collapse (CP)

Is human society, en mass, committing suicide? The answer could be yes, humankind is committing harakari in the wide-open spaces for all to see, but nobody has noticed. Until now, as insect losses forewarn of impending ecosystem collapse. Loss of insects is certain to have deleterious effects on ecosystem functionality, as insects play a central role in a variety of processes, including pollination, herbivory and detrivory, nutrient cycling, and providing a food source for higher trophic levels such as birds, amphibians, and mammals. Harkening back to the Sixties, a strikingly similar issue was identified in Rachel Carson’s famous book Silent Spring (1962), the most important environmental book of the 20th century that exposed human poisoning of the biosphere through wholesale deployment of myriad chemicals aimed at pest control.

Carson’s fictional idyllic American town enriched with beautiful plant and animal life suddenly experienced a “strange blight,” leaving a swathe of inexplicable illnesses, birds found dead, farm animals unable to reproduce, and fruitless apple trees, a strange lifelessness. She wrote: “A grim specter has crept upon us to silence the voices of spring.” Today, scientists do not know the specific causes but speculate it could be simply that there is no food for insects; alternatively, the issue could be, specifically as well as more likely, exposure to chemical pesticides or maybe a combination, meaning too little food/too much pesticide. Not only that, flower-rich grasslands, the natural habitat for insects, have declined by 97% since early-mid 20th century whilst industrial pesticides literally cover the world.

Rachel Carson would be floored. That’s a sure-fire guaranteed formula for a tragic ending. Nature doesn’t have a snowball’s chance in hell.

Debt Rattle October 21 2017

Oct 212017

October 21, 2017 Posted by Raúl Ilargi Meijer at 9:07 am Finance Tagged with: apocalypse, Armageddon, bonds, CAPE, Catalonia, ecosystem, Fed, insects, Italy, Trump, VIX 4 Responses »

Robert Doisneau Vitrine, Galerie Romi, Paris 1948

• Will Trump Oversee The Financial Apocalypse? (Cohan)

• Calm Before The Storm (Peter Schiff)

• The Big Story: Edge Of The Cliff (RV/ZH)

• A $4 Trillion Hole in Bond Market May Start Filling in 2018 (BBG)

• US Fiscal Year Deficit Widens To $666 Billion (R.)

• Fed’s Yellen Defends Past Policies As Trump Mulls Top Fed Pick (R.)

• ‘Dr. Doom’, Marc Faber, Removed From More Boards After Comments On Race (R.)

• China Still Needs Loans From World Bank (Caixin)

• Betrayed by Banks, 40,000 Italian Businesses Are in Limbo (BBG)

• Catalan Rebels Say Spain Will Live to Regret Hostile Power Grab (BBG)

• A Giant Insect Ecosystem Is Collapsing Due To Humans. It’s A Catastrophe (G.)

“The bond market determines how much you pay to borrow money to buy a home, a car, or when you use your credit cards.”

• Will Trump Oversee The Financial Apocalypse? (Cohan)

Let’s face it: people’s eyes tend to glaze over when someone starts talking about bonds and interest rates. Which is why much of the audience inside the Wallis Annenberg Center for the Performing Arts, and those watching the livestream, probably missed the import of Gundlach’s answer. But the bond market is hugely important. The stock markets get most of the attention from the media, but the bond market, four times the size of the stock market, helps set the price of money. The bond market determines how much you pay to borrow money to buy a home, a car, or when you use your credit cards. The Bond King said the returns on bonds have been anemic at best for the past seven years or so.

While the Dow Jones Industrial Average has nearly quadrupled since March 2009, returns on bonds have averaged something like 2.5% for treasuries and something like 8.5% for riskier “junk” bonds. Gundlach urged investors to be “light” on bonds. Of course, that makes the irony especially rich for the Bond King. “I’m stuck in it,” he said of his massive bond portfolio. He said interest rates have bottomed out and been rising gradually for the past six years. (Rising interest rates hurt the value of the bonds you own, as bonds trade in inverse proportion to their yield. Snore . . .) Gundlach said his job now, on behalf of his clients, “is to get them to the other side of the valley.” When the bigger, seemingly inevitable hikes in interest rates come, “I’ll feel like I’ve done a service by getting people through,” he said. “That’s why I’m still at the game. I want to see how the movie ends.”

But it can’t end well. To illustrate his point about the risk in owning bonds these days, Gundlach shared a chart that showed how investors in European “junk” bonds are willing to accept the same no-default return as they are for U.S. Treasury bonds. In other words, the yield on European “junk” bonds is about the same—between 2% and 3%—as the yield on U.S. Treasuries, even though the risk profile of the two could not be more different. He correctly pointed out that this phenomenon has been caused by “manipulated behavior”—his code for the European Central Bank’s version of the so-called “quantitative easing” program that Ben Bernanke, the former chairman of the Federal Reserve, initiated in 2008 and that Mario Draghi, the head of the E.C.B., has taken to heart.

Bernanke’s idea was to have the Federal Reserve buy up trillions of dollars of bonds, increasing their price and lowering their yields. He figured lower interest rates would help jump-start an economy in recession. Whereas Janet Yellen, Bernanke’s successor, ended the Fed’s Q.E. program in 2014, Draghi’s version of it is still going, which has led to the “manipulation” that so concerns Gundlach. European interest rates “should be much higher than they are today,” he said, “. . . [and] once Draghi realizes this, the order of the financial system will be turned upside down and it won’t be a good thing. It will mean the liquidity that has been pumping up the markets will be drying up in 2018 . . . Things go down. We’ve been in an artificially inflated market for stocks and bonds largely around the world.”

Excellent from Schiff. The VIX/CAPE ratio looks to be a valuable tool.

• Calm Before The Storm (Peter Schiff)

Before the crisis, there was still a strong belief that stock investing entailed real risk. The period of stock stagnation of the 1970s and 1980s was still well remembered, as were the crashes of 1987, 2000, and 2008. But the existence of the Greenspan/Bernanke/Yellen “Put” (the idea that the Fed would back stop market losses), came to ease many of the anxieties on Wall Street. Over the past few years, the Fed has consistently demonstrated that it is willing to use its new tool kit in extraordinary ways. While many economists had expected the Fed to roll back its QE purchases as soon as the immediate economic crisis had passed, the program steamed at full speed through 2015, long past the point where the economy had apparently recovered. Time and again, the Fed cited fragile financial conditions as the reason it persisted, even while unemployment dropped and the stock market soared.

The Fed further showcased its maternal instinct in early 2016 when a surprise 8% drop in stocks in the first two weeks of January (the worst ever start of a calendar year on Wall Street) led it to abandon its carefully laid groundwork for multiple rate hikes in 2016. As investors seem to have interpreted this as the Fed leaving the safety net firmly in place, the VIX has dropped steadily from that time. In September of this year, the VIX fell below 10. Untethered optimism can be seen most clearly by looking at the relationship between the VIX and the CAPE ratio. Over the past 27 years, this figure has averaged 1.43. But just this month, the ratio approached 3 for the first time on record, increasing 100% in just a year and a half. This means that the gap between how expensive stocks have become and how little this increase concerns investors has never been wider. But history has shown that bad things can happen after periods in which fear takes a back seat.

Investors may be trying to convince themselves that the outcome will be different this time around. But the only thing that is likely to be different is the Fed’s ability to limit the damage. In 2000-2002, the Fed was able to cut interest rates 500 basis points (from 6% to 1%) in order to counter the effects of the imploding tech stock bubble. Seven years later, it cut rates 500 basis points (from 5% to 0) in response to the deflating housing bubble. Stocks still fell anyway, but they probably would have fallen further if the Fed hadn’t been able to deliver these massive stimuli. In hindsight, investors would have been wise to move some funds out of U.S. stocks when the CAPE/VIX ratio moved into record territory. While stocks fell following those peaks, gold rose nicely.

Past performance is not indicative of future results. Created by Euro Pacific Capital from data culled from Bloomberg.

But interest rates are now at just 1.25%. If the stock market were again to drop in such a manner, the Fed has far less fire power to bring to bear. It could cut rates to zero and then re-launch another round of QE bond buying to flood the financial sector with liquidity. But that may not be nearly as effective as it was in 2008. Given that the big problem at that point was bad mortgage debt, the QE program’s purchase of mortgage bonds was a fairly effective solution (although we believe a misguided one). But propping up overvalued stocks, many of which have nothing to do with the financial sector, is a far more difficult challenge. The Fed may have to buy stocks on the open market, a tactic that has been used by the Bank of Japan.

A whole family of bears.

• The Big Story: Edge Of The Cliff (RV/ZH)

Real Vision released a video early today containing interviews with some of the biggest names in the hedge fund universe. Though the interview was shot a few weeks ago, remarks from Hayman Capital’s Kyle Bass resonated with market’s mood. Bass discussed what he sees as the many short- and long-term risks to the US equity market, including the rise of algorithmic trading and passive investment, which have enabled investors to take risks without understanding what they’re doing, leaving the market vulnerable to an “air pocket.” And with so many traders short vol, Bass said investors will know the correction has begun when a 4% or 5% drop in equities snowballs into a 10% to 15% decline at the drop of a hat.

“The shift from active to passive means that risk is in the hands of people who don’t know how to take risk. Therefore we’re likely to have a 1987 air pocket. This is like portfolio insurance on steroids, the way algorithmic trading is now running the market place. Investors are moving from active to passive, meaning they’re taking the wheel themselves all at a time when CTAs are running their own algo strategies where they’re one and a half times long and half short and they all believe they can come out at the same time.” “If you see the equity market crack 4 or 5 points, buckle up, because I think we’re going to see a pretty interesting air-pocket, and I don’t think investors are ready for that,” Bass said.

“Our trade relationship with China is worsening our relationship with north korea whatever it is continually worsens. We’ve got three people at the head of these countries that are trying ot maike their countries great again, I think that’s a real risk geopolitically.” “But when you think about it financially, which is actually easier to calculate, the financial reason is the G-4 central banks going from a period of accommodation to a period of tightening, and that’s net of bond issuance.

Yeah, that’s right. We’re not issuing enough debt yet. What will central banks purchase?

• A $4 Trillion Hole in Bond Market May Start Filling in 2018 (BBG)

A key dynamic that’s been holding down bond yields since the global financial crisis is poised to ease next year – presenting a test to riskier parts of the market, according to analysis by Oxford Economics. In the aftermath of the crisis, banks and shadow financial institutions in developed economies sharply cut back their issuance of bonds, to the tune of about $4 trillion, according to the research group’s tally. That happened thanks to banks shrinking their balance sheets amid a regulatory crackdown, and due to a contraction in supply of mortgages that were regularly securitized into asset-backed bonds. “Against stable demand for fixed-income securities, the large negative supply shock created an increasingly acute shortage of these assets,” said Guillermo Tolosa, an economic adviser to Oxford Economics in London who has worked at the IMF.

The impact of that shock was an “almost decade-long yield squeeze,” he wrote. That compression “may start to ease in 2018,” Tolosa wrote in a report distributed Tuesday. Using slightly different metrics, the chart below shows how the market for financial company debt securities in the Group of Seven nations shrank after the 2009 global recession, and now appears to have flat-lined. Continued demand among mutual funds, pensions and insurance companies for fixed income then created the opportunity for nonfinancial companies to ramp up issuance, Tolosa wrote – a dynamic also seen in the chart. It’s one of a number of supply factors that have been identified explaining why bond yields globally remain historically low. Perhaps the most well documented one is the QE programs by the Fed, ECB and Bank of Japan that gobbled up about $14 trillion of assets.

Tolosa’s analysis suggests that Fed QE has had less of an impact than generally accepted, as the initiative was “more than offset” by increased public-sector borrowing. The large portfolio rebalancing in fixed income was instead “essentially a switch within private sector securities,” he said. There was a “massive shift” from financial securities into Treasuries, along with nonfinancial corporate and overseas debt, Tolosa concluded. “This explains a considerable part of the post-crisis surge in demand for other spread products and the issuance boom for global nonfinancial corporates and emerging-market borrowers,” Tolosa wrote. Over the decade through 2007, 10-year U.S. Treasury yields averaged 4.85%. But since the start of 2009 they’ve averaged just 2.46% – giving investors incentives to find higher rates elsewhere.

What’s in a number?

• US Fiscal Year Deficit Widens To $666 Billion (R.)

The U.S. budget deficit widened to $666 billion for the fiscal year 2017 as record spending more than offset record receipts, the Treasury Department said on Friday. The 2017 deficit increased to 3.5% of gross domestic product. The previous fiscal year deficit was $586 billion, with a deficit-to-GDP ratio of 3.2%. The latest fiscal year, which ended Sept. 30, straddled the presidencies of Barack Obama, a Democrat, and Donald Trump, a Republican. Accounting for calendar adjustments, the 2017 fiscal year deficit was $644 billion compared with $546 billion the prior year. Fiscal 2017 revenues increased 1% to $3.315 trillion, while spending rose 3% to $3.981 trillion. Since taking office in January, the Trump administration has sought to overhaul the U.S. tax code with precise details currently being worked on in Congress.

The Republican tax plan currently calls for as much as $6 trillion in tax cuts, which would sharply reduce government revenues. It has prompted criticism that it favors tax breaks for business and the wealthy and could add trillions of dollars to the deficit. The administration contends tax cuts will pay for themselves by boosting economic growth. In addition to the annual deficit, the national debt – the accumulation of past deficits and interest due to lenders to the Treasury – now exceeds $20 trillion. The non-partisan Congressional Budget Office has said the ever-rising debt levels are unsustainable as the government pays for the medical and retirement costs of the aging Baby Boomer generation.

We know they don’t know a thing.

• Fed’s Yellen Defends Past Policies As Trump Mulls Top Fed Pick (R.)

Federal Reserve Chair Janet Yellen said on Friday that asset purchases and other unconventional policy tools must remain part of the Fed’s arsenal as long as the economy remains stuck in a low interest-rate economy. Yellen’s remarks offered a contrast between her legacy as Fed chair with the policy views of others who President Donald Trump is considering for her position when her term expires in February. Yellen told the National Economists Club, “We must keep our unconventional policy tools ready to be deployed again.” Reaching the near-zero lower bound would force the Fed to turn to other means to stimulate the economy. Following the 2007 to 2009 financial crisis, the Fed used both a spoken commitment to lower rates and $3.5 trillion in asset purchases to pull rates lower than they would have been otherwise, boosting consumption and growth.

Those asset holdings are now on the decline, the Fed’s policy rate is being increased, and the economy in general is doing well, Yellen said. But she cautioned that the world may not return to its old normal, and “future policymakers” may need to use emergency steps similar to those used in the past decade. Persistent low inflation has caught the Fed by surprise and is “of great concern,” Yellen said. She and other Fed officials are also convinced that the “neutral” rate, which neither stimulates nor discourages economic activity, is much lower than in the past, likely limiting how far the Fed can go during this rate increase cycle. As President Donald Trump mulls a switch at the Fed, Trump is considering several possible replacements for Yellen.

One of the possible nominees Trump has interviewed, former Fed Governor Kevin Warsh, was critical of Fed asset purchases at the time, and argued that Fed has stayed too deeply involved in asset markets. Another, Stanford Economist John Taylor, advocates use of an interest rate rule that would have recommended higher rates through the downturn and recovery. Once rates reach the lower bound, moreover, Taylor’s rule-based approach would likely have to give way to judgment about what steps to take.

What curious ideas.

• ‘Dr. Doom’, Marc Faber, Removed From More Boards After Comments On Race (R.)

Marc Faber, the markets prognosticator known as “Dr. Doom,” has been dismissed from three more company boards after comments in his latest newsletter this week suggested the United States had only prospered because it was settled by white people. U.S-based Sunshine Silver Mining, Vietnam Growth Fund managed by Dragon Capital, and Indochina Capital Corporation, had all dismissed him, Faber told Reuters on Friday, Faber has now been fired from six boards with Canadian fund manager Sprott, NovaGold Resources and Ivanhoe Mines letting him go on Tuesday after his remarks went viral on social media platform Twitter. In the October edition of his newsletter, “The Gloom, Boom & Doom Report,” in a section discussing capitalism versus socialism, Faber criticized the move to tear down monuments commemorating the U.S. Civil War military leaders of the Confederacy.

“Thank God white people populated America, not the blacks,” Faber wrote in his newsletter. “Otherwise, the U.S. would look like Zimbabwe, which it might look like one day anyway, but at least America enjoyed 200 years in the economic and political sun under a white majority.” “I am not a racist,” Faber continued, “but the reality – no matter how politically incorrect – needs to be spelled out as well.” Faber, a Swiss investor based in Thailand, who oversees $300 million in assets, said he has not lost any client money, and still stands by his comments and will keep publishing his newsletter. ”My clients all know me for more than 30 years. They know that to call me a racist is inappropriate,” he said. Faber said he has not seen a significant amount of subscribers cancel their subscriptions to his newsletter as a result of the controversy. “No, I think most people actually agree with me and certainly defend freedom of expression even if it does not coincide with their views.”

Strange indeed.

• China Still Needs Loans From World Bank (Caixin)

The World Bank’s former country director for China has defended the organization’s lending to Chinese governments. Yukon Huang, who now serves as a senior fellow at the Carnegie Asia Program, made the remarks after reports said the U.S. has rejected a capital increase plan for the multilateral lender because of dissatisfaction with its loans to wealthier countries, including China. The provincial-level and local governments need the World Bank loans because structural impediments prevent domestic banks from providing sufficient credit to finance public projects, Huang said. Chinese governments that borrow from the World Bank benefit from the support, Huang told Caixin. For example, he said, loans help agencies finance public services without having to rely so much on land sale revenues.

World Bank loans also help those governments improve their debt management. World Bank funds made available in January through its Development Policy Financing program are now helping governments within Hunan province and the municipality of Chongqing “achieve fiscal sustainability through a comprehensive and transparent public finance framework that integrates budget, public investment and debt management,” according to a statement on the World Bank’s website. For two years, the World Bank Group had been working to get member countries to agree on a capital increase plan for its International Bank for Reconstruction and Development (IBRD) lending arm before the 2017 World Bank and IMF annual meetings, which began last week, according to Reuters.

The IBRD, the world’s largest development bank, is dedicated to helping countries reduce poverty and extending the benefits of sustainable growth by providing them with financial products and policy advice, its official website says. The U.S. is currently the largest IBRD shareholder out of its 189 member nations, with the greatest voting power of 16.28%. China is the third-largest shareholder, after Japan, with 4.53% voting power. The Trump administration was reluctant to endorse the capital increase, with U.S. Treasury Secretary Steven Mnuchin saying in an Oct. 13 statement that “more capital is not the solution when existing capital is not allocated effectively.” “We want to see a significant shift in allocation of funding to support countries most in need of development finance,” Mnuchin said.

Yes, Italy’s troubles run deep.

• Betrayed by Banks, 40,000 Italian Businesses Are in Limbo (BBG)

The Most Serene Republic, as the area around Venice was known for a millennium, is now the troubled epicenter of a banking meltdown that’s threatening to derail one of globalization’s great success stories. The base of brands like Benetton, De’Longhi, Geox and Luxottica, Veneto has also become home to as many as 40,000 small businesses suddenly stranded without access to financing since a pair of regional banks collapsed in June. The implosions of Popolare di Vicenza and Veneto Banca, which also wiped out the life savings of many of their 200,000 shareholders, set off economic and political tremors felt from Rome to Frankfurt. Anger over what many view as lax oversight by national authorities is animating a movement for more autonomy that’s already emboldened by Catalonia’s efforts to split from Spain.

“The pain for Veneto’s banks may be over, but the pain for Veneto’s businesses is just beginning,” said Andrea Arman, a lawyer advising some of the companies and individuals who’ve been hit the hardest. “We’re just starting to see the consequences of the collapse and what we’re seeing is alarming.” Nestled between the Alps and the Adriatic, Veneto is home to about 5 million people. Like Catalonia, it has a seafaring heritage, its own language and incomes far above the national average. Veneto President Luca Zaia, who’s called Italy and its 64 governments in 71 years a “bankrupt state,” plans to use the results of a nonbinding referendum on Oct. 22 to press Rome for more autonomy. Three out of four Veneti want more local power and 15% would support complete independence, according to a Demos poll published by La Repubblica this week.

While Intesa Sanpaolo SpA, Italy’s second-largest bank, paid a symbolic sum to acquire the healthiest parts of the two Veneto lenders, the state entity that’s absorbing the 18 billion euros ($21.3 billion) of troubled debt the banks amassed, called SGA, isn’t fully operational yet. That has left small and midsized companies in the lurch—in many cases unable to do business. “Many of these borrowers are profitable companies, but they’re stuck in limbo,” said Mauro Rocchesso, head of Fidi Impresa e Turismo Veneto, a financial firm that provides collateral to companies seeking lines of credit. “They don’t have a counterparty anymore and can’t find fresh capital from a new lender because of their exposure to the two Veneto banks.”

More violence and Rajoy is out.

• Catalan Rebels Say Spain Will Live to Regret Hostile Power Grab (BBG)

Catalan separatists say Spanish Prime Minister Mariano Rajoy doesn’t know what he’s getting himself into as he moves to quash their campaign for independence. As the government in Madrid prepares to deploy its most powerful legal weapons, three leading members of the movement in Barcelona said Rajoy isn’t equipped to achieve his goals and risks a damaging entanglement in hostile terrain. They reckon they have enough support among the Catalan civil service and police to thwart Spain’s plan. Rajoy’s cabinet meets in Madrid on Saturday to consider specific measures to reassert control over the rebel region, a process set out in the Spanish Constitution that’s never yet been tested. Among the top priorities is bringing to heel the Catalan police force and deciding what to do with President Carles Puigdemont.

The plan still needs approval by the Senate, so it could be another two weeks before Spain can take any action. “This is a minefield for Rajoy,” said Antonio Barroso, an analyst in London at Teneo Intelligence, a company advising on political risk. “The implementation on the ground is a risk for him when the government may face some regional civil servants who don’t cooperate.” The three Catalan officials – one from the parliament, one from the regional executive and one from the grass-roots campaign organization – spoke on condition of anonymity due to the legal threats against the movement. It all comes down to Article 155 of the constitution, a short passage that gives the legal green light for Spain to revoke the semi-autonomy of Catalonia. Foreign Minister Alfonso Dastis said at a press conference in Madrid on Friday that it would be applied in a “prudent, proportionate and gradual manner.”

The problem for Rajoy is that the separatists already proved with their makeshift referendum on Oct. 1 that they can ignore edicts from Madrid with a degree of success. That means he will need to back up his ruling with people on the ground, and it didn’t work as planned the last time around. The Catalan police force, the Mossos d’Esquadra, ignored orders to shut down polling stations before the illegal vote on Oct. 1. After Rajoy sent in the Civil Guard, images of Spanish police beating would-be voters were broadcast around the world. Mossos Police Chief Josep Lluis Trapero is a local hero, his face worn on T-shirts at separatist demonstrations. When he returned this week from an interrogation in Madrid, where he’s facing possible sedition charges, staff greeted him with hugs and applause.

And we worry about a financial apocalypse. If you value money over life, you will lose both.

• A Giant Insect Ecosystem Is Collapsing Due To Humans. It’s A Catastrophe (G.)

They are multitudinous almost beyond our imagining. They thrive in soil, water, and air; they have triumphed for hundreds of millions of years in every continent bar Antarctica, in every habitat but the ocean. And it is their success – staggering, unparalleled and seemingly endless – which makes all the more alarming the great truth now dawning upon us: insects as a group are in terrible trouble and the remorselessly expanding human enterprise has become too much, even for them. The astonishing report highlighted in the Guardian, that the biomass of flying insects in Germany has dropped by three quarters since 1989, threatening an “ecological Armageddon”, is the starkest warning yet; but it is only the latest in a series of studies which in the last five years have finally brought to public attention the real scale of the problem.

Does it matter? Even if bugs make you shudder? Oh yes. Insects are vital plant-pollinators and although most of our grain crops are pollinated by the wind, most of our fruit crops are insect-pollinated, as are the vast majority of our wild plants, from daisies to our most splendid wild flower, the rare and beautiful lady’s slipper orchid. Furthermore, insects form the base of thousands upon thousands of food chains, and their disappearance is a principal reason why Britain’s farmland birds have more than halved in number since 1970. Some declines have been catastrophic: the grey partridge, whose chicks fed on the insects once abundant in cornfields, and the charming spotted flycatcher, a specialist predator of aerial insects, have both declined by more than 95%, while the red-backed shrike, which feeds on big beetles, became extinct in Britain in the 1990s. Ecologically, catastrophe is the word for it.

[..] It seems indisputable: it is us. It is human activity – more specifically, three generations of industrialised farming with a vast tide of poisons pouring over the land year after year after year, since the end of the second world war. This is the true price of pesticide-based agriculture, which society has for so long blithely accepted. So what is the future for 21st-century insects? It will be worse still, as we struggle to feed the nine billion people expected to be inhabiting the world by 2050, and the possible 12 billion by 2100, and agriculture intensifies even further to let us do so. You think there will be fewer insecticides sprayed on farmlands around the globe in the years to come? Think again. It is the most uncomfortable of truths, but one which stares us in the face: that even the most successful organisms that have ever existed on earth are now being overwhelmed by the titanic scale of the human enterprise, as indeed, is the whole natural world.

Debt Rattle October 19 2017

Oct 192017

October 19, 2017 Posted by Raúl Ilargi Meijer at 8:55 am Finance Tagged with: buybacks, capitalism, Catalonia, dollar funding, insects, liquidity, Minsky, obsolete, Xi 9 Responses »

Joan Miro The sun embracing the lover 1952

• Don’t Rely on US Consumers to Power Global Growth (DDMB)

• Who Has the World’s No. 1 Economy? Not the US (BBG)

• Capitalism Is Ending Because It Has Made Itself Obsolete – Varoufakis (Ind.)

• Something Wicked This Way Comes: McDonald’s Stock Buybacks (Lebowitz)

• $1 Trillion In Liquidity Is Leaving: Market’s First Crash-Test In 10 Years (ZH)

• Dollar Funding Shortage Never Went Away And Starts To Get Worse Again (ZH)

• China’s Central Bank Warns Of Sudden Collapse In Asset Prices (R.)

• Xi Jinping Gets His Own School of Thought (G.)

• Spain-Catalonia Standoff Set To Intensify As Leaders Take Hard Lines (R.)

• Let Catalonia Go (Exp.)

• Australia’s First Home Super Scheme Passes The Lower House (D.)

• Warning Of ‘Ecological Armageddon’ After 75% Plunge In Insect Numbers (G.)

“The “something-had-to-give” moment appears to be arriving.”

• Don’t Rely on US Consumers to Power Global Growth (DDMB)

U.S. consumers account for 18% of global GDP, and it’s tempting to rely on them to continue carrying the aging recovery to support world growth. The data and growing lender anxiety, though, suggest investors should prepare for what is increasingly looking like an inevitable slowdown in economic growth next year. Although American households managed to maintain their spending levels in the face of dwindling prospects for future economic expansion, they have done so by taking on incremental debts, which could soon prove unsustainable. Headed into the 1960s, consumer credit as apercentage of disposable income was 14%. As baby boomers came of age and started settling down in suburbia to build families under their own roofs, this figure rose to 18% where it largely remained until the early 1990s.

The go-go run of the 1990s, though, was the first major break from history; consumer credit as apercentage of household discretionary spending rose to 24% by the turn of the century and remained there until the recession of 2007-2008. And while there was a movement toward deleveraging, it was short-lived. Today the ratio sits at a high of 26%. The upshot is that when consumer credit is combined with government transfer payments the total amounts to about 43% of all consumer spending. Put differently, almost a third of U.S. growth relies on increasing debt in one form or another.

Economists have long emphasized the historically low debt-service costs households must shoulder as proof that the rebuild in debt levels was not problematic. It was telling that fresh data revealed Americans ploughed more of their income to paying debts last year, the first increase in seven years. Moody’s warned the troubling finding would lead to further increases in default rates. JPMorgan Chase and Citigroup validated the data in their most recent earnings reports in which they boosted their reserves for losses on consumer loans by the most in more than four years. Credit card debt, which clocked a brisk 7% growth rate in August, was specifically cited. Citigroup added that the increase was coming faster than anticipated. The stresses, though, have been growing for almost two years when increases in credit card borrowing began to outpace that of incomes. The “something-had-to-give” moment appears to be arriving.

“..a more accurate picture of how much a country really produces..” It’s almost too easy.

• Who Has the World’s No. 1 Economy? Not the US (BBG)

What’s the most powerful country in the world? There’s a good case to be made that it’s China. There are many kinds of power – diplomatic, cultural, military and economic. So an easier question to ask is: What’s the world’s largest economy? That’s almost certainly China. Many might protest when hearing this. After all, the U.S. still produces the most when measured at market exchange rates:

But this comparison is misleading, because things cost different amounts in different countries. GDP is supposed to measure the amount of real stuff — cars, phones, financial services, back massages, etc. – that a country produces. If the same phone costs $400 in the U.S. but only $200 in China, China’s GDP is getting undercounted by 50% when we measure at market exchange rates. In general, less developed countries have lower prices, which means their GDP gets systematically undercounted.Economists try to correct for this with an adjustment called purchasing power parity (PPP), which controls for relative prices. It’s not perfect, since it has to account for things like product quality, which can be hard to measure. But it probably gives a more accurate picture of how much a country really produces. And here, China has already surpassed the U.S.:

If you don’t trust the murky PPP adjustments, a simple alternative is just to look at the price of a Big Mac. The same burger costs 1.8 times more in the U.S. than in China. Adjusting the market-exchange-rate GDP numbers by that ratio would put China even farther ahead. In some dimensions, China’s lead is even larger. The country’s manufacturing output overtook that of the U.S. almost a decade ago. Its exports are more than a third larger as well.

“..capital is being socially produced, and the returns are being privatised..” The serpent and the tail.

• Capitalism Is Ending Because It Has Made Itself Obsolete – Varoufakis (Ind.)

Former Greek finance minister Yanis Varoufakis has claimed capitalism is coming to an end because it is making itself obsolete. The former economics professor told an audience at University College London that the rise of giant technology corporations and artificial intelligence will cause the current economic system to undermine itself. Mr Varoufakis, who took on EU institutions over Greek debt repayments in 2015, said companies such as Google and Facebook, for the first time ever, are having their capital bought and produced by consumers. “Firstly the technologies were funded by some government grant; secondly every time you search for something on Google, you contribute to Google’s capital,” he said. “And who gets the returns from capital? Google, not you. “So now there is no doubt capital is being socially produced, and the returns are being privatised. This with artificial intelligence is going to be the end of capitalism.”

Warning Karl Marx “will have his revenge”, the 56-year-old said for the first time since capitalism started, new technology “is going to destroy a lot more jobs than it creates”. He added: “Capitalism is going to undermine capitalism, because they are producing all these technologies that will make corporations and the private means of production obsolete. “And then what happens? I have no idea.” Describing the present economic situation as “unsustainable” and fearing the rise of “toxic nationalism”, Mr Varoufakis said governments needed to prepare for post-capitalism by introducing redistributive wealth policies. He suggested one effective policy would be for 10% of all future issue of shares to be put into a “common welfare fund” owned by the people. Out of this a “universal basic dividend” could be paid to every citizen.

The serpent and the tail. Exhibit no. 1: corporate America in the 21st century.

• Something Wicked This Way Comes: McDonald’s Stock Buybacks (Lebowitz)

We have written six articles on stock buybacks to date. While each discussed different themes including valuations, executive motivations, and corporate governance, they all arrived at the same conclusion; buybacks may boost the stock price in the short run but in the majority of cases they harm shareholder value in the long run. Data on MCD provides support for our conclusion. Since 2012, MCD’s revenue has declined by nearly 12% while its earnings per share (EPS) rose 17%. This discrepancy might lead one to conclude that MCD’s management has greatly improved operating efficiency and introduced massive cost-cutting measures. Not so. Similar to revenue, GAAP net income has declined almost 8% over the same period, which rules out the possibilities mentioned above.

To understand how earnings-per-share (EPS) can increase at a double-digit rate, while revenue and net income similarly decline and profit margins remain relatively flat, one must consider the effect of share buybacks. Currently, MCD has about 20% fewer shares outstanding than they did five years ago. The reduction in shares accounts for the warped EPS. As noted earlier, EPS is up 17% since 2012. When adjusted for the decline in shares, EPS declined 7%. Given the 12% decline in revenue and 8% drop in net income, this adjusted 7% decline in EPS makes more sense. MCD currently trades at a trailing twelve-month price to earnings ratio (P/E) of 25. If we use the adjusted EPS figure instead of the stated EPS, the P/E rises to 30, which is simply breathtaking for a company that is shrinking. It must also be noted that, since 2012, shareholder equity, or the difference between assets and liabilities, has gone from positive $15.2 billion to negative $2 billion. A summary of key financial data is shown later in this article.

In addition to adjusting MCD’s earnings for buybacks, investors should also consider that to accomplish this financial wizardry, MCD relied on a 112% increase in their debt. Since 2012, MCD spent an estimated $23 billion on share buybacks. During the same period, debt increased by approximately $16 billion. Instead of repurchasing shares, MCD could have used debt and cash flow to expand into new markets, increase productivity and efficiency of its restaurants or purchase higher growth competitors. MCD executives instead manipulated EPS and ultimately the stock price. To their good fortune (quite literally), the Board of Directors and shareholders appear well-deceived by the costume of a healthy and profitable company. The following table compares MCD’s fundamental data and buyback adjusted data from 2012 to their last reported earnings statement.

The graph below compares the sharp increase in the price of MCD to the decline in revenue over the last five years.

.. but I ain’t got wings .. coming down .. is the hardest thing ..

• $1 Trillion In Liquidity Is Leaving: Market’s First Crash-Test In 10 Years (ZH)

In his latest presentation, Francesco Filia of Fasanara Capital discusses how years of monumental liquidity injections by major Central Banks ($15 trillion since 2009) successfully avoided a circuit break after the Global Financial Crisis, but failed to deliver on the core promise of economic growth through the ‘wealth effect’, which instead became an ‘inequality effect’, exacerbating populism and representing a constant threat to the status quo. Fasanara discusses how elusive, over-fitting economic narratives are used ex-post to legitimize the “fake markets” – as defined previously by the hedge fund – induced by artificial flows.

Meanwhile, as an unintended consequence, such money flows produced a dangerous market structure, dominated by both passive-aggressive investment vehicles and a high-beta long-only momentum community ($8 trn and rising rapidly), oftentimes under the commercial disguise of brands such as behavioral Alternative Risk Premia, factor investing, risk parity funds, low vol / short vol vehicles, trend-chasing algos, machine learning. However as Filia, and many others before him, writes, only when the tide goes out, will we discover who has been swimming naked, and how big of a momentum/crowding trap was built up in the process.

The undoing of loose monetary policies (NIRP, ZIRP), and the transitioning from ‘Peak Quantitative Easing’ to Quantitative Tightening, will create a liquidity withdrawal of over $1 trillion in 2018 alone. The reaction of the passive community will determine the speed of the adjustment in the pricing for both safe and risk assets. And, echoing what Deutsche Bank said last week, when it warned that central bank liquiidty injections will collapse from $2 trillion now to 0 in 12 months, a “most worrying” turn of events, Fasanara doubles down that “such liquidity withdrawal will represent the first real crash-test for markets in 10 years.”

A global problem.

• Dollar Funding Shortage Never Went Away And Starts To Get Worse Again (ZH)

Since last month, the Treasury has rebuilt the balance in its account at the Fed from $38bn on 6 September 2017 to $170bn on 11 October 2017, for a net increase of $132bn…not insignificant. Obviously, if and when the Treasury rebuilds its account at the Fed to the previous level, dollar liquidity could become extremely tight again, especially if the Fed is tapering its balance sheet at the same time. We have been wondering whether the Fed governors fully understand this, although some of the boys at 33 Liberty no doubt do. Credit guys also understand it “there’s another reason the strain is set to grow. The Fed is set to boost the pace of its balance-sheet roll-off each quarter, potentially putting upward pressure on U.S. rates relative to Europe and making it tougher for global investors to get dollar funding,” according to Mark Cabana, head of U.S. short rates strategy at Bank of America Corp.”

Clearly the issue is attracting the attention of investors as BoA analyst, Cabana writes in a recent report, and explains that “we have received a number of client questions recently about the outlook for banking reserves both in the near and medium term due to the Fed’s balance sheet unwind and potential swings in Treasury’s cash balance.” In summary, Cabana expects a large reserve drain in Q2 2018 with banking reserves dropping by more than $1 trillion by the end of 2019, which “highlights the potential for funding strains to emerge around Q2 next year and uncertainties around the Fed’s longer-run policy framework… This reserve drain and the Fed’s portfolio unwind should pressure funding conditions tighter through wider FRA-OIS and more negative XCCY (cross currency basis swaps) levels.”

Minsky.

• China’s Central Bank Warns Of Sudden Collapse In Asset Prices (R.)

China will fend off risks from excessive optimism that could lead to a “Minsky Moment,” central bank governor Zhou Xiaochuan said on Thursday, adding that corporate debt levels are relatively high and household debt is rising too quickly. A Minsky Moment is a sudden collapse of asset prices after a long period of growth, sparked by debt or currency pressures. The theory is named after economist Hyman Minsky. China will control risks from sudden adjustments to asset bubbles and will seriously deal with disguised debt of local government financing vehicles, Zhou said. The People’s Bank of China governor was speaking on the sidelines of China’s 19th Communist Party congress.

Cult, anyone?

• Xi Jinping Gets His Own School of Thought (G.)

China’s communist leader Xi Jinping looks to have further strengthened his rule over the world’s second largest economy with the confirmation that a new body of political theory bearing his name will be written into the party’s constitution. On day two of a week-long political summit in Beijing marking the end of Xi’s first term, state-media announced the creation of what it called Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. “The Thought is … a historic contribution to the Party’s development,” Zhang Dejiang, one of the seven members of China’s top ruling council, the politburo standing committee, told delegates at the 19th party congress according to Beijing’s official news agency, Xinhua. Liu Yunshan, another standing committee member, said the elevation of Xi’s Thought into the party’s list of “guiding principles” was of “great political, theoretical and practical significance”.

“All members of the Party should study hard Xi’s ‘new era’ thought,” he was quoted as saying. Experts say the decision to grant Xi his own eponymous school of thought, while arcane-sounding, represents a momentous and highly symbolic occasion in the politics and history of the world’s most populous nation. Only two previous leaders – Chairman Mao and Deng Xiaoping – have been honoured in such a way with theories called Mao Zedong Thought and Deng Xiaoping Theory. The names of Xi’s immediate predecessors – Hu Jintao and Jiang Zemin – were not attached to the political philosophies they bequeathed to the party. The official inception of Xi Jinping Thought – which now seems certain to be formally added to the party’s charter next week – also reinforces suspicions that Xi will seek to stay in power beyond the end of his second-term, in 2022.

“It is a huge deal,” said Orville Schell, a veteran China expert who has been studying Chinese politics since the late 1950s. “It is sort of like party sky writing. If you get your big think in the constitution it becomes immortal and Xi is seeking a certain kind of immortality.” However, Schell, the head of the Asia Society’s Center on US-China Relations, said the decision to honour Xi was not only noteworthy “because it makes Xi Jinping look like a thought leader comparable to Chairman Mao.” “It also suggests that [China’s political system] Socialism with Chinese Characteristics is a viable counter-model to the presumption of western liberal democracy and capitalism. In a sense, what Xi is setting up here is not only a clash of civilisation and values, but one of political and economic systems,” he said.

The deadline has passed. Madrid prepares to take over Catalonia on Saturday. This leaves the Catalan parliament time to vote on independence.

• Spain-Catalonia Standoff Set To Intensify As Leaders Take Hard Lines (R.)

Spain’s political showdown with Catalonia is set to reach a new level on Thursday when political leaders in Madrid and Barcelona are expected to make good on pledges made to their supporters to stick to their tough positions over the region’s future. In an unprecedented move since Spain returned to democracy in the late 1970s, Prime Minister Mariano Rajoy will impose direct rule in Catalonia unless the region’s leader Carles Puigdemont retracts by 10 a.m. (0800 GMT) an ambiguous declaration of independence he made last week. Puigdemont told members of his Catalan Democratic Party on Wednesday night that not only he would not back down but that he would press ahead with a more formal declaration of independence if Rajoy suspends Catalonia’s political autonomy.

It is not yet clear how and when this declaration would take place and whether it would be endorsed by the regional assembly, though many pro-independence lawmakers have openly said they wanted to hold a vote in the Catalan parliament to make it more solemn. If Rajoy invokes Article 155 of the 1978 constitution, which allows him to take control of a region if it breaks the law, it would not be fully effective until at least early next week as it needs previous parliamentary approval, offering some last minute leeway for secessionists to split unilaterally. This prospect has raised fears of social unrest, led the euro zone’s fourth-largest economy to cut its growth forecasts and rattled the euro.

Medieval is the right word.

• Let Catalonia Go (Exp.)

Now one businessman has warned enough is enough – as he insisted the Spanish government just “let Catalonia go” or risk being dragged down and destroyed by the enveloping crisis. Xavier Adam, a London-born financial investor who was brought up in Catalonia and considers himself to be a Spaniard, told Express.co.uk he was disgusted by the actions of the Spanish government and its police and military. The Managing Director of AMC network finance firm, Mr Adam says he has decided to cut a planned $450 million investment in Spanish real estate projects in protest at what he sees as Madrid’s “medieval” response to the crisis. He explained he feels his investment would be unsafe until the crisis is solved, as he believes Spain has undone 40 years of democratic progress with the actions of the police – and he warned the instability could send the already fragile country under.

Speaking exclusively to Express.co.uk today, he said: “It never had to be this way, going to beat up people in the streets just trying to vote, its been pandemonium. But Spain can’t come to terms with losing Catalonia, and losing the GDP it provides. “Madrid is being worse hit than Catalonia, it is really struggling. Madrid and Spain is facing a crisis. “Every day they’re threatening more violence and its just grubby, people think its just grubby. “It’s so hard to work with these people in government, they have got their ideas and they are fixed on them. “And Catalonia’s independence doesn’t feature in that, so they’re trying to teach them a lesson. “But there will be more and more of these demos and more and more protests and something is going to happen.

“Spain is going down and this government has to go. It is too volatile – you don’t know when it is going to blow.” Mr Adam, 40, says he was so enraged by the response to the referendum, he even wrote to Carlos Bastarreche, Spain’s ambassador to the UK, saying: “As an international investor of some repute and an expert on the Spanish economy, I write to say how appalled I am by the way your country has behaved in Catalonia. “It appears to me, a failure to listen to the will of the Catalan people, state sponsored violence against civilians and a manipulation of the Spanish public and media are ways Spain wants to move through the 21st Century.

From site of Domain, huge real estate firm. They’re not ready yet to let the bubble pop.

• Australia’s First Home Super Scheme Passes The Lower House (D.)

The federal government insists its plan to allow first-home buyers to save for a deposit through their superannuation won’t undermine Australia’s retirement savings system. The coalition used its numbers in parliament’s lower house to pass the measure – announced in the May budget – on Wednesday. The legislation also allows older Australians to contribute the proceeds of the sale of their family home to their super. Labor and the Greens are against the proposal, with the opposition claiming it will do nothing to address housing affordability. Shadow treasurer Chris Bowen argues it will instead work to undermine the country’s superannuation system, labelling it a “sham”. Assistant minister to the treasurer, Michael Sukkar, accused Labor of deliberately peddling misconceptions about the scheme.

He told MPs it was not an attack on superannuation but simply provides people with an opportunity to save more money that wouldn’t otherwise be used for super. “It’s quite shocking and surprising to see any political party take a view that a tax cut for first home buyers is something that they cannot support,” Mr Sukkar said. Labor, however, said it won’t stand in the way of two other housing affordability bills, both of which were announced in the 2017 budget. They include limiting deductions investors can claim in relation to residential properties and imposing an annual fee on foreign owners if their property is vacant for at least six months during a one-year period. Mr Bowen said there was nothing to oppose because the measures were ineffective. “What we see here is some minor tinkering which won’t do anything for housing affordability,” he told parliament.

This should really make us think. We don’t survive if insects don’t.

• Warning Of ‘Ecological Armageddon’ After 75% Plunge In Insect Numbers (G.)

The abundance of flying insects has plunged by three-quarters over the past 25 years, according to a new study that has shocked scientists. Insects are an integral part of life on Earth as both pollinators and prey for other wildlife and it was known that some species such as butterflies were declining. But the newly revealed scale of the losses to all insects has prompted warnings that the world is “on course for ecological Armageddon”, with profound impacts on human society. The new data was gathered in nature reserves across Germany but has implications for all landscapes dominated by agriculture, the researchers said. The cause of the huge decline is as yet unclear, although the destruction of wild areas and widespread use of pesticides are the most likely factors and climate change may play a role.

The scientists were able to rule out weather and changes to landscape in the reserves as causes, but data on pesticide levels has not been collected. “The fact that the number of flying insects is decreasing at such a high rate in such a large area is an alarming discovery,” said Hans de Kroon, at Radboud University in the Netherlands and who led the new research. “Insects make up about two-thirds of all life on Earth [but] there has been some kind of horrific decline,” said Prof Dave Goulson of Sussex University, UK, and part of the team behind the new study. “We appear to be making vast tracts of land inhospitable to most forms of life, and are currently on course for ecological Armageddon. If we lose the insects then everything is going to collapse.”

The research, published in the journal Plos One, is based on the work of dozens of amateur entomologists across Germany who began using strictly standardised ways of collecting insects in 1989. Special tents called malaise traps were used to capture more than 1,500 samples of all flying insects at 63 different nature reserves. When the total weight of the insects in each sample was measured a startling decline was revealed. The annual average fell by 76% over the 27 year period, but the fall was even higher – 82% – in summer, when insect numbers reach their peak. Previous reports of insect declines have been limited to particular insects, such European grassland butterflies, which have fallen by 50% in recent decades. But the new research captured all flying insects, including wasps and flies which are rarely studied, making it a much stronger indicator of decline.

Debt Rattle May 11 2017

May 112017

May 11, 2017 Posted by Raúl Ilargi Meijer at 8:49 am Finance Tagged with: Aegean, capital controls, Draghi, Greece, insects, Labour, Lavrov, panic, QE, Silk Road, Trump, Tulip, VIX 2 Responses »

Paul Almasy Les Halles, Paris 1950

• Trump and Lavrov Meeting Round-Up (TASS)

• $9 Trillion Question: What Happens When Central Banks Stop Buying Bonds? (WSJ)

• Draghi Stays Calm on Stimulus as Dutch MPs Warn of Risks With Tulip (BBG)

• It’s Not Just The VIX – Low Volatility Is Everywhere (R.)

• Six Canadian Banks Cut by Moody’s on Consumers’ Debt Burden (BBG)

• China Holds Giant Meeting On Spending Billions To Reshape The World (CNBC)

• ‘Stagnant’ Buyer Demand Puts The Brakes On UK Housing Market (G.)

• UK Labour Party’s Plan To Nationalise Rail, Mail And Energy Firms (G.)

• Panic! Like It’s 1837 (DB)

• Italy Financial Regulator Threatens EU with Return to “National Currency” (DQ)

• Greek Capital Controls To Stay Till At Least End Of 2018 (K.)

• Greek PM Tsipras Heralds ‘Landmark’ Plan For Healthcare (K.)

• Turkish Coast Guard Publishes Maps Claiming Half Of The Aegean Sea (KTG)

• Libya Intercepts Almost 500 Migrants After Sea Duel (AFP)

• Where Have All The Insects Gone? (Sciencemag )

The presence of a TASS reporter when Lavrov visited the White House was critized in the US media. Here’s what he wrote.

• Trump and Lavrov Meeting Round-Up (TASS)

Before meeting with Donald Trump, Sergey Lavrov held talks with the US top diplomat Rex Tillerson. Lavrov’s talks with the US president lasted for about 40 minutes behind closed doors. Moscow and Washington can and should solve global issues together, Lavrov said following his meetings with US Secretary of State Rex Tillerson and US President Donald Trump. “I had a bilateral meeting with Rex Tillerson, then the two of us were received by President Trump,” the Russian top diplomat said. “We discussed, first and foremost, our cooperation on the international stage.” “At present, our dialogue is not as politicized as it used to be during Obama’s presidency. The Trump administration, including the president himself and the secretary of state, are people of action who are willing to negotiate,” the Russian top diplomat pointed out.

Lavrov said agreement reached with Tillerson to continue using diplomatic channel to discuss Russian-US relations. According to Lavrov, the current state of bilateral relations is no cause for joy. “The reason why our relations deteriorated to this state is no secret,” the Russian top diplomat added. “Unfortunately, the previous (US) administration did everything possible to undermine the basis of our relations so now we have to start from a very low level.” “President Trump has clarified his interest in building mutually beneficial and practical relations, as well as in solving issues,” Lavrov pointed out. “This is very important,” he said. Lavrov believes Syria has areas where US might contribute to operation of de-escalation zones. “We are ready for this cooperation and today have discussed in detail the steps and mechanisms which we can manage together,” Lavrov said.

“We have confirmed our interest in the US’ most active role in those issues,” Lavrov said. “I imagine the Americans are interested in this too.” “We proceed from the fact they will take up the initiative,” he added. “We have thoroughly discussed the Syrian issue, particularly the ideas related to setting up de-escalation zones,” the Russian top diplomat said. “We share an understanding that this should become a common step aimed at putting an end to violence across Syria,” he added.

One word: mayhem.

• $9 Trillion Question: What Happens When Central Banks Stop Buying Bonds? (WSJ)

Central banks have been the world’s biggest buyers of government bonds, but may soon stop—a tidal shift for global markets. Yet investors can’t agree on what that shift will mean. Part of the problem is that there is little agreement about how the massive stimulus policies, known as quantitative easing or QE, affected bonds in the first place. That makes it especially hard to assess what happens when the tide changes. Many expect bond yields could rise and shares fall, some see little effect at all, while others suggest it is riskier investments, such as corporate bonds or Italian government debt, that will bear the brunt. But recently, yields on European high-yield corporate bonds hit their lowest since before the financial crisis, in one potential sign that the threat of tapering has yet to affect markets.

When the unwinding begins money managers may not be positioned for it, and markets could move swiftly. In the summer of 2013, investors suddenly got spooked about the Federal Reserve withdrawing stimulus, leading to a swift bond sell off that sent yields on the 10-year Treasury up by more than 1%age point. By buying bonds after the 2008 financial crisis, central banks across the developed world sought to push yields lower and drive money into riskier assets, reducing borrowing costs for businesses. “If it’s unclear what benefits we’ve had in the buying, it’s unclear what will happen in the selling,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors.

Recent data showed that the ECBholds total assets of $4.5 trillion, more than any other central bank ever. The Fed and the Bank of Japan each have $4.4 trillion, although the BOJ isn’t expected to wind down QE soon. With the world economy finally recovering, investors believe that holdings at the Fed and ECB have peaked. U.S. officials are discussing how to wind down their portfolio, which they have kept constant since 2014. The ECB’s purchases of government and corporate debt are now more likely to be tapered later in the year, analysts say, after pro-business candidate Emmanuel Macron’s victory in the French presidential election Sunday.

Dutch politicians either don’t care about their European Union peer Greece, or they don’t know about it. Neither is a good option. They are doing so well over the backs of the Greeks they want Draghi to enact policies that will make them even richer, and the Greeks even more miserable. Oh, and of course “The euro is irrevocable” only until it isn’t.

• Draghi Stays Calm on Stimulus as Dutch MPs Warn of Risks With Tulip (BBG)

Mario Draghi kept his cool in the Netherlands – at least on monetary policy. Repeatedly pressed by Dutch lawmakers to say when he’ll start winding down euro-area monetary stimulus, the Ecb president replied that it’s still too soon to consider, despite a “firming, broad-based upswing” in the economy. “Is it time to exit? Or is it time to start thinking about exit or not? The assessment of the Governing council is that this time hasn’t come yet.” His reward was a gift of a plastic tulip in a reminder of a past European financial crisis. Draghi’s voluntary appearance at the hearing on Wednesday put him front and center in one of the nations most critical of the ECB’s ultra-loose policies, which are seen by opponents as overstepping the institution’s mandate, burdening savers and pension providers, and stoking asset bubbles.

Legislators did appear occasionally to get under his skin. The tension rose when he was quizzed multiple times him on the possibility that a government will one day have to restructure its debt, while on the topic of a nation leaving the currency bloc – as Greece came close to doing in 2015 – Draghi’s response was blunt. “The euro is irrevocable. This is the Treaty. I will not speculate on something that has no basis.” The intense questioning underscored the gap between relatively rosy economic data and the discontent among individuals who can’t see the fruits of the ECB’s €2.3 trillion bond-buying program and minus 0.4% deposit rate. It’s a challenge for Draghi, who reiterated his concern that underlying inflation remains feeble and falling unemployment has yet to boost wage growth. The region is far from healing the scars of a double-dip recession that wiped out 9 million jobs and helped the rise of anti-euro populists such as Marine Le Pen, who lost this month’s French presidential election but still managed to pick up more than a third of the vote.

The silence before.

• It’s Not Just The VIX – Low Volatility Is Everywhere (R.)

The current slump in expectations of market volatility is not just a stock market phenomenon – it is the lowest it’s been for years across fixed income, currency and commodity markets around the world. It shows little sign of reversing, which means market players are essentially not expecting much in the way of shocks or sharp movements any time soon. It’s an environment in which asset prices can continue rising and bond spreads narrow further. The improving global economy, robust corporate profitability, ample central bank stimulus even as U.S. interest rates are rising, and some fading political risk from elections have all contributed to create a backdrop of relative calm.

There is little evidence of investors hedging – or seeking to protect themselves – from adverse conditions. It is most notably seen in the VIX index of implied volatility on the U.S. S&P 500 stock index, the so-called “fear index”. But implied volatility across the G10 major currencies is its lowest in three years, and U.S. Treasury market volatility its lowest in 18 months and close to record lows. The VIX, meanwhile, has dipped to lows not seen since December 2006, is posting its lowest closing levels since 1993, and is on a record run of closes below 11. By comparison, it was at almost 90 at the height of the financial crisis. Not much current “fear”, then.

Implied volatility is an options market measure of investors’ expectation of how much a certain asset or market will rise or fall over a given period of time in the future. It and actual volatility can quickly become entwined in a spiral lower because investors are less inclined to pay up for “put” options – effectively a bet on prices falling – when the market is rising. If a shock does come the cost of these “puts” would shoot higher as investors scramble to buy them. Surging volatility is invariably associated with steep market drawdowns. According to Deutsche Bank’s Torsten Slok, an investor betting a year ago that the VIX would fall – shorting the index – would have gained around 160% today. Conversely, an investor buying the VIX a year ago assuming it would rise would have lost 75%.

What’s that rumbling sound in the distance?

• Six Canadian Banks Cut by Moody’s on Consumers’ Debt Burden (BBG)

Six of Canada’s largest banks had credit ratings downgraded by Moody’s Investors Service on concern that over-indebted consumers and high housing prices have left lenders vulnerable to potential losses on assets. Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Royal Bank of Canada had their long-term debt and deposit ratings lowered one level, Moody’s said Wednesday in a statement. It also cut its counterparty risk assessment for the firms, excluding Toronto-Dominion. “Expanding levels of private-sector debt could weaken asset quality in the future,” David Beattie, a Moody’s senior vice president, said in the statement.

“Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.” A run on deposits at alternative mortgage lender Home Capital has sparked concern over a broader slowdown in the nation’s real estate market, at a time when Canadians are taking on higher levels of household debt. The firm’s struggles have taken a toll on Canada’s biggest financial institutions, which have seen stocks slide on concern about contagion. In its statement, Moody’s pointed to ballooning private-sector debt that amounted to 185% of Canada’s GDP at the end of last year. House prices have climbed despite efforts by policy makers, it said. And business credit has grown as well.

Straight from the Monopoly printing press.

• China Holds Giant Meeting On Spending Billions To Reshape The World (CNBC)

[..] the most populous nation on the planet wants to increase its influence by digging further into its pockets — flush with cash after decades of rapid growth — to splash out with its “One Belt, One Road” policy. President Xi Jinping first announced the policy in 2013; it was later named one of China’s three major national strategies, and morphed into an entire chapter in the current five-year plan, to run through 2020. [..] The plan aims to connect Asia, Europe, the Middle East and Africa with a vast logistics and transport network, using roads, ports, railway tracks, pipelines, airports, transnational electric grids and even fiber optic lines. The scheme involves 65 countries, which together account for one-third of global GDP and 60% of the world’s population, or 4.5 billion people, according to Oxford Economics.

This is part of China’s push to increase global clout — building modern infrastructure can attract more investment and trade along the “One Belt, One Road” route. It could be beneficial for western China, which is less developed, as it links up with neighboring countries. And in the long run, it will help China shore up access to energy resources. The policy could boost the domestic economy with demand abroad, and might also soak up some of the overcapacity in China’s heavy industry, but analysts say these are fringe benefits. Experts say China has an opportunity to step into a global leadership role, one that the U.S. previously filled and may now be abandoning, especially after President Donald Trump pulled out of a major trade deal, the Trans-Pacific Partnership.

It’s clear China wants to wield greater influence — Xi’s speech in January at the World Economic Forum in Davos touted the benefits of globalization, and called for international cooperation. And an article by Premier Li Keqiang published shortly after also called for economic openness. But despite all the talk of global connectivity, skeptics highlight that China still restricts foreign investment, censorship continues to be an issue and concerns remain over human rights. [..] In 2015, the China Development Bank said it had reserved $890 billion for more than 900 projects. The Export-Import Bank of China announced early last year that it had started financing over 1,000 projects. The China-led Asian Infrastructure Investment Bank is also providing financing.

The British should be happy for housing prices returning to more normal levels.

• ‘Stagnant’ Buyer Demand Puts The Brakes On UK Housing Market (G.)

The UK housing market is continuing to slow down, with falling property sales, “stagnant” buyer demand and general election uncertainty all adding up to one of the most downbeat reports issued by surveyors since the financial crash. In its latest monthly snapshot of the market, the Royal Institution of Chartered Surveyors (Rics) said momentum was “continuing to ebb,” with no sign of change in the near future. Its report is the latest in a series of recent surveys suggesting that the slowdown is getting worse as household budgets continue to be squeezed and affordability pressures bite. It comes days after the Halifax said house prices fell by 0.1% in April, which meant they were nearly £3,000 below their December 2016 peak. Nationwide reported a bigger decline in April – it said prices fell by 0.4%, following a 0.3% drop in March.

Some parts of London appear to have been hit particularly hard, with estate agents and developers resorting to offering free cars and other incentives to try to tempt buyers. Rics said its members had reported that sales were slipping slightly following months of flat transactions. A lack of choice for would-be buyers across the UK appears to be one of the major factors putting a dampener on sales: the latest report said there was “an acute shortage of stock,” with the typical number of properties on estate agents’ books hovering close to record lows. New instructions continue to drop, which could make the situation worse: the flow of fresh listings to agents remained negative for the 14th month in a row at a national level, said Rics, though it added that the situation had apparently improved slightly in London.

How dead is the left? Nice contest.

• UK Labour Party’s Plan To Nationalise Rail, Mail And Energy Firms (G.)

Jeremy Corbyn will lay out plans to take parts of Britain’s energy industry back into public ownership alongside the railways and the Royal Mail in a radical manifesto that promises an annual injection of £6bn for the NHS and £1.6bn for social care. A draft version of the document, drawn up by the leadership team and seen by the Guardian, pledges the phased abolition of tuition fees, a dramatic boost in finance for childcare, a review of sweeping cuts to universal credit and a promise to scrap the bedroom tax. Party sources said Corbyn wants to promise a “transformational programme” with a package covering the NHS, education, housing and jobs as well as industrial intervention and sweeping nationalisation. But critics said the policies represented a shift back to the 1970s with the Conservatives describing it as a “total shambles” and a plan to “unleash chaos on Britain”.

Corbyn’s leaked blueprint, which is likely to trigger a fierce debate of Labour’s national executive committee and shadow cabinet at the so-called Clause V meeting at noon on Thursday, also includes:
• Ordering councils to build 100,000 new council homes a year under a new Department for Housing.
• An immediate “emergency price cap” on energy bills to ensure that the average duel fuel household energy bill remains below £1,000 a year.
• Stopping planned increases to the pension age beyond 66.
• “Fair rules and reasonable management” on immigration with 1,000 extra border guards, alongside a promise not to “fan the flames of fear” but to recognise the benefits that migrants bring.

On the question of foreign policy, an area on which Corbyn has campaigned for decades, the draft document said it will be “guided by the values of peace, universal rights and international law”. However, Labour, which is facing Tory pressure over the question of national security, does include a commitment to spend 2% of GDP on defence. The draft manifesto, which will only be finalised after it is agreed on Thursday, also makes clear that the party supports the renewal of Trident, despite Corbyn’s longstanding opposition to nuclear weapons.

Cycles.

• Panic! Like It’s 1837 (DB)

180 years ago today, everyone panicked. On May 10, 1837, New York banks finally realized that the easy money they were lending was unsustainable, and demanded payment in “specie,” or hard money like gold and silver coin. They had previously been accepting paper currency that for every $5 was backed by only $1 in silver or gold. Things culminated to that point after years of borrowing the paper currency to expand west, buy land, and build infrastructure. As silver came in from Mexico, banks lent out five times the amount of their deposits–fractional reserve banking. At the same time, the value of silver was falling because its supply was increasing in America. Great Britain, which had been lending much of the money, was less interested in silver because they could pay for trade with China in opium.

So even though Britain had a year earlier begun demanding payment in specie, the abundant silver in America did not hold the same weight, so to speak, it had previously. Now, reflect on this for a second. The USA was depending on loans from a country that they had successfully revolted and seceded from fewer than 50 years earlier. Britain had also provoked The War of 1812 just 25 years earlier when they wouldn’t stop attacking American ships. But somehow it still seemed like a good idea to depend on British banks to form the foundation of American development. So at the same time when American banks had to backstep their risky practices, Britain also just so happened to need 25% less cotton, which was the foundation of the American economy. This only exacerbated the trade deficit.

But still, despite whether or not Britain’s actions were nefarious, the whole situation would have been remarkably cushioned if fractional reserve banking had not been used. Because of this “easy money,” land was bought at enormous rates on credit, but credit that was not backed by actual value–only 1/5 of the actual value existed of what was being lent! President Andrew Jackson was not entirely without blame either. When he deconstructed the federal bank, he deposited the money into state banks, and encouraged them to go ahead and lend, lend, lend! Of course, when the time came for the banks to return the deposits, the money was gone. So when this massive real estate bubble burst in 1837, it caused a panic and ensuing recession that lasted until 1844. Does any of this sound familiar to you?

The moment the ECB is allowed to buy Greek bonds again is also the moment it decides to quit its bond-buying program.

• Italy Financial Regulator Threatens EU with Return to “National Currency” (DQ)

Despite trillions of euros worth of QE, Italy has continued to suffer a 30% loss in competitiveness compared to Germany during the last two decades. And now Italy must begin to prepare itself for the biggest nightmare of all: the gradual tightening of the ECB’s monetary policy. “Inflation is gradually returning to the area of the 2% target, while in the United States a monetary tightening is taking place,” Vegas said. The German government is exerting mounting pressure on the ECB to begin tapering QE before elections in September. So, too, is the Netherlands whose parliament today treated ECB President Mario Draghi to a rare grilling. The MPs ended the session by presenting Draghi with a departing gift of a solar-powered tulip, to remind him of the country’s infamous mid-17th century asset price bubble and financial crisis.

For the moment Draghi and his ECB cohorts refuse to yield, but with the ECB’s balance sheet just hitting 38.7% of Eurozone GDP, 15 %age points higher than the Fed’s, they may ultimately have little choice in the matter. As Vegas points out, for Italy (and countries like it), that will mean having to face a whole new situation, “in which it will no longer be possible to count on the external support of monetary leverage.” This is likely to be a major problem for a country that has grown so dependent on that external support. According to the Bank for International Settlements, in 2016, international banks in particular those in Germany reduced their exposure to Italy by 15%, or over $100 billion, half of it in the last quarter of the year. ECB intervention helped plug the shortfall, at least for a while.

But the ECB has already reduced its monthly purchases of European sovereign debt instruments, from €80 billion to just over €60 billion. As the appetite for Italian government debt falls, the yields on Italian bonds will rise. The only market participants seemingly still willing and able (for now) to increase their purchase of Italian debt are Italian banks. In his address, Vegas proposed introducing a safeguard threshold of €100,000 for the banks’ bondholders, many of whom are ordinary Italian citizens, with combined holdings worth some €200 billion, who were told by the banks that their bonds were a secure investment. Not any more. “The management of crises may require timely intervention that is not compatible with the mechanisms in Frankfurt and Brussels,” Vegas added.

To get his point across, he issued a barely veiled threat in Frankfurt and Brussels’ direction — that of Italy’s exit from the Eurozone, a prospect that should not be altogether discounted given the recent growth of anti-euro sentiment and rising political instability in Italy. So he threatened: “Merely the announcement of a return to a national currency would provoke an immediate outflow of capital that would seriously jeopardize Italy’s ability to refinance the world’s third biggest public debt.”

In other words: any positive numbers you may read about Greek GDP are false.

• Greek Capital Controls To Stay Till At Least End Of 2018 (K.)

Greece will spend at least three-and-a-half years under the restrictions of capital controls as their abolition is not expected to come any earlier than the end of 2018, according to a competent credit sector source. The next step in terms of their easing will come after the completion of the bailout review and the disbursement of the funding tranche, provided banks see some recovery in deposits. Sources say that the planning provides primarily for helping enterprises by increasing the limit on international transactions concerning product imports or the acquisition of raw materials. Almost two years after the capital controls were imposed, by next Tuesday, according to the agreement with the creditors, the Bank of Greece and the Finance Ministry have to present a road map for the easing of restrictions.

The road map is already being prepared and according to sources it will not contain any dates for the easing of controls but rather will record the conditions necessary for each step to come. Kathimerini understands that the conditions will be the following: the return of deposits, the reduction of nonperforming loans, the state’s access to money markets, the country’s inclusion in the ECB’s QE program, and the settlement of the national debt. “Ideally, by end-2018 we will be able to speak of an end to the controls. In any case, the restrictions on deposits will be the last to be lifted,” notes a senior banking source, referring to the cash withdrawal limit that currently stands at €840 per 14 days. The Hellenic Bank Association’s Executive Committee will meet on Wednesday to discuss proposals for the gradual easing of restrictions.

The bankers’ proposals will constitute an updated version of those tabled in November 2016; they will likely include the introduction of a monthly limit of 2,000 euros for cash withdrawals and an increase in the withdrawal limit for funds originating from abroad from 30% to 60%. The drop in deposits over the first quarter of the year will make it harder for such proposals to be implemented for the time being.

Saving the healthcare system from Troika-induced collapse is a good idea. Not sure this is the way.

• Greek PM Tsipras Heralds ‘Landmark’ Plan For Healthcare (K.)

Speaking of an “institutional intervention of landmark significance,” Prime Minister Alexis Tsipras heralded on Wednesday the creation of a new primary healthcare system to be based on local health centers staffed with general practitioners. The aim is to set up 239 such centers by the end of the year, employing 3,000 family doctors and nursing staff, Tsipras said in a speech at a health center in Thessaloniki. The first 60 of those centers are to start operating by the summer, the premier said, noting that poorer areas will be prioritized. “If you were to ask me what I want to be left behind after the years of governance by SYRIZA and ANEL,” he said, referring to junior coalition partner Independent Greeks, “I would say a very essential landmark health sector reform with the creation of primary healthcare.”

Tsipras also took the opportunity to lash out at the political opposition, accusing previous governments of having a plan for “the passive privatization of the health sector.” As for the national federation of Greek hospital workers (POEDIN), which has railed against the current government for cutbacks in the health sector, Tsipras hit back, calling it “a trade union that has secured privileges.” The prime minister added that his government remained determined to fight corruption in the health sector, referring to alleged scandals embroiling the Hellenic Center for Disease Control and Prevention (KEELPNO) and the Swiss pharmaceuticals firm Novartis. “Everything will come to light,” he said.

Erdogan’s at the White House today, or is that tomorrow?!

• Turkish Coast Guard Publishes Maps Claiming Half Of The Aegean Sea (KTG)

The Turkish Coast Guard published alleged official maps and documents claiming half of the Aegean Sea belong to Turkey. In this sense, Ankara claims to won dozens of Greek islands, the entire eastern Aegean from the island of Samothraki in the North to Kastelorizo in the South. The maps and claims have been uploaded on the website of the Turkish Coast Guard in the context of a 60-page report about the activities of the TCG in 2016. On page 7 and 13 of the report, the maps allegedly show Turkey’s Search And Rescue responsibility area. The maps show half of the Aegean Sea and also a very good part of the Black Sea, where Turkey’s SAR area coincides with the Turkish Exclusive Economic Zone (EEZ). Turkey did not signed the convention in order to not be obliged to recognize the Greek EEZ.

The United Nations Convention on the Law of the Sea (UNCLOS), also called the Law of the Sea Convention or the Law of the Sea treaty, is the international agreement that resulted from the third United Nations Conference on the Law of the Sea (UNCLOS III), which took place between 1973 and 1982. The Law of the Sea Convention defines the rights and responsibilities of nations with respect to their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. The most significant issues covered were setting limits, navigation, archipelagic status and transit regimes, exclusive economic zones (EEZs), continental shelf jurisdiction, deep seabed mining, the exploitation regime, protection of the marine environment, scientific research, and settlement of disputes. Turkey started to claim areas in the Aegean Sea after 1997 when a Turkish ship sank near the Greek islet of Imia and Ankara sent SAR vessels.

Sea Watch seems to go a bit far.

• Libya Intercepts Almost 500 Migrants After Sea Duel (AFP)

Libya’s coastguard on Wednesday intercepted a wooden boat packed with almost 500 migrants after duelling with a German rescue ship and coming under fire from traffickers, the navy said. The migrants, who were bound for Italy, were picked up off the western city of Sabratha, said navy spokesman Ayoub Qassem. The German non-governmental organisation “Sea-Watch tried to disrupt the coastguard operation… inside Libyan waters and wanted to take the migrants, on the pretext that Libya wasn’t safe,” Qassem told AFP. Sea-Watch posted a video on Twitter of what it said was a Libyan coastguard vessel narrowly cutting across the bow of its ship.

“This EU-funded Libyan patrol vessel almost crashed (into) our civil rescue ship,” read the caption. Qassem also said the coastguard had come under fire from people traffickers, without reporting any casualties. The 493 migrants included 277 from Morocco and many from Bangladesh, said Qassem, and 20 women and a child were aboard the boat. All were taken to a naval base in Tripoli. There were also migrants from Syria, Tunisia, Egypt, Sudan, Pakistan, Chad, Mali and Nigeria, he added. According to international organisations, between 800,000 and one million people, mostly from sub-Saharan Africa, are currently in Libya hoping to make the perilous Mediterranean crossing to Europe.

No insects, no bats, no birds, etc etc.

• Where Have All The Insects Gone? (Sciencemag )

Entomologists call it the windshield phenomenon. “If you talk to people, they have a gut feeling. They remember how insects used to smash on your windscreen,” says Wolfgang Wägele, director of the Leibniz Institute for Animal Biodiversity in Bonn, Germany. Today, drivers spend less time scraping and scrubbing. “I’m a very data-driven person,” says Scott Black, executive director of the Xerces Society for Invertebrate Conservation in Portland, Oregon. “But it is a visceral reaction when you realize you don’t see that mess anymore.” Some people argue that cars today are more aerodynamic and therefore less deadly to insects. But Black says his pride and joy as a teenager in Nebraska was his 1969 Ford Mustang Mach 1—with some pretty sleek lines. “I used to have to wash my car all the time. It was always covered with insects.”

Lately, Martin Sorg, an entomologist here, has seen the opposite: “I drive a Land Rover, with the aerodynamics of a refrigerator, and these days it stays clean.” Though observations about splattered bugs aren’t scientific, few reliable data exist on the fate of important insect species. Scientists have tracked alarming declines in domesticated honey bees, monarch butterflies, and lightning bugs. But few have paid attention to the moths, hover flies, beetles, and countless other insects that buzz and flitter through the warm months. “We have a pretty good track record of ignoring most noncharismatic species,” which most insects are, says Joe Nocera, an ecologist at the University of New Brunswick in Canada. Of the scant records that do exist, many come from amateur naturalists, whether butterfly collectors or bird watchers.

Now, a new set of long-term data is coming to light, this time from a dedicated group of mostly amateur entomologists who have tracked insect abundance at more than 100 nature reserves in western Europe since the 1980s. Over that time the group, the Krefeld Entomological Society, has seen the yearly insect catches fluctuate, as expected. But in 2013 they spotted something alarming. When they returned to one of their earliest trapping sites from 1989, the total mass of their catch had fallen by nearly 80%. Perhaps it was a particularly bad year, they thought, so they set up the traps again in 2014. The numbers were just as low. Through more direct comparisons, the group—which had preserved thousands of samples over 3 decades—found dramatic declines across more than a dozen other sites.

Such losses reverberate up the food chain. “If you’re an insect-eating bird living in that area, four-fifths of your food is gone in the last quarter-century, which is staggering,” says Dave Goulson, an ecologist at the University of Sussex in the United Kingdom, who is working with the Krefeld group to analyze and publish some of the data. “One almost hopes that it’s not representative—that it’s some strange artifact.”

Debt Rattle Christmas Eve 2016

Dec 242016

December 24, 2016 Posted by Raúl Ilargi Meijer at 9:23 am Finance Tagged with: craptacular, garbage, insects, Putin, refugees, Scrooge, supervolcano, Tillerson, Trump, UBI, Xi Comments Off

Alfred Palmer Annette del Sur in salvage campaign, Douglas Aircraft Co., Long Beach, CA 1942

• The Connection Between Work and Dignity (B.)

• 2016 Year In Review: A Clockwork Orange (Dave Collum)

• A Week On Jury Duty With Rex Tillerson (Roden)

• Putin Shrugs Off Trump’s Nuclear Plans, Says Democrats Sore Losers (R.)

• President Xi Open to Growth in China Falling Below 6.5% (BBG)

• Barclays Refuses To Settle With US DoJ Over ‘Craptacular Loans’ (G.)

• Greek PM in Open Confrontation With German FinMin (GR)

• Greece Takes Dig At Lenders With Scrooge Christmas Card (R.)

• Is A Big Change Underway In Global Capitalism? (Parramore/Chanos)

• Shanghai Water Supply Hit By 100-Tonne Wave Of Garbage (G.)

• 3.5 Trillion Insects Migrate Over Southern Britain Each Year (CSM)

• One of Earth’s Most Dangerous Supervolcanoes Is Rumbling (NatGeo)

• Mediterranean Death Toll Is Record 5,000 Refugees, Migrants This Year (R.)

Best ever case for basic income. And then he doesn’t even mention it!

• The Connection Between Work and Dignity (B.)

If we work hard and produce something of tangible value, we tend to feel a sense of self-worth when society rewards us for it with a decent, middle-class life. This was the essence of Franklin Roosevelt’s New Deal – if you work, you eat. The continuing power of this idea is visible everywhere. Witness Albuquerque, New Mexico, where the city gave homeless people jobs and it made them feel “human again.” Or look at the Job Corps program, where giving poor people jobs made them more likely to get married. If you give people work with tangible, visible value, you give them dignity. This, of course, is a reason the U.S.’s falling labor participation rate is such a concern – so many Americans are out of the workforce and are missing out on the dignity that comes with a job:

So is there work to be done in the U.S. that produces tangible, visible value? Of course there is. To realize this, just take a one-week trip to Japan. Where American sidewalks are cracked and uneven, Japanese ones are neat and beautiful. Where tables in American Starbucks are littered with crumbs and dirt, Japanese Starbucks tables get wiped down after every customer leaves. Where American cities like Chicago and Detroit are full of broken windows and crumbling facades, Japanese cities are clean and modern, with well-maintained, reliable public transit. Before we start complaining about make-work, let’s make the U.S. look like that. Let’s fix the sidewalks and renovate – or knock down and rebuild – all the old buildings. Let’s wipe down every Starbucks table, build quality public-transit systems and hire the workers to make them run on time.

And let’s take care of our people as well as our cities. Let’s provide child care for working moms, and elder care for old people. Let’s hire more teachers to reduce class sizes. These are all jobs that produce real, tangible results. When you fix up a building or build a train station, you can see the fruits of your labors. When you take care of an old person, you can see a real human being benefit. The value created by these jobs is a lot more tangible and clear than the value created by a lot of activities that the market rewards much more, such as high-frequency trading. The free-market age has made the economy more efficient, but it has come at a dramatic price – lost dignity for so many. The U.S. has moved away from the idea of a social compact with work at its core. That’s something that deserves to be reversed.

I warn you, don’t do it. Don’t even start reading. This innocent-enough looking ‘organic chemical professor’ with his cultivated hobo-under-the-bridge look has one thing in mind, and one only: to ruin your holidays. Being holed up with his review means no valuable and precious time left to spend with your families, letting the turkey burn in the oven (oh, would he like that!) and having no eyes for the beautiful snowy landscape out there. Talk about the Grinch who stole Christmas!

• 2016 Year In Review: A Clockwork Orange (Dave Collum)

With some notable exceptions, the mainstream media has degenerated into a steaming heap of detritus that is so bad now that it gets its own section. A congenital infobesity has morphed into late-stage disinfobesity. Enter social media—the fever swamp—to fill the void. As we shall see, however, all is not well there either. I sift and pan, looking for shiny nuggets of content that reach the high standards of a rant. Shout-outs to bloggers would have to include Michael Krieger, Charles Hugh Smith, Peter Boockvar, Bill Fleckenstein, Doug Noland, Jesse Felder, Tony Greer, Mike Lebowitz, Mish Shedlock, Charles Hugh Smith, and Grant Williams.

News consolidators and new-era media include Contra Corner, Real Vision, Heatstreet, and Automatic Earth. A carefully honed Twitter feed is a window to the world and the road to perdition. My actions speak to my enthusiasm for Chris Martenson and Adam Taggart at Peak Prosperity. However, if you gave me one lens through which to view the world, I would have to choose Zero Hedge (or maybe LadySonya.com).

Nice story. Don’t demonize the man. Give him a chance.

• A Week On Jury Duty With Rex Tillerson (Roden)

Nine years ago, I showed up to the Denton County Courthouse for jury duty and got myself picked for the job. A young girl had accused her mom’s boyfriend of sexual assault, and the case was being brought to trial. If you’ve ever served on a jury trial before, you understand the almost immediate yet very temporary bond that ties 12 strangers together who are randomly chosen from each of their private lives to fulfill a solemn public purpose. One of our first tasks was to choose our jury foreman. Perhaps it was his business suit, his impressive stature, or his charisma, but almost everyone in that jury room suggested that this middle-aged man with graying hair was likely the most fit for the task. Thanks, but I decline. I’m not interested in the spotlight, he told us. I didn’t think anything of it.

I had just bought my first BlackBerry and used my breaks to catch up on all the emails I was missing from my week at the courthouse. I recall leaving the jury room on a break with this man and remarking how busy I was and how much work I had to do. He smiled as he sat and read the paper. From the first day of jury selection, we all noticed another suited man always present in the courtroom. His presence was intriguing due to the ear piece in his ear. While grabbing lunch at Denton County Independent Hamburger on the square the second day of the trial, we noticed this mysterious man dining with our fellow juror who’d declined the foreman spot. The intrigue grew, and it was the talk of the jury: Who were these men? Finally, during a break in the jury room, one juror had the nerve to ask: “Who are you? And what do you do?”

Our fellow jury member was reading the paper again and pointed out an article with Exxon in the headlines. I work for them, he said humbly. There are a lot of people in this world who hate me for what I do, so they give me and my family guys like that to protect me. I immediately felt embarrassed for complaining about how much work I had to do. It didn’t take long before a few internet searches revealed that I was serving on this jury with the CEO of Exxon Mobil, Rex Tillerson. The trial concluded, and it was time for the jury to deliberate. The story was heartbreaking, and the facts of the case were clear enough to make the majority of the jury convinced of the guilt of this sexual offender of a little girl. But the defense did a good enough job to create a couple of hold-outs. As our deliberations came to a close, it appeared we might have a hung jury.

That’s when Tillerson began to speak. Humbly, delicately and without an ounce of condescension toward those who disagreed, he began walking us all through the details of the case. I even recall being moved by his thorough explanation about the nature of doubt and the standards set forth by our justice system. With great patience, this man who strikes multibillion-dollar deals with foreign heads of state brought our scrappy jury together — to bring a sexual predator to justice and to deliver justice for a scared and deeply wounded little girl. A local nonprofit was instrumental in fostering that young girl through this process, providing her counseling and legal help. I was so struck by their mission that I toured their facility the week after the case to learn how I could donate and volunteer to their cause.

On a whim, I decided to reach out to Tillerson to encourage him to do the same. I found an email for him online and sent him a note, touting the role this agency played in our trial and urging him to consider supporting the great work they do. To my surprise, I received an email back thanking me for my note and my jury service, and ensuring me that he would contact the agency. I later received a call from the director of that nonprofit to let me know that Tillerson followed through and gave a generous donation.

Putin was impressive. Among many other things, he announced cuts in defense spending from 4.7% of GDP in 2016, to 3.3%, and 2.8% in 2019. “If anyone is unleashing an arms race it’s not us … We will never spend resources on an arms race that we can’t afford.”

• Putin Shrugs Off Trump’s Nuclear Plans, Says Democrats Sore Losers (R.)

Russia’s Vladimir Putin said on Friday he was unfazed by President-elect Donald Trump’s plans to boost the U.S. nuclear arsenal, praising Trump for being in touch with U.S. public opinion while branding the Democrats sore election losers. Speaking at his annual news conference in Moscow, the Russian president said earlier comments he had made about his country’s own military modernization had been misunderstood in the United States and that he accepted that the U.S. military, not Russia’s, was the most powerful in the world. Putin said on Thursday Russia’s military was “stronger than any potential aggressor”. Trump later tweeted that the United States “must greatly strengthen and expand its nuclear capability until such time as the world comes to its senses regarding nukes.”

Asked to clarify his comments on Friday, MSNBC reported that Trump had said: “Let it be an arms race. We will outmatch them at every pass and outlast them all.” But Putin said he did not regard the United States as a potential aggressor and had only been talking about countries he thought might realistically launch an attack on Russia. “I was a bit surprised by the statements from some representatives of the current U.S. administration who for some reason started to prove that the U.S. military was the most powerful in the world,” Putin said, referring to State Department comments from Thursday. “Nobody is arguing with that.” Putin said he saw nothing new or remarkable about Trump’s own statement about wanting to expand U.S. nuclear capabilities anyway. “In the course of his election campaign he (Trump) spoke about the necessity of strengthening the U.S. nuclear arsenal, and strengthening the armed forces. There’s nothing unusual here,” said Putin.

“If anyone is unleashing an arms race it’s not us … We will never spend resources on an arms race that we can’t afford.” [..] Putin dismissed suggestions Moscow had helped Trump to victory in any way however. “It’s not like that,” he said. “All of this (the accusations) speaks of the current administration’s systemic problems.” Putin, who spoke positively of Trump before his election win, said that only Moscow had believed in his victory however. “Trump understood the mood of the people and kept going until the end, when nobody believed in him,” Putin said, adding with a smile. “Except for you and me.” Putin said he would be willing to visit the United States if Trump invited him and expected U.S.-Russia ties to return to normal now, particularly in the security and economic spheres.

Xi finds an opening to blame lower growth on something other than himself, and dives right in.

• President Xi Open to Growth in China Falling Below 6.5% (BBG)

President Xi Jinping isn’t wedded to China’s 6.5% economic growth objective due to concerns about rising debt and an uncertain global environment after Donald Trump’s election win in the U.S., according to a person familiar with the situation. Xi told a meeting of the Communist Party’s financial and economic leading group this week that China doesn’t need to meet the objective if doing so creates too much risk, said the person, who asked not to be named because the discussions were private. Leaders at the gathering agreed that the $11 trillion economy would remain stable with slower growth as long as employment stays firm, the person said.

Below-target growth would be in line with analyst projections that the expansion will keep decelerating in coming years from an estimated pace of 6.7% in 2016. The slowdown coincides with the nation’s broad shift from an export-led economy to services, which accounted for more than half of growth last year for the first time, and domestic consumption. Last year, policy makers pledged an annual growth rate of at least 6.5% for five years through 2020. Some economists criticize the growth objective for motivating officials to take risks that may jeopardize financial stability. The IMF is among those that have recommended a lower target.

Who came up with that word?

• Barclays Refuses To Settle With US DoJ Over ‘Craptacular Loans’ (G.)

Barclays is refusing to settle with the US Department of Justice over allegations it deliberately sold mortgage bonds to investors that it knew contained “craptacular loans”. The DoJ’s legal filing outlines an array of colourful descriptions of the types of mortgages that it alleges were used by Barclays to package up in bonds – known as residential mortgage bond securities – which could be sold on to investors. It accuses Barclays of selling investors RMBS “backed by loans it knew were made to borrowers who were not creditworthy and which were supported by house appraisals it knew were inflated”. The DoJ said Barclays was not lending to customers itself but using loans from mortgage lenders Fremont, New Century, WMC, Countrywide, and IndyMac as the basis of the bonds it was selling.

To support its case the DoJ published conversations between bankers which it claimed proved they knew they were selling poor investments. They included: • One Barclays banker in charge of reviewing the deals observed that one loan pool was “about as bad as it can be”. • On another occasion, the same banker said this “scares the shit out of me”. He also remarked about a package of loans from Wells Fargo that “we have to eat their shit loans”. • A Barclays salesperson described “the deluge of Fremont garbage being put out there”, the DoJ said. Barclays, becoming the first major lender to fail to reach a settlement with the DoJ, said it rejected the claims made in the complaint. “Barclays considers that the claims made in the complaint are disconnected from the facts. We have an obligation to our shareholders, customers, clients, and employees to defend ourselves against unreasonable allegations and demands. Barclays will vigorously defend the complaint and seek its dismissal at the earliest opportunity,” the bank said.

“No matter how big fiscal surpluses some countries manage, they will never reach the surplus of soul that Greek people have..”

• Greek PM in Open Confrontation With German FinMin (GR)

“Those who are not at peace with their souls can not cope with the problems of their country, neither Europe’s nor the world’s,” Greek Prime Minister Alexis Tsipras said on Thursday. The prime minister had in mind the German Finance Minister Wolfgang Schaeuble, who said that he can’t show any understanding to the Greek prime minister for accusing the German government of hurting Greek pensioners. Tsipras spoke in Greek parliament in an event dedicated to unescorted refugee children. “Those who shake the finger at us in the name of the agreements, and address Greek people in a condescending way, they must honor their commitments first before they turn to criticize us,” Tsipras said. Schaeuble has repeatedly said in the past that Greece is not implementing the reforms needed to help the economy to recover. “Our efforts aim to Greece so that it stands on its feet again,”he said.

Then the German minister explained further: “Solidarity can only be justified when the aid is limited and leads to change something in a positive direction. In Ireland, Portugal, Spain and Cyprus that was evident. After implementing the program, their economies are growing, rapidly for some. Greece is the third program and without the financial help of billions of euros would be bankrupt long ago. Then the Greek citizens would suffer much more.” The Greek prime minister said during his speech that the compassion and solidarity Greece showed during the refugee crisis is more important than state budgets and fiscal targets. “We now open our arms — and I believe this reflects the feelings of the vast majority of the Greek people — to these weak people. Despite our difficulties we keep our dignity and this is much greater wealth and much larger surplus of all budget surpluses. No matter how big fiscal surpluses some countries manage, they will never reach the surplus of soul that Greek people have,” Tsipras said.

That’ll go down well.

• Greece Takes Dig At Lenders With Scrooge Christmas Card (R.)

Greece’s Finance Ministry took a page out of Charles Dickens’s classic “A Christmas Carol” to have a dig on Friday at the international lenders who have imposed unpopular austerity on the country. An e-card from the press office of the Greek Finance Ministry, sent to journalists, showed a picture of a frail, stingy Ebenezer Scrooge warming by the fire during a visit of his former business partner Jacob Marley, the ghost of Christmas Past shackled in chains. “Perhaps all Christmas stories feature a terrifying Ebenezer welcoming the spirits of Christmas in his desolate loneliness, and perhaps our Christmas story is no exception,” the e-card reads. “But dear friends and colleagues, our wishes will prevail over all the Ebenezers of this world. A very happy new year, with health and love focused on those all around us.”

Lynn Parramore talks to Jim Chanos.

• Is A Big Change Underway In Global Capitalism? (Parramore/Chanos)

Jim Chanos: Bush was the MBA president who was going to be pro-business, cut taxes, and deregulate. Meanwhile, he had two recessions on his watch, less employment than when he started, and two bear markets in the stock market — probably the worst president for business since Herbert Hoover. The business guy! Yet, he did tighten up the Justice Department and go after corporate crime. The Ashcroft Justice Department, as bad as it was in lots of other things, went after corporate fraud and accounting fraud, criminally. In 2002, we got Sarbanes-Oxley to curb fraud. I don’t know that all this was Bush’s predilection — remember, his biggest supporter was Enron. But because of Enron and the other dot-com era scandals, he got backed into a corner to go hard on them.

I’ve joked that the only person who put more corporate executives in jail than George W. Bush was his father during the Savings and Loan Crisis. On these issues, I’d rather have Bush any day of the week than Obama. Both Eric Holder and Lanny Breuer of Obama’s Justice Department said in TV interviews and testimony that they factored in non-judicial aspects as to whether to mount prosecutions. I think that this had political costs to the Democrats. The crony capitalism still bothers people — the idea that Wall Street got off scot-free and they are still struggling. That lack of justice applied equally under the law was corrosive, not necessarily for Obama personally, but certainly for the party following him.

LP: How do you see a Trump presidency in this light? JC: You and I have talked about how it has become a cost calculus for lots of corporations and financial institutions to cheat. “If I get caught,” they say, “I’m just going to pay a fine.” How does this change with new faces in Washington? You still have this very pro-corporate group on Capitol Hill whose main bailiwick, in my opinion, is to protect the corporate class and the very wealthy. You’ve got what ostensibly is a proto-populist in the White House with a cabinet that is a mélange of different types, so who knows?

In my overall view, stuff happens to change people. If we go back to Bill Clinton, his “Putting People First” manifesto in ’92 was quite left-of-center, but he didn’t govern that way. If you look at things like NAFTA, Welfare reform, and cutting capital gains taxes — well, in many ways, Ronald Reagan would have been proud of him. Events conspire to derail our perceptions of presidents. When we look at their platforms, we think we know where things are headed. But in modern times, the only two presidents that I can think of who really got their ideas and platforms enacted wholesale were FDR and Reagan. Everybody else has gotten compromised, or has had events overwhelm them.

“This is so sad, just humanity digging its own grave..”

• Shanghai Water Supply Hit By 100-Tonne Wave Of Garbage (G.)

Medical waste, broken bottles and household trash are some of the items found in more than 100 tonnes of garbage salvaged near a drinking water reservoir in Shanghai. The suspected culprits are two ships that have been dumping waste upstream in the Yangtze river. It has then flowed downstream to the reservoir on Shanghai’s Chongming island which is also home to 700,000 people. The reservoir at the mouth of the river is one of the four main sources of drinking water for the country’s largest city, according to local media. China has struggled with air, soil and water pollution for years during its economic boom, with officials often protecting industry and silencing citizens that complain. China’s cities are often blanketed in toxic smog, while earlier this year more than 80% of water wells used by farms, factories and rural households was found to be unsafe for drinking because of pollution.

Officials dispatched more than 40 workers to clean up the mess, but the area around the reservoir will take about two weeks to clear, the Shanghai Daily reported. Shanghai’s water authority claims supplies are still safe to drink, but has stopped the flow coming in while it continues testing, the paper said. Videos circulating on social media showed beaches and wetlands covered in a rainbow of plastic bags. “There’s enough trash to cover several football fields,” a local resident can be heard saying in one video. Catheter bags and used IV sacks are pulled from the water, and in some places only a sea of trash can be seen, completely obscuring the river water. “This is so sad, just humanity digging its own grave,” one commenter on Twitter-like Sina Weibo said.

A tourist surrounded by rubbish on a beach in China. Photograph: Feature China / Barcroft Media

“..Britain’s overhead populations are probably “close to minimum values” because of the area’s cold and dry climate. The warm, moist skies of the Amazon – or southern California, for example – likely see far more than 3.5 trillion insects each year.”

• 3.5 Trillion Insects Migrate Over Southern Britain Each Year (CSM)

Three and a half trillion. That’s how many insects migrate over southern Britain in one year, according to a study published Friday in the journal Science. To put that number in perspective, that’s the equivalent of more than 54 bugs for every person in Britain. The team of scientists from Britain, China, and Israel spent a decade tracking insect migration at altitudes between 492 and 3,937 feet using entomological radar and an aerial insect-catching net. “High-altitude aerial migration of insects is enormous,” University of Exeter entomologist and co-author Jason Chapman told Reuters. “These aerial flows are an unappreciated aspect of terrestrial ecosystems, equivalent to the oceanic movements of plankton which power the oceanic food chains.” And the vast quantity was not the only surprising aspect of their study.

The researchers also discovered that insects migrate north and south seasonally (just like birds), and can reach speeds between 18 and 37 miles per hour by choosing wind patterns that are blowing in their chosen direction, Ars Technica reports. The trillions of migrating insects weigh a combined total of 3,200 tons – the equivalent of more than 636 elephants flying overhead each year. But if hundreds of elephants’ worth of bugs were flying overhead each year, wouldn’t we know about them already? No, say scientists: the vast majority of these bugs are super small. Take the marmalade hoverfly, for example. “It’s only about a centimeter long, it’s orange with black stripes, but it’s a hugely abundant migrant, and it actually does some very important jobs” such as pollinating crops and wildflowers, Dr. Chapman told NPR.

And the authors say Britain’s overhead migration is likely modest compared to other regions of the world. In fact, Chapman tells the Los Angeles Times that Britain’s overhead populations are probably “close to minimum values” because of the area’s cold and dry climate. The warm, moist skies of the Amazon – or southern California, for example – likely see far more than 3.5 trillion insects each year. While some bug-averse people might find this study chilling, it is really quite encouraging, say scientists. Healthy insect populations are crucial for a productive environmental landscape. “We could not function without them,” Chapman tells Reuters. The insects pollinate plants, feed birds and bats, and promote healthy soil through decomposition and other important processes.

Does ‘volatile’ capture it?

• One of Earth’s Most Dangerous Supervolcanoes Is Rumbling (NatGeo)

A long-quiet yet huge supervolcano that lies under 500,000 people in Italy may be waking up and approaching a “critical state,” scientists report this week in the journal Nature Communications. Based on physical measurements and computer modeling, “we propose that magma could be approaching the CDP [critical degassing pressure] at Campi Flegrei, a volcano in the metropolitan area of Naples, one of the most densely inhabited areas in the world, and where accelerating deformation and heating are currently being observed,” wrote the scientists—who are led by Giovanni Chiodini of the Italian National Institute of Geophysics in Rome. A sudden release of hot magmatic gasses is possible in the near future, which could trigger a large eruption, the scientists warn. Yet the timing of any possible eruption is unknown and is currently not possible to predict.

In response to the news, Italy’s government has raised the volcano’s threat level from green to yellow, or from quiet to requires scientific monitoring. In other words, the government is urging a measured response to the study, followed by additional scientific work. Campi Flegrei means “burning fields” in Italian. The volcanic region is also known as the Phlegraean Fields. Like other supervolcanoes—such as the one responsible for the geothermal features of Yellowstone—it is not a single volcanic cone. Rather, it’s a large complex, much of it underground or under the Mediterranean Sea, that includes 24 craters, as well as various geysers and vents that can release hot gas. Supervolcanoes are usually characterized by a large caldera, or depression, that formed from past explosive eruptions. Campi Flegrei’s depression, just west of Naples, is more than seven miles across.

Campi Flegrei is thought to have formed hundreds of thousands of years ago. A massive eruption 200,000 years ago spewed so much ash that it darkened the skies around the planet, triggering a “volcanic winter.” That event is thought to have been the largest volcanic episode in the history of Europe over that time. The volcano erupted again 35,000 and 12,000 years ago. An eruption about 40,000 years ago might have contributed to the extinction of the Neanderthals, a 2010 study suggested, although that report has been debated. The volcanic area was also known by the ancient Greeks.

14 per day, every single day. Before you know it, you’re talking real loss of life.

• Mediterranean Death Toll Is Record 5,000 Refugees, Migrants This Year (R.)

A record 5,000 migrants are believed to have drowned in the Mediterranean Sea this year, following two shipwrecks on Thursday in which some 100 people, mainly West Africans, were feared dead, aid agencies said on Friday. Two overcrowded inflatable dinghies capsized in the Strait of Sicily after leaving Libya for Italy, the International Organization for Migration (IOM) and the U.N. refugee agency UNHCR said. “Those two incidents together appear to be the numbers that would bring this year’s total up to over to 5,000 (deaths), which is a new high that we have reported during this crisis,” IOM spokesman Joel Millman told a Geneva briefing. The Italian coast guard rescued survivors and had recovered eight bodies so far, he said. IOM staff were interviewing survivors brought to Trapani, Italy, he added.

Just under 3,800 migrants perished at sea during all of 2015, according to IOM figures. UNHCR spokesman William Spindler said the “alarming increase” in deaths this year appeared to be related to bad weather, the declining quality of vessels used by smugglers, and their tactics to avoid detection. “These (reasons also) include sending large numbers of embarkations simultaneously, which makes the work of rescuers more difficult,” he said. The UNHCR appealed to states to open up more legal pathways for admitting refugees. Resettlement programmes, private sponsorship, family reunification and student scholarships would help “so they do not have to resort to dangerous journeys and the use of smugglers”, Spindler said.