Oct 292015
 
 October 29, 2015  Posted by at 10:22 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing National Emergency War Garden Commission display, Wash. DC 1918

Fed Keeps Interest Rates Unchanged But Hints At December Rise (Guardian)
Fed Keeps December Rate Hike in Play (Hilsenrath)
The Death Of Monetary Policy In 1 Dismal Chart (Zero Hedge)
Inflation Fixated Central Banks Have Lost Their Way (Stephen Roach)
The Unnatural Rate Of Interest -Ultra Wonkish- (Steve Keen)
Britain Is Heading For Another 2008 Crash: Here’s Why (David Graeber)
Paris Climate Deal To Ignite A $90 Trillion Energy Revolution (AEP)
China Running Out Of Strategic Oil Reserve Space (Reuters)
Nigel Farage Rages At EU’s Modern Day “Brezhnev Doctrine” (Zero Hedge)
British Bookmaker Doubles Probability of Exit From EU (Bloomberg)
Putin Tests English Debt Law as Ukraine Feud Heads to London Court (Bloomberg)
European Parliament Opposes National Bans on GMO-Food Imports (Bloomberg)
Germany To Oblige Banks To Offer Accounts To Refugees (Reuters)
Inside Europe’s Migrant-Smuggling Rings (WSJ)
Three Migrants Drown Off Lesvos, Coastguard Rescues 242 As Boat Sinks (Reuters)
At Least Five Refugees, Including Four Children, Drown In Aegean (AP)
Dozens Of Refugees Missing After Boat Sinks Off Lesvos (AP)

December is Yellen’s final chance to restore credibility.

Fed Keeps Interest Rates Unchanged But Hints At December Rise (Guardian)

The Federal Reserve on Wednesday kept interest rates unchanged at their record low of near-zero, but raised the likelihood of a rate hike in December by dropping previous warnings about the fragility of the global economy. Following a two-day meeting in Washington, Fed policymakers voted to leave rates at 0-0.25% – where they have been for the seven years since the financial crisis. However, the bank’s Federal Open Market Committee (FOMC), which sets the rate, significantly raised the prospect of a historic rate rise at its next meeting in December by removing cautious statements about unstable international markets could adversely effect the US economy.

In September, following concerns about the health of the Chinese economy, the committee said: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” This was modified on Wednesday to: “The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments.” The committee specifically pointed towards the possibility of raising rates at its December meeting – the last of 2015.

“In determining whether it will be appropriate to raise [rates] at its next meeting, the committee will assess progress – both realized and expected – toward its objectives of maximum employment and 2% inflation,” it said in the statement. Nine out of 10 FOMC members voted to keep rates unchanged. That is the same proportion as in September with Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, being the only member to push for a 25 basis points increase.

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Does having a mouthpiece at the WSJ give the Fed more credibility?

Fed Keeps December Rate Hike in Play (Hilsenrath)

Federal Reserve officials explicitly said they might raise short-term interest rates in December, pushing back against investors who have bet that the central bank wouldn’t move this year. The message appeared to have the desired effect. Before the Fed released its policy statement Wednesday, traders in futures markets put about a 1-in-3 probability on a Fed rate increase this year; after the release, that probability rose to almost 1-in-2. While the Fed kept rates steady after its two-day meeting this week, investors appeared to welcome a vote of confidence in the economy from the central bank. Top Fed officials have been saying for months they believed the economy was nearly strong enough to tolerate an increase in the benchmark short-term rate from near zero, where it has been since December 2008. But they have hesitated to move.

The last instance was in September, when the Fed pointed to worries about turbulence in financial markets and uncertainties about growth overseas—particularly in China—as reasons to stay put. “They are trying to tell us that December is still their base case,” said Roberto Perli, an analyst at Cornerstone Macro, a research firm that advises investors. Market and international developments have turned in the Fed’s favor in recent weeks. The People’s Bank of China last week cut short-term lending rates in an effort to boost growth in the world’s second-largest economy. ECB President Mario Draghi suggested he might extend a bond-purchase program in an effort to stimulate his region’s economic growth rate. The moves sparked a global stock-market rally and could support world-wide growth.

The Dow is up 6% since the Fed met last month, a sign financial-market stress has dissipated. The Fed responded Wednesday by playing down its earlier-stated concerns. Officials struck from their policy statement a sentence introduced in September that pointed to market turbulence and global developments as potential restraints on U.S. economic activity. As those concerns recede, the Fed has fewer impediments standing in the way of a rate increase. Though not mentioned in their statement, officials likely took note in their meeting of the recent progress toward an agreement between Congress and the White House on a federal budget and raising the government’s borrowing limit.

If enacted, the budget and debt-limit resolution would reduce uncertainty about the fiscal outlook and boost government spending and short-term economic growth. Officials pointed specifically in the policy statement to their Dec. 15-16 meeting as a moment when they might act on rates. Individual officials have signaled before that they expected to move before year-end, but the Fed’s policy-making committee hadn’t previously pointed so explicitly in an official statement to the potential timing of a rate increase.

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Do keep this in mind: “..when the world is offering ‘money’ for free, one can only surmise its worth is also close to zero…”

The Death Of Monetary Policy In 1 Dismal Chart (Zero Hedge)

Perhaps “The Japanification of Monetary Policy” would have been a more appropriate title… “well it didn’t work for them, so we should all try more of it” appears to be the repost of policy-makers worldwide which, inevitably, will lead to the total collpase of their credibility (and th every ‘faith’ of the world’s investors shattered). As the old adage goes “you get what you pay for” and when the world is offering ‘money’ for free, one can only surmise its worth is also close to zero…

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TBTF banks like the Fed clueless.

Inflation Fixated Central Banks Have Lost Their Way (Stephen Roach)

Fixated on inflation targeting in a world without inflation, central banks have lost their way. With benchmark interest rates stuck at the dreaded zero bound, monetary policy has been transformed from an agent of price stability into an engine of financial instability. A new approach is desperately needed. The US Federal Reserve exemplifies this policy dilemma. After the Federal Open Market Committee decided in September to defer yet again the start of its long-awaited normalization of monetary policy, its inflation doves are openly campaigning for another delay. For the inflation-targeting purists, the argument seems impeccable. The headline consumer-price index (CPI) is near zero, and “core” or underlying inflation – the Fed’s favorite indicator – remains significantly below the seemingly sacrosanct 2% target.

With a long-anemic recovery looking shaky again, the doves contend that there is no reason to rush ahead with interest-rate hikes. Of course, there is more to it than that. Because monetary policy operates with lags, central banks must avoid fixating on the here and now, and instead use imperfect forecasts to anticipate the future effects of their decisions. In the Fed’s case, the presumption that the US will soon approach full employment has caused the so-called dual mandate to collapse into one target: getting inflation back to 2%. Here, the Fed is making a fatal mistake, as it relies heavily on a timeworn inflation-forecasting methodology that filters out the “special factors” driving the often volatile prices of goods like food and energy. The logic is that the price fluctuations will eventually subside, and headline price indicators will converge on the core rate of inflation.

This approach failed spectacularly when it was adopted in the 1970s, causing the Fed to underestimate virulent inflation. And it is failing today, leading the Fed consistently to overestimate underlying inflation. Indeed, with oil prices having plunged by 50% over the past year, the Fed stubbornly maintains that faster price growth – and the precious inflation rate of 2% – is just around the corner. Missing from this logic is an appreciation of the new and powerful global forces that are bearing down on inflation. According to the International Monetary Fund’s latest outlook, the price deflator for all advanced economies should increase by just 1.5% annually, on average, from now to 2020 – not much higher than the crisis-depressed 1.1% pace of the last six years.

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Steve vs Krugman redux.

The Unnatural Rate Of Interest -Ultra Wonkish- (Steve Keen)

Paul Krugman’s latest column—“Check Out Our Low, Low (Natural) Rates” (which he didn’t flag as “Wonkish”, even though it is so in spades)—noted that the “natural real rate of interest” was falling, and that this justified the low interest rate set by the Federal Reserve. And this made me think about Karl Marx. Why? Because the “natural real rate of interest” is an unobservable entity—in that it’s not a rate you’ll find charged by any bank, but a rate that has to be statistically derived. But more importantly, it is a fantasy: there is no such thing. However it is required as part of a theory in which the economy returns to equilibrium after it is hit by an “exogenous shock”. So Neoclassical economists—meaning both “New Classicals” and “New Keynesians”, as the two fractious clans in this economic tribe call themselves—have to go in search of this phantom.

Marx had an equally important unobservable fantasy at the heart of his attempt to produce a mathematical version of his own economics: the “Labor Theory of Value”. This is the proposition that all value—and hence all profit—emanates solely from labor. Machinery, Marx asserted, simply passed on the value that had been transferred to it by the labor expended in making it. It is mathematically impossible to reconcile this proposition with the Marxist belief that profit rates in different industries converge (for competitive reasons), when you acknowledge that different industries have different ratios of capital to labor. But Marxist economists have tied themselves up in logical (and illogical) knots over this fantasy for well over a century. However Marxists have something over Neoclassicals in this regard: at least they’re aware that there is an issue.

Even though they continue to cling to this belief, they don’t shy away from acknowledging the conundrum. Neoclassicals, on the other hand, don’t even realize that they might have a problem. Some Marxists attempted to circumvent their conundrum on statistical grounds, while making the dubious assumption that the actual wage corresponded to an important concept in Marxian economics, the “value of labor power” (which strictly speaking is a subsistence wage). The great British scholar Ronald Meek rightly derided this fudge, stating that he was “unconvinced by … redefining `the value of labour-power’ so that it becomes equivalent … to any wage which the workers happen to be getting” The real problem for Marxists was that their model of how the economy operated was simply wrong. Statistical work on this chimera wasn’t going to rescue them from that problem.

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Watch video at the link.

Britain Is Heading For Another 2008 Crash: Here’s Why (David Graeber)

British public life has always been riddled with taboos, and nowhere is this more true than in the realm of economics. You can say anything you like about sex nowadays, but the moment the topic turns to fiscal policy, there are endless things that everyone knows, that are even written up in textbooks and scholarly articles, but no one is supposed to talk about in public. It’s a real problem. Because of these taboos, it’s impossible to talk about the real reasons for the 2008 crash, and this makes it almost certain something like it will happen again. I’d like to talk today about the greatest taboo of all. Let’s call it the Peter-Paul principle: the less the government is in debt, the more everybody else is. I call it this because it’s based on very simple mathematics. Say there are 40 poker chips. Peter holds half, Paul the other. Obviously if Peter gets 10 more, Paul has 10 less. Now look at this: it’s a diagram of the balance between the public and private sectors in our economy:

Notice how the pattern is symmetrical? The top is an exact mirror of the bottom. This is what’s called an “accounting identity”. One goes up, the other must, necessarily, go down. What this means is that if the government declares “we must act responsibly and pay back the national debt” and runs a budget surplus, then it (the public sector) is taking more money in taxes out of the private sector than it’s paying back in. That money has to come from somewhere. So if the government runs a surplus, the private sector goes into deficit. If the government reduces its debt, everyone else has to go into debt in exactly that proportion in order to balance their own budgets. The chips are redistributed. This is not a theory. Just simple maths.

Now, obviously, the “private sector” includes everything from households and corner shops to giant corporations. If overall private debt goes up, that doesn’t hit everyone equally. But who gets hit has very little to do with fiscal responsibility. It’s mostly about power. The wealthy have a million ways to wriggle out of their debts, and as a result, when government debt is transferred to the private sector, that debt always gets passed down on to those least able to pay it: into middle-class mortgages, payday loans, and so on. The people running the government know this. But they’ve learned if you just keep repeating, “We’re just trying to behave responsibly! Families have to balance their books. Well, so do we,” people will just assume that the government running a surplus will somehow make it easier for all of us to do so too. But in fact the reality is precisely the opposite: if the government manages to balance its books, that means you can’t balance yours.

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Ambrose is techno-happy incorporated. ‘Save the world for profit!’ But we won’t have the money to do it even if we wanted to.

Paris Climate Deal To Ignite A $90 Trillion Energy Revolution (AEP)

The fossil fuel industry has taken a very cavalier bet that China, India and the developing world will continue to block any serious effort to curb greenhouse emissions, and that there is, in any case, no viable alternative to oil, gas or coal for decades to come. Both assumptions were still credible six years ago when the Copenhagen climate summit ended in acrimony, poisoned by a North-South split over CO2 legacy guilt and the allegedly prohibitive costs of green virtue. At that point the International Energy Agency (IEA) was still predicting that solar power would struggle to reach 20 gigawatts by now. Few could have foretold that it would in fact explode to 180 gigawatts – over three times Britain’s total power output – as costs plummeted, and that almost half of all new electricity installed in the US in 2013 and 2014 would come from solar.

Any suggestion that a quantum leap in the technology of energy storage might soon conquer the curse of wind and solar intermittency was dismissed as wishful thinking, if not fantasy. Six years later there can be no such excuses. As The Telegraph reported yesterday, 155 countries have submitted plans so far for the COP21 climate summit to be held by the United Nations in Paris this December. These already cover 88pc of global CO2 emissions and include the submissions of China and India. Taken together, they commit the world to a reduction in fossil fuel demand by 30pc to 40pc over the next 20 years, and this is just the start of a revolutionary shift to net zero emissions by 2080 or thereabouts. “It is unstoppable. No amount of lobbying at this point is going to change the direction,” said Christiana Figueres, the UN’s top climate official.

Yet the energy industry is still banking on ever-rising demand for its products as if nothing has changed. BP is projecting a 43pc increase in fossil fuel use by 2035, Exxon expects 35pc by 2040, Shell 43pc and Opec is clinging valiantly to 55pc. These are pure fiction.
The Intergovernmental Panel on Climate Change (IPCC) may or may not be correct in arguing that we cannot safely burn more than 800bn tonnes of carbon (two-thirds has been used already) if we are to stop global temperatures rising two degrees above pre-industrial levels by 2100. I take no view on the science. But this is the goal accepted by world leaders. It is solemnly enshrined in international accords, and while it might once have been possible for energy companies to dismiss these utterings as empty pieties, to persist now is to trifle with fate.

“This is a world apart from where we were going into Copenhagen. The centre of gravity has fundamentally and irreversibly shifted,” said Mark Kenber, head of the Climate Group. China switched sides several years ago, not least because it faces a middle class insurrection that has shaken the Communist Party to its core. An estimated 100m people viewed the anti-pollution video “Under the Dome” in just 24 hours before it was shut down by horrified officials in February. The IEA says China invested $80bn in renewable energy last year, as much as the US and the EU combined. It is blanketing chunks of the Gobi Desert with solar panels, necessary to absorb the massive surplus production of its own solar companies. The party’s Energy Research Institute has floated the idea of raising the renewable share of electricity to 86pc by 2050.

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What’s that going to do with prices? Deflation equals demand crash.

China Running Out Of Strategic Oil Reserve Space (Reuters)

About 4 million barrels of crude oil bought by a Chinese state trader for the country’s strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said. The delays will cost millions of dollars and indicate how China is struggling to import record amounts of crude if storage and port capacity at Qingdao, its largest oil import terminal, are unable to keep pace. Ocean Lily and Plata Glory, two very large crude carriers (VLCCs) carrying oil for Sinochem Corp, arrived at Huangdao, Qingdao’s main oil terminal, in early September, and both were still at anchor this week, waiting to unload. “They are both for SPR (strategic petroleum reserve), but no tank space is available to take that oil in,” said a senior trader familiar with Sinochem’s oil trading.

China’s crude oil imports rose nearly 9% in the first nine months of the year over a year earlier to 6.65 million bpd, driven partly by reserve building. China said late last year the first phase of the government’s emergency stockpile is storing about 90 million barrels of crude oil, with the construction of a second phase due by 2020, partly through private investment. Huangdao is the site of one of China’s first SPR tanks, with space for 20 million barrels of oil and also has plans for a second phase of similar size. A recent move to increase competition for oil imports by granting quotas to independent refineries has added to congestion at Huangdao, where operations were already hampered following a pipeline accident two years ago. “Storage and berths were not ready for such a quick market opening,” the trader said.

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“..for all of us that believe in democracy and want to see it reimplemented, the British referendum offers a golden opportunity.”

Nigel Farage Rages At EU’s Modern Day “Brezhnev Doctrine” (Zero Hedge)

Nigel Farage unleashes another of his must-watch rage-fests aimed at the collapse of democracy in Europe. Amid the stunning “democracy crisis” in Portugal, where, as we detailed here, the government has lost its majority but the anti-EU opposition is being prevented from attempting to form a coalition, Farage fumes “this is the modern day implementation of the Brezhnev Doctrine. This is exactly what happened to states living inside the USSR.” One of his best…

“This is the modern day implementation of the Brezhnev Doctrine. This is exactly what happened to states living inside the USSR . What is being made clear here with Greece and indeed with Portugal is that a country only has democratic rights if it’s in favour of the [European] project. If not, those rights are taken away. And perhaps none of this should surprises us as Mr. Juncker has told us before: there can be no democratic choice against the European treaties. And the German Finance Minister, Mr. Schäuble, has said: elections change nothing – there are rules.

I think for anyone that believes in democracy, Portugal should be the final straw. It should be the warning that this project, [in order to] to protect itself and all its failings, will destroy the individual rights of peoples and of nations. My country has always believed in parliamentary democracy so strongly that twice in the last century it risked everything to fight for parliamentary democracy, not just for Britain but for the rest of Europe too. And I actually believe that for all of us that believe in democracy and want to see it reimplemented, the British referendum offers a golden opportunity.”

The opposition in Portugal might be socialists, but the country is effectively suspending democracy to prevent Eurosceptics with a massive electoral mandate from taking power. As we concluded previously, note what’s happened here. The will of the people is now being characterized as a “false signal” to “financial institutions, investors, and markets.”

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Break it up! Break it down!

British Bookmaker Doubles Probability of Exit From EU (Bloomberg)

The chances of the U.K. leaving the EU have almost doubled in just three months, if the odds from Betfair’s gambling exchange are any indication of sentiment. The probability of a majority vote for leaving the EU has jumped to 36%, from 18.5% at the end of July, based on the odds given to bettors on the outcome of the referendum. While bettors are following the momentum of the polls, it would require a huge swing for so-called Brexit to become the favorite outcome. “A vote in favor of staying in the EU is still the firm favorite at 1.56 (4/7 or a 64% chance), in much the same way as the Scottish Referendum market was predicting a No to independence from very early on,” Betfair spokeswoman Naomi Totten said. “The price for a vote in favor of leaving the EU is the shortest it has been since June, currently trading at 2.76 (7/4 or a 36% chance), but in the context of the market it is still very much assumed that Britain will vote to remain within the EU.”

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The West cannot win this.

Putin Tests English Debt Law as Ukraine Feud Heads to London Court (Bloomberg)

Russia and Ukraine are about to test the boundaries of sovereign-debt litigation in a dispute that could have far-reaching implications for government bailouts the world over. The neighbors are vowing to fight each other in a London court over a $3 billion bond Vladimir Putin bought to reward his Ukrainian ally, Viktor Yanukovych, for rejecting closer trade ties with the European Union two years ago. That move fueled the protests in Kiev that led to Yanukovych’s ouster, Putin’s annexation of Crimea and an insurgency that’s killed 8,000 people. Ukraine’s government, on life support from the IMF, says Russia has until Oct. 29 to agree to the same writedown and extension that Franklin Templeton, which manages the largest U.S. overseas bond fund, and most other creditors accepted this month.

Russia’s Finance Ministry says it won’t negotiate and is shopping for a law firm to file suit as soon as Ukraine makes good on its threat to default when the bond comes due Dec. 20. “This issue will go to court, there’s no other way around it,” said Christopher Granville, a former U.K. diplomat in Moscow who runs Trusted Sources research group in London. “There’s no way Russia will remain under financial sanctions from the U.S. government and accept the same terms as Franklin Templeton.” The bond is unusual for a state-to-state loan. It was drafted as a commercial instrument under English law, meaning any dispute will be settled by a judge in the U.K. It also contains a clause designed to prevent Ukraine from offsetting its debt due to damages inflicted by Russia, such as the annexation of Crimea, which President Petro Poroshenko plans to seek compensation for.

Ukraine’s government, which accuses Yanukovych and his allies of stealing tens of billions of dollars before fleeing to Russia, says the bond should be considered commercial and treated the same as debt held by private investors. “This $3 billion was in reality a bribe from Russia, so that President Viktor Yanukovych would stop the association agreement with the EU,” Prime Minister Arseniy Yatsenyuk told German newspaper Handelsblatt this week. Russia maintains the loan is official, a designation that would, if Ukraine doesn’t pay, force the IMF to either end its $17.5 billion bailout or alter its policy of not lending to any country that’s in arrears to another. The crisis lender has said it will only decide on the classification if Ukraine defaults.

Either way, the showdown is shaping up to be one of the most unique cases in memory, one followed closely by governments and scholars around the world, including Mitu Gulati, a law professor at Duke University who specializes in sovereign debt. “This kind of court case has never really happened before,” Gulati said. “To see the argument play out as to what Russia owes Ukraine because of its involvement in Crimea, to have that be in court in London would be fabulous.”

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“.. the European Commission proposed the draft law in April in a bid to give opponents of GMOs fewer grounds to hold up EU approvals urged by supporters of the technology.”

European Parliament Opposes National Bans on GMO-Food Imports (Bloomberg)

The European Parliament rejected a draft law that would give individual countries in Europe scope to ban imports of genetically modified food and animal feed, potentially killing an initiative that was greeted with widespread criticism. The EU assembly voted against granting EU governments a right to opt out of rules making the 28-nation bloc a single market for gene-altered food and feed. With Europe split over the safety of gene-modified organisms, the European Commission, the EU’s regulatory arm, proposed the draft law in April in a bid to give opponents of GMOs fewer grounds to hold up EU approvals urged by supporters of the technology.

The commission proposal was modeled on European legislation approved three months earlier – following more than four years of deliberations – that lets national governments go their own way on the cultivation of gene-modified crops. The EU Parliament’s rejection on Wednesday in Strasbourg, France, of the food and feed measure reflects concerns it would have been a step too far in denting a free-trade tenet of the bloc. “Member states should shoulder their responsibilities and take a decision together at EU level, instead of introducing national bans,” said Giovanni La Via, an Italian who chairs the 751-seat assembly’s environment committee, which earlier this month recommended throwing out the draft legislation on GMO food and feed. The commission said it would pursue talks on the proposal with EU governments, which also have a say on the matter.

The moment it was unveiled six months ago, the commission proposal drew rebukes from anti- and pro-GMO groups as well as from the U.S. government. Environmental organization Greenpeace called the initiative “a farce,” saying the opt-out option wouldn’t stand up in court against EU free-market rules. The European Association for Bioindustries, whose members include GMO manufacturers, said the proposal would limit choice for livestock farmers, weaken the EU economy and rattle innovative companies’ confidence in the bloc’s approval procedures. The U.S. government said the draft legislation would enable EU nations to ignore “science-based safety and environmental determinations,” would fragment the European market and was inconsistent with current trans-Atlantic talks on a free-trade agreement.

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Not bad.

Germany To Oblige Banks To Offer Accounts To Refugees (Reuters)

Germany’s cabinet signed off on a draft law on Wednesday which will make it easier for hundreds of thousands of asylum seekers in the country to set up bank accounts. Under the new rules, everyone will have the right to access basic banking services, including the homeless and people who fall under the protection of the Geneva Convention on Refugees. This means that migrants will be able to open accounts at any bank, enabling them to deposit and withdraw cash, carry out bank transfers, set up direct debits and make payments with cards. Germany expects between 800,000 to one million people, many fleeing war zones in the Middle East and Africa, to arrive this year, although not all of them will be given asylum.

Giving refugees access to current accounts is seen as a vital first step to help them integrate them into society. “Those who don’t have a bank account, don’t have good prospects on the labour market. Hunting for a flat is also a problem for many people without an account,” said Justice Minister Heiko Maas. In Germany, the number of people without a bank account is in the high six figures, according to estimates by the European Commission, and that figure is expected to rise due to the influx of refugees. Until now, only a few saving banks, which are publicly owned or controlled, have accepted refugees as customers. Asylum seekers were often turned away by other banks since they had no fixed address or lacked the necessary documents.

Under the draft law, which must be approved by parliament to go into effect, all banks that offer current accounts would be obliged to do so for a wider group of consumers. Last month, Germany’s financial watchdog Bafin said it was going to allow banks to accept a broader spectrum of documents, such as papers provided by Germany’s immigration authorities. The draft law also obliges banks to become more transparent about their charges and make it easier for customers to change bank accounts.

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Brought to you by Brussels.

Inside Europe’s Migrant-Smuggling Rings (WSJ)

The entry of established crime syndicates operating between the Middle East and Europe has brought a new level of organization and brutality to the people-smuggling game. In Sofia, many taxis from Lion’s Bridge drive northwest to Vidin, Bulgaria’s smuggling capital, where gangs move up to 500 migrants nightly across the Timok river into Serbia, Bulgarian officials say. On the town outskirts, smugglers store transiting refugees in pig farms and disused airport hangars. The money at stake has sparked a turf war between rival gangs. One public official seeking to crack down was attacked with a Molotov cocktail. Five hundred miles west, Bulgarian crime gangs have played a central role as industrial-scale migrant-smuggling expands into the heart of Europe.

In the case of 71 migrants found asphyxiated in a van in Austria in August, five of six men arrested, including the truck’s owner, are Bulgarian, Austrian police say, adding that five were arrested in Hungary and one in Bulgaria. The Hungarian prosecutor says it won’t release additional information until the men are charged and that the men aren’t reachable for interviews. Bulgaria’s prosecutor’s office says it has initiated criminal proceedings, declining to provide more information. “Our main focus now is the Balkans,” says Col. Gerald Tatzgern, Austria’s vice squad chief, who estimates the illicit transport generates more money in Europe than drug-running or weapons-trafficking. The mushrooming smuggling trade, he says, “has forced us to rethink everything we knew about the industry.”

Smugglers are positioned for another windfall: Hungary’s border-wall construction and increased checks on Austria and Germany’s normally open borders have the unintended effect of handing business to groups that skirt migrants across frontiers, says Wil van Gemert, Europol’s deputy director of operations. Closing borders “opens up new opportunities for criminals to benefit from smuggling,” he says. Smuggling “is becoming a big business in Balkan countries as they are sitting on the main migrant routes.”

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“..turning into a constant operation of locating and collecting drowned refugees..”

Three Migrants Drown Off Lesvos, Coastguard Rescues 242 As Boat Sinks (Reuters)

The Greek coastguard rescued 242 migrants when their wooden boat sank north of the island of Lesbos on Wednesday, but at least three drowned, including two small boys, authorities said. “We do not have a picture of how many people may be missing yet,” a coastguard spokeswoman said. A man and the two boys were found drowned and an extensive search was under way in the area after what was thought to be the largest maritime disaster off Greece in terms of numbers involved since a massive refugee influx began this year. More than 500,000 refugees and migrants have entered Greece through its outlying islands since January, transiting on to central and northern Europe in what has become the biggest humanitarian crisis on the continent in decades.

Inflows have increased recently as refugees are trying to beat the onset of winter, crossing the narrow sea passages between Turkey and Greece on overcrowded small boats. “These praiseworthy attempts of the coastguard to save refugees at sea is at risk of now turning into a constant operation of locating and collecting drowned refugees,” Greek shipping minister Thodoris Dritsas said.

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11 confirmed drowned today so far, 39 missing, little hope of survivors

At Least Five Refugees, Including Four Children, Drown In Aegean (AP)

Greek authorities say at least five people, including four children, have drowned as thousands of refugees and economic migrants continued to head to the Aegean Sea islands in frail boats from Turkey, in worsening weather. The coast guard said Wednesday that two children and a man died off the coast of Samos, while 51 people from the same small boat were rescued. A 5-year-old girl also drowned in a separate incident off Samos. A 7-year-old boy died off Lesbos, where most migrants land, while a 12-month-old girl was in critical condition in hospital from the same boat accident.

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The ultimate disgrace that is the EU. Someone should send an army to start saving these people.

Dozens Of Refugees Missing After Boat Sinks Off Lesvos (AP)

Authorities on the Greek island of Lesvos say 38 people are believed still missing after a wooden boat carrying migrants sank. Three people are known to have died. At first light Thursday, a helicopter from the European border protection agency Frontex joined the search by Greek coast guard vessels off the northern coast of the island, hours after the dramatic rescue of 242 people. At least 11 people – mostly children – died in five separate incidents in the eastern Aegean Sea on Wednesday, as thousands of people continued to head to the Greek islands from Turkey in frail boats and stormy weather.

Lesvos has borne the brunt of the refugee crisis in Greece, with more than 300,000 reaching the island this year – and the number of daily arrivals recently peaking at 7,500. In a dramatic scene late Wednesday, dozens of paramedics and volunteers helped in the effort to assist the survivors, wrapping them in foil blankets and prioritizing ambulance transport. Eighteen children were hospitalized, three in serious condition, local authorities said.

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Aug 262015
 
 August 26, 2015  Posted by at 9:23 am Finance Tagged with: , , , , , , ,  


Russell Lee Hollywood, California. Used car lot. 1942

Look, it’s very clear where I stand on China; I’ve written a lot about it. And not just recently. Nicole Foss, who fully shares my views on the topic, reminded me the other day of a piece I wrote in July 2012, named Meet China’s New Leader : Pon Zi. China has been a giant lying debt bubble for years. Much if not most of its growth ‘miracle’ was nothing but a huge credit expansion, with an outsize role for the shadow banking system.

A lot of this has remained underreported in western media, probably because its reporters were afraid, for one reason or another, to shatter the global illusion that the western financial fiasco could be saved from utter mayhem by a country producing largely trinkets. Even today I read a Bloomberg article that claims China’s Q1 GDP growth was 7%. You’re not helping, boys, other than to keep a dream alive that has long been exposed as false.

China’s stock markets have a long way to fall further yet. This little graph from the FT shows why. The Shanghai Composite closed down another 1.27% today at 2,927.29 points. If it ‘only’ returns to its -early- 2014 levels, it has another 30% or so to go to the downside. If inflation correction is applied, it may fall to 1,000 points, for a 60% or so ‘correction’. If we move back 10 or 20 years, well, you get the picture.

That is a bursting bubble. Not terribly unique or mind-blowing, bubbles always burst. However, in this instance, the entire world will be swept out to sea with it. More money-printing, even if Beijing would attempt it, no longer does any good, because the Politburo and central bank aura’s of infallibility and omnipotence have been pierced and debunked. Yesterday’s cuts in interest rates and reserve requirement ratios (RRR) are equally useless, if not worse, if only because while they may provide a short term additional illusion, they also spell loud and clear that the leadership admits its previous measures have been failures. Emperor perhaps, but no clothes.

Every additional measure after this, and there will be many, will take off more of the power veneer Xi and Li have been ‘decorated’ with. Zero Hedge last night quoted SocGen on the precisely this topic: how Beijing painted itself into a corner on the RRR issue, while simultaneously spending fortunes in foreign reserves.

The Most Surprising Thing About China’s RRR Cut

[..] how does one reconcile China’s reported detachment from manipulating the stock market having failed to prop it up with the interest rate cut announcement this morning. The missing piece to the puzzle came from a report by SocGen’s Wai Yao, who first summarized the total liquidity addition impact from today’s rate hike as follows “the total amount of liquidity injected will be close to CNY700bn, or $106bn based on today’s onshore exchange rate.” And then she explained just why the PBOC was desperate to unlock this amount of liquidity: it had nothing to do with either the stock market, nor the economy, and everything to do with the PBOC’s decision from two weeks ago to devalue the Yuan. To wit:

In perspective, the PBoC may have sold more official FX reserves than this amount since the currency regime change on 11 August.

Said otherwise, SocGen is suggesting that China has sold $106 billion in Treasurys in the past 2 weeks! And there is the punchline. It explains why the PBOC did not cut rates over the weekend as everyone expected, which resulted in a combined 16% market rout on Monday and Tuesday – after all, the PBOC understands very well what the trade off to waiting was, and it still delayed until today by which point the carnage in local stocks was too much. Great enough in fact for China to not have eased if stabilizing the market was not a key consideration.

In other words, today’s RRR cut has little to do with net easing considerations, with the market, or the economy, and everything to do with a China which is suddenly dumping a record amount of reserves as it scrambles to stabilize the Yuan, only this time in the open market!

The battle to stabilise the currency has had a significant tightening effect on domestic liquidity conditions. If the PBoC wants to stabilise currency expectations for good, there are only two ways to achieve this: complete FX flexibility or zero FX flexibility. At present, the latter is also increasingly unviable, since the capital account is much more open. Therefore, the PBoC has merely to keep selling FX reserves until it lets go.

And since it can’t let go now that it has started off on this path, or rather it can but only if it pulls a Swiss National Bank and admit FX intervention defeat, the one place where the PBOC can find the required funding to continue the FX war is via such moves as RRR cuts.

Ambrose Evans-Pritchard, too, touches on the subject of China’s free-falling foreign reserves.

China Cuts Rates To Stem Crisis, But Doubts Grow On Foreign Reserve Buffer

The great unknown is exactly how much money has been leaving the country since the PBOC stunned markets by ditching its dollar exchange peg on August 11, and in doing so set off a global crash. Some reports suggest that the PBOC has already burned through $200bn in reserves since then. If so, this would require a much bigger cut in the RRR just to maintain a neutral setting. Wei Yao said the strategy of the Chinese authorities is unworkable in the long run.

If they keep trying to defend the exchange rate, they will continue to bleed reserves and will have to keep cutting the RRR in lockstep just to prevent further tightening. They may let the currency go, but that too is potentially dangerous. She said China can use up another $900bn before hitting safe limits under the IMF’s standard metric for developing states.

“The PBOC’s war chest is sizeable, but not unlimited. It is not a good idea to keep at this battle of currency stabilisation for too long,” she said. Citigroup has also warned that China’s reserves – still the world’s largest at $3.65 trillion but falling fast – are not as overwhelming as they appear, given the levels of short-term external debt. The border line would be $2.6 trillion. “There are reasons to question the robustness of China’s reserves adequacy. By emerging market standards China’s reserves adequacy is low: only South Africa, Czech Republic and Turkey have lower scores in the group of countries we examined,” it said.

It is a dangerous game they play, that much should be clear. And you know what China bought those foreign reserves with in the first place? With freshly printed monopoly money. Which is the same source from which the Vinny the Kneecapper shadow loans originated that every second grandma signed up to in order to purchase ghost apartments and shares of unproductive companies.

And that leads to another issue I’ve touched upon countless times: I can’t see how China can NOT descend into severe civil unrest. The government at present attempts to hide its impotence and failures behind the arrest of all sorts of scapegoats, but Xi and Li themselves should, and probably will, be accused at some point. They’ve gambled away a lot of what made their country function, albeit not at American or European wealth levels.

If the Communist Party had opted for what is sometimes labeled ‘organic’ growth (I’m not a big afficionado of the term), instead of ‘miracle’ Ponzi ‘growth’, if they had not to such a huge extent relied on Vinny the Kneecapper to provide the credit that made everything ‘grow’ so miraculously, their country would not be in such a bind. It would not have to deleverage at the same blinding speed it ostensibly grew at since 2008 (at the latest).

There are still voices talking about the ‘logical’ aim of Beijing to switch its economy from one that is export driven to one in which the Chinese consumer herself is the engine of growth. Well, that dream, too, has now been found out to be made of shards of shattered glass. The idea of a change towards a domestic consumption-driven economy is being revealed as a woeful disaster.

And that has always been predictable; you can’t magically turn into a consumer-based economy by blowing bubbles first in property and then in stocks, and hope people’s profits in both will make them spend. Because the whole endeavor was based from the get-go on huge increases in debt, the just as predictable outcome is, and will be even much more, that people count their losses and spend much less in the local economy. While those with remaining spending power purchase property in the US, Britain, Australia. And go live there too, where they feel safe(r).

I fear for the Chinese citizen. Not so much for Xi and Li. They will get what they deserve.

May 202014
 
 May 20, 2014  Posted by at 7:26 pm Finance Tagged with: , ,  


Maurice Terrell Sinatra in gambling scene from “Guys and Dolls” July 1955

If global financial markets cannot set interest rates, they are distorted and dysfunctional by definition. Of course one may argue that they have long been distorted regardless, and there’s plenty merit to that, but without being able to determine interest rates, it is impossible for markets to become functional again, other than through a collapse so severe nobody wants to be seen dead with any paper ‘assets’ anymore. That is the inevitable fork in the road: either you allow interest rates to be – freely – set by markets, or you run head first into a market crash. There are other requirements too, like getting rid of bad debt, restructuring, allowing defaults and throwing out bankrupt zombifies market participants, but none of that will do much good as long as central banks and governments can claim the right of granting themselves the authority to set rates at their whim.

That this practice of rate setting by ‘the leaderboard’, which has gained such huge popularity all over the globe in the last 20 years that you can’t help wonder how stupid the leadership of earlier times must have been for not having done the same thing for centuries (they wouldn’t have had any troubles with debts, or gold standards …) . Maybe it has something to do with recognizing that manipulating interest rates doesn’t just do nothing to right any wrongs, it serves as a major tool to preserve the wrongs, and let them suck the lifeblood out of the real economy, in order for malignant tumors and vampirized undead to live to see another day. Interest rates in a functioning market, like stock prices and even derivatives contracts, show you where the weaknesses are in an economy, in the same way that predators target the sick and crippled and keep the herd healthy.

That rates manipulation by ‘the authorities’ would somehow be a positive thing for either markets or the larger economy, the reason central bankers claim is behind their policies, is humbug propagated by those who profit from the distortion. That is to say, politicians who threw their voters into the quicksand in an almost literally all-consuming quest for power, and finance professionals who all happened to be either downright bankrupt, on their way there, all-consumingly greedy, or any combination thereof. With the Fed funds rate hovering around the freezing point, major players can borrow for free and invest in anything bolted down or not. Which makes this announcement at Reuters today ironic to say the least:

EU Charges HSBC, JPMorgan, Crédit Agricole With Rate Rigging

European Union antitrust regulators charged Europe’s biggest bank HSBC, U.S. peer JPMorgan and France’s Credit Agricole on Tuesday with rigging financial benchmarks linked to the euro, exposing them to potential fines. The European Commission also said it would charge broker ICAP soon for suspected manipulation of the yen Libor financial benchmark. U.S. and European regulators have so far handed down some $6 billion in fines to 10 banks and brokerages for rigging the London interbank offered rate (Libor) and its euro cousin Euribor while prosecutors have also charged 16 men with fraud-related offences. “The Commission has concerns that the three banks may have taken part in a collusive scheme which aimed at distorting the normal course of pricing components for euro interest rate derivatives,” the EU competition authority said.

No, they never get enough. No matter how much rates are manipulated in their service, they still see a profit in manipulating then some more. And why not? Punishments for crimes in the financial world are exceedingly rare, and what there is is directed at banks, not bankers or traders. That, too, is part of the protect-the-zombies system that has been developed around us, at our peril. That zero interest rate policies (ZIRP) are bad for fixed income has long been recognized, but that it also pushes pension fund managers into ever lower quality assets which carry ever more risk is much easier overlooked. And that’s just the top of the iceberg when it comes to the perverting consequences of what is still to this day – hard as it should be to believe – advertized as beneficial for society.

If I go through my daily links today, and I didn’t really select them for the purpose, some of these consequences crystallize. First, Phoenix Capital via Tyler Durden:

The $12 (or $192) Trillion Fed Funds Rate Ticking Time Bomb (Phoenix)

Time and again, we’ve been told that the Great Crisis of 2008 has ended and that we’re in a recovery. Indeed, earlier this year, we were even told by Fed Chair Janet Yellen that the Fed may in fact raise interest rates as early as next year. If this is in fact true, how does one explain the following statement made by the Fed’s favorite Wall Street Journal reporter, Jon Hilsenrath?

One worry: As they move toward a new system, trading in the fed funds market could dry up and make the fed funds rate unstable. That could unsettle $12 trillion worth of derivatives contracts called interest rate swaps that are linked to the fed funds rate, posing problems for people and institutions using these instruments to hedge or trade.

So… the Fed may not be able to raise interest rates because Wall Street has $12 trillion in derivatives that could be affected? Weren’t derivatives the very items that caused the 2008 Crisis? And wasn’t the problem with derivatives that they were totally unregulated and out of control? And yet, here we find, that in point of fact, all of us must continue to earn next to nothing on our savings because if the Fed were to raise rates, it might blow up Wall Street again… Simply incredible and outrageous. What’s even more astounding is that Hilsenrath is in fact understating the issue here. It’s true that there are $12 trillion worth of derivatives contracts related to the fed funds rate… but total interest rate derivatives contracts are in fact closer to $192 TRILLION. And that’s just the derivatives sitting on US commercial bank balance sheets.

That leaves little to the imagination, I would say. The Too Big To Fail banks have contracts – bets – out on Fed interest rate policies that would sink them if Yellen would move an inch left or right without telling them first. And even of she did, the Treasury would be obliged to bail them out. That alone should be sufficient to make people say ‘hold it right there’. But nobody does. the next one is from Alhambra:

How Fed/ECB Interest Rate Repression Gifts Too Big To Fail Banks

Deutsche Bank over the weekend announced a significant dilution to existing shareholders, raising some €8 billion in equity capital in two distinct transactions. About 60 million shares are being sold in a single transaction to a new “anchor” investor, Paramount Holding Services, the investment fund of the (a?) Qatari Shiek. The second transaction is a fully underwritten offering, meaning DB has already obtained the commitment of investment banks to acquire any shares not sold into the “market.” [..] The most evident question to arise from this surprise announcement is “why now?” [..] … suspicions running toward balance sheet health can be understood. In that framing, DB’s capital might look dangerous, particularly with its primary position as the largest derivatives trader in the world. As we know from bank earnings across the industry, fixed income has been an extreme sore spot and one of rising concern (derivative trading falls in here).

Large corporations, especially banks, use artificially ultra-low interest rates to shore up their financial positions. Apple had a huge share issue recently, and Apple is fine but they do it too, simply because it’s so obvious. But it’s taking a seriously scary direction now. Because in a global economy that can only approach recovery in journalists’ and politicians’ fantasies, “There’s more capital out there than we can consume, a huge wall of money”, as Bloomberg Shell’s CEO saying:

Long-Bond Frenzy Gains Strength as Sales Surge

The cheapest long-term borrowing costs on record are enticing companies into the bond market and allowing them to lock in rates for up to 100 years. “My treasurer tells me always borrow when you can, not when you have to,” said Simon Henry, CEO at Royal Dutch Shell. Global borrowers from Shell in The Hague to Peoria, Illinois-based Caterpillar raised a record $368 billion this year from bonds maturing in 10 years or more, according to data compiled by Bloomberg. The average yield companies pay to raise long-dated debt worldwide fell 61 basis points this year to 4.4%, approaching the low of 4.1% reached in 2013 … [..]

“There are huge liquid pools at whatever tenor we need,” Shell’s Henry said [..]“There’s more capital out there than we can consume, a huge wall of money, a lot of it coming from emerging market sovereign wealth funds and pension funds that’s looking for a home.” Europe’s biggest oil company, which has $11.9 billion of cash on its balance sheet, priced 1 billion euros (1.37 billion) of 12-year notes to yield 2.5% in March, following a 30-year deal in August when it paid 4.59% to sell $1.25 billion of securities …

Caterpillar sold its first 50-year notes this month, when it paid 4.8% to raise $500 million. Toymaker Hasbro sold 30-year notes paying a 5.1% coupon, down from 6.35% when the company issued debt with the same maturity in 2010. [..] In the U.S., companies pay 4.7% on average to sell bonds of 10 years and more, approaching the all-time low 4.3% reached in November 2012. Average yields are at a record-low of 2.8% in Europe, down from a peak of 7.3% in 2008. The likelihood of borrowing costs climbing in Europe is diminishing, with policy makers considering monetary easing next month to spur slow growth in the 18-nation euro area where inflation is at less than half their goal.

If it would only be ZIRP, perhaps the damage could be contained, even if those tasked with the containing go the exact opposite direction. But there’s also the insane amount of worldwide QE programs. And it’s looking for yield. Obviously, sovereign bonds are an afterthought, though there’s so much QE sloshing around that there’s no problem getting the big players to buy them too just to please the QE providers. Still, if Shell can issue 30-year debt at 4.5%, you just know things are way out of whack, because Shell is already in big trouble with its oil and gas reserves today – they’re fast diminishing – and where the company will be by 2044 is anyone’s very very wild guess.

There’s far too much credit/money/cash running through the plumbing, and the pipes are about to burst. Where will the cracks show? How about this David Stockman take on China:

Thunderous Hard Landing Inevitable For China’s Ponzi Economy

What the People’s Printing Press of China has been doing is simply passing the hot potato by converting the vast inflow of dollars, euros and yen emitted by DM central banks into a fantastic flood of RMB. This massive expansion of the domestic monetary system, in turn, enabled the greatest credit bubble in world history. [..] China’s total credit market debt outstanding did not explode from $1 trillion to $25 trillion in just the last 14 years because the sons and daughters of rice farmers working in export factories went on a savings binge, thereby enabling a healthy expansion of debt-financed investment.

To the contrary, the central banks of the world went on a money printing binge and the comrades in Beijing took the bait. Namely, they chronically and massively scooped up excess foreign exchange from trade and capital inflows and stuffed it into the vaults at the central bank. This was supposed to keep the exchange rate battened down and the growth and export miracle ramping. [..] … the aging autocrats who ran the system, and who had learned their economics from Mao’s Little Red Book, were actually swapping the labor of their young people and resources of their land for debt emissions of the profligate West.

And in the process they were steadily inflating a fantastic credit bubble that financed the construction of anything that could be imagined by local party cadres and “businessmen” alike – airports, bridges, highways, high-rises, office towers, train stations, fast rail, shopping malls, new cities, endless factories. [..] … the party overlords got lured into a dangerous economic Ponzi. They sent more and more freshly minted credit – 20-35% more in some years – down the state controlled banking system where it was parceled out to state controlled enterprises, local party rulers and independent entrepreneurs.

And that, grasshoppers, is where, how and why Yellen and Draghi will lose their control, and their ability to shove the rates their paymasters desire down the throats of the entire planet. Too low interest rates will be, must of necessity be, utterly destroyed by too low rates of return on capital. Even if that capital is borrowed at too low interest rates.

Our leadership refuses to let free market systems do their thing, because doing so would mean curtains for the Wall Street bigwigs that got them their jobs. But the bigwigs lost behemothically big at the crap table. So what they came up with is screw fixed income, and screw the next generation of Americans and Europeans, let’s spend their money today and squeeze what wealth is left through interest rate manipulation. Which worked for years because China bought a lot of the debt that was the result, but which will also fail because China bought so much of it. China is getting hammered by the western debt in the PBOC’s vaults. It was fine to purchase it when the economy was growing at a double digit clip, but that’s long gone and will never be back.

And now the blow back is on. Which will lead to things like this:

2.3 Million UK Householders To Become ‘Mortgage Prisoners’ (Independent)

About 2.3 million householders could become “mortgage prisoners” who struggle to afford their repayments when interest rates rise, according to a report published today. [..] … the proportion of people struggling to pay their mortgage fell only slightly during this period and still stands at 1.1 million today, the foundation said. That figure could more than double to 2.3 million households – almost one in four of the 8.4 million with mortgages – by 2018 if interest rates rise to 3% as financial markets expect. The report said the total number at risk of becoming “mortgage prisoners” could be as high as 3.5 million …

If rates rise to just 3%, millions of people in the UK won’t be able to service their debts. How clear must the message become? Low interest rates can seem lovely, and there’s more than enough media propaganda to drag people even deeper into the swamp, buying homes with huge mortgages and all that. But even if you have a fixed rate locked in, you’ll still get a margin call when property prices plunge. Which they will do when rising interest rates make purchasing less attractive if not entirely impossible for you.

Forcibly and artificially low interest rates are not there for your benefit, so using them to get what you want, whether it’s a home, a car, or anything else, is a very dangerous thing to do. If only because those who have the power to lower rates have that power only for a limited period of time.

Free and properly restructured markets, having gone through needed defaults to clean the herd of disease, markets cleared of zombies, are the only thing that’s actually good for you. Unless you have a big mortgage. Well, that’s just too bad, you should have paid attention. What’s been going on for the past 20 years is packing an ever larger weight onto the backs of your children, a weight so forbidding they’ll never be able to walk upright.

Hey guys, you’re the ones letting it happen, no use blaming anyone else. Until and unless you say ‘hold it right there’, this is not going to stop, it’s just going to get worse. And when rates start rising, and they will, because there is no other way for them to go, there is no other option, you will be the ones paying the bill. But at the same time, rising interest rates are the very, and only, thing that can cleanse our economies.

The $12 (or $192) Trillion Fed Funds Rate Ticking Time Bomb (Phoenix)

Time and again, we’ve been told that the Great Crisis of 2008 has ended and that we’re in a recovery. Indeed, earlier this year, we were even told by Fed Chair Janet Yellen that the Fed may in fact raise interest rates as early as next year. If this is in fact true, how does one explain the following statement made by the Fed’s favorite Wall Street Journal reporter, Jon Hilsenrath?

One worry: As they move toward a new system, trading in the fed funds market could dry up and make the fed funds rate unstable. That could unsettle $12 trillion worth of derivatives contracts called interest rate swaps that are linked to the fed funds rate, posing problems for people and institutions using these instruments to hedge or trade.

So… the Fed may not be able to raise interest rates because Wall Street has $12 trillion in derivatives that could be affected? Weren’t derivatives the very items that caused the 2008 Crisis? And wasn’t the problem with derivatives that they were totally unregulated and out of control? And yet, here we find, that in point of fact, all of us must continue to earn next to nothing on our savings because if the Fed were to raise rates, it might blow up Wall Street again… Simply incredible and outrageous. What’s even more astounding is that Hilsenrath is in fact understating the issue here. It’s true that there are $12 trillion worth of derivatives contracts related to the fed funds rate… but total interest rate derivatives contracts are in fact closer to $192 TRILLION.

And that’s just the derivatives sitting on US commercial bank balance sheets. We’re not even including international banks! So…the US economy is allegedly in recovery… the financial markets are fixed… and all is well in the world. But the Fed cannot risk raising interest rates to normal levels because Wall Street has over $12 trillion (more like over $100 trillion) in derivatives contracts that could blow up. That sure doesn’t sound like things were fixed to us. If anything, it sounds like the stage is set for another 2008 type disaster.

Read more …

How Fed/ECB Interest Rate Repression Gifts Too Big To Fail Banks (Alhambra)

Deutsche Bank over the weekend announced a significant dilution to existing shareholders, raising some €8 billion in equity capital in two distinct transactions. About 60 million shares are being sold in a single transaction to a new “anchor” investor, Paramount Holding Services, the investment fund of the (a?) Qatari Shiek. The second transaction is a fully underwritten offering, meaning DB has already obtained the commitment of investment banks to acquire any shares not sold into the “market.” At the completion of these transactions, DB is expecting its primary capital ratio (Tier 1 under Basel III) to rise from 9.5% to 11.8%. The bank itself is saying the capital injection is intended as an opportunity for advancement into several markets, while strengthening core capital ahead of schedule.

I think that is true to some degree, but there is clearly a more nuanced situation as it relates to at least one giant’s expectations for future finance. NOTE: none of the following is intended as an opinion on DB’s plans specifically, but rather a commentary and opinion about the state of overall finance and banking. The most evident question to arise from this surprise announcement is “why now?” Given the rather stark blow to the economic recovery narrative from last week, suspicions running toward balance sheet health can be understood. In that framing, DB’s capital might look dangerous, particularly with its primary position as the largest derivatives trader in the world. As we know from bank earnings across the industry, fixed income has been an extreme sore spot and one of rising concern (derivative trading falls in here).

Read more …

Even if they’re foreclosed on.

2.3 Million UK Householders To Become ‘Mortgage Prisoners’ (Independent)

About 2.3 million householders could become “mortgage prisoners” who struggle to afford their repayments when interest rates rise, according to a report published today. In the first detailed study of the likely impact of rate rises, the Resolution Foundation think tank predicted that 770,000 households – one in 10 of those with mortgages – will be most at risk. They will be unable to switch to better deals to protect themselves against rate rises or will find that their monthly repayments soak up at least one third of their disposable income by 2018. Although the Bank of England last week played down the prospect of an early increase in interest rates, City analysts expect them to start rising from April next year.

Some Conservatives are nervous about the political impact of a rise before next May’s general election. Mark Carney, the Bank’s Governor, who said at the weekend that it might intervene to stop the housing market overheating, added: “We don’t want to build up another big debt overhang that is going to hurt individuals and is very much going to slow the economy in the medium term.” The independent think tank raised the alarm about the most vulnerable 770,000 households already with mortgages, saying they were “doubly exposed”. Typically, they might have very low equity in their home (less than five per cent), might be self-employed or have an interest-only mortgage, making them less attractive to lenders. Secondly, it would take only a relatively modest rise in rates by 2018 for a third of their income to be eaten up by mortgage repayments.

Today’s report, “Mortgaged Future”, cast doubt on the so-called “golden age” for home-buyers while interest rates have remained at a record low 0.5% for five years. Although a household with a £75,000 tracker mortgage has saved £12,400 since 2008, many people have missed out. Wages rose by less than inflation and some householders failed to get the full reduction in rates because they were on fixed-rate deals or because their lender did not pass on all the benefit. So the proportion of people struggling to pay their mortgage fell only slightly during this period and still stands at 1.1 million today, the foundation said.

Read more …

Bubble? Nah ….. Fully organic.

Asking Prices For London Homes Rise $135,000 Since January (Guardian)

The average asking price of a property in London has risen by £80,000 since the start of 2014, as sellers try to cash in on continuing demand from buyers, according to the property website Rightmove. The listing site said asking prices in the capital hit an average of £592,763 in May, 3.3% up on April’s figure and 16.3% higher than in May 2013. Across England and Wales new sellers are asking 8.9% more than a year ago, at an average of £272,003. The annual rate is creeping closer to the 10.4% seen in October 2007 while a month-on-month rise of 3.6%, or £9,409, was the highest ever seen in May. The figures follow comments over the weekend by the Bank of England governor, Mark Carney, that the property market poses a risk to economic recovery. He warned of “deep, deep structural problems” in the UK market, and said the main problem was that not enough new homes were being built.

The strength of price rises in the capital has been driving fears of a bubble and calls for the Bank to step in to calm prices. Rightmove said demand and asking prices were now rising across England and Wales, but the increases in London were distorting the national picture. Asking prices in Greater London have risen by £4,405 a week in 2014, compared with £1,521 for the rest of the country. An increase in new sellers earlier in the year was reversed in May as the number of homes being newly put up for sale fell 1% compared with April. It was thought to be the result of the timing of bank holidays. Rightmove’s director, Miles Shipside, said:”London prices traditionally pick up earlier than the rest of the country, and while it appears to be slowly dragging other regions along in its wake, the difference is still very marked, particularly when the percentage increases are turned into hard cash comparisons.

Read more …

ECB Plans Negative Rate on Bank Deposits (Spiegel)

When it meets on June 6, SPIEGEL has learned, the European Central Bank may implement a negative interest rate for financial institutions seeking to park their money at the Frankfurt powerhouse. The move is aimed at spurring loans. European Central Bank executive board member Peter Praet of Germany is expected to recommend that the bank cut its main refinancing rate from the current 0.25 percent to a record low of 0.15 percent when the bank’s Governing Council meets on June 5. In addition, the bank also wants to introduce a negative rate on bank deposits of -0.1 for the first time in its history.

The ECB’s deposit rate is currently at zero, and a further cut would mean that banks would effectively have to pay a fee to park their money. Normally they would be paid interest to do so. Under the new punitive rate, if a bank were to deposit €100 million in a central bank account, the ECB would withhold €100,000. The measure is aimed at encouraging banks to lend money rather than park it at the ECB. It is hoped the move will prevent the kind of credit crunch and freeze in lending seen during the height of the euro crisis, when private and corporate loans all but dried up. Particularly within the crisis-plagued countries of the euro zone, consumers and companies are still having a difficult time obtaining loans.

The lower interest rate could also lead to a drop in the euro’s high exchange rate. However, sources told SPIEGEL that the Governing Council is not expected to discuss the purchase of further sovereign and corporate bonds. ECB President Mario Draghi is said to want to hold off on these measures in case the rate of price increases continues to fall in the euro zone. It is also reported that the Italian head of the ECB is also considering reducing the number of meetings of the Governing Council, in which monetary policy decisions are made, to just three of four times a year. The goal of the shift is to reduce the amount of speculation among investors and in the media in the run-up to the policy meetings.

Read more …

““There’s more capital out there than we can consume, a huge wall of money … ”

Long-Bond Frenzy Proves Financial System Broken, Rates Must Rise (Bloomberg)

The cheapest long-term borrowing costs on record are enticing companies into the bond market and allowing them to lock in rates for up to 100 years. “My treasurer tells me always borrow when you can, not when you have to,” said Simon Henry, chief financial officer at Royal Dutch Shell. Global borrowers from Shell in The Hague to Peoria, Illinois-based Caterpillar raised a record $368 billion this year from bonds maturing in 10 years or more, according to data compiled by Bloomberg. The average yield companies pay to raise long-dated debt worldwide fell 61 basis points this year to 4.4%, approaching the low of 4.1% reached in 2013, Bank of America Merrill Lynch data show. The benefit to companies of selling long-term debt is that it reduces their risk of rolling over borrowings anytime soon.

Treasurers are keen to beat increases in benchmark rates even as there are mixed signals as to when that will happen, with inflation remaining below central bank targets and many economies smaller than they were in 2007. From a lender’s perspective, insurers and pension funds want the higher coupons offered by longer-dated bonds and like the guaranteed income to meet their far-reaching commitments. The average maturity of global company notes has climbed to 8.5 years, compared with 8.1 years over the past decade, Bank of America Merrill Lynch data show. “There are huge liquid pools at whatever tenor we need,” Shell’s Henry said at The Economist’s Bellwether Europe conference in London on May 15. “There’s more capital out there than we can consume, a huge wall of money , a lot of it coming from emerging market sovereign wealth funds and pension funds that’s looking for a home.”

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Thunderous Hard Landing Inevitable For China’s Ponzi Economy (Stockman)

For two decades now mainstream Keynesian economists have been gumming about China’s remarkable economic boom and its accumulation of unprecedented foreign exchange reserves. The latter hoard has now actually crossed the $4 trillion mark. But this whole narrative is PhD jabberwocky with a Wall Street accent. What the People’s Printing Press of China has been doing is simply passing the hot potato by converting the vast inflow of dollars, euros and yen emitted by DM central banks into a fantastic flood of RMB. This massive expansion of the domestic monetary system, in turn, enabled the greatest credit bubble in world history.

Stated differently, China’s total credit market debt outstanding did not explode from $1 trillion to $25 trillion in just the last 14 years because the sons and daughters of rice farmers working in export factories went on a savings binge, thereby enabling a healthy expansion of debt-financed investment. To the contrary, the central banks of the world went on a money printing binge and the comrades in Beijing took the bait. Namely, they chronically and massively scooped up excess foreign exchange from trade and capital inflows and stuffed it into the vaults at the central bank. This was supposed to keep the exchange rate battened down and the growth and export miracle ramping.

In age old fashion this mercantilist gambit seemed to work for a while – indeed, a long while of nearly two decades. But all the time the aging autocrats who ran the system, and who had learned their economics from Mao’s Little Red Book, were actually swapping the labor of their young people and resources of their land for debt emissions of the profligate West. And in the process they were steadily inflating a fantastic credit bubble that financed the construction of anything that could be imagined by local party cadres and “businessmen” alike – airports, bridges, highways, high-rises, office towers, train stations, fast rail, shopping malls, new cities, endless factories. But the massive construction site within China’s borders defied the laws of economics and plain old rationality.

It is literally impossible for an economy to record double-digit GDP growth year-upon-year in which 50% of the gain is due to “fixed asset” investment in public infrastructure and private real estate and industrial capacity. The reason is that no society could sustain the level of consumption forbearance and mass austerity that would be required to fund such massive investment out of honest savings. Instead, the party overlords got lured into a dangerous economic Ponzi. They sent more and more freshly minted credit – 20-35% more in some years – down the state controlled banking system where it was parceled out to state controlled enterprises, local party rulers and independent entrepreneurs.

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Pot. Kettle. Off white.

China Meets US Cybersecurity Charges With Counter Claims (Bloomberg)

China suspended its involvement in a cybersecurity working group and threatened further retaliation after the U.S. indicted five Chinese military officials for allegedly stealing trade secrets. The indictment is a “serious violation of the basic norms of international relations and damaged China-U.S. cooperation and mutual trust,” Foreign Ministry spokesman Qin Gang said in a statement. Assistant Foreign Minister Zheng Zeguang summoned U.S. Ambassador Max Baucus yesterday to lodge a formal protest, the ministry said today. Qin’s sharply worded statement reflected how the charges, which accused China of a vast effort to mine U.S. technology through cyber-espionage, added new strains to a relationship already tested by past allegations of hacking. Former U.S. National Security Agency contractor Edward Snowden claimed last year that the U.S had been hacking into computers in China since 2009.

The cybersecurity working group was established last year when U.S. Secretary of State John Kerry visited Beijing and the two sides tried to patch up ties. China urged the U.S. to “revoke the so-called prosecution,” according to Qin’s statement. China will take countermeasures “if the United States goes its own way,” the Xinhua News agency said hours after the U.S. announced the indictment, citing a spokesperson for China’s State Internet Information Office. The spokesperson said the U.S. is the biggest attacker of China’s cyberspace and China is a “solid defender of cybersecurity,” according to Xinhua. It said that between March 19 and May 18, 1.18 million Chinese host computers were under the control of servers in the U.S. “China has repeatedly asked the U.S. to stop, but it never makes any statement on its wiretaps, nor does it desist, not to mention make an apology to the Chinese people,” Xinhua said, The spokesperson called the hacking charges “groundless,” according to Xinhua.

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Yeah, that they’re fine as long as they pay the fine.

Credit Suisse Plea Sends Warning to Banks Under Scrutiny (Bloomberg)

The Justice Department didn’t blink in its pursuit of a guilty plea from Credit Suisse for helping thousands of Americans evade taxes. What prosecutors accomplished with the criminal conviction – the first of a major bank in a decade – isn’t as clear. The punishment, announced yesterday in federal court, was intended to send a strong message to other banks and quell public criticism since the 2008 financial crisis that prosecutors have been soft on financial institutions. Credit Suisse agreed to pay $2.6 billion – the largest penalty in an offshore tax case – for using secret Swiss accounts to help Americans hide money from the Internal Revenue Service, concluding a three-year probe by the U.S.

If the penalty strikes the right balance between punishing the bank and containing broader market repercussions, prosecutors could use it as a model in other matters, such as a probe of BNP Paribas SA (BNP)’s transactions with sanctioned countries. “This case shows that no financial institution, no matter its size or global reach, is above the law,” Attorney General Eric Holder said at a press conference yesterday. “A company’s profitability or market share will never be used as a shield from prosecution or penalty. And this action should put that misguided notion definitively to rest.” Eight Credit Suisse employees have been indicted in the matter. Top executives including Chief Executive Officer Brady Dougan are expected to keep their jobs, even though Holder called the conduct “an extensive and wide-ranging conspiracy.”

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Punishment?

Credit Suisse Clients Remain Secret as Bank to Help US (Bloomberg)

Credit Suisse, which pleaded guilty yesterday to aiding Americans’ tax evasion, has so far avoided identifying thousands of customers who cheated the Internal Revenue Service. Instead, it promised to point investigators in the right direction. While the unit of Credit Suisse Group AG became the largest bank to plead guilty in 20 years, agreeing to $2.6 billion in penalties, its deal with the Justice Department put off the day of reckoning for the firm’s clients. They’re protected by Swiss bank-secrecy laws that make it a crime to disclose account data. In a deal overseen by Attorney General Eric Holder, Credit Suisse pledged to help the U.S. request those names through a tax treaty with Switzerland. It also will provide other information, outlining the size and number of accounts and indicating where money went.

That contrasts with UBS AG, the largest Swiss bank, which avoided prosecution in 2009 by paying $780 million and disclosing the names of 250 American clients. UBS later settled a U.S. lawsuit by revealing 4,450 more account holders. “It is a mystery to me why the U.S. government didn’t require as part of the agreement that the bank cough up some of the names of the U.S. clients with secret Swiss bank accounts,” said U.S. Senator Carl Levin, a Michigan Democrat. Levin is chairman of the Senate Permanent Subcommittee on Investigations, which issued a report and held a February hearing criticizing practices that Zurich-based Credit Suisse has now admitted, as well as the Justice Department’s failure to get more customer names. The panel found the U.S. used treaty requests to identify 238 Credit Suisse clients out of 22,000 accounts held by Americans.

The requests require Switzerland to analyze whether account holders engaged in tax fraud “and the like.” Deputy Attorney General James Cole defended U.S. efforts to identify account holders during a news conference yesterday, as he did at the Levin hearing in February. “Credit Suisse is going to provide us a lot of information — not the specific account names, but they’re going to help us in treaty requests that, under Swiss law, can get us the specific account names,” Cole said. “They’re providing us with a great deal of additional information that will allow us to determine where those accounts went, how many accounts they had, some of the size of the accounts,” he said. “We can go to other places to try and then locate those accounts.”

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Insane. Megalomania.

NSA Records Every Cell Phone Call in Bahamas, Unnamed Nation (Greenwald)

The National Security Agency is secretly intercepting, recording, and archiving the audio of virtually every cell phone conversation on the island nation of the Bahamas. According to documents provided by NSA whistleblower Edward Snowden, the surveillance is part of a top-secret system – code-named SOMALGET – that was implemented without the knowledge or consent of the Bahamian government. Instead, the agency appears to have used access legally obtained in cooperation with the U.S. Drug Enforcement Administration to open a backdoor to the country’s cellular telephone network, enabling it to covertly record and store the “full-take audio” of every mobile call made to, from and within the Bahamas – and to replay those calls for up to a month.

SOMALGET is part of a broader NSA program called MYSTIC, which The Intercept has learned is being used to secretly monitor the telecommunications systems of the Bahamas and several other countries, including Mexico, the Philippines, and Kenya. But while MYSTIC scrapes mobile networks for so-called “metadata” – information that reveals the time, source, and destination of calls – SOMALGET is a cutting-edge tool that enables the NSA to vacuum up and store the actual content of every conversation in an entire country. All told, the NSA is using MYSTIC to gather personal data on mobile calls placed in countries with a combined population of more than 250 million people. And according to classified documents, the agency is seeking funding to export the sweeping surveillance capability elsewhere.

The program raises profound questions about the nature and extent of American surveillance abroad. The U.S. intelligence community routinely justifies its massive spying efforts by citing the threats to national security posed by global terrorism and unpredictable rival nations like Russia and Iran. But the NSA documents indicate that SOMALGET has been deployed in the Bahamas to locate “international narcotics traffickers and special-interest alien smugglers” – traditional law-enforcement concerns, but a far cry from derailing terror plots or intercepting weapons of mass destruction.

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Let’s dee what happens.

WikiLeaks To Reveal NSA Info Greenwald Says Would Lead To “Deaths” (BI)

America’s National Security Agency (NSA) can “vacuum up and store the actual content of every conversation” in the Bahamas and an unnamed country, the new publication The Intercept reported Monday, based on documents leaked by whistleblower Edward Snowden. Intercept Editor Glenn Greenwald — who wrote about documents leaked by Snowden when he was a columnist for The Guardian — said the publication didn’t reveal the country because it was “very convinced” that doing so would lead to “deaths.”

After a heated discussion between WikiLeaks, Greenwald, Intercept Editor-In-Chief John Cook, and American WikiLeaks hacker-turned-Der Spiegal contributor Jacob Appelbaum, WikiLeaks tweeted that it will reveal the name of the second country being spied on by the NSA. That threat implies that WikiLeaks knows the other country — which would only be possible if the rogue publishing organization has access to the Snowden documents. There is no overt indication that it does. Consequently, there is no clear indication that WikiLeaks can back up the threat. The most plausible way for this to be possible is if Appelbaum, who led the reporting on several Der Spiegel articles based on NSA documents (which may or may not be from Snowden), shared information with his friend Julian Assange, the editor-in-chief of WikiLeaks. Applebaum tweeted that The Intercept’s redaction was “a mistake.”

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BP’s a goner, but not for this.

BP Loses Latest US Court Battle To Limit Deepwater Costs (FT)

BP has suffered a decisive setback in its court battle to limit the cost of its settlement for victims of the 2010 Deepwater Horizon disaster, leaving it with the option only of going to the U.S. Supreme Court as a last chance to avoid billions of dollars of additional liabilities. The Fifth Circuit appeals court in New Orleans on Monday rejected BP’s request for a full review of the company’s case, as it seeks to establish that the compensation settlement it agreed with plaintiffs’ lawyers in 2012 is being interpreted unfairly. The ruling means BP has now nearly run out of road in its attempt to stop the cost of the settlement soaring far above the $7.8 billion that it originally predicted. The company said in a statement it was “disappointed” by the decision and was considering its options.

In the ruling, eight of the 13 judges said they agreed with earlier panel decisions that had rejected most of BP’s arguments, and declined the company’s call for what is known as an “en banc” review by the entire court. However, in a strongly worded dissent backed by two other judges, Judge Edith Clement argued that previous court rulings would “funnel BP’s cash into the pockets of undeserving non-victims” of the 2010 spill in the Gulf of Mexico. She added that the appeals court had made itself “party to this fraud” by rejecting BP’s arguments. The company now has 90 days to decide whether it will try to persuade the Supreme Court to hear the case. BP argues that Patrick Juneau, the court-appointed administrator of claims under the settlement, has been misinterpreting it in ways that have allowed businesses that suffered no losses as a result of the spill to be awarded compensation.

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I’d Vote Yes To Rid Scotland Of Its Feudal Landowners (Monbiot)

Power’s ability to resist change: this is the story of our times. Morally bankrupt, discredited, widely loathed? No problem: whether it’s neoliberal economics, tax avoidance, coal burning, farm subsidies or the House of Lords, somehow the crooked system creeps along. Legally, feudalism in Scotland ended in 2004. In itself, this is an arresting fact. But almost nothing has changed. After 15 years of devolution the nation with the rich world’s greatest concentration of land ownership remains as inequitable as ever. The culture of deference that afflicts the British countryside is nowhere stronger than in the Highlands. Hardly anyone dares challenge the aristocrats, oligarchs, bankers and sheikhs who own so much of this nation, for fear of consequences real or imagined.

The Scottish government makes grand statements about land reform, then kisses the baronial boot. The huge estates remain untaxed and scarcely regulated. You begin to grasp the problem when you try to discover who owns them. Fifty per cent of the private land in Scotland is in the hands of 432 people – but who are they? Many large estates are registered in the names of made-up companies in the Caribbean. When the Scottish minister Fergus Ewing was challenged on this issue, he claimed that obliging landowners to register their estates in countries that aren’t tax havens would risk “a negative effect on investment”. William Wallace rides again.

Scotland’s deer-stalking estates and grouse moors, though they are not agricultural land, benefit from the outrageous advantages that farmers enjoy. They are exempt from capital gains tax, inheritance tax and business rates. Landowners seek to justify their grip on the UK by rebranding themselves as business owners. The Country Landowners’ Association has renamed itself the Country Land and Business Association. So why do they not pay business rates on their land? As Andy Wightman, author of The Poor Had No Lawyers, argues, these tax exemptions inflate the cost of land, making it impossible for communities to buy.

Though the estates pay next to nothing to the exchequer, and though they practise little that resembles farming, they receive millions in farm subsidies. The new basic payments system the Scottish government is introducing could worsen this injustice. Wightman calculates that the ruler of Dubai could receive £439,000 for the estate in Wester Ross he owns; the Duke of Westminster could find himself enriched by £764,000 a year; and the Duke of Roxburgh by £950,000.

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How could it not?

The Big Melt Accelerates (NY Times)

Centuries from now, a large swath of the West Antarctic ice sheet is likely to be gone, its hundreds of trillions of tons of ice melted, causing a four-foot rise in already swollen seas. Scientists reported last week that the scenario may be inevitable, with new research concluding that some giant glaciers had passed the point of no return, possibly setting off a chain reaction that could doom the rest of the ice sheet. For many, the research signaled that changes in the earth’s climate have already reached a tipping point, even if global warming halted immediately. “We as people see it as closing doors and limiting our future choices,” said Richard Alley, a professor of geosciences at Pennsylvania State University. “Most of us personally like to keep those choices open.”

But these glaciers are just the latest signs that the thawing of earth’s icy regions is accelerating. While some glaciers are holding steady or even growing slightly, most are shrinking, and scientists believe they will continue to melt until greenhouse gas emissions are reined in. “It’s possibly the best evidence of real global impact of warming,” said Theodore A. Scambos, lead scientist at the National Snow and Ice Data Center. Furthest along in melting are the smallest glaciers in the high mountainous regions of the Andes, the Alps and the Himalayas and in Alaska. By itself, their melting does not pose a grave threat; together they make up only 1 percent of the ice on the planet and would cause sea level to rise only by one to two feet.

But the mountain glaciers have been telling scientists what the West Antarctica glacier disintegration is now confirming: In the coming centuries, more land will be covered by water and more of nature will be disrupted. A full melt would cause sea level to rise 215 feet. During recent ice ages, glaciers expanded from the poles and covered nearly a third of the continents. And in the distant past there were episodes known as Snowball Earth, when the entire planet froze over. At the other extreme, a warm period near the end of the age of dinosaurs may have left the earth ice-free. Today the amount of ice is modest – 10 percent of land areas, nearly all of that in Greenland and Antarctica.

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Greenland Far Greater Contributor To Sea Rise Than Expected (UoC-Irvine)

Greenland’s icy reaches are far more vulnerable to warm ocean waters from climate change than had been thought, according to new research by UC Irvine and NASA glaciologists. The work, published today in Nature Geoscience, shows previously uncharted deep valleys stretching for dozens of miles under the Greenland Ice Sheet. The bedrock canyons sit well below sea level, meaning that as subtropical Atlantic waters hit the fronts of hundreds of glaciers, those edges will erode much further than had been assumed and release far greater amounts of water. Ice melt from the subcontinent has already accelerated as warmer marine currents have migrated north, but older models predicted that once higher ground was reached in a few years, the ocean-induced melting would halt.

Greenland’s frozen mass would stop shrinking, and its effect on higher sea waters would be curtailed. “That turns out to be incorrect. The glaciers of Greenland are likely to retreat faster and farther inland than anticipated – and for much longer – according to this very different topography we’ve discovered beneath the ice,” said lead author Mathieu Morlighem, a UCI associate project scientist. “This has major implications, because the glacier melt will contribute much more to rising seas around the globe.” To obtain the results, Morlighem developed a breakthrough method that for the first time offers a comprehensive view of Greenland’s entire periphery. It’s nearly impossible to accurately survey at ground level the subcontinent’s rugged, rocky subsurface, which descends as much as 3 miles beneath the thick ice cap.

Since the 1970s, limited ice thickness data has been collected via radar pinging of the boundary between the ice and the bedrock. Along the coastline, though, rough surface ice and pockets of water cluttered the radar sounding, so large swaths of the bed remained invisible. Measurements of Greenland’s topography have tripled since 2009, thanks to NASA Operation IceBridge flights. But Morlighem quickly realized that while that data provided a fuller picture than had the earlier radar readings, there were still major gaps between the flight lines.

To reveal the full subterranean landscape, he designed a novel “mass conservation algorithm” that combined the previous ice thickness measurements with information on the velocity and direction of its movement and estimates of snowfall and surface melt. The difference was spectacular. What appeared to be shallow glaciers at the very edges of Greenland are actually long, deep fingers stretching more than 100 kilometers (almost 65 miles) inland. “We anticipate that these results will have a profound and transforming impact on computer models of ice sheet evolution in Greenland in a warming climate,” the researchers conclude.

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Ice goes, land rises.

Why Antarctica Is Rising Fast (LiveScience)

Antarctica is rising unusually quickly, revealing that hot rock in the Earth’s mantle hundreds of miles below the icy continent is flowing much faster than expected, researchers say. Antarctic ice is more than 2.6 miles (4.2 kilometers) thick on some parts of the continent, a reminder that glaciers that were miles thick once covered many parts of Earth’s surface. When these ice sheets shrink, as is happening now in the world’s polar regions due to climate change, the underlying Earth rebounds upward, like how mattresses typically decompress after people get off them. Past research suggested this rebound involved very slow uplift of the Earth’s surface over thousands of years.

However, an international research team now reveals that at GPS stations on the Northern Antarctic Peninsula, the land is actually surging upward at the rate of up to 0.59 inches (15 millimeters) a year. Furthermore, “closer to the site of the ice loss — that is, right next to the thinning glaciers where we do not have any GPS sites — the Earth is likely to be rebounding significantly more than 15 millimeters [0.59 inches] per year,” lead study author Grace Nield, a geophysicist at Newcastle University in England, told Live Science.” As much as 47 millimeters [1.85 inches] per year has been predicted from our models.” The usual models of the Earth cannot account for this much uplift. “You would expect this rebound to happen over thousands of years, and instead we have been able to measure it in just over a decade,” Nield said in a statement. “You can almost see it happening, which is just incredible.”

Since 1995, several ice shelves in the Northern Antarctic Peninsula have collapsed, causing the solid Earth to bounce back. “Think of it a bit like a stretched piece of elastic,” Nield said. “The ice is pressing down on the Earth, and as this weight reduces, the crust bounces back.” The scientists analyzed data from seven GPS stations situated across the Northern Antarctic Peninsula to see how the Earth’s surface was moving. “What we found when we compared the ice loss to the uplift was that they didn’t tally,” Nield said. “Something else had to be happening to be pushing the solid Earth up at such a phenomenal rate.” The researchers suggest that characteristics of the Earth’s mantle layer — the region of the planet directly below the Earth’s crust — can explain why this rebound is happening so quickly. Specifically, 250 miles (400 km) below the Northern Antarctic Peninsula, the upper part of the mantle is at least 10 times less resistant to flow than previously thought, and much less resistant to flow than the rest of Antarctica.

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Doubling Of Antarctic Ice Loss Revealed By European Satellite (Guardian)

Antarctica is shedding 160 billion tonnes a year of ice into the ocean, twice the amount of a few years ago, according to new satellite observations. The ice loss is adding to the rising sea levels driven by climate change and even east Antarctica is now losing ice. The new revelations follows the announcement last week that the collapse of the western Antarctica ice sheet has already begun and is unstoppable, although it may take many centuries to complete. Global warming is pushing up sea level by melting the world’s major ice caps and by warming and expanding oceans waters. The loss of the entire western Antarctica ice sheet would eventually cause up to 4 metres (13ft) of sea-level rise, devastating low-lying and coastal areas around the world.

The new data, published in journal Geophysical Research Letters, comes from the European Space Agency’s CryoSat-2 satellite, which was launched in 2010. CryoSat-2 collected five times more data than before in the crucial coastal regions where ice losses are concentrated and found key glaciers were losing many metres in height every year. The Pine Island, Thwaites and Smith Glaciers in west Antarctica were losing between 4m and 8m annually. “The increased thinning we have detected in west Antarctica is a worrying development,” said Professor Andrew Shepherd, at the University of Leeds and who led the study. “It adds concrete evidence that dramatic changes are underway in this part of our planet.”It shows that the western Antarctica ice sheet is where 87% of the lost ice is being shed, with the east Antarctic and the Antarctic peninsula shedding the rest. The data collected from 2010-2013 was compared to that from 2005-2010.

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