Oct 092018

Pieter Bruegel the Elder Two monkeys 1562


And there we go again. Another IPCC report, and they all keep getting more alarming than the previous one. And then nothing substantial happens. Until the next report is issued and makes everybody’s headlines for a day, or two. Rinse, spin and repeat. “Now we really have to do something!”. “World leaders have a moral obligation to act!”.

Oh boy. To start with that last bit, world leaders don’t act because of moral obligations. They act to stay in, or get in, power. And they all know that to achieve that goal they must keep their people happy, even if dictators do this differently from ‘democratically elected’ leaders.

The first tool they have for this is control of the media, control of the narratives that define -or seem to- their societies. If a society is in bad shape, they will control the media to show that it is doing fine. if it’s actually doing fine, they will make sure all the praise for this is theirs and theirs alone.

So what makes their people happy? One thing far ahead of anything else is material comfort. If leaders can’t convince people that they’re comfortable, their power is in danger. Once enough people are miserable or hungry, a process is set in motion that threatens to push leaders aside in favor of someone who promises to make things better. There’s never a shortage of those.


Leaders, politicians, think short-term. They may see further into the future than the next election, but that is not useful information. If they enact measures aimed at 10 years from today or more, they risk being voted out in 2 years, or 4. It’s not even their fault, it’s how the system works. It is different for dictators, but not even that much.

The general notion is clear. But that means we can’t rely on our leaders to act against the climate change the IPCC keeps warning of. because is has a -much- longer time window than the next elections -or the next coup in dictator terms. Even if every IPCC report depicts a shorter window than the last one, it’s still not inside those 4-year election cycles (numbers vary slightly, 4 is typical).

A typical ‘response’ to the climate threat are the COP meetings and agreements. I have fulminated plenty against COP21, the Paris accord, even named it CON21. Because that was signed by those very leaders tied down in their election cycles. Completely useless. That most of the other signees were business leaders who represent oil companies, airlines and Big Tech with huge server parks seals the reality of the deal.

These are not the people who will solve the problems. They have too much interest in not doing so. The CEO’s have their profits to think about, the politicians their elections. They should be kept out of the decision-making process. But they’re the only ones who are in it.

I still think the issue was never better epitomized than in the December 2016 piece in the Guardian by Michael Bloomberg and Mark Carney entitled “How To Make A Profit From Defeating Climate Change” , about which I said at the time:

These fine gents probably actually believe that this is perfectly in line with our knowledge of, say, human history, of evolution, of the laws of physics, and of -mass- psychology. All of which undoubtedly indicate to them that we can and will defeat the problems we have created -and still are-, literally with the same tools and ideas -money and profit- that we use to create them with. Nothing ever made more sense.

That these problems originated in the same relentless quest for profit that they now claim will help us get rid of them, is likely a step too far for them; must have been a class they missed. “We destroyed it for profit” apparently does not in their eyes contradict “we’ll fix it for profit too”. Not one bit. It does, though. It’s indeed the very core of what is going wrong.

Profit, or money in general, is all these people live for, it’s their altar. That’s why they are successful in this world. It’s also why the world is doomed. Is there any chance I could persuade you to dwell on that for a few seconds? That, say, Bloomberg and Carney, and all they represent, are the problem dressed up as the solution?

This week’s IPCC report says the efforts to keep warming at acceptable levels (1.5ºC) will cost many trillions of dollars every year. But a billionaire publisher and a central bank head want to make a profit?! Hey, perhaps they can, as long as you and I pay… But they won’t solve a thing. if only because not doing that will be too profitable. Still, while they’re at it, maybe they can do us a favor.

You see, what is hardly ever mentioned, let alone acknowledged, is that we have more than one major existential problem, and they exist in such a form of symbiosis that solving only one doesn’t make much difference.

We have a changing climate, we have accelerating species extinction, we have plastics in our fish, and we have a global economy that’s about to topple over. The common thread in all these is an overkill in energy use and therefore an overkill in waste. Thermodynamics, 2nd law. Waste kills. By raising temperatures, finishing off wildlife, plugging rivers and oceans with plastics, making increasing amounts of people economically miserable.

But as I wrote a while ago, our economies exist to produce waste, it’s not just a by-product -anymore-. If we stop making things we don’t need, and things that do harm to our world and our lives, our economies will collapse. We must continue on our path or see our lifetstyles plummet. They will anyway, we’re just delaying the inevitable, but we’re stuck.

And politicians are utterly useless and utterly unfit in situations like this. But ask yourself: are you any better? If you were told that in order to ‘save the planet’, you’d have to cut your energy use in half, which would take away many of your comforts and luxuries, would you do it?

A better question yet is, if you would agree to do that, and then see that your neighbor does not, would you still cut your driving and flying and electricity? That’s hard enough on an individual level, but how about if one nation does, while another refuses? Or when nations that have much lower per capita energy consumption tell the West: you go first?


What do you think the odds are that we’ll find a global solution, approach, before the 2030 cutoff date the IPCC provides in its latest report? While the likes of Bloomberg and Carney still talk about climate change as a profit opportunity? I know what I think.

The report says we need to drastically ‘reform’ our economies and lifestyles. Cutting our energy use in the West in half won’t be enough, if only because billions of people demand more energy at their disposal. Will you cut into your lifestyle, will your children, when they see their neighbors increasing their energy use, when they see entire nations increase theirs?

We don’t have ‘leaders’ that can stop species extinction or a warming planet or an economic collapse, because they either are clueless or they will be voted out of power if they tell the truth. Extend and pretend is a term that’s used to describe economic policies a lot, but it actually paints an accurate picture of everything we do.

“Free”, surplus, energy can come in the shape of sugar in a petri dish full of bacteria, or of stored carbon on planet earth. In both cases, the outcome is as predictable as can be. Can we, with our billions of cars and billions of miles flown every year, and billions of phones and computers, return to the energy use of only 100 years ago? Don’t think so.

On the contrary, we’re constantly increasing our energy consumption. Just like the bacteria do in the petri dish. Until they no longer can, until reality, physics, thermodynamics, sets a limit. One of my favorite themes is that we are the most tragic species ever because we can see ourselves doing things that we know are harmful to us, but we can’t stop ourselves from continuing.

The best we can hope for is that tomorrow morning everything will be the same again as where we started today. But no, that’s not sufficient, either, many of the things we’ve unleashed have 20+ year runtimes, and they’re already baked into the cake of our futures. We can’t start afresh every morning, no Groundhog Day for us. Every morning the alarm goes off things have gotten worse. And we can’t stop that.



Oct 092018
 October 9, 2018  Posted by at 9:02 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »

Ford Madox Brown Finding of Don Juan by Haidee 1873



World Leaders ‘Have Moral Obligation To Act’ After UN Climate Report (G.)
US Economists Win Nobel Memorial For Work On Climate And Growth (G.)
Nobel Prizes in Economics, Awarded and Withheld (NC)
The End Of The World Will Save Theresa May From Brexit (Ind.)
Stock Markets Stage Sharp Sell-Off Amid Fear Of Italy-EU Budget Fight (G.)
QE Party Is Drying Up, Even at the Bank of Japan (WS)
Higher Rates Will Hurt Stocks Far More Than You Think (SA)
Pakistan Seeks Bailout From IMF (WSJ)
IMF Not Concerned About China’s Ability To Defend The Yuan (R.)
Sharp Slowdown In Consumer Spending Cools UK Retail Sales (G.)
Google Drops Out Of Bidding For $10 Billion Pentagon Data Deal (R.)



Groundhog Day. They just want to get (re-)elected. Which won’t happen if they tell people to cut their driving and flying.

World Leaders ‘Have Moral Obligation To Act’ After UN Climate Report (G.)

World leaders have been told they have moral obligation to ramp up their action on the climate crisis in the wake of a new UN report that shows even half a degree of extra warming will affect hundreds of millions of people, decimate corals and intensify heat extremes. But the muted response by Britain, Australia and other governments highlights the immense political challenges facing adoption of pathways to the relatively safe limit of 1.5C above pre-industrial temperatures outlined on Monday by the IPCC. With the report set to be presented at a major climate summit in Poland in December, known as COP24, there is little time for squabbles. The report noted that emissions need to be cut by 45% by 2030 in order to keep warming within 1.5C.

That means decisions have to be taken in the next two years to decommission coal power plants and replace them with renewables, because major investments usually have a lifecycle of at least a decade. Mary Robinson, a UN special envoy on climate, said Europe should set an example by adopting a target of zero-carbon emissions by 2050. “Before this, people talked vaguely about staying at or below 2C – we now know that 2C is dangerous,” she said. “So it is really important that governments take the responsibility, but we must all do what we can.” The UK, which has gone further than most nations by cutting its annual emissions by 40% since 1990, will need to step up if the more ambitious goal is to be reached.

Read more …

Both think adapting to climate change is easy.

US Economists Win Nobel Memorial For Work On Climate And Growth (G.)

Two American economists at the forefront of work on climate change and the role of governments in boosting growth have been jointly awarded the prestigious Nobel Memorial prize for economics. The Royal Swedish Academy of Sciences said William Nordhaus and Paul Romer were being honoured for their research into two of the most “basic and pressing” economic issues of the age. Nordhaus made his name by warning policymakers during the first stirrings of concern about climate change in the 1970s that their economic models were not properly taking account of the impact of global warming and he is seen as one of the pioneers of environmental economics.

The Yale economist was honoured a day after the latest UN warning on global warming said that urgent and unprecedented changes were needed to keep climate change to a maximum of 1.5C (2.7F). The co-winner – Romer – is seen as the prime mover behind the endogenous growth theory, the notion that countries can improve their underlying performance if they concentrate on supply-side measures such as research and development, innovation and skills. [..] Responding to news of his award, Romer said it was perfectly possible for global warming to be kept to a maximum of 1.5C, in line with the latest recommendation of the UN Intergovernmental Panel on Climate Change. “Once we start to try to reduce carbon emissions, we’ll be surprised that it wasn’t as hard as we anticipated. The danger with very alarming forecasts is that it will make people feel apathetic and hopeless.

“One problem today is that people think protecting the environment will be so costly and so hard that they want to ignore the problem and pretend it doesn’t exist. Humans are capable of amazing accomplishments if we set our minds to it.” [..] Nordhaus has been a prominent advocate of the use of a uniformly applied carbon tax as the best way to put a true cost on the use of burning fossil fuels and so reducing greenhouse gas emissions. The committee that awarded the prize said he was the first person to design “simple but dynamic and quantitative models of the global economic-climate system, now called integrated assessment models (IAMs). “His tools allow us to simulate how the economy and climate would co-evolve in the future under alternative assumptions about the workings of nature and the market economy, including relevant policies.”

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This is useful h/t Yves. Peter Dorman on how Martin Weitzman, who has a far more aggressive take on economics and climate, was snubbed so Nordhaus’ light version would get the attention.

Nobel Prizes in Economics, Awarded and Withheld (NC)

Nordhaus was widely expected to be a winner for his work on the economics of climate change. For decades he has assembled and tweaked a model called DICE (Dynamic Integrated Climate-Economy), that melds computable general equilibrium theory from economics and equations from the various strands of climate science. His goal has been to estimate the “optimal” amount of climate change, where the marginal cost of abating it equals the marginal cost of undergoing it. From this comes an optimal carbon price, the “social cost of carbon”, which should be implemented now and allowed to rise over time at the rate of interest. In his first published work using DICE, from the early 1990s, he recommended a carbon tax of $5 a tonne of CO2, inching slowly upward until peaking at $20 in 2085. His “optimal” policy was expected to result in an atmospheric concentration of CO2 of over 1400 ppm (parts per million) at the end of this planning horizon, yielding global warming in excess of 3º C. (Nordhaus, 1992)

Over time Nordhaus has become slightly more concerned with the potential economic costs of climate change but also more sanguine about the prospects for decarbonized economic growth, even in the absence of policy. In his latest work he advocates a carbon tax of $31 per tonne in 2015, increasing at 3% per year over the following century. This too would result in more than 3º warming. To give a sense of how modest his suggestion is, consider that, in the same paper, Nordhaus calculates that the most efficient carbon tax to limit warming to 2.5º is between $107-184 per tonne depending on assumptions. The target of the Paris Accord is 2º, and most scientists consider this an upper bound for the amount of warming we should permit.

What do these “optimal” tax numbers mean? Based on the carbon content of gas, each $1 carbon tax translates into a one cent tax on a gallon of gas at the pump. If we adopted Nordhaus’ suggestion for carbon pricing, the result would be minuscule compared to the year-to-year fluctuations in energy prices due to other causes. In other words, while his prize is being trumpeted as a statement from the Swedish bankers on the importance of climate change, in fact he is a key spokesman for the position, rejected by nearly all climate scientists, that the problem is modest and can be solved by easy-to-digest, nearly imperceptible adjustments to energy prices. If we go down his road we face a significant risk of a climate apocalypse.

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The benefits of climate change.

The End Of The World Will Save Theresa May From Brexit (Ind.)

Brexit has been in its “something will turn up phase” for some time now and possibly, at last, something has. This is meant to be Theresa May’s “Hell Week”, with important post-Brexit proposals to be published in both Brussels and the UK, both of which will of course necessitate demented rows within her own party (current “strategies” include threatening to vote down the Budget), but Hell Week could hardly have got off to a better start. The most sensible reading of Hell Week is that it looks likely to end with May agreeing to keep the UK in the EU’s customs union until 2022. In the circumstances, the prime minister will not have failed to notice that, according to this morning’s report from the UN’s IPCC, that is a mere eight years before all of the planet’s inbuilt life preserving systems are currently scheduled to turn against humanity in act of vengeance that will be swift and total.

To borrow briefly from the probability-based lexicon of the climate science community, let’s take a look at the likelihood of Brexit being concluded by then in any meaningful way. Even in the unlikely event of Britain voting to leave the European Union, right up until around 8am on 24 June 2016, the latest point at which it was all meant to have been sorted out was 24 June 2018. But when David Cameron decided not to trigger the two-year Article 50 process “straight away” as he had consistently claimed he would, but resigned instead, that date was eventually pushed back by May to 29 March 2019, expanding Brexit by 37.5 per cent.

Then, in March 2018, the Brexit “transition period” was agreed to last until until 31 December 2020, and now, just seven months later, that deadline has been extended until the next general election in 2022, a further eighteen months. At the most conservative estimate, that gives Brexit a rate of expansion of around two hundred per cent, or four years for every two. If the depth to which it can be kicked into the long grass can be maintained on this exponential gradient, May has every reason to be optimistic that tornadoes of sulphuric gas will be moving freely over the Irish border long before she has to deliver any acceptable proposals for how to avoid the reintroduction of customs infrastructure across it.

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Not the only issue.

Stock Markets Stage Sharp Sell-Off Amid Fear Of Italy-EU Budget Fight (G.)

Global stock markets staged a sharp sell-off on Monday amid growing concerns over a budget showdown between Italy and the EU and the prospect of weaker growth in the Chinese economy. Italian borrowing costs jumped and the euro dropped on foreign exchanges as the war of words between Rome and Brussels escalated, while shares on Wall Street and other major international markets declined amid growing concerns over the US-China trade war. Italian bond yields jumped by as much as 30 basis points to the highest levels since early 2014 after the Italian deputy prime minister, Matteo Salvini, attacked the European commission president, Jean-Claude Juncker, and the economics commissioner, Pierre Moscovici, as enemies of Europe.

Speaking at a news conference with the French far-right leader Marine Le Pen, he said the country would not cave to pressure from the financial markets or retreat from its plan for government spending. “We are against the enemies of Europe — Juncker and Moscovici — shut away in the Brussels bunker,” he said. Brussels has told Italy it is concerned over the plan because it would mean the nation running a larger budget deficit – the gap between income from taxes and government spending – than previously planned for the next three years. Rome is to submit its draft budget to the commission, the EU’s executive arm, which will check whether it is in line with EU rules by 15 October.

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When the easy money goes, how do we keep the bubbles inflated?

QE Party Is Drying Up, Even at the Bank of Japan (WS)

As of September 30, total assets on the Bank of Japan’s elephantine balance sheet dropped by ¥5.4 trillion ($33 billion) from a month earlier, to ¥537 trillion ($4.87 trillion). It was the fourth month-over-month decline in a series that started in December. This chart shows the month-to-month changes of the balance sheet. Despite all the volatility, the trend since mid-2016 is becoming clear: Abenomics became the economic religion of Japan in later 2012, and “QQE” (Qualitative and Quantitative Easing) was an integral part of it. So has the “QQE Unwind” commenced? Are central bankers, even at the Bank of Japan, getting cold feet about the consequences?

At BOJ policy meetings, concerns have been voiced over the “sustainability” of the stimulus program, according to the minutes of the July meeting, released on September 25. So the BOJ staff “proposed measures to enhance the sustainability of the current monetary easing while taking into consideration, for example, their effects on financial markets.” And “flexibility” has been proposed as solution to those concerns. The minutes reiterated that the BOJ would continue to buy Japanese Government Bonds (JGBs) in “a flexible manner” so that its holdings would increase by about ¥80 trillion a year. But this is precisely what has not been happening, in line with this “flexibility.”

Over the past 12 months, the BOJ’s holdings of JGBs rose by “only” ¥26.2 trillion – not ¥80 trillion. And they declined in September from the prior month (more in a moment). Shortly after the minutes had been released, BOJ Governor Haruhiko Kuroda, once the most reckless among the money printers, changed his tune and said in a speech that, “in continuing with powerful monetary easing, we now need to consider both its positive effects and side-effects in a balanced manner.” The Fed has already whittled down its balance sheet by $285 billion since it started its QE unwind last October. The ECB has tapered its QE from a peak of buying €85 billion a month to buying €15 billion currently and will end it altogether in December. The discussion has switched to raising rates and unwinding QE.

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Like the graph.

Higher Rates Will Hurt Stocks Far More Than You Think (SA)

Federal Reserve Chair Jerome Powell thinks the economy is awesome. And he has no problem telling us so. What Powell will never discuss, however, is the “way-too-low-for-way-too-long” stimulus that the central bank engaged in to get here. In particular, the Fed has kept the neutral rate of interest far beneath the rate of inflation (CPI) for an entire decade. Consumers, corporations and Uncle Sam predictably borrowed as if there’d never be consequences. What consequences? Asset bubbles. Stocks, bonds, real estate, collectibles, cryptos, alternatives, everything. Straight across the Ouija board.

Perhaps ironically, we have seen this streaming video before. “Too-low-for-to-long” rate policy in the previous economic expansion (11/01-12/07) created an environment whereby the quality and the quantity of household mortgage debt became toxic. Granted, mortgage debt is less of an issue in the current credit cycle. Nevertheless, total household debt levels may not be sustainable at higher average interest costs. Meanwhile, the federal government is making households look downright responsible.

Long after the Great Recession ended, the country averaged $1.07 trillion in deficits (2010-2017). We’ve now hit $21.5 trillion in our national debt. Uncle Sammy’s bar tab won’t be getting smaller anytime soon. The new tax law, which has provided a near-term kick start for economic growth (GDP), will keep the trillion-dollar deficit train running for years to come. None of this would be so ominous were it not for the rapid-fire advance of interest expense. Interest expense alone accounts for 11% of the federal budget. Just interest. No debt repayment. Tack on higher interest rates to new borrowing needs? Pretty soon interest expense will surpass the money that goes to the Department of Defense (13.6%).

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Belt and Road. Silk Road.

Pakistan Seeks Bailout From IMF (WSJ)

Pakistan, the flagship country for China’s global infrastructure building initiative, said Monday that it needed a bailout from the International Monetary Fund, amid growing concerns that Beijing’s program is pushing recipient countries into financial crisis. The fiscal constraints of an IMF program would also undercut the promises made by Prime Minister Imran Khan’s new government, which include millions of new jobs and the establishment of a welfare state.

But a ballooning trade deficit and fast-depleting foreign exchange reserves left the Pakistani government no other choice, officials said, after markets were spooked by the government’s recent suggestions that it might try to make do without the fund. “Uncertainty was growing and the stock market was falling,” said Chaudhry Fawad Hussain, the Information Minister. “We decided to end the uncertainty.” The Pakistani request for an IMF loan could further test already-strained U.S.-China relations. In July, U.S. Secretary of State Mike Pompeo warned that the U.S. didn’t want to see any IMF lending to Pakistan “go to bail out Chinese bondholders or—or China itself.”

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Growing at 6.9%(?) and still in need of pretty extreme support. I’d be concerned.

IMF Not Concerned About China’s Ability To Defend The Yuan (R.)

IMF Chief Economist Maurice Obstfeld said on Tuesday that he was not concerned about the Chinese government’s ability to defend its currency despite the recent depreciation of the yuan. “No, I don’t think it’s a problem,” Obstfeld said when asked about the issue on the sidelines of a news conference at the IMF and World Bank annual meetings in Bali. But Obstfeld also told the news conference that Beijing would face a “balancing act” between actions to shore up growth and ensure financial stability. China’s yuan currency has faced strong selling pressure this year, losing over 8% between March and August at the height of market worries, though it has since pared losses as authorities stepped up support.

On Tuesday, China’s central bank fixed the yuan’s official mid-point for trading at 6.9019 per dollar, edging close to the psychologically important 7.0 barrier and helping to send Asian stocks to a 17-month low. A U.S. Treasury official on Monday repeated that the Trump administration was concerned about the yuan’s recent weakening as the department prepares a semi-annual report on currency manipulation due out next week. Obstfeld said financial markets have overly emphasized short-term movements in China’s currency, adding that the yuan has often quickly recovered from periods of volatility in recent years.

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Reading this, I kept thinking: what sharp slowdown? Where is it? Not in the numbers…

Sharp Slowdown In Consumer Spending Cools UK Retail Sales (G.)

Britain’s retailers experienced a sharp slowdown in consumer spending last month, bringing to a close the World Cup-inspired summer spree on the high street. According to the British Retail Consortium (BRC) and the accountancy firm KPMG, growth in total sales dropped to the weakest level in almost a year. Total sales grew at an annual rate of 0.7% in September, compared with 2.3% growth during the same month a year ago. The BRC said this was the lowest growth rate since October 2017. Excluding new store openings, like-for-like sales dropped by 0.2% in the year to September, compared with a 19.9% increase for the same period a year ago.

The latest snapshot for the retail sector comes before the important autumn and winter shopping periods, vital for industry profits, when sales of gifts and electrical goods are lifted by the Black Friday sales event in November and shoppers buying Christmas presents. Retailers have been hit hard by a combination of problems that have led to job cuts and store closures across Britain. The ongoing shift to online shopping has increased competition, while sluggish wage growth and high levels of inflation have damaged the spending power of British households. Sales of stationery, footwear and clothing fell last month, while retailers sold more computers, jewellery, furniture, home accessories and food.

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If this doesn’t scare you…

Google Drops Out Of Bidding For $10 Billion Pentagon Data Deal (R.)

Alphabet Inc’s Google said on Monday it was no longer vying for a $10 billion cloud computing contract with the U.S. Defense Department, in part because the company’s new ethical guidelines do not align with the project, without elaborating. Google said in a statement “we couldn’t be assured that [the JEDI deal] would align with our AI Principles and second, we determined that there were portions of the contract that were out of scope with our current government certifications.” The principles bar use of Google’s artificial intelligence (AI) software in weapons as well as services that violate international norms for surveillance and human rights.

Google was provisionally certified in March to handle U.S. government data with “moderate” security, but Amazon.com Inc and Microsoft Corp have higher clearances. Amazon was widely viewed among Pentagon officials and technology vendors as the front-runner for the contract, known as the Joint Enterprise Defense Infrastructure cloud, or JEDI. Google had been angling for the deal, hoping that the $10 billion annual contract could provide a giant boost to its nascent cloud business and catch up with Amazon and fellow JEDI competitor Microsoft. That the Pentagon could trust housing its digital data with Google would have been helpful to its marketing efforts with large companies. But thousands of Google employees this year protested use of Google’s technology in warfare or in ways that could lead to human rights violations.

Read more …

Oct 082018
 October 8, 2018  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , , , , ,  14 Responses »

Paul Gauguin The Great Buddah 1897


World Must Take ‘Unprecedented’ Steps To Avert Worst Of Global Warming (R.)
Energy Sector’s Carbon Emissions To Grow For Second Year Running (G.)
Clouds Gather Over The IMF’s Paradise (O.)
US Inflation Is The World’s Most Important Economic Variable (CNBC)
Ron Paul: US Barreling Towards A Stock Market Plunge Of At Least 50% (CNBC)
China Stocks Return From Holiday, Tumble 3% As PBOC Eases Bank Rates (MW)
FBI’s Smoking Gun: Redactions (Solomon)
Italy’s Di Maio Predicts ‘Political Earthquake’ For European Union (RT)
Salvini Resists Germany’s Plans To Send Migrants Back To Italy (RT)
Austerity Is The Wrong Prescription For The World’s Wellbeing (G.)
Greece ‘to Claim €280 Billion’ in War Reparations from Germany (GR)
‘The World Is Against Them’: New Era Of Cancer Lawsuits Threaten Monsanto (G.)



Sure, but do what? Has anyone defined that?


It’s the final call, say scientists, the most extensive warning yet on the risks of rising global temperatures. Their dramatic report on keeping that rise under 1.5 degrees C states that the world is now completely off track, heading instead towards 3C. Staying below 1.5C will require “rapid, far-reaching and unprecedented changes in all aspects of society”. It will be hugely expensive, the report says, but the window of opportunity is not yet closed. After three years of research and a week of haggling between scientists and government officials at a meeting in South Korea, the Intergovernmental Panel on Climate Change (IPCC) has issued a special report on the impact of global warming of 1.5C.

The critical 33-page Summary for Policymakers certainly bears the hallmarks of difficult negotiations between climate researchers determined to stick to what their studies have shown and political representatives more concerned with economies and living standards. Despite the inevitable compromises, there are some key messages that come through loud and and clear. “The first is that limiting warming to 1.5C brings a lot of benefits compared with limiting it to 2 degrees. It really reduces the impacts of climate change in very important ways,” said Prof Jim Skea, who is a co-chair of the IPCC.

“The second is the unprecedented nature of the changes that are required if we are to limit warming to 1.5C – changes to energy systems, changes to the way we manage land, changes to the way we move around with transportation.” “Scientists might want to write in capital letters, ‘ACT NOW IDIOTS’, but they need to say that with facts and numbers,” said Kaisa Kosonen, from Greenpeace, who was an observer at the negotiations. “And they have.” The researchers have used these facts and numbers to paint a picture of the world with a dangerous fever, caused by humans. We used to think if we could keep warming below 2 degrees this century then the changes we would experience would be manageable.

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The IPCC’s estimates have been off by a large margin. Political pressure?

World Must Take ‘Unprecedented’ Steps To Avert Worst Of Global Warming (R.)

Society would have to enact “unprecedented” changes to how it consumes energy, travels and builds to meet a lower global warming target or it risks increases in heat waves, flood-causing storms and the chances of drought in some regions as well as the loss of species, a U.N. report said on Monday. Keeping the Earth’s temperature rise to only 1.5 degrees Celsius (2.7 degrees Fahrenheit) rather than the 2C target agreed to at the Paris Agreement talks in 2015, would have “clear benefits to people and natural ecosystems,” the United Nations Intergovernmental Panel on Climate Change (IPCC) said on Monday in a statement announcing the report’s release.

The IPCC report said at the current rate of warming, the world’s temperatures would likely reach 1.5C between 2030 and 2052 after an increase of 1C above pre-industrial levels since the mid-1800s. Keeping the 1.5C target would keep the global sea level rise 0.1 meter (3.9 inches) lower by 2100 than a 2C target, the report states. That could reduce flooding and give the people that inhabit the world’s coasts, islands and river deltas time to adapt to climate change.

The lower target would also reduce species loss and extinction and the impact on terrestrial, freshwater and coastal ecosystems, the report said. “There were doubts if we would be able to differentiate impacts set at 1.5C and that came so clearly. Even the scientists were surprised to see how much science was already there and how much they could really differentiate and how great are the benefits of limiting global warming at 1.5 compared to 2,” Thelma Krug, vice-chair of the IPCC, told Reuters in an interview. “And now more than ever we know that every bit of warming matters,” Krug said.

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And after all the big words, here is reality.

Energy Sector’s Carbon Emissions To Grow For Second Year Running (G.)

Carbon emissions from the energy sector are on track to grow for the second year running, in a major blow to hopes the world might have turned the corner on tackling climate change. Preliminary analysis by the world’s energy watchdog shows the industry’s emissions have continued to rise in 2018, suggesting that an increase last year was not a one-off. The finding comes as the world’s leading climate scientists issue a landmark report on whether the world can meet a tougher global warming target, of limiting temperature rises to 1.5C.

Dr Fatih Birol, the executive director of the International Energy Agency (IEA), told the Guardian: “When I look at the first nine months of data, I expect in 2018 carbon emissions will increase once again. This is definitely worrying news for our climate goals. We need to see a steep decline in emissions. We are not seeing even flat emissions.” Emissions largely flatlined in 2014–16 after climbing for decades, raising hopes that global action on climate change was beginning to turn the tide – but in 2017 they grew by 1.4%.

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Silliest metaphor ever? “..while it is tempting to sail alone, countries must resist the siren call of self-sufficiency – because as the Greek legends tell us, that leads to shipwreck..”

Clouds Gather Over The IMF’s Paradise (O.)

On Tuesday, the [IMF] will update its World Economic Outlook and has already warned that the effects of rising debt and trade wars are affecting the global projections. Last week, the IMF’s head, Christine Lagarde, said the outlook “has become less bright”, despite projections during the summer that there would be 3.9% growth for 2018 and 2019. [..] Adding to Lagarde’s comments, there were warnings last week in the IMF’s global financial stability report, which said there was a risk of another financial meltdown because both governments and regulators have failed to put in place needed reforms to protect the system. Lagarde said that while expansion of the global economy was running at its fastest rate in seven years, there were signs of slowdown.

In September, factory activity dropped as a result of changes in trading with the US – and Donald Trump did not escape (admittedly veiled) criticism. The growing use of trade barriers had resulted in a drop in imports and exports, Lagarde said, and investment and manufacturing output had also been hit. Trump has consistently championed unilateral trade deals in an effort to further his “America First” agenda. “History shows that, while it is tempting to sail alone, countries must resist the siren call of self-sufficiency – because as the Greek legends tell us, that leads to shipwreck,” said Lagarde. Also central to the concerns about the future of the global economy are debt levels, currently well above those seen at the time of the 2008 crash. The IMF warned that there was a risk that unregulated parts of the financial system could trigger a panic.

The rise of unregulated “shadow banks” and the lack of restrictions on insurers and asset managers were pinpointed as concerns – as was the growth of global banks to a scale larger than 2008 and the fear that they are again “too big to fail”. Lagarde has said she is concerned that the total value of global debt has risen by 60% in the last 10 years to reach an all-time high of £139tn. As central banks in more advanced economies raised interest rates, attracting investors back to them, she said, developing countries were suffering. “That process could become even more challenging if it were to accelerate suddenly. It could lead to market corrections, sharp exchange rate movements, and further weakening of capital flows.”

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I think perhaps it’s that 1.5ºC one?!

US Inflation Is The World’s Most Important Economic Variable (CNBC)

U.S. inflation is the world’s most important economic variable. That proposition is explained by its corollary: Rising inflation is the only problem the U.S. Federal Reserve cannot solve by increasing its money supply. The Fed can deal with structural problems in credit markets by means of enhanced supervision, regulatory provisions and, all else failing, by open-ended lending in cases of systemic threats to the financial system’s stability. But none of those measures are applicable to situations of accelerating inflation and a deteriorating outlook for the value of fixed-income assets. That is a problem the Fed must address with sustained liquidity withdrawals, increasing credit costs and the ensuing growth recession of the U.S. economy.

[..] U.S. inflation has reached a point in an accelerating economy where the Fed needs to step in with a prompt and credible action to anchor inflation expectations. Markets are signaling that such measures are long overdue. The Fed is now well beyond the stage where it could think of fine tuning the economic activity in an environment of stable costs and prices. The U.S. economy is moving along at twice the rate of its noninflationary growth potential. That is unsustainable. As in the past, the restoration of American price stability will lead to a growth recession of unknown amplitude and duration.

The global reach of the dollar, and of the American financial system, are direct and powerful channels through which the Fed’s rising interest rates will affect demand, output and employment in the rest of the world. Those who think that they can avoid the impact of U.S. monetary policies should think again. The dollar remains an irreplaceable linchpin to the international monetary system. And that’s the way it will be for the foreseeable future. There is simply no viable alternative to the dollar’s global role as a unit of account, a means of payment, a transactions currency and a store of value.

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The name is Bonds. Sovereign bonds.

Ron Paul: US Barreling Towards A Stock Market Plunge Of At Least 50% (CNBC)

Ron Paul believes the bond trading pits are giving investors a dire message about the state of the nation’s economy. According to the former Republican Congressman from Texas, the recent jump in Treasury bond yields suggest the U.S. is barreling towards a potential recession and market meltdown at a faster and faster pace. And, he sees no way to prevent it. “We’re getting awfully close. I’d be surprised if you don’t have everybody agreeing with what I’m saying next year some time,” he said last Thursday on CNBC’s “Futures Now.”

His remarks came as the benchmark 10-Year Treasury yield, which moves inversely to its price, rallied to seven year highs, intensifying fears over rising inflation. It may be beneficial for personal savings accounts, but it could deliver irrevocable damage to those in adjustable mortgages, or for auto buyers looking to finance a new vehicle. “It can be pretty well validated by looking at monetary history that when you inflate the currency, distort interest rates and live beyond your means and spend too much, there has to be an adjustment,” he said. “We have the biggest bubble in the history of mankind.”

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The world’s fastest growing economy for years now needs stimulus.

China Stocks Return From Holiday, Tumble 3% As PBOC Eases Bank Rates (MW)

Chinese stocks led weaker action across Asia markets on Monday, as traders returned to work after a weeklong holiday, brushing aside the latest rate cut by the People’s Bank of China. Chinese stocks returned from the Golden Week holiday with opening declines of 2% after last week’s wide selling in Asia and a U.S.-listed benchmark of mainland companies falling nearly 5%. The major indexes in both Shanghai and Shenzhen were last down around 3%. On Sunday, the PBOC made a one percentage-point cut in banks’ reserve-requirement ratios. The central bank was widely expected to cut the metric again before year-end amid ongoing stimulus efforts.

But Monday was expected to be an up-and-down day as investors try and price in not just what’s happened so far this month but also what continues to lie ahead on the trade front. “This monetary policy tweak is the fourth in 2018 and despite the weakening Yaun and the Feds embarking on a more aggressive rate hike tangent than expected, suggests the Pboc are putting their greatest energies behind stimulating the flagging economy as opposed to the U.S.-China trade wars or Fed policy for that matter,” said Stephen Innes, head of trading APAC, at OANDA. A survey of China’s service sector came in mixed, with the sector expanding at a faster pace in September, but a subindex of employment abruptly contracted, falling to its lowest level since March 2016.

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FBI’s Smoking Gun: Redactions (Solomon)

To declassify or not to declassify? That is the question, when it comes to the FBI’s original evidence in the Russia collusion case. The Department of Justice (DOJ) and the FBI have tried to thwart President Trump on releasing the evidence, suggesting it will harm national security, make allies less willing to cooperate, or even leave him vulnerable to accusations that he is trying to obstruct the end of the Russia probe. Before you judge the DOJ’s and FBI’s arguments — which are similar to those offered to stop the release of information in other major episodes of American history, from the Bay of Pigs to 9/11 — consider Footnote 43 on Page 57 of Chapter 3 of the House Intelligence Committee’s report earlier this year on Russian interference in the 2016 presidential election.

Until this past week, the footnote really had garnered no public intrigue, in part because the U.S. intelligence community blacked out the vast majority of its verbiage in the name of national security before the report was made public. From the heavy redactions, all one could tell is that FBI general counsel James Baker met with an unnamed person who provided some information in September 2016 about Russia, email hacking and a possible link to the Trump campaign. Not a reporter or policymaker would have batted an eyelash over such a revelation. Then, last Wednesday, I broke the story that Baker admitted to Congress in an unclassified setting — repeat, in an unclassified setting — that he had met with a top lawyer at the firm representing the Democratic National Committee (DNC) and received allegations from that lawyer about Russia, Trump and possible hacking.

It was the same DNC, along with Hillary Clinton’s presidential campaign, that funded the unverified, salacious dossier by a British intel operative, Christopher Steele, that became a central piece of evidence used to justify the FBI surveillance of the Trump campaign in the final days of the election And it was the same law firm that made the payments for the dossier research so those could be disguised in campaign spending reports to avoid the disclosure of the actual beneficiaries of the research, which were Clinton and the DNC. And it was, in turns out, the same meeting that was so heavily censored by the intel agencies from Footnote 43 in the House report — treated, in other words, as some big national security secret.

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He might well be right.

Italy’s Di Maio Predicts ‘Political Earthquake’ For European Union (RT)

The bloc may expect a “political earthquake” after the 2019 European Parliament election, Italy’s Deputy Prime Minister Luigi Di Maio warned. Di Maio said he believes that what happened in Italy after the general election in March 4, when the popular vote brought an unlikely coalition of two anti-establishment parties to power, will happen in the whole Europe. The pro-EU centrist parties shrank significantly as a result of the latest Italian parliamentary elections. With the plebiscite that is scheduled for May next year “there will be a political earthquake at the European level,” Di Maio, who is also the Minister of Economic Development and the head of the Five Star Movement (M5S), stated. “All the rules will change,” the Italian high-ranking politician promised.

The Italian government and the EU authorities are at loggerheads over Rome’s targeted budget deficit at 2.4 percent of the GDP that exceeds the limits set by the EU. Rome believes that the forthcoming elections would favor the opponents of austerity. “The Europe of bankers, founded on mass immigration and economic insecurity, keeps on threatening and insulting Italians and their government? Relax, in six months 500 million voters will fire them. We keep going,” Italian Interior Minister Matteo Salvini said.

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“Rome fears that Germany might eventually attempt to send back to Italy as many as 40,000 people..”

Salvini Resists Germany’s Plans To Send Migrants Back To Italy (RT)

Rome has still not reached an agreement with Berlin on the repatriation of asylum seekers who had first registered in Italy, Interior Minister Matteo Salvini said, vowing to close airports to German flights transferring refugees. “If someone in Berlin or Brussels thinks of dumping dozens of migrants in Italy via unauthorized charter flights, they should know that there is not and there will be no airport available,” Salvini said in a statement, adding that Italy will “close the airports” just as it earlier closed its ports to NGO vessels carrying migrants rescued in the Mediterranean. His sharp statement comes in response to the rumors first circulated by the Italian La Repubblica daily that Germany plans to speed up repatriation procedures ahead of the regional elections in the state of Bavaria, the home state of the Interior Minister Horst Seehofer.

The first charter flight carrying asylum seekers from Germany to Italy is reportedly scheduled for Tuesday, October 9, the media reported. Other media reports set the date of the flight on Thursday, October 11. Germany’s refugee and migration agency, the BAMF, allegedly already sent “dozens of letters” to the would-be repatriates informing them about the planned transfers to Italy, according to La Repubblica. Earlier, the German dpa news agency also said that such a flight is scheduled for “the coming days.” This information, however, was neither confirmed nor denied by the German authorities. Rome fears that Germany might eventually attempt to send back to Italy as many as 40,000 people, who arrived there from the southern European country, the Italian media report.

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“The country’s death rate had risen by about 5.6% in the decade running up to the first bailout in 2010 but then jumped by 17.6% in the six years that followed.”

Austerity Is The Wrong Prescription For The World’s Wellbeing (G.)

Greece, which endured a slump longer and deeper than the Great Depression in the US, was forced by the so-called troika of the IMF, the EU and the ECB to cut health expenditure at a time when other European countries were raising theirs. Under Greece’s bailout, health spending fell from 9.8% of GDP in 2008 to 8.1% in 2014, a time when national output was contracting rapidly. The country’s death rate had risen by about 5.6% in the decade running up to the first bailout in 2010 but then jumped by 17.6% in the six years that followed. The rate rose three times faster than the rate in Western Europe overall.

[..] The troika’s austerity programme helped French and German banks avoid losses on their loans but at the expense of a rising Greek death rate. That has resulted in 50% less public hospital funding in 2015 than 2009, hospitals being left without basic supplies, the long-term unemployed stripped of their health insurance and those on low pay finding drugs more expensive because of a 20% cut in the minimum wage. The number of individuals with unmet healthcare needs has nearly doubled since 2010, with a considerable fraction reporting cost as the main reason for not receiving the recommended healthcare services.

Greece is not short of healthcare expertise. It has the second highest number of doctors per 1,000 people in the EU but that medical workforce has been forced to watch impotently as the health system has descended into chaos and people have died when they could have been saved. For the past eight years, Greece has been used in a laboratory experiment to test out a theory. The evidence from the report in the Lancet could hardly be clearer. Austerity kills.

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Not a chance, but kudos for trying.

Greece ‘to Claim €280 Billion’ in War Reparations from Germany (GR)

Greece is about to launch a campaign to claim €280 billion ($323 billion) in war reparations from Germany, reports Der Spiegel. The German magazine notes that as long as Greece was dependent on EU support, Prime Minister Alexis Tsipras had avoided raising the issue. But now, after the end of the third bailout program, Athens is ready to take initiatives to claim the money, it says. The issue is resurfacing a few days before the official visit of Germany’s President Frank-Walter Steinmeier to Athens where he will meet the President of the Republic Prokopis Pavlopoulos and Tsipras. Der Spiegel says it is no coincidence that the two highest ranking Greek politicians have both raised the issue in the last few days.

It marks the beginning of a long campaign, which, according to the German magazine, will start in November. The Greek Parliament will endorse an audit report ready since August 2016, according to which Greece is entitled to €269.5 billion of repairs from the Second World War. In addition, Greece demands the repayment of a €10.3 billion occupation loan. The report remained under wraps throughout the last two years, but Tsipras seems ready to bring it back to the surface and start a campaign for war reparations, says Der Spiegel. In the second phase, Greece intends to present its arguments at world organizations such as the European Parliament, the European Council, and the UN.

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8,700 plaintiffs.

‘The World Is Against Them’: New Era Of Cancer Lawsuits Threaten Monsanto (G.)

[Dewayne Johnson’s] award of $289m, which included $250m in punitive damages, is a game-changer for the 46-year-old, who will leave behind a wife and three children. But Monsanto is fighting to keep it from him. “It’s a big red flag for the company,” said Jean M Eggen, professor emerita at Widener University Delaware Law School: “It brings more people out who might not otherwise sue.” Roughly 8,700 plaintiffs have made similar cases in state courts across the country, alleging that exposure to glyphosate-based herbicides led to various types of cancer. The impact could be huge if Monsanto continues to fight and lose in jury trials, and an accumulation of wins could force the company to consider settling with plaintiffs. “It could become very costly,” said Eggen, comparing the fight to the tobacco industry, which aggressively fought cases in court but eventually decided settlements were the best option. “It’s really a business decision.”

Monsanto may ultimately consider changing the labels to warn consumers about cancer risks and work to settle with consumers who have had high exposures, said Lars Noah, University of Florida law professor: “It’s sort of a wake-up call that their strategy was unrealistic.” Of the thousands of cases, there are more than 10 trials on track to start in 2019 and 2020, with court battles ramping up in California, Montana, Delaware, Kansas City and St Louis (where Monsanto is headquartered). Farmers, gardeners, government employees, landscapers and a wide range of others have alleged that Monsanto’s products sickened them or killed their loved ones. “This is a tremendous number of trials for one year and will allow plaintiffs to get critical evidence in front of juries – evidence not seen before,” said the attorney Aimee Wagstaff.

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Oct 072018
 October 7, 2018  Posted by at 9:10 am Finance Tagged with: , , , , , , , , , , ,  6 Responses »

Vincent van Gogh Autumn landscape 1885


Turkish Police Suspect Saudi Journalist Khashoggi Was Killed At Consulate (MME)
Interpol Asks China For Information On Its Missing President (CBS/AP)
Brett Kavanaugh Sworn In As 114th Supreme Court Justice (ZH)
Hot Jobs Market, Trade Tensions May Be Lethal Combo – Stephen Roach (CNBC)
Former Fed Governor Warns Of “Several Decade Cold War” With China (ZH)
China Pumps $109bn Into Economy As Trade War Bites (G.)
Theresa May Bids For Centre Ground With Appeal To Labour Voters (O.)
Italy Debt Crisis Flares Up, Banks Get Hit, Showdown with EU Intensifies (DQ)
Migrants Fight To Save Italian Mayor Who Gave Them A New Home (G.)
Major Climate Report Will Slam The Door On Wishful Thinking (Vox)



Tureky will issue statement(s) later. If this is true, it should lead to very strong condemnation of Saudi.

“Khashoggi had been “brutally tortured, killed and cut into pieces. Everything was videotaped to prove the mission had been accomplished and the tape was taken out of the country”.

Turkish Police Suspect Saudi Journalist Khashoggi Was Killed At Consulate (MME)

Turkish authorities suspect that missing Saudi journalist Jamal Khashoggi, who disappeared four days ago after entering Saudi Arabia’s consulate in Istanbul, was killed inside the consulate, two Turkish sources told Reuters on Saturday. “The initial assessment of the Turkish police is that Mr Khashoggi has been killed at the consulate of Saudi Arabia in Istanbul. We believe that the murder was premeditated and the body was subsequently moved out of the consulate,” one of the sources, a Turkish official, said. A senior Turkish police source told MEE that Khashoggi had been “brutally tortured, killed and cut into pieces. Everything was videotaped to prove the mission had been accomplished and the tape was taken out of the country”.

Khashoggi’s disappearance is likely to further deepen divisions between Turkey and Saudi Arabia, Reuters said. Relations were already strained after Turkey sent troops to the Gulf state of Qatar last year in a show of support after its Gulf neighbours, including Saudi Arabia, imposed an embargo on Doha. Police said about 15 Saudis, including officials, came to Istanbul on two private flights on Tuesday and were at the consulate at the same time as the journalist. They left again the same day, according to AFP. Their diplomatic bags could not be opened, a security ource told MEE, but Turkish intelligence was sure that Khashoggi’s remains were not in them.

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“The newspaper said that upon landing last week Meng was “taken away” for questioning by what it said were “discipline authorities.”

Interpol Asks China For Information On Its Missing President (CBS/AP)

Interpol has made a formal request to China for information about its missing Chinese president who seemingly vanished on a trip home. The agency said in a statement it “looks forward to an official response from China’s authorities to address concerns over the president’s well-being.” Interpol said it used law enforcement channels to submit its request about the status of Meng Hongwei. Meng’s wife says she hasn’t heard from him since he left Lyon at the end of September. French authorities say he boarded a plane and arrived in China, but the 64-year-old’s subsequent whereabouts are unknown. France has launched its own investigation.

“France is puzzled about the situation of Interpol’s president and concerned about the threats made to his wife,” its foreign ministry said, without providing any details. Meng is also a vice minister for public security in China, which has yet to comment. Previously, Interpol had said that reports about Meng’s disappearance were “a matter for the relevant authorities in both France and China.” The South China Morning Post, a Hong Kong newspaper, has suggested that Meng may have been the latest target of an ongoing campaign against corruption in China.

The newspaper said that upon landing last week Meng was “taken away” for questioning by what it said were “discipline authorities.” The term usually describes investigators in the ruling Communist Party who probe graft and political disloyalty. The Central Commission for Discipline Inspection, the party’s secretive internal investigation agency, had no announcements on its website about Meng and couldn’t be reached for comment. Meng is the first from his country to serve as Interpol’s president, a post that is largely symbolic but powerful in status. Because Interpol’s secretary general is responsible for the day-to-day running of the agency’s operations, Meng’s absence may have little operational effect.

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Need a new way to select Supreme Court judges. The Court must be perceived as neutral, or it loses credibility.

Brett Kavanaugh Sworn In As 114th Supreme Court Justice (ZH)

The drama of Judge Brett Kavanaugh’s confirmation to the US Supreme Court finally ended on Saturday afternoon, when without any last-minute surprises, the US Senate voted Kavanaugh to become the 114th Justice to the US Supreme Court in a major victory for both the Republican party and President Trump. Kavanaugh was confirmed as expected in a 50-48 vote, the narrowest margin for any justice since the 19th century. In a rare move, Alaska senator Lisa Murkowski was the only Republican senator to oppose Kavanaugh on Saturday, but she formally voted “present” to offset the absence of GOP Sen. Steve Daines who left Washington, D.C., on Friday to fly to Montana for his daughter’s wedding.

West Virginia Senator Joe Manchin, who is up for reelection in a state Trump won by more than 40 points in 2016, was the only Democratic senator to support Kavanaugh’s nomination. As The Hill reports, republicans used Manchin’s support to tout Kavanaugh’s nomination as “bipartisan,” but the razor-thin vote margin marks the closest successful Supreme Court vote since Stanley Matthews was confirmed in a 24-23 vote in 1881. In the ends, it doesn’t matter how they got there: Kavanaugh’s confirmation will be a crowning victory for Trump and McConnell, fulfilling a top campaign promise for the president and a critical priority for the Kentucky Republican. Kavanaugh’s ascension to the high court will ensure a conservative majority for decades to come, an outcome that McConnell especially has focused on during his long tenure as the top Senate Republican.

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Roach knows China. He doesn’t think they’ll give in.

Hot Jobs Market, Trade Tensions May Be Lethal Combo – Stephen Roach (CNBC)

There’s a growing risk that trade tensions between the world’s two largest economies may converge with other factors to disrupt the global economy — and knock the historic U.S. stock market rally off its stride, according to one of the world’s leading authorities on Asia. Yale University senior fellow Stephen Roach is worried the US-China trade war is putting sand in the gears of global supply chains, which has been playing a vital force in keeping price pressures in check. Roach referred to the threat as one of the “more destructive” layers of the trade war for stocks.

“You’ve got potentially a lethal combination between a hot labor market in an unwinding of the supply chain effects on the global front which could give you a surprising surge in inflation that the Fed is not positioned to really address with its still very, very low federal funds rate,” he warned Friday on CNBC’s “Trading Nation.” He added: “For every point of slack in advanced economies, the value chains hold down overall inflation by about 9/10s of a point.”

Roach, who served as Morgan Stanley Asia chairman for five years, believes Wall Street and policy makers are largely underestimating the impact of the trade tensions. Despite the new deal to replace the North America Free Trade Agreement, Roach isn’t optimistic the U.S. is any closer to a resolution with China. “The whole hope from the Trump administration is that China will be quickly beaten into submission as they did with supposedly Mexico and Canada,” said Roach. “The odds of a long disruption are high.”

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Economic cold war.

Former Fed Governor Warns Of “Several Decade Cold War” With China (ZH)

Former Fed governor Kevin Warsh warned on Thursday that the US-China relationship is “probably as poor as” it has ever been since former President Richard Nixon and Henry Kissinger developed strategic relations between both countries in the early 1970s. “We’re at the risk of a real cold war” between the world’s two largest economies, said Warsh who had been on President Trump’s list for Fed chairman before Jerome Powell was chosen. “The last 30 years we’ve been living and breathing globalization as if it’s an inevitable force,” but now, it seems the six-decade-long bubble has finally popped.

Bank of Americas says trade wars and deteriorating relations with China have been some of the reasons for the decline in globalism. Especially, US tariff duties collected, % of total imports have surged under the Trump administration. “Protectionism has cross-party support in the US, and nationalist parties continue to gain in Europe. Further action on China ($200bn), autos ($350bn), NAFTA ($690bn) could raise US tariff revenue as % total imports to levels not seen since 1946,” said BofA. During the CNBC interview, Wash used the term “cold war” to describe the economic standoff, not the decades-long “mutually assured destruction” nuclear stalemate with Russia. “We are probably on the precipice of a brand new relationship with the Chinese,” Warsh told CNBC. He asked: “Could we be at the beginning of a 10- or 20-year cold war?” If so, an economic cold war between the countries could have major implications for the global economy like causing a global growth scare and repricing risk assets.

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Fourth reserve requirement ratio cut this year. That’s not a game they can play forever.

China Pumps $109bn Into Economy As Trade War Bites (G.)

China has slashed the amount of cash some of its banks must hold in reserve as Beijing’s leadership seeks to bolster a flagging economy. As higher US interest rates and fears of a trade war piles pressure on economies around the world, China’s central bank said on Sunday that it was cutting the reserve requirement ratios (RRRs) by 1% from 15 October to lower financing costs and spur growth in the world’s second-biggest economy. The reserve cut, the fourth by the People’s Bank of China (PBOC) this year, came after Beijing pledged to speed up plans to invest billions of dollars in infrastructure projects as the economy shows signs of cooling further.

Investment growth has slowed to a record low and net exports have been a drag on growth in the first half of ther year. China releases a snapshot of its services sector on Monday, which will be closely watched for signs of slower growth. The injection of cash into the economy, which will be 750bn yuan ($109.2 billion), will also boost hopes that the negative impact of higher US tariffs on Chinese exports can be eased. The cut, which was announced on the last day of China’s week-long national day holiday, showed the central bank was probably worried about the impact of “external shocks” to markets such as a speech last week by US vice president Mike Pence criticising Beijing, said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

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This will get ugly. Trying to split Labour. Anti-semitism accusations have been prepared.

Theresa May Bids For Centre Ground With Appeal To Labour Voters (O.)

Theresa May today delivers an extraordinary appeal to wavering Labour supporters to switch to the Conservatives as she attempts to portray her party as the only option for moderate and patriotic voters. Writing exclusively in today’s Observer the prime minister says that if people who have previously backed Labour look again at her government’s programme, including pledges to increase house building and manage markets where necessary, they will find that it is not driven by ideology, but by beliefs and values that the vast majority could support. Seeking to reclaim the One Nation mantle for the Tories, May writes: “I want voters who may previously have thought of themselves as Labour supporters to look at my government afresh. They will find a decent, moderate and patriotic programme that is worthy of their support.”

She argues that in an era in which traditional political allegiances count for less, the Tories now have a responsibility “on our shoulders” to offer a home to millions of former Labour voters who are unhappy with the party’s move left under Jeremy Corbyn. May’s pitch for the centre ground will enrage many Labour supporters who see her as a supporter of eight years of Tory austerity and the architect of the hostile environment for immigrants. It comes amid rumours in Westminster that disgruntled groups of Labour, Tory and Liberal Democrat MPs could try to form a new party on the centre ground to appeal to voters who regard the Tories as too pro-Brexit and right wing, and dislike the leftwing agenda of Corbyn.

[..] Reacting to her initial pitch for centre ground voters in her conference speech last Wednesday, former Labour home secretary David Blunkett said May was clearly laying a trap for his party. “This is a well tried tactic, attempting to achieve two things at the same time,” Blunkett said. “The first is to appear to move sufficiently on to Labour territory to seem reasonable and moderate while at the same time trying to push Labour further from the mainstream. We must avoid this trap, because it is a trap. “We need to be much more sure-footed in demonstrating where the Conservatives have stolen our clothes. And we need to reassure people that we won’t allow these blatant Conservative tactics to push Labour into adopting policies even more extreme and outside the mainstream.”

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The ECB buys Italian bonds like crazy. What will they do?

Italy Debt Crisis Flares Up, Banks Get Hit, Showdown with EU Intensifies (DQ)

As tensions between Rome and Brussels escalate, and uncertainty grows about Italy’s economic future, investors are dumping Italian debt, causing bond values to fall and yields to rise. That, in turn, is hitting banks’ funding costs and their capital cushions. On average, banks are estimated to already have lost 40 basis points of their core capital in the second quarter and another 8 bps in the third.As their capital base shrinks, banks are less able to write down bad loans — of which there are still frighteningly many — or issue new loans. According to analysts at Morgan Stanley, Banco BPM SpA, Banca Monte dei Paschi di Siena (MPS) SpA and UBI Banca SpA are the most vulnerable of Italy’s largest lenders due to the size of their holdings of government debt.

It is this outsized exposure of Italian banks to Italian debt that makes any sudden deterioration in the value of Italian bonds so dangerous. The banking sector hold around 18% of all of the nation’s public debt. It’s the reason why, as investors abandon Italian bonds en masse, the shares of Italy’s banks are also nose-diving, with the stock of recently rescued Monte dei Paschi di Siena leading the way down having lost more than half its value year-to-date. The chart below shows how the FTSE Italy Banks Index has plunged 29% since early May (black line), while the Italian government 10-year yield (red line) has nearly doubled from 1.8% to 3.4%, practically in tandem:

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Always put people first, no matter what your politics.

Migrants Fight To Save Italian Mayor Who Gave Them A New Home (G.)

In 2009, shortly after his re-election as mayor and several years after he embarked on a policy of welcoming migrants as a means of reversing depopulation in his town, Domenico Lucano was shot at through the window of a restaurant where he was eating with friends. As if to ram home their opposition to his plans, the local mafia also poisoned two of his dogs. Unperturbed, Lucano responded by installing a billboard at the entrance of the town, saying: “Riace – a town of hospitality.” The sign remains today, as does one on the main square that lists the 20 countries people have come from – Eritrea, Somalia, Nigeria, Pakistan, to name a few. Riace, a tiny hilltop town in Italy’s southern Calabria region, has become famous for its much-lauded model of integration, which began in the late 1990s and continues to this day.

But last week, Lucano, the man credited with changing the lives of Italians and foreigners through an initiative that breathed new life into a dying economy, was put under house arrest for allegedly abetting illegal immigration. On Saturday, lending their support to a man dismissed by far-right politician Matteo Salvini as worth “zero”, hundreds of people turned out in support of the mayor and his leadership. Invariably described as altruistic and honest, they struggle to comprehend how Lucano, 60, can have his liberty stripped from him while people belonging to the mafia, a scourge of Italy’s south, roam free. “Mafiosi kill, yet a mayor who does good is arrested? It doesn’t make any sense,” said Elisabetta, who asked for her surname not to be used.

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The worst wishful thinking is that we will replace fossil fuels with some other form of energy and go on growing the way we have. Fewer emissions is useful, fewer expectations is essential.

Major Climate Report Will Slam The Door On Wishful Thinking (Vox)

The leading international body of climate change researchers is preparing to release a major report Sunday night on the impacts of global warming and what it would take to cap warming at 1.5 degrees Celsius, or 2.7 degrees Fahrenheit, above preindustrial levels, a goal that looks increasingly unlikely. The report is from the Intergovernmental Panel on Climate Change, an international consortium of hundreds of climate researchers convened by the United Nations. Authors are meeting this week in Incheon, South Korea, to finalize their findings, but Climate Home News obtained an early leaked draft.

Why examine the prospects for limiting global warming to 1.5°C? Because under the Paris agreement, countries agreed that the goal should be to limit warming to below 2°C by 2100, with a nice-to-have target of capping warming at 1.5°C. According to the drafts, the report finds that it would take a massive global effort, far more aggressive than any we’ve seen to date, to keep warming in line with 1.5°C — in part because we are already en route to 3°C of warming. And even if we hit the 1.5°C goal, the planet will still face massive, devastating changes. So it’s pretty grim. But this is also a thunderous call to action, laying out what tools we have at our disposal (we have plenty) to mitigate global warming and to accelerate the turn toward cleaner energy. Let’s walk through the basics.

Read more …

Dec 292014
 December 29, 2014  Posted by at 3:53 pm Finance Tagged with: , , , ,  28 Responses »

NPC Tank truck with plow clearing snow, Washington, DC 1922

This is an article from our friend Euan Mearns’ site, Energy Matters, written by Euan’s co-conspirator, Roger Andrews. It was originally published here.

Roger Andrews: Many people, including more than a few prominent politicians, accept that global warming must be limited to no more than two degrees C above the pre-industrial mean, or a little more than one degree C above where we are now, to avoid dangerous interference with the Earth’s climate. Let’s assume these people are right, that the 2C threshold really does represent the climatic equivalent of a cliff and that bad things will happen if we drive off it.

So how do we apply the brakes?

According to the IPCC by limiting cumulative future global carbon emissions to no more than 500 gigatons, and even then we would have only a two-thirds chance of success:

To have a better than two-thirds chance of limiting warming to less than 2°C from pre-industrial levels the total cumulative carbon dioxide emission from all human sources since the start of the industrial era would need to be limited to about 1,000 gigatonnes of carbon. About half of this amount had already been emitted by 2011.

Here we will ignore the one-third chance of failure and use 500 gigatons as the “safe” emissions limit. Can we stay below it? Figure 1 summarizes the current position. The black line (data from EDGAR) shows progress, or lack thereof, in cutting global emissions since the United Nations Framework Convention on Climate Change (UNFCCC) started the ball rolling in 1992. The red line is a projection of the black line. The blue line, which intersects zero in 2117, amounts to 500 Gt of future carbon emissions. I assumed a linear decrease for simplicity but other pathways are of course possible:

Figure 1: Current position on cutting global emissions to “safe” levels

Obviously the world is going to have to reverse course in a hurry if it is to have any chance of keeping warming below the 2C danger threshold. What are the chances that it can? Let’s look at which countries the emissions are coming from and see what the prospects are.

The world’s emitters are commonly divided into two categories – the “developed” countries, such as the US, UK, Germany and Japan, and the “developing” countries, such as Egypt, India, Malawi and Paraguay. We will look first at the developed countries, which presently emit a third of the world’s carbon. Developed country emissions for 1970 through 2012 are summarized in Figure 2:

Figure 2: Developed country emissions from fossil fuel burning, 1970-2012

The United States accounts for 16% of global emissions (the percentages given here are from 2012 EDGAR data). US emissions have been trending down since 2005 partly because of the shale gas boom and partly because of the 2008 recession. The Obama administration recently adopted rules designed to cut US emissions further but whether they will survive is uncertain, and even if they do the chances that Congress as presently constituted will agree to emissions cuts unless the developing countries follow suit are effectively zero. The 1997 US Senate rejected US participation in the Kyoto Protocol for this reason, and given the opportunity the present Senate would do the same.

The European Union accounts for 11% of global emissions. For some years the EU has been setting an example to the world by unilaterally pursuing ambitious emissions targets, although so far with little to show for it (the downtrend in EU emissions since 2006 is largely a result of the 2008 recession and the EU’s slow recovery). The realization that the EU can’t save the planet all by itself is, however, finally beginning to sink in, and as a result the EU has hardened its negotiating position, stating at the Lima climate talks that mandatory emissions targets must now be set for all countries, not just the developed ones.

Australia, Canada and Japan collectively emit 7% of the world’s carbon. All three are presently somewhat less than enthusiastic about emissions cuts and are unlikely to become greatly more enthusiastic in the foreseeable future. They won’t move unless everyone else does.

Now on to the developing countries, which emit two-thirds of the world’s carbon and are responsible for all of the growth in global emissions since the world embarked on its quest to cut them in 1992. Developing country emissions are summarized in Figure 3:

Figure 3: Developing country emissions from fossil fuel burning, 1970-2012

China, which now accounts for 29% of global emissions (according to EDGAR; other sources put the figure at 25-26%) is the key player. The UNFCCC exempts China and the other developing countries from emissions caps – in fact it encourages them to build more power plants in order to eradicate poverty – and China wants to keep it that way. China pays lip service to the need to combat climate change but considers economic development far more important, as illustrated in Figure 4. The total disregard for the “Spirit of Kyoto” is almost comical:

Figure 4: China’s emissions before and after ratifying the Kyoto Protocol

(The lip service consists of a) China’s 2005 commitment to reduce its carbon intensity – the amount of carbon emitted per unit of GDP – by 40-45% by 2020 and b) its recent commitment to make its best efforts to peak its emissions by 2030. Figure 4 shows what happened to China’s emissions after its 2005 commitment. Its latest commitment pretty much guarantees that its emissions will continue to rise for at least the next 15 years.)

India, with 6% of global emissions, makes no bones about where it stands: “The world must accept that India’s per capita carbon emissions will need to rise rapidly if it is to eliminate poverty, the environment minister said on Friday, as delegates meet in Lima for key UN climate change talks.” Economic development takes priority over the need to combat climate change in India too, as illustrated in Figure 5:

Figure 5: India’s emissions before and after ratifying the Kyoto Protocol

The position of Russia, which accounts for 5% of global emissions, is predictable. Under Kyoto Russia committed to keep its emissions below 1990 levels and its emissions are still well below 1990 levels (Figure 3). Putin has other things to worry about anyway.

The other developing countries, which collectively contribute 26% of global emissions, include some in a reasonably advanced state of economic development, such as South Korea and Chile, but otherwise are mostly poor. The poor countries are more than willing to limit their emissions provided the developed countries pay all the costs, and in 2011 the Green Climate Fund was set up to get the ball rolling. So far, however, contributions amount to only $10 billion – a negligible sum relative to the scale of the undertaking. We can safely assume that funds on the scale necessary to reverse the 3% historic annual growth rate in other developing country emissions will not be made available, or at least not quickly enough to do any good.

The bottom line is that the developed countries won’t commit to emissions cuts of the magnitude necessary to stay below the 2C threshold unless the developing countries shoulder at least some of the burden, but the developing countries aren’t going to sacrifice economic development on the altar of climate change, threshold or no threshold. The most they are likely to agree to is token measures that get good publicity but which don’t cut emissions, as China has already done. As a result the developed countries will again be left to go it alone, which as shown in Figure 6 is an exercise in futility:

Figure 6: Developed and developing country carbon emissions, 1970-2012

The conclusion is inescapable. However desirable it may be to protect the Earth from the dire consequences of a runaway climate the chances that the world will agree to cut its emissions quickly enough to stay below the 2C threshold are somewhere between zip, zilch and zero. (There’s also the question of whether cuts of the magnitude necessary would be politically, economically and technologically achievable if the world does agree, but we’ll leave it aside here.)

Now imagine that you are one of the prominent politicians – Obama, Kerry, Merkel, Ban Ki-moon, Hollande, Cameron, Davey, whoever – who have publicly and repeatedly stated that climate change is the greatest threat facing the world, that the world is in serious trouble if nothing is done to stop it but that a solution is still within our reach. What do you tell people when next year’s make-or-break Paris climate talks show that it isn’t?

Mar 262014
 March 26, 2014  Posted by at 7:40 pm Earth Tagged with: , , ,  9 Responses »

Detroit Publishing Co Galveston Flood disaster cyclorama, Coney Island 1904

If there’s one thing that defines why we, and the world we live in, are doomed, it can be found – once more – in a recent spat of (leaked) reactions to the upcoming new IPCC report. We’ve come a long way since skeptics started budging in the way creationists demand equal time on the new Cosmos series – only more successful – and now we’re way past mere skepticism. Not only has it become totally acceptable to pooh pooh and hush hush climate change, we’ve arrived at the point where we go look for positive angles.

The first step in the new message is that things are not nearly as bad as we were once told, as is so craftfully put in words by the subtle change from ‘mitigation’ to ‘adaptation’. Throwing in the term ‘resilience’ further enforces the positive notion. As the Telegraph puts it:

Climate Change: The Debate Is About To Change Radically

The latest report from the UN’s Intergovernmental Panel on Climate Change (IPCC) is due out next week. If the leaked draft is reflected in the published report, it will constitute the formal moving on of the debate from the past, futile focus upon “mitigation” to a new debate about resilience and adaptation.

The new report will apparently tell us that the global GDP costs of an expected global average temperature increase of 2.5 degrees Celsius over the 21st century will be between 0.2% and 2%. To place that in context, the well-known Stern Review of 2006 estimated the costs as 5-20% of GDP. Stern estimates the costs of his recommended policies for mitigating climate change at 2% of GDP – and his estimates are widely regarded as relatively optimistic (others estimate mitigation costs as high as 10% of global GDP).

Achieving material mitigation, at a cost of 2% and more of global GDP, would require international co-ordination that we have known since the failure of the Copenhagen conference on climate change simply was not going to happen. Even if it did happen, and were conducted optimally, it would mitigate only a fraction of the total rise, and might create its own risks. And to add to all this, now we are told that the cost might be as low as 0.2% of GDP. At a 2.4% annual GDP growth rate, the global economy increases 0.2% every month.

See? We would be robbing ourselves by paying any further attention to Nicolas Stern, who just 8 years ago exaggerated the economical costs of climate change as much as 1000%. Has Stern now been found out to be a charlatan? Well, that too, and the science has greatly improved, through the addition of think tanks and scientists that know before they start researching that all dire warnings are just bogus anyway.

And no-one can seriously expect us to do anything drastic like shaking up the comfort we live in if the dollar cost is so low in comparison to the inconveniences we would have to suffer, can they?

So the mitigation deal has become this: Accept enormous inconvenience, placing authoritarian control into the hands of global agencies, at huge costs that in some cases exceed 17 times the benefits even on the Government’s own evaluation criteria, with a global cost of 2% of GDP at the low end and the risk that the cost will be vastly greater, and do all of this for an entire century, and then maybe – just maybe – we might save between one and ten months of global GDP growth. Can anyone seriously claim, with a straight face, that that should be regarded as an attractive deal or that the public is suffering from a psychological disorder if it resists mitigation policies?

But don’t let’s stop there; It’s not only that monetary costs are now claimed to be less than thought before, no, climate change should even be seen as offering opportunities:

Global warming poses risks, but also opportunities: IPCC

“Although it focuses on a whole analytical and sometimes depressing view of the challenges we face, it also looks at the opportunities we face,” said Christopher B. Field, the co-chair of the Intergovernmental Panel on Climate Change. “This can not only help us to deal with climate change but ultimately build a better world.”

This is of course just another way of saying: “how much money can we make from destroying the world we live in?” But that’s undoubtedly not how the IPCCs Mr Field would like you to see it. The IPCC long ago stopped being a serious research organization. Institutes and corporations who felt threatened in their ability to make money and hold on to power have successfully infiltrated it and demanded “equal airtime”.

And that’s a perfect reflection of the societal model we live in. Every single thing in our lives gets reduced to its dollar value. And if it’s too costly, sorry, but we must throw it out. Every plant, every river, every animal, every sunset and every human being only have a value insofar as it can be expressed in dollar terms.

Which is bad news for polar bears and lions and rhinos – and ultimately people, first in Africa, Asia, South America, then at home -, since they have value only as tourist attractions. And isn’t it much more convenient and cost effective to dump a few of each in a zoo somewhere so we can simply drive to go see them, instead of going on safari’s or Arctic cruises?

Nature is useless on its own; it only has a perceived value where we can stick a price tag on it. No matter that nature is where we come from and are an integral part of, and it never came with a bottom line until we invented one. Despite the fact that we have very little idea of how nature actually works. But then, that is the core of our tragedy, isn’t it? We manage to fool ourselves into believing that we are mighty smart. That’s a surefire way to get everything that really counts all wrong.

Our children and children’s children are going to find out that the only thing we really know about complex systems is that we don’t know much of anything about them. And that when risking to disturb them, the precautionary principle should always be the first thing on our minds.

Assigning dollar values to everything we see around us is a convenient simplification of things, and it guarantees that those who already have most dollars stay on top, but there’s nothing smart about it when you look at it in terms of complex systems or the precautionary principle.

But the worst part must be that it doesn’t make anyone any happier, either. And that we’re not capable of understanding that. We don’t know what makes us happy. We need other people to tell us what does. And there’s a lot of other people who see profit opportunities in that.

Anyway, this is why we’re doomed: if we don’t understand the consequences of our actions, then we just ignore them. Thinking that if we don’t understand them, how bad can they be? Since we are very smart, right? Thing is, if we were so smart, why do we feel the need to almost infinitely simplify our view of the planet’s almost infinitely complex system, by attaching price tags to everything? Either from a rational, scientific point of view, or from an emotional point of view, how does that make sense?

The US Is Now Spending 26% Of Available Tax Revenue To Pay Interest (Sovereign Man)

By the 19th century, the Ottoman Empire had become a has-been power whose glory days as the world’s superpower were well behind them. They had been supplanted the French, the British, and the Russian empires in all matters of economic, military, and diplomatic strength. Much of this was due to the Ottoman Empire’s massive debt burden. In 1868, the Ottoman government spent 17% of its entire tax revenue just to pay interest on the debt.

And they were well past the point of no return where they had to borrow money just to pay interest on the money they had already borrowed. The increased debt meant the interest payments also increased. And three years later in 1871, the government was spending 32% of its tax revenue just to pay interest. By 1877, the Ottoman government was spending 52% of its tax revenue just to pay interest. And at that point they were finished. They defaulted that year.

This is a common story throughout history. The French government saw a meteoric rise in their debt throughout the late 1700s. By 1788, on the eve of the French Revolution, they spent 62% of their tax revenue to pay interest on the debt. Charles I of Spain had so much debt that by 1559, interest payments exceeded ordinary revenue of the Habsburg monarchy. Spain defaulted four times on its debt before the end of the century.

It doesn’t take a rocket scientist to figure out that an unsustainable debt burden soundly tolls the death knell of a nation’s economy, and its government. Unfortunately, it can sometimes take a rocket scientist to figure out what the real numbers are; governments have a vested interest in not being transparent about their debts and interest payments.

[..] … total US interest payments in Fiscal Year 2013 were a whopping $415 billion, roughly 17% of total tax revenue. Just like the Ottoman Empire was at in 1868. Here’s the thing, though– it’s inappropriate to look at total tax revenue when we’re talking about making interest payments. The IRS collected $2.49 trillion in taxes last year (net of refunds). But of this amount, $891 billion was from payroll tax. According to FICA and the Social Security Act of 1935, however, this amount is tied directly to funding Social Security and Medicare. It is not to be used for interest payments.

Based on this data, the amount of tax revenue that the US government had available to pay for its operations was $1.599 trillion in FY2013. This means they actually spent approximately 26% of their available tax revenue just to pay interest last year… a much higher number than 17%. This is an unbelievable figure. The only thing more unbelievable is how masterfully they understate reality… and the level of deception they employ to conceal the truth.

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You’re Still Giving the Big Banks a Handout (Bloomberg)

The largest U.S. banks and their lobbyists have been trying hard to counteract the growing impression that they present an unacceptable threat to the economy. In a new series of papers, the Federal Reserve Bank of New York offers some evidence that they probably won’t like. Critics of the big banks assert that repeated government bailouts have created a perverse incentive: The bigger and more systemically important a bank becomes, the more certain its creditors can be that they will get rescued in an emergency. Such too-big-to-fail status, the logic goes, allows banks to borrow more cheaply than they otherwise would — a taxpayer subsidy that encourages them to take the kind of risks that lead to disasters.

The contributions from the New York Fed economists support this narrative in two ways: They place a value on the big banks’ funding advantage, and they suggest that banks with government support do tend to take bigger risks. Looking at new bond issues from 1985 to 2009, New York Fed Vice President Joao Santos estimates that the largest banks paid 0.31%age point less when they issue A-rated debt than when their smaller peers did (after controlling for some idiosyncratic features of the bonds). He also found that the discount was significantly greater than what large companies enjoyed in other industries, undermining bank lobbyists’ argument that the funding advantage stems from the general benefits of size rather than from their too-big-to-fail status.

The study has some important blind spots. Its bond data go only through 2009, so it can’t show what, if anything, the 2010 Dodd-Frank financial-reform law may have done to reduce the taxpayer subsidy. Also, when grouping bonds by rating category, it ignores the rating uplift the largest banks receive thanks to the expectation of government support. This would have the effect of underestimating their funding advantage — a problem common among studies of the too-big-to-fail subsidy.

Perhaps more interesting is a separate paper in which Santos and two co-authors find that banks make more bad loans when they have a reasonable expectation of getting bailed out in a crisis. Specifically, the authors look at a special credit rating, issued by Fitch, that assesses the likelihood of government support. A one-notch increase in the rating — say, from A-minus to A — is associated with an 8% increase in a bank’s ratio of non-performing loans.

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Hundreds Rush To Rural Chinese Banks After Solvency Rumours (Reuters)

Hundreds of people rushed on Tuesday to withdraw money from branches of two small Chinese banks after rumours spread about solvency at one of them, reflecting growing anxiety among investors as regulators signal greater tolerance for credit defaults. The case highlights the urgency of plans to put in place a deposit insurance system to protect investors against bank insolvency, as Chinese grow increasingly nervous about the impact of slowing economic growth on financial institutions. Regulators have said they will roll out deposit insurance as soon as possible, without giving a firm deadline.

Domestic media reported, and a local official confirmed, that ordinary depositors swarmed a branch of Jiangsu Sheyang Rural Commercial Bank in Yancheng in economically troubled Jiangsu province on Monday. The semi-official China News Service quoted the bank’s chairman, Zang Zhengzhi, as saying it would ensure payments to all the depositors. The report did not say how the rumour originated. Chen Dequn, a resident in Yandong, just outside Yancheng, said she saw a crowd of about 70 to 80 people gathering in a branch of Sheyang Rural Commercial Bank in her town on Tuesday. “At the moment there are about 70 or 80 people in there. Normally there’d only be about 10,” she told Reuters by telephone.

Officials at another small bank, Rural Commercial Bank of Huanghai, said they had faced similar rushes by depositors, triggered by rumours of insolvency at Sheyang. “We will be holding an emergency meeting tonight,” an official at the bank’s administration office told Reuters, but declined to comment further. Why Yancheng investors suddenly lost confidence in the security of their bank deposits is not clear, given that the Sheyang bank is subject to formal reserve requirements, loan-to-deposit ratios and other rules to ensure it keeps sufficient cash on hand to meet demand. Bank failures in China are virtually unknown, as Chinese banks are considered to operate under an implicit guarantee from the government.

Finally, money market interest rates have eased since February, and traders say liquidity in the interbank market – where banks like Sheyang can tap short-term funds to meet depositor demand – remains relatively relaxed. “It’s true that these rumours exist, but actually (the bank going bankrupt) is impossible. It’s a completely different situation from the problem with the cooperatives,” said Zhang Chaoyang, an official at the propaganda department of the Communist Party committee in Tinghu district, where the bank branch is located. Zhang was referring to an incident that rattled depositors in Yancheng in January, when some rural cooperatives – which are not subject to the supervision of the bank regulator – ran out of cash and locked their doors.

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High Debt, Slow Sales Loom Over Chinese Property Firms (SCMP)

All eyes are now on a few Chinese real estate developers particularly vulnerable to slow sales and tight credit, as mainland China’s property market enters a new downturn. On the watch list are Hopson Development, Renhe Commercial, Glorious Property and Coastal Greenland, all suffering from either weak sales or high debt ratios, according to global ratings agencies. These companies are scheduled to announce annual results Thursday or Friday.

Glorious Property issued a profit warning last week, saying that lower gross profit margin, provision for impairment losses on some unsold units and smaller gains in the fair value of investment properties would result in “a significant decrease” in net profit for last year. At the end of June, Glorious Property (36%) and Hopson (42.8%) had the lowest ratio of cash versus short-term debt among all mainland Chinese developers rated by Moody’s.

Adding to their cash strain is the extra caution being exercised by domestic banks when lending to developers after the collapse of a small private property firm in Ningbo and the first onshore debt default by a solar energy firm earlier this month that shattered the long-held belief that Beijing would always bail out struggling firms. “In this environment, we believe financiers and investors will become more selective and favour borrowers with relatively strong credit quality, thereby further pressuring the liquidity of financially weak developers,” said Franco Leung, a property analyst at Moody’s Investors Service.

Both Leung and Matthew Kong from Standard & Poor’s ruled out the possibility of any short-term systemic risk, while expecting bigger developers to become even stronger. “The key lies in developers’ sales execution this year,” Kong said. “But bankruptcies are less likely, as they can opt to sell assets to peers and quit the market.” Shou Bainian, chief executive of Greentown China, said on Monday: “If their assets are good, there is still hope (of survival).” “But if their assets are not so good, neither is their reputation – then it will become more difficult.”

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China Poised To Ramp Up Its Stimulus Policies (SMH)

Signs that China’s economy is coming off the boil are fuelling speculation that the country’s government will step in with new stimulus measures and could even cut official interest rates. But any stimulus measures are expected to stop short of the massive economic “pump priming” undertaken by the country in 2008-09, when the central government announced a four trillion yuan package.

“Can growth stabilise without a major change of policy stance? We believe it cannot, as tight labour market conditions suggest that potential growth has already dropped to around 7% or below,” analysts at Japanese broker Nomura said in a note. “From a cyclical perspective the cumulative policy tightening since mid-2013 will likely damage investment momentum in coming quarters unless the policy stance loosens.”

While the Chinese government has sought to pursue its long-term policy of reforming the country’s economy and shifting it away from investment-led growth, Nomura said it could turn back to its short-term goals if, as expected, the growth target for this year is not reached. China set a growth target of 7.5% this year, the same level of economic expansion it had targeted over the past two years. Economists have said that recent data, such as a weakening in manufacturing activity, meant that the government would have loosen fiscal and monetary policies if it wants to met its GDP target.

“When short-term objectives are challenged, the government usually shifts its focus toward promoting growth. We have witnessed this ‘two-step forward, one-step back’ style of policy swings in the past,” the analysts wrote. The latest reading of manufacturing activity, from HSBC’s March preliminary survey, showed that the sector had shrunk for the third-straight month. It also followed a fall in exports and weaker industrial output figures. Some economists have also revised down their outlook for Chinese growth.

Policy levers that the central government looks most likely to pull include cuts to banks’ reserve requirement ratio (RRR) to boost growth amid high overall financing costs. Nomura’s analysts are tipping RRR cuts of 50 basis points in the second-quarter of this year, and further easing of 50 basis points in the third-quarter. The supply of credit through bank loans and total social financing is also expected to rise, while the likelihood of interest rate cuts is increasing, the analysts wrote.

Economists said the recent weakening of the yuan, while seen as being part of the People’s Bank of China’s attempts to punish speculators betting on the continued rise of the renminbi, could also provide some relief to local exporters. At the same time, the weakening of the currency, which analysts believe was through the central bank’s intervention in foreign exchange markets, has lowered domestic interest rates and made funding cheaper for borrowers.

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Morgan Stanley Dismisses Talk of China Minsky Moment (Bloomberg)

Morgan Stanley is sticking to its buy recommendation on Chinese stocks, saying concern that there’ll be a “significant market disruption” in the world’s second-largest economy is overstated. China’s consumption and services are bigger than officially reported, giving the economy more room to cope with slowing productivity growth, the Morgan Stanley analysts said. The government’s reforms and its “formidable” financial resources will help policy makers transform the economy without triggering a debt crisis, the analysts wrote in a report in which they kept their overweight calls on both Chinese and Russian equities.

The economy’s slowdown and rising debt levels pushed the Hang Seng China Enterprise Index (HSCEI), which tracks Chinese firms listed in Hong Kong, into a bear market on March 20. While Morgan Stanley’s analysts said that debate is mounting about whether China is approaching a “Minsky moment,” a term used to explain an asset collapse following the exhaustion of credit expansion, they said they remain bullish. “The apparent deterioration in productivity and diminishing returns to leverage are not as severe as the consensus thinks when one takes into account true activity” in the consumer and service sectors of the economy, Morgan Stanley analysts led by Jonathan Garner wrote in the note.

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China Finds The Credit Habit Hard To Kick (Satyajit Das)

China has had a 35-year addiction to cheap credit. The 2007/2008 global financial crisis and the resulting rare synchronous recessions in the developed world exposed China’s economy, especially its export sectors, to a large external demand shock – slowing growth. The recovery has been driven by a significant expansion in credit (known as TSF – total social financing). Post-crisis, new lending by Chinese banks has been consistently about 30% or more of GDP. About 90% of this lending was directed towards investment in building, plant, machinery and infrastructure, especially by state-owned enterprises.

According to the World Bank, almost all of China’s growth since 2008 has come from “government-influenced expenditure”. This expansion led to a rapid increase in the level of debt. Most estimates now put Chinese government (including local government), corporate and household debt at about 200-250% of GDP, up from about 140-150% in 2008. According to a 2013 report by China’s National Audit Office, Chinese government debt, including local government debt, is about 55% of GDP –about $5 trillion (£3 trillion) – an increase of about 60% from 2010.

But the official Chinese government debt figure may not be complete, as it may exclude debts from local governments and central departments outside the finance ministry. If these items are included, China’s government debt including contingent liabilities would be higher, perhaps 90% of GDP. There has been a parallel increase in private sector debt. Corporate debt has increased sharply, approaching 150% of GDP. Traditionally considered compulsive savers, Chinese households have increased borrowing levels from about 20-30% to 40-50% of GDP. Inflation has driven increases in household borrowing, with sharply higher home prices requiring greater borrowings and devaluation of purchasing power encouraging debt-fuelled consumption.

China’s overall debt is high, especially when benchmarked against comparable emerging markets. Many Asian emerging markets had lower debt and higher per capita GDP before the Asian monetary crisis of 1997/1998. The rapid rate of increase in debt is also seriously concerning. An increase in debt of about 30% of GDP in five or less years is regarded as problematic. Several economies – Japan in the late 1980s, South Korea in the 1990s, not to mention the US and UK in the early 2000s – experienced similar rapid growth rates in credit, resulting in serious financial crises.

Another measure is the credit gap – the difference between increases in private sector credit growth and economic output. Research studies have found that 33 countries with credit gaps experienced a subsequent rapid slowdown in growth, typically by at least 50%. In China, the credit gap since 2008 is over 70% of GDP. Chinese credit intensity (the amount of debt needed to create additional economic activity) has increased. China now needs about $3-$5 to generate $1 of additional economic growth, although some economists put it even higher, at $6-$8. This is an increase from the $1-$2 needed for each dollar of growth 8 to 10 years ago.

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Hong Kong’s Soaring Bank Exposure to China Sparks Credit Concerns (Reuters)

In just a few years, Hong Kong banks have ramped up lending to China from near zero to $430 billion, fueling concerns about their credit exposure to the mainland at a time when sliding economic growth and defaults are making investors nervous. Even a modest increase in non-performing loans would have a significant impact on Hong Kong bank profits, suggesting the sector will be a sensitive indicator of China’s debt markets in the year ahead.

A landmark domestic bond default earlier this month and headlines of bankruptcies – highlighted last week by Zhejiang Xingrun Real Estate Co – have underscored concerns that an unprecedented surge in company debt in China is now showing signs of unraveling. “The quality of these loans extended by Hong Kong banks to Chinese companies has not been tested,” said Mirza Baig, head of foreign exchange and interest rate strategy at BNP Paribas in Singapore. “That is a concern in the backdrop of the rapid rise in exposure.”

Foreign bank claims on China hit $1 trillion last year, up from nearly zero 10 years ago, Bank of International Settlements data shows. The biggest portion of that is provided by Hong Kong, according to analyst estimates of the BIS data. The $430 billion in loans outstanding represents 165% of Hong Kong’s GDP, figures in Hong Kong Monetary Authority (HKMA) reports show.

Data from the HKMA, the city’s de-facto central bank, showed a similar astonishing rise. By the end of 2013, Hong Kong banks’ net claims on China as a percentage of their total loan book was nearing 40 percent, compared with zero in 2010. The rival financial center of Singapore has ramped up its China loans as well, but its exposure is the equivalent of 15% of its GDP, figures from its monetary authority show.

Local banks in both these centers have taken over lending that foreign banks once dominated, drawn by cheap funding rates following the global financial crisis, a voracious appetite from Chinese borrowers and healthy growth in the world’s second-biggest economy.

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Bank of Japan Decision on Extra Easing Possible in May (Bloomberg)

The Bank of Japan could decide as soon as mid-May whether further stimulus is needed to keep inflation on track for its 2% target after a sales-tax bump next month, an adviser to Prime Minister Shinzo Abe said. “If the BOJ judges that the economy has fallen off its projected path, it will act appropriately and flexibly, and further easing is possible,” Etsuro Honda said in an interview at the Prime Minister’s Office in Tokyo yesterday. “I believe the BOJ will act if it sees changes in price expectations.”

While Honda, 59, said he’s become more confident the economy will withstand the higher levy as inflation expectations take root and price gains accelerate, the first indications of the extent of the blow will appear in May. Honda said he sees “considerable” room for the BOJ to boost the pace it buys exchange-traded funds should it deem more stimulus is needed. The economy is forecast to contract an annualized 3.5% in the three months from April, when the sales levy will rise to 8% from 5%. Abe is lifting the tax in an effort to rein in the world’s biggest debt burden, even as he tries to end 15 years of deflation with fiscal and monetary stimulus and steps to boost private-sector growth.

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Bundesbank Opens The Door To QE Blitz (AEP)

The last bastion is tumbling. Even the venerable Bundesbank is edging crablike towards quantitative easing. It seems that tumbling inflation in Germany itself has at last shaken the monetary priesthood out of its ideological certainties. Or put another way, the Pfennig has dropped that euroland is just one Chinese shock away from a deflation trap, an outcome that would play havoc with the debt dynamics of southern Europe, render the euro unworkable, and ultimately inflict massive damage on Germany.

Bundesbank chief Jens Weidmann was not exactly panting for QE in comments to Market News published this morning, it has to be said, but the tone marks a clear shift in policy. “The unconventional measures under consideration are largely uncharted territory. This means that we need a discussion about their effectiveness and also about their costs and sideeffects”, he said. “This does not mean that a QE programme is generally out of the question. But we have to ensure that the prohibition of monetary financing is respected”.

At least we can put to rest the bogus argument that EU Treaty law (Article 123) prohibits QE by the European Central Bank. This claim was always a smokescreen. Bond purchases are what used to be known as open market operations, a tool of central banks dating back into the mist of monetary history. Purchasing bonds across the board (not just the bonds of insolvent states) is a plain vanilla liquidity management tool.

Mr Weidmann says he prefers negative interest rates as the first resort. This is an admission that the ECB is alarmed by the strength of the euro as it hovers near the pain barrier of $1.40, since negative rates are a sure-fire way to drive down the currency. “If you wanted to counter the consequences of a strong appreciation of the euro for the inflation outlook, negative rates would, however, appear to be a more appropriate measure than others”, he said. Quite so.

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ECB Bank Stress Tests Hit Legal Blind Spot (BusinessWeek)

The European Central Bank will soon find out how hard it can be to keep a secret. The ECB’s plan to keep its health check on euro-area lenders under wraps until the completion of a stress test in October could be undermined by national rules requiring disclosure far sooner. Domestic regulators may order banks to tap the market immediately if an Asset Quality Review ending in July shows they need more capital, according to law firms including Clifford Chance LLP.

The risk is that market volatility could rise if multiple announcements cast doubt on the ECB’s control of a process designed to clean up balance sheets. Officials from the 128 lenders in the appraisal are meeting supervisory staff in Frankfurt today for an update on the Comprehensive Assessment, which includes both the AQR and the stress test. The ECB has said the exam will be more credible than previous efforts to restore trust to the financial system.

“This is the biggest blind spot in the ECB’s program,” said Nicolas Veron, a fellow at the Bruegel institute in Brussels and the Peterson Institute for International Economics in Washington. “The banks are still subject to national law, and it’s not clear to me that the ECB had fully integrated this into their planning for the Comprehensive Assessment. They don’t seem to have a very clear stance.” The ECB has said the AQR and stress test are related stages in a single exercise and there will be no partial reporting of results before the process finishes in October. The central bank will become the euro area’s bank supervisor on Nov. 4.

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Mirage of the ‘new economy’ (Caixin)

The current Internet boom, centered around social networking, e-commerce and online gaming, has not produced a significant productivity boost for the economy and likely will not in the future. The boom is mostly about redistributing existing demand from offline to online. As most hot businesses have gained market share with cheap financing and without profit, it is doubtful that the demand re-slicing is entirely due to a more efficient channel of distribution. Cheap financing, i.e., a liquidity bubble, may have been the main engine for the Internet boom.

The bubble may not inflict much damage on its own because the amount of financing is small relative to the overall size of investment in the global economy. The danger to China is that it offers false hope that it can revive the economy. The false hope becomes an excuse not to implement painful structural reforms. If one envisions a rising tide to lift the economy ahead, where is the incentive to reform?

How a product is sold is insignificant compared to the product itself. Steve Jobs had the iPhone to sell. Whether the phones are sold online or through posh Apple stores is not important. A sustainable economy is based on businesses that make better products at lower costs over time. An economy full of colorful middlemen and no unique or high-value products cannot go far.

China’s only path forward is to increase efficiency on the supply side and shift the savings to the household sector as an increase in real purchasing power. This requires major reductions in government and state-owned enterprise spending, and boosting competition by eliminating government-approved market access. A necessary condition is for the high-yield debt bubble to burst.

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Brazil at risk of recession as S&P downgrades debt to near junk (AEP)

Brazil’s sovereign debt is one step away from junk after Standard & Poor’s downgraded Latin America’s powerhouse economy, prompting a furious reaction from the Brazilian treasury. The rating agency cut Brazil’s debt one notch to BBB-, citing “fiscal slippage”, bad economic management, and one-off tricks that flattered the public accounts. It warned of a widening trade deficit and weak growth for years to come.

Marcelo Carvalho from BNP Paribas said the former darling of the BRICs quartet is staring “down the barrel of a recession”, a viewed echoed on Tuesday by Mark Mobius from Templeton Emerging Markets. The economy escaped recession with a rebound in the fourth quarter but has relapsed this year as punitive borrowing costs exact their toll. Carlyle Group had to inject $67m this month into its Urbplan real estate venture as unsold malls and commercial projects build up in the major cities. Rental prices fell 15% in Sao Paulo last year.

Marcelo Ribera from the hedge fund Pentagono Asset Management in Brazil said the country’s “decade-long bubble” has burst, warning that the real is likely to fall by 40% against the dollar as the excesses are purged from the system. Brazil, Russia, and Turkey are each on the brink of recession after tightening monetary policy to defend their currencies. All three neglected reforms during the boom years and now face much harsher global conditions as the US Federal Reserve turns off the spigot of dollar liquidity.

Brazil’s authorities rejected S&P’s claims as completely “unfounded”, insisting that the country has a primary budget surplus of 1.9% of GDP, “one of the highest in the world”. The downgrade is a harsh blow for President Dilma Rousseff as she prepares to host the World Cup and braces for elections this year, though the government is unlikely to change policy. S&P said Brazil has yet to feel the full impact of a 350 basis point rise in interest rates. Yields are now an eye-watering 13%, or 7% in real terms. This has sucked in a rush of foreign money but at a high economic cost.

Brazil has come down to earth with a thud after the glory days of the commodity boom, when the economy seemed near take-off as the top supplier of iron ore and grains for China. It became a textbook case of the “Dutch disease”, suffering from an overvalued currency that “hollowed out” core industry. Industrial output is barely higher today than in 2008, a picture more like Italy than an Asian tiger.

Neil Shearing from Capital Economics said private sector credit has soared by over 40 percentage points of GDP in a decade, the third most extreme case after China and Thailand. This sort of increase is often the precursor for banking crises in emerging markets. “The lessons from history are ominous. The fall-out tends to be especially painful when lending is funded by borrowing from overseas and denominated in foreign currencies”, he said. “This is a particularly toxic combination since, when the bubble bursts, investors tend to pull the plug, exchange rates collapse and the local currency cost of servicing debt jumps. This in turn causes default rates to soar and the economic downturn to deepen.”

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Ukraine Only Has Enough Gasoline For A Month (Zero Hedge)

Nothing to see here, move along. While it appears the Russians are willing to pay the price of modest sanctions from the west to ‘liberate’ their fellow countrymen, the fallout from further tension with Ukraine could “boomerang” once again on the divided nation. As RBC Ukraine reports, the Minister of Energy and Coal Industry Yuriy Prodan said at a press conference today that “oil reserves will last for 28-29 days” in Ukraine. After that, the negotiation begins as Ukraine already owes billions for previously delivered gas – as Ukraine’s storage levels more than halved in the last 3 months.

Via RBC Ukraine,

Stocks of petroleum products in Ukraine will last for 28-29 days, said at today’s press conference, the Minister of Energy and Coal Industry Yuriy Prodan. “Speaking on the situation with oil, then ensure there is quite stable. Today oil reserves will last for 28-29 days,” – he said, the ” RBC-Ukraine . ”

At the same time, the Minister noted the significant risk reduction in the supply and rising gas prices. As of March 25, 2014 in Ukrainian underground gas storage facilities located 7 billion cubic meters of gas. “Up there can be about 2 billion is not the quantity that scares experts, it would be possible to hold only a week. It all depends on what kind of regime will be whether we can take about 20 million cubic meters. Meters of gas to reverse and so on “- said Prodan.

According to the company “Ukrtransgaz” abnormally warm winter 2013 2014 has reduced gas extraction from underground storage by an average of 37% compared to the same period last year: it was 60 million cubic meters per day. In late December 2013. occupied at the time the post of Minister of Energy and Coal Industry of Edward Stawicki reported that Ukrainian gas reserves in underground storage is 16.5 billion cubic meters.

We suspect any further military intervention will only crimp this supply even faster.

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Lithuania Pleads For US Gas Exports To Counter Russia (BBC)

Lithuania’s energy minister has called on the US Senate to speed up the export of natural gas to Europe. Jaroslav Neverovic said that Lithuania was being forced to pay a “political price” for being entirely dependent on Russian gas supplies. The crisis in Ukraine has led to calls for the US to ease its current restrictions on gas exports. Some analysts have suggested that doing so would help challenge Russia’s dominance in the sector.

In his statement to a US Senate committee, Mr Neverovic urged members to do everything within their power to release natural gas resources “into the world market”. “A law enacted in your country some 75 years ago denies us access to your abundant and affordably priced energy resources,” he said. The energy minister said customers in Lithuania were having to pay 30% more for natural gas than other European nations, because they were “beholden to a monopolistic supplier.” “This is not just unfair,” said Mr Neverovic. “This is abuse of monopolist position.”

The crisis in Ukraine has seen the US and European Union impose sanctions targeting members of the Russian political elite. They have had their European and US assets frozen, and travel bans have been put in place to restrict their movements. However, some analysts have argued that these moves are symbolic and any sanctions would only work if they impacted the wider Russian economy.

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Milk Row Threatens To Sour Greece’s Latest Bailout Deal (Reuters)

Greece’s government risks another rebellion over bailout terms this week after milk producers lobbied against a move to free up prices as part of efforts to make the economy more competitive. The country’s international lenders want it to ditch rules, such as limiting the shelf life of fresh milk to five days, that effectively deter importers. But Greek dairy producers and lawmakers representing farming constituencies are fighting the move to call milk up to 11 days old ‘fresh’ – the latest in a long line of last-minute disruptions to Greece’s bailout reviews with the European Union and International Monetary Fund.

Six lawmakers from within the ruling coalition – three from Prime Minister Antonis Samaras’s New Democracy party and three from the Socialist PASOK – have opposed the proposal that will be submitted to parliament on Friday as part of an omnibus reform bill that Greece must pass to secure bailout aid. If they vote against it, Samaras and PASOK leader Evangelos Venizelos could be forced to expel them, further reducing the government’s slim majority of just 153 seats in the 300-seat assembly.

The bill – which will pave for the way for up to 10 billion euros ($14 billion) of aid – is expected to pass after last-minute wrangling, but the row has highlighted how powerfullobbies can undermine the country’s bailout lifeline. “You don’t need to be an expert to understand that extending the shelf life is aimed at allowing milk from abroad to be labelled as fresh,” PASOK lawmaker Mihalis Kassis told Greek radio at the weekend. “If that’s a prerequisite by the (EU/IMF) troika then we deserve what we get.”

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U.S. Farmers Mark Spring by Planting GMO Corn Banned in China (Bloomberg)

Archer-Daniels-Midland Co. and Bunge Ltd. , two of the world’s largest grain traders, are facing a new obstacle in their quest to expand corn exports to China – U.S. farmers. Six months after China began rejecting shipments of a genetically modified corn, Bunge says it won’t take deliveries of the variety developed by Switzerland’s Syngenta AG. ADM will test the corn and may reject it as well. Even so, farmers will soon begin planting it this spring, more interested in its high yield for the domestic market than for exports.

Exporters and farmers going in two different directions on GMO corn underscores a new set of challenges faced by international agricultural commodity traders. Even as demand continues to grow in line with the global population, China and other countries have been slower than the U.S. to approve new types of crops amid concerns about food safety and threats to biodiversity from genetically modified organisms, or GMOs. China’s curbs on some modified corn threaten to block millions of tons of imports and in so doing cut into the profits of international trading houses.

“It’s a significant issue for major North American traders,” said Andrew Russell, a New York-based analyst for Macquarie Group who recommends buying ADM and Bunge shares. “Anything that puts Chinese growth potential at risk is a significant issue.” Traders rerouting shipments originally destined for China to other markets may lose $30 to $50 a ton, said Tim Burrack, an Iowa corn and soybean farmer who’s also the former chairman of the U.S. Grains Council’s trade committee.

China may also be motivated by wanting to protect domestic corn prices after a record harvest, said Burrack, 62. “When China needs corn imports, they will ramp up the approval process.” White Plains, New York-based Bunge isn’t buying the Syngenta GMO corn, an insect-repelling variety called Agrisure Viptera, or another modified variety from the Swiss company called Agrisure Duracade. ADM, the world’s largest corn processor, said in a Feb. 21 statement it won’t accept Duracade until the GMO is approved by China and other major importers. And the company remains uncommitted to Viptera.

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The Priciest Baseball Park in the Whole Atlantic Ocean (Bloomberg)

Something odd happens to the neighborhood around Marlins Park, Miami’s new $650 million baseball stadium, when you overlay 21st-century sea-level rise projections. It sinks below the waterline. It’s a shame. The park has a retractable, cloud-white roof to shield players and spectators from the summer sun. It recycles, sips energy and water, and is plugged into public transit. It has 27 flood gates, and was built one foot higher than floods are supposed to reach in once-in-500-year storms. The total, publicly financed package, with debt servicing, could cost Miami $2.4 billion by 2049.

If the Atlantic inches in as projected, eventually it might not matter how many flood gates there are. Oceans are swelling as they absorb heat, and ice sheets in Greenland and Antarctica have been melting faster since the early 1990s. Sea-level rise estimates for later this century have been revised upward, to a global average of a foot and a half to three feet by 2100, without aggressive carbon-cutting, according to the Intergovernmental Panel on Climate Change.

South Florida is a national leader in understanding the changing world. But politics and even policy change much more quickly than bureaucracy. That makes Marlins Park a symbol for cities in transition, a future relic from a time when the people who could build really cool things worked more or less independently from the people who monitored how fast the seas were rising.

The same potential problem exists wherever cities are laying down infrastructure expected to last into the second half of the century. Boston’s “Big Dig” highway project, a generation in the making, wasn’t driven by late 21st-century storm surge considerations. Oil and gas platforms in the Gulf of Mexico have never been built with permanent sea-level rise in mind. Another newish baseball stadium, Nationals Park, stands yards from Washington’s Anacostia River. Marlins Park checked enough LEED boxes to make it “the most sustainable stadium in Major League Baseball,” according to the team’s website.

Green building standards became common before a city’s ability to bounce back from large-scale shocks, or resilience, surfaced as a popular idea. The U.S. Green Building Council (USGBC) developed its widely used LEED building practices to promote efficiency in the use of energy, water and materials, and other practices related to construction, safety and maintenance; not necessarily to help people live through some of the charms that might await us in a hotter world — extreme heat, stronger storms and encroaching seas, to name three.

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IPCC Report Downplays Economic Impacts Of Climate Change (SMH)

An upcoming United Nations report on climate change has been altered after the expert review stage, with changes added that downplay the economic impacts of a warming planet, according to one of the reviewers. Bob Ward, an expert reviewer for the Intergovernmental Panel on Climate Change, also said alterations to the economics chapter of the draft report sent to governments included an assessment of a paper by the chapter’s own convening lead author Richard Tol that contained at least one error.

An added section also included a line likely to be hotly contested if it survives a final review by IPCC delegates gathered this week in Yokohama, Japan, to approve the Working Group II report: “Estimates agree on the size of the impact (small relative to economic growth) but disagree on the sign.” Mr Ward said disagreement over whether the sign of climate change’s economic impact is positive or negative “is patently not supported by the evidence presented”.

Of the data assessed, only one study out of about 18 suggests there would be a significant positive impact on gross domestic product from global warming, Mr Ward told the IPCC in an email seen by Fairfax Media. Earlier analysis of economic costs by one of the assessed papers – by Professor Tol – also “excluded a long list of important impacts, including those relating to recreation, tourism, extreme weather, fisheries, construction, transport, energy supply and morbidity,” said Mr Ward, who is also a policy director at the London School of Economics.

Professor Tol, who is a professor at University of Sussex in the UK, said Mr Ward’s complaints were reviewed “and found that most of them were unfounded”. One typo was identified and a dropped minus sign was re-instated. “Both errors have been corrected,” Professor Tol said. In a paper published last year, Professor Tol stated that “the impact of a century of climate change is roughly equivalent to a year’s growth in the global economy,” and that “carbon dioxide emissions are probably a negative externality”.

Professor Tol is a member of the academic advisory council for The Global Warming Policy Foundation, a climate change sceptic think tank founded by the UK’s Lord Lawson. The council also includes prominent Australian sceptics Bob Carter and Ian Plimer, according to its website. Unless resolved in the final week, a row over the contents of UN report may cast a cloud over some of its major findings, which include the prospect of widespread social dislocation of climate change and big impacts for eco-systems such as Australia’s Great Barrier Reef.

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Climate Change: The Debate Is About To Change Radically (Telegraph)

The latest report from the UN’s Intergovernmental Panel on Climate Change (IPCC) is due out next week. If the leaked draft is reflected in the published report, it will constitute the formal moving on of the debate from the past, futile focus upon “mitigation” to a new debate about resilience and adaptation.

The new report will apparently tell us that the global GDP costs of an expected global average temperature increase of 2.5  degrees Celsius over the 21st century will be between 0.2 and 2%. To place that in context, the well-known Stern Review of 2006 estimated the costs as 5-20% of GDP. Stern estimates the costs of his recommended policies for mitigating climate change at 2% of GDP – and his estimates are widely regarded as relatively optimistic (others estimate mitigation costs as high as 10% of global GDP).

Achieving material mitigation, at a cost of 2% and more of global GDP, would require international co-ordination that we have known since the failure of the Copenhagen conference on climate change simply was not going to happen. Even if it did happen, and were conducted optimally, it would mitigate only a fraction of the total rise, and might create its own risks. And to add to all this, now we are told that the cost might be as low as 0.2% of GDP. At a 2.4% annual GDP growth rate, the global economy increases 0.2% every month.

So the mitigation deal has become this: Accept enormous inconvenience, placing authoritarian control into the hands of global agencies, at huge costs that in some cases exceed 17 times the benefits even on the Government’s own evaluation criteria, with a global cost of 2% of GDP at the low end and the risk that the cost will be vastly greater, and do all of this for an entire century, and then maybe – just maybe – we might save between one and ten months of global GDP growth. Can anyone seriously claim, with a straight face, that that should be regarded as an attractive deal or that the public is suffering from a psychological disorder if it resists mitigation policies?

The 2014 Budget recognised reality, with the Government now introducing special measures to keep energy prices low for energy intensive firms – abandoning what little pretence remained that it was attempting to prevent climate change by limiting energy use so as to limit CO2 emissions. The new IPCC report – though it remains as robust as ever in saying that there will be climate change and its effects will be material (points that relatively few mitigation policy sceptics deny) – has a marked change of focus from the 2007 report.

Whereas previously the IPCC emphasised the effects climate change could have if not prevented, now the focus has moved on to how to make economies and societies resilient and to adapt to warming now considered inevitable. Climate exceptionalism – the notion that climate change is a challenge of a different order from, say, recessions or social inclusion or female education or many other important global policy goals – is to be down played. Instead, the new report emphasised that adapting to climate change is one of many challenges that policymakers will face but should have its proper place alongside other policies.

Quite so. It has been known since the late 1970s that there would be material warming during the 21st century and we will need to adapt to it. At present, though, in the UK we still carry the legacy of a panoply of enormously expensive but futile policies that were designed to be pieces of a global effort to mitigate that is just not going to happen. Our first step in adapting to climate change should be to accept that we aren’t going to mitigate it. We’re going to have to adapt. That doesn’t mean there might not be the odd mitigation-type policy, around the edges, that is cheap and feasible and worthwhile. But it does mean that the grandiloquent schemes for preventing climate change should go. Their day is done. Even the IPCC – albeit implicitly – sees that now.

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Global warming poses risks, but also opportunities: IPCC (AP)

Along with the enormous risks global warming poses for humanity are opportunities to improve public health and build a better world, scientists gathered in Yokohama for a climate change conference said Tuesday. The hundreds of scientists from 100 countries meeting in this Japanese port city are putting finishing touches on a massive report emphasizing the gravity of the threat the changing climate poses for communities from the polar regions to the tropics.

“Although it focuses on a whole analytical and sometimes depressing view of the challenges we face, it also looks at the opportunities we face,” said Christopher B. Field, the co-chair of the Intergovernmental Panel on Climate Change. “This can not only help us to deal with climate change but ultimately build a better world.”

Japan’s awareness of the severity of climate change has been driven home by record temperatures of over 40 C , and in Yokohama, by unusually heavy snows this winter, said the environment minister, Nobuteru Ishihara.

Japan plans to release an adaptation plan of its own by the summer of 2015 that would focus on a more “eco-friendly lifestyle,” he said. That includes improvements in energy efficiency ahead of the 2020 Tokyo Olympic games.

“We aim to take full environmental consideration so that the Tokyo Games will be the ‘environmental Olympics,’” Ishihara said.

Japan is struggling to rein in its own emissions of greenhouse gases after it shut down its nuclear plants following the disaster in Fukushima after the March 2011 earthquake and tsunami. Increased burning of natural gas, coal and oil to compensate for lost generating capacity have undone much of the progress the country had made in cutting carbon emissions.

While each region faces its own mix of challenges, research conducted by thousands of scientists around the world underscores the need for urgent measures, J. Lengoasa, deputy head of the World Meteorological Organization, said in a recorded message to Tuesday’s meeting.

He said countries in Africa already spend $7 billion to $15 billion a year on climate adaptation. “Time is running out. We must take action,” he said. “It is our obligation and our duty to inform the world of the prospects and risks that lie ahead.”

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