Aug 242014
 
 August 24, 2014  Posted by at 5:22 pm Finance Tagged with: , , , , , ,  10 Responses »


Marjory Collins On the trolley in Baltimore Apr 1943

As the first subglacial eruption has been registered in the Barbardunga volcano, and there are earthquakes in the region about every minute, a German magazine reports that Berlin (or, actually, even Bonn) has been spying on NATO partners like Turkey for decades. Which is funny, because I was just wondering – with a degree of suspicion – where and how Merkel gets her information.

She’s in Kiev calling for a ceasefire – which at least is a step up from what Washington is doing -, but says that first the border between Ukraine and Russia needs to be sealed off so no more support for the rebels can be smuggled in. See, I’m getting the idea that perhaps Angela relies for these kinds of claims on information she gets from NATO, who in turn get it from Kiev. Which has proven to be the most unreliable source of information in a long time.

On Tuesday, presidents Putin and Poroshenko, and some EU leaders, will meet in Minsk, Belarus, for discussions on the ceasefire. It’s starting to look like “our” side is going into the talks with so many demands, and of such obviously impossible nature for Putin, that they will kill any serious discussion before it’s even started.

Over the past few days, NATO has claimed that the Russian aid convoy, which returned home on Saturday without any incidents, was a Trojan horse, “a disguised attempt to reinforce separatist forces”. And that the Russians are shelling the Ukraine army both cross-border and from within Ukraine. And that there are huge troop concentrations and movements happening at the Russian side of the border. And that Russia is delivering weapons and mercenaries into Ukraine. These are all things that Ukraine claimed first, and NATO simply repeated. And, you know what’s coming next, for none of it has one single piece of evidence been presented. Something we’ve long since ceased to expect from Kiev.

But NATO itself has the technology, the ability to find and present evidence. And the obligation to us, the people who pay for its entire apparatus, do so prior to making any claims. So why does it simply parrot Kiev claims, and in very aggressive language to boot, instead of finding its own truths, and present us with proof? I’m guessing it’s a combination of the proof simply not being there, and the same hubris that’s prevalent in Washington.

The Ukraine army claimed yesterday that the returning aid convoy trucks had taken ‘equipment from a factory in Luhansk that makes firearm magazines and a Topaz plant that produces radars’. And taken it back with them to Russia. They gave no reason why this would have been done, nor, once again, any proof that it happened at all. Inspections of the trucks as they crossed back over the border showed nothing.

Angela Merkel yesterday refused to rule out yet more sanctions against Russia. While Poroshenko today held a large military parade in Kiev, and vowed to spend $3 billon to prop up the Ukraine army. Funny, because Ukraine is not just bankrupt, it’s way beyond that stage. Which in fact means the west has pledged those $3 billion, in addition to all the other billions “invested” in Ukraine, to prop up that army. On the eve of the peace talks that Putin will attend.

Perhaps this is inevitable. NATO was a child of WWII and even more of the Cold War. It can be argued that it had an important function in keeping Europe out of Russian hands. So far, so good, you might think. But NATO also grew into a behemoth of an organization that is extremely secretive about its intelligence, and as such a potential powder keg, a state within its member states. The sort of institution that’s very hard to get rid of, because it acquires political power in and of itself.

NATO lost the enemy it had been built to withstand, 25 years ago when the Berlin wall came down. Given all that, it shouldn’t come as a big surprise that, provided a few hot heads rose up in its ranks, it would turn into an alliance looking for an enemy. This process began to take shape some 15 years after the Soviet Union fell apart, and NATO, despite clearly defined commitments not to, started expanding eastward. The US House voted on a resolution to officially authorize this expansion, and Ron Paul said this about it on the House floor on April 1, 2008:

Mr. Speaker, I rise in opposition to this resolution calling for the further expansion of NATO to the borders of Russia. NATO is an organization whose purpose ended with the end of its Warsaw Pact adversary. When NATO struggled to define its future after the Cold War, it settled on attacking a sovereign state, Yugoslavia, which had neither invaded nor threatened any NATO member state.

This current round of NATO expansion is a political reward to governments in Georgia and Ukraine that came to power as a result of US-supported revolutions, the so-called Orange Revolution and Rose Revolution. The governments that arose from these street protests were eager to please their US sponsor and the US, in turn, turned a blind eye to the numerous political and human rights abuses that took place under the new regimes. Thus the US policy of “exporting democracy” has only succeeding in exporting more misery to the countries it has targeted.

NATO expansion only benefits the US military industrial complex, which stands to profit from expanded arms sales to new NATO members. The “modernization” of former Soviet militaries in Ukraine and Georgia will mean tens of millions in sales to US and European military contractors. The US taxpayer will be left holding the bill, as the US government will subsidize most of the transactions.

Providing US military guarantees to Ukraine and Georgia can only further strain our military. This NATO expansion may well involve the US military in conflicts as unrelated to our national interest as the breakaway regions of South Ossetia and Abkhazia in Georgia. The idea that American troops might be forced to fight and die to prevent a small section of Georgia from seceding is absurd and disturbing.

Mr. Speaker, NATO should be disbanded, not expanded.

Dr. Paul reiterated some of this a few days ago, when he launched a fund raiser for the Ron Paul Insititute for Peace and Prosperity, on his birthday:

We are fighting the war party, challenging their propaganda at every turn. But we are on the ropes and we need your help – as I write this to you they are trying to lie us into yet another war that could be the end of us all. Our job is to tell the truth and to expose their lies.

That’s why I founded the Ron Paul Institute for Peace and Prosperity, and right now I am especially concerned about the drive to war against Russia. Indeed, I have never seen such a dangerous stand-off between nuclear powers. The US government continues to add sanction upon sanction against Russia over a civil war in Ukraine resulting from a US-staged coup.

The propaganda over the Malaysian jetliner, and the pushing of NATO missiles right up to the Russian border – to take just two worrisome events – are chilling. How would Americans react to Russian missiles on the Texas border?

But Paul is a lone voice in the desert. Unfortunately. More than ever in the past 25 years. NATO’s back! And it’s got a new leader:

NATO Secretary General Anders Fogh Rasmussen said Friday the alliance has observed an alarming buildup of Russian ground and air forces in the vicinity of Ukraine. “We have also seen transfers of large quantities of advanced weapons, including tanks, armored personnel carriers and artillery to separatist groups in eastern Ukraine,” Rasmussen said in a statement. Rasmussen said Russia continued to escalate the crisis in eastern Ukraine and that this could lead to further isolation of Moscow.

He also condemned Russia for sending a “so-called humanitarian convoy” into Ukraine without the consent of the Ukrainian authorities and without any involvement of the International Committee of the Red Cross. “It can only deepen the crisis in the region, which Russia itself has created and has continued to fuel,” Rasmussen said in a statement. He said it was a blatant breach of Russia’s international commitments.

And Rasmussen’s been making similar statements as long as any journalist was willing to listen. Which is not that long, since only with Ukraine NATO has found itself a long and badly desired stage again. And don’t let’s forget NATO’s other preferred media go-to guy:

Nato’s Supreme Allied Commander, U.S. Air Force General Philip Breedlove, accused Russia of using the convoy as “a front for the resupply of separatists and Russian operatives”.

If there is a place for NATO in the world today, it must be as a force for peace. If not, it can only be a war mongerer, a tool for what Dr. Paul calls the war party. NATO started as a deterrent force, a united stand versus Russia’s alleged expansionist aspirations post-WWII. How real those were is questionable, but what is not is that they are now in the past. NATO’s recent aggressive language is not. And neither is its endless string of unproven claims about Russia.

German vice-chancellor Sigmar Gabriel yesterday talked about a wish for the federalization of Ukraine. But because that appears to be a sensitive topic in Ukraine, Chancellor Angela Merkel said he had meant ‘decentralization’. Apparently, Poroshenko supports such a thing. To grant a few more ‘rights’ to what remains of east Ukraine, as it will supposedly still be ruled by Kiev, which just destroyed much of its infrastructure and killed thousands of Ukrainian citizens there.

Yeah, that should work. It’s not like Kiev will finance the rebuilding of the area, because it’s already devoting what funds are left, to rebuilding the very army that ransacked east Ukraine. Does anyone think that Putin will say yes to this, that the rebels will lay down their arms and risk being slaughtered by what poses as the Ukraine army, the sturmtroops and mercenaries?

We’ve seen no evidence that Putin arms and supports the rebels, we’ve only seen allegations. But we do have proof of far-reaching western involvement in Ukraine, of billions in financial support, of US secret service operatives, US mercenaries, and swastika waving Ukrainians. What side are we on again? And how did we get there?

But all may not be lost for NATO. It may even find itself spread thin. As we get news that Iranian soldiers are fighting in Iraq against IS, a weird pair of bedfellows, along with the US and the Kurds (Iran also just announced it downed an Israeli drone), the Observer has a report that NATO should find interesting, and the rest of us alarming:

IS Surges Towards The Borders Of Turkey As West Mulls Options

Islamic State extremists are pushing to secure the border between Turkey and north-western Syria as the main gateway for recruits to join the caliphate they have imposed across much of eastern Syria and western Iraq. Large numbers of jihadists from Islamic State (formerly Isis) are moving this weekend towards the Turkish border area, about 60 miles north of Aleppo, in columns of armoured trucks that they looted from abandoned Iraqi military bases.

The area is now one of the most active front lines in the group’s attempt to redraw the borders of the Levant, a campaign that will have huge ramifications for Turkey. Residents and Syrian opposition militants in the town of Marea, close to the Turkish border, on Saturday said that Isis had advanced to within sight of the town and had sent envoys to negotiate access. “They could storm in like the Mongols, if they wanted to,” said a fighter from Syrian rebel group Islamic Front. “But they’re trying to be nice. We have dealt with them before. There is no reconciling with them. We will have to fight.”

[..] “The Turkish border is the only way to smuggle oil, weapons and foreign fighters into [Iraq and Syria],” said Dr Hisham al-Hashimi, an Iraqi expert on Isis. “If it’s closed, it will cut three things: funding, an entrance for the foreign fighters and links to Europe which they are trying to open. If those plans are destroyed, they will aim for another gate to Lebanon.”

some senior figures in the Middle East and Europe say Turkey has facilitated either through neglect or undeclared policy. “Let’s see how they react to the latest Isis advance,” said one regional leader on Saturday. “For more than a year now people have been telling them this has got out of control. They have to seal their border now. This so-called caliphate cannot be allowed to stand.” Al-Hashimi said Ankara would now be forced to act. “This time Turkey will do something and block the borders because they don’t trust Isis any more after they attacked Kurdistan. They understand now that Isis could turn on them.”

Guess what? Turkey, even if Germany has been spying on it for decades, and its new president has been highly critical of the US and the rest of the west, is a member of … NATO! And NATO is based on one for all, all for one. If any of its member states are attacked, all others are obligated to come to its defense. IS know this, and it therefore also knows how to draw the US and Europe into the next major war. At a time of its choosing.

Pressure Builds Within Fed To Signal New Policy Course (Reuters)

Pressure is building within the Federal Reserve for officials to move as early as next month to more clearly acknowledge improvements in the U.S. economy and lay the groundwork for the central bank’s first interest rate hike in nearly a decade. According to some U.S. central bankers and their close advisers, signs of economic resilience and growing anxiety about the risks of holding rates too low for too long have set the stage for an intense debate over rewriting their policy statement. It is uncertain whether officials will use their upcoming meeting on Sept. 16 and 17 to scrap key parts of the language they have been using to keep rate-hike expectations at bay, but if they do not, October looks like a good bet. “Some shift of language is on the table, and should be on the table in the coming meetings,” Atlanta Federal Reserve Bank President Dennis Lockhart, a policy centrist, said in an interview. While a handful of officials have argued for prompt changes, Lockhart said he thinks September “is still early.”

Adding, dropping or adjusting even a few words in the Fed’s post-meeting statement is a potentially treacherous task. A miscommunication by the world’s most powerful central bank could shock financial markets globally and, in a worst case, reverse the economic recovery it seeks to foster. At issue is a 5-month old pledge from the Fed to keep benchmark rates near zero for a “considerable time” after it shelves an asset-purchase program in October. Another line that has drawn internal objections is the month-old statement that “significant” slack remains in the labor market, a suggestion that not even strong job growth and a further drop in unemployment will prompt a tightening of policy any time soon. “The language puts us in a box that I think is not a good box to be in,” Philadelphia Fed President Charles Plosser told Reuters on the sidelines of the central bank’s annual Jackson Hole conference.

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ECB’s Mario Draghi Signals Departure From Austerity Focus (WSJ)

European Central Bank President Mario Draghi on Friday signaled a departure from the austerity-focused mind-set that has dominated economic policy-making in the euro zone since the onset of the region’s debt crisis nearly five years ago, as officials struggle with stagnant economies, weak prices and high unemployment. Speaking at the Federal Reserve Bank of Kansas City’s annual conference Jackson Hole, Wyo., Mr. Draghi said European central bankers and politicians each have a role to play in boosting demand and reducing joblessness. For its part the ECB is willing to take more stimulus measures if needed to keep low rates of inflation from becoming embedded in expectations of future price growth, he said. “It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this, while taking into account our specific initial conditions and legal constraints,” Mr. Draghi said in his prepared remarks.

Although Mr. Draghi’s comments didn’t constitute an endorsement of rampant deficit spending to boost euro-zone economies, they nevertheless marked a shift away from years of preaching by ECB officials that governments needed to shrink deficits and undertake economic reforms even during times of economic weakness. Critics say that mixing fiscal austerity with labor-market reforms exacerbated Europe’s downturn, even though they have long-term payoffs. Mr. Draghi’s comments came days after a report showed that the euro-zone economy stalled in the second quarter, fanning fears that the bloc’s roughly $13.5 trillion economy is stuck in a lasting rut of stagnation and high unemployment.

The GDP data “confirm that the recovery in the euro area remains uniformly weak, with subdued wage growth even in non-stressed countries suggesting lackluster demand,” he said. His remarks signaled a new approach to these risks: combining policies to stimulate demand with efforts to make labor markets more flexible. With inflation at very low levels—annual inflation in the euro zone was just 0.4% last month, far below the ECB’s 2% target—policy makers should cast aside any fears that stimulus policies may lead to inflation and instead focus on keeping high unemployment from taking root in Europe, he suggested. The euro zone’s unemployment rate was 11.5% in June, far higher than in the U.S., U.K. and Japan. “The risks of ‘doing too little'” and allowing temporary unemployment to become more entrenched “outweigh those of ‘doing too much’—that is, excessive upward wage and price pressures,” Mr. Draghi said.

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Real cost of capital is very high for PIIGS.

The Real Cost of Capital: Eurozone ‘Periphery’ Dilemma (Gurdgiev)

Staying on the topic of debt, here is IMF research on real cost of corporate capital (linked to the cost of debt) in the Euro area ‘periphery’ (this is from an IMF July 2014 publication that accompanied its Article 4 paper on Euro Area). I highlighted with the red the range of recent capital costs range in each country to trace out historical comparatives. … [the] real cost of capital across the euro area ‘periphery’ shows one simple thing: investment is still a very costly proposition for businesses, especially compared to the pre-crisis period. Starting with the Euro area as a whole:

Two points:
• Current real cost of capital across the euro area is relatively benign, compared to both 1990s – early 2000s period and shows low volatility in recent (crisis) years post 2009 peak
• 2009 peak is pronounced but moderate compared to the one found in some ‘peripheral’ countries.

In basic terms, this means that euro area’s capital costs are benign – above the 2004-2007 trough, but historically well below those observed in the 1990s.

Spain:

Two points:
• Current capital cost levels are consistent with crisis peak
• Capital today is as expensive in real terms as in the pre-euro era.

Which means that Spanish real cost of capital is now as bad as in the pre-euro period and is much worse than during the credit boom of the late 1990s-early 2000s.

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G-20′ Solution To Unstable, “Too Big To Fail” Banks: More Debt (Zero Hedge)

It’s been 6 years since Lehman went bankrupt overnight, stunning bondholders who were forced to reprice Lehman bonds from 80 to 8 in a millisecond, and launching the world’s worst depression since the 1930s, which courtesy of some $10 trillion in central bank liquidity injections, has been split up into several more palatable for public consumptions “recessions”, of which Europe is about to succumb to the third consecutive one even if for the time being the Fed’s has succeeded in if not breaking the business cycle, then certainly delaying the inevitable onset of the next major contraction in the US economy.

Paradoxically, instead of taking advantage of this lull in volatility and relative economic calm, and making the financial system more stable, all so-called regulation has done, is paid lip service to the underlying problems, hoping that should the next crisis appear the Fed will be able to delay it yet again by throwing countless amounts of taxpayer money at the problem. In the meantime, the biggest banks have gotten so big that the failure of one JPM or Deutsche Bank, and their hundreds of trillions in gross notional derivatives, would lead to the biggest financial and economic catastrophe ever witnessed and make 2008 seem like a fond memory of economic euphoria.

So finally, with a 6 year delay, the western world’s “government leaders” have finally decided to do something about a TBTF problem that has never been more acute. According to Reuters, in November said leaders will agree “that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.” In other words, suddenly the $2.8 trillion in Fed injected excess reserves, split roughly equally between US and European banks, are no longer sufficient, and while regulators are on one hand delaying the implementation of Basel III and its tougher capital rules, on the other they are tacticly admitting that whatever “generous” capital buffer banks have on their books right now will not be sufficient when the next crisis strikes.

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I love the term ‘property porn’

Soaring House Prices In Dublin Spark Fears Of New Property Bubble (Observer)

The spectre of property speculation is stalking Ireland once more, as soaring house prices in Dublin bring warnings that the country is in danger of repeating the mistakes that brought the economy to its knees during the financial crisis. Property prices in the Irish capital are rising by an average of €6,600 a month, according to the country’s Central Statistics Office, which puts them 24.4% higher than last year. But as demand for new homes now outstrips supply across Ireland, the body representing mortgage holders warns that the country is becoming obsessed again with inflated house prices. The Irish Mortgage Holders Organisation (IMHO) points out that the legacy of the boom-to-bust years is still weighing on thousands of households. Figures from Ireland’s central bank show 35,000 homeowners unable to pay their mortgages for up to 24 months, and 135,000 households in mortgage arrears, despite an economic upturn and expectations that GDP will grow by 2.5% this year.

IMHO founder David Hall said: “People crippled by debt and paying new austerity taxes such as property tax and upcoming water taxes are watching with shock at the new development of property porn. We see commentary after commentary that prices are rising and negative equity is reducing, yet this is no comfort to those crippled in debt. A reduction in negative equity might be of benefit to banks who consider repossessing homes. But increases in property prices do not help with a family’s affordability in paying their mortgage.” Hall accuses Ireland’s banks and property industry of fuelling a fake mini-boom. He claims it is designed to increase the paper assets of Irish banks before they face stress tests from the European Central Bank in October. “This property bubble being developed by vested interests needs bursting and bursting sooner rather than later,” he added. “The financial system owes a gratitude to the Irish citizen for keeping it afloat and now it needs to back off irresponsible promoting of a property bubble, which could land many citizens in deep financial trouble again.”

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Drowning in debt.

Swedish Household Debt Soars As Election Nears (Reuters)

Johan and Alejandra are the kind of Swedes the IMF has been warning about – piling up debt to keep up with an ever-rising property market and fund a lifestyle of travel, maids and nights out. The couple plan to buy a flat in Stockholm for 5 to 6 million Swedish crowns ($724,000 to $869,000), initially with an interest-only bank loan, among other spending plans. “I may travel, I may want to invest in a new business,” said Alejandra, who runs a cafe in the city centre. Less than a month away from a general election, there are no votes in campaigning to stop the credit flowing, but there are fears that such Swedes could be the Achilles heel of a country that boasts a coveted AAA score from credit rating agencies Fitch and S&P. Four in 10 mortgage borrowers in Sweden are not paying off their debt, and those that are repaying the principal do so at a rate that would on average take nearly a century.

Swedish property prices have nearly tripled in just two decades. In July, home prices rose at a double-digit pace from a year ago – the first time in more than four years. The IMF has warned financial instability in Sweden is an increasing concern and urged a comprehensive set of macroprudential measures to temper soaring mortgage debt. Nobel Prize laureate and economist Paul Krugman has chimed in, saying Sweden probably has a significant housing bubble. With Sweden’s household debt-to-income ratio above 170 percent – among the highest in Europe and rising – the issue is worrying Riksbank policymakers. Out of fear of spurring more borrowing, the central bank has kept interest rates higher than warranted by inflation, but they are nevertheless at historic lows. The main concern is that private consumption – which makes up nearly half of Swedish GDP – would suffer if rates rose or property prices fell, which could spell problems for the lenders and the economy, which is only just finding its feet.

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IS Surges Towards The Borders Of Turkey As West Mulls Options (Observer)

Islamic State extremists are pushing to secure the border between Turkey and north-western Syria as the main gateway for recruits to join the caliphate they have imposed across much of eastern Syria and western Iraq. Large numbers of jihadists from Islamic State (formerly Isis) are moving this weekend towards the Turkish border area, about 60 miles north of Aleppo, in columns of armoured trucks that they looted from abandoned Iraqi military bases. The area is now one of the most active front lines in the group’s attempt to redraw the borders of the Levant, a campaign that will have huge ramifications for Turkey. Residents and Syrian opposition militants in the town of Marea, close to the Turkish border, on Saturday said that Isis had advanced to within sight of the town and had sent envoys to negotiate access. “They could storm in like the Mongols, if they wanted to,” said a fighter from Syrian rebel group Islamic Front. “But they’re trying to be nice. We have dealt with them before. There is no reconciling with them. We will have to fight.”

The Syrian opposition fought a bitter and costly war with Isis in the same area in January, ousting them from ground they had used as a rallying point for foreign fighters and for a successful push into Iraq. The six-week battle cost the lives of more than 2,500 opposition fighters and allowed the Syrian regime, together with its proxies, to slowly encircle Aleppo from the north-west, a move which is likely to prove decisive in the Syrian civil war. Since that battle, the flow of foreign fighters from across the Turkish border to Isis has slowed. Isis now wants to reverse that, making it easier for anyone who wants to join them to cross a 130-mile strip of the frontier that has been used by the vast majority of foreign fighters, including British and European jihadists. “The Turkish border is the only way to smuggle oil, weapons and foreign fighters into [Iraq and Syria],” said Dr Hisham al-Hashimi, an Iraqi expert on Isis. “If it’s closed, it will cut three things: funding, an entrance for the foreign fighters and links to Europe which they are trying to open. If those plans are destroyed, they will aim for another gate to Lebanon.”

Western officials told the Observer that they were obliged to tread carefully when talking to the Turks about foreign passport holders suspected of trying to travel to Syria through Turkey. Using the term “extremist” or “terrorist” in official correspondence would generally lead nowhere, but Turkish officials were more forthcoming when inquiries were made about “those who abuse religion”. The battle over semantics underscores the deepening sensitivity surrounding the fast-growing regional extremist threat that some senior figures in the Middle East and Europe say Turkey has facilitated either through neglect or undeclared policy. “Let’s see how they react to the latest Isis advance,” said one regional leader on Saturday. “For more than a year now people have been telling them this has got out of control. They have to seal their border now. This so-called caliphate cannot be allowed to stand.” Al-Hashimi said Ankara would now be forced to act. “This time Turkey will do something and block the borders because they don’t trust Isis any more after they attacked Kurdistan. They understand now that Isis could turn on them.”

Read more …

Ukraine Announces $3 Billion Army Investment At Military Parade (BBC)

Ukraine’s president has announced that almost $3bn will be spent on re-equipping the army after an “exhausting” campaign against pro-Russian rebels. Petro Poroshenko said that a “constant military threat will hang over Ukraine” for the foreseeable future. He was speaking ahead of a large military parade in the capital Kiev. Meanwhile, fighting continues in eastern Ukraine, where more than 2,000 people have died in recent months. Mr Poroshenko said the investment would be spread out over two years, from 2015-2017. “The events of the last months have for us turned into a real war, albeit an undeclared one,” he said in a televised speech on Ukrainian independence day.

“Over the last six months, a new Ukrainian army has been born in heavy and exhausting fighting,” he said. The military parade featured hundreds of marching servicemen and military hardware. Critics said it was inappropriate when Ukraine was at war. Pro-Russian rebels in the eastern city of Donetsk – the scene of the heaviest fighting – say they will hold their own parade and display captured soldiers. More than 330,000 people have fled their homes because of fighting in eastern Ukraine. The bodies of six civilians, including a child, were seen by an AFP correspondent in Donetsk on Saturday.

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Merkel And Poroshenko Call For “Decentralised” Ukraine (Euronews)

German Chancellor Angela Merkel and Ukrainian President Petro Poroshenko presented a united front in Kyiv on Saturday over the crisis in eastern Ukraine. Their meeting came on the eve of Ukraine’s Independence Day celebrations, which Merkel will attend. The German Chancellor said that the open border between Russia and Ukraine must be controlled – either by the OSCE or another authority – before there could be any ceasefire. Both Merkel and Poroshenko stressed they wanted to ensure decentralisation but not federalisation of Ukraine along with respect for cultural and linguistic differences.

“Decentralisation in Ukraine – this is exactly what the President and myself want and what I support. I think as well that this is an important step to further include the Russian-speaking population,” Merkel said. Poroshenko thanked Merkel for her support of the Ukrainian people and for promised German and EU financial assistance to rebuild war-torn eastern Ukraine. “We all remember the Marshall Plan that helped post-war Europe. And today I can say that this is the beginning of a “Merkel Plan”, for the reconstruction of the infrastructure in the Donbass region. And I am very grateful for this”. Next week Russian and Ukrainian leaders along with top EU officials will meet in Belarus. Diplomats say Merkel is urging Poroshenko to be open to peace proposals when he meets Putin.

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Must see video. Smart cookie.

Putin Advisor Warns “Transition Has Always Come Through War” (Zero Hedge)

When we last met Sergei Glazyev, Vladimir Putin’s chief ‘integration’ adviser he explained “how the U.S. military and oligarchs are trying to maintain leadership in the global competition with China.” Arguably the best informed man in Russia, his perspective seems important to grasp as he considers:

“The world today is going through a year of overlapping cyclical crises. This is a period when the global economy is changing as the structure that has driven economic growth for 30 years has exhausted itself. The world needs to transition to a new system and transition has always come about through war… [..] The last elections to the European Parliament showed that all European citizens are not fooled by the false pro-American, anti-Russian propaganda… and by the constant stream of lies. [..] In order to avoid the constant threat of foreign asset confiscation, we need to build our own sovereign monetray macro-economic policy.”

As Glazyev concluded previously:

To further insulate its economy, Russia should abandon the use of the U.S. dollar as a reserve currency, according to Glazyev. Russia, which international reserves are the world’s fifth-biggest, needs to diversify its holdings to include China’s yuan, India’s rupee and Brazil’s real. “If a country aspires to reserve status for its currency, it should behave properly, and that isn’t the case today,” Glazyev said.

And this is how Putin sees the world. De-escalation? Good luck.


Make sure to switch on subtitles in YouTube (below clip)

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Strong Earthquakes Shake Icelandic Volcano On Red Alert (AFP)

Two strong earthquakes on Sunday, August 24, shook Iceland’s largest volcano, which is on red alert for imminent risk of eruption, the Icelandic Met Office said. A large explosion at the Bardarbunga volcano could signal a replay of the global travel chaos caused by the eruption of another Icelandic peak four years ago, which created a massive ash cloud across Europe. The earthquakes were listed on the Met Office’s website with intensities of 5.3 and 5.1 on the Richter scale, which makes them the strongest recorded in the region since the current seismic cycle began last week. On Saturday, August 23, Iceland raised its alert over the Bardarbunga volcano to the highest level and closed airspace in the area, but all of Iceland’s airports remained open.

Met Office official Gunnar Gudmundsson told Icelandic public broadcaster RUV that it was difficult to say whether the earthquakes indicated an increased risk of an eruption. Earlier this week, authorities evacuated tourists and hikers from the area around the volcano, which is covered by a glacier. Seismologists had recorded an earthquake of 4.5 in the Richter scale on Monday, when Iceland decided to raise its aviation alert to orange, the second-highest level of five. The eruption of Eyjafjoell, a smaller volcano, in April 2010 caused travel mayhem, stranding more than eight million people in the widest airspace shutdown since World War II.Iceland’s most active sub-glacial volcano Grimsvotn erupted in 2011, forcing the country to temporarily shut its airspace and sparking fears of a repeat of the Eyjafjoell flight chaos.

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‘Incredible’ Rate Of Polar Ice Loss Alarms Scientists (Guardian)

The planet’s two largest ice sheets – in Greenland and Antarctica – are now being depleted at an astonishing rate of 120 cubic miles each year. That is the discovery made by scientists using data from CryoSat-2, the European probe that has been measuring the thickness of Earth’s ice sheets and glaciers since it was launched by the European Space Agency in 2010. Even more alarming, the rate of loss of ice from the two regions has more than doubled since 2009, revealing the dramatic impact that climate change is beginning to have on our world. The researchers, based at Germany’s Alfred Wegener Institute Helmholtz Centre for Polar and Marine Research – used 200m data points across Antarctica and 14.3m across Greenland, all collected by CryoSat, to study how the ice sheets there had changed over the past three years. The satellite carries a high-precision altimeter, which sends out short radar pulses that bounce off the ice surface and then back to the satellite. By measuring the time this takes, the height of the ice beneath the spacecraft can be calculated.

It was found from the average drops in elevation that were detected by CryoSat that Greenland alone is losing about 90 cubic miles a year, while in Antarctica the annual volume loss is about 30 cubic miles. These rates of loss – described as “incredible” by one researcher – are the highest observed since altimetry satellite records began about 20 years ago, and they mean that the ice sheets’ annual contribution to sea-level rise has doubled since 2009, say the researchers whose work was published in the journal Cryosphere last week. “We have found that, since 2009, the volume loss in Greenland has increased by a factor of about two, and the West Antarctic ice sheet by a factor of three,” said glaciologist Angelika Humbert, one of the study’s authors. “Both the West Antarctic ice sheet and the Antarctic peninsula, in the far west, are rapidly losing volume. By contrast, East Antarctica is gaining volume, though at a moderate rate that doesn’t compensate for the losses on the other side of the continent.”

The researchers say they detected the biggest elevation changes caused by ice loss at the Jakobshavn glacier in Greenland, which was recently found to be shifting ice into the oceans faster than any other ice-sheet glacier, and at Pine Island glacier, which like other glaciers in West Antarctica, has been thinning rapidly in recent years.

Read more …

Aug 182014
 
 August 18, 2014  Posted by at 8:48 pm Finance Tagged with: , , ,  16 Responses »


Marjory Collins Gasoline rationing in Mechanicsville, Maryland Jul 1942

When first we practise to deceive!

The upper echelons in and behind various governments have had on their radar far longer than the media that serve them, and I also realize that Washington wants a leading role in that battle, but even then I still don’t really get what is going on these days.

I think perhaps that’s because I tend to give the American political machine too much credit when it comes to intelligence and insight and other qualities its managerial staff doesn’t exactly seem to be drowning in. But still. I get the idea that most of what Washington does is based on what someone I read today calls ‘solution selling’, and what I know as ‘the completion backward principle’.

Both marketing terms mean you create a problem – a.k.a. a market – first, and then sell your products into the hole you just created. Perhaps that comes closest to what I see America doing these days, and if I’m right in that assessment, I can guarantee massive failure. Or maybe I should say massive warfare, which for me would be a failure, but not necessarily for the Pennsylvania Avenue apparatchiks.

The result is that stock markets keep rising, and oil prices keep falling, while the US actively involves itself in various hornets nests directly linked to various energy resources, involvements it doesn’t exactly have a stellar record in over the past 25 years- if not much longer -. Stocks are up only on central bank largesse, and oil is down only because people have faith in US military might. The latter is a big mistake all by itself, but both are for sure hugely risky notions, which tells me when a blow comes many investors will be taken off guard.

But let’s some other people talk. First, Ron Paul, that very rare sound voice:

What Have We Accomplished in Iraq?

We have been at war with Iraq for 24 years. Shortly after Iraq’s invasion of Kuwait that year, the propaganda machine began agitating for a US attack on Iraq. We all remember the appearance before Congress of a young Kuwaiti woman claiming that the Iraqis were ripping Kuwaiti babies from incubators. The woman turned out to be the daughter of the Kuwaiti ambassador to the US and the story was false [..]

The second Iraq war in 2003 cost the US some $2 trillion. According to estimates, more than one million deaths have occurred as a result of that war. What have we accomplished? Where are we now, 24 years later? We are back where we started, at war in Iraq!

The US overthrew Saddam Hussein in the second Iraq war and put into place a puppet, Nouri al-Maliki. But after eight years, last week the US engineered a coup against Maliki to put in place yet another puppet. [..] … what really irritated the US government was his 2011 refusal to grant immunity to thousands of US troops …

Hm. Perhaps what really really irritated the US government was that al-Maliki demanded better deals for Iraq in negotiations with western oil companies operating in the country.

Early this year, a radical Islamist group, ISIS, began taking over territory in Iraq. The organization had been operating in Syria, strengthened by US support for the overthrow of the Syrian government. ISIS obtained a broad array of sophisticated US weapons in Syria, very often capturing them from other US-approved opposition groups. Some claim that lax screening criteria allowed some ISIS fighters to even participate in secret CIA training camps in Jordan and Turkey.

This month, ISIS became the target of a new US bombing campaign in Iraq. The pretext for the latest US attack was the plight of a religious minority in the Kurdish region currently under ISIS attack. The US government and media warned that up to 100,000 from this group, including some 40,000 stranded on a mountain, could be slaughtered if the US did not intervene at once.

US bombs began to fall. Last week, however, it was determined that only about 2,000 were on the mountain and many of them had been living there for years! They didn’t want to be rescued!

The humanitarian situation was cynically manipulated by the Obama administration – and echoed by the US media – to provide a reason for the president to attack Iraq again. This time it was about yet another regime change, breaking Kurdistan away from Iraq and protection of the rich oil reserves there, and acceptance of a new US military presence on the ground in the country.

President Obama has started another war in Iraq and Congress is completely silent. No declaration, no authorization, not even a debate. After 24 years we are back where we started.

Then, Eric Draitser:

‘Islamist State A Pretext For US-Sponsored Regime Change In Iraq’

The ousting of Iraqi Prime Minister Nouri al-Maliki is part of a broader US plan for Iraq and the Middle East as a whole. Against the backdrop of the war against the Islamic State, Washington has managed to kill two birds with one stone. Not only has the US removed a political leader who had proven to be problematic due to his opposition to US military presence in Iraq, as well as his staunch support for Syria and President Assad, they have also created the conditions for the dismemberment of the Iraqi state.

The US and its allies are supporting de facto ‘independence’ for the Kurdish region in the north of the country, using the IS as a convenient pretext for openly arming and supporting Kurdish forces. Naturally, one should not look for altruism in Washington’s motives. Rather, this strategy is to benefit western oil companies with dollar signs in their eyes, licking their lips in anticipation of being able to deal directly with Kurdish President Barzani. Additionally, Maliki’s ouster deprives Syrian President Assad of a key ally, thereby emboldening the IS and the other militants waging war against Syria. It provides further evidence, as if more were needed, that the political future is bleak for any Iraqi leader who dares to break from the script written for him by Washington.

Perhaps most importantly, it allows the US and its allies to be the leading force politically in the war against the IS, an organization created by US policy and covert operations in the region. In the sales and marketing industry, there is a term known as ‘solution selling’ whereby the salesperson either creates or exaggerates a problem, then presents his or her product as the invaluable solution.

[..] [Al-Maliki] also challenged Western oil companies looking to make massive profits off of Iraq’s vast energy deposits. Perhaps the best-known instance occurred in 2012 when ExxonMobil signed an oil exploration deal with the semi-autonomous Kurdistan region in northern Iraq. Maliki rejected the validity of the deal, noting that any oil contracts must be negotiated with the central government in Baghdad, rather than Barzani’s US-aligned government in Arbil. Maliki’s spokesman noted at the time that:

“Maliki views these deals as representing a very dangerous initiative that may lead to the outbreak of wars… [and] breaking up the unity of Iraq…Maliki is prepared to go to the highest levels for the sake of preserving the national wealth and the necessary transparency in investing the wealth of the Iraqis, especially oil… [He] sent a message to American President Barak [sic] Obama last week urging him to intervene to prevent ExxonMobil from going in this direction.”

It is no secret that Maliki’s strong-willed resistance to this deal, in addition to his refusal to pay ExxonMobil upwards of $50 million to improve production at one major southern oilfield led directly to the oil company pulling out of the lucrative West Qurna-1 project. Essentially then, Maliki took on the very powerful oil corporations (BP is no friend of Maliki either), seeking to get a better deal for Iraq.

The US should, and could, have taken care of business in Iraq at any point since 1990. It didn’t. And it’s hard for me to accept that it never wanted to. It’s much more likely that hubris got in the way, that there was the idea all along that it never had to know all the ins and outs of the territory to be invaded. That having the biggest guns is always enough in the end. And now it’s clear that that didn’t work the last few times around, and what do you think the ‘new approach’ is? Right, more of the same.

There are scores of groups and militias and private armies and factions and fractions the US supported with billions in cash and training and guns and talks in Iraq alone, and it looks like more often than not it ends up fighting its own arms. The Kurds are the latest fad, but don’t underestimate their hatred of Turkey, which also happens to be a US ally. Who to choose when they restart their feud?

A very similar story, just on a smaller scale, is playing out with regards to American meddling in Ukraine. Really, what are they thinking? And what is Europe thinking? This could throw it back 50 years in time, before you know it someone start building a wall. RT:

Far-Right Right Sector Threatens Armed March On Kiev

The far-right Ukrainian group Right Sector has threatened its armed forces will raid Kiev unless authorities release all its members and end all criminal investigations against them. They accused the police of being “anti-Ukrainian.” Right Sector also accused the Interior Ministry of “unlawful detentions, arrests, beatings, confiscation of arms taken in battle” in moves targeting dozens of fighters of Right Sector’s volunteer battalion, which was formed with the stated goal of fighting armed militias in the east of the country.

The far-right group called on President Petro Poroshenko to fire Yevdokimov and his men from the service and investigate them for “their criminal activities.” As for detained members of Right Sector, all of them should be released and criminal cases launched against them must be closed, Yarosh demanded. “Unless our demands are met within 48 hours, we will be forced to call off all our units on the front line, start a general mobilization of reserve battalions and launch a march on Kiev to enact a ‘swift reform’ of the Interior Ministry. The columns of the Right Sector will march in full gear.”

A handful of billionaires with private armies who pay all sorts of people on the side who happen to want what they want, and wave swastika banners. That’s the western side of this conflict. That’s us.

‘West Has More Influence Than Kiev On Private Armies In Ukraine’

Moscow believes the West has more influence on various paramilitary forces in Ukraine – sponsored by local oligarchs – than Kiev does, the Russian FM said citing the latest bickering between Right Sector and the Interior Ministry. “The authorities in Kiev are not in control of the numerous paramilitary forces, including Right Sector, which, we estimate, comprises a large portion of the National Guard.

The march of Right Sector towards the Ukrainian Interior Minister speaks for itself,” Sergey Lavrov said, adding that the existence of armed groups sponsored by Ukrainian oligarchs, such as the Azov and Dnepr battalions, poses a great security threat. “We work with our Western partners in Europe and the United States who can really influence those paramilitary units that don’t answer to the central government in Kiev. We know the West has such influence,” he added.

Lavrov was referring to the weekend ultimatum of the far-right group, which threatened to pull out its troops from eastern Ukraine and march on Kiev unless President Petro Poroshenko fires several police officials, including a deputy interior minister. The group later reduced its demands, saying that the release of its activists previously arrested by the police was sufficient. [..]

Lavrov cited the latest claim by Kiev on Friday, when the Ukrainian military said it had destroyed a column of Russian armor after an incursion into Ukraine.“What really happened was a Ukrainian column moved in the Lugansk Region, obviously to intercept the rout of a potential humanitarian aid delivery. That column was destroyed by the militia,”he said. “If such episodes are presented as glorious successes of the Ukrainian army, then please don’t accuse us of anything.”

And then, what is the US doing at home? According to multiple media reports, there were all of 200 protesters on the streets of Ferguson last night. Police were firing teargas and rubber bullets into that ‘crowd’ even before the curfew. And it looked like the army had invaded. Armored personnel carriers and all.

And even that was not enough against 200 people who were simply pissed off because a cop emptied his gun, 6 bullets were found in the body alone, into an unarmed kid. 200 people, most of whom only wanted to protest. That there are a few dozen among them who are armed and/or looking for trouble is to be expected. So you pick them out of the crowd and cool things down. Right?

Does nobody in the States know anything about crowd control anymore? Or is this an attempt to make a small incident grow into something much bigger, so Americans get used to seeing the National Guard in their streets? I don’t know, but I look at all these things, and I wonder what’s going on.

As I said yesterday, you could be forgiven for thinking that America went looking for trouble.

What Have We Accomplished in Iraq? (Ron Paul)

We have been at war with Iraq for 24 years, starting with Operations Desert Shield and Storm in 1990. Shortly after Iraq’s invasion of Kuwait that year, the propaganda machine began agitating for a US attack on Iraq. We all remember the appearance before Congress of a young Kuwaiti woman claiming that the Iraqis were ripping Kuwaiti babies from incubators. The woman turned out to be the daughter of the Kuwaiti ambassador to the US and the story was false, but it was enough to turn US opposition in favor of an attack. This month, yet another US president – the fourth in a row – began bombing Iraq. He is also placing US troops on the ground despite promising not to do so. The second Iraq war in 2003 cost the US some two trillion dollars. According to estimates, more than one million deaths have occurred as a result of that war. Millions of tons of US bombs have fallen in Iraq almost steadily since 1991. What have we accomplished? Where are we now, 24 years later? We are back where we started, at war in Iraq!

The US overthrew Saddam Hussein in the second Iraq war and put into place a puppet, Nouri al-Maliki. But after eight years, last week the US engineered a coup against Maliki to put in place yet another puppet. The US accused Maliki of misrule and divisiveness, but what really irritated the US government was his 2011 refusal to grant immunity to the thousands of US troops that Obama wanted to keep in the country. Early this year, a radical Islamist group, ISIS, began taking over territory in Iraq, starting with Fallujah. The organization had been operating in Syria, strengthened by US support for the overthrow of the Syrian government. ISIS obtained a broad array of sophisticated US weapons in Syria, very often capturing them from other US-approved opposition groups. Some claim that lax screening criteria allowed some ISIS fighters to even participate in secret CIA training camps in Jordan and Turkey.

This month, ISIS became the target of a new US bombing campaign in Iraq. The pretext for the latest US attack was the plight of a religious minority in the Kurdish region currently under ISIS attack. The US government and media warned that up to 100,000 from this group, including some 40,000 stranded on a mountain, could be slaughtered if the US did not intervene at once. Americans unfortunately once again fell for this propaganda and US bombs began to fall. Last week, however, it was determined that only about 2,000 were on the mountain and many of them had been living there for years! They didn’t want to be rescued!

Read more …

‘Islamist State A Pretext For US-Sponsored Regime Change In Iraq’ (RT)

The ousting of Iraqi Prime Minister Nouri al-Maliki is part of a broader US plan for Iraq and the Middle East as a whole. Against the backdrop of the war against the Islamic State (IS, formerly ISIS/ISIL), Washington has managed to kill two birds with one stone, as the saying goes. Not only has the US removed a political leader who had proven to be problematic due to his opposition to US military presence in Iraq, as well as his staunch support for Syria and President Assad, they have also created the conditions for the dismemberment of the Iraqi state. The US and its allies are supporting de facto ‘independence’ for the Kurdish region in the north of the country, using the IS as a convenient pretext for openly arming and supporting Kurdish forces. Naturally, one should not look for altruism in Washington’s motives. Rather, this strategy is to benefit western oil companies with dollar signs in their eyes, licking their lips in anticipation of being able to deal directly with Kurdish President Barzani.

Additionally, Maliki’s ouster deprives Syrian President Assad of a key ally, thereby emboldening the IS and the other militants waging war against Syria. It provides further evidence, as if more were needed, that the political future is bleak for any Iraqi leader who dares to break from the script written for him by Washington. Perhaps most importantly, it allows the US and its allies to be the leading force politically in the war against the IS, an organization created by US policy and covert operations in the region. In the sales and marketing industry, there is a term known as ‘solution selling’ whereby the salesperson either creates or exaggerates a problem, then presents his or her product as the invaluable solution. Indeed, this sort of sales strategy is precisely the approach Washington has taken in the region, and specifically in Iraq.

The IS has only very recently become an internationally recognized epidemic of militant Islamist extremism that must be eradicated at all costs. That international recognition came only when the organization began taking control of territory in Iraq, threatening Western oil and gas interests. While the IS was waging its brutal and vicious war against the Syrian people and government however, the IS was merely an afterthought, simply a group of extremists fighting the ‘brutal dictator’ Assad. It seems then that the danger of ISIS and the necessity to eradicate it is directly correlative to US interests. Put another way, the IS is a useful tool in Syria and southern Lebanon where it creates chaos to the detriment of Assad and Hezbollah respectively, while in Iraq, the IS is dangerous where it threatens the US client regime in Kurdistan and Western oil interests. But of course, the detail consistently left out of most analysis of the IS problem is the simple fact that it is a creation of US intelligence and its covert war on Syria.

Read more …

Far-Right Right Sector Threatens Armed March On Kiev (RT)

The far-right Ukrainian group Right Sector has threatened its armed forces will raid Kiev unless authorities release all its members and end all criminal investigations against them. They accused the police of being “anti-Ukrainian.” In a statement published on Right Sector’s website, the group’s leader, Dmitro Yarosh, and the commander of the its volunteer battalion, Andrey Stempitsky, accused Deputy Interior Minister General Vladimir Yevdokimov of heading “a criminal police group of separatist stooges and a Moscow puppet.” Right Sector also accused the Interior Ministry of “unlawful detentions, arrests, beatings, confiscation of arms taken in battle” in moves targeting dozens of fighters of Right Sector’s volunteer battalion, which was formed with the stated goal of fighting armed militias in the east of the country.

The far-right group called on President Petro Poroshenko to fire Yevdokimov and his men from the service and investigate them for “their criminal activities.” As for detained members of Right Sector, all of them should be released and criminal cases launched against them must be closed, Yarosh demanded. “Unless our demands are met within 48 hours, we will be forced to call off all our units on the front line, start a general mobilization of reserve battalions and launch a march on Kiev to enact a ‘swift reform’ of the Interior Ministry. The columns of the Right Sector will march in full gear,” the statement said.

Read more …

‘West Has More Influence Than Kiev On Private Armies In Ukraine’ (RT)

Moscow believes the West has more influence on various paramilitary forces in Ukraine – sponsored by local oligarchs – than Kiev does, Russian FM said citing the latest bickering between Right Sector and the Interior Ministry. “The authorities in Kiev are not in control of the numerous paramilitary forces, including Right Sector, which, we estimate, comprises a large portion of the National Guard. The demarche of Right Sector towards the Ukrainian Interior Minister speaks for itself,” Sergey Lavrov said, adding that existence of armed groups sponsored by Ukrainian oligarchs, such as the Azov and Dnepr battalions, poses a great security threat. “We work with our Western partners in Europe and the United States who can really influence those paramilitary units that don’t answer to the central government in Kiev. We know the West has such influence,” he added.

Lavrov was referring to the weekend ultimatum of the far-right group, which threatened to pull out its troops from eastern Ukraine and march on Kiev unless President Petro Poroshenko fires several police officials, including a deputy interior minister. The group later reduced its demands, saying that the release of its activists previously arrested by the police was sufficient. The comments from the top Russian diplomat came as he reported on the progress achieved during the Sunday meeting with his counterparts from Ukraine, Germany and France. The roundtable produced no concrete agreements, but the parties involved said some progress was made on the issues of humanitarian aid and border control. Speaking to journalists on Monday, Lavrov said Moscow would welcome the observer mission of the Organization for Security and Cooperation in Europe (OSCE) deploying drones to control the Russian-Ukrainian border from the Ukrainian side.

Lavrov said Russia is working with the OSCE on giving more transparency in the border region, which is important, considering how often Kiev voices false reports on alleged violation of the border from the Russian side. He cited the latest claim by Kiev on Friday, when the Ukrainian military said it had destroyed a column of Russian armor after an incursion into Ukraine.“What really happened was a Ukrainian column moved in the Lugansk Region, obviously to intercept the rout of a potential humanitarian aid delivery. That column was destroyed by the militia,”he said. “If such episodes are presented as glorious successes of the Ukrainian army, then please don’t accuse us of anything.”

Read more …

Autopsy Finds Unarmed Teen Killed By Police Shot At Least 6 Times (Reuters)

A preliminary private autopsy report found that Michael Brown, the black teen killed by a police officer in the suburban St. Louis city of Ferguson, was shot at least six times, the New York Times reported on Sunday night. Citing Dr. Michael M. Baden, former chief medical examiner for the City of New York who was asked to perform the autopsy by Brown’s family, the newspaper reported that Brown, 18, was shot twice in the head, and that the bullets that hit him did not appear to have been fired from very close range. Four shots hit Brown in his right arm and one entered the top of his skull, the Times said, citing findings by Baden, who it said flew to Missouri on Sunday at the family’s behest and waived his usual fee in view of the extraordinary circumstances. The bullets, some of which left as many as five wounds, did not appear to have been fired from very close range, the Times reported, because no gunpowder was detected on his body. That conclusion could change, however, if gunshot residue is found on Brown’s clothing, the newspaper said.

[..] “People have been asking: How many times was he shot? This information could have been released on Day 1,” Baden told the Times in an interview after performing the autopsy. “They don’t do that, even as feelings built up among the citizenry that there was a cover-up. We are hoping to alleviate that,” the newspaper quoted him as saying. Baden said his autopsy was not intended to determine whether the shooting was justified. “In my capacity as the forensic examiner for the New York State Police, I would say, ‘You’re not supposed to shoot so many times’,” he told the Times. “Right now there is too little information to forensically reconstruct the shooting.”

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Russia Widens Ruble Basket to Complete Free Float by End of Year (Bloomberg)

Russia is making its currency more flexible by widening the range in which it trades freely and reducing the amount of foreign exchange bought and sold by the central bank. Russia widened the band in which the ruble trades against the target basket of dollars and euros to 9 rubles from 7 rubles previously, the central bank in Moscow said in a website statement. The regulator also abandoned all interventions while the ruble is trading in the band. It used to buy or sell $200 million per day at certain levels. The changes are intended to help complete the switch to a freely floating ruble from the current managed rate by the end of this year, which is needed to shift to inflation targeting, the central bank said. Policy makers are loosening their hold on the ruble even as volatility rises and inflation risks increase because of Ukraine-related sanctions. “This decision will not have a significant impact on current ruble fluctuations,” because the currency is trading in the neutral zone, the central bank said in the statement.

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The Biggest Economic Risk? You May Be Living In It (CNBC)

As a spate of housing data are released in the coming week, Wall Street will attempt to answer a burning question: Is the housing market becoming a big drag on economic growth? “We are laser-focused on this housing data coming out, because we have seen that the backbone of the recovery was housing. Now it’s faltering slightly. So if we see another mishap here, maybe that adds to the slowing global growth—especially domestically,” said Jeff Kilburg, chief executive of KKM Financial. The data start to emerge on Monday morning, when the National Association of Home Builders releases the latest reading on its housing market sentiment index. That widely watched gauge of the housing market rose to a six-month high in July, but is still down on the year. On Tuesday, the all-important housing starts number will reveal how many residential buildings began construction in July. The July number will follow a big disappointment from June, when 893,000 homes were started on a seasonally adjusted annualized basis—a nine-month low.

Thursday’s existing home sales data will round out the week. Recent indicators have not squelched concerns about housing. On Wednesday, the Mortgage Bankers Association reported applications to buy a house fell to a six-month low in the week prior. Still, there are some reasons for optimism. According to Freddie Mac, 30-year mortgage rates have fallen to just 4.12%, which brings it back to its lowest levels on the year. Given the decline in interest rates, as well as this year’s impressive employment growth, “I would have expected more out of housing,” said Stuart Hoffman, chief economist at PNC Financial Services. The weak housing market “is a disappointment, and somewhat of a downside risk to the economy. But with mortgage rates coming down and credit standards loosening, I would expect housing to have a better second half of the year.”

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London Home Asking Prices Plunge Most in More Than Six Years (Bloomberg)

London home sellers cut asking prices by the most in more than six years this month, adding to signs that the property market in the U.K. capital is coming off the boil. London values fell 5.9% from the previous month to an average £552,783 ($922,300), the biggest drop since December 2007, property website Rightmove Plc said today. Nationally, prices declined 2.9%, a record for an August. While property demand usually weakens during the summer, Rightmove said the slump this year was steeper than it expected. Tougher new mortgage rules introduced by Bank of England Governor Mark Carney, as well as anticipation of higher interest rates, are putting pressure on the market after a surge in values raised concerns that a bubble may develop. “Buyers and sellers are becoming increasingly aware about personal finances, given that the cost of mortgages are going up and regulators are trying to bring availability down,” said Miles Shipside, a director at Rightmove. “This limits what buyers are willing or able to pay, and helps moderate sellers’ price expectations.”

Some of the biggest price declines in London were recorded in affluent boroughs including Kensington and Chelsea, Camden, Hammersmith and Fulham, according to the report. Among the “million-pound plus” districts, Kensington saw asking prices drop 7% on the month to an average £2.2 million, while Camden fell 7.2%. From a year earlier, values in Kensington were down 1.4%, the only borough recording an annual decline. The average London price is up 10.3% in that period. “Top-end sellers are very much discretionary ones, so can delay marketing till a more active time of year,” Shipside said. “That tends to depress property prices more in the higher-priced boroughs.” Nationally, the annual pace of growth in prices slowed to 5.3% in August from 6.5% in July. The average asking price was £262,401. Rightmove said the drop in monthly prices is a “lead indicator of a slower market in the second half.”

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US Mortgage Market Continues To Falter: Q2 Originations Down 59% (Alhambra)

The Mortgage Bankers Association’s refi index is at a level not seen in a very long time, far lower than anything of this “recovery” period. There has been a clear disassociation of refi activity and interest rates, which is itself a clear break from the close correlation of the prior paradigm (before taper threats). That is a woeful sign for consumerism, as even though the trickle of refis likely had a relatively muted impact on the monetary goal of spending, it will now be completely reversed going forward – regardless of interest rates it appears. In terms of real estate and new home construction or home sales, purchasing activity has been far less provoked by all of this but no less in terms of direction.

Mortgage applications for home purchases are running nearly 15% below year ago levels, and this despite that favorable direction in mortgage rates. At the three largest mortgage providers, there was some increase in originations and volume in the second quarter over the first, but nothing that would indicate a sharp reversal on the horizon. Where total mortgage lending volume at these three banks was off by two-thirds Y/Y in Q1, in Q2 the decimation was only 59%. We will have to see about how that plays out in Q3, though mortgage pipelines entering the quarter were still way down vs. last year’s levels (about 65% on average). The current view of applications doesn’t bode well for it.

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Yellen Dashboard Warning Light Glows as Millions Work Part Time (Bloomberg)

Federal Reserve Chair Janet Yellen has a stubborn warning light blinking on her labor market dashboard: A group of Americans larger than Washington state’s population can find only part-time work. As Yellen heads to this week’s Fed symposium in Jackson Hole, Wyoming, where the focus will be on the labor market, those 7.5 million part-time workers who want full-time jobs are inflating the broad measure of underemployment she watches to gauge job market health. Involuntary part-time workers have gained by 325,000 from February’s five-year low. With employment and inflation nearing Fed goals, Yellen has consistently cautioned some labor market measures still show enough slack to warrant keeping interest rates low.

In the shadow of the Teton Range of the Rocky Mountains, she’ll have a chance to highlight soft spots such as the crowded pool of part-timers as investors try to decipher the timing of the Fed’s first rate increase-rate increase since 2006. “We still have quite a long ways to go,” said Aneta Markowska, chief U.S. economist at Societe Generale SA in New York. In the discussion of monetary policy, “I’d be surprised if the message is anything other than dovish.” Yellen, 68, is delivering a speech titled “Labor Markets” at the Jackson Hole symposium Aug. 22 at 10 a.m. New York time. The three-day meeting of central bankers and economists begins Aug. 21 with a topic of “Re-evaluating Labor Market Dynamics.”

Read more …

China’s July Home Sales Fall 28% as Easing Yet to Boost Demand (Bloomberg)

China’s home sales fell 28% in July, the biggest monthly decline this year, as tight mortgage lending outweighed efforts by local governments to ease property curbs as prices and demand weakened. The value of homes sold fell to 424.2 billion yuan ($69 billion) last month from 591.2 billion yuan in June, according to the difference between the National Statistics Bureau’s data for the first seven months and the first half of the year. The value of sales in the first seven months fell 10.5% to 2.99 trillion yuan from a year earlier, the data showed. “Today’s data will hurt sentiment as the property market has no fundamental recovery yet as investors imagined,” Edison Bian, a Hong Kong-based property analyst at UOB Kay Hian Ltd., said in a phone interview today. “Developers are still very cautious even as local governments are easing policies. Mortgages should ease further, so that reluctant developers will supply more homes.”

Chinese cities began relaxing local property restrictions in June amid sluggish sales and as an oversupply in second- and third-tier cities drove prices lower. Thirty-six Chinese cities eased their policies as of the end of last week, Centaline Property Agency Ltd., China’s biggest real estate broker, said in a report. While more cities are set to follow, buyers remain hesitant as the central bank maintains mortgage restrictions, according to Centaline. In Beijing and Shanghai, first-home mortgage rates were the same as the benchmark rate in July, while in the southern business hub of Guangzhou they were 5% to 10% higher than the benchmark rate, Centaline said.

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China Home Prices Fall in Majority of Cities on Weak Demand (Bloomberg)

China’s new-home prices fell in July in almost all cities that the government tracks as tight mortgage lending deterred buyers even as local governments eased property curbs. Prices fell in 64 of the 70 cities last month from June, the National Bureau of Statistics said today, the most since January 2011 when the government changed the way it compiles the data. Beijing prices fell 1% from June, posting the first monthly decline since April 2012. “The falling trend of China’s property market has no sign of improving,” Shen Jian-guang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd., said in a phone interview today. “The key issue is the mortgages, despite all types of local government easings. The high rate is damping sentiment of owner occupiers.”

China’s property market has become a drag on the world’s second-biggest economy, prompting cities to start easing local curbs in June. Thirty-six cities had loosened measures as of the end of last week, according to Centaline Property Agency Ltd., while developers have cut prices since March to lure buyers. The International Monetary Fund has urged China to target slower expansion in 2015, saying the economy faces a “web of vulnerabilities” from rising debt and financial institutions’ exposure to real estate. [..] Worse times for China’s real estate sector are still ahead, wrote Standard Chartered Plc economists led by Lan Shen in an Aug. 6 report, after surveying managers of 30 Chinese developers in six cities. Developers are offering “moderate discounts,” while buyers are still very cautious regardless of how much developers cut prices, Standard Chartered found.

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Blow To Global Banks’ Living Wills Over Fed’s Lending Window (FT)

Global banks can no longer assume continuing access to the Federal Reserve’s discount lending window as an element of their living wills, people familiar with the process have warned. US regulators set out the specific guidance in confidential letters on August 5 detailing why they recently rejected the living wills of the world’s largest banks. Hundreds of banks took advantage of the discount lending window on multiple occasions during the 2008 credit crunch. Critics say that instead of creating an environment for an orderly resolution that would avoid the kind of panic that ensued after the failure of Lehman Brothers, regulators are creating more risk by making a bank’s failure theoretically inevitable. They added that the prohibition defeats the purpose of the discount window and the role of the Fed as the lender of last resort.

“How are you supposed to write these living wills if the assumptions regulators are making are false and inaccurate?” asked one UScommentator. “They are disconnected from what would happen in the real world.” But the Fed and the Federal Deposit Insurance Corporation, which are under pressure to avoid government bailouts in any future crisis, want to force the banks to come up with emergency plans that do not involve any government aid, even when it comes to the discount window, which is available only to banks that are in trouble rather than failing. For the 2013 living wills, 11 banks ranging from Citigroup to Barclays were told they made unrealistic assumptions about how customers, counterparties and investors would behave in a crisis. In addition, they were informed that they failed to make or identify the kinds of structural changes that would be needed to ensure an orderly resolution.

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US Banks Plan Ahead For UK Exit From EU (FT)

Wall Street banks are drawing up preliminary plans to move some London-based activities to Ireland to address concerns that the UK is drifting apart from the EU People familiar with Bank of America, Citigroup and Morgan Stanley told the Financial Times that they considered Ireland a favorable location for some of their European business if they needed to move them out of the UK. One said he was already planning to move some activities to Ireland. The people said their plans were in most cases still at very early stages. But they said the US banks had started preparing for the euro zone’s impending banking union that threatens to isolate Britain and, ultimately, for a possible UK exit from the EU. “I’m frankly looking at moving some activities to Ireland,” said one senior UK-based manager at a Wall Street bank. “I think the Irish central bank and government would welcome this. It is not so much Brexit, more about legal entity optimization.”

Most US and Asian banks have chosen to base their main European operations in the UK, giving them an automatic passport to carry out their services across all 28 countries in the EU. But senior US banking executives said the UK was unlikely to be granted the same “passporting” rights if it left the EU – the so-called “Brexit” scenario. Prime Minister David Cameron has promised to hold a referendum on a renegotiated EU membership if his Conservative party wins next May’s election. Executives at American banks in Europe are reluctant to speak publicly about the issue for fear of upsetting the UK regulators. One said: “I don’t think people are making enough of it – a lot of passported activities that cannot take place in London will not exist here any more.” As the European Central Bank prepares to take charge of the biggest banks in the euro zone later this year, there are fears among some executives at US banks that this will drive a wedge between the UK and the rest of Europe’s financial system.

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Great teachers!

EU Trains for Bank Closures With US Agency That Shuttered 500 (Bloomberg)

When a bank fails, regulators need two qualities above all: Speed and agility. That’s the message U.S. Federal Deposit Insurance Corp. officials are sending to their colleagues in Brussels working out how the European Union will shut down insolvent lenders. Regulators need to move fast enough to limit disruption to the financial system, while staying nimble so they can pull back at the last minute if another solution emerges, Pamela Farwig, deputy director of the FDIC’s resolution and receivership division, said in a phone interview this month. “If you had to tell them to stand down, you must be able to do that in very, very short order,” said Farwig, one of four U.S. officials who spoke at private workshop on bank closures with EU officials in June.

The FDIC’s practical tips and advice for Europe are borne of hard-won experience: it handled more than 500 bank closures during the financial crisis. Its seminar, part of a trans-Atlantic exchange, tackled issues like how to market a failing bank, and how to sneak up and close it on a Friday night. “They were surprised at some of the things that can happen at the very last minute,” she said. “They just have not had that experience yet.” When a lender is on the brink, the FDIC needs to fly under the radar to avoid roiling the markets or alarming depositors. Officials will try to line up a buyer in advance and then they even book hotel rooms and rental cars without mentioning the agency’s name. “You have a team going into a very small town where everyone knows everyone — when they see those different cars you have to be very careful,” Farwig said. “The last thing you want is a marquee that says ‘Welcome FDIC.’”

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Australia Misery Index Rises to Highest Level Since 2008 (Bloomberg)

A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens. Australia’s misery index – the sum of unemployment and inflation rates – is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings Inc. froze credit markets around the world and triggered the deepest recession in the U.S. since the Great Depression.

While policy makers from the U.S. Federal Reserve to the European Central Bank are still pumping stimulus into their economies at least in part to address job-market slack, Australia’s price pressures limit that option for the RBA. The upshot for the nation’s businesses and consumers: little prospect of lower borrowing costs from Stevens. “The hurdle to cut further is high,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “The RBA is likely to remain reluctant in the absence of an external driver, and the case to cut from an already historical low will need to be compelling.”

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Credit Suisse Caught Up in Espírito Santo Mess (WSJ)

Credit Suisse helped sell billions of dollars of securities that ultimately played a role in toppling Portugal’s second-largest bank. The Swiss bank was responsible for putting together securities that were issued by offshore investment vehicles and then sold to retail customers of Portugal’s Banco Espírito Santo SA. Many customers didn’t realize that these vehicles were loaded with debt issued by various Espírito Santo companies and apparently served as a mechanism to finance the family-controlled empire, according to corporate filings and people familiar with Portugal’s investigation into the Espírito Santo affair. It is unclear what, if any, direct role Credit Suisse had in selling the securities to bank customers. Now those investment products are at the center of an unfolding scandal. Banco Espírito Santo was bailed out and broken up this month. Other parts of the Espírito Santo group have filed for bankruptcy amid alleged fraud and accounting problems. In addition to sinking the Portuguese stock market, the episode has undermined confidence in the European banking sector, analysts say.

Portuguese regulators investigating the Espírito Santo mess have identified at least four offshore investment vehicles whose securities, mostly preferred shares, were sold with the help of Credit Suisse to Banco Espírito Santo customers. Portuguese regulators, who received complaints about the products from customers who didn’t understand what they were buying, are now making the bank buy back the securities. That caused crippling losses for the bank. The offshore vehicles used at least some of the proceeds from selling the securities to buy more Espírito Santo debt, according to corporate filings. Regulators suspect the sales were part of an effort to prop up the bank and other Espírito Santo companies, the people say. Three of the vehicles are based in Jersey, an island tax haven off France’s northern coast. Credit Suisse served as “arranger and dealer” for those three vehicles, a role that included not just underwriting securities but also handling administrative and financial needs, according to corporate records filed with the Jersey Financial Services Commission.

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China’s First Bond Default in Focus as Debtholders Meet (Bloomberg)

Holders of China’s first corporate bond to default onshore plan to meet today in Shanghai, as investors look for clues on how the government will balance market liberalization with steps to maintain stability. Investors in notes of Shanghai Chaori will gather this afternoon as they seek repayment, Vice President Liu Tielong said by phone. Shanghai marked a milestone in corporate bankruptcy in June when a court accepted a restructuring application for the solar-panel maker. While Premier Li Keqiang said defaults may be unavoidable in some cases after Chaori failed to make a full coupon payment on March 7, the country has averted similar cases since. Widespread bond nonpayments would cause financial market turbulence, which can’t be allowed when the economy faces “relatively heavy” downward pressure, according to a front-page commentary in a central bank publication today. Chaori only paid 4 million yuan ($650,755) of an 89.8 million yuan coupon due in March on its 2017 bonds, becoming the first company to default on a yuan note onshore.

The Shanghai No. 1 Intermediate People’s Court accepted the restructuring application from Chaori’s supplier, Shanghai Yihua Metal Materials Ltd., because the solar-panel maker can’t repay overdue debt, according to a statement posted on the court’s website on June 27. As of March, Chaori’s liabilities were more than 700 million yuan greater than its assets, according to the statement. The Shanghai court appointed local branches of law firm King & Wood Mallesons and accounting firm KPMG Huazhen as the administrators, according to a July 10 statement. A meeting of Chaori’s noteholders set for March was delayed after the underwriter of the securities couldn’t find enough bondholders to attend for resolutions to be effective. China’s broadest measure of new credit plunged last month to the lowest since the global financial crisis, adding risks to growth as the government grapples with a property slump.

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US Losing Its Interest In Buying Chinese Companies (MarketWatch)

U.S. companies, and really companies all around the world, are losing interest in buying up their Chinese counterparts, according to a Dealogic report out Friday. Even as U.S. mergers and acquisitions volume abroad is up 47% year-to-date, American purchases of Chinese companies seem to have fallen off a cliff, dropping to just $611 million so far in 2014, down from $2.3 billion at this time last year, and marking the lowest level in 12 years, Dealogic said. Part of the problem involves a lack of big ($500 million or more) deals. The report showed no transactions of that size so far this year, while last year, there were already two such deals worth a combined $1.3 billion.

But it’s not just a U.S. issue: China’s total inbound M&A volume year-to-date is 10% less than it was at this time in 2013. And on a “deal activity” basis, the situation is even more stark: There have been just 271 agreements to buy Chinese companies this year, making Chinese M&A from abroad the weakest it’s been since 2003, Dealogic reported. The drop-off in U.S. merger interest in the world’s No. 2 economy could cap a decade of thirst for Chinese targets, with M&A volume by this point in the year coming in below the $2 billion mark only once (2012) in the 2004-2013 period. Although Dealogic didn’t offer a reason for the sudden chill in U.S. acquisitions into China, it did note that deals for Chinese health-care firms plunged from last year — $30 million year-to-date compared to $1.1 billion at this point in 2013.

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China Finds Mercedes-Benz Guilty Of Price Manipulation (Reuters)

German car maker Daimler AG’s luxury brand division Mercedes-Benz has been found guilty of manipulating prices for after-sales services in China, the official Xinhua news agency reported, citing authorities in Jiangsu province. An array of industries, from milk powder makers to tech firms, have been coming under the spotlight in recent years as China intensifies its efforts to bring companies into compliance with a 2008 anti-monopoly law. That legislation allows the country’s anti-trust regulator, the National Development and Reform Commission, to impose fines of up to 10% of a company’s Chinese revenues for the previous year. The auto industry has been under particular scrutiny, with a wave of investigations in the world’s biggest auto market prompting carmakers such as Mercedes-Benz, Volkswagen AG’s Audi, and BMW to slash prices on spare parts in recent weeks.

The Jiangsu Province Price Bureau, which launched its investigation last month, found evidence of anti-competitive practices after raiding Mercedes-Benz dealerships in the eastern coastal province as well as an office in neighboring Shanghai, Xinhua said in its report on Sunday. On Aug. 5, Mercedes-Benz said it was assisting the authorities in their investigation. A spokesman for the German brand was not immediately available to comment on the Xinhua report. “It is a typical case of a vertical monopoly in which the carmaker uses its leading position to control the prices of its spare parts, repair and maintenance services in downstream markets,” Zhou Gao, chief of the anti-trust investigation at the Jiangsu bureau, told Xinhua.

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Aug 142014
 
 August 14, 2014  Posted by at 6:37 pm Finance Tagged with: , , , ,  5 Responses »


Marjory Collins Italian-American banner parade, Mott Street, NY Aug 1942

The UN said earlier this week that in east Ukraine over 1000 people – a conservative estimate – were killed during the last fortnight in the battles over Donetsk and Luhansk. Today, there are again reports of more heavy shelling by the Ukraine “army”, and dozens more deaths, while the Russian aid convoy is still not – allowed – anywhere near the cities.

At this rate, who’s going to be left to receive any of the food and generators and sleeping bags? I have a dark suspicion that if we don’t resolve this issue, and fast, we’re going to regret that for a very long time.

For “us” to be subsidizing this sort of military operation, a policy largely underwritten and justified by unsubstantiated blame claims in a media-wide campaign about a tragic plane crash 4 weeks ago to the day, is not something even a single one of us should be proud about, let alone happy.

We should all feel deep shame and guilt. How can we at the same time denounce one genocide and sponsor another? Our leaders may not care about a dead body or two more or less, but that doesn’t mean we shouldn’t either.

And how many hundreds of American soldiers are already back on the ground in Iraq again, while their army commanders emphasize the limited scope of air strikes? Are we supposed to just wait for the PR spin to serve up the justification for boots on the ground in their thousands? What’s it going to be this time? And how wrong is Ron Paul in suggesting this is a trap?

Whatever it is, we better make it fast, and step on the gas, or Europe will no longer be of much help. Well, either that or their domestic problems will; become the very driver for their involvement in warfare abroad. Even the Germans are sending support in Iraq now, right after the US announced they found there are far less Yazidi people on Mount Sinjar than someone told them there were. Perhaps they should all ask Putin to help. With both aid and intelligence.

And grout. The Mosul dam was built on gypsum and needs daily injections of grout – a liquified cement – or it falls to pieces. No need to bomb it. And that would mean flooding Baghdad – and the US multi-billion Green Zone. Mission accomplished.

However that may be, 6-7 years into the famed recovery, of which we’ve, come to think of it, seen about as little evidence as of the alleged rebel/Russian involvement in the plane crash, Germany’s GDP drops. Now, you’re thinking, so did US GDP earlier this year, and we spun our way out of that without a glitch. All under control, Captain, my Captain.

But Germany has 27 weaker vassal states on its back, and if it can’t even carry its own weight anymore, then what’s next? Obviously, there are plenty of experts claiming it’s a temporary thing, but when temporary gets to mean 6 years and more, it becomes meaningless.

Then again, so much in the propaganda machine we live in, that dictates what we think about the economy and about politics, is devoid of any real meaning, and the machine’s still going strong, fueled by the people’s unquestioning ignorance and their fear of losing their comfy plush caves. Baby, it’s cold outside. Older than Rome.

Spain was supposed to be the leading example of what weaker European brothers could do. Turns out, that was also just spin. Industrial production does not fall in economies recovering from gutter scraping circumstances. France is a basket case. A basket increasingly filled with stale bread and cheap wine.

Other EU nations report actual growth, but why should we believe any of them? Why should we believe any of this has to do with anything but appearances?

One country where keeping up appearances simply doesn’t work anymore – and that’s saying a lot these days – is Italy. A new young prime minister was elected on big promises – and already failed miserably. Nothing can save Italy as long as it’s part of the Eurozone. Or Greece, or Portugal, or Spain. Policies will be set according to what the richer nations want and need, and while the disadvantages of that can be hidden in times of plenty, they stand out all the more in poorer days.

On the surface, Italy doesn’t even seem to do that bad. It has a primary surplus, for one thing. It’s just that, as Ambrose Evans-Pritchard writes:

Output has collapsed by 9.1% from the peak, back to levels last seen 14 years ago. Industrial production is down to 1980 levels. [..] Bank loans to business are still falling at a rate of 4.5%. [..] The debt ratio may test 140% by the end of the year, uncharted waters for a country that effectively borrows in D-Marks.

It’s the debt that does in Italy, at least as long as it’s denominated in euros. Tempted by manufactured low yields on its bonds, Rome lets the debt soar on:

Ambrose calls for spending, he’s a Keynes man. To him, the failure is the resistance to more spending, in the spirit of the Fed, and Tokyo and Beijing, by Brussels – or Berlin.

But I think it would be, and would always have been, borderline lethal, since it would be like throwing debt on top of the debt Himalayas. There is a limit beyond which more spending cannot possibly be of any help, and the entire western world passed that limit many years and many trillions of dollars and yen and euros and liras ago. What’s left is the interest payments that are certain to burden us like so many Quasimodo’s for many years to come.

No, Ambrose has it right in some of his other comments

Mr Renzi is on his own. He faces an ECB that has fundamentally violated its contract with Italy, letting EMU-wide inflation fall to 0.4% knowing that this causes the Italian crisis to metastasise.

Italy must look after itself. It can recover only if it breaks free from the EMU trap, retakes control of its sovereign policy instruments and renominates its debts into lira, with capital controls until the dust settles. Italy would not face an immediate funding crisis since it has a primary budget surplus. Its net international investment position is -32% of GDP, compared with -92% for Spain and -100% for Portugal.

There is no easy way to leave the euro. The interlocking structures of monetary union have gone much further than a fixed exchange peg. Vested interests are powerful and merciless. But it is not impossible either.

The matter will surely come to a head as Italy’s debt trajectory hits the danger zone. This time it may not be quite so clear that the country wishes to be rescued on European terms. Mr Renzi may appropriately conclude that the only possible way to deliver on his Risorgimento for Italy, and to craft his own myth, is to gamble all on the lira.

I don’t see Matteo Renzi crafting his own myth, I don’t see him sticking around long enough. Someone’s got to take the blame, and no matter how much choice Italy has by now, there’s always room for one more.

But I do think that at some point Italy will see there are no other choices left but to be its own boss.

It’s just that the sooner it does, the better it would be by far. It’ll be much harder when everyone else is running for cover too.

It would seem however, that Italy’s own propaganda machine needs to be silenced first. And that’s never easy.

Japan And Italy Break New Sovereign Debt Load Records (Zero Hedge)

With Japanese and Italy 10Y bond yields hitting all-time record lows (0.505% and 2.626% respectively), one could be forgiven for thinking that all-is-well as term or devaluation premia are oddly missing. However, as the following two charts show, Japan and Italy just broke another record – sovereign debt loads (1.038 quadrillion JPY and 2.17 trillion EUR respectively). Japan – having topped 1 Quadrillion early in the year – is marching ahead…

and Italy is not looking back – just look at that ‘austerity’…

Keynes would be proud…

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Italy’s Renzi Must Bring Back The Lira To End Depression (AEP)

Italy has been in depression for almost six years. The slump has been punctuated by false dawns, overwhelmed each time by the monetary amateurs in charge of EMU policy. The latest recovery fizzled after a single quarter. The economy is in technical recession again. Output has collapsed by 9.1% from the peak, back to levels last seen 14 years ago. Industrial production is down to 1980 levels. It takes spectacular policy errors to bring about such an outcome in a modern economy. Italy did not suffer anything like this during the Great Depression, clocking up growth of 16% between 1929 and 1939. But not even Mussolini was maniacal enough to pursue his Gold Standard delusions until the bitter end. The Italian authorities discern flickers of recovery, like fortress guards in Dino Buzzati’s Desert of the Tartars, deceived by optical illusions on the lifeless horizon. Bank loans to business are still falling at a rate of 4.5%. Moody’s says the economy will contract by 0.1% this year. Societe Generale is pencilling in -0.2%.

The property slump has not yet touched bottom. The Bank of Italy said the number of months needed to sell a house has risen to 9.4, from 8.8 late last year. The number reporting worsening market conditions has jumped from 19.6% to 34.7% in three months. “We can’t keep going any longer,” said the Taranto branch of Italy’s business lobby, Confindustria, in an open letter to the country’s president. The region is becoming an “industrial desert”, it warned, with small companies on the brink of mass closures and lay-offs. The lethal mix of economic contraction and zero inflation is causing Italy’s debt trajectory to spiral upwards, despite austerity and a primary surplus of 2% of GDP. Public debt jumped to 135.6% in the first quarter from 130.2% a year earlier. This is a mechanical effect, the result of a compound interest burden on a static nominal base. Real interest rates on Italy’s €2.1 trillion stock of debt – with an average maturity of 6.3 years – is actually rising as deflation draws closer.

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German GDP Contracts as French Economy Stagnates (WSJ)

Germany’s economy contracted while France’s stagnated in the second quarter, indicating the euro zone’s yearlong recovery may have stalled, and likely pressuring policy makers to come up with some new ideas for boosting growth. The euro zone’s largest economy contracted 0.2% in the three months to June, Germany’s federal statistics office said, the first decline in output since the start of 2013. Compared with the second quarter of 2013, output was up 1.2%. Economists polled by The Wall Street Journal last week said they expected the economy to shrink 0.1% on the quarter and grow 1.4% in annual terms. Destatis said that net trade was a drag on growth, as import growth outpaced export growth. Construction investment declined, but Destatis said this was due to projects being pushed forward because of the unusually mild winter. Both private and public consumption rose compared with the first quarter, the statistics office said.

Earlier on Thursday, figures from France’s statistics agency showed the euro zone’s second-largest economy failed to record any growth for the second successive quarter in the period April through June. Economists polled by the Journal had expected a 0.1% expansion in gross domestic product in the second quarter from the first. Compared with the same period of 2013, GDP was up just 0.1%. Figures published earlier this month showed Italy’s economy also contracted in the second quarter, by 0.2%. The data released Thursday mean that none of the euro zone’s three largest economies—which account for two thirds of the currency area’s output—expanded in the three months to June, making it unlikely that the euro zone as a whole managed to generate any growth.

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Eurozone Woes Deepen As Spain’s Industry Slumps (Guardian)

Hopes for a recovery in the eurozone suffered another blow on Wednesday with figures showing industrial output fell for a second successive month. Production declined across the 18 eurozone members by an average 0.3%, with a return to growth in France and Italy offset by falls in Ireland and the Netherlands and slow progress in Germany, which struggled to 0.2% growth. Spain was the worst hit of the currency bloc’s major economies with a 0.8% drop in industrial production. It also suffered the sharpest drop in shop prices for five years, undermining Madrid’s claim that a rebound in employment last month was a clear indication of the country’s return to sustained growth. Spanish consumers have proved reluctant to spend on the high street while unemployment remains at around 25%, forcing shops to offer bigger discounts in July than June.

Weakness across the manufacturing, energy and mining sectors will pose a problem for Brussels and the European Central Bank (ECB), ahead of second-quarter GDP figures on Thursday that are expected to show a further slowdown from the 0.2% growth in the first three months of the year. The €9.6tn economy is struggling to gain momentum with its recovery a year after exiting recession. High unemployment, sluggish reforms and the fallout from conflict in Ukraine, Gaza and Iraq are holding it back. The latest sign of just how fragile the eurozone’s economic rebound remains came this week, after German investor sentiment dropped to its lowest level since December 2012 on concerns that European sanctions against Russia will harm exports.

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A worldwide new metric?!

German GDP Set To Swell On Sex, Drugs And Weapons (DW)

What do research and development, prostitution, drug smuggling and arms trafficking have in common? They are all seen as economic activities, and starting Sept. 1, they will be counted as part of Germany’s annual economic performance, or gross domestic product, in line with new calculation standards. The new figures include revenues from prostitution and the sale and smuggle of illegal drugs. “All relevant economic activities should be counted without any moral judgement,” Norbert Räth from Germany’s statistical office, Destatis, told DW. According to official estimates, there are around 400,000 prostitutes in Germany, 20,000 of whom are men. Altogether they earn €14.6 billion ($19.5 billion) a year. Minus various expenses, such as rent in brothels, work attire and condoms, and the statisticians get a gross value added of roughly €7.3 billion. For drugs, it is the same story. Surveys commissioned by the Federal Health Ministry allow officials to estimate the prevalence of drug use in Germany.

This figure is then multiplied by the respective prices on the black market – something Germany’s Federal Criminal Police Office knows very well. Even the amount of money the state spends on armaments is now subject to the new rules. “The production of weapons has, of course, always been included,” Räth said. But until now those costs had always been written off as a state expense. Now they are considered an investment. Now countries in the EU have a uniform method of calculating their GDPs. And when new items are added to GDP calculations, it grows. One could speculate that there is an ulterior motive behind the new system, namely one that sugarcoats Europe’s sovereign debt. Even if overall debt is not reduced, the debt ratio sinks when GDP increases. “We are going to have to categorically deny that,” said Norbert Räth from Germany’s statistical office, Destatis. “The whole process is not politically motivated. It hasn’t been all along.”

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“Could debt diabetes be right around the corner?”

The Shale Sugar Lick (EnergyPolicyForum)

A well known American comedian, Ron White, quips about the amount of sugar Americans eat by suggesting that certain restaurants install a sugar lick. Patrons can “belly up” and take their fill at the trough. Such an analogy might be apropos of some shale operators with regard to their addiction to debt. A useful metric when evaluating a company is to look at the ratio between interest expense and operating income. A low ratio means that the company has not needed to borrow great sums of money to keep going. It generates sufficient cash to fund future operations without exorbitant levels of debt or shareholder dilution from issuing more stock. Examining a selection of shale operators who are active in various plays in the US, one sees an interesting pattern. Perhaps it would be useful to define operating income. Operating income is gross income minus day to day costs of running the business including salaries and then subtracts depreciation. It is a metric that investors use to determine how much potential profit a company might generate.

Obviously it gives a more accurate picture of a firm’s profitability than simply gross income because costs have been removed. But not interest expense. Recently, the oil and gas industry’s appetite for debt has exploded primarily because cash is not being generated by the underlying business proportional to its needs. This is particularly true of some shale operators. EIA, the forecasting arm of the US Department of Energy, quantified this appetite for debt. EIA stated: “The gap between cash from operations and major uses of cash has widened in recent years from a low of $18 billion in 2010 to $100 billion to $120 billion during the past three years.” To demonstrate how this phenomenon translates to a company’s financial statement, one need only to examine the ratio between interest expense and operating income. The following chart shows the percentage of total operating income, or potential profit, that is being eaten up by nothing more than interest paid on debt at Range Resources, Devon Energy, Quicksilver Resources, Encana and Exco.

Shale operators have, indeed, parked themselves at the sugar lick debt trough for quite some time now. Could debt diabetes be right around the corner?

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Ron Paul: “This Is Exactly What Osama Bin Laden Wanted” (RT)

Even if the US abandons its efforts, Paul added, assistance provided to other groups throughout the region may end up sabotaging attempts to dismantle the Islamic State if weaponry trickles downs into the hands of militants. Firepower already provided by the Pentagon in and around Iraq has found itself in the wrong hands, Paul said, and the only solution to prevent further unintended consequences is to keep America out of international conflicts altogether. “I would stick to the basic principle that we have a strong national defense, we defend our national security, we don’t get involved in fights around the world, we don’t get involved in civil strife and civil wars and especially what was going on in the middle east,” he said, “so no, I think the argument stands on its own merits that we shouldn’t be involved in doing this.”

“I think the sooner we get out of there the better,” Paul told David. “We don’t have a moral responsibility; we don’t have a constitutional responsibility. It has nothing to do with our national security. It in jeopardizes our national security and is bankrupting our country.” What’s more, Paul added, is that the US government’s ongoing meddling in the Iraqi affair and other incidents is falling exactly in line with Al-Qaeda. According to Paul, terrorists have long intended to take the US down by wasting its resources on campaigns, the likes of which have been called fodder for some by further fanning the flames of anti-American sentiments through military action carried out in far apart countries. “This is exactly what Osama bin Laden wanted,” Paul said. “He wanted to engage us over there because he said, ‘I’ll bring you down like I brought the Soviets down.’ We are doing the same thing because we flat out can’t afford it. It’s a failed policy. I think after so many years and so many decades we ought to admit the truth.”

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Another War In Iraq Won’t Fix The Disaster Of The Last (Guardian)

The media and political drumbeat is growing louder for Britain to move from humanitarian aid drops to join the military campaign. France has announced it will be arming Iraqi Kurdish forces. There are already 800 US troops back on Iraqi territory. Without a trace of irony, Colonel Tim Collins, who famously claimed on the eve of the 2003 invasion that British troops were occupying Iraq to “liberate” it, yesterday led the call for yet another military intervention. If ever there was a case for another Anglo-American bombing campaign, some say, this must surely be it. Graphic reports of the suffering of tens of thousands of Yazidi refugees on Mount Sinjar and the horrific violence that has driven the Christians of Qaraqosh from their homes have aroused global sympathy. The victims of this sectarian onslaught need urgent humanitarian aid and refuge.

But the idea that the states that invaded and largely destroyed Iraq at the cost of hundreds of thousands of lives should claim the cause of humanitarianism for yet another military intervention in Iraq beggars belief. If the aim were solely to provide air cover for the evacuation of Yazidis from Sinjar, there are several regional powers that could deliver it. The Iraqi government itself could be given the means to do the job – something its US sponsors have denied it until now. In fact, the force that has done most so far to rescue Yazidis has been the Kurdish PKK, regarded as a terrorist organisation by the US, EU and Turkey. But after decades of lawless unilateralism, any armed intervention for genuine humanitarian protection clearly has to be authorised by the United Nations to have any credibility. As the Labour MP Diane Abbott put it, that’s what the UN is for – and authorisation could be quickly agreed by the security council. But of course it’s not just about the Yazidis or the Christians.

As Obama has made clear, they’re something of a side issue compared with the defence of the increasingly autonomous Iraqi Kurdistan – long a key US and unofficial Israeli ally – and American interests in its oil boom capital Irbil, in particular. The US is back in Iraq for the long haul, the president signalled, spelling out that his aim is to prevent IS establishing “some sort of caliphate through Syria and Iraq” – which is exactly what the group regards itself as having done. The danger of the US, Britain and others being drawn again into the morass of a disintegrating state they themselves took apart is obvious. IS, then known as al-Qaida in Iraq, itself effectively arrived in the country in 2003 on the backs of US and British tanks. The idea that the states responsible for at least 500,000 deaths, 4 million refugees, mass torture and ethnic cleansing in Iraq over the past decade should now present themselves as having a “responsibility to protect” Iraqis verges on satire.

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Iraq’s Mosul Dam Demands 24/7 Maintenance (Zero Hedge)

Last week, the barbaric Islamic State (IS) seized the vitally important Mosul dam, dramatically impacting tactical options against them and potentially changing the future of the Middle East. When the US coalition forces invaded Iraq in 2003, military intelligence developed invasion scenarios. One scenario included Iraqi forces placing detonation charges at the vitally important dam. If US forces were able to safely secure the dam, then they had a contingency plan to operate it and ensure critically important maintenance. The US quickly discovered the necessity for $27 million worth of frantically urgent repairs. Since the dam was completed in the mid-1980’s it has required continuous (daily) maintenance, because it was built on top of gypsum, a soft mineral which dissolves when in contact with water. More than 50,000 tons of materials have been injected into the dam since 1986. The ‘sink hole’ type of cavities that constantly form have to be expeditiously plugged with “grout”, a liquefied mixture of cement and other additives.

A dam break does not require sabotage. Maintenance failure has the same result. In December of 2006, the US Army Corp of Engineers (USACE) detailed a comprehensive report on the dam’s structure. The report called it, “the most dangerous dam in the world”, stating that even water pressure could buckle the flimsy foundation. The Mosul dam is the fourth largest in terms of reservoir capacity in the Middle East with a capacity of 3 trillion gallons or 11.1 billion cubic meters. It is a key component of Iraq’s power grid and source of water for irrigation. It is located 31 miles north of the city of Mosul whose population is 1.7 million and 200 miles north of Bagdad. A dam collapse would release the 360 feet high waterline and reach Mosul in 2 hours. A USACE official wrote a report in 2011 that was published in Water Power magazine estimating that dam failure could lead to as many as 500,000 civilian deaths.

In 2007, General Petraeus wrote a letter to the Iraqi PM warning of the safety concerns in the report and the consequences should the dam fail. In paraphrasing the USACE report, his letter said that “despite continuous grouting… the safety of the dam cannot be assured”. He went on to say that “…an instantaneous failure….could result in a flood wave 65 feet deep at the city of Mosul… and produce flooding all the way to Baghdad”. President Obama recently authorized limited airstrikes in Iraq against IS. He said they were to prevent a humanitarian crisis and to protect American lives and assets in Erbil and Baghdad. He determined that there was risk of ‘genocide’ of the tens of thousands of Yazidis people trapped by IS in the mountains, as well as, risks to the consulate and American workers there, should Erbil be toppled. There is still hope on both fronts.

However, the greatest foreign policy failure to date in trying to prevent a potential ‘genocide’ is arguably allowing IS to take over the dam in the first place. The US has always known the importance of the dam. Furthermore, just as we had the ability to get Bin Laden at Tora Bora and failed to act, US officials knew that the IS leadership was assembled in one place and decided not to take them out.

Read more …

Iraq’s Mosul Dam Needs US Boots On The Ground (Kotok)

History is replete with examples of bridges and dams threatened by warfare. The winning side wants to hold them. The losing side wants to destroy them. Or they can be used to gain a military advantage. In the August 12 issue of the Wall Street Journal, there is a map of Iraq that illustrates the situation with Mosul Dam, as reported in “Limits of Airstrikes Hinder U.S. Policy in Iraq.” Think about what happens if IS (Islamic State) loses and has to withdraw from the dam. Their actions will be just what we can contemplate, unless there is an intervention by skilled ground forces that can overwhelm them prior to their blowing the dam. The alternative is that IS prevails and holds the dam, in which case there are very serious implications for the region, including the danger that the dam will fail simply because it is not being maintained properly.

This is a catch-22. In psychological terms, it is an avoidance-avoidance conflict. There are no easily determined good outcomes. Think about oil production in the broader region, the populations imperiled downstream from the dam, and this murderous and merciless foe called IS. We confront a high probability of an adverse outcome regardless of the actions of the combatants on both sides. There is no easy out. A 2006 report by the US Army Corps of Engineers called Mosul Dam “the most dangerous dam in the world.” The dam was so poorly constructed, on such problematic (gypsum-rich) ground, that it requires daily injections of a mixture of cement, sand, and water – grout – into the voids that are forming under the dam. These injections ceased nearly a week ago when IS captured the dam and nearly all dam personnel fled.

So even if IS does not blow the dam, or even if Kurdish or Iraqi forces recapture it, the dam may be so compromised that it ruptures, sending a 65-foot wave down the Tigris River to smash the city of Mosul (just 30 miles downstream) and flood large portions of Baghdad (the US says its embassy there is threatened). The time for easy outs passed some time ago, when the US might still have been able to assert air superiority over the region before IS strengthened. At this point IS is using captured American weapons and financial assets in order to grow even stronger. We can use our targeted bombing to help rescue thousands of civilians. We can attempt to supply and arm the apparent alliances that are anti-IS and that reside in the Kurdish areas. But without the commitment of highly skilled American ground troops in large numbers, we cannot safeguard dams, rivers, or bridges – or the people of Mosul and Baghdad.

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Of course.

Stated Income Loans Make Comeback As Mortgage Lenders Seek Clients (Reuters)

Mortgage applicants who can’t provide tax returns or pay stubs to show their income are getting stated income loans again as companies such as Unity West Lending and Westport Mortgage chase customers they can no longer afford to ignore. Lenders say these aren’t the same products as the so-called “liar loans” that were pervasive before the housing bust. Instead, the loans are going to borrowers such as small business owners or investors buying properties they intend to rent who can demonstrate an ability to repay, verifiable through bank or brokerage statements. Lenders said they look for enough assets to pay six to 12 months of payments, while also demanding high down payments to reduce the chance of default. “This is not a return to the wild and wooly days of, if you fogged the mirror, you can have a loan,” said Paul Lebowitz, founder of Westport Mortgage. “They have a smarter edge to them now.”

Some rival lenders said the stated income loans on offer could be abused if borrowers fudge bank statements or don’t have enough money to repay the loan. None of the three biggest banks offer them. Sam Gilford, a spokesman for the Consumer Financial Protection Bureau, said the agency is concerned, though he wouldn’t say whether it is investigating them. The CFPB’s rules don’t give specific minimums for assets required to demonstrate an ability to repay a mortgage, but critics said a year’s worth of payments for a three-decade loan may not be enough. “It’s easier to falsify bank statements than income tax returns,” said Julia Gordon, director of housing finance and policy at the Center for American progress. To avoid the housing-bust taint, the new stated income loans are being called such things as “alternative documentation loans,” “portfolio programs,” “alternative-income verification loans” and “asset-based loans.”

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The banks rule in Japan as much as in Europe and the US.

Japan Megabanks’ $800 Billion Cash Pile Shows Abe Task (Bloomberg)

Prime Minister Shinzo Abe has succeeded in wrestling down the yen and snapping a 15-year deflationary spiral. The challenge of spurring lending by the country’s cash-hoarding megabanks remains. The nation’s three largest lenders increased their cash and deposits with other financial institutions 5.7 percent in the quarter to June to 82 trillion yen ($800 billion) from the previous three-month period, earnings data show. New loans by Mitsubishi UFJ, Mizuho Financial Group and Sumitomo Mitsui Financial Group fell 329 billion yen to 239.1 trillion yen. Abe needs to spur lending after the world’s third-largest economy shrank at an annualized 6.8 percent in the second quarter due to an April sales-tax increase aimed at curbing the world’s biggest debt burden.

While the banks can no longer park excess cash in sovereign debt amid expectations for higher yields, falling loan rates have narrowed the spread over deposit payments to levels that discourage extending credit, according to Moody’s Investors Service. “The big three are at a turning point,” said Graeme Knowd, an associate managing director who oversees corporate and financial institutions at Moody’s in Tokyo, in an interview. “They haven’t really taken credit risk for a long time. If Abenomics works, they need to reorient the business model.” Deposits at Japanese financial institutions exceeded loans by 192.5 trillion yen last month, according to Bank of Japan data. The surplus reached a record high 194.2 trillion yen a month earlier.

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Not stagflation, deflation.

Stagflation Stalks Abenomics (Bloomberg)

Maybe it’s time to stop dismissing the risk of stagflation in Japan. I’ve raised this risk a couple of times during the last 12 months as inflation rose without commensurate increases in wages or productivity. But yesterday’s ugly gross domestic product report suggests it’s a clear and present threat to Japan’s best chance at economic recovery in more than a decade. The collective reaction yesterday to the 6.8% plunge in second-quarter growth seemed to be: “Relax, it could’ve been worse.” After all, many economists were braced for a 7%-plus contraction following an ill-timed and ill-conceived consumption-tax increase in April. Yet the detail of the report – and the balance of other recent data – point toward a period of sluggish growth, at best, and continued inflation gains.
Thanks to the Bank of Japan’s unprecedented easing and the yen’s 16 percent drop during Prime Minister Shinzo Abe’s term, consumer prices rose 3.6% in June from a year earlier. That wouldn’t be a problem if incomes and productivity weren’t walking in place.

The 5% drop in inflation-adjusted consumption in the second quarter, meanwhile, was even greater than the recession-causing sales-tax hike of 1997, observes Richard Katz, publisher of the Oriental Economist Report. There’s evidence, too, that the gains in corporate profits that the weaker yen delivered to manufacturers is fading. Last week, Toyota stuck with a forecast for net income to drop from last year’s record $17.8 billion. Now, Japan’s largest carmakers are hunkering down for slumping domestic sales, highlighting the damage to demand by the 3 percentage point increase in the sales levy. Panasonic also is struggling as its fixed costs rise and demand for electronics in Japan wanes. Optimism that deflation has been defeated ignores the sources of today’s price increases. With the nation’s nuclear reactors switched off for safety reasons, Japan is importing expensive energy with devalued yen. This, along with doubts about the trajectory for household demand, helps explain why companies aren’t increasing wages to offset the effects of inflation.

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Sounds good, but …

Small Chinese Cities Swap GDP For Quality Of Life Metrics (FT)

More than 70 Chinese smaller cities and counties have dropped gross domestic product as a performance metric for government officials, in an effort to shift the focus to environmental protection and reducing poverty. The move, which follows a directive issued by top leaders last year, is among the first concrete signs of China switching its blind pursuit of economic growth at all costs towards measures that encourage better quality of life. Analysts say that adherence to GDP as a performance metric – thus linking it to local officials’ promotion – has contributed to environmental degradation and urban sprawl as officials encouraged heavy industry and bulldozed agricultural land to build housing developments.

“Using GDP as the main assessment method has caused a lot of problems, like unequal income distribution, problems with the social welfare system and environmental costs,” said Xie Yaxuan, head of macroeconomic analysis at China Merchants Securities in Shenzhen. Hebei, a steelmaking province north of Beijing, and Ningxia, an impoverished ethnic minority region in northwest China, have cancelled GDP-based assessment for poor counties and cities, the official Xinhua news has reported in recent months. Evaluation will instead be based on raising living standards for poor residents and reducing the number of people living in poverty.

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Does Beijing control it all? I think not.

China’s Credit Slowdown: A Default Risk? (CNBC)

China’s sharp credit growth slowdown in July may signal rising default risks in some parts of the economy, analysts said. “The phase of unchecked shadow banking growth is over, while the housing downturn is not,” Wei Yao, an economist at Societe Generale, said in a note Wednesday. China’s debt levels – which soared to 250 percent of gross domestic product (GDP) according to some estimates – have been a major concern for years, spurring fears that the borrowing surge is fueling a dangerous property bubble and overcapacity in many industries, including steel, mining and solar energy, any of which could face collapse as the economy slows and Beijing tries to choke off overinvestment. In July, the total social financing (TSF) aggregate fell to 273.1 billion yuan ($44.34 billion), indicating the amount of money flowing into China’s economy slowed to the lowest monthly reading since the October 2008 depths of the global financial crisis.

Some are concerned about the decline in new shadow banking, particularly for the trust funds. “The trust fund industry is the single largest funding provider behind the wave of leveraging up among the local governments and property developers over the recent years,” Dong Tao, an economist at Credit Suisse, said in a note Wednesday. Tao cited data from the China Trust Industry Association which showed the trust industry’s assets under management hit a record high of 12.48 trillion yuan in the second quarter, but asset growth was only 6.4 percent from the previous quarter, the slowest since data became available. “The decline in capital influx for trust funds will likely have direct implications on funding for infrastructure and property projects,” Tao said. “It also threatens the ability of debt repayment of these players when the debt matures.”

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They already have new loan provisions, just more sneaky ones.

China Seen Taking Steps to Aid Growth After Credit Plunge (Bloomberg)

China’s plunge in credit expansion last month and unexpected slowdown in investment spending flashed warnings on growth that investors and economists bet will spur policy makers to expand stimulus. Barclays is forecasting two second-half interest-rate cuts, while Australia & New Zealand Banking Group said a reduction in banks’ reserve requirements is imminent. A front page story today in the official China Securities Journal said monetary policy will continue to “lean towards relaxation amid a stable stance.” A property slump and dangers from rising bad loans are making it tougher for Premier Li Keqiang to sustain the fastest growth in the Group of 20 nations. Any stimulus would build on measures this year to expedite railway spending, free up money for loans for small businesses and channel funds toward building low-income housing.

“The top concern right now is to make sure the economy can be reasonably smooth in its growth, rather than controlling the risks,” said Li Daokui, a former PBOC academic adviser who’s a professor at Tsinghua University in Beijing. Aggregate financing was 273.1 billion yuan ($44.4 billion) in July, the central bank said yesterday, contrasting with a Bloomberg LP gauge that showed China loosened monetary conditions last quarter at the fastest pace in almost two years. The PBOC measure includes bank loans, corporate bonds and shadow-finance categories such as entrusted loans. The credit number compared with the 1.5 trillion yuan median estimate of economists, while new local-currency loans of 385.2 billion yuan were half of projections. M2 money supply grew a less-than-anticipated 13.5 percent from a year earlier. “It is important for both monetary and fiscal policy easing to continue in the coming months,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, said in an e-mail.

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Not surprised.

1 in 3 US Soldiers May Not Get Post-Trauma Help Under New Rules (Bloomberg)

Some U.S. soldiers suffering from post-traumatic stress disorder after service in Iraq and Afghanistan may not be diagnosed with the condition because of new guidelines to assess the illness, a study found. About 1 in 3 soldiers found to have PTSD under the previous diagnostic standards were missed by the new criteria, according to today’s research in the journal the Lancet Psychiatry. About 5.2 million adults in the U.S. suffer from post-traumatic stress disorder each year, according to the U.S. Department of Veterans Affairs. Today’s study, one of the first to compare the two sets of diagnostic standards in infantry soldiers, shows that more research is needed to determine how the new rules will affect patient care, said Charles Hoge, the lead study author and a senior scientist at Walter Reed Army Institute of Research in Silver Spring, Maryland.

“For military service members and veterans if they’ve been treated for PTSD or are in treatment for PTSD according to the old criteria, their diagnosis isn’t going to change,” Hoge said in a telephone interview. “New people coming into treatment now, it is possible some of those individuals would’ve gotten a diagnosis of PTSD but they are not receiving that diagnosis now.” People who have post-traumatic stress disorder experience flashbacks, nightmares and mood swings that disrupt their daily lives. The disorder is best known for occurring in veterans of war or victims of an assault.

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We’ll get wet feet denying it.

Antarctic Melt May Lift Sea Level Faster in Threat to Megacities (Bloomberg)

Antarctica glaciers melting because of global warming may push up sea levels faster than previously believed, potentially threatening megacities including New York and Shanghai, researchers in Germany said. Antarctica’s ice discharge may raise sea levels as much as 37 centimeters (14.6 inches) this century if the output of greenhouse gases continues to grow, according to a study led by the Potsdam Institute for Climate Impact Research. The increase may be as little as 1 centimeter, they said. “This is a big range, which is exactly why we call it a risk,” Anders Levermann, the study’s lead author, said in a statement. “Science needs to be clear about the uncertainty so that decision makers at the coast and in coastal megacities can consider the implications in their planning processes.”

NASA estimates the glaciers in the Amundsen Sea region contain enough water to raise global sea levels by 4 feet (1.2 meters) and in May said the glacier melt may have become “unstoppable.” The Potsdam institute’s projections for this century’s sea level contribution are “significantly higher” than the latest upper-end projections from the Intergovernmental Panel on Climate Change, it said. “Earlier research indicated that Antarctica would become important in the long term,” Levermann said. “But pulling together all the evidence it seems that Antarctica could become the dominant cause of sea level rise much sooner.”

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Death toll is probably much higher.

African Nations Apply Medieval Measures To Halt Ebola Spread (NY Times)

The Ebola outbreak in West Africa is so out of control that governments there have revived a disease-fighting tactic not used in nearly a century: the “cordon sanitaire,” in which a line is drawn around the infected area and no one is allowed out. Cordons, common in the medieval era of the Black Death, have not been seen since the border between Poland and Russia was closed in 1918 to stop typhus from spreading west. They have the potential to become brutal and inhumane. Centuries ago, in their most extreme form, everyone within the boundaries was left to die or survive, until the outbreak ended. Plans for the new cordon were announced on Aug. 1 at an emergency meeting in Conakry, Guinea, of the Mano River Union, a regional association of Guinea, Sierra Leone and Liberia, the three countries hardest hit by Ebola, according to Agence France-Presse. The plan was to isolate a triangular area where the three countries meet, separated only by porous borders, and where 70 percent of the cases known at that time had been found.

Troops began closing internal roads in Liberia and Sierra Leone last week. The epidemic began in southern Guinea in December, but new cases there have slowed to a trickle. In the other two countries, the number of new cases is still rapidly rising. As of Monday, the region had seen 1,848 cases and 1,013 deaths, according to the World Health Organization, although many experts think that the real count is much higher because families in remote villages are avoiding hospitals and hiding victims. Officials at the health organization and the Centers for Disease Control and Prevention, which have experts advising the countries, say the tactic could help contain the outbreak but want to see it used humanely. “It might work,” said Dr. Martin S. Cetron, the disease center’s chief quarantine expert. “But it has a lot of potential to go poorly if it’s not done with an ethical approach. Just letting the disease burn out and considering that the price of controlling it — we don’t live in that era anymore. And as soon as cases are under control, one should dial back the restrictions.”

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Not good.

Ebola A ‘High Risk’ In Kenya, East Africa, WHO Warns (RT)

The World Health Organization (WHO) has said that Kenya is at “high risk” of the spread of the deadly Ebola virus because it is a major transport hub, with several flights a day to West Africa where the disease is running riot. This is the most serious warning to date that the disease could spread to East Africa. So far it has been limited to West Africa, where it has ravaged Guinea, Sierra Leone and Liberia, killing more than 1,000 people. Nigeria, Africa’s most populous country, is the latest to be hit. The country of over 150 million people has now seen three deaths from Ebola. Although health checks have been stepped up in Nairobi airport in recent weeks, the Kenyan government has said it will not ban flights from the four countries hit by Ebola, because of the porous borders between African countries. There more than 70 flights a week between Kenya and West Africa. “We do not recommend a ban of flights because of porous borders,” said Kenyan health cabinet secretary James Macharia.

Read more …

Aug 112014
 
 August 11, 2014  Posted by at 4:51 pm Finance Tagged with: , , , , ,  9 Responses »


John Vachon General store and post office in Little Creek, Delaware Jul 1938

Boy, what a day so far; hard to keep up. tell me, is it just me, or has the US really started another round of regime change in Iraq?

Washington wants a new government in the capital, Baghdad, a national unity one, ostensibly to respond to the Islamist State threat.

PM Maliki doesn’t want to go, but also can’t lead such a government (nobody likes him). Iraqi President Fuad Masum then tells him off, so does a court. Maliki sends loyal troops into Baghdad, threatens to take the President to court, and the latter names deputy parliament speaker Haider Al-Abadi as new PM.

Meanwhile, the US pulls their support from Maliki, and the Islamist State conquers another city not far from the capital, and not anywhere near where the Americans are bombing them.

And most of that was before America had even woken up.

BTW, the President is Kurd, Maliki is Shi’ite, and the parliament chairman is Sunni. Lovely. National unity? You would need a nation first.

The US yesterday started directly arming the Kurds under siege where they are indeed bombing, and the Kurds took back some ground from the IS.

Wait a minute! The US is arming the Kurds? For real? Did they forget the longstanding fight between the Kurdish PKK and the Turks over Kurdistan? The Turks who yesterday elected Erdogan as their president?

That’s the same Erdogan who is hated by all his neighbors, Israel, Syria, Iraq, Iran, and who’s said some ugly things about America too, but who they need to keep the IS from moving north.

Erdogan might be at least a little bit nervous that these US arms may someday be used against him to make Kurdistan a sovereign nation after all.

Kurdistan, which for many decades has been a nation on paper only, stretches across Iraq and Turkey (where 18% are Kurds). And Iran, Syria, Armenia and Azerbaijan.

In the middle of the – clickable – map, you see Mosul (the dam the IS took), Erbil (the town the US is shelling) and Kirkuk, near which one of the world’s main mega oilfields is located.

And isn’t it interesting to know that the Kurds forcibly took control of that oilfield on July 11, 2014, from the Iraqi government? It all adds to the intrigue. Who shall we support today? If today is Monday …

Wikipedia on Kurdistan and its oil and gas reserves, in particular the Kirkuk field:

• Kurdistan Regional Government (KRG)-controlled parts of Iraqi Kurdistan are estimated to contain around 45 billion barrels of oil, making it the sixth largest reserve in the world. Extraction of these reserves began in 2007. Gas and associated gas reserves are in excess of 2,800 km3. Notable companies active in Kurdistan include Exxon, Total, Chevron, Talisman Energy, Genel Energy, Hunt Oil, Gulf Keystone Petroleum, and Marathon Oil. In July 2012, Turkey and the Kurdistan Regional Government signed an agreement by which Turkey will supply the KRG with refined petroleum products in exchange for crude oil.

• Kirkuk Field is an oilfield near Kirkuk, Iraq. It was discovered by the Turkish Petroleum Company at Baba Gurgur in 1927. The oilfield was brought into production by the Iraq Petroleum Company in 1934. It has ever since remained the most important part of northern Iraqi oil production with over 10 billion barrels of proven remaining oil reserves in 1998. After about seven decades of operation, Kirkuk still produces up to 1 million barrels per day, almost half of all Iraqi oil exports. Oil from the Kirkuk oilfield is now exported through the Kirkuk-Ceyhan Oil Pipeline, which runs to the Turkish port of Ceyhan on the Mediterranean Sea.

On 11 July 2014 Kurdistan Regional Government forces seized control of the Kirkuk mega oilfield, together with the Bai Hassan field, prompting a condemnation from Baghdad and a threat of “dire consequences,” if the oilfields were not returned to Iraq’s control.

That’s right, Iraq lost – control over – about half of its oil exports one month ago. To an army that belongs to that part of the population the President belongs to!

And that takes us right back to why the US is meddling in Iraq. And Ukraine too, of course. Kirkuk is in Kurdish hands now, and it must be a nightmare for all of those oil companies active in Kurdistan to even ponder the IS conquering those parts of Kurdish Iraq that they are active in. A nightmare, but by no means impossible. They’re just about literally on the doorstep:

Oil and gas were always important, they’ve been the reason for the majority of all US and European wars and invasions of the past 150 years, But control over fossil fuels has gotten a lot more important recently, ever since everyone (well, everyone …) has acknowledged that conventional peak oil indeed happened in 2005, and that shale oil and gas won’t last long (less people understand this last bit, admittedly, but TPTB do).

The fight over oil has now literally become the fight for power, as I’ve said more than once recently. That is what we see develop here. The 2003 invasion of Iraq gave Big Oil access to a lot of oil and gas, but it also left behind an unparalleled chaos. And now they’re forced back in. I see Washington plan a lot of mayhem and chaos, but I doubt they wanted this at this particular point in time. This is not a powder keg, this is Pandora’s box.

But there’s no way back. The US doesn’t want Putin in control of Russian resources, even though, as I said yesterday, they’re going to need him dearly if they want to prevent Iraq from blowing up in their faces, and they don’t want the Islamist State in control of 45 billion+ barrels of oil in Kurdistan and the greater Iraq area.

By the by, when I read reports of children being buried alive etc., I think of patterns. These accusations are always used against new enemies. I don’t know how out there the IS is, but it does make me wonder.

In my view, America doesn’t sufficiently understand the region, and therefore chooses the Wrong Friends, Wrong Enemies, Wrong Fights . And I think that is due to pure American hubris and arrogance.

Washington thinks it has the by far best, most expensive, most advanced army, and that that alone will make it ultimately victorious no matter what happens. So why then pay too much attention to what happens? What that idea disregards is that the US hasn’t actually won a war or an invasion since 1945, though it had the numero uno army the whole time.

Creating chaos may be a tried and tested approach, but not if you yourself get confused and no longer oversee what is going on. Then you’re merely yet another part of the chaos.

The only way left to go then is ever heavier weapons, trying to spread ever more death and fear among the ‘enemy’. But Washington doesn’t even always now who the enemy is. And if you don’t know that, you can’t win.

Still, we’re in it for keeps. Here are two things from a few days ago that tell you why; they come on top of countless other examples The Automatic Earth has served you lately. BusinessWeek:

China’s 2020 Shale Gas Production Target Cut In Half

Tapping China’s vast shale-gas reserves has proved more difficult than government planners in Beijing once hoped. In 2012, China’s National Energy Administration projected that, by 2020, from 60 billion to 80 billion cubic meters (bcm) of domestic shale gas would be pumped annually. Earlier this week the country’s energy chief, Wu Xinxiong, slashed the goal in half, to 30 billion bcm by 2020.

In the US, the Monterey play was cut by 90-odd%. In Poland, no.1 EU shale prospect, close to nothing was ever found. China’s just getting started cutting expectations and targets.

And from the Wall Street Journal:

Statoil Fails to Make Commercial Discoveries in Arctic Drilling Campaign

Norwegian energy company Statoil said Thursday it was disappointed by the results of an Arctic drilling campaign in the Barents Sea after making no commercial discoveries of oil or gas. Statoil said it had ended its three-well drilling campaign in the Hoop area, and the Apollo, Atlantis and Mercury wells all contained noncommercial volumes of oil and gas.

Shell left the Arctic. Statoil now does. That leaves Exxon, in its recently announced sanction-busting deal with Russia.

Still, even that doesn’t leave much hope, as becomes clear – once again – in the following by Ambrose Evans Pritchard, who’s late to the game in reporting on the same EIA review we covered two weeks ago in Say Bye To The Bubble with help from Wolf Richter, information we expanded on last week in Debt and Energy, Shale and the Arctic.

But hey, it’s Ambrose, and he does numbers well.

Oil And Gas Company Debt Soars To Danger Levels To Cover Cash Shortfall

• The EIA said revenues from oil and gas sales have reached a plateau since 2011, stagnating at $568bn over the last year as oil hovers near $100 a barrel. Yet costs have continued to rise relentlessly.

• … the shortfall between cash earnings from operations and expenditure – mostly CAPEX and dividends – has widened from $18bn in 2010 to $110bn during the past three years. [..] .. to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011.

• The agency, a branch of the US Energy Department, said the increase in debt is “not necessarily a negative indicator”

• … “continued declines in cash flow, particularly in the face of rising debt levels, could challenge future exploration and development”.[..] upstream costs of exploring and drilling have been surging, causing companies to raise long-term debt by 9pc in 2012, and 11pc last year. Upstream costs rose by 12pc a year from 2000 to 2012 due to rising rig rates, deeper water depths, and the costs of seismic technology.

• Global output of conventional oil peaked in 2005 despite huge investment.

• … the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120 ..

• Analysts are split over the giant Petrobras project off the coast of Brazil, described by Citigroup as the “single-most important source of new low-cost world oil supply.” The ultra-deepwater fields lie below layers of salt, making seismic imaging very hard. They will operate at extreme pressure at up to three thousand meters, 50pc deeper than BP’s disaster in the Gulf of Mexico.

• Petrobras is committed to spending $102bn on development by 2018. It already has $112bn of debt. The company said its break-even cost on pre-salt drilling so far is $41 to $57 a barrel. Critics say some of the fields may in reality prove to be nearer $130. Petrobras’s share price has fallen by two-thirds since 2010.

• … global investment in fossil fuel supply rose from $400bn to $900bn during the boom from 2000 and 2008, doubling in real terms. It has since levelled off, reaching $950bn last year. [..] Not a single large oil project has come on stream at a break-even cost below $80 a barrel for almost three years.

• … companies are committing $1.1 trillion over the next decade to projects requiring prices above $95 to make money. Some of the Arctic and deepwater projects have a break-even cost near $120.

• The IEA says companies have booked assets that can never be burned if there is a deal limit to C02 levels to 450 (PPM), a serious political risk for the industry. Estimates vary but Mr Lewis said this could reach $19 trillion for the oil nexus, and $28 trillion for all forms of fossil fuel.

• “Exxon must be doing a lot of soul-searching as they get drawn deeper into this,” said one oil veteran with intimate experience of Russia. “We don’t think they ever make any money in the Arctic. It is just too expensive and too difficult.”

“It is just too expensive and too difficult.”. Or as we say where I come from: There Is No There There.

Oil companies already lose $110 billion a year (aka ‘the shortfall between cash earnings from operations and expenditure’). They’re now committing that exact same amount to new projects, money they’ll also have to borrow. What if interest rates go up to 5%? Will they still drill? Or are we going to take someone else’s oil by force?

As I said, hardly new for Automatic Earth readers, but this is so important in understanding what is happening geo-politically these days that it bears repeating. There is no way back. Oil has become ultimate power. And will lead to the ultimate fight. Having bigger and better guns and tanks won’t win that fight.

But Washington, by the look of things, doesn’t seem to understand that. Arrogance and hubris tend to be costly. In ultimate fighting, they can be deadly. America’s not exactly making a lot of friends these days, and the ones they do make are the wrong friends. Even the New York Times now reports on the fine folk gunning down the people of east Ukraine. Will Putin let them do as they please? And if not, what will “we” do?

Oil And Gas Company Debt Soars To Danger Levels To Cover Cash Shortfall (AEP)

The world’s leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry. The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets. This is a major departure from historical trends. Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep structural malaise. The EIA said revenues from oil and gas sales have reached a plateau since 2011, stagnating at $568bn over the last year as oil hovers near $100 a barrel. Yet costs have continued to rise relentlessly.

Companies have exhausted the low-hanging fruit and are being forced to explore fields in ever more difficult regions. The EIA said the shortfall between cash earnings from operations and expenditure – mostly CAPEX and dividends – has widened from $18bn in 2010 to $110bn during the past three years. Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011. The agency, a branch of the US Energy Department, said the increase in debt is “not necessarily a negative indicator” and may make sense for some if interest rates are low. Cheap capital has been a key reason why US companies have been able to boost output of shale gas and oil at an explosive rate, helping to lift the US economy out of the Great Recession.

The latest data shows that “tight oil” production has jumped to 3.7m barrels a day (b/d) from half a million in 2009. The Bakken field in North Dakota alone pumped 1m b/d in May, equivalent to Libya’s historic levels of supply. Shale gas output has risen from three billion cubic feet to 35 billion in just seven years. The EIA said America will increase its lead as the world’s largest producer of oil and gas combined this year, far ahead of Russia or Saudi Arabia. However, the administration warned in May that “continued declines in cash flow, particularly in the face of rising debt levels, could challenge future exploration and development”. It said that upstream costs of exploring and drilling have been surging, causing companies to raise long-term debt by 9pc in 2012, and 11pc last year. Upstream costs rose by 12pc a year from 2000 to 2012 due to rising rig rates, deeper water depths, and the costs of seismic technology.

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China’s 2020 Shale Gas Production Target Cut In Half (BW)

Tapping China’s vast shale-gas reserves has proved more difficult than government planners in Beijing once hoped. In 2012, China’s National Energy Administration projected that, by 2020, from 60 billion to 80 billion cubic meters (bcm) of domestic shale gas would be pumped annually. Earlier this week the country’s energy chief, Wu Xinxiong, slashed the goal in half, to 30 billion bcm by 2020. According to the U.S. Energy Information Administration, China’s holds the world’s largest reserves of theoretically recoverable shale gas. But much of it is locked in mountainous regions in western China.

While China’s leaders – concerned about steeply rising energy demand accompanying rapid urbanization – dearly want to emulate the U.S.’s shale-gas boom, it turns out Americans have several practical advantages. For starters, the U.S. shale-gas revolution kicked off in fairly accessible regions: the flatlands of Texas, North Dakota, and Pennsylvania. So far, explorations in China have identified only one clearly promising shale play: Fuling shale gas field, near the western megalopolis of Chongqing. Sinopec, which controls the Fuling field, projects that its annual shale gas production will reach 5 bcm by 2015 and 10 bcm by 2017. With no other comparable sites yet identified, it’s not clear where the other 20 bcm may come from. While Sinopec is currently at the forefront of China’s shale-gas development, two foreign companies, Royal Dutch Shell and Hess, have secured production-sharing contracts for other potential sites.

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Iraqi PM Maliki Digs In, Sends Loyal Forces Into Baghdad (Reuters)

Iraqi Prime Minister Nuri al-Maliki was battling to keep his job on Monday, deploying forces across Baghdad as some parliamentary allies sought a replacement and the United States warned him not to obstruct efforts to form a new government. Widely accused of a partisan obstinacy that has fuelled the communal violence tearing Iraq apart, the Shi’ite Muslim premier went on television late on Sunday to denounce the ethnic Kurdish president for delaying the constitutional process of naming a prime minister following a parliamentary election in late April. However, President Fouad Masoum won a rapid endorsement from Washington. With Sunni fighters from the Islamic State making new gains over Kurdish forces north of Baghdad, the United States renewed its call for Iraqis to form a consensus government to try and end bloodshed that has prompted the first U.S. air strikes since the U.S. occupation ended in 2011.

And in pointed remarks aimed at Maliki, Secretary of State John Kerry said: “The government formation process is critical in terms of sustaining stability and calm in Iraq, and our hope is that Mr. Maliki will not stir those waters. “There will be little international support of any kind whatsoever for anything that deviates from the legitimate constitution process that is in place and being worked on now.” Complicating efforts to propose a replacement from among fellow Shi’ites, who appear to have some support from both the country’s leading cleric and from the Shi’ite establishment of neighbouring Iran, the country’s highest court ruled that Maliki’s State of Law bloc is the biggest in the new parliament. That, a senior Iraqi official said, was “very problematic” for attempts to have President Masoud offer the premiership to an alternative candidate to Maliki – an alternative that one senior member of his party said had been close to being chosen.

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US Begins Directly Arming Kurdish Forces In Iraq (IBT)

The administration of US president Barack Obama has begun directly providing weapons to Kurdish forces who have started to make gains against Islamic militants in Iraq. The US previously insisted on selling arms only to the Iraqi government. US officials say the administration is close to approving plans for the Pentagon to arm the Kurds. Recently the US military has been helping facilitate weapons deliveries from the Iraqis to the Kurds, who had been losing ground to the Islamic State militant group, formerly known as Isis. The move to directly aid the Kurds underscores the level of US concern about the Islamic State militants’ gains in the north, and reflects the persistent administration view that the Iraqis must take the necessary steps to solve their own security problems. A senior US state department official would only say that the Kurds are “getting arms from various sources. They are being rearmed”. To bolster that effort, the administration is also very close to approving plans for the Pentagon to arm the Kurds, a senior official said.

In recent days, the US military has been helping facilitate weapons deliveries from the Iraqis to the Kurds, providing logistic assistance and transportation to the north. The move comes as Iraqi prime minister Nuri al-Maliki is battling to keep his job today, deploying forces across Baghdad as some parliamentary allies sought a replacement and the United States warned him not to obstruct efforts to form a new government. Widely accused of a partisan obstinacy that has fuelled the communal violence tearing Iraq apart, the Shi’ite Muslim premier went on television late on yesterday to denounce the ethnic Kurdish president for delaying the constitutional process of naming a prime minister following a parliamentary election in late April. However, president Fouad Masoum won a rapid endorsement from Washington. With Sunni fighters from the Islamic State making new gains over Kurdish forces north of Baghdad, the United States renewed its call for Iraqis to form a consensus government to try and end bloodshed that has prompted the first US air strikes since the US occupation ended in 2011.

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US Pulls Support for Iraqi PM Maliki as Militants Gain (Bloomberg)

U.S. Secretary of State John Kerry pulled support from Iraq’s Prime Minister Nouri al-Maliki today, telling him not to hinder the political process amid reports that Islamic State militants had seized a town northeast of Baghdad.Kerry said that the U.S. was backing Iraq’s President Fouad Masoum and that Maliki wasn’t even among the three candidates Iraqis wanted as the next prime minister.“We stand absolutely, squarely behind President” Fouad Masoum, Kerry said in Sydney. “He has the responsibility for upholding the constitution of Iraq, he is the elected president, at this moment Iraq has clearly made a statement that they are looking for change.”

Political haggling in Iraq is hurting government attempts to curb advances by an al-Qaeda breakaway group that ravaged the north of the country and drew U.S. air strikes. U.S. President Barack Obama has said that greater U.S. assistance in pushing back Islamic State forces would only come if a more inclusive government was formed that didn’t marginalize Sunni and other minorities.While U.S. strikes have slowed Islamic State advances in the north, the group still holds vast swaths of territory in Syria and Iraq, including key installations such as dams, military outposts and Iraq’s biggest northern city. Kurdish forces on Sunday were able to retake the towns of Makhmour and Gwer, south of Erbil, where militants retreated after U.S. airstrikes, according to the Kurdish news agency Rudaw, citing officials.

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Blowback coming right up.

New York Times Discovers Ukraine’s Neo-Nazi Shock Troops In Action (Parry)

The New York Times reported almost in passing on Sunday that the Ukrainian government’s offensive against ethnic Russian rebels in the east has unleashed far-right paramilitary militias that have even raised a neo-Nazi banner over the conquered town of Marinka, just west of the rebel stronghold of Donetsk. That might seem like a big story – a U.S.-backed military operation, which has inflicted thousands of mostly civilian casualties, is being spearheaded by neo-Nazis. But the consistent pattern of the mainstream U.S. news media has been – since the start of the Ukraine crisis – to white-out the role of Ukraine’s brown-shirts. Only occasionally is the word “neo-Nazi” mentioned and usually in the context of dismissing this inconvenient truth as “Russian propaganda.” Yet the reality has been that neo-Nazis played a key role in the violent overthrow of elected President Viktor Yanukovych last February as well as in the subsequent coup regime holding power in Kiev and now in the eastern offensive. On Sunday, a NYT article by Andrew E. Kramer mentioned the emerging neo-Nazi paramilitary role in the final three paragraphs:

“The fighting for Donetsk has taken on a lethal pattern: The regular army bombards separatist positions from afar, followed by chaotic, violent assaults by some of the half-dozen or so paramilitary groups surrounding Donetsk who are willing to plunge into urban combat. “Officials in Kiev say the militias and the army coordinate their actions, but the militias, which count about 7,000 fighters, are angry and, at times, uncontrollable. One known as Azov, which took over the village of Marinka, flies a neo-Nazi symbol resembling a Swastika as its flag. “In pressing their advance, the fighters took their orders from a local army commander, rather than from Kiev. In the video of the attack, no restraint was evident. Gesturing toward a suspected pro-Russian position, one soldier screamed, ‘The bastards are right there!’ Then he opened fire.”

In other words, the neo-Nazi militias that surged to the front of anti-Yanukovych protests last February have now been organized as shock troops dispatched to kill ethnic Russians in the east – and they are operating so openly that they hoist a Swastika-like neo-Nazi flag over one conquered village with a population of about 10,000. Burying this information at the end of a long article is also typical of how the Times and other U.S. mainstream news outlets have dealt with the neo-Nazi problem in the past. When the reality gets mentioned, it usually requires a reader knowing much about Ukraine’s history and reading between the lines of a U.S. news account.

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Never a dull moment for Vladimir V.

Putin in Push to Douse New Discord on Russia’s -Other- Doorstep (Bloomberg)

Russian President Vladimir Putin, staring down the deepening unrest in Ukraine, tried the role of peacemaker by brokering the first meeting in nine months between the leaders of Armenia and Azerbaijan following the deadliest clashes between the ex-Soviet republics in 20 years. The talks, which yielded little beyond a promise of more negotiations, showed Putin playing statesman with a war raging next door in Ukraine, where he’s faced accusations of stoking the conflict. Two days of meetings at his retreat in Sochi were marked by another fatality on the frontlines of the disputed region of Nagorno-Karabakh, with an Azeri soldier killed late on Aug. 9 by Armenian fire, according to the Defense Ministry in Baku. That brought the death toll to 24 since July 26.

“No way do they need a war in Karabakh,” Thomas de Waal, senior associate at the Carnegie Endowment for International Peace in Washington, said by e-mail yesterday. “Russia has a strong incentive in preventing a new conflict, as it would cause massive instability in its southern tier. It also has treaty obligations to defend Armenia militarily and would therefore also destroy its carefully developed relationship with Azerbaijan.” Failure to break the deadlock threatens to unleash war in a region where companies led by BP have invested more than $40 billion to develop Azerbaijan’s oil and gas fields. Russia’s role in Ukraine is complicating an effort by Putin to assert his sway in the former Soviet Union, according to Matthew Bryza, the U.S. ambassador to Azerbaijan in 2010-2011. The government in Moscow has repeatedly denied any involvement in the unrest in eastern Ukraine.

[..] The South Caucasus countries, which border Turkey and Iran, signed a cease-fire brokered by Russia in 1994 after more than 30,000 people were killed and more than 1.2 million were displaced. Armenians took over Nagorno-Karabakh and seven surrounding districts from Azerbaijan in a war after the Soviet breakup in 1991. The truce left 20,000 Armenian and Azeri troops, dug into World War I-style trenches sometimes only 100 meters (330 feet) apart, according to the Carnegie Endowment for International Peace. The conflict is part of the region’s “Soviet legacy,” Putin said as he opened negotiations yesterday. “We must show patience, wisdom and respect for each other to find a solution,” he said. The Azeri and Armenian leaders traded accusations in Putin’s presence, blaming each other for violating international agreements on Karabakh. Even so, both presidents said they support a peaceful solution to the conflict and praised Putin for his mediation efforts. About 700,000 Azeris were forced to leave the districts, 200,000 Azeris left Armenia and more than 360,000 Armenians fled Azerbaijan.

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Oh yes, it will.

Brace For Japan GDP, It’s Going To Be Ugly (CNBC)

Japan’s economy is expected to have lost all the ground it gained earlier this year during the second quarter as the April consumption tax hike appears to have thrown the fragile recovery off its tracks. Asia’s second-largest economy, which is set to release gross domestic product (GDP) data on Wednesday, shrunk an annualized 7.1% in the April to June quarter, according to a Reuters poll, down sharply from a 6.7% gain in the previous three months. “The consumption tax hike that started in April will have a broad-based impact on demand components with consumption, residential investment and capex [capital expenditure] in particular expected to decline sharply,” Yoshiro Sato, economist at Credit Agricole wrote in a note. “That said, it is inevitable given the tax hike that the economy will contract following the robust growth thanks to the front-loaded increase in demand,” he said.

In April, Japan raised its consumption tax to 8% from 5%, the first increase in 17 years, as part of efforts to rein in mounting public debt. When Japan last lifted the sales tax to 5% from 3% in 1997, the economy fell into recession not too long afterwards. A raft of disappointing economic data in recent weeks has raised concerns that the April sales tax hike could prove more damaging than initially thought. Industrial output, for example, fell 3.3% on month in June – the fastest rate since the devastating earthquake and tsunami in March 2011 as companies scaled back production to offset a build-up in inventories.

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Costly, Angela?

German Economy Backbone Bending From Lost Russia Sales (Bloomberg)

MWL Apparate Bau, based in the eastern German town of Grimma, has relied on strong ties with Russia to bolster business. Today, those links don’t mean much. The maker of equipment such as pressure vessels and hot water tanks for the chemical and petrochemical industries has seen a “significant” decline in orders in the last six months due to the crisis, sales chief Reinhard Weber said. The company has annual revenue of about €20 million ($27 million). “There are two contracts from Russia we didn’t get and we think that’s for political reasons,” Weber said in a telephone interview. “They’re afraid of sanctions being extended — that they will make an order and that we won’t be able to fulfill it because of political decisions in Germany or Europe.”

MWL is one of many businesses in Germany’s Mittelstand, the thousands of small- and medium-sized companies that form the backbone of Europe’s largest economy, that are already getting pinched as Russian customers put off purchases. With the crisis now intensifying through deeper European Union and U.S. sanctions and retaliatory measures from Russia banning EU and U.S. food imports, they’re preparing for an even bigger hit. Take Amandus Kahl. The maker of food processing and recycling machinery near Hamburg had expected to bring in about €10 million in revenue this year from Russia. Sales to the country “have pretty much evaporated because our clients can’t get financing,” Rochus Mecke, a Kahl’s sales director, said in an interview. “We still get inquiries, but it’s only inquiries.”

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Yup. No matter who you define it.

Sanctions Will Deepen Euro Area Deflation (CNBC)

France’s powerful farm lobby asked last Friday for an immediate removal from the market of all EU fruits and vegetables that can no longer be exported to Russia. A similar action was urged with regard to milk, milk products, meat and fish. The fear is that excess supply would crush food prices and a heavily subsidized EU farm sector. The European media are abuzz about sanction effects. Dutch News.nl, for example, reported today (Sunday, August 10) that last Friday one kilogram (2.2 pounds) of spinach in the city of Zaltbommel was down to €0.30 from €1.1 when the sanctions hit the market on Wednesday, August 6. At this writing, an expert group is working at the EU Commission to assess the impact of this initial round of economic warfare with Russia. A broader group of national farm officials is expected to meet next Thursday, and Brussels is promising that “up to €400 million” could be paid out to compensate the sanctions-hit farmers.

Looking at all this, several things come to mind. First, this should have come as no news to the EU. Russia has been repeating for months that it would respond to Western sanctions. After the third wave of crippling measures directed at several sensitive sectors of Russian economy in mid-July, Moscow warned that it would target the EU farm business, and that further action will affect trade in automobile, aircraft and shipbuilding industries. Russia delivered on the first part of its counter-sanctions on August 6, 2014. In spite of all the warnings, the EU now seems totally surprised and indignant that Russia dared to respond. That is an unfortunate lack of EU preparedness to play this deadly serious sanctions game. As a result, a number of countries (Finland, Poland and some Baltic states) have already asked Brussels to compensate them for their trade losses.

Second, the compensation of “up to $400 million euros” promised by Brussels is wholly inadequate. Russia is the second-largest market for EU farm exports. It takes 10% of EU farm products representing annual sales of €12 billion. France alone accounts for about €1 billion of that export trade with Russia. No wonder the influential German and French media are now turning on their governments. Witnessing the sinking of their equity market (down 11% since its peak in late June), the Germans are reminding themselves of how much their government ignored the teachings of their own war strategist (General Carl von Clausewitz) about the management of hostilities. And in an apparent dig at Chancellor Merkel, her Foreign Minister Steinmeier complained recently that “sanctions alone are not a policy.” The raw nerve was apparently also touched by the news last Friday that the company Rheinmetall is now asking the government to use taxpayers’ money to compensate it for a €100 million contract it was forced to cancel with Russia.

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They’ll step out soon.

Punishing Russia Provokes Finnish Dismay as Fallout Seen Unfair (Bloomberg)

After backing the European Union in expanding sanctions against Russia, Finland is now regrouping to consider what it describes as the disproportionate fallout of the crisis on its own economy. No other euro nation is as hard hit by the aftermath of the crisis in Ukraine as Finland, trade figures for the single currency bloc show. Prime Minister Alexander Stubb last week underscored the need for “solidarity” in the EU, making clear he expects any measures to “treat EU members similarly. If the impact isn’t equal, we’ll consider what kind of solutions we will seek.” The 28-nation EU has repeatedly struggled to speak with one voice, from how to handle the debt crisis and most recently with its economic response to the political turmoil at its eastern border.

Finland already has a proven track record of successfully carving out special rights within European accords. During the sovereign debt crisis, Finland was the only country to seek and obtain compensation for its contribution to bailouts in the form of collateral. “It creates an image of a country that engages in politics very much from its own perspective rather than a common European point of view,” Pasi Kuoppamaeki, chief economist at Danske Bank A/S in Helsinki, said by phone. “Of course, many others do that too.” In a counter-move to western sanctions, President Vladimir Putin slapped import bans on an array of foods last week, compounding the economic pain for Finland of faltering Russian demand and a weaker ruble. With 14% of Finland’s trade coming from Russia, those developments are exacerbating the Nordic country’s efforts to exit its second recession since 2008. “I hope the sanctions aren’t broadened,” Stubb told reporters on Friday. “This isn’t a trade war.”

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Europe? Where’s that?

Europe’s Growth Engine Stutters as Spain Beats Germany (Bloomberg)

Germany probably underperformed Spain last quarter for the first time in more than five years as the euro-area recovery almost ground to a halt. After leading the currency bloc out of its longest-ever recession last year, Europe’s largest economy contracted in the three months through June, according to a Bloomberg News survey. The downturn in the region’s powerhouse highlights the fragility of a revival that European Central Bank President Mario Draghi has described as modest and uneven. The 18-nation euro area is struggling to boost growth and inflation even amid unprecedented ECB stimulus, with Draghi citing inadequate structural reforms as a key reason. While the German data is distorted by mild winter weather that front-loaded output earlier in the year, Bundesbank President Jens Weidmann has warned the country must also adjust or risk losing its role as a growth engine. This week’s reports “will probably underline that the problems in the euro zone have moved north,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt.

“The weak recovery will definitely provide the doves in the ECB Governing Council with a weighty argument to demand further expansionary measures.” German GDP shrank 0.1% in the three months through June, the first contraction since 2012, according to the median estimate in the Bloomberg survey. The economies of the euro area and France grew 0.1%, separate surveys show. The reports will be published on Aug. 14 along with those for the Netherlands, Austria and Portugal. Spain posted an expansion of 0.6% in the same period, the National Statistics Institute said last month. Italian GDP fell 0.2%, after a 0.1% decline in the previous quarter, taking the country into its third recession since 2008. Draghi took aim at Italy last week for lack of progress in reforms. “It’s pretty clear that the countries that have undertaken a convincing program of structural reforms are performing better, much better, than the countries that have not done so,” he said on Aug. 7 in Frankfurt after the ECB left interest rates unchanged at record lows.

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Sounds good, will look awful.

PM Matteo Renzi Defends Pace Of Italian Reform (FT)

Matteo Renzi, Italy’s prime minister, says the eurozone’s third-largest economy is on track to hit its EU-mandated budget targets this year despite falling back into recession in the second quarter and, in a pugnacious interview with the Financial Times, defended the speed at which his reforms are moving. Mr Renzi, speaking in the prime minister’s office in Rome, rejected suggestions made by European Central Bank president Mario Draghi last week that the EU should intervene in countries where reforms were not being implemented fast enough to spur economic growth. “I agree with Draghi when he says that Italy needs to make reforms but how we are going to do them I will decide, not the Troika, not the ECB, not the European Commission,” he said. “I will do the reforms myself because Italy does not need someone else to explain what to do.” On Wednesday it was revealed that Italy unexpectedly fell back into recession in the second quarter for the third time since 2008.

The economy shrank 0.2% quarter-on-quarter between April and June, after contracting 0.1% in the first three months of the year, having only briefly emerged from two years of recession at the end of 2013. Economists have said the fall in gross domestic product may result in the general government budget deficit breaching the EU’s 3% of GDP threshold for 2014. Fabio Fois, an economist at Barclays in Milan, expects the deficit will pass the 3% limit unless the government cuts spending by between €1.2bn and €3.2bn. Mr Renzi, who took power in a party coup in February and whose centre-left democratic party won a landslide victory in the European elections in May with an unprecedented 40% of the vote, vowed to take personal control of Italy’s ongoing spending review to ensure compliance with the EU targets. “I have absolutely no intention of breaking the 3% ceiling. We hope to have better [growth] figures in the second half and as a result will be at 2.9% [of GDP].

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Struggling to make it all look rosy?

ECB Struggling To Process Banks’ Stress-Test Data (MarketWatch)

The European Central Bank is having problems processing the large amount of data it receives from banks for the industry’s current health check of the industry, according to a report in the German media. The ECB has told Germany’s Bundesbank that it is “technically unable” to handle the adjusted data sets it had previously ordered banks to submit for the stress test, German weekly Euro am Sonntag reports, citing an email sent by the German central bank to domestic lenders. It added the ECB now wants banks to resubmit the data in a template format. A spokesman for the ECB said the “comprehensive assessment is on track to be concluded as planned, with results in the second half of October.” He added the ECB has been engaging with the banks and is refining its approach “to ensure we manage the process as effectively as is possible for all involved” where appropriate.

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Just step into the shadows.

Chinese Banks Get Serious About Risk Of Bad Debts (Reuters)

Chinese banks are scrambling to get on top of bad debts they have downplayed for years, cutting off riskier borrowers, further tightening lending terms and, in one case, deploying teams of investigators to assess the risk of loan defaults. China’s banks keep reporting bad loan levels well below what most analysts consider realistic, but their recent actions suggest the slowing economy may be squeezing borrowers and lenders harder than thought only a few months ago. China’s fifth-largest lender, Bank of Communications, assembled research teams last month to look over the assets of troubled borrowers in Zhejiang province, according to bank sources and an internal document. The province is a hotbed of China’s credit stress. BoCom denied that special teams had been set up or that there was any surge in potential bad loans in an email to Reuters. The bank said it had always placed great importance in its risk control efforts.

Bankers from other major listed lenders said they were further cutting lending to riskier borrowers, in particular smaller private companies. “We’re lending almost exclusively to state-owned enterprises in our department at the moment, because it’s just seen as the least risky,” said a senior loan officer at the Bank of China. The banker, who would not be named because he is not authorized to speak to the media, added that the bank had also raised the bar for state-owned firms, in particular by demanding more collateral. Lawyers for banks say increasing numbers of transactions fall through because of lenders’ last-minute risk worries. A senior lawyer, who works for Industrial and Commercial Bank of China among others, said only a third of the financing deals she had been asked to work on were actually completed this year. This compares to 70% in the last two years, she said. [..]

In March, Reuters reported that Chinese banks had become unsettled by some highly publicized defaults and were toughening terms for highly indebted borrowers or those plagued by overcapacity. Now it appears that banks are moving one step further, effectively cutting off many private firms from financing. Regulators may welcome signs that banks have become more diligent in assessing risk, but it is bad news for policymakers and China’s near-term economic prospects. Beijing has been counting on consumption and a services sector dominated by private firms to take up the slack as it aims to cut industrial overcapacity and China’s over-reliance on large state-financed investment projects.

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Lots.

China Property Defaults Seen as Financing Stresses Mount (Bloomberg)

China’s slumping property market is fueling speculation the industry is set for a shakeout as small developers face difficulty raising funds to pay off debt. Yield premiums on Chinese real-estate bonds denominated in dollars have jumped 35 basis points this month to 582 basis points over Treasuries, the sharpest increase among emerging Asian countries, according to Bank of America Merrill Lynch indexes. That compares with a 19 basis-point advance for Indonesian builders. Moody’s Investors Service and Standard & Poor’s said some smaller Chinese developers may default in the second half amid falling sales and shrinking access to credit. China’s real-estate industry poses the biggest near-term risk to growth in the world’s second-largest economy after new home prices dropped in the most cities in two years in June, according to JPMorgan Chase & Co. While government steps to ease property curbs helped builder bonds rally in July, they’re giving up those gains ahead of housing-price data due next week.

“The operating environment is still tough for Chinese developers,” said Franco Leung, a senior analyst in Hong Kong at Moody’s. “Banks in China have become more selective in lending to developers. Those weaker developers still face liquidity pressure.” “Given the fragmented nature of the property market in China and the sheer number of developers, it wouldn’t be surprising if there are news of developers being in financial difficulty or of outright defaults,” said Swee Ching Lim, a Singapore-based credit analyst at Western Asset Management Co. Home prices fell in 55 of 70 cities in June from May, the National Bureau of Statistics said on July 18, the most since January 2011 when the government changed the way it compiles the data. The inventory of unsold new homes in 20 large cities jumped to an average equivalent of more than 23 months of sales in June, according to Shenzhen World Union Properties Consultancy Inc. The floor space of unsold new apartments nationwide as of June 30 surged 25% from a year earlier, government data show.

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What can I say? Farrell!

100% Risk Of 50% Crash If Hillary Clinton Wins In 2016 (Paul B. Farrell)

OK, we get it. Everybody gets it. Big crash coming. Been trending all over the news. For months. Blogs. Cable. Networks. Social media. Hour after hour. Minute after minute. We get it. Crash ahead. Third big one of the century. Bet on it. But so what? Hillary? Jeb? Chris? Doesn’t matter. Markets don’t care who wins. Big crashes happen, about every eight years. Everybody knows it. Nobody really cares. Why? We love playing the game of musical chairs, in the race to the 2016 presidency. And everyone’s playing. 95 million Main Street investors. Millions of Wall Street pros. Super Rich billionaires, private-equity firms, hedge funds, pension managers. Every CEO, trader, adviser, broker, fund. Everybody loves playing with hundreds of trillions. Everybody. Yes, the market’s going to crash. Again. Crashes are part of the game. In fact, knowing a big crash is coming makes the game more exciting. We’re playing to squeeze out another point, maybe time our exit before the inevitable collapse.

The bull run is up over 250% since 2009. Maybe it’s time to get out. But the economy’s looking up, so we’ll risk going for more gains, more thrills, racing to the 2016 top. This new musical chairs game reminds us of that upbeat bank CEO in our favorite Robert Mankoff New Yorker cartoon: The CEO is at a podium motivating shareholders. Imagine Michael Douglas in Oliver Stone’s classic “Wall Street”: “While the end-of-the-world scenario will be rife with unimaginable horrors, we believe that the pre-end period will be filled with unprecedented opportunities for profit.” That’s the spirit driving another exciting game of musical chairs till 2016. Next crash: $10 trillion like dot-com 2000? Subprime 2008? Play the game .. How big a drop? Truth is, nobody really knows. But everybody has an opinion. First using this or that favorite theory, cycle, index, data, algorithm. Then they guess. And millions of investors pile in the trending herd, all chasing the same news media, alerts, opinions, guesses. As gigabytes of data endlessly overload us all day, every day, 24/7.

How big? Even the pros don’t really have a clue. They make consensus guesses. All over the map. This one up. Next down. A roller coaster. Not much help in today’s algorithm driven news business that’s more like a scattergun when we wish we had a sniper rifle. All that in a mess of contradictions hidden in a war zone of mental land mines. But we are absolutely certain something is coming. Bigger than the Silicon Valley’s dot-com crash after the 2000 millennium celebrations. That triggered a 30-month recession. Bigger than the 2008 Wall Street banks subprime credit collapse that put America in virtual bankruptcy. Does anyone really care, about the future? No, only today. What’s trending now? Our brains have lost the capacity to think long-term. We drift from trend to trend: The latest buzz. Rarely going deep, never into the future. Nor ask the moral questions, what’s the right thing to do? What counts: Today’s trends. That’s all. We’re playing the musical chairs game.

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Rat race to the bottom.

Public Pensions Cannot Stop Chasing Performance (BW)

Two basic principles of investing hold up remarkably well: Past results really don’t predict future performance, and high fees eat away at your returns. Smart investors don’t chase performance (as much as they can help themselves) and keep costs to a minimum. Unfortunately for taxpayers, the experts who run public pension funds aren’t following these rules. What’s more, they have little incentive to start.First, the good news: Public pensions in California, Ohio, and New Jersey have been reducing their investments in hedge funds, noting high fees and poor performance, the Wall Street Journal reported. The Los Angeles Fire and Police fund invested $500 million in a hedge fund that returned less than 2% over the last seven years; the fund had comprised just 4% of Fire & Police’s portfolio but 17% of investment fees paid.

The pension plans reconsidering these high-fee, low-performance investments include those with allocations to hedge funds ranging from 1.6% to 15% of assets, according to the Journal. What they share, though, is dismal returns: The average hedge fund return for public pensions was 3.6% for the three years ended March 31, a period when returns from stocks were up more than 10%. But for all the griping about hedge funds’ high costs and lousy performance, it doesn’t appear pension funds have learned their lesson: They are maintaining their investment in private equity, in some cases, even expanding it. Private equity funds invest in non-publically traded assets; like hedge funds, they also promise higher returns—in exchange for high fees and often more risk. And historically, private equity has been a bust for pensions, too.

Research by economists Josh Lerner, Antoinette Schoar, and Wan Wong found public pensions underperformed in private equity relative to other institutional investors such as endowments, private pensions, and insurance companies. In the period they looked at (funds raised from 1991 to 2001), the pension funds’ private equity investments didn’t do much better than an equity index fund. So why the preference for private equity? It sure looks like performance chasing. According to the Journal, private equity investments returned more than 10% to large pension funds in the last three years. Accordingly, pension funds have dived in.

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Basic Income, citizens’ income. Sounds good to me.

Would A Citizen’s Income Be Better Than Our Benefits System? (Guardian)


Photo: Fraser Gray/Rex Features

One radical suggestion is for everybody to receive a citizen’s income. Under this scheme, waged and unwaged, children and adults, the working aged and pensioner, rich and poor alike would receive the same basic income financed by the phasing out of virtually every tax relief and allowance. Those on benefits would not face high marginal tax rates if they took a job, but merely pay PAYE at the current standard rate of 20% on every pound they earned. Those working 20 hours a week on the minimum wage could work 40 hours a week without losing more than 50% of their extra earnings in lost tax credits. There would be other advantages from such a system. First, it would be universal and hence avoid the stigma attached to benefits. Secondly, people taking a job or starting a business would have the security of knowing that they would still have their citizen’s income if the venture did not work out.

Concerns that a citizen’s income would encourage the idle to sit at home all day watching daytime TV do not appear to be supported by evidence from pilot schemes in other countries. Even so, there would be cases where this did happen and they would doubtless be highlighted as an example of a something-for-nothing culture. Other drawbacks include the failure so far to construct a citizen’s income that obviates the need for housing benefit, and the political difficulty in persuading voters that a millionaire should be getting the same citizen’s income as a milkman. So far support for a citizen’s income is limited to the Green party, although the government’s switch to a flat-rate state pension is a step in that direction. The truth is that no tax and benefit system is perfect. But the one we have is costly, bureaucratic, ineffective – and ripe for reform.

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Australia’s ‘Wait For The Dole’ For Under-30s ‘Deeply Disturbing’ (Guardian)

More than 100,000 young people will have to wait six months for unemployment benefits under the government’s proposed budget measure, with social services advocates warning they face “deeply disturbing” knock-on effects. Briefings given to various groups by the Department of Social Services show that 113,000 people a year aged under 30 will be denied the Newstart and Youth Allowance payments for six months. After this period young jobseekers will have to commit to 25 hours a week in a work-for-the-dole scheme. The government will also require those on unemployment benefits to apply for 40 jobs a month, double the current requirement. The government is facing difficulty in getting Senate support for its changes to the unemployment benefits system. Labor and the Greens are opposed to the changes while Clive Palmer, whose Palmer United party holds three crucial Senate seats, has said the proposals simply punish the jobless, with the majority of unemployed people “already trying desperately to find work”.

The Australian Council of Social Service said the scope of the measure would leave many young people suffering severe monetary and mental distress. “The human impact will be deeply disturbing, as this isn’t a small number of people,” Cassandra Goldie, chief executive of Acoss, told Guardian Australia. “When you look at other places that have experimented this, such as the UK, you see tragic examples of people in deep depression, overwhelmed by a lack of hope. “We should be proud of the social safety net we have in Australia. We shouldn’t be a country where if you can’t get a job you face the prospect of not being able to eat, turn on the light, or losing your housing altogether.” Goldie said the government was misguided if it thought young people were not trying hard enough to find jobs. “At the moment there are 165,000 jobs available out there and 800,000 people looking for work. The competition is very hard, especially for those who face barriers such as discrimination.

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Aug 102014
 
 August 10, 2014  Posted by at 2:33 pm Energy, Finance Tagged with: , , , ,  7 Responses »


Arthur Rothstein Installation of a 30,000 kilowatt generator at Cherokee Dam Jun 1942

There are presidential elections in Turkey today, and current prime minister Recep Tayyip Erdogan looks set to win. Which means the US will have a definitely uncomfortable bedfellow in the Eastern Europe/Middle East region (the borders between the two are not terribly clear) in the coming years.

Erdogan has recently become a very loud opponent of Israel – and all the world’s Jews – , and US relationships with him had already been cooling way before this latest foray into ‘international diplomacy’.

Turkey is a secular state, and as such an indispensable buffer zone between religious spheres. But Erdogan knows he needs the votes of the muslim population in his country, which makes up about 98% of the total 76 million. And now the US will need him, and Turkey as a whole, perhaps more than ever. Obama may have some sucking up to do.

Like Erdogan, his neighbor, Syria’s President Assad, has been an unwanted ally. Last year, accusations of poison gas used in his fight against Al Queda linked rebels backfired on Washington, which managed to save face – but only sort of – when Obama asked Vladimir Putin to convince Assad to give up his chemical weapons. Which he did.

Over the past while, out of the boondoggle US invasion of Iraq, a new group has risen, the Islamist State (IS) – formerly ISIS. Much of their weaponry consists of US arms seized from the Iraqi army.

President Obama last week ordered targeted airstrikes on their positions near the Kurdish city of Erbil, which has a US Embassy, and is not far from the giant Mosul dam.

Today, the president prepared Americans for the fact that this may be a long term operation. Weeks, months. Where have we heard similar things before?

One good look at this WSJ map (click to enlarge) of hotspots in Iraq would seem to make it clear that airstrikes in just one place may indeed not do much of anything.

And besides, Iraq was never a country, only a western invention. The Islamist State are Sunni, then there’s the Shi’ite, and the Kurds the IS are presently fighting, and who also happen to have millions of people just across the border in Turkey. Nice mix, right?

The Islamist State’s main adversary so far – besides the Iraqi army – has been Assad. Now, they have started to threaten Turkey as well. Erdogan earlier this year decided to close the Ataturk dam on the Euphrates River (of Fertile Crescent fame), cutting off the water supply to northern Syria (which includes Islamist State base camp city Raqqa) and, further downstream, large parts of Iraq. Here’s the flow of the 1700 mile-long Euphrates:

And here are the parts of Syria and Iraq presently assumed to be under IS control (the blanks spots are mostly inhospitable terrain, mountains, deserts):

It’s obvious why the Euphrates water is important to the IS. And why they seized control over the Mosul dam (a spot, by the way, that the US cannot risk bombing).

Water is at least as precious in the Middle East as it is in the southwestern US these days.

In a video series made by VICE (see below), an IS member says Erdogan should open the dam or they will conquer Istanbul and do it for him.

Blocking people’s access to water as a warfare tool is something international law frowns upon for obvious reasons. And Erdogan isn’t even at war with the Islamist State. Yet.

Will the US be able to stay out of the war if the IS decide to expand northward, over the Turkish border? It’s certainly not going to be easy.

Meanwhile, America’s main allies are an Israel basher and a butcher with the blood of thousands upon thousands of his own people on his hands. With wrong friends like that …

There is one man in the world without whose – absolutely indispensable – assistance nothing the US come up with, will work.

He’s already helped Obama out of a very tight spot once, and he could do it again. He carries a lot of clout in the region, probably more than anyone else in the world. And knows it better than anyone else.

But that man has in record time gone from one of America’s allies, and an almost-friend of Obama, to the number one public enemy.

Obama, and Washington as a whole, may yet come to regret alienating Vladimir V. Putin the way they have.

There is no way this did not cross Obama’s mind just before he ordered the airstrikes.

Here are the videos from VICE (first 2 released in a series of 5):

The Islamic State, a hardline Sunni jihadist group that formerly had ties to al Qaeda, has conquered large swathes of Iraq and Syria. Previously known as the Islamic State of Iraq and Syria (ISIS), the group has announced their intention to reestablish the caliphate and declared their leader, the shadowy Abu Bakr al-Baghdadi, as the caliph.

Flush with cash and US weapons seized during recent advances in Iraq, the Islamic State’s expansion shows no sign of slowing down. In the first week of August alone, Islamic State fighters have taken over new areas in northern Iraq, encroaching on Kurdish territory and sending Christians and other minorities fleeing as reports of massacres emerged.

Elsewhere in territory it has held for some time, the Islamic State has gone about consolidating power and setting up a government dictated by Sharia law. While the world may not recognize the Islamic State, in the Syrian city of Raqqa, the group is already in the process of building a functioning regime.

VICE News reporter Medyan Dairieh spent three weeks embedded with the Islamic State, gaining unprecedented access to the group in Iraq and Syria as the first and only journalist to document its inner workings. In part one, Dairieh heads to the frontline in Raqqa, where Islamic State fighters are laying siege to the Syrian Army’s division 17 base.

The Spread of the Caliphate: The Islamic State (Part 1)

Grooming Children for Jihad: The Islamic State (Part 2)

Obama Signals Lengthy US Role in Iraq (WSJ)

President Barack Obama signaled the likelihood of an enduring U.S. military involvement in Iraq, but said airstrikes and other aid would only help contain the threat from Sunni extremists until the country’s leaders form a new government to confront the crisis. The latest offensive by the militant group Islamic State over the past week brought the fighters to within 25 miles of the capital of the semiautonomous Kurdish region, Erbil. The U.S. conducted three rounds of airstrikes on Friday aimed at halting further moves toward the city, where American military advisers and diplomats are stationed. The group, also known as ISIS or ISIL, has captured large swaths of Iraqi territory since June. The insurgents tried to advance farther northward on Saturday, but then retreated. The Islamic State is accused of attempting to perpetrate a genocide against the Yazidi religious minority. On Saturday, the U.S. launched four airstrikes designed to defend Yazidis who were coming under attack from the Islamic extremists.

Since President Obama authorized U.S. intervention on Thursday night, U.S. forces have airdropped three deliveries of food and water to tens of thousands of Yazidis trapped on a northern mountainside by the rapid advance of the militants. The American president has pledged a strictly limited military involvement and insisted U.S. combat troops won’t return to fight in Iraq. But he refused Saturday to set an end-date for the new military operations—the first since American troops withdrew from Iraq in 2011. “I don’t think we’re going to solve this problem in weeks,” Mr. Obama said in his first remarks to reporters since airstrikes were launched. “I think this is going to take some time” for Iraqi forces to mount an effective offensive against Islamic State. Instead, the White House is pressing Iraqi leaders to form a more inclusive new government that can unite the country’s disparate groups and more effectively counter the militants. Iraqi politicians are meeting this weekend against a constitutional deadline for forming a new government.

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But it’s the last thing they want.

World War on Russia’s Mind When US Duels Over Ukraine (Bloomberg)

While some of Glazyev’s proposals have been rebuffed by the government, such as his list of 15 countermeasures against countries that penalize Russia and calls for the central bank to lower interest rates, his denunciation of outside meddling in Ukraine’s internal affairs in January and a defense of then-President Viktor Yanukovych highlighted the turn taken by Kremlin during the crisis, which culminated in the seizure of Crimea in March. Putin, who’s repeatedly denied any involvement in the pro-Russian insurrection raging in eastern Ukraine, said last month that “ultimatums” made by the U.S. and the EU are aiming to destabilize his country. He also accused the U.S. and its allies of exploiting the crash of Malaysian Air Flight 17 to force him to renounce support for people of Russian heritage in Ukraine. These arguments resonate with Glazyev, who said the U.S. is trying to grow stronger at the expense of others, thwarting integration across Eurasia and checking China’s clout.

In May, Putin signed a treaty with his counterparts from Kazakhstan and Belarus to create a trading bloc of more than 170 million people. Kyrgyzstan and Armenia are seeking to join by the end of the year. The union, effective from the start of 2015, is intended to yield a free flow of goods, capital and workers, and will level tariff and non-tariff regulations. Putin has sought to lure Ukraine and its more than 40 million people into the alliance to build a trading bloc to rival the EU. Yanukovych pursued closer ties with the customs union and pulled out of an association agreement with the EU before his ouster in February. His successor, President Petro Poroshenko, signed the free-trade accord with the 28-nation bloc in June. Russia can’t go it alone against the U.S. and must create an “anti-war coalition” to check the “aggressor,” Glazyev said. “The point of a series of regional wars organized by the Americans, especially today’s catastrophe in Ukraine, centers on the U.S. securing control over all of north Eurasia” to bolster “its position against China,” Glazyev said.

“That’s how the U.S. military and oligarchs are trying to maintain leadership in the global competition with China.” The effort will backfire, said Glazyev, who spoke before a round of retaliatory steps announced by Russia yesterday banning food and agricultural products for one year from the U.S., the EU, Norway, Canada and Australia. The U.S.-led “economic war” against Russia will ricochet, leaving the EU to pay the steepest costs in the conflict, he said. The trading bloc stands to lose about 1 trillion euros ($1.3 trillion), an estimate he says includes the possible bankruptcy of several European banks and companies toppled after the cutoff in financial and economic ties. An energy crisis in Europe will bring a sharp spike in prices and a loss of competitiveness for European producers. Meanwhile, Turkish, Chinese and east Asian nations will fill the void left by the departure of their European rivals from the Russian market.

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Can’t have some petty sanctions stand in the way of oil and the survival of Exxon.

Putin Praises Exxon Alliance as Arctic Drilling Starts (Bloomberg)

President Vladimir Putin lauded Russia’s “old and reliable partner” Exxon Mobil as he gave the command for the U.S. energy company and ally OAO Rosneft to begin drilling a $700 million Arctic Ocean oil well. Putin, Rosneft Chief Executive officer Igor Sechin and Exxon’s Russia head Glenn Waller, undeterred by the crisis in U.S.-Russian relations, together welcomed the start of the country’s northernmost well. It’s the first step in a quest for new energy resources to help maintain oil production near a post-Soviet high of more than 10 million barrels a day.

“Despite current political difficulties, pragmatism and common sense prevails,” Putin said at the Black Sea resort of Sochi as he gave the command via video to commence drilling today. “Nowadays, commercial success is defined by an efficient international cooperation. Businesses, including the largest domestic and foreign companies, understand this perfectly.” The European Union imposed a third round of sanctions last month, restricting the export of equipment used for offshore oil production to Russia after its relations with Europe and the U.S. deteriorated to the lowest point since the Cold War over the conflict in Ukraine. That hasn’t stopped Exxon, the world’s largest energy company, because the contract to hire the rig was signed before the measures were announced. The U.S. also separately sanctioned Russian energy companies Rosneft and OAO Novatek.

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Greece gets hit hard by the sanctions on Russia. And they’re long-time friends.

‘EU And Russia Are Entering An Open Trade And Economic War’ (RT)

Russia and the EU have to look for a basis for a new dialogue of non-confrontation as they should be strategic partners working for consolidation of peace and normal economic life, Kostas Isyhos from Greece’s left-wing SYRIZA party told RT.

RT: Why is your party calling to have the sanctions dropped?

Kostas Isyhos: First of all, because Greece is going through the 5th year of constant recession. The memorandum policy which has been followed with austerity programs in the last five years has created great problems for the Greek economy and especially for Greek exports. Russia has been a strategic partner for Greece in many farming and food exports products, and we believe that the sanctions that have been followed by counter-sanctions, we have been critical to this process because it is fueling the crisis, it is not deescalating the crisis, and the confrontation due to the Ukrainian crisis. So we are very much critical and in disagreement with the Greek government’s policies in following these sanctions.

RT: Is the government likely to follow your demands?

KI: We are an opposition party, we are the first party in the last European elections as far as percentage is concerned, we are very large political force, we are trying to introduce strong arguments as far as convincing the Greek government, that has to stop following these sanctions that have been imposed by Washington and Brussels. This is going to hurt the Greek people, Southern European countries and the Russian consumers of course. This is not the situation of defueling the crisis or de-escalating the crisis. It is an open trade and economic war in the first stages, and we are very much worried because of the geopolitical, geographic and economic situation of Greece at this moment.

RT: Greece is still in the EU’s bailout program. Can the country afford losing a key trade partner?

KI: We cannot. We should stand for expanding strategic issues as far as trade is concerned with Russian energy, food exports, tourism industry, etc. Instead we are seeing a decrease in economic relations on both sides and this is going to hurt Greece a lot, not only in the short-term but also in the medium-term and in a long-term perspective. We believe that we need partners to increase our exports in the next years, and this is a situation that is going to hurt us a lot.

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Something’s Got To Give In Italy: Better It Be Draghi’s Cheap Loans (Observer)

European Central bank boss Mario Draghi came to London last month to criticise his fellow Italians. In an unusually candid speech to an audience that included Bank of England governor Mark Carney, he lambasted his fellow countrymen for wanting Brussels to become a “transfer union”, in which debts were pooled. It was, he argued, a brazen attempt by Rome to offload its enormous public sector liabilities on its more solvent neighbours. Draghi is one of many senior European policymakers who believe that southern European governments are lazy and corrupted by easy credit. It’s a view he shares with Germany’s finance minister Wolfgang Schäuble – Brussels’ paymaster. Without making a direct reference to Italian prime minister Matteo Renzi’s administration, Draghi said austerity and reform forced nations to grow up and realise they must work for a living and stop relying on loans to pay the bills. He and Schäuble want Renzi to stick to plan A.

Making a broader point, he said the stability of the eurozone depended “not on having more flexibility” but on enforcing the existing fiscal rules. “To unwind the consolidation that has been achieved, and in doing so, divest the rules of credibility, would be self-defeating for all countries,” he said. The speech came only a few months after Renzi’s elevation to the premiership and his pitch to Brussels for greater flexibility. Renzi wants the commission to give him longer to institute reforms while he attempts to balance the books. Then, last Thursday, Draghi told journalists at his monthly press conference that eurozone interest rates would be staying low for a long time to help the eurozone recover. Appearing doveish and conciliatory, he added that he was prepared to make credit cheaper still with a version of quantitative easing (QE) but, switching to a more hawkish tone, he added that the time for flooding the banking system with cash, Bank of England-style, had yet to arrive.

He is wrong. Italy, France and the Netherlands are already in trouble. They need cheap loans to ameliorate the worst effects of difficult reforms. The Renzi administration is dealing with an economy in recession for a third time. The government’s finances are getting weaker. One firm of analysts said last week that only with higher growth and higher inflation could Italy escape its death spiral. The magic of inflation, for debtors, is that it devalues the debt and makes it easier to service.

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You make a few people better off, and pretend that’s your whole economy. Sounds familiar …

Why A Little Economic Growth Won’t See An End To The Pain In Spain (Observer)

Just streets away from Madrid’s only three-Michelin-starred restaurant, peeling buildings in the city’s Tetuán neighbourhood have been plastered with posters featuring the faces of five women. Placed at eye level, each a few yards apart, the women’s portraits are accompanied by descriptions of their situation. “I’m one of the 23,000 people in Tetuán who has to decide between eating or paying the bills,” reads one poster. “My daughters and grandchildren barely get by on my €600-a-month pension,” reads another. The Invisibles of Tetuán campaign was dreamed up by local activists after city officials disagreed with them over the need for a community food bank. In a neighbourhood characterised by gleaming skyscrapers, in which conversation is now dominated by talk of Spain’s recovery, few imagine that there are local families still at risk of eviction, says organiser Carmen Clemente. As the portrait of a middle-aged woman named Martha reminds passersby, there are 5,000 such families.

“We wanted to show what was actually happening on the ground. The unemployed are still unemployed. Families are still worried about having their water turned off.” When the group launched its campaign, in May, news of it was buried among the headlines trumpeting good economic news for Spain. The country’s GDP had grown at 0.4% in the first quarter of 2014, the highest rate in six years, according to the National Statistics Institute. In the second quarter it accelerated to 0.6%, making Spain one of the strongest performers in the eurozone. It was a relief for the many who have been watching the eurozone’s fourth-largest economy closely. Spain had created more than 190,000 jobs over the previous 12 months, its first annual increase in employment in six years, and the biggest drop in jobless numbers since 2006. The sky-high unemployment rate was beginning to ease, from 26% to 24.5%.

Prime Minister Mariano Rajoy could barely contain his excitement. “I have been waiting a long time – since I took office, to be precise – to give you news like this,” he said. “The labour market has made a 180-degree turn.” The Spanish government accordingly raised its forecast for this year’s economic growth from 0.7% to 1.2%. For 2015, it was forecasting 1.8%. It was backed by the International Monetary Fund, which noted in its annual report on the Spanish economy that “Spain has turned the corner”. For those worried that the relief might be shortlived, the report added: “We expect the recovery to continue over the medium term.” But just as Spain was becoming more confident in its recovery, official data from Italy on Tuesday showed that the Italian economy had contracted in the second quarter of 2014, putting it officially back in recession for a third time. As analysts noted, the news undermined the note of optimism in Spain’s recovery.

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Private Equity Has Plenty Of Willing Suckers… I Mean, Investors (Observer)

“It’s not a question of enough, pal. It’s a zero-sum game: somebody wins, somebody loses. Money itself isn’t lost or made, it’s simply transferred from one perception to another.” So said Gordon Gekko, the anti-hero in Oliver Stone’s 1987 film Wall Street, as he perfectly described the financial world’s attitude to acquiring more and more money. It will probably be worth recalling that approach this week as we sit through two sets of results from firms just floated by Gekko’s branch of finance, private equity. On the real Wall Street, we get second-quarter numbers from King Digital Entertainment, the UK computer games group flogged to American investors earlier this year. The shares have lost 15% since.

On the same day we also get numbers from the takeaway food website Just Eat, sold to pension funds by venture capital in April, but now 17% cheaper. There are plenty of similar tales about private equity’s class of 2014 – all of which seemed to find obedient fund managers to buy the shares, despite all the warnings about being suckered in at the top of the market. Still, those pension fund managers criticised for sacrificing our hard-earned can consult Gekko for a decent riposte: the money has not been lost, they can argue, simply transferred to an alternative perception.

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“Merkel now stands as one with the USA, but they already know that, as apparently Washington reads her email most days before she does.”

The Logic Of Modern Diplomacy, aka Sanctions 101 (RT)

When you perceive an external threat, send a clear sign: i.e. withdraw bank accounts and deliver new warships. Specializing in business, startups and generally encouraging economic growth, perhaps naively, I always thought the essence of diplomacy was to keep talking. Apparently the modern vogue is to get your nation’s side of the story in first and then defend the hype. Thus global geopolitics now resembles the speculative drama which is Jay Z’s and Beyonce’s marriage. Meanwhile, in a remarkable new development on the world stage which has left even my ‘flabber’ firmly in the ‘gasted’ camp, various European politicians (‘leader’ remains far too grandiose a term) have united for new sanctions. Like many EU deals, this involves the French and Germans doing nothing much other than ululating while the British bear the cost. The straw man hyper-mediocrity masquerading as British Prime Minister David Cameron thus ‘chillaxed’ his way through another month while engineering Britain as the biggest loser.

Ultimately, the end agreement, even by the usually challenging form of labyrinthine multinational compromises by which modern sanctions are born, is, frankly, bizarre. Or perhaps I am just being cynical. Britain bears the brunt here by refusing various banking and financial facilities to specific Russian entities and individuals. This seems to run contrary to even my patchy understanding of game theory. If you perceive somebody to be a threat to you, why supply them with bright shiny new French warships? Will a British banker withdrawing a checkbook from an irate oligarch in London instantly placate anybody perceived as prone to aggression? Perhaps this is why the Nazis failed at the siege of Stalingrad. They cut off gas, water and food from the freezing city. They ought to have just threatened to close a few savings accounts and the besieged Russians would have given up hope immediately…or at least that appears to be EU sanctions ‘logic’ 101. I am not entirely convinced, to put it mildly.

Of course gas is an interesting issue, Chancellor Merkel and friends intend to use rather a lot of it this winter supplied, from…well have a guess! Now if Russia is such a threat, why not just stop buying its gas? Of course that won’t work in the modern Europe, as actually it would hurt Germany’s economy, so hence Merkel gets somebody else to take the pain. In this case, the citizens of Britain. If that’s partnership then perhaps ‘European solidarity’ has been redefined by Brussels (much like bankruptcy)? Merkel now stands as one with the USA, but they already know that, as apparently Washington reads her email most days before she does.

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Not everyone’s view, but it’s still well made.

Organized Community Defense Is America’s Last Hope (AltMarket)

I believe that the idea that self defense is a morally unacceptable option for dissenting groups is an obnoxiously false one, promoted by the establishment itself and sold to easily brainwashed dupes to steer the public away from the only method that could in fact do harm to the elitist power structure. The holier-than-thou attitude of the pacifists is encouraged as the system plays to their exaggerated sense of righteousness. Good people want to remain seen as good people, and even though deep down most of them understand that fighting back against aggression is not wrong, the peer pressure of the sunshine patriots often convinces them to keep their mouths shut, or otherwise they might “hurt the cause.” I say that without self defense and the possibility of action, there is no cause.

As I write this, I am working during a brief trip to Alaska. I was invited by Stewart Rhodes, the head of Oath Keepers, to check out the logistical progress of a project he has launched in an effort to counter the apathy and inability of the American populace today to present a meaningful defense against a host of threats the public faces in these increasingly chaotic times. The very real dangers of economic instability, poverty, civil unrest, open borders, viral pandemic, and Federal corruption are all factors that led to the creation of the Oath Keepers CPT (Community Preparedness Team) program. The CPT program is a State-by-State program designed to reestablish the concept of localized community preparedness and self defense measures in case of regional or national crisis, including localized security, medical, food and water supply, as well as engineering and communications: everything a neighborhood, a town, a county, or state would need to rebuild in the advent of unexpected (or expected) catastrophe.

The CPT mission is to train groups of people within as many communities as possible to a pinnacle of preparedness knowledge, and then send them out to train other citizens in other towns and counties, replicating their knowledge across the nation as they go until eventually every person has the ability to become self reliant and unafraid. The establishment would have you wait for help in the wake of a disaster, begging a bureaucracy like the Federal Emergency Management Agency (FEMA) for aid that you may never receive, when you could be helping yourself and your neighbors without any need for Federal involvement. The establishment would also rather have you unorganized and helpless in the event that they choose to overstep their Constitutional mandate and deny you your inborn liberties.

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Thought it was really really bad? It’s much worse.

Japan Prepares Mass Dump Of Radioactive Water Into Pacific (Zero Hedge)

A few days ago, with over a three year delay, Japan finally admitted what was clear to most from day one: the consequences of the Fukushima disaster have been far, far worse than officials had reported, and not only is the containment effort out of control, but that more nuclear fuel had melted at the Fukushima nuclear reactor than previously reported, suggesting that neither TEPCO nor the government have had any success in mitigating what is now the worst – and ongoing – nuclear disaster in history. So now, perhaps to celebrate its truth-telling ways, TEPCO has announced that it is planning to release thousands of tons of radioactive groundwater from the Fukushima disaster site into the ocean. Actually scratch that: officially the water dumped into the Pacific will be “decontaminated”, because TEPCO has that rare habit of “telling the truth.” It will also do so only after getting permission from local fishermen, who apparently have a choice: whether to catch five-eyed tuna after giving TEPCO “yes” for an answer, or merely catching five-eyed tuna, period.

As NHK confirms, TEPCO “is seeking approval from fishermen to discharge decontaminated ground water into the ocean.” The spin: dumping “decontaminated” water into the ocean is an improvement because Fukushima is already leaking some 200 tons of contaminated ground water per day into the ocean. So why not slap a “treated” sticker on the water and just dump it all. It’s not as if the idiotic plan lifted straight from Game of Thrones, which Japan came up with last year to encase Fukushima in a frozen sarcophagus had any chance of working. So now it is straight to what anyone with a functioning frontal lobe said would happen anyway: thousands if not millions of tons of radioactive water will enter the Pacific anyway. Only this time TEPCO is at least pretending to care about the truth and/or the environment. More from NHK:

Highly radioactive water at the plant is seeping into the earth and mixing with ground water. Experts estimate around 200 tons of contaminated ground water are leaking into the ocean each day. Engineers with Tokyo Electric Power Company are building an iron barrier along a coastal embankment in a bid to contain the problem. TEPCO officials say they plan to pump the water and remove radioactive substances using a decontamination system they are building. They say the barrier and the decontamination system will be in place in September. But they have limited capacity in storage tanks at the plant, and want to discharge the decontaminated water into the ocean.

In other words, to avoid dumping radioactive water into the Pacific, Japan has to… dump radioactive water into the Pacific. Brilliant.

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