Ken Rogoff is by all accounts a brilliant man. The Harvard professor and former IMF chief economist is a chess grandmaster. His thesis committee included current Fed vice-chair Stanley Fischer. But like many survivors of Ivy League hoop jumping, the poor fellow appears to have emerged punch drunk. That’s the only conclusion to be drawn from Rogoff’s new book, The Curse of Cash , which, in effect, proposes a ban on paper currency. It’s terrifying piece of work, for several reasons. [..]
Rogoff’s “cashless society” is an elegant solution to a key problem bedeviling the Federal Reserve: with interest rates at the zero bound, the US central bank has no ammunition left to fight the next recession – because if cuts rates below zero, savers will withdraw their cash and put it under their mattresses. “In principle, cutting interest rates below zero ought to stimulate consumption and investment in the same way as normal monetary policy,” Rogoff writes. “Unfortunately, the existence of cash gums up the works.” That argument is spurious at best. By now, it is fairly clear from experiences in Japan and the US since 2008 that below neutral level interest rates provide little or no net new economic stimulus. At best, easy monetary policy brings forward spending and investment from the future into the present.
However, the US government and the Federal Reserve have spent, borrowed, and printed so much that there is no future left to mortgage. Rogoff, one of the country’s top economists, knows this; which is an important clue that there is much more to his proposals than meet the eye. It seems clear that Rogoff’s negative interest rate/cashless society proposal is structured to engineer a back-door US government debt default. Over the long term, by forcing savers, businesses, and banks to give the US government their money, and allowing Washington to repay less of that money each year, the US can legally default – on all that it owes. More worrying for investors: the fact that Rogoff, Ben Bernanke and others are proposing negative rates despite the considerable evidence that they will do no economic good suggests that they believe that the US government cannot pay back its debts – that it is already insolvent.
[..] maybe Rogoff is just as good a player on the public policy front as he is on the chess board. There is a possibility that he wrote The Curse of Cash as a quasi-job application for a higher government post, possibly as Treasury Secretary in a Clinton Administration. “If you give me the job, I’ll help make sure that government can borrow all it wants and it won’t have to pay any of it back,” may be the sub-text to Rogoff’s book. There is a precedent for this. Ben Bernanke’s 2002 “helicopter money” speech is widely credited with having set the ground for his appointment as Fed Chairman several years later. Brilliant? Cynical? Delusional? Or maybe all three? Take your pick. Either way, you haven’t heard the last of Ken Rogoff.
News reports paint a picture of a Bank of Japan board that remains solidly in favor of maintaining an ultra-easy monetary policy, but is sharply divided over the best way to proceed as the country’s banking sector feels the pinch of low rates and a flat yield curve. Ideas the Bank of Japan could ultimately move to adjust its program in a way designed to further steepen the yield curve are behind recent market moves, analysts said, and could pave the way for further steepening of yield curves around the world, including U.S. Treasurys. Speculation has mounted that the Bank of Japan could undertake an “inverse twist,” shifting its bond purchases away from the longer end of the yield curve.
That would be a mirror image of a Federal Reserve maneuver dubbed “Operation Twist” that the central bank used in 1961 and 2011 to flatten the yield curve by buying long-term debt and selling short term debt. Bond yields move inversely to prices. There are other measures the Bank of Japan could take to try to steepen the yield curve, including simply changing the mix of maturities it buys or setting a yield target. Christoph Rieger at Commerzbank urged against undertaking an inverse twist, noting that Kuroda has expressed concerns that a “bear steepening” of the yield curve—a phenomenon in which long-term rates rise faster than short term rates—tends to tighten monetary conditions. Obviously, that would blunt the impact of the BOJ’s easing efforts and prove unwelcome in an economy that’s contracting.
Housing in major cities in China has seen price hikes over the last year that resemble the famous Dutch “Tulip Fever” bubble of 1637, according to new research by economic consultancy firm Longview Economics. “I think what’s going on in China is troubling … some of the valuations there are really quite extraordinary,” Chris Watling, the CEO of Longview Economics, told CNBC Thursday. “We’ve double checked these numbers about seven times, because I found them quite hard to believe.” The firm’s research found that only San Jose in the Silicon Valley is more expensive than Shenzhen. The Chinese city has seen prices rise 76% since the start of 2015, with the acceleration beginning in April 2015 as the country’s stock market was nearing its peak.
The situation in Beijing and Shanghai is similar, albeit less extreme, the company states. “Housing in some of the tier 1 cities is more expensive than it is in London, which I think itself is on a bubble, Watling added. “The (stock) market exploded to the upside and then crashed dramatically. That money had to go somewhere, so it washed around the system … so a lot of it has gone into housing.” The analysis suggests that the typical home in Shenzhen costs approximately $800,000. Watling said that the house-income ratio in Shenzhen is now running at 70 times, compared to around 16 times in somewhere like London.
China, the biggest economic story of the last 30 years, has soured in the eyes of many analysts. A stock market crash that began in the country last summer has highlighted the vast difficulties Chinese lawmakers are now facing. Watling said Chinese housing was a story built on credit, lots of liquidity and lots of debt. He added that all bubbles, though, once established, will eventually burst and deflate. “It’s simply a question of when,” Watling said in a research note earlier this week, adding that the removal of cheap money would be the likely scenario that would lead to the beginning of the tightening and subsequent prices falls.
[..] for Monte dei Paschi’s latest rescue plan to have any chance of working, both parts of the plan — Part A and Part B — must succeed. Part A consists of a €28 billion bad-loan sale for which JP Morgan Chase, Citi and Italian investment bank Mediobanca are already assembling a bridge loan, in return for very handsome fees. Atlante, Italy’s deeply opaque, Luxembourg-based bank rescue fund, has reportedly agreed to buy the so-called mezzanine tranche in Monte dei Paschi’s bad loan securitization. Apparently demand for heavily discounted, slowly-decomposing bank debt in Italy is high, which is great news considering Italy is purportedly home to roughly a third of all of the bad debt at EU banks.
In a perfect sign of our yield-starved times, last week saw around 250 global investors converge on Venice to attend Banca Ifi s SpA’s “Non-performing Loan” conference. That’s twice as many as last year, reports Bloomberg. In other words, Part A of the rescue plan seems to be coming along nicely — as long as no one asks who will make up the difference between the book value of the bank’s toxic assets and the discount value at which they’re now being sold. As for Part B of the Plan — MPS’ €5 billion cash call scheduled for the end of this year — it’s going nowhere fast. Twice-bitten, thrice-shy investors are no longer buying the hype. Gennaro Pucci at London-based PVE Capital said that even if a significant proportion of MPS’ bad loans were “spun off into a special vehicle,” he would not buy more MPS shares out of fear that the bank could suffer further losses from the remaining soured debt.
This is a serious problem in today’s Italy: as long as the economy continues to stagnate, much of the supposedly good debt currently on the banks’ books will also, sooner or later, end up putrefying. It’s already happened to Banca Popolare di Vicenza, a regional lender that was rescued from bankruptcy late last year by the Atlante fund, but which is already in need of fresh funds. So, too, is Italy’s biggest and only global systemically important financial institution, Unicredit, which has a staggering €80 billion in bad debt on its balance sheets — more than any other European bank. While the downfall of MPS would be enough to cause serious damage to Italy’s already fragile financial system, the collapse of Unicredit, which has vast, sprawling operations across Germany and Eastern Europe, would threaten the stability of the entire Eurozone.
Debt-ridden Hanjin Shipping is working on a restructuring plan that calls for the drastic reduction of its owned fleet and returning the vast majority of the ships it charters to their owners, according to people with direct knowledge of the matter. Despite the efforts, these people say the most likely scenario is still that the Korean operator— the world’s seventh-biggest in terms of capacity—will be liquidated, marking one of the shipping industry’s biggest failures. Hanjin filed for bankruptcy protection last month. The South Korean government has strongly indicated it has no plans to bail out the company. A Korean court will decide in December whether to accept the plan or let the company go under, according to court officials in Seoul.
One person with knowledge of Hanjin’s efforts to restructure said the operator is considering a number of scenarios but focusing on one that involves Hanjin keeping up to 15 of its 37 ships, and returning to owners almost all of the 61 chartered vessels. Under that scenario, which is subject to approval by the bankruptcy court, “Hanjin will emerge as a small regional operator in Asia that will move a small part of Korea’s exports,” the person said. [..] Hanjin’s main charterers, including Danaos, Navios and Seaspan, with a combined exposure of more than $1 billion to Hanjin, were hoping for a last-minute intervention by the Korean government that would allow Hanjin to honor its vessel-leasing commitments. That looks less and less likely.
“Hanjin now has two alternatives: either to drastically downsize or to liquidate,” said Iraklis Prokopakis, Danaos’s COO. “We have eight ships chartered to Hanjin and five will be returned. The other three still have cargo on them so I don’t know what will happen.” Danaos has a $560 million exposure to Hanjin. Mr. Prokopakis said the key issue at the December court hearing will be whether Hanjin has enough cash to continue operating, even at a much smaller scale.
The US military has bombed Syrian government positions in the eastern province of Deir el-Zour today, where the Syrian military had been battling ISIS. According to the report, the US attack on Syrian troops “enabled an [ISIS] advance on the hill overlooking the air base.” This is the second time US forces have directly targeted Syrian government troops inside Syria. It would be the first time such an attack produced a battlefield advantage to ISIS. The US attack has killed at least 62 and perhaps as many as 100 Syrian government troops. Earlier today it was reported that the Syrian government had sent some 1,000 members of the elite Republican Guard into the Deir el-Zour province, as battles with ISIS in the area increase.
This US attack has wiped out perhaps 10% of this force and has obliterated Syrian army weapons and other materiel. The US government has admitted to the attack, but claims it was all a mistake. As some observers have pointed out, however, ISIS does not behave as traditional military units. They do not generally gather in large numbers like this or establish “bases.” The US Central Command released a statement earlier today claiming that the US coordinated the strike with the Russians, but Moscow has vehemently denied the claim. In fact, spokesman for the Russian Foreign Ministry Maria Zakharova was quoted by the state news agency Tass as saying that “after today’s attack on the Syrian army, we come to the terrible conclusion that the White House is defending the Islamic State.”
This dramatic development comes as the latest ceasefire begins to crumble. Russia has condemned Washington’s refusal to implement a key component of the agreement, to press US-backed rebels to cease fighting alongside al-Qaeda; and the main US-backed “moderate” Islamist group, Ahrar al-Sham, has refused to take part in the ceasefire at all. Yesterday, US-backed FSA “moderate” opposition troops chased US Special Forces out of one town in Syria. Is today’s attack a turning point in the war, where the US will begin to strike Syrian government forces more frequently? If so, how will Russia and Iran react to this overt shift in US strategy? Is this the flashpoint?
Italian Prime Minister Matteo Renzi blasted the latest European Union summit in Bratislava on Saturday, effectively labeling Friday’s high-level meeting a waste of time. “I don’t think it would be right for Italy to pretend not to notice when things are not getting any better,” Renzi said at a conference in Florence. Hours earlier, he criticized the summit in an interview with TV broadcaster RTV38. “As Italy, we strongly believe that the EU has a future, but we need to be doing things for real, because we have no use for staged events,” he said. Renzi also said he did not partake in the closing press conference with Angela Merkel and Francois Hollande because he was unhappy with the decisions reached concerning economic and migrant policy.
Renzi said Italy would not “serve as a fig leaf” for the likes of France or Germany. In what was the first European summit without the United Kingdom in over four decades, European leaders sought to show unity in the wake of this summer’s Brexit vote. This, Renzi said, “signals a small step forward, but it is still a rather long way away from the idea of Europe that we have in mind.” Renzi castigated the summit for not raising the African migrant issue. The documents “didn’t even mention Africa,” he said. As the first European destination for migrants arriving from Africa, Italy has been left to cope with the influx of refugees largely on its own while politicians debate how to address refugees in Turkey and along the so-called Balkan Route though Greece, eastern and central Europe.
Italy has long pushed for an international agreement with African states that would close migrant routes to Europe in exchange for increased investment. Renzi repeated his critiques of the EU’s austerity policy. While the country is respecting the EU’s strict budget disciplinary rules, he said Italy retains the right to stress that the rules are not working and it is not prepared “to pretend not to notice.”
Public properties, including real estate assets, are very often sold for extremely low prices, as the political risk factor supersedes even the crucial financial risk that comes with investing in Greece. The Hellenic Federation of Enterprises (SEV) this week commented on the issue, saying that this institutional shortfall of the Greek state and the lack of trust this generates in the three pillars of power (legislative, executive, judiciary) have turned the optimum utilization of state property into “a political point-scoring battle among parties.” As SEV pointed out, “in many instances we see the state’s assets devalued, owing to the delays that political tensions bring about in privatizations, so that they are sold off at particularly low prices. In other instances the prevailing criterion becomes the price of the privatization, without taking into consideration any distortions created in the market from incomplete planning.”
For the industrialists’ association there is no doubt that “the correct utilization of public property along clear and stable rules and terms of economic efficiency, both for state revenues and for the operation of markets, can become a key growth factor for the economy.” All this becomes clearer when one considers the tenders that the state privatization fund (TAIPED) has been conducting for the concession of real estate assets. As property market professionals observe, in most cases the prices investors offer – particularly in instances of plot development – are just a fraction of each asset’s actual value. The reason for that is not to be found in the financial crisis and the drop in market prices, but in investors’ need to factor the political risk into their calculations regarding the sustainability of their chosen investment, in order to secure the desired returns.
CNBC tries an odd twist by claiming it’s not really a TTiP protest, but a form of general ‘easy anti-Americanism’. The same tactics as used in Brexit and the US elections. Curious to see when these people will realize these are losing tactics.
Hundreds of thousands of Germans took to the streets Saturday, in protest of pending trade deals with the United States and Canada. The deals in question are the Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the European Union and the Comprehensive Economic and Trade Agreement (CETA) for the Canadian-EU relationship. Neither free trade agreement has been ratified yet, but popular outcry has been growing for the last few years. The demonstrations took place in seven cities throughout Germany: Berlin, Frankfurt, Hamburg, Cologne, Leipzig, Munich and Stuttgart. Organizers told CNBC that the official estimate is 320,000 demonstrators across Germany.
In Berlin, where discussions of trade policy are frequently overheard in cafes and most available surfaces are plastered in posters and stickers against the deals, the largest demonstration of the day took place with about 70,000 attendees, according to the organizers. Earlier, local reports had indicated there could be as many as 80,000 in the German capital, but a heavy downpour close to the start time may have depressed turnout. A broad coalition of organizations helped plan the event, but the stated rationale for opposing the agreements centers on the belief that such deals “primarily serve the interests of powerful economic interest groups, and thus only cement the imbalance between the common good and economic interests,” according to one organization.
France has passed a new law to ensure all plastic cups, cutlery and plates can be composted and are made of biologically-sourced materials. The law, which comes into effect in 2020, is part of the Energy Transition for Green Growth – an ambitious plan that aims to allow France to make a more effective contribution to tackling climate change. Although some ecologists’ organisations are in favour of the ban, others argue that it has violated European Union rules on free movement of goods. Pack2Go Europe, a Brussels-based organization representing European packaging manufacturers, says it will keep fighting the new law and hopes it doesn’t spread to the rest of the continent. “We are urging the European Commission to do the right thing and to take legal action against France for infringing European law,” Pack2Go Europe secretary general Eamonn Bates told AP. “If they don’t, we will.”
The danger lurking in the risk asset markets was succinctly captured by MarketWatch’s post on overnight action in Asia. The latter proved once again that the casino gamblers are incapable of recognizing the on-rushing train of global recession because they have become addicted to “stimulus” as a way of life:
Shares in Hong Kong led a rally across most of Asia Tuesday, on expectations for more stimulus from Chinese authorities, specifically in the property sector…….The gains follow fresh readings on China’s economy, which showed further signs of slowdown in manufacturing data released Tuesday (which) remains plagued by overcapacity, falling prices and weak demand. The dimming view casts doubt that the world’s second-largest economy can achieve its target growth of around 7% for the year. The central bank has cut interest rates six times since last November.
More stimulus from China? Now that’s a true absurdity – not because the desperate suzerains of red capitalism in Beijing won’t try it, but because it can’t possibly enhance the earnings capacity of either Chinese companies or the international equities. In fact, it is plain as day that China has reached “peak debt”. Additional borrowing there will not only prolong the Ponzi and thereby exacerbate the eventual crash, but won’t even do much in the short-run to brake the current downward economic spiral. That’s because China is so saturated with debt that still lower interest rates or further reduction of bank reserve requirements would amount to pushing on an exceedingly limp credit string. To wit, at the time of the 2008 crisis, China’s “official” GDP was about $5 trillion and its total public and private credit market debt was roughly $8 trillion.
Since then, debt has soared to $30 trillion while GDP has purportedly doubled. But that’s only when you count the massive outlays for white elephants and malinvestments which get counted as fixed asset spending. So at a minimum, China has borrowed $4.50 for every new dollar of reported GDP, and far more than that when it comes to the production of sustainable wealth. Indeed, everything is so massively overbuilt in China – from unused airports to empty malls and luxury apartments to redundant coal mines, steel plants, cement kilns, auto plants, solar farms and much, much more – that more borrowing and construction is not only absolutely pointless; it is positively destructive because it will result in an even more destructive adjustment cycle. That is, it will only add to the immense already existing downward pressure on prices, rents and profits in China, thereby insuring that even more trillions of bad debts will eventually implode.
[..] When peak debt is reached, additional credit never leaves the financial system; it just finances the final blow-off phase of leveraged speculation in the secondary markets.
Manufacturing in the U.S. unexpectedly contracted in November at the fastest pace since the last recession as elevated inventories led to cutbacks in orders and production. The Institute for Supply Management’s index dropped to 48.6, the lowest level since June 2009, from 50.1 in October, its report showed Tuesday. The November figure was weaker than the most pessimistic forecast in a Bloomberg survey. Readings less than 50 indicate contraction. The report showed factories believed their customers continued to have too many goods on hand, indicating it will take time for orders and production to stabilize.
Manufacturers, which account for almost 12% of the economy, are also battling weak global demand, an appreciating dollar and less capital spending in the energy sector. “There are some clear signs of weakness — industries that are tied to oil and gas, agriculture or are heavily dependent on exports are all clearly slowing,” Mark Vitner at Wells Fargo Securities said before the report. “It wouldn’t surprise me if the manufacturing numbers remain soft for the next five to six months.”
It’s seven years after the financial crisis and the banking industry is still in receipt of state support – support that will be available for two more years, and perhaps for longer. The Treasury and the Bank of England have decided to extend their Funding for Lending Scheme (FLS), which supplies banks with cheap money with the aim of keeping the supply of credit flowing. What ought, in theory, to be the scheme’s final outing will be very specifically targeted at lending to small and medium-sized enterprises (SMEs). This is a sector which is still struggling to obtain the funding it needs at a time when lending to other sectors has largely recovered. The Bank says that things are improving, and its figures bear that out. But not quickly, and the growth in small business lending pales by comparison to the growth in consumer lending.
The expansion of the latter is starting to cause concern, with the Bank’s chief economist, Andy Haldane, fretting about personal loans. He says they’re picking up at a rate of knots. Britain has long nursed an addiction to the drug of debt that it’s never really addressed and the growth in unsecured lending is an indication of a return to bad habits. Given that Mr Haldane and his colleagues are engaged in the unenviable task of walking an economic tightrope, it’s no wonder that he’s getting twitchy. But consumers are not, as yet, shooting up with the sort of wild abandon they exhibited in the run-up to the crisis. And, as Investec’s Philip Shaw points out, it wasn’t so long ago that we were still talking about the need to make more credit available.
Workers in the UK will have the worst pensions of any major economy and the oldest official retirement age of any country, according tothe Organisation for Economic Co-operation and Development. The typical British worker can look forward to a pension worth only 40% of their pay , once state and private pensions are combined. The Paris-based thinktank said on Tuesday that this compares with about 90% in the Netherlands and Austria and 80% in Spain and Italy. Only Mexico and Chile offer their workers a worse prospect after retirement, although Turkey is the surprise table-topper, giving its retirees an average pension equal to 105% of average wages, according to the OECD report. Britain has begun an auto-enrolment scheme that will offer millions of low-paid workers a private pension for the first time.
But with contribution rates low, the payouts will not be generous. Last week the chancellor, George Osborne, gave employers a six-month delay to planned increases in their contribution rates. Pensions expert Tom McPhail of Hargreaves Lansdown said: “This analysis makes embarrassing reading for the politicians who have been responsible for the UK’s pensions over the past 25 years. “The state pension was in steady decline for years. Even though it is improving for lower earners now, average payouts will not be rising. It is in the private sector though where the real damage has been done; the collapse in final salary pensions has not yet been replaced with well-funded alternatives.” The age at which workers qualify for a state pension in the UK will, at 68 years old, be the highest of any country in the world, equalled only by Ireland and Czech Republic.
The prize for earliest retirees goes to France and Belgium. “Workers stay the longest in the labour market in Korea, Mexico, Iceland and Japan; men exit the soonest in France and Belgium while women leave the earliest in the Slovak Republic, Slovenia and Poland,” said the OECD. While many European countries offer significantly better pensions than in Britain, the cost is now close to sustainable, said the OECD. In recent years there have been frequent warnings about the “demographic timebomb” that will wreck the finances of ageing European nations. But the OECD said that changes to taxation, contribution rates and pensionable ages means that the burden of paying pensions will rise from the current level of 9% of GDP to just 10.1% by 2050.
Standard and Poor’s cut Volkswagen’s credit rating to “BBB+” from “A-” on Tuesday, shortly after the automaker reported that an emissions-cheating scandal took a serious bite out of its U.S. sales last month. The German automaker said that November U.S. sales fell almost 25% from a year ago. The company blamed the decline on stop-sale orders for diesel-powered vehicles that the government says cheated on pollution tests. The VW brand sold just under 24,000 vehicles last month compared with almost 32,000 a year ago.
S&P noted the emissions scandal also contributed to its ratings cut. The agency said it expects Volkswagen to “experience ongoing adverse credit impacts.” The U.S. is a relatively small market for Volkswagen. The VW brand sold 490,000 vehicles worldwide in October, 5% below a year ago. VW has admitted that 482,000 2-liter diesel vehicles in the U.S. contained software that turned pollution controls on for government tests and off for real-world driving. The government says another 85,000 six-cylinder diesels also had cheating software.
Thomas Piketty is out with a new argument about income inequality. It may prove more controversial than his book, which continues to generate debate in political and economic circles. The new argument, which Piketty spelled out recently in the French newspaper Le Monde, is this: Inequality is a major driver of Middle Eastern terrorism, including the Islamic State attacks on Paris earlier this month — and Western nations have themselves largely to blame for that inequality. Piketty writes that the Middle East’s political and social system has been made fragile by the high concentration of oil wealth into a few countries with relatively little population.
If you look at the region between Egypt and Iran — which includes Syria — you find several oil monarchies controlling between 60 and 70% of wealth, while housing just a bit more than 10% of the 300 million people living in that area. (Piketty does not specify which countries he’s talking about, but judging from a study he co-authored last year on Middle East inequality, it appears he means Qatar, the United Arab Emirates, Kuwait, Saudia Arabia, Bahrain and Oman. By his numbers, they accounted for 16% of the region’s population in 2012 and almost 60% of its gross domestic product.) This concentration of so much wealth in countries with so small a share of the population, he says, makes the region “the most unequal on the planet.”
Within those monarchies, he continues, a small slice of people controls most of the wealth, while a large — including women and refugees — are kept in a state of “semi-slavery.” Those economic conditions, he says, have become justifications for jihadists, along with the casualties of a series of wars in the region perpetuated by Western powers. His list starts with the first Gulf War, which he says resulted in allied forces returning oil “to the emirs.” Though he does not spend much space connecting those ideas, the clear implication is that economic deprivation and the horrors of wars that benefited only a select few of the region’s residents have, mixed together, become what he calls a “powder keg” for terrorism across the region.
Piketty is particularly scathing when he blames the inequality of the region, and the persistence of oil monarchies that perpetuate it, on the West: “These are the regimes that are militarily and politically supported by Western powers, all too happy to get some crumbs to fund their [soccer] clubs or sell some weapons. No wonder our lessons in social justice and democracy find little welcome among Middle Eastern youth.” Terrorism that is rooted in inequality, Piketty continues, is best combated economically.
All totlly legal, no doubt. “..an emerald and diamond jewellery set containing a ring, earrings, bracelet, and necklace, which was valued at $780,000 [was given to] Teresa Heinz Kerry, wife of US Secretary of State John Kerry.
Three quarters of the value of all official gifts given to the US administration in 2014 came from Saudi Arabia, according to US government records. US President Barack Obama, First Lady Michelle Obama, their daughters and US federal government employees received official gifts estimated to be worth a total of $3,417,559 last year. Analysis of the annual disclosure, released by the US Department of State’s Office of the Chief of Protocol, found Saudi Arabia gave the US gifts valued at around $2,566,525. It dominated the report and represented 75% of the value of all gifts received by Obama and his government employees last year.
When all other Arab countries are added to the mix the total value rises to nearly $3 million, with the Arab region accounting for 87% of the value of all gifts. The most lavish gift was an emerald and diamond jewellery set containing a ring, earrings, bracelet, and necklace, which was valued at $780,000. It was not given to Obama, his wife Michelle or his children, but Teresa Heinz Kerry, wife of US Secretary of State John Kerry. The jewels were given to Mrs Kerry in January 2014 by the late King Abdullah bin Abdulaziz Al-Saud. First Lady Michelle Obama is included in the top five with two gifts of jewels from Saudi Arabia, each worth well over half a million dollars.
The president himself is further down the list, behind his children and wife, and ranked 7th with a white gold men’s watch worth $67,000. The six other Gulf states also gave lavish gifts to the Obama administration. Qatar gave Eric Holder, US Attorney General, a $24,150 gold and silver ship depicting United States and the State of Qatar flags in a case, in addition to an engraved Cartier bracelet. The UAE also gifted a gold necklace and earring set with white stones worth around $3,200 to Deborah K. Jones, Ambassador of the US to the State of Libya. The gift was presented in March 2014 on behalf of Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE.
Soon after launching a brutal air and ground assault in Yemen, the Kingdom of Saudi Arabia began devoting significant resources to a sophisticated public relations blitz in Washington, D.C. The PR campaign is designed to maintain close ties with the U.S. even as the Saudi-led military incursion into the poorest Arab nation in the Middle East has killed nearly 6,000 people, almost half of them civilians. Elements of the charm offensive include the launch of a pro-Saudi Arabia media portal operated by high-profile Republican campaign consultants; a special English-language website devoted to putting a positive spin on the latest developments in the Yemen war; glitzy dinners with American political and business elites; and a non-stop push to sway reporters and policymakers. That has been accompanied by a spending spree on American lobbyists with ties to the Washington establishment.
The Saudi Arabian Embassy, as we’ve reported, now retains the brother of Hillary Clinton’s campaign chairman, the leader of one of the largest Republican Super PACs in the country, and a law firm with deep ties to the Obama administration. One of Jeb Bush’s top fundraisers, Ignacio Sanchez, is also lobbying for the Saudi Kingdom. Saudi Arabia’s relationship with the U.S. has come under particular strain in recent years as the government has not only launched the brutal war in Yemen, but has embarked on a wave of repression. Following the appointment of Salman bin Abdulaziz Al-Saud to the Saudi throne in January, the Kingdom sharply increased the number of people executed — often by beheading and crucifixion — for daring to protest or criticize the government or for crimes as minor as adultery or “witchcraft.” On November 17, a Saudi court sentenced Ashraf Fayadh, a famed poet, to death for “apostasy.”
There have also been reports that Saudi Arabia continues to be a leading driver of Sunni terror networks worldwide, including in Syria and Iraq. The Saudi Arabian government is currently supplying weapons to a Syrian rebel coalition that includes the Nusra Front, al Qaeda’s affiliate in the region. As the New York Times has reported, private donors in Saudi Arabia have also worked as fundraisers for the Islamic State, or ISIS. And there is a renewed, bipartisan push by lawmakers to declassify the 28 pages of the 9/11 Commission Report, a censored section that reportedly relates to Saudi state support for al Qaeda’s operation.
Pope Francis, galvanized by a scandal over Vatican finances, has ordered the most powerful bodies in the city-state to launch an unprecedented audit of its wealth and crack down on runaway spending. At the suggestion of his economic chief, Cardinal George Pell, Francis has set up a “Working-Party for the Economic Future” which brings together the Secretariat of State, or prime minister’s office, the Vatican Bank and other agencies. Francis has told the panel “to address the financial challenges and identify how more resources can be devoted to the many good works of the Church, especially supporting the poor and vulnerable,” Danny Casey, director of Pell’s office at the Secretariat for the Economy, said in an interview.
The pope’s initiatives come as five people stand trial in the Vatican over the leak of confidential documents in two books published last month that described corruption, mismanagement and wasteful spending by church officials. Those on trial deny wrongdoing. Francis, 78, has pushed for more openness and transparency in Vatican financial and economic agencies but he has faced resistance from the Rome bureaucracy. On the flight back to Rome on Monday after a visit to Africa, Francis told reporters that the so-called Vatileaks II scandal was an indication of the mess that he’s trying to sort out.
The trial of two former Vatican employees alongside the books’ authors highlighted Church efforts “to seek out corruption, the things which aren’t right,” he said, according to a transcript provided by the Vatican. The working group, which held its first meeting last week, will study measures to cut costs and raise revenue as part of a long-term financial plan. “This will include comparing actual expenditure against budgets at a consolidated level, which is a new initiative,” Casey said.
The IMF’s decision to add China’s yuan to its reserves basket is a triumph for Beijing, but the fund’s verdict that the currency met its “freely usable” test will have little financial impact unless Beijing recruits more users. The desire of Chinese reformers to internationalize the currency has a clear economic rationale; a yuan in wide circulation overseas would reduce China’s dependence on the dollar system and on policy set in Washington. It would also make it easier for Chinese firms to invoice and borrow offshore in yuan, reducing the risk of exchange rate fluctuations and prompting China’s inefficient state-owned banks to improve their performance or lose business. Those concerned about a potential global liquidity crisis caused by overdependence on the United States might also welcome the yuan as an alternative to the dollar, as would countries locked out of dollar capital markets by sanctions.
But to serve these purposes, there needs to be a much bigger pool of yuan outside China, which requires offshore institutions – and not just in Hong Kong – to buy and hold yuan. Few believe the IMF decision alone, which economist Alicia Garcia-Herrero called a “beauty contest”, will change investor behavior much. For that, says Swiss bank UBS, Beijing needs to continue financial reforms and capital account liberalization to improve the efficiency of capital allocation in China. Foreign investors want Beijing to provide predictable and transparent legal and taxation treatment, and drop its penchant for pilot programs and quotas in favor of consistency. They also want to know they can freely sell their yuan assets, not just buy, a concern that only grew over the summer, when Beijing stepped into its stock markets to stop a sell-off.
Foreign investors aren’t making full use of the existing channels to buy Chinese assets that Beijing allows – quotas for the two Qualified Foreign Institutional Investor programs (QFII and RQFII) and the Shanghai-Hong Kong Stock Connect have yet to be used up. And for all the impressive trade statistics, much of the “offshore” yuan isn’t traveling the globe but bouncing to and fro across the internal border with Hong Kong, largely traded between Chinese companies. “The number one thing we would like to see changed is that the QFII and RQFII quotas are dropped, just as they dropped in July the quotas for central banks, sovereign wealth funds and supernationals. It’ll make it a lot easier for global institutional investors,” said Hayden Briscoe at AllianceBernstein in Hong Kong.
Why would China want the IMF to put the yuan in the SDR? It may want to engineer a bump in capital inflows, at a time when money is trying to leave China. Generating some foreign demand for yuan-denominated assets might help stabilize the Chinese currency, which is expected to depreciate a bit in the months ahead. The IMF might be motivated to help China limit the moves in its currency in order to promote global macroeconomic stability, or it might want to lure China into making sovereign loans through the fund instead of on its own. Ultimately, the yuan’s status as a reserve currency will be driven by China’s further liberalization of its capital account. The easier it becomes to move money in and out of yuan, the more asset managers will be willing to put their money in.
And if China ascends to true reserve currency status, the most important effects will be in the long term – not all of them good. True reserve currency status makes it cheaper for a government to borrow, which means that – all else equal – more borrowing will happen. That will increase net capital inflows. And as many countries have learned during the last decade, capital inflows can cause trouble. That doesn’t make a lot of sense, intuitively. How could it harm a country to allow it to borrow cheaply? If countries were rational and foresighted, they would borrow no more than is healthy. But sovereign borrowing decisions are the result of government decisions not market ones, and no one would argue that governments always make wise choices. Even the private sector, though, could be harmed by capital inflows.
As economists Gianluca Benigno, Nathan Converse, and Luca Fornaro have found, large influxes of foreign money can lead to booms and busts. They can also cause a country to shift resources out of manufacturing, where productivity growth is often high, into service-oriented industries where productivity is relatively stagnant. Over the past several decades, the U.S. dollar has been the main reserve currency, and the U.S. has experienced huge capital inflows, especially from countries such as China. Those capital inflows in turn have caused a large, persistent trade deficit. Perhaps not coincidentally, U.S. manufacturing hasn’t grown very fast since the late 1990s. In the year ahead, reserve-currency status might help cushion the country’s economic slowdown. But in the long term, it might be a poisoned chalice for China.
The EU is warning Greece it faces suspension from the Schengen passport-free travel zone unless it overhauls its response to the migration crisis by mid-December, as frustration mounts over Athens’ reluctance to accept outside support. Several European ministers and senior EU officials see the threat of pushing out Greece over “serious deficiencies” in border control as the only way left to persuade Alexis Tsipras, Greece’s prime minister, to deliver on his promises and take up EU offers of help. If the EU follows through on its threat, it would mark the first time a country has been suspended from Schengen since its establishment in 1985. The challenge to Athens comes amid a bigger rethink on tightening joint border control to ensure the survival of the Schengen zone.
The European Commission will this month propose a joint border force empowered to take charge of borders, potentially even against the will of frontline states such as Greece. Greece’s relatively weak administration has been overwhelmed by more than 700,000 migrants crossing its frontiers this year. Given the severity of the crisis, EU officials are vexed by Athens’s refusal to call in a special mission from Frontex, the EU border agency; its unwillingness to accept EU humanitarian aid; and its failure to revamp its system for registering refugees. EU home affairs ministers, who meet on Friday, are to make clear that more drastic measures will be considered if Greece fails to take action before a summit of EU leaders in mid-December, according to four senior European diplomats.
The suspension warning has been delivered repeatedly to Greece this week, including through a visit to Athens by Jean Asselborn, foreign minister of Luxembourg, which holds the EU’s rotating presidency. One Greek official strongly denied accusations of being unco-operative and said claims Mr Tsipras has failed to meet pledges made at a summit of western Balkan leaders last month were “untrue”. But another official acknowledged the foot-dragging. He said it stemmed from a legal requirement that only Greeks were allowed to patrol the country’s borders as well as sensitivity over the long-running dispute over Macedonia’s name and suspicions about Turkish designs on certain Greek islands, including Lesbos, point of entry for many migrants.
As Greece shares no land borders with Schengen , Greek officials point out it will have no impact on migrant flows. “There are no refugees leaving Greece who are flying ,” he said. EU officials acknowledge this but say the withdrawal of travel rights for Greeks is one of their few points of leverage over Mr Tsipras. Athens has recently turned down a deployment of up to 400 Frontex staff to immediately reinforce its border with Macedonia, complaining in a letter to the European Commission that their mandate was too broad and went beyond registration. Greek officials have yet to accept an invitation to invoke an emergency aid scheme – the EU civil protection mechanism — that would rush humanitarian support to islands and border areas.
Danes head to the polling stations on Thursday (3 December) for their eighth EU referendum since a majority voted Yes to join the club back in 1972. So far, they voted five time Yes and two times No, with a narrow lead for the No side this time around. A Gallup poll published on Saturday in the Berlingske Tidende daily showed 38% intend to vote No, with 34% Yes, and 23% undecided. You need to go back to the Maastricht treaty referendum over 20 years ago to find the reason for this week’s plebiscite. Maastricht was initially rejected by the Danes in 1992. In order to save the entire treaty, Denmark, at a summit in Edinburgh, was offered a handful of treaty-based opt-outs, preserving Danish sovereignty over EU-policy areas, such as the euro and justice and home affairs.
The Maastricht treaty was then approved together with the opt-outs in a re-run of the vote in 1993. EU legislation in the area of justice and home affairs has ballooned in the 20 years which followed. Today, it includes important areas such as cybercrime, trafficking, data protection, the Schengen free-travel system, refugee and asylum policy, and closer police co-operation on counter-terrorism. Bound by the old treaty opt-out, Denmark automatically stays out of all the supra-national EU justice and home affairs policies and doesn’t take part in EU Council votes in these areas. A frustrated majority in the Danish parliament, nick-named “Borgen” (The Castle), in August voted to call the referendum asking citizens to scrap the old arragement. They wanted permission from voters to opt in to the justice and home affairs policies over time, without having to consult people, each time, in a referendum.
The Yes parties identified 22 existing EU initiatives they want Denmark to join right after a Yes vote. They also promised Denmark won’t take part in 10 other EU initiatives – including the hot-button issue of asylum and immigration. The day after the referendum was announced, Gallup polled that a safe majority of 58% would vote Yes. But something happened during the campaign. First, the refugee crisis hardened public opinion. Liberal prime minister Lars Loekke Rasmussen promised there would be a new referendum before Denmark ever joins EU refugee and asylum policies. The move confused voters, who saw no reason to scrap the opt-out if Denmark was to stay out of key policies anyway. Then more terror attacks hit Paris in November.
The European People’s Party (EPP) has reiterated its opposition to EU membership for Turkey, despite the agreement that was reached on Sunday (29 November). EurActiv Germany reports. The deal that was struck with Ankara in relation to providing aid to tackle the refugee crisis and reopening accession talks has done nothing to quell the scepticism of the conservative EPP. “For us in the EPP, it is clear that we want a close partnership, but not full membership,” Manfred Weber (CSU), the EPP’s group leader, told Bavarian television on Monday (30 November). Although supporting the financial pledge made by the EU, he called the decision to allow Turks visa-free travel a “bitter pill” to swallow.
On Sunday evening (29 November), the EU and Turkey concluded talks that had been made necessary by the ongoing refugee crisis. Ankara committed itself to strengthening its land and sea borders, as well as stepping up its efforts against traffickers. In return, the EU pledged €3 billion to be used exclusively to care for refugees, to remove the visa-requirement for Turkish travellers and to re-energise accession talks. Alexander Graf Lambsdorff (FDP), Vice-President of the European Parliament, criticised the reopening of accession talks, given the civil and human rights situation in Asia Minor. It is not right that the EU have thrown their “values overboard” in dealing with the refugee crisis, the liberal politician said in a radio interview. Lambsdorff accused the German Chancellor of kowtowing to Turkish President Erdogan.
Secret official documents about the searching of three trucks belonging to Turkey’s national intelligence service (MIT) have been leaked online, once again corroborating suspicions that Ankara has not been playing a clean game in Syria. According to the authenticated documents, the trucks were found to be transporting missiles, mortars and anti-aircraft ammunition. The Gendarmerie General Command, which authored the reports, alleged, “The trucks were carrying weapons and supplies to the al-Qaeda terror organization”. But Turkish readers could not see the documents in the news bulletins and newspapers that shared them, because the government immediately obtained a court injunction banning all reporting about the affair.
When President Recep Tayyip Erdogan was prime minister, he had said, “You cannot stop the MIT truck. You cannot search it. You don’t have the authority. These trucks were taking humanitarian assistance to Turkmens”. Since then, Erdogan and his hand-picked new Prime Minister Ahmet Davutoglu have repeated at every opportunity that the trucks were carrying assistance to Turkmens. Public prosecutor Aziz Takci, who had ordered the trucks to be searched, was removed from his post and 13 soldiers involved in the search were taken to court on charges of espionage. Their indictments call for prison terms of up to 20 years. In scores of documents leaked by a group of hackers, the Gendarmerie Command notes that rocket warheads were found in the trucks’ cargo. According to the documents that circulated on the Internet before the ban came into effect, this was the summary of the incident:
Russia is working with the UN Security Council on a document that would enforce stricter implementation of Resolution 2199, which aims to curb illegal oil trade with and by terrorist groups, Russian ambassador to the UN Vitaly Churkin told RIA Novosti. The draft resolution intends to quash the financing of terrorist groups, including Islamic State (IS, formerly ISIS/ISIL) extremists. “We are not happy with the way Resolution 2199, which was our initiative, is controlled and implemented. We want to toughen the whole procedure,” Churkin said. “We are already discussing the text with some colleagues and I must say that so far there is not a lot of contention being expressed.” US Ambassador Samantha Power said that America has “a shared objective” with Russia on this, since it is also working towards bringing the financing of terrorism to a halt.
The new document is a follow-up to Russian-sponsored Resolution 2199, which was adopted by the UN on February 12 to put a stop to illicit oil deals with terrorist structures using the UN Security Council’s sanctions toolkit. February’s resolution “has become an integral part of efforts by the UN Security Council, with Russia’s active involvement, to consolidate the international legal framework for countering the terrorist threat from ISIS and Jabhat al-Nusra,” Dr Alexander Yakovenko, Russian Ambassador to the United Kingdom of Great Britain and Northern Ireland, wrote for RT. “Its urgency is prompted by the considerable revenues that the terrorists are receiving from trade in hydrocarbons from seized deposits in Syria and Iraq.” More specifically, it bans all types of oil trade with IS and Jabhat al-Nusra.
If such transactions are discovered, they are labeled as financial aid to terrorists and result in targeted sanctions against participating individuals or companies. Back in July, the UN Security Council expressed “grave concern” over reports of oil trading with IS militant groups in Iraq and Syria. The statement came after IS seized control of oilfields in the area and was reportedly using the revenues to finance its nascent “state.” While Ambassador Churkin has proposed sanctioning states trading with IS terrorists, a retired US army general, believes that Churkin should be more specific in identifying the state actors involved in the illegal oil trade. Retired US Army Major General Paul E. Vallely, who has recently been lobbying for the Syrian rebels to cooperate with Russia against Islamic State, as well as for Washington to take a more active role in the war on IS, says Turkish President Recep Tayyip Erdogan should be singled out as a “negative force” for supporting Islamic State’s black market oil revenues.
While the rebels in eastern Syria where the oil fields are located “could align with certain forces that are there – the Russians, if they were so inclined to do so… the key is to destroy ISIS, and one of the initiatives that ambassador Churkin should be moving toward with the Security Council is Erdogan in Turkey,” Vallely told RT. “He [Erdogan] has been supporting ISIS since I was over there several years ago. I’ve met some of the black-marketeers along the Syrian border there in [Turkish] Hatay province, and so they’re alive and well. But Erdogan is a problem, he really is, and if I was ambassador Churkin, not only would I propose something in the Security Council for cutting off the finances, but also doing some kind of action against Erdogan. He is a very, very negative force in that area.”
Russia may freeze work on the Turkish Stream gas pipeline project for several years in retaliation against Ankara for the shooting down of a Russian Air Force jet, two sources at Russian gas giant Gazprom have told Reuters. The project is to involve, initially, building a new gas pipeline under the Black Sea to Turkey, and in subsequent phases the construction of a further line from Turkey to Greece, and then overland into Southeastern Europe. Even before the row with Ankara, the project had been delayed and reduced in scale, leading some industry insiders to doubt if it would ever happen.
Virtually out of cash and with its revenues fast deteriorating, Puerto Rico is moving toward default on $7 billion in loans owed by its public corporations to free up money to repay loans backed by the territory’s full faith and credit, Gov. Alejandro Garcia Padilla told a Senate hearing Tuesday. The move allowed Puerto Rico to make a $355 million bond payment due today. Still, the financial gimmick, which violates the terms of some of those bond deals, only provides a short-term fix for the island’s liquidity problems. With at least $687 million in payments due on Jan. 1 and others to follow, it will only be a matter of time before Puerto Rico misses large payments on its $73 billion in outstanding debt, officials said.
“In simple terms we have begun to default on our debt in an effort to attempt to repay bonds issued with full faith and credit of the commonwealth and secure sufficient resources to protect the life, health, safety and welfare of the people of Puerto Rico,” Garcia Padilla told the Senate Judiciary Committee. If Congress does not pass legislation to allow Puerto Rico to reorganize its debts in bankruptcy, Tuesday’s financial move will just be “the beginning of a very long and chaotic process” that will harm the island’s creditors and allow a budding humanitarian crisis on the island to grow out of control, the governor said.
Human Rights Watch called on the Obama administration on Tuesday to investigate 21 former U.S. officials, including former President George W. Bush, for potential criminal misconduct for their roles in the CIA’s torture of terrorism suspects in detention. The other officials include former Vice President Dick Cheney, former CIA Director George Tenet, former U.S. Attorney General John Ashcroft and National Security Adviser Condoleezza Rice. Human Rights Watch argued that details of the Central Intelligence Agency’s interrogation program that were made public by a U.S. Senate committee in December 2014 provided enough evidence for the Obama administration to open an inquiry.
“It’s been a year since the Senate torture report, and still the Obama administration has not opened new criminal investigations into CIA torture,” Kenneth Roth, executive director of Human Rights Watch, said in a statement. “Without criminal investigations, which would remove torture as a policy option, Obama’s legacy will forever be poisoned.” Representatives for Bush and Tenet declined comment. Representatives for Cheney, Ashcroft and Rice could not immediately be reached for comment. Former Bush administration officials and Republicans have argued that the CIA used “enhanced interrogation techniques” that did not constitute torture. They argue that the Senate report was biased.
“It’s a bunch of hooey,” James Mitchell, one of the architects of the interrogation program told Reuters nearly a year ago after the release of the Senate Intelligence Committee’s findings. “Some of the things are just plain not true.” In a video released in conjunction with the report, “No More Excuses” “A Roadmap to Justice for CIA Torture,” the president of the American Bar Association calls for a renewed investigation as well. In June, the ABA sent a letter to U.S. Attorney General Loretta Lynch also saying that the details disclosed in the Senate report merited an investigation. “What we’ve asked the Justice Department to do is take a fresh look, a comprehensive look, into what has occurred to basically leave no stone unturned into investigating possible violations,” said American Bar Association President Paulette Brown.
“And if any are found to take the appropriate action as they would in any other matter.” CIA interrogators carried out the program on detainees who were captured around the world after the Sept. 11, 2001 hijacked plane attacks on the United States. In 2008, the Bush administration opened a criminal inquiry into whether the CIA destroyed videotapes of interrogations. After taking office in 2009, the Obama administration expanded the inquiry to include whether the interrogation program’s activity involved criminal conduct. In 2012, the Obama administration closed the criminal inquiry. Then Attorney General Eric Holder said that not enough evidence existed for criminal prosecution, including the death of two detainees.
A 4-year-old child was reported drowned in the early hours of Tuesday as she and 28 fellow passengers tried to swim to the shore of Rho, a small islet off the coast of Kastellorizo in the southeastern Aegean. The coast guard says it was able to rescue the other 28 passengers on board the craft that had set sail from Turkey as they tried to reach Europe, but the young girl drowned in the final scramble. Greek coast guard officers have rescued over 200 refugees and migrants from Greece’s seas since Monday.
Total sales in the US on Black Friday fell 10% to $10.4bn this year, down from $11.6bn in 2014, according to research firm ShopperTrak. The decline in sales on the traditional busiest shopping day of the year has been blamed on shops opening the day before. But this year, sales on Thanksgiving also dropped, and by the same percentage, to $1.8bn. A big reason for the decline is increased online shopping, as Americans hunt down deals on their smartphones, tablets and computers. Many retailers are also offering bargains long before Thanksgiving, limiting the impact of Black Friday specials. Online retailers have been bombarding customers with email discounts and bargains for weeks. Online sales jumped 14.3% on Friday compared with last year, according to Adobe, which tracked activity on 4,500 retail websites.
Email promotions drove 25% more sales compared with 2014, the company said. Brick-and-mortar retailers saw fewer customer visits on Thanksgiving and Black Friday, compared with last year, according to Kevin Kearns, ShopperTrak’s chief revenue officer. “Shoppers are researching products ahead of time, targeting their store visits, and arriving in store with the intention of making a purchase,” Kearns said. The drop in Thanksgiving Day visits may also reflect a “social backlash” against stores opening on that day, Kearns said. Chris Christopher, director of consumer economics at consulting firm IHS, said many retailers’ warehouses and store shelves were overstocked heading into the fall. That prompted many to offer deep discounts as early as the beginning of this month. “The price discounting has been creeping toward Halloween,” he said.
A year after China’s financial regulators squared up to the systemic perils of “shadow banking”, the threat is shifting to a booming corporate bond market, and risky borrowers’ debt is finding its way into products aimed at retail investors. An opaque network of trust companies and non-bank lenders had grown their annual market to a hefty 2.9 trillion yuan ($450 billion) in loans before regulators stepped in, spooked by rising defaults on wealth-management products (WMPs) backed by such high-interest shadow lending. Now the high-risk borrowers who took those loans, such as unlisted real-estate firms struggling with a stagnant property market and financing companies backing shoddy local government investment, are finding a new avenue of funding after regulators began allowing unlisted companies to issue bonds on public exchanges.
New corporate bond issuance leaped to 914 billion yuan in the third quarter, accounting for 29% of all new credit, up from 381 billion yuan and just 8% in the first. And the profile of new borrowers looks strikingly like the patrons of the shadow banking set. Of the 57 firms posting bond listing announcements in Shanghai in October, 23 were local-government-owned project or infrastructure investment firms. Beijing engineered the freeing up of the bond markets as a transparent alternative funding route, and the credit crunch that followed its clampdown on shadow banking guaranteed a high take-up. But wealth managers are now turning these bonds into leveraged high-yielding products and selling them to investors desperate for returns after a real-estate slump and summer stock-market crash.
Data from CN Benefit, a research firm tracking wealth management sales, shows that 60% of new bank wealth-management products (WMPs) were linked to debt and money market instruments in September, up from less than half in the first quarter. Demand is hot for these products, and the higher the yield, the higher the risk, which is amplified if the fund’s assets are partly bought on credit, or leveraged. Colight Asset Management, a private fund offering bond-backed WMPs, raised more than 40 million yuan in just four days in November from an 8.7% yielding, 400% leveraged bond-based product, according to customer service staff member Chen Xun. Much bigger companies such as PIMCO and the Agricultural Bank of China also offer similar high-yielding leveraged products.
Investors, however, assume that products offered by big names are relatively safe. “The risk of default is very slim,” said a 45 year-old business manager in Shanghai surnamed Pan who invests in WMPs on an exchange backed by China’s second-largest insurer, Ping An Group. “I’m sure such a big company as Ping An will make sure investors can get their money back.”
Karen Xu, a Shanghai resident looking to invest in U.S. real estate, decided this spring to seek a Miami one-bedroom condominium in the $500,000-to-$750,000 price range. China’s economic slowdown has since changed her mind. “I don’t think I’ll be investing in the U.S. right now,” said Ms. Xu, who works at an investment consulting firm. “Maybe I’ll wait another five years, or invest in China.” Capping a five-year real-estate binge, Chinese nationals surpassed Canadian snowbirds as the top foreign buyers of U.S. homes for the year that ended in March—the most recent annual data—scooping up everything from $500,000 condos in New Jersey to $3 million vacation homes in California to $13 million Manhattan condos.
But in recent weeks, some Chinese buyers have started to pull back, scared off by China’s stock-market selloff, slowing economic growth, currency devaluation and tightened restrictions on capital outflows. On Friday, China’s benchmark stock index fell by 5.5%, its biggest daily slide since August, as Beijing authorities stepped up a crackdown on the securities industry. “We are ready to embrace a winter for Chinese buyers in the next one year, two years,” said Daniel Chang, a New York City-based broker at Sotheby’s International Realty. Mr. Chang, who sells properties in the $2 million-to-$10 million range, said about half of the clients served by his team are Chinese.
Interest from Chinese buyers “went dark” for several weeks after stocks becan their sharp fall, said Tom Mitchell, president and chief operating officer of Tri Pointe Group, a home builder in Irvine, Calif. China’s main stock index, the Shanghai Composite Index, is down 38% since its June peak. Foreign Chinese buyers make up about 30% of customers in a handful of the company’s developments in Orange County and the San Francisco area. Price increases there, he said, have prompted clients to “pause and think.” Zhang Xin, chief executive of SOHO China, a real-estate developer, said last month she wouldn’t buy overseas real estate today because many cities abroad are too pricey.
In London, Chinese investors are purchasing high-end apartments in wealthy neighborhoods and big skyscrapers in the financial district. In Canada, they are paying $1 million for modest Vancouver bungalows. In Australia, a Chinese sovereign wealth fund bought nine office towers, one of the biggest real estate transactions in that nation’s history. In the United States, the home-buying spree began on the coasts, where Chinese buyers snapped up luxury condos in Manhattan and McMansions in Silicon Valley, pushing up home values in big cities. It is now spreading to the middle of the country, where prices are more modest and have room to run.
The homes here in Corinth will feature two master suites, one for the buyers, the other for aging parents. A concierge service will help new arrivals from overseas order Internet service and pay electric bills. Chauffeurs will ferry homeowners until they learn to navigate the loops and spurs of Texas freeways. “When Chairman Zhang saw the strength of the Texan economy, he decided it was time that the Asian community should be presented an opportunity to invest in the American Dream”, marketing materials for the development read. The great property rush is part of the tidal wave of Chinese money that is pouring into the global economy and reshaping financial markets. In residential and commercial real estate, the new flow of cash is upending the traditional dynamics of buying and selling.
This year, Chinese families represented for the first time the largest group of overseas home buyers in the United States. Big spenders on new homes are helping prop up local economies in the Midwest. But in dense areas like San Francisco and Manhattan, they are also affecting the affordability and availability of housing, as demand outpaces supply and bidding wars ensue.
[..] since Spain’s government and banking system are de facto insolvent and their temporary rescue has been tied to conditions, Spain can no longer subsidize many of the pet projects of social engineers and the vast hordes of cronies they have hitherto kept in bread by enlisting the involuntary help of taxpayers. In a way, it is a case of socialism running out of people to loot. Solar energy has surely come a long way in recent years, as technological progress has undoubtedly improved its economics. Evidently though, the improvement isn’t sufficient yet to make it actually viable. One would think that it makes sense to deploy it in places that are sunny most of the time (such as, well, Spain), but even there, it evidently depends on subsidies.
People often forget that it actually costs energy to produce solar panels. Whether they will in turn produce enough energy during their lifetime to make this investment viable remains questionable. It remains questionable precisely because so many companies in the sector depend both directly and indirectly on a vast variety of government subsidies (including the introduction of inane trade barriers to the detriment of consumers). With the subsidization scam in Spain reaching its limit, it turns out that not even sunny climes can keep solar boondoggles afloat. In the current case, a cool $29 billion (€27.3 bn.) in liabilities have just been exposed to intense vaporization danger, as “green energy” company Abengoa has finally filed for bankruptcy. It is the by far biggest bankruptcy in Spain’s history. 24,000 employees will have to look for a new job.
The sovereign wealth fund of oil junkie Norway holds 2.7% of the company’s shares, an investment it will now have to write off. More than 200 banks are creditors of Abengoa, with total exposure of €20.2 billion. Abengoa’s business activities are described as “renewable electricity generation, converting biomass into biofuel and desalination of seawater” – practically a what’s what list of businesses that cannot possibly survive without subsidies. Abengoa incidentally provides an excellent illustration of Austrian Business Cycle Theory, as more than 20 giant ongoing construction projects the company has initiated will remain incomplete. These empty shells are testament to the fact that there is a big difference between money and real capital. Banks and investors had no problem providing the company with money (much of it created from thin air), lending it huge sums. But the economy’s pool of real funding has proved unable to support the company’s investments.
[..] US taxpayers are on the hook as well in this “Spanish Solyndra”. According to the US media: “When the Free Beacon interviewed a pair of former Abengoa managers last year, one predicted that the company would go under. “This company eventually will go bankrupt. The question is at what expense to the United States people and government,” said Mike Alhalabi, formerly the senior lead mechanical engineer at Abener, a subsidiary of Abengoa. The cost to U.S. taxpayers could be enormous. Abengoa has received nearly $3 billion in loan guarantees from the Department of Energy, as well as more than $100 million in federal grants.
This goes a bit far for my taste, but the propaganda behind green energy certainly needs more scrutiny. To blame it on ‘leftists’ is weird, though. It’s about everyone with their hands in the public till.
Businesses that cannot possibly survive without subsidies are ipso facto not economically viable. In spite of all the high-minded pronouncements about the “need to save the planet” and how this valiant effort can allegedly be “combined with economic growth”, their existence serves primarily one function: to distribute money looted from taxpayers and consumers to assorted cronies of the political class, who in turn provide the latter with kickbacks. That is all there is to it.
Surely no-one is so naïve as to believe that modern-day politicians, whose horizon and time preferences never stretch beyond the next election date, are really concerned about what might happen to the planet a century hence (not to mention that the entire “climate change” religion seems to be little more than an elaborate hoax). With Abengoa’s bankruptcy we are once again presented with a bill that serves as a stark reminder how much scarce capital has been wasted on such schemes.
Ultimately it is little more than a modern form of highway robbery, clad in highly effective propaganda. Many people feel guilty about “consumerism”, believing that it must be true that prosperity and progress are somehow sinful. In reality, environmentalism has long become the home of a great many authoritarian leftists after they lost their former sugar daddy in Moscow in 1990.
They are trying – very successfully it saddens us to admit – to undermine free market capitalism by appealing to people’s sense of guilt and their innate need to receive absolution for their sins. And they have of course found out that their new sugar daddy is much better than their old one, as there is far more wealth ready to be looted and everybody involved is quite happy to get a cut. Occasionally reality has a habit of interfering, but that won’t stop them, at least not yet.
President Vladimir Putin is fully mobilized to tackle what the Kremlin regards as an unprecedented threat from Turkey following the shooting down of one of its warplanes by a Turkish F-16, the Russian leader’s spokesman said on Saturday. In comments which underscore how angry the Kremlin still is over the incident, Dmitry Peskov, Putin’s spokesman, called the behavior of the Turkish air force “absolute madness” and said Ankara’s subsequent handling of the crisis had reminded him of the “theater of the absurd.” “Nobody has the right to traitorously shoot down a Russian plane from behind,” Peskov told Russia’s “News on Saturday” TV program, calling Turkish evidence purporting to show the Russian SU-24 jet had violated Turkish air space “cartoons”.
Peskov said the crisis had prompted Putin, whose ministers are preparing retaliatory economic measures against Turkey, to “mobilize” in the way an army does in tense times. “The president is mobilized, fully mobilized, mobilized to the extent that circumstances demand,” said Peskov. “The circumstances are unprecedented. The gauntlet thrown down to Russia is unprecedented. So naturally the reaction is in line with this threat.” Peskov said Putin was aware of a Turkish request for him to meet President Tayyip Erdogan on the sidelines of the Paris climate change conference next week but gave no indication of whether such a meeting would take place. Erdogan on Saturday said the Paris summit could be a chance to repair Ankara’s relations with Russia.
Peskov denied Turkish press reports which said Moscow and Ankara had struck a deal for their warplanes to stop flying along the Syrian-Turkish border, saying military ties between the two countries had been severed and a hot line meant to avoid misunderstandings among their pilots dismantled. Peskov, according to the TASS news agency, also spoke of how Erdogan’s son had a “certain interest” in the oil industry. Putin has said oil from Syrian territory controlled by Islamic State militants is finding its way to Turkey. Erdogan has spoken of slander and asked anyone making such accusations to back up their words with evidence. Peskov said he “noted” that Turkey’s newly-appointed energy minister, Berat Albayrak, was Erdogan’s son-in-law. Peskov said there could be up to 200,000 Turkish citizens on Russian soil. “What’s important is that everyone who is able to use their influence to guarantee at least some predictability in the pattern of Turkey’s behavior,” said Peskov. “Russian planes should never be shot down.”
Russia has announced a package of economic sanctions against Turkey in retaliation for the shooting down of a Russian jet four days ago on the Syrian-Turkish border. President Vladimir Putin signed a decree outlining the curbs and the details were posted on the Kremlin’s website. Among the measures announced were restrictions on imports of some Turkish goods, a ban on charter flights between the two countries and an an end to Russian tour operators selling trips to Turkey. It also said Turkish companies operating in Russia and Turkish staff employed by Russian companies will face restrictions and ordered the government to prepare a list of goods, businesses and jobs that would be affected.
Putin’s spokesman, Dmitry Peskov, said there are close to 90,000 Turkish nationals working in Russia. Taking family members into account, that figure rises to 200,000. Russia is Turkey’s second largest trading partner and more than three million Russian tourists visited Turkey last year. The decree, which came into force immediately, was called: “On measures to ensure Russia’s national security and protect Russian citizens from criminal and other illegal activities, and the application of special economic measures against Turkey.” On Friday, Russia reinstated the need for visas to travel between the two countries.
Turkey allows the Islamic State terrorist group to sell Iraqi and Syrian oil for just $20 a barrel, Iraq’s former National Security Adviser Mowaffak al-Rubaie wrote on Saturday. In a statement posted on his Facebook page al-Rubaie, who is also a leader of the Law-Governed State parliamentary coalition, outlined Ankara’s four-pronged support for the Islamic militants, with the illegal oil trade topping the list. “First and foremost, the Turks help the militants sell stolen Iraqi and Syrian oil for $20 a barrel, which is half the market price,” Mowaffak al-Rubaie wrote.
Turkey in general, and Istanbul in particular, is also a place where ISIL commanders recruit local migrants and take them to Mosul in Iraq or Raqqa in Syria, he noted. “Each month hundreds of radicals cross the Turkish border, while the local law enforcers pretend they just don’t see,” Mowaffak al-Rubaie wrote, adding that many wounded ISIL fighters were apparently undergoing treatment in Turkish hospitals. During a joint news conference with French President Francois Hollande in Moscow earlier this week, President Vladimir Putin mentioned the massive supplies of Syrian oil being sent to Turkey by the Islamic State terrorist group.
BAE Systems is merging its munitions and combat vehicles arms in the U.K. in an effort to sharpen its focus on export deals following Britain’s withdrawal from ground offensives in Iraq and Afghanistan. The move, to be completed by Jan. 1, will combine the units under a new Land U.K. sector led by former Combat Vehicles U.K. head Jennifer Osbaldestin, BAE confirmed to Bloomberg on Friday. A revised strategy will be outlined in the first quarter and include an export-market appraisal, it said. No jobs will go.
After a surge in Britain’s investment in military vehicles and ammunition at the height of Mideast desert wars, the balance of spending on BAE products has switched to air and maritime projects such as the Eurofighter Typhoon and Type 26 frigate.
New strike brigades announced by the government this week will use Scout armored vehicles ordered from General Dynamics Corp. “It makes good sense for us to have one interface with the Ministry of Defence, but also both businesses have export potential and when you are looking to secure a land deal you would at the same time be determining what you could offer in ammunition,” BAE spokeswoman Rachael Gordon said. The merged operation will remain within the London-based company’s Platforms & Services U.K. business unit. BAE said in its annual report published in March that it’s seeking a contract to upgrade Britain’s Challenger 2 battle tank, which Monday’s defense review confirmed as a cheaper option than purchasing new vehicles, reflecting limits on ground-equipment spending.
Two Somali victims of a US drone strike take legal action against the Netherlands. In January 2014, both men were hit by an American missile and lost two young daughters. One nomad lost his leg and their livestock was mostly annihilated. The Somalis and their lawyers hold the Netherlands co-responsible for the attack by the Americans, they said to reporters of De Volkskrant. The 2014 American drone strike targeted a convoy of cars transporting members of the Somali terrorist organization Al Shabaab. According to CNN, the intended target of the attack was Ahmed Godane. He remained unharmed, but other Al Shabaab members were killed. The nomads and their children and cattle were in the area when the missiles struck. No civilian casualties were reported by Western media or the US government.
The nomads are represented by two Dutch lawyers, Göran Sluiter and Liesbeth Zegveld. This is the first time that victims of an American drone strike apply to a Dutch court. They claim that the Netherlands are co-responsible for the attack since the Dutch provide important intelligence about Somali communications to the US. Documents leaked by former NSA-contractor Edward Snowden have already shown that telecommunication intercepted by the Netherlands plays an important part in American covert operations in Somalia. The Dutch military intelligence agency MIVD has intercepted millions of telephone calls and text messages by Somalis over the past few years, using a satellite receiver in the small town of Burum in the Friesland province. This was done as part of the anti-piracy operation ‘Ocean Shield’, in which the Netherlands participate.
The communication’s ‘meta data’, such as which number called which other number and for how long, were shared with the Americans. As the Americans had little useful intelligence on Somalia, the NSA also provided Dutch military intelligence service MIVD with special interception technology for listening in on telephone traffic from ships off the coast of Somalia. Secret documents published on the website The Intercept reveal how in more than fifty percent of the cases the Americans choose targets in Yemen and Somalia on the basis of meta data. Telecommunication intercepted by foreign parties is crucial in this, as the documents reveal: signal intelligence ‘is often provided by foreign partners.’ ‘By providing these telecom data, the Netherlands are supporting these American strikes to a considerable extent,’ says Sluiter, one of the lawyers. ‘Even more so: without the Dutch support the US could never have realized their drone program in those areas.’
Pope Francis will fly Sunday to the war-torn capital of the Central African Republic, making a trip that has been in doubt for security reasons until practically the last minute, the Vatican spokesman said Saturday evening. “We will the take the plane and fly to Bangui” according to schedule, Father Federico Lombardi said. The confirmation came at the end of a day in which the pope honored Christian martyrs in Uganda, met with young people there and greeted local clergy. The Central African Republic has been beset since 2013 by civil war that has taken on a religious profile, with armed groups divided between Muslims and Christians.
Bangui’s Muslim quarter has been especially hard hit, under siege from Christian militias and effectively off-limits to non-Muslims since September. The pope plans to visit a mosque in the Muslim neighborhood as part of his effort to promote reconciliation, which will also include a meeting with local Christian and Muslim dialogue partners. “I want to go to Central Africa,” the pope told the pilot of his flight to Africa last Wednesday, according to the Vatican newspaper, “and if you’re not able to take me, give me a parachute.”
More than a million children in the Central African Republic are in urgent need of humanitarian aid while almost half of those under five are malnourished, the United Nations said on Friday ahead of Pope Francis’ visit to the conflict-torn country. The majority Christian nation plunged into tumult when mostly Muslim Seleka rebels briefly seized power in a 2013 coup. Sectarian violence has plagued the country since and fresh fighting broke out in Bangui two months ago, the worst violence in the capital this year, when the murder of a Muslim man triggered reprisal attacks on a largely Christian neighborhood. Some two million children have been affected by violence which first broke out in December 2012, and 1.2 million now need urgent aid, said the U.N. children’s agency, UNICEF.
“The violence that has plagued this country has had a devastating impact on the lives of children,” said Mohamed Fall, UNICEF representative in the Central African Republic. “The humanitarian needs are overwhelming, to meet them we need access and we need greater international support.” The conflict has uprooted 400,000 people within the country and forced half a million to seek refuge in neighboring countries, while recent insecurity and attacks on convoys have hindered aid deliveries and lifesaving activities, UNICEF said. Clashes between mainly Christian anti-balaka militias and mainly Muslim Seleka factions initially cast doubt on the pope’s visit, and risk derailing internationally-backed elections now due on Dec. 27 after being postponed in October due to violence.
Pope Francis is due to arrive in the country on Sunday, and Central Africans on both sides of the religious chasm, even the Seleka, have rallied behind the visit, reducing the risk that his presence could add fuel to the fire of communal tensions. “We are hopeful that … the Pope’s visit will promote reconciliation in a country that is in desperate need of peace,” Fall added.
Eurogroup President Jeroen Dijsselbloem warned that countries which fail to adequately guard Europe’s borders and do not take in a fair share of refugees could find themselves outside the borders of a future “mini-Schengen” zone. In an interview in Belgian business dailies De Tijd and L’Echo on Friday, Dijsselbloem, who is also the Dutch finance minister, said the EU’s passport-free Schengen zone could not work if only a few countries gave shelter to refugees. “There are a few countries that are carrying the heaviest burden in the asylum crisis, taking in the most refugees,” he told the papers, naming Sweden, Germany, Austria, Belgium and the Netherlands. “Some countries are now saying, ‘It’s not our problem. It’s yours. Good luck.’ That places our solidarity under huge pressure,” he said.
Many members of the 26-country Schengen zone, particularly poorer Eastern European ones, oppose a European Commission plan to distribute refugees who have arrived in Europe since the start of the year. Poland’s newly-elected government has said the risk of militant attacks in the wake of the Paris shootings makes it harder for it to shelter asylum seekers fleeing war and poverty in the Middle East. Dijsselbloem said his aim was to preserve the Schengen zone, but if countries did not shoulder their fair share, others would have to go it alone, since the migrant influx would otherwise endanger their generous welfare states. “To preserve them, you need to guard the external borders. (Otherwise) loads of people come and demand support and they blow the system up. That is what is happening now in the Netherlands,” he said.
He called for more joint investment in guarding the EU’s external borders and for more support for refugee camps in Turkey and Lebanon. “If we do not do it in the external borders of the EU’s 28 members, or in the Schengen zone, then maybe we will have to do it on the level of a mini-Schengen zone,” he said, adding he wanted to avoid that outcome. The Netherlands first floated the idea of a passport-free inner core earlier this month, though Germany, without which such a plan would be unworkable, immediately distanced itself from the proposals. On Wednesday, Jean-Claude Juncker, the head of the EU’s executive, warned that the fate of the Schengen zone was bound up with that of the euro single currency: the one would not survive the failure of the other. Schengen consists of 22 countries in the European Union along with Norway, Iceland, Switzerland and Liechtenstein.
As the debate over the forthcoming EU referendum gears up, it would be wise perhaps to remember how Britain was led into membership in the first place. It seems to me that most people have little idea why one of the victors of the Second World War should have become almost desperate to join this “club”. That’s a shame, because answering that question is key to understanding why the EU has gone so wrong. Most students seem to think that Britain was in dire economic straits, and that the European Economic Community – as it was then called – provided an economic engine which could revitalise our economy. Others seem to believe that after the Second World War Britain needed to recast her geopolitical position away from empire, and towards a more realistic one at the heart of Europe.
Neither of these arguments, however, makes any sense at all. The EEC in the 1960s and 1970s was in no position to regenerate anyone’s economy. It spent most of its meagre resources on agriculture and fisheries and had no means or policies to generate economic growth. When growth did happen, it did not come from the EU. From Ludwig Erhard’s supply-side reforms in West Germany in 1948 to Thatcher’s privatisation of nationalised industry in the Eighties, European growth came from reforms introduced by individual countries which were were copied elsewhere. EU policy has always been either irrelevant or positively detrimental (as was the case with the euro). Nor did British growth ever really lag behind Europe’s. Sometimes it surged ahead.
In the 1950s Western Europe had a growth rate of 3.5%; in the 1960s, it was 4.5%. But in 1959, when Harold Macmillan took office, the real annual growth rate of British GDP, according to the Office of National Statistics, was almost 6%. It was again almost 6% when de Gaulle vetoed our first application to join the EEC in 1963. In 1973, when we entered the EEC, our annual national growth rate in real terms was a record 7.4%. The present Chancellor would die for such figures. So the economic basket-case argument doesn’t work.
What about geopolitics? What argument in the cold light of hindsight could have been so compelling as to make us kick our Second-World-War Commonwealth allies in the teeth to join a combination of Belgium, the Netherlands, Luxembourg, France, Germany and Italy? Four of these countries held no international weight whatsoever. Germany was occupied and divided. France, meanwhile, had lost one colonial war in Vietnam and another in Algeria. De Gaulle had come to power to save the country from civil war. Most realists must surely have regarded these states as a bunch of losers. De Gaulle, himself a supreme realist, pointed out that Britain had democratic political institutions, world trade links, cheap food from the Commonwealth, and was a global power. Why would it want to enter the EEC?
The National Security Agency no longer has legal authority to collect phone metadata in bulk as of midnight, Saturday, November 28. The executive branch previously claimed the government possessed such authority under Section 215 of 2001’s USA PATRIOT Act, which gave the FBI power to demand “any tangible things” needed “for an investigation to obtain foreign intelligence information.” The FBI was thus able to obtain the phone records of millions of Americans from U.S. telecommunications companies and turn them over to the NSA. The USA FREEDOM Act, signed into law on June 2 earlier this year, gave the executive branch 180 days to wind down the bulk collection program.
According to the Tumblr of the Office of the Director of National Intelligence, the government is “prohibited from collecting telephone metadata records in bulk” starting November 29. The executive branch will now be able to obtain phone metadata by asking the U.S. Foreign Intelligence Surveillance Court to order telecommunications companies to turn over specific records. The end of the bulk collection program is a modest but real victory for former NSA contractor and whistleblower Edward Snowden, who provided documents concerning the program to Laura Poitras and Glenn Greenwald, co-founding editors of The Intercept. The first article by Greenwald based on the documents leaked by Snowden, published on June 6, 2013, was about the bulk collection program.
At least 24 climate activists have been put under house arrest by French police, accused of flouting a ban on organising protests during next week’s Paris climate summit, the Guardian has learned. One legal adviser to the activists said many officers raided his Paris apartment and occupied three floors and a staircase in his block. French authorities did not respond to requests for comment but lawyers said that the warrants were issued under state of emergency laws, imposed after the terror attacks that killed 130 people earlier this month. The author and climate change campaigner, Naomi Klein, accused French authorities of “a gross abuse of power that risks turning the summit into a farce”.
“Climate summits are not photo opportunities to boost the popularity of politicians,” she told the Guardian. “Given the stakes of the climate crisis, they are by their nature highly contested. That is democracy, messy as it may be. The French government, under cover of anti-terrorism laws, seems to be trying to avoid this, shamefully banning peaceful demonstrations and using emergency powers to pre-emptively detain key activists.” Since Thursday, three people have been placed under house arrest in Rens, two in Paris, two in Rouen and one in Lyons, according to campaigners. They may now only leave their houses to sign a post office register verifying their whereabouts, three times a day.
Tensions peaked at Greece’s border with the Former Yugoslav Republic of Macedonia over the weekend after the FYROM army started building a border fence to keep out would-be migrants. FYROM border guards were photographed by foreign news agencies as they erected a 2.5-meter-high fence along the Greek border on Saturday. A FYROM army source quoted by Agence France-Presse said the crossing from Greece to FYROM would remain open and that the fence was aimed at ensuring migrants did not try to slip across at other spots. FYROM authorities had indicated in recent weeks that they might build a fence to limit the number of migrants pouring into their country from Greece and border guards recently started filtering the migrants they allow through, granting entry only to people from Syria, Iraq and Afghanistan.
As a result, hundreds of migrants from other countries, including Iran and Pakistan, have gathered in and around the Greek border town of Idomeni, protesting and demanding passage. In a recent interview with Kathimerini and other Greek media, FYROM’s Foreign Minister Nikola Poposki said that the EU’s border monitoring agency Frontex should establish a presence at Greece’s border with FYROM. He suggested that jihadists were slipping through. “There is no doubt that many of the ‘fighters’ returning from Syria take the Balkan route,” he said. “Maybe one in every 100,000.” The tensions over the weekend coincided with yesterday’s EU leaders’ summit on the refugee crisis, which focused also on the role of Turkey, a key transit country for migrants heading toward Europe via Greece.
“I was not born to live here like this,” says Ali. “I have three languages but I really want to learn Japanese. I love Japanese movies.” Ali is from Iran. He says he is not alone, but he seems very alone. We are in a refugee camp at Grande–Synthe, a Dunkirk suburb, sitting under a tarpaulin while people wait to see a doctor. But to describe this as a camp is wrong. This is a swamp. There are no basic facilities. None. It’s a field of mud and tattered tents. I am surrounded by people waiting to see a doctor holding little tickets, eyeing each other with suspicion. This, at least, is better than where I have just been, where I found Afghans sleeping in a ditch. The people I am with are worried about the children, aged as young as 10 and 11, they have seen there; “unaccompanied minors” with scabies.
Ali babbles to me non-stop about how he is all right, really. But no one here is. In June, there were maybe 150 people camped out. Now there are more than 10 times as many, predominantly Kurds. Families are arriving all the time. The average refugee is a young man, it’s true, but there are more and more women and children. A boy of seven pulls out his prize possession to show us – a tiny fire truck. Women sit in tents frying potatoes. They smile and chat, but everyone is cold. Everything is wet. Everyone has a story of how they got here. Some show me on their phones images of them getting out of flimsy dinghies – their witnesses to trauma. As they have journeyed from Syria or Eritrea, fleeing Islamic State, torture, unimaginable darkness, the phones are their lifelines. They connect them back to where they have come from and to a world they are now locked out of.
This is limbo. Limbo comes from limbus meaning the edge, the border of hell, and this is as close as I have ever been. Thankfully I am here with Doctors of the World (part of the Médecins du Monde Network), one of the Guardian’s refugee appeal charities, which has provided medical help on the ground in Calais since 2003. The director of the charity, Leigh Daynes, is shocked by what he is seeing – and he is a veteran of Darfur and Haiti. Every day, the charity runs the gauntlet of racism and aggression to get the most basic of care into the camps. Political rhetoric has successfully dehumanised these people as someone else’s problem. We don’t want them, the French don’t want them. Money has been spent on building higher, flesh-ripping fences. So here they fester. Human detritus.
How black would you like your Thanksgiving Friday slash weekend? Many Americans don’t even appreciate the term, or the events, at all anymore (or so they say), but the idea of getting what you don’t need, or want, on the cheap, will still prove irresistible. But then, when all of your desires have been fulfilled, food wise and gadget wise, and you’re still feeling empty, maybe we can help and offer a sweeping redefinition of the term Black Friday.
Since we live in times that see many other things on the verge of being sweepingly redefined, too, and imminently so, perhaps that’s only fitting. How about this, for starters? Black enough for you?
Turkish state media say six children have drowned when boats carrying migrants to Greece sank in two incidents off the Turkish coast. A wooden boat smuggling some 20 people to the island of Kos capsized in bad weather off the Aegean resort of Bodrum early on Friday. The state-run Anadolu Agency says most of the migrants made it to shore with the help of rescuers, but two sisters aged 4 and 1 drowned. Their nationalities were not immediately known. The agency says a second boat carrying as many as 55 migrants from Syria and Afghanistan sank hours later off the town of Ayvacik, further north. Four Afghan children drowned in that incident, Anadolu reported. Ayvacik is a main crossing point for migrants trying to reach the island of Lesvos.
Or have we already all gotten too blasé about those dead babies by now? They’ve been washing up on those beaches for half a year or so, after all. How about those who survive the seas, and then get stuck behind a razor wire fence halfway to their preferred destinations?
Remember the men who had sewn their lips shut? Not even that is enough for more than a few hours of media attention anymore. Not nearly as much as being suspected of terrorism; that sells much better than desperation. So, presumably, will being in the way of goods of ‘important’ companies like Sony and HP’s goods reaching their destination, even if you can’t reach yours. Life is all about priorities.
A protest by migrants on Greece’s border with the Former Yugoslav Republic of Macedonia (FYROM) is putting railway operator Trainose at risk of losing major international clients. Migrants have over the last few days been protesting FYROM’s decision not to let them cross from Greece. Many migrants have camped on the railway lines connecting the two countries, which means that no trains have come in or out of Greece for the last week. This means that the freight Trainose is responsible for carrying has not been able to reach its destinations. The railway company serves major international clients such as Hewlett Packard and Sony.
Is there a better way to sum it up than this sign at the Greece/FYROM (Macedonia) border? We doubt it.
Or perhaps there is a better way after all. The absolute cluelessness of Europe’s ‘leaders’. Here’s a brilliant example of the gap between them and the real world:
The EU risks suffering the same fate as the Roman empire if it does not regain control of its borders and stop the “massive influx” of refugees from the Middle East and central Asia, the Dutch prime minister has warned. Mark Rutte, whose government assumes the EU’s rotating presidency in January, said southern EU countries had yet to implement policies agreed to stem the flow [..] Mr Rutte said Greece, where more than 700,000 have landed this year, might have to increase its “reception capacity” to at least 100,000. Athens has so far committed to about half that, insisting that it does not want to become a giant refugee camp.
“As we all know from the Roman empire, big empires go down if the borders are not well-protected”, said Mr Rutte in an interview with a group of international newspapers. “So we really have an imperative that it is handled.” [..] Mr Rutte said the EU needed to act quickly to stem the migrant flow, adding that he was optimistic that Sunday’s summit in Brussels between President Recep Tayyip Erdogan of Turkey and EU leaders would help ease conditions by providing €3 billion to improve refugee camps in Turkey and disrupting the “business model” of human smugglers channelling migrants in boats to Greece.
It’s all still about ‘stemming the flow’. Actually, it’s more about that by the day, and that’s precisely because ‘stemming the flow’ doesn’t work. The idea is that the Greeks do more .. yeah, what exactly? Tell dinghies loaded with desperate refugee families, half of whom suffer from hypothermia, that they should turn around? What, to get back to Turkey? So Turkey can send them back to Syria?
That’s just nonsense, of course, the product of malfunctioning neurons. Then again, there’s too much of those going around Europe to mention. The above quote is more remarkable for a few other things. First, to claim that the Roman empire went down because it didn’t protect its borders is so contentious no serious historian would want to claim it as his/her own.
And that’s without asking how the Romans should have implemented that protection. Second, say we take Mr. Rutte’s assertion at face value, then the only peoples those borders should have been protected from, the ones who actually sacked Rome, were the Barbarians. Rutte, ergo, compares the Syrian refugees to Barbarians. And that doesn’t look all that smart.
And now that the article mentions Erdogan, and the €3 billion he’s been promised by Europe, as well as the fast track route into EU membership, let’s see what he has to contribute to Black Weekend.
First off, he had two prominent journalists arrested on espionage and related charges for publishing an article way back in May about his own secret service people smuggling arms across Turkey’s border with Syria. And Brussels is going to reward this interpretation of ‘freedom of the press’ with €3 billion?
Then of course he had a Russian jet shot down this week, maybe just as a patsy to the US -or others-, maybe to avenge Russian bombs falling on transports such as that conducted by those same secret services, or oil deliveries from ISIS managed by his son. That’s Erdogan’s Thanksgiving Turkey: Arms out, oil in.
What should be clear is that shooting down a Russian plane, and under questionable pretext to boot, is not done. Whether you do it to please someone else or just yourself. Turkey will lose a lot more than those €3 billion in tourism and trade with Russia once Putin gets on Erdogan’s case for real (and Russia will not forgive this no matter what other policies need attention), so Brussels can figure out where the money will go. Russian tourism in Turkey alone brings in $2.7 billion a year. And it’s been halted.
Turkey claims it gave 10 warnings to a plane that might have been in its airspace for 17 seconds (a highly contested claim), only to shoot it in Syrian airspace?! It claims it hadn’t recognized the plane as being Russian? Since they apparently fire at anything that moves, what do we think would have happened if this had been an American plane? Or a French one? There doesn’t seem to be anything Turkey has said about the incident that rings true.
But then, that’s the case for so many things so many people say. In the meantime, our morality -let alone the high ground- is washing up on Greek beaches with those babies whose lives our societies don’t deem worth saving, the lives we judge to be not worthy of living.
Our honesty, our sense of fairness, our decency, basically all things that various prophets have proclaimed are the most important qualities in life, are washing up lifeless on cold deserted patches of sand. And ‘we’ are seeking to further vilify Russia and tempt it into acts we ‘must’ respond to. We are aligning ourselves to that end with Erdogan and Saudi Arabia, the main supporters of those we claim in public to be at war with.
Here’s how this works: If the end justifies the means, and we make sure there never is an end to this, then arms will continue to be traded, profits will continue to be made, and lies will be told till no-one can tell up from down, since all means are justified until the end of time.
That this leaves us morally utterly rudderless then becomes just another one of those justified means. Anything goes.
The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices – which few experts foresee in the near future – an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get and when? It increasingly looks like a number of the weakest companies will run out of financial stamina in the first half of next year, and with every dollar of income going to service debt at many heavily leveraged independents, there are waves of others that also face serious trouble if the lower-for-longer oil price scenario extends further.
“I could see a wave of defaults and bankruptcies on the scale of the telecoms, which triggered the 2001 recession,” Timothy Smith, president of consultancy Petro Lucrum, told a Platts energy conference in Houston last week. Much has been made about the resiliency of US oil production in the face of low prices, but the truth is that many producers are maximizing their output — even unprofitable volumes — because they need the cash flow to service their debt (related). “As an industry, we’re at the point where every dollar of free cash flow now goes to paying back debt,” Angle Capital’s Steve Ilkay told the same conference. Ilkay, who advises North American producers on asset management, said during the boom years of 2012-14 about 55% of the sector’s free cash flow, which is calculated by subtracting capital expenditures from operating cash flow, was allocated toward debt repayment.
With West Texas Intermediate (WTI) stuck below $50 per barrel since August – and closer to $40 recently – the industry has responded with deeper cuts to capex and a greater focus on efficiency. However, experts say this won’t be enough to avoid a bloody reckoning with persistent low oil and gas prices, as the sector grapples with some $200 billion-plus in high-yield debt, which it absorbed to finance the shale oil boom. Credit quality has been steadily deteriorating since June 2014, when WTI peaked at $108/bbl. Standard and Poor’s says there have been 19 defaults so far in 2015 across the US oil and gas industry, while another 15 companies have filed for bankruptcy. Besides those that have missed interest or principal payments, the default category also includes companies that have entered into “distressed exchanges” with their creditors, including Halcon, SandRidge, Midstates, Goodrich, Warren, Exco, Venoco and Energy XXI.
Of the 153 oil and gas companies that S&P applies credit ratings to, roughly two-thirds are E&P firms. Among these E&Ps, 77% now have high-yield or “junk” ratings of BB+ or lower. 63% are rated B+ or worse, and 31% – or 51 companies – are rated below B-. What does this all mean in layman’s terms? “Quite frankly it’s a lot of gloom and doom,” says Thomas Watters, managing director of S&P’s oil and gas ratings. “I lose sleep over what could unfold.” He says companies with ratings of B- or below are “on life support,” while those further down the ratings scale at C+ or lower are “maybe looking at a year, year-and-a-half before they default or file for bankruptcy.”
America’s annual Black Friday shopping extravaganza was short on fireworks this year as U.S. retailers’ discounts on electronics, clothing and other holiday gifts failed to draw big crowds to stores and shopping malls. Major retail stocks including Best Buy and Wal-Mart closed lower while Target, picked out by one analyst for its promotion strategy, saw its shares tick up. Bargain hunters found relatively little competition compared with previous years. Some had already shopped Thursday evening, reflecting a new normal of U.S. holiday shopping, where stores open up with deals on Thanksgiving itself, rather than waiting until Black Friday. Retailers “have taken the sense of urgency out for consumers by spreading their promotions throughout the year and what we are seeing is a result of that,” said Jeff Simpson, director of the retail practice at Deloitte.
Traffic in stores was light on Friday, while Thursday missed his expectations, he said. As much as 20% of holiday shopping is expected to be done over the Thanksgiving weekend this year, analysts said. But the four days are not considered a strong indicator for the entire season. A slow start last year led to deeper promotions and a shopping rush in the final ten days of December. Steve Bratspies, chief merchandising officer at Wal-Mart, told Reuters he was not surprised that a store would see thinner crowds on Friday after it kicked off Black Friday deals on Thursday night. Suntrust Robinson Humphrey analysts were more blunt, calling Thursday a “bust”. “Members of our team who went to the malls first had no problem finding parking or navigating stores,” he wrote in a note.
One popular delusion that won’t seem to go away is the notion that policy makers can stimulate robust economic growth by setting interest rates artificially low. The general theory is that cheap credit compels individuals and businesses to borrow more and consume more. efore you know it, the good times are here again. Profits increase. Jobs are created. Wages rise. A new cycle of expansion takes root. These are the supposed benefits to an economy that central bankers can impart with just a little extra liquidity. Unfortunately, this policy antidote doesn’t always work out in practice. Certainly cheap credit can have a stimulative influence on an economy with moderate debt levels. But once an economy has reached total debt saturation, where new debt fails to produce new growth, the cheap credit trick no longer works to stimulate the economy.
In fact, the additional credit, and its counterpart debt, actually strangles future growth. Present monetary policy has landed the economy at the unfavorable place where more and more digital monetary credits are needed each month just to stand still. After seven years of ZIRP, financial markets have been distorted to the point where a zero bound federal funds rate has become restrictive. At the same time, applications of additional debt only serve to further the economy’s ultimate demise. The fundamental fact is that the current financial and economic paradigm, characterized by heavy handed Federal Reserve intervention into credit markets, is dying. Debt based stimulus is both sustaining and killing the economy at the same time. No doubt, this is a strange situation that has developed.
The American student loan crisis is often seen as a problem of profligacy and predation. Wasteful colleges raise tuition every year, we are told, even as middle-class wages stagnate and unscrupulous for-profit colleges bilk the unwary. The result is mounting unmanageable debt. There is much truth in this diagnosis. But it does not explain the plight of Liz Kelley, a Missouri high school teacher and mother of four who made a series of unremarkable decisions about college and borrowing. She now owes the federal government $410,000, and counting. This is a staggering and unusual sum. The average undergraduate who borrows leaves school with about $30,000 in debt. But Ms. Kelley’s circumstances are not unique.
Of the 43.3 million borrowers with outstanding federal student loans, 1.8%, or 779,000 people, owe $150,000 or more. And 346,000 owe more than $200,000. Ms. Kelley’s debt woes are also mostly a matter of interest, not principal, a growing problem for the nation’s student debtors. According to the Federal Reserve Bank of New York, the number of active borrowers enrolled in college has declined to roughly nine million today from about 12 million in 2010. Yet the total amount of outstanding debt continues to increase, because many borrowers are not paying back their older loans. This is partly a function of continuing economic hardship. But it also reflects how the federal government has become the biggest, nicest and meanest student lender in the world.
China’s stocks tumbled the most since the depths of a $5 trillion plunge in August as some of the nation’s largest brokerages disclosed regulatory probes, industrial profits fell and two more companies said they’re struggling to repay bonds. The Shanghai Composite Index sank 5.5%, with a gauge of volatility surging from the lowest level since March. Citic Securities and Guosen Securities plunged by the daily limit in Shanghai after saying they were under investigation for alleged rule violations. The probe into the finance industry comes as the government widens an anti-corruption campaign and seeks to assign blame for the selloff earlier this year. Authorities are testing the strength of a nascent bull market by lifting a freeze on initial public offerings and scrapping a rule requiring brokerages to hold net-long positions, just as the earliest indicators for November signal a deterioration in economic growth.
A Chinese fertilizer maker and a pig iron producer became the latest companies to flag debt troubles after at least six defaults this year. “The sharp decline will raise questions whether the authorities’ confidence that we are seeing stability in the Chinese markets may be a tad premature,” said Bernard Aw, a strategist at IG Asia in Singapore. “The rally since the August collapse was not fundamentally supported. The removal of restrictions for large brokers to sell and the IPO resumptions may not have been announced at an opportune time.” Friday’s losses pared the Shanghai Composite’s gain since its Aug. 26 low to 17%. The Hang Seng China Enterprises Index slid 2.5% in Hong Kong. The Hang Seng Index retreated 1.9%. A gauge of financial shares on the CSI 300 slumped 5%. Citic Securities and Guosen Securities both dropped 10%. Haitong International Securities slid 7.5% for the biggest decline since Aug. 24 in Hong Kong.
Half of the gold coming from mines may not be viable at current prices, underscoring the industry’s need for consolidation and output cuts, according to the best-performing producer of the metal in the past decade. “The more we continue to produce unprofitable gold, the more pressure we put on the gold price,” Randgold Resources CEO Mark Bristow said in Toronto on Friday. “In the medium term, it’s a very bullish outlook for the gold industry. The question is, how long are we going to supply it with unprofitable gold?” Gold fell to a five-year low on Friday as a rising dollar and speculation that U.S. policy makers will boost interest rates next month curbed the appeal of bullion as a store of value. While industrial metal producers have promised output cuts, “we don’t have that psyche in the gold industry, we just send it off our mine and somebody buys it,” Bristow said.
Gold miners buffeted by the drop in prices are shortening the life of mines by focusing only on the best quality ore, a practice known as high grading, which will restrict future output and support higher prices, according to Bristow. He said in a presentation to bankers in Toronto that the industry life span is down to about five years because companies have been aggressively high grading at the expense of future production. “The industry has moved away from looking at optimal life of mines because everyone is trying to demonstrate short-term delivery,” he said in the interview after the presentation. “Where is all this value that people promised in the gold industry? It’s not there.”
The whistleblower who exposed wrongdoing at HSBC’s Swiss private bank has been sentenced to five years in prison by a Swiss court. Hervé Falciani, a former IT worker, was convicted in his absence for the biggest leak in banking history. He is currently living in France, where he sought refuge from Swiss justice, and did not attend the trial. The leak of secret bank account details formed the basis of revelations – by the Guardian, the BBC, Le Monde and other media outlets – which showed that HSBC’s Swiss banking arm turned a blind eye to illegal activities of arms dealers and helped wealthy people evade taxes. While working on the database of HSBC’s Swiss private bank, Falciani downloaded the details of about 130,000 holders of secret Swiss accounts. The information was handed to French investigators in December 2008 and then circulated to other European governments.
It was used to prosecute tax evaders including Arlette Ricci, the heir to France’s Nina Ricci perfume empire, and to pursue Emilio Botín, the late chairman of Spain’s Santander bank. Switzerland’s federal prosecutor had requested a record six-year term for Falciani for aggravated industrial espionage, data theft and violation of commercial and banking secrecy. It was the longest sentence ever demanded by the confederation’s public ministry in a case of banking data theft. The trial was also the first conducted by the country’s federal criminal court in which the accused had not been present. The defendant’s lawyers had demanded a reduced sentence, of between two and three years, “compatible with the granting of a reprieve”.
Falciani himself refused to appear in the dock, on the grounds that he would not be allowed a fair trial. He described the process as a “parody of justice”. [..] Falciani’s lawyer, Marc Henzelin, pointed out that his client was on trial at a time when Switzerland was in the process of dismantling its banking secrecy practices with proposals for new laws that would pave the way for automatic information exchange about offshore accounts held in Switzerland. In fact, Switzerland announced on 4 November that the country’s finance ministry temporarily shelved the plans for reform. “It is not Falciani who is being judged. It is the court. It is Switzerland,” said Henzelin.
The New York Stock Exchange is delisting American depositary receipts of National Bank of Greece SA after they lost 91% of their value this year. The ADRs were suspended on Friday, when their value slumped to 16 cents from as much as $1.96 in February. NYSE cited an “abnormally low” price in a statement. Losses spiraled to a record this month, after the Greek lender sold new shares at a more than 90% discount to market prices. The nation’s four largest banks have been raising capital to help fill a €14.4 hole in their accounts identified by the European Central Bank. National Bank of Greece has the right to appeal the decision to a committee of the board of directors of NYSE. The stock in Athens closed at a record low of 8 euro cents, taking its weekly slump to 64%.
The question could hardly be more profound. Having stumbled upon a simple means to make precise changes to the code of life, should humans take control of their genetic fate, and rewrite the DNA of future generations? Once an idea explored only in fiction, the prospect is now a real one. The inexorable rise of gene editing has put the technology in labs across the globe. The first experiments on human embryos have been done, in a bid to correct faulty genes that cause disease. To thrash out an answer, or at least find common ground, an international group of experts will descend on Washington DC next week for a three day summit. Convened with some urgency by the US, UK and Chinese national academies, the meeting is billed as a “global discussion”. It is a chance to take stock of a revolutionary technology that has the power to do good, and the potential to wreak havoc.
“This new technology for gene editing, that is, selectively inserting and removing genes from an organism’s DNA, is spreading around the world,” says Ralph Cicerone, president of the US National Academy of Sciences, where the summit will take place. With the number of experiments ballooning, the uses and risks the technology brings must be worked through now, he adds. The last time scientists met like this was in 1975, when it became clear that the DNA from one species could be spliced into another. One experiment underway at the time aimed to put DNA from a cancer-causing monkey virus into bacteria that infect humans. The potential for disaster led to a meeting in Asilomar, California, to agree and make public fresh safeguards for the experiments.
Jennifer Doudna, an inventor of a gene editing tool called Crispr-Cas9, said Asilomar was much in mind when the summit was organised. “I think it’s this generation’s version of Asilomar,” she says. “It’s a very exciting time, but as with any powerful technology, there is always the risk that something will be done either intentionally or unintentionally that somehow has ill effects.” [..] Marcy Darnovsky, director of the Center for Genetics and Society, and a speaker at the summit, said that the meeting could make a real contribution to the debate, but needed to be far more inclusive. “What is unsettling is that the organisers are from the three areas of the world where there seems to be, among scientists at least, the most enthusiasm for going forward.”
Darnovsky wants a total ban on editing human embryos that are destined to become people. “It’s way too risky and it’s likely to remain that way,” she says. If editing was allowed to prevent diseases being passed on, it would quickly lead to designer babies, she argues. “People say it is a slippery slope. I don’t call that a slippery slope, I call that jumping off a cliff,” she says. “We would be well on the way to a world in which people who could afford to do so would attempt to give their children the best start in life, and competitive and commercial pressures would kick in. We’d end up in a world of genetic haves and have-nots, and risk introducing new kinds of inequality when we already have shamefully way too much.”
In Chinese mythology, the Monkey King is a beast with magical fur. All he has to do is pull out a hair, blow on it and it is instantly transformed into a clone of himself. Xu Xiaochun, chief executive of BoyaLife, says the fable is not far from reality, as far as his Chinese biotechnology company is concerned. This week he announced an investment of $31m in a joint venture with South Korea’s Sooam Biotech that aims to clone 1m cows a year from their hair cells. The Monkey King “sounds like a fairy tale but we are really doing the same thing”, he says. “We pull out 200 hairs, blow on them — and boom!” Sometime next year, researchers in BoyaLife’s laboratory on the outskirts of the coastal city of Tianjin will take skin cells from a few carefully chosen cattle (Kobe beef is Mr Xu’s favourite).
The scientists will extract the nucleus from each cell and place it into an unfertilised egg from another cow. The cloned embryos will then be implanted in surrogate dairy cows housed on cattle ranches throughout China. His ambition is staggering. Starting with 100,000 cloned cattle embryos a year in “phase one”, Mr Xu envisages 1 million annually at some point in the future. That would make BoyaLife by far the largest clone factory in the world. Mr Xu says the latest techniques enable cloning to be carried out in an “assembly line format” at a rate of less than 1 minute per cell. Based on a four- hour shift and 250 working days a year, a proficient cloner would “manufacture” 60,000 cloned cow embryos a year, he says, adding that a team of 50 will be sufficient for the planned scale of the project. Mr Xu plans to have a staff of 300 and eventual total investment is estimated at $500m.
If the venture comes anywhere near achieving its goal, it will be another example of the recent surge of path-breaking, taboo-busting biotechnology research, with China introducing mass production and commercialisation of projects that are still in the experimental and clinical stages elsewhere. China’s flag-bearer in biotech is BGI, formerly known as Beijing Genomics Institute and now based in Shenzhen. BGI has grown into the world’s biggest genomics organisation, with a huge capacity to read, analyse and alter DNA from plants, microbes, people and animals. It employs more than 2,000 PhD-level scientists and 200 top-of-the-range gene-sequencing machines. In September BGI captured the public imagination with an announcement that “micropigs”, originally developed for biomedical research through gene editing and cloning, would be sold as pets.
Count Russian reserves as another casualty of income inequality that Thomas Piketty believes is reshaping the world’s biggest economies. Russia, which is struggling to rebuild holdings depleted during last year’s currency crisis, has missed out on building a bigger stockpile in the past 15 years by failing to create a more transparent financial system to ease inequality and distribute the spoils of a boom in commodities prices, said Piketty, the author of the bestselling “Capital in the 21st Century.” Jailing “a couple of billionaires from time to time” is no way to address the challenge, the French economist said in an interview in Moscow on Thursday. “In the long term, Russia should have much more reserves, given the level of its trade surplus,” he said.
“It’s important to realize that Russia is being stolen money from, by capital flight and by the fact that billionaires and millionaires outside Russia and sometimes inside Russia are able to benefit from natural resources of Russia much more than they should.” Piketty, 44, who gave a lecture at the Higher School of Economics in Moscow, may already be preaching to the converted. The government is looking to wring greater revenue from the energy industry with a tax increase, while the Bank of Russia has set a target of about $500 billion for reserves after burning through a fifth of its holdings to prop up the ruble last year. Vladimir Putin, in power for 16 years as premier or president, has backed efforts to repatriate as much as $1 trillion in capital held by companies and high-ranking officials abroad as part of what he’s called the “de-offshorization” of the economy.
Putin, who introduced a 13% flat income tax rate in 2001, has also seen top ministers broach the subject of re-instituting a progressive tax system. The current income levy is “relatively small” in a country with “a lot of inequality” and “far too little transparency,” Piketty said. “Russia would be in a much better situation today if this reform for more transparency, progressive taxation would have been conducted before,” Piketty said. “It’s time, especially in the current crisis, to change course and to deal with inequality and transparency in a much more front-faced way.”
The debate is gaining urgency after the government allowed household finances to bear the brunt of the country’s first recession in six years, putting Russia on track for the biggest drop in consumption during Putin’s rule. This year, 21.7 million people, or about 15% of the population, are living beneath the subsistence level, according to the Federal Statistics Service. The crisis marks the “first significant” increase in Russia’s poverty since the crisis in 1998-1999, according to the World Bank.
Over the course of the last four or so weeks, the media has paid quite a bit of attention to Islamic State’s lucrative trade in “stolen” crude. On November 16, in a highly publicized effort, US warplanes destroyed 116 ISIS oil trucks in Syria. 45 minutes prior, leaflets were dropped advising drivers (who Washington is absolutely sure are not ISIS members themselves) to “get out of [their] trucks and run away.” The peculiar thing about the US strikes is that it took The Pentagon nearly 14 months to figure out that the most effective way to cripple Islamic State’s oil trade is to bomb… the oil. Prior to November, the US “strategy” revolved around bombing the group’s oil infrastructure.
As it turns out, that strategy was minimally effective at best and it’s not entirely clear that an effort was made to inform The White House, Congress, and/or the public about just how little damage the airstrikes were actually inflicting. There are two possible explanations as to why Centcom may have sought to make it sound as though the campaign was going better than it actually was, i) national intelligence director James Clapper pulled a Dick Cheney and pressured Maj. Gen. Steven Grove into delivering upbeat assessments, or ii) The Pentagon and the CIA were content with ineffectual bombing runs because intelligence officials were keen on keeping Islamic State’s oil revenue flowing so the group could continue to operate as a major destabilizing element vis-a-vis the Assad regime.
Ultimately, Russia cried foul at the perceived ease with which ISIS transported its illegal oil and once it became clear that Moscow was set to hit the group’s oil convoys, the US was left with virtually no choice but to go along for the ride. Washington’s warplanes destroyed another 280 trucks earlier this week. Russia claims to have vaporized more than 1,000 transport vehicles in November. Of course the most intriguing questions when it comes to Islamic State’s $400 million+ per year oil business, are: where does this oil end up and who is facilitating delivery?
Turkish President Tayyip Erdogan warned Russia on Friday not to “play with fire”, citing reports Turkish businessmen had been detained in Russia, while Moscow said it would suspend visa-free travel with Turkey. Relations between the former Cold War antagonists are at their lowest in recent memory after Turkey shot down a Russian jet near the Syrian border on Tuesday. Russia has threatened economic retaliation, a response Erdogan has dismissed as emotional and indecorous. The incident has proved a distraction for the West, which is looking to build support for the U.S.-led fight against Islamic State in Syria. The nearly five-year-old Syrian civil war has been complicated by Russian air strikes in defense of President Bashar al-Assad.
Turkey, which has long sought Assad’s ouster, has extensive trade ties with Moscow, which could come under strain. Erdogan condemned reports that some Turkish businessmen had been detained for visa irregularities while attending a trade fair in Russia. “It is playing with fire to go as far as mistreating our citizens who have gone to Russia,” Erdogan told supporters during a speech in Bayburt, in northeast Turkey. “We really attach a lot of importance to our relations with Russia … We don’t want these relations to suffer harm in any way.” He said he may speak with Russian President Vladimir Putin at a climate summit in Paris next week. Putin has so far refused to contact Erdogan because Ankara does not want to apologize for the downing of the jet, a Putin aide said.
Erdogan has said Turkey deserves the apology because its air space was violated. Russian Foreign Minister Sergei Lavrov said on Friday Moscow would suspend its visa-free regime with Turkey as of Jan. 1, which could affect Turkey’s tourism industry. Turkey’s seaside resorts are among the most popular holiday destinations for Russians, who make up Turkey’s largest number of tourist arrivals after Germany. An association of Russian defense factories, which includes the producers of Kalashnikov rifles, Armata tanks and Book missile systems, has recommended its members suspend buying materials from Turkey, according to a letter seen by Reuters. That could damage contracts worth hundreds of millions of dollars. Russia’s agriculture ministry has already increased checks on food and agriculture imports from Turkey, in one of the first public moves to curb trade.
Russia may resume visa-free travel with Turkey if Ankara stops helping the Islamic State terrorists, the head of the State Duma’s international affairs committee said on Friday. Russia has decided to suspend the visa-free regime with Turkey from the January 1, 2016, Foreign Minister Sergei Lavrov said on Friday after a meeting with his Syrian counterpart Walid Muallem in Moscow. “Relations between Russia and Turkey are the main factor here… If Ankara continues its de-facto support for ISIL militants, provides them with everything they need and endorses their actions in Syria, then we will not be able to restore the visa-free regime,” Alexei Pushkov said at a news briefing in Moscow.
Driving the Islamic State militants out of the territories they now control in Iraq and Syria would help lessen the threat they pose to the rest of the world. Destroying the ISIL headquarters would facilitate our joint fight against the terrorist threat, Pushkov added. “The terrorists use Turkish territory as a transit zone to bring reinforcements and arms to the conflict zone in Syria. Some of these militants may be sent to carry out terrorist attacks here in Russia, so our decision to suspend the visa-free regime with Turkey will help keep them out. This is exactly what the French did after the Paris attacks and the EU is now considering a closure of its external borders in the face of the terrorist threat,” Pushkov noted.
European and Turkish officials are working to smooth out their remaining differences on an agreement to help stem flows of migrants to Europe, which they hope will be signed on Sunday by European Union leaders and Turkey’s prime minister. Turkish President Tayyip Erdogan broadly accepted a proposed action plan last month, under which the EU would provide €3 billion in aid for the 2.3 million Syrian refugees in Turkey. It will also “re-energize” talks on Ankara’s joining the bloc and ease visas for Turks visiting Europe. But diplomats and officials said on Friday that differences remained on just what Turkey would commit to do in return – and when – to prevent migrants from making the short but risky crossing to Greek islands and to accept the return of people who reach the EU but fail to qualify for asylum.
German Chancellor Angela Merkel, a driving force behind seeking Turkish help in easing the refugee crisis, has faced criticism from EU allies for encouraging Erdogan to increase his demands. A senior German official stressed on Friday that Ankara also had much to gain from greater cooperation. Bolstered by the victory of his AK party in a parliamentary election early this month, Erdogan re-appointed Prime Minister Ahmet Davutoglu and, EU officials and diplomats say, Turkey is now driving a hard bargain – notably seeking 3 billion euros per year instead of the EU offer of the same amount over two.
“There are things that can still go wrong. It’s not a simple negotiation. Among the 28 member states, there are different sensibilities about Turkey, then with Turkey itself a dialogue needs to be found,” a senior EU official said on Friday. “It’s always possible there won’t be an agreement.” A diplomat in Ankara said: “Turkey is pushing its luck. They’re asking for a lot and the atmospherics aren’t good. “At the same time, there are a lot of important actors within Europe that have a soft spot for Turkey and really want to find ways of taking the relationship forward.”
A protest by migrants on Greece’s border with the Former Yugoslav Republic of Macedonia (FYROM) is putting railway operator Trainose at risk of losing major international clients. Migrants have over the last few days been protesting FYROM’s decision not to let them cross from Greece. Many migrants have camped on the railway lines connecting the two countries, which means that no trains have come in or out of Greece for the last week. This means that the freight Trainose is responsible for carrying has not been able to reach its destinations. The railway company serves major international clients such as Hewlett Packard and Sony.
There is concern that if the protest does not end soon, these companies will be forced to transport their goods by road. “The issue is not paying compensation to the companies, which we can pay even if the situation is not our fault,” said Trainose CEO Thanasis Ziliaskopoulos. “What is more important is that the country’s credibility is at stake.” Trainose’s contract with Chinese giant Cosco to transport goods that arrive at Piraeus port is seen as a key part of the goal to make Greece a logistics hub in Southeastern Europe.
Turkish state media say six children have drowned when boats carrying migrants to Greece sank in two incidents off the Turkish coast. A wooden boat smuggling some 20 people to the island of Kos capsized in bad weather off the Aegean resort of Bodrum early on Friday. The state-run Anadolu Agency says most of the migrants made it to shore with the help of rescuers, but two sisters aged 4 and 1 drowned. Their nationalities were not immediately known. The agency says a second boat carrying as many as 55 migrants from Syria and Afghanistan sank hours later off the town of Ayvacik, further north. Four Afghan children drowned in that incident, Anadolu reported. Ayvacik is a main crossing point for migrants trying to reach the island of Lesvos.
European banks are sitting on bad debts of €1tn – the equivalent to the GDP of Spain – which is holding back their profitability and ability to lend to high street customers and businesses. According to a detailed analysis of 105 banks across 21 countries in the European Union conducted by the European Banking Authority (EBA), the experience of Europe’s banks to troubled customers is worse than that of their counterparts in the US. The €1tn (£706bn) of so-called non-performing loans amount to almost 6% of the total loans and advances of Europe’s banks, and 10% when lending to other financial institutions are excluded. The equivalent figure for the US banking industry is around 3%.
Piers Haben, director of oversight at the EBA, said that while the resilience of the financial sector was improving because more capital was being accumulated in banks, he remained concerned about bad debts. “EU banks will need to continue addressing the level of non-performing loans which remain a drag on profitability,” Haben said. Banks in Cyprus have half their lending classified as non-performing while in the UK the figure is 2.8%. Capital ratios – a closely watched measure of financial strength – had reached 12.8% by June 2015, well above the regulatory minimum, as banks held on to profits and also took steps to raise capital – for instance, by tapping shareholders for cash. In 2011 the figure was 9.7%.
For commodities, it’s like the 21st century never happened. The last time the Bloomberg Commodity Index of investor returns was this low, Apple’s best-selling product was a desktop computer, and you could pay for it with francs and deutsche marks. The gauge tracking the performance of 22 natural resources has plunged two-thirds from its peak, to the lowest level since 1999. That shows it’s back to square one for the so-called commodity super cycle, a hunger for coal, oil and metals from Chinese manufacturers that powered a bull market for about a decade until 2011. “In China, you had 1.3 billion people industrializing – something on that scale has never been seen before,” said Andrew Lapping, deputy chief investment officer at Allan Gray Ltd., a manager of $33 billion of assets in Cape Town.
“But there’s just no way that can continue indefinitely. You can only consume so much.” If slowing Chinese growth, now headed for its weakest pace in 25 years, put the first nail in the coffin of the super cycle, the Federal Reserve is about to hammer in the last. The first U.S. interest rate increase since 2006 is expected next month by a majority of investors, helping push the dollar up by about 9% against a basket of 10 major currencies this year. That only adds to the woes of commodities, mostly priced in dollars, by cutting the spending power of global raw-materials buyers and making other assets that generate yields such as bonds and equities more attractive for investors.
The Bloomberg Commodity Index takes into account roll costs and gains in investing in futures markets to reflect the actual returns. By comparison, a spot index that tracks raw materials prices fell to a more than six-year low Monday, and a gauge of industry shares to the weakest since 2008 on Sept. 29. The biggest decliners in the mining index, which is down 31% this year, are copper producers First Quantum Minerals, Glencore and Freeport-McMoran. With record demand through the 2000s, commodity producers such as Total SA, Rio Tinto Group and Anglo American Plc invested billions in long-term capital projects that have left the world awash with oil, natural gas, iron ore and copper just as Chinese growth wanes. “Without fail, every single industrial commodity company allocated capital horrendously over the last 10 years,” Lapping said.
Oil is among the most oversupplied. Even as prices sank 60% from June 2014, stockpiles have swollen to an all-time high of almost 3 billion barrels. That’s due to record output in the U.S. and a decision by OPEC to keep pumping above its target of 30 million barrels a day to maintain market share and squeeze out higher-cost producers. A Fed move on rates and accompanying gains in the dollar will make it harder to mop up excesses in raw-materials supply. Mining and drilling costs often paid in other currencies will shrink relative to the dollars earned from selling oil and metals in global markets as the U.S. exchange rate appreciates. Russia’s ruble is down more than 30% against the dollar in the past year, helping to maintain the profitability of the country’s steel and nickel producers and allowing them to maintain output levels.
You wouldn’t know it from looking at stocks, but the US manufacturing sector came darn close to contracting in October. Readings above 50 indicate expansion in the ISM gauge of manufacturing activity, and the October reading of 50.1 was the lowest in 29 months. Overall manufacturing activity has expanded for 34 straight months, but the pace of growth in the main ISM gauge has deteriorated for four consecutive months. There is reason for optimism. Factories saw new orders come in at a faster pace and production was strong. But, other than that, the ISM details were far from impressive. Not surprisingly, the prices paid index came in below 40 for the third consecutive month, reflecting the deflationary headwinds flowing through the economy.
More importantly, the employment details showed a sharp contraction, down to 47.6 versus 50.5 in September. The market is more concerned about non-farm payroll figures, but this sure seems to be a leading indicator, especially when you consider the weakness from September’s NFP report. It’s the same story in Germany, where mechanical engineering orders slumped 13% Y/Y in September, hit by an 18% drop in foreign demand. In a sign that the weakness in September wasn’t just a blip, foreign orders from outside the eurozone were down 7% in the nine months through September from the same period a year earlier, hit by a slowdown in developing economies that account for around 42% of Germany’s plant and machinery exports. It’s clear that most of this industrial weakness is being driven by China.
Domestic orders for Germany’s mechanical engineering industry were up 2% in the nine months through September from the same period a year ago, while eurozone demand rose 13% over this period. European demand looks ok, it’s just not strong enough to offset the weakness driven by China. German car maker Audi said Monday that falling Chinese demand is forcing it to slash production of Audi models at a plant in Changchun nearly 11%. General Motors Chief Executive Mary Barra last month said the slowdown in China, the world’s second-largest economy, “is not only affecting our business in China but also in the other international operation markets outside of China because these economies are so dependent on China.”
China’s economy is still showing a muted response to waves of monetary and fiscal easing as of the half-way mark for the last quarter of the year, some of the earliest indicators suggest. A privately compiled purchasing managers’ index and a gauge based on search engine interest in small and medium-sized businesses deteriorated this month, while a sentiment indicator dropped sharply from October. Combined, the reports make gloomy reading ahead of official releases, the earliest of which will be manufacturing and services PMI reports due Dec. 1. Six interest-rate cuts in a year and expedited fiscal spending have yet to revive growth as overcapacity and weakness in old drivers like manufacturing and residential construction weigh on the world’s second-biggest economy. If official data confirm the sluggishness, Premier Li Keqiang’s growth goal may be missed for a second-straight year.
Here’s a look at what the economy’s earliest tea leaves show: The unofficial purchasing managers indexes for manufacturing and services sectors both declined, snapping increases in the two previous months. The manufacturing PMI declined to 42.4 in November from 43.3 in October, while the non-manufacturing reading fell to 42.9 from 44.2, according to reports jointly compiled by China Minsheng Banking and the China Academy of New Supply-side Economics. Numbers below 50 signal deteriorating conditions. “China’s economy hasn’t bottomed yet and downward pressures are mounting,” Jia Kang, director of the Beijing-based academy and former head of the finance ministry’s research institute, wrote. “We expect authorities to step up growth stabilization measures.” The Minxin PMIs are based on a monthly survey covering more than 4,000 companies, about 70% of which are smaller enterprises. The private gauges have shown a more volatile picture than the official PMIs in the past year.
Iron ore has taken a fresh beating, with prices sinking to the lowest level in six years as output cuts at Chinese mills hurt demand while low-cost supplies from the biggest miners expand. It may get worse. “The key problem for iron ore is oversupply: the iron ore heavyweights have overestimated China’s appetite,” Gavin Wendt, founding director at MineLife in Sydney, said after prices dropped on Tuesday to the lowest level since daily data began in 2009. “Further price weakness is inevitable.” The commodity has been hurt this year by increasing output from the biggest miners including BHP Billiton, Rio Tinto and Vale and faltering demand for steel in China, where mills account for half of global output. Goldman Sachs said last week that the global market is oversupplied, with steel consumption in China remaining weak. Mills are battling sinking prices that have eroded profit margins.
“We’re going through a very difficult time,” said Philip Kirchlechner, director of Iron Ore Research. “It was always expected that it would come down to the $40s again, but not over a sustained period,” said Kirchlechner, former head of marketing at Fortescue Metals Group Ltd. Ore with 62% content delivered to Qingdao fell 1.9% to $43.89 a dry metric ton on Tuesday, according to Metal Bulletin Ltd. The commodity is headed for a third annual retreat, and the latest fall eclipsed the previous low of $44.59 set in July. The steel industry in China is reaching a critical point, according to Andy Xie, an independent economist who’s been bearish for years and sees a drop below $40 before year-end. Mills will have to cut production, said Xie, a former Asia-Pacific chief economist at Morgan Stanley. Crude-steel output in China will drop 23 million tons to 783 million tons next year, according to the China Iron & Steel Association.
Last month, the nation’s leading industry group reported wider losses and noted that while official interest rates in China have been cut, mills faced higher funding costs. The biggest miners are betting that higher production will enable them to cut costs and raise market share while less efficient suppliers get squeezed. Rio’s Andrew Harding, chief executive officer for iron ore and Australia, said this month the company will keep defending market share and if it cut output, volumes would simply be taken by less efficient rivals. Kirchlechner said that the onset of winter in China may bring something of a reprieve for prices as local ore producers are forced to curtail supplies, spurring increased demand for cargoes from overseas.
In its latest quarterly Global Economic Outlook, SocGen takes a look at five political and economic black swans that could touch down in 2016 and also warns that “high levels of public sector debt, already overburdened monetary policy, still high debt stocks and on-going balance sheet clean ups in a number of economies leave the global economy will a low level of ammunition to deal with new shocks.” Here’s the latest SG “swan chart” which is “dominated by downside risks”:
As we and a bevy of others have pointed out, QE is bumping up against the law of diminishing returns and it’s no longer clear that doubling and tripling down on monetization will do anything at all to boost aggregate demand, juice global trade, or raise inflation expectations (but what it surely will do is continue to inflate asset bubbles). In this environment, fiscal stimulus may be the only “solution.” As SocGen puts it, “in the event of a major new significant shock, our baseline scenario remains that both the US and Europe would opt first for further monetary policy stimulus. Later on, however, as this proves inefficient, we would expect fiscal stimulus to be considered.” China, of course, has already gone this route, boosting fiscal spending by 36% in Ocotber as the country’s credit impulse disappeared despite six rate cuts in less than a year. From SocGen:
• Brexit at a probability of 45%, remains our highest probability risk. At this time, a date has yet to be set for the referendum but 3Q16 seems a likely timing, based on the idea that Prime Minister Cameron will want to hold the referendum within a reasonable timeframe on concluding an agreement with his EU partners (which could come as early as the December 2015 Summit, but more likely in March 2016).
• China hard landing remains a significant risk at 30%. Medium-term, we set an even higher probability of 40% on a lost decade scenario. As opposed to a hard landing, however, such a risk scenario would manifest itself only gradually. The most likely trigger for a China hard- landing is policy error with miscalculation of how much financial risk management or structural reform the system can absorb. We identify three main triggers. In practice, a combination thereof seems the most likely cause of such a risk scenario.
• Credit crunch: An intensification of capital outflows, a growing number of non-performing loans and an insufficient response from the PBoC could result in a credit crunch. Such risks could be further exacerbated by pressure coming from Chinese corporations’ foreign exchange denominated debt and overall high level of leverage.
• Dry-up in housing demand: Should a new housing shock emerge, triggering a buyers strike, then real estate developers (also burdened with foreign currency loans) could suffer renewed stress, triggering a significant scaling back of investment.
• Capacity overhang: The still-large excess capacity in the manufacturing sector would be further exacerbated in such a scenario, weighing on corporate margins and profits. The risk is to see bankruptcies and unemployment increase in such a bleak scenario.
One by one, the giant investment funds are quietly switching out of government bonds, the most overpriced assets on the planet. Nobody wants to be caught flat-footed if the latest surge in the global money supply finally catches fire and ignites reflation, closing the chapter on our strange Lost Decade of secular stagnation. The Norwegian Pension Fund, the world’s top sovereign wealth fund, is rotating a chunk of its $860bn of assets into property in London, Paris, Berlin, Milan, New York, San Francisco and now Tokyo and East Asia. “Every real estate investment deal we do is funded by sales of government bonds,” says Yngve Slyngstad, the chief executive. It already owns part of the Quadrant 3 building on Regent Street, and bought the Pollen Estate – along with Saville Row – from the Church Commissioners last year. But this is just a nibble.
The fund is eyeing a 15pc weighting in property, an inflation-hedge if ever there was one. The Swiss bank UBS – an even bigger player with $2 trillion under management – has issued its own gentle warning on bonds as the US Federal Reserve prepares to kick off the first global tightening cycle since 2004. UBS expects five rate rises by the end of next year, 60 points more than futures contracts, and enough to rattle debt markets still priced for an Ice Age. Mark Haefele, the bank’s investment guru, said his clients are growing wary of bonds but do not know where to park their money instead. The UBS bubble index of global property is already flashing multiple alerts, with Hong Kong off the charts and London now so expensive that it takes a skilled worker 14 years to buy a broom cupboard of 60 square metres.
Mr Haefele says equities are the lesser risk, especially in Japan, where the central bank has bought 54pc of the entire market for exchange-traded funds (ETFs) and is itching to go further. As of late November, roughly $6 trillion of government debt was trading at negative interest rates, led by the Swiss two-year bond at -1.046pc. The German two-year Bund is at -0.4pc. The Germans and Czechs are negative all the way out to six years, the Dutch to five, the French to four and the Irish to three. Bank of America says $17 trillion of bonds are trading at yields below 1pc, including most of the Japanese sovereign debt market. This is a remarkable phenomenon given that global core inflation – as measured by Henderson Global Investor’s G7 and E7 composite – has been rising since late 2014 and is now at a seven-year high of 2.7pc.
In the eurozone, the M1 money supply is rising at a blistering pace of 11.9pc. A case can be made that the ECB should go for broke, deliberately stoking a short-term monetary boom to achieve “escape velocity” once and for all. The risk of a Japanese trap is not to be taken lightly. Yet even those who feared looming deflation in Europe two years ago are beginning to wonder whether the bank is losing the plot. If the ECB doubles down next week with more quantitative easing and a cut in the deposit rate to -0.3pc, as expected, it will validate the iron law that central banks are pro-cyclical recidivists, always and everywhere behind the curve. Caution is in order. The investment graveyard is littered with the fund managers who bet against Japanese bonds, only to see the 10-year yield keep falling for two decades, plumbing new depths of 0.24pc this January.
Some Turkish officials have ‘direct financial interest’ in the oil trade with the terrorist group Islamic State, Russian PM Dmitry Medvedev said as he detailed possible Russian retaliation to Turkey’s downing of a Russian warplane in Syria on Tuesday. “Turkey’s actions are de facto protection of Islamic State,” Medvedev said, calling the group formerly known as ISIS by its new name. “This is no surprise, considering the information we have about direct financial interest of some Turkish officials relating to the supply of oil products refined by plants controlled by ISIS.” “The reckless and criminal actions of the Turkish authorities… have caused a dangerous escalation of relations between Russia and NATO, which cannot be justified by any interest, including protection of state borders,” Medvedev said.
According to Medvedev, Russia is considering canceling several important projects with Turkey and barring Turkish companies from the Russian market. Russia has already recommended its citizens not to go Turkey citing terrorist threats, which have resulted in several tourist operators withdrawing tours to Turkey from the market. Russia may further scrap a gas pipeline project, aimed at turning Turkey into a major transit country for Russian natural gas going to Europe, and the construction of the country’s first nuclear power plant. Turkey shot down a Russian bomber over Syria on Tuesday, claiming it had violated Turkish airspace. Russia says no violation took place and considers the hostile act as ‘a stab in the back’ and direct assistance to terrorist forces in Syria.
Russia is prepared to coordinate strikes against Islamic State militants in a joint command with the United States, France and others who want to participate, including Turkey, Moscow’s envoy to Paris said on Wednesday. French President Francois Hollande is trying to rally more international support to destroy Islamic State following the Nov. 13 attacks in Paris. He visited Washington on Tuesday and is due to meet Russian President Vladimir Putin on Thursday. “This coalition is a possibility,” Russia’s ambassador to France, Alexandre Orlov, told Europe 1 radio. “For our part, we are prepared to go further, to plan strikes against Daesh (Islamic State) positions together and to set up a joint command with France, America and any country that wants to join this coalition,” he said, noting that this included Turkey.
Volkswagen is facing a new criminal investigation after publishing incorrect emissions data that gave some drivers tax breaks that may have been unjustified. Prosecutors in Braunschweig, already looking into Volkswagen diesels, are now formally examining tax issues linked to faulty carbon-dioxide readings as well, spokesman Klaus Ziehe said by phone Tuesday. A separate probe was necessary because the accusations involve other cars and other people, he said. Five suspects are being investigated, Ziehe said, without identifying them. “German prosecutors like these kinds of investigations,” said Michael Kubiciel, a criminal law professor at the University of Cologne. “It’s easier to pursue charges under German tax law than under environmental protection rules.”
Volkswagen has said the people who bought the cars won’t have to pay the difference in taxes. The bill adds to the mounting tab of recall costs and regulatory fines the carmaker faces over irregular and falsified vehicle emissions, a scandal that began more than two months ago with Volkswagen’s admission to rigging diesel engines in 11 million vehicles worldwide. The CO2 issue arose Nov. 3, after the automaker said about 800,000 cars, mostly in Europe, had emissions of the greenhouse gas that didn’t match up with the levels promised. That matters because CO2 is a key measure for setting tax rates for motor vehicles in many European countries. Improperly labeled cars with higher-than-marketed emissions may lead authorities to reclaim the tax breaks.
Volkswagen estimated the financial risk of manipulating the ratings at about €2 billion. That sum includes paying governments for missing tax revenue. The carmaker already set aside €6.7 billion in the third quarter to fix diesel cars with engine software that allowed them to pass emission tests by illegally restricting pollution during testing. European regulators have approved Volkswagen’s proposals for how to repair about 70% of the diesel engines affected worldwide, Chief Executive Officer Matthias Mueller told a gathering of executives in Wolfsburg, Germany, on Monday. Meanwhile, Volkswagen’s Audi division will resubmit a revised version of software that the EPA and California Air Resources Board has targeted in its latest probe. If approved, the fix for 85,000 Audi, Volkswagen and Porsche cars with 3.0-liter diesel engines should cost roughly €50 million. EPA and CARB will review and test the revised software.
I think that today we will say farewell to all that made the UK a compassionate, decent, fair and civilised society. After George Osborne has had his way I have a deeply uncomfortable feeling that this country will be more brutal, unequal, divided and profoundly individualistic. Once Margaret Thatcher said there was no such thing as society. Today I feel like George Osborne is trying to prove it. Tax is not going to be the focus of today, I suspect. It should be: if George Osborne wants to pursue the goal of a balanced budget (which has no economic merit, at all) then tackling the tax gap and cutting tax expenditures would be the obvious thing to do and that would deliver increased economic fairness and social justice. But those will not be at the heart of today.
Today is about shrinking the state. Apart from the economic illiteracy of this (at the macro level cutting government spending is the same as cutting GDP if there is spare capacity in the economy, and so the policy Osborne is pursuing makes it harder for him to achieve his goal) there is the massive social injustice that this entails to worry about. Social inequality will increase as a result of today. The disabled will be worse off again. The young will suffer disproportionately. The education of many will be harmed. Our long term prospects will be reduced. Those in need of care will have less available. Society will be more vulnerable. And yes, some will die as a result of today. That has to be said.
Those are all choices. And none of them is necessary. The policy of austerity is a political affectation designed to increase the wealth of a few, to favour large companies and to appease bankers. It cannot work, although I think George Osborne does not realise that although the evidence is obvious. And so the question as to why it has been adopted has to be asked. And that comes down to greed, a sense of entitlement, a lack of empathy, and a blunt indifference to others.
Bank of England policymakers may need to take action to prevent a risky consumer borrowing binge as the economy recovers, the bank’s chief economist has warned. Appearing before the cross-party Treasury select committee alongside the Bank’s governor, Mark Carney, Andy Haldane warned that consumer credit, in particular personal loans, had been “picking up at a rate of knots. That ultimately might be an issue that the financial policy committee [FPC] might want to look at fairly carefully.” The Financial Policy Committee (FPC), created after the financial crisis, is meant to prevent a future crash by allowing the Bank to take action in particular markets without using the blunter tool of interest rates. Chaired by the governor, it has 10 members – but does not include Haldane.
The FPC has already stepped in to constrain mortgage lending but its powers to confront a credit bubble are untested. The latest data from the Bank showed the rate of growth of consumer credit picking up sharply. Andrew Tyrie, the Conservative MP who chairs the Treasury select committee, said: “The FPC has huge new powers which only small numbers of the public have so far been aware of, and it is particularly important that we hold them accountable. Many of these decisions were formerly the preserve of politicians.” Carney told MPs he was limited as to how much he could say about the FPC, as he was in “purdah”, as its next meeting approached; but he confirmed the rapid pace of credit growth was something it might need to look at.
He added that the separate monetary policy committee (MPC), which sets interest rates, has to take into account the historically high debt levels of Britain’s households as it made interest rate decisions. “Without question, more indebted households are more vulnerable,” he said. “The pressure on households because of the debt burden is significant. There is less margin for error.”
We can have it all: that is the promise of our age. We can own every gadget we are capable of imagining – and quite a few that we are not. We can live like monarchs without compromising the Earth’s capacity to sustain us. The promise that makes all this possible is that as economies develop, they become more efficient in their use of resources. In other words, they decouple. There are two kinds of decoupling: relative and absolute. Relative decoupling means using less stuff with every unit of economic growth; absolute decoupling means a total reduction in the use of resources, even though the economy continues to grow. Almost all economists believe that decoupling – relative or absolute – is an inexorable feature of economic growth. On this notion rests the concept of sustainable development.
It sits at the heart of the climate talks in Paris next month and of every other summit on environmental issues. But it appears to be unfounded. A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. It points out that governments and economists have measured our impacts in a way that seems irrational. Here’s how the false accounting works. It takes the raw materials we extract in our own countries, adds them to our imports of stuff from other countries, then subtracts our exports, to end up with something called “domestic material consumption”. But by measuring only the products shifted from one nation to another, rather than the raw materials needed to create those products, it greatly underestimates the total use of resources by the rich nations.
For instance, if ores are mined and processed at home, these raw materials, as well as the machinery and infrastructure used to make finished metal, are included in the domestic material consumption accounts. But if we buy a metal product from abroad, only the weight of the metal is counted. So as mining and manufacturing shift from countries such as the UK and the US to countries like China and India, the rich nations appear to be using fewer resources. A more rational measure, called the material footprint, includes all the raw materials an economy uses, wherever they happen to be extracted. When these are taken into account, the apparent improvements in efficiency disappear. In the UK, for instance, the absolute decoupling that the domestic material consumption accounts appear to show is replaced with an entirely different chart.
Not only is there no absolute decoupling; there is no relative decoupling either. In fact, until the financial crisis in 2007, the graph was heading in the opposite direction: even relative to the rise in our gross domestic product, our economy was becoming less efficient in its use of materials. Against all predictions, a recoupling was taking place. While the OECD has claimed that the richest countries have halved the intensity with which they use resources, the new analysis suggests that in the EU, the US, Japan and the other rich nations, there have been “no improvements in resource productivity at all”. This is astonishing news. It appears to makes a nonsense of everything we have been told about the trajectory of our environmental impacts.
A report published on Tuesday by Concord, the European NGO confederation for relief and development, documents an emerging trend among member states to divert aid budgets from sustainable development to domestic costs associated with hosting refugees and asylum seekers. Some of the expenditure items EU countries report as aid do not translate into a real transfer of resources to developing countries or, ultimately, to people who are poor and marginalised, the report has found. This is not the first time that NGOs have reported that EU monies are increasingly being spent on tackling the refugee crisis and border security, rather than fighting poverty and inequality.
But this time the Concord AidWatch report contains data from the OECD CRS dataset complemented by updated national figures. In some cases, data from the European commission and Eurostat is also used. Concord says that some EU countries are misreporting some of their official development assistance (ODA) expenses by including costs which, under existing guidelines, should not have been counted. The reporting of non-eligible migration-related expenses in Spain and Malta, or the misreporting of refugee costs in Hungary, are among the examples cited. Inflated aid is calculated on the bilateral component of EU aid. Many of the components – imputed student costs, refugee costs, interest and tied aid – do not apply to multilateral aid.
The report found that in 2014, the EU28 and the European institutions inflated their aid by €7.1bn, which represents 12% of all aid flows. Some countries inflate aid more than others. While the percentage of inflated aid for Luxembourg is estimated at 0.3% of the country s total aid, and at 0.5% for the UK, it is, in contrast, 50.6% for Malta, 30.9% for Austria and 27.2% for Portugal. The EU institutions are no different from the member states, having ‘inflated’ their aid by 9.9%.
The number of refugees arriving in the European Union from violence-scarred regions of the Middle East and Africa is set to fall in November as traveling conditions worsen and member states looked to strengthen the bloc’s external borders. The number of migrants crossing the Mediterranean Sea to reach the EU this month fell to 116,579 through Nov. 23 compared with a record 220,535 in October, according to the United Nations refugee agency. The deepening chaos in nations from Libya to Syria has spawned an unprecedented wave of more than 860,000 people seeking shelter within the EU this year. The influx opened divisions within the bloc as German Chancellor Angela Merkel insisted Europe must honor its asylum commitments while other leaders such as Hungary’s Viktor Orban complained of the strain on their communities.
The pressure on Merkel increased this month when jihadists who attacked restaurants and a music venue in Paris. At least two of the assailants are thought to have entered the EU as refugees. On Friday EU nations agreed to bolster controls on frontiers around the bloc. They agreed to start carrying out systematic registration, including fingerprinting of all migrants entering into the Schengen area. All travelers will have their passports checked when they arrive in Europe, extending the full-blown screening that is currently limited to non-EU passport holders. The number of people entering Hungary slowed to a trickle this month after Orban closed the country’s border with Croatia on Oct. 18. Austria overtook Croatia as the nation with most arrivals during the first two weeks of November as the number of people embarking on the journey to Europe declined.
After a brief dip in the number of refugees and migrants arriving on Greece’s eastern Aegean islands, an increase was noted on Tuesday in the quantity of boats reaching Greek shores from Turkey. The uptick came a day ahead of Frontex’s management board meeting in Warsaw on Wednesday, when it is expected that the European Union border agency will decide to move its operational office from Piraeus. The office has been located in the port city since 2010 and its removal would be seen as a diplomatic blow for Greece, especially given the current flow of refugees to the country. More than 60 dinghies carrying migrants arrived on Lesvos on Tuesday as Alternate Foreign Minister Nikos Xydakis and Immigration Policy Minister Yiannis Mouzalas guided the ambassadors of European Union countries around the island so they could get a closeup view of the impact of the refugee crisis.
Greece has been under pressure to improve the registration process for arrivals and Lesvos is expected to host a so-called hotspot at the Moria camp, where authorities are hoping to register between 1,000 and 1,500 people a day. Police officials said they expect the hotspot to be ready in less than two weeks. The recent letup in the number of people reaching Lesvos allowed authorities in Athens, where migrants are transferred, to empty the sports hall in Galatsi, which is being used for temporary shelter, and move everyone to the Tae Kwon Do Stadium in Faliro. Tuesday’s arrivals on Lesvos included a yacht carrying 140 migrants who had each paid around 3,000 euros to travel from Turkey in its relative safety. Two bodies also washed up in the island pn Tuesday.
Greece has so far this year spent more than €800,000 in healthcare for about 2,000 migrants and refugees, according to data from the Health Ministry. According to the data, which were presented by General Secretary for Public Health Yiannis Baskozos during a conference of the World Health Organization (WHO) in Rome on Tuesday, demand for the EKAV emergency medical assistance service has increased by 42% compared to 2014. Ambulance calls doubled between June – November – when the refugee crisis peaked – over the same period last year. “[Greece] has managed to fulfill the current healthcare needs for refugees and migrants notwithstanding the absence of EU funding,” Baskozos told the conference.
The collapse in oil prices following the shale revolution has stolen the limelight for investors mulling the end of the commodities supercycle. But the real “poster child for problems in commodities markets is perhaps the global steel industry,” according to Macquarie analysts led by Colin Hamilton, the firm’s global head of commodities research. The front-month contract for U.S. hot-rolled coil steel futures traded on the New York Mercantile Exchange is down nearly 40% year-over-year/ Forecasts for a boom in Chinese consumption helped spur a rise in production that left the segment with a massive glut. The successful realization of economic rebalancing in China, meanwhile, necessarily entails a material slowdown in that nation’s demand for steel. Macquarie observes that global steel consumption has contracted on an annual basis throughout 2015.
“With 1.6 billion tonnes of consumption globally, steel remains the lynchpin of industrial growth,” wrote Hamilton. “However, the growth part of this equation is an increasing problem, and not only in China.” India, which has the potential to buoy demand for steel, is also contributing significantly to supply growth. Bloomberg Intelligence’s Yi Zhu notes that 37 million metric tons of production capacity in India are currently under construction or in planning to be added. “The only people who still seem to think there is significant upside in global steel consumption akin to the past decade are the major iron ore producers—for example BHP’s belief global steel consumption will hit 2.5 billion tonnes by 2030—just a further 50% upside required there!” Hamilton wrote in a separate note.
Arguably, overcapacity across the commodity complex is a perverse side effect of years of near-zero interest rates and asset purchases by the Federal Reserve. Lower input prices, however, can have a silver lining. For example, the collapse in oil prices, in simple terms, represents a transfer of wealth from major oil conglomerates to consumers. The largest positive effects accrue to lower-income households that spend a heftier portion of take-home pay on energy costs. “A world of cheap money not only sees new capacity built, it also means existing capacity doesn’t disappear,” explains Hamilton. “While most regions are well off their peak production levels over the last decade, permanent capacity closures have been few and far between.”
Hedge funds have turned more pessimistic on oil as prices flirted with $40 a barrel for the first time since August. “The speculators keep trying to pick the bottom and keep getting burned,” Michael Lynch, president of Strategic Energy & Economic Research said. Money managers’ short bets in West Texas Intermediate crude surged 21% in the week ended Nov. 10, according to data from the Commodity Futures Trading Commission. The net-long position dropped 16%. The release of the figures was delayed because of Veterans Day on Nov. 11. Oil inventories in developed countries have expanded to a record of almost 3 billion barrels because of massive supplies from both OPEC and non-OPEC producers, the International Energy Agency said in a report on Nov. 13.
WTI slipped to the lowest level since August before the CFTC release Monday. Thirty-nine oil tankers are waiting near Galveston, Texas, up from 30 in May, according to vessel-tracking data compiled by Bloomberg. “There’s been concern about excess supply in the market for a while now and that’s been strengthened by the IEA report,” Lynch said. [..] Oil inventories surged because of increased global production, OPEC said on Nov. 12. U.S. crude supplies rose to 487 million barrels as of Nov. 6, the highest for this time of year since 1930, the Energy Information Administration reported on Nov. 12. “We think the next few months will be very weak,” Sarah Emerson, managing director of ESAI Energy said by phone. “The market is focused on inventories. Prices shouldn’t rally in the coming year unless we have a disruption.”
When the Arab Spring broke out in 2011, Saudi Arabia headed it off by pumping $130 billion into the economy, raising wages, improving services, and providing jobs for its growing population. Saudi Arabia has one of the youngest populations in the Middle East, many of whom are unemployed and poorly educated. Some 25% of the population lives in poverty. Money keeps the lid on, but – even with the heavy-handed repression that characterizes Saudi political life – for how long? Meanwhile they’re racking up bills with ill-advised foreign interventions. In March, the kingdom intervened in Yemen’s civil conflict, launching an air war, a naval blockade, and partial ground campaign on the pretense that Iran was behind one of the war’s factions – a conclusion not even the Americans agree with.
Again, the Saudis miscalculated, even though one of their major allies, Pakistan, warned them they were headed for trouble. In part, the kingdom’s hubris was fed by the illusion that US support would make it a short war. The Americans are arming the Saudis, supplying them with bombing targets, backing up the naval blockade, and refueling their warplanes in midair. But six months down the line the conflict has turned into a stalemate. The war has killed 5,000 people (including over 500 children), flattened cities, and alienated much of the local population. It’s also generated a horrendous food and medical crisis and created opportunities for the Islamic State and al-Qaeda to seize territory in southern Yemen. Efforts by the UN to investigate the possibility of war crimes were blocked by Saudi Arabia and the US.
As the Saudis are finding out, war is a very expensive business – a burden they could meet under normal circumstances, but not when the price of the kingdom’s only commodity, oil, is plummeting. Nor is Yemen the only war that the Saudis are involved in. Riyadh, along with Qatar and the United Arab Emirates, are underwriting many of the groups trying to overthrow Syrian president Bashar al-Assad. When antigovernment demonstrations broke out there in 2011, the Saudis – along with the Americans and the Turks – calculated that Assad could be toppled in a few months. But that was magical thinking. As bad as Assad is, a lot of Syrians – particularly minorities like Shiites, Christians, and Druze – were far more afraid of the Islamists from al-Qaeda and the Islamic State than they were of their own government.
So the war has dragged on for four years and has now killed close to 250,000 people. Once again, the Saudis miscalculated, though in this case they were hardly alone. The Syrian government turned out to be more resilient than it appeared. And Riyadh’s bottom line that Assad had to go just ended up bringing Iran and Russia into the picture, checkmating any direct intervention by the anti-Assad coalition. Any attempt to establish a no-fly zone against Assad will now have to confront the Russian air force – not something that anyone other than certain US presidential aspirants are eager to do.
The U.S. State Department has approved the sale of thousands of smart bombs worth a total of $1.29 billion to Saudi Arabia to help replenish supplies used in its battle against insurgents in Yemen and air strikes against Islamic State in Syria, U.S. officials familiar with the deal said on Monday. The Pentagon’s Defense Security Cooperation Agency (DSCA), which facilitates foreign arms sales, notified lawmakers on Friday that the sales had been approved, the sources said. The lawmakers now have 30 days to block the sale, although such action is rare since deals are carefully vetted before any formal notification.
The proposed sale includes thousands of Paveway II, BLU-117 and other smart bombs, as well as thousands of Joint Direct Attack Munitions kits to turn older bombs into precision-guided weapons using GPS signals. The sales reflect President Barack Obama’s pledge to bolster U.S. military support for Saudi Arabia and other Sunni allies in the Gulf Cooperation Council after his administration brokered a nuclear deal with their Shiite rival Iran. The weapons are made by Boeing and Raytheon, but the DSCA told lawmakers the prime contractors would be determined by a competition.
The offshore yuan’s discount to the onshore spot rate widened to the most this month amid speculation the People’s Bank of China will rein in intervention now that the currency is on the cusp of winning reserve status. The difference between the yuan’s exchange rates in Hong Kong and Shanghai rose to as much as 417 pips on Monday, data compiled by Bloomberg show. It last exceeded 400 pips on Oct. 28, prompting suspected intervention by the PBOC the following day. [..] IMF Managing Director Christine Lagarde said late Friday that her staff have recommended the yuan be included in its Special Drawing Rights basked, as all operational issues including a sufficient gap between the onshore and offshore rates had been solved.
The Washington-based lender’s board will vote to approve inclusion on Nov. 30. “As the yuan’s inclusion is largely a done deal, we expect the PBOC to reduce foreign-exchange intervention and allow a wider spread between the onshore and offshore yuan,” said Ken Cheung, a Hong Kong-based currency strategist at Mizuho Bank Ltd. The central bank’s tolerance level may have widened to 500 pips from 400 pips before the IMF announcement and it will probably allow more depreciation via weaker fixings, he said.
India’s merchandise exports contracted for the eleventh consecutive month in October, as shipments of petroleum products continued to decline on lower crude oil prices, and external demand remained weak amid tepid global economic recovery. Exports contracted 17.5% from a year ago to $21.3 billion while imports shrank 21.2% to $31.1 billion, leaving a trade deficit of $9.8 billion, data released by the commerce ministry showed on Monday. In comparison, China’s October exports fell 6.9% from a year ago, down for a fourth month, while imports slipped 18.8%, leaving the country with a record high trade surplus of $61.64 billion. India’s dip in exports was driven mainly by a 57.1% drop in shipments of petroleum products to $2.5 billion.
The ministry has sent a cabinet note on the long-pending interest subsidy scheme for providing rupee credit to exporters at a subsidized interest rate. However, the cabinet is yet to take a view on it. India aims to take exports of goods and services to $900 billion by 2020 and raise the country’s share in world exports to 3.5% from 2% now. Exports in the past four fiscal years have been hovering at around $300 billion. India’s current account deficit (CAD) further contracted in the first quarter of 2015-16, as lower global crude oil prices helped rein in India’s import bill.
France has invoked emergency powers to sweep aside EU deficit rules and retake control over its economy after the terrorist atrocities in Paris, pledging a massive in increase and security and defence spending whatever the cost. President Francois Hollande said vital interests of the French nation are at stake and there can be no further justification for narrowly-legalistic deficit rules imposed by Brussels. “The security pact takes precedence over the stability pact. France is at war,” he told the French parliament. Defence cuts have been cancelled as far out as 2019 as the country prepares to step up its campaign to “eradicate” ISIS, from the Sahel in West Africa, across the Maghreb, to Syria and Iraq. At least 17,000 people will be recruited to beef up the security apparatus and the interior ministry, fast becoming the nerve centre of the country’s all-encompassing war against the ISIS network.
The new forces include 5,000 new police and gendarmes, 1,000 customs officials, and 2,500 prison guards. “I assume it will lead to an increase in expenses,” he said. The combined effect amounts to a fiscal stimulus and may ultimately cushion the economic damage of terrorist attacks for the tourist industry, but the “rearmament” drive spells the end of any attempt to meet deficit limit of 3pc of GDP enshrined in the Stability and Growth Pact. With France in open defiance, the reconstituted pact is now effectively dead. The European Commission expects the French deficit to be 3.4pc of GDP next year and 3.3pc in 2017, but the real figure is likely to be much higher and will last through to the end of the decade. The concern is that this could push the country’s debt yet higher from 96.5pc of GDP to nearer 100pc, made worse by the effects of deflation on debt dynamics.
Mr Hollande said France will invoke article 42.7 of the Lisbon Treaty, the solidarity clause obliging other member states to come to his country’s help by “all means in their power”. It would be beyond parody for Brussels to continue insisting on budget rules in such a political context. The French economy is slowly recovering as the triple effects of a weak euro, cheap oil, and quantitative easing by the ECB combine to create a short-term blast of stimulus, but it still remains remarkably depressed a full six years into the post-Lehman cycle of global expansion. Growth crept up to 0.3pc in the third quarter after stalling earlier in the year. Unemployment is still stuck at 10.7pc and has actually risen over recent months. “Momentum may fade in 2017 as tailwinds peter out,” said the Commission.
Finland’s parliament will debate next year whether to quit the euro, a senior parliamentary official said on Monday, in a move unlikely to end membership of the single currency but which highlights Finns’ dissatisfaction with their country’s economic performance. The decision follows a citizens’ petition which has raised the necessary 50,000 signatures under Finnish rules to force such a debate, probably the first such initiative in any country of the 19-member euro zone. “There will be signature checks early next year and a parliamentary debate will be held in the following months,” said Maija-Leena Paavola, who helps guide legislation through parliament. The petition – which will continue to gather signatures until mid-January – demands a referendum on euro membership, but this would only go ahead if parliament backed the idea.
Despite the initiative, a Eurobarometer poll this month showed 64% of Finns backed the common currency, though that is down from 69% a year ago. But the Nordic country has suffered three years of economic contraction and is currently performing worse than any other country in the euro zone. Some Finns say the country’s prospects would improve if it returned to the markka currency and regained the ability to set its own interest rates, pointing to the example of neighboring Sweden, which is outside the euro. The markka could then devalue against the euro, making Finnish exports less expensive. “Since 2008 the Swedish economy has grown by 8%, while ours has shrunk by 6%,” said Paavo Vayrynen, a Finnish member of the European Parliament who launched the initiative.
Nomi is a fan of the Automatic Earth and our Debt Rattles, which she calls: “the most comprehensive daily rundown of main stream and alternative press articles out there!” Makes her an even smarter cookie.
Too big to fail is a seven-year phenomenon created by the most powerful central banks to bolster the largest, most politically connected US and European banks. More than that, it’s a global concern predicated on that handful of private banks controlling too much market share and elite central banks infusing them with boatloads of cheap capital and other aid. Synthetic bank and market subsidization disguised as ‘monetary policy’ has spawned artificial asset and debt bubbles – everywhere. The most rapacious speculative capital and associated risk flows from these power-players to the least protected, or least regulated, locales. There is no such thing as isolated ‘Big Bank’ problems. Rather, complex products, risky practices, leverage and co-dependent transactions have contagion ramifications, particularly in emerging markets whose histories are already lined with disproportionate shares of debt, interest rate and currency related travails.
The notion of free markets, mechanisms where buyers and sellers can meet to exchange securities or various kinds of goods, in which each participant has access to the same information, is a fallacy. Transparency in trading across global financial markets is a fallacy. Not only are markets rigged by, and for, the biggest players, so is the entire political-financial system. The connection between democracy and free markets is interesting though. Democracy is predicated on the idea that every vote counts equally, and in the utopian perspective, the government adopts policies that benefit or adhere to the majority of those votes. In fact, it’s the minority of elite families and private individuals that exercise the most control over America’s policies and actions.
The myth of a free market is that every trader or participant is equal, when in fact the biggest players with access to the most information and technology are the ones that have a disproportionate advantage over the smaller players. What we have is a plutocracy of government and markets. The privileged few don’t care, or need to care, about democracy any more than they would ever want to have truly “free” markets, though what they do want are markets liberated from as many regulations as possible. In practice, that leads to huge inherent risk. Michael Lewis’ latest book on high frequency trading seems to have struck some sort of a national chord. Yet what he writes about is the mere tip of the iceberg covered in my book. He’s talking about rigged markets – which have been a problem since small investors began investing with the big boys, believing they had an equal shot. I’m talking about an entirely rigged political-financial system.
Greece reached an agreement with its lenders on financial reforms early on Tuesday, its finance minister said, removing a major obstacle holding up fresh bailout loans for the cash-starved country. Athens signed up to a new aid program worth up to €86 billion earlier this year, but payment of part of an initial tranche had been held up over disagreement on regulations on home foreclosures and handling tax arrears to the state. “There was an agreement on all the milestones … whatever was required,” Finance Minister Euclid Tsakalotos told reporters after meeting representatives of European institutions and the IMF on aid disbursement.
Tsakalotos said the deal meant Parliament could now ratify the set of reforms to law, and that deputy eurozone finance ministers, known as the Euro Working Group, would on Friday endorse the deal. That would allow a €2 billion aid disbursement and about €10 billion in recapitalization aid to the country’s four main banks, he said. Greece has been keen to complete its first assessment under the new bailout package, its third since 2010, so it can start talks with lenders on debt relief.
U.K. consumer prices fell for a second month in October, extending the weakest bout of inflation in more than half a century. The Office for National Statistics said prices declined 0.1% from a year earlier, matching the median forecast of economists in a Bloomberg survey. That’s the third negative reading this year and largely reflects weaker global commodity costs. Core inflation, which excludes volatile food and energy prices, accelerated to 1.1% from 1%. The Bank of England expects inflation to remain low into 2016 before picking up toward its 2% target. BOE Governor Mark Carney has highlighted core inflation as an important measure for policy makers as they weigh when to begin interest rate increases after keeping them at a record low for more than six years.
Consumer-price inflation has been below 1% all this year and less than 2% since the end of 2013. Britain last saw a sustained period of price declines in 1960, according to a historic series constructed by the statistics office. In forecasts published this month, the BOE said inflation is likely to reach its goal in late 2017 and accelerate to 2.2% a year later. Services inflation, a proxy for domestic price growth, was at 2.2% in October. “In the absence of sharp movements in global commodity prices, inflation is likely to accelerate quickly beyond October as the direct impact of past falls in oil drops out,” said Dan Hanson, an economist at Bloomberg Intelligence in London. “Evidence that this is happening is likely to be enough for the BOE to begin monetary tightening in May.”
One thing seems assured: hard-line governments are coming soon. Politically, the West had boundary problems that go way beyond the question of national borders to the core psychology of modern liberalism. When is enough of anything enough? And then, what are you really willing to do about it? The answer lately among the Western societies is to do little and do it slowly. The behavior of college administrators and faculties in the USA these days is emblematic of this cowardly dithering. Intellectual despotism reigns on campus and the university presidents roll over like possums. They don’t have the moral strength to defend free speech as the campus witch-hunts ramp up.
The result will be first the intellectual death of their institutions (brain death), and then the actual death of college per se as a plausible route to personal socioeconomic development. The financial racketeering that has infected higher education — the engineering of the gargantuan college loan scam in tandem with the multiplication of “diversity” deanships and tuition inflation — pretty much guarantees an implosion of that system. The cowardice in the college executive suites is mirrored in our national politics, where no persons of real standing will dare step forward to oppose the juggernaut of Hillary-the-Grifter, or take on the clowning Donald Trump on the grounds of his sheer mental unfittedness to lead a government. In case you haven’t noticed, the center not only isn’t holding, it gave way some time ago.
The long emergency is showing signs of morphing into something like civil war. The Maoists on campus apparently want to turn it into race war, too. So many forces are in motion now and they are all tending toward criticality. The European Union may not survive the reestablishment of boundaries, since it was largely based on the elimination of them. Spain and Portugal are back to breaking down politically again. The Paris bloodbath has discredited Angela Merkel’s plea for “tolerance” — of what is proving to be an intolerable alien invasion. The only political figure on the scene who doesn’t appear to be talking out of his ass is Vlad Putin, who correctly stated at the UN that undermining basic institutions around the world was not a good idea.
What a difference a single massacre can make! • Just a week ago the EU couldn’t possibly figure out anything to do to stop the influx of “refugees” from all those countries the US and NATO had bombed into oblivion. But now, because “Paris changed everything,” EU’s borders are being locked down and refugees are being turned back. • Just a week ago it seemed that the EU was going to be swamped by resurgent nationalism, with incumbent political parties poised to get voted out of power. But now, thanks to the Paris massacre, they have obtained a new lease on life, because they can now safely embrace the same policies that a week ago they branded as “fascist.”
• Just a week ago the EU and the US couldn’t possibly bring themselves admit that they are utterly incompetent when it comes to combating their own creation—ISIS, that is—and need Russian help. But now, at the après-Paris G-20 summit, everybody is ready to line up and let Putin take charge of the war against terrorism. Look—the Americans finally found those convoys of tanker trucks stretching beyond the horizon that ISIS has been using to smuggle out stolen Syrian crude oil—after Putin showed them the satellite photos! Am I being crass and insensitive? Not at all—I deplore all the deaths from terrorist attacks in Iraq, in Syria, in Lebanon, and in all the other countries whose populations did absolutely nothing to deserve such treatment. I only feel half as bad about the French, who stood by quietly as their military helped destroy Libya (which did nothing to deserve it).
Note that after the Russian jet crashed in the Sinai there weren’t all that many Facebook avatars with the Russian flag pasted over them, and hardly any candlelight vigils or piles of wreaths and flowers in various Western capitals. I even detected a whiff of smug satisfaction that the Russians got their comeuppance for stepping out of line in Syria. Why the difference in reaction? Simple: you were told to grieve for the French, so you did. You were not told to grieve for the Russians, and so you didn’t. Don’t feel bad; you are just following orders.
The reasoning behind these orders is transparent: the French, along with the rest of the EU, are Washington’s willing puppets; therefore, they are innocent, and when they get killed, it’s a tragedy. But the Russians are not Washington’s willing puppet, and are not innocent, and so when they get killed by terrorists, it’s punishment. And when Iraqis, or Syrians, or Nigerians get killed by terrorists, that’s not a tragedy either, for a different reason: they are too poor to matter. In order to qualify as a victim of a tragedy, you have to be each of these three things: 1. a US-puppet, 2. rich and 3. dead.
Putin said at the G20 summit that Russia has presented examples of terrorism financing by individual businessmen from 40 countries, including from member states of the G20. “I provided examples related to our data on the financing of Islamic State units by natural persons in various countries. The financing comes from 40 countries, as we established, including some G20 members,” Putin told reporters following the summit. The fight against terrorism was a key topic at the summit, according to the Russian leader. “This topic (the war on the terror) was crucial. Especially after the Paris tragedy, we all understand that the means of financing terrorism should be severed,” the Russian president said. Russia has also presented satellite images and aerial photos showing the true scale of the Islamic State oil trade.
“I’ve demonstrated the pictures from space to our colleagues, which clearly show the true size of the illegal trade of oil and petroleum products market. Car convoys stretching for dozens of kilometers, going beyond the horizon when seen from a height of four-five thousand meters,” Putin told reporters after the G20 summit. The Russian president also said that Syrian opposition is ready to launch an anti-ISIL operation if Russia provides air support. “A part of the Syrian opposition considers it possible to begin military actions against ISIL with the assistance of the Russian air forces, and we are ready to provide that assistance,” the Russian president said. If this happens, the army of Syrian President Bashar Assad, on the one hand, and the opposition, on the other hand, will fight a common enemy, he outlined.
Russian President Vladimir Putin said Monday that the United States has shown a certain willingness to resume cooperation with Russia in several areas. “It seemed to me that, at least at an expert level, at the level of discussing problems, there was, indeed, a clear interest in resuming work in many areas, including the economy, politics, and the security sphere,” Putin told reporters. Vladimir Putin said that Russia needs support from the US, Saudi Arabia and Iran in the fight against terrorism. “It’s not the time to debate who is more effective in the fight against ISIL, what we need to do is consolidate our efforts,” president Putin added.
“Assuming there were higher powers behind the Russian plane bombing than just a bunch of cave-dwelling a la carte terrorists, those arrested may just be tempted enough by the $50 million award to reveal who the mastermind behind this particular terrorist attack was.”
The world may have moved on from the tragic terrorist attack that took place just three weeks ago above Egypt’s Sinai peninsula, which killed all 224, but for some inexplicable reason Russia refused to admit what was obvious to most from the first minutes since ISIS released a video clip of the midair explosion: that the crash was the result of a bomb set to go off shortly after take off. But no longer. Moments ago the Kremlin confirmed for the first time on Tuesday that a bomb did bring down a Russian passenger plane that crashed over the Sinai Peninsula in Egypt on Oct. 31, killing all 224 people on board. “One can unequivocally say that it was a terrorist act,” Alexander Bortnikov, the head of Russia’s FSB security service, told a meeting chaired by President Vladimir Putin.
Bortnikov added that during the flight, a homemade device with the power of 1.5 kilograms of TNT was detonated. “As a result, the plane fell apart in the air, which can be explained by the huge scattering of the fuselage parts of the plane.” This not the first time that Russia has faced “barbarous terrorist crimes, more often without apparent causes, outside or domestic, as it was with the explosion at the railway station in Volgograd at the end of 2013.” Bortnikov added: “We haven’t forgotten anything or anyone. The murder of our nationals in Sinai is among the bloodiest crimes in [terms of] the number of casualties.” Putin also spoke, vowing to find and punish the culprits behind the Sinai plane attack. “Our military work in Syria must not only continue. It must be strengthened in such a way so that the terrorists will understand that retribution is inevitable.”
“The murder of our people in Sinai is among the bloodiest crimes in terms of the number of victims. We won’t wipe the tears out of our souls and hearts. This will remain with us forever. But it won’t stop us from finding and punishing the perpetrators.” According to RT, Russia will act in accordance with Article 51 of the UN Charter, which provides for countries’ right to self-defense, Putin said. “Those who attempt to assist criminals should be aware that the consequences of such attempts will be entirely their responsibility,” he added. Finally, just to make sure Russia gets its blood debt repaid, The Russian Federal Security Service director also announced a reward of $50 million for information on those behind the terror attack on the A321.
More than half the nation’s governors – 27 states – say they oppose letting Syrian refugees into their states, although the final say on this contentious immigration issue will fall to the federal government. States protesting the admission of refugees range from Alabama and Georgia, to Texas and Arizona, to Michigan and Illinois, to Maine and New Hampshire. Among these 27 states, all but one have Republican governors. The announcements came after authorities revealed that at least one of the suspects believed to be involved in the Paris terrorist attacks entered Europe among the current wave of Syrian refugees. He had falsely identified himself as a Syrian named Ahmad al Muhammad and was allowed to enter Greece in early October.
Some leaders say they either oppose taking in any Syrian refugees being relocated as part of a national program or asked that they be particularly scrutinized as potential security threats. Only 1,500 Syrian refugees have been accepted into the United States since 2011, but the Obama administration announced in September that 10,000 Syrians will be allowed entry next year. The Council on American-Islamic Relations said Monday, “Defeating ISIS involves projecting American ideals to the world. Governors who reject those fleeing war and persecution abandon our ideals and instead project our fears to the world.”
Authority over admitting refugees to the country, though, rests with the federal government – not with the states – though individual states can make the acceptance process much more difficult, experts said. American University law professor Stephen I. Vladeck put it this way: “Legally, states have no authority to do anything because the question of who should be allowed in this country is one that the Constitution commits to the federal government.” But Vladeck noted that without the state’s participation, the federal government would have a much more arduous task. “So a state can’t say it is legally objecting, but it can refuse to cooperate, which makes thing much more difficult.”
Canada’s prime minister Justin Trudeau has faced calls to delay bringing in 25,000 Syrian refugees by the end of the year due to security concerns prompted by the Paris terror attacks. While an online petition against fast-tracking Syrian asylum seekers’ bids to relocate to Canada gained steam, the premier of Saskatchewan province, Brad Wall, urged the prime minister to “suspend” the move. “I understand that the overwhelming majority of refugees are fleeing violence and bloodshed and pose no threat to anyone,” Wall wrote in an open letter. “However, if even a small number of individuals who wish to do harm to our country are able to enter Canada as a result of a rushed refugee resettlement process, the results could be devastating,” he added.
The Islamic State group has claimed responsibility for the bomb and gun attacks that killed at least 129 people in Paris on Friday. In another part of Canada, Quebec Immigration Minister Kathleen Weil said it was still ramping up to welcome the refugees, adding she is confident security will not be compromised. “I did get assurances from [Immigration Minister John] McCallum and [Public Safety Minister] Ralph Goodale that all the measures are being taken to ensure that the newcomers have been properly vetted.” Dueling online petitions for and against a delay, meanwhile, had amassed more than 55,000 and 25,000 signatures, respectively by midday Monday. One cited “national security” concerns in asking for a postponement, while the other blasted the first for stoking “despicable and inhumane xenophobic” attitudes.
The UN has warned of months of extreme weather in many of the world’s most vulnerable countries with intense storms, droughts and floods triggered by one of the strongest El Niño weather events recorded in 50 years, which is expected to continue until spring 2016. El Niño is a natural climatic phenomenon that sees equatorial waters in the eastern Pacific ocean warm every few years. This disrupts regular weather patterns such as monsoons and trade winds, and increases the risk of food shortages, floods, disease and forest fires. This year, a strong El Niño has been building since March and its effects are already being seen in Ethiopia, Somalia, Kenya, Malawi, Indonesia and across Central America, according to the World Meteorological Organisation. The phenomenon is also being held responsible for uncontrolled fires in forests in Indonesia and in the Amazon rainforest.
The UN’s World Meteorological Organization warned in a report on Monday that the current strong El Niño is expected to strengthen further and peak around the end of the 2015. “Severe droughts and devastating flooding being experienced throughout the tropics and sub-tropical zones bear the hallmarks of this El Niño, which is the strongest in more than 15 years,” said WMO secretary-general Michel Jarraud. Jarraud said the impact of the naturally occurring El Niño event was being exacerbated by global warming, which had already led to record temperatures this year. “This event is playing out in uncharted territory. Our planet has altered dramatically because of climate change,” he said. “So this El Niño event and human-induced climate change may interact and modify each other in ways which we have never before experienced. El Niño is turning up the heat even further.”
In 1997, the phenomenon led to severe droughts in the Sahel and the Indian subcontinent, followed by devastating floods and storms, which killed thousands of people and caused billions of dollars of damage across Asia, Latin America and and Africa. The WMO said countries are expected to be much better prepared for a strong El Niño now than they were in 1997, but governments and charities are warning of serious food shortages and floods. “While difficult to predict, the El Niño this year looks set to be the strongest on record. This is a real threat to people’s lives, health and livelihoods across the world, which will see increased calls for humanitarian assistance as people struggle to grow crops, face water shortages and disease,” said a spokeswoman at Britain’s Department for International Development.
Greek authorities say 1,244 refugees and economic migrants have been rescued from frail craft in danger over the past three days in the Aegean Sea, as thousands continue to arrive on the Greek islands. A coast guard statement Monday said rescuers responded to a total 34 incidents since Friday morning, near the islands of Lesbos — where most migrants head — Chios, Samos, Kos, Kalolimnos and Megisti. The count does not include thousands more people who safely made the short but often deadly crossing from nearby Turkey’s western coast.
Greece’s coast guard says a plastic boat carrying refugees or migrants has overturned near the coast of the eastern Aegean island of Kos, killing at least eight people. The coast guard said Tuesday it had rescued seven people and had located eight bodies, two of which were still trapped inside the overturned vessel. Crews were searching for between three and five more people listed as missing. It was not immediately clear how the boat overturned, or what the passengers’ nationality was.
Globalisation is under attack. It was meant to be the unstoppable economic force bringing prosperity to rich and poor alike, but that was before the financial crisis ripped up the rulebook. For the past four years, international trade flows have increased more slowly than global GDP – “an outcome unprecedented in postwar history”, as analyst Michael Pearce of Capital Economics put it in a recent note. Crisis-scarred global banks are retreating from risky cross-border lending, and multinationals are casting a sceptical eye over foreign opportunities as geopolitical tensions simmer. Populist politicians in a string of countries, not least the UK, are playing on public fears about migrant workers undermining their pay.
Global trade flows are still expanding: but they have never regained the breakneck pace of the 1990s and early 2000s. In the innocent days before the Great Recession, the dismantling of trade barriers between nation states often seemed inevitable. Yet more than 13 years after the Doha round of multilateral trade talks kicked off, with the aim of binding developing countries more closely into the international system, the idea of a global trade deal remains locked in the deep freeze. Some analysts are starting to ask: has globalisation come to a halt? The lesson many governments and companies learned from the turmoil that followed the collapse of Lehman Brothers was that there are risks to being too unthinkingly exposed to the ebbs and flows of the international system.
“There’s quite a fundamental shift going on here,” says Professor Simon Evenett, an expert on trade at the University of St Gallen in Switzerland. “You can’t say it’s across the board, but there are some sectors where globalisation is in substantial retreat.” He points to steel, for example, where his recent research shows that trade flows have never returned to pre-2007 levels. “I think the direction of travel is depressing,” he says.
Yes, capitalism is working … for the Forbes Global Billionaires whose ranks swelled from 322 in 2000 to 1,826 in 2015. Billionaires control the vast majority of the world’s wealth, 67 billionaires already own half the world’s assets; by 2100 we’ll have 11 trillionaires, while American worker income has stagnated for a generation. But for the vast majority of the world, capitalism is a failure. Over a billion live on less than two dollars a day. In his “Capital in the Twenty-First Century,” economist Thomas Piketty warns the inequality gap is toxic, dangerous. As global population explodes from 7 billion to 10 billion by 2050, food production will deteriorate. Pope Francis adds, “Inequality is the root of social ills,” fueling more hunger, revolutions, wars.
For years we’ve been asking: Why does the capitalist brain blindly drive down this irrational path of self-destruction? We found someone who brilliantly explains why free market capitalism is hell-bent on destroying itself and the world along with it: Harvard philosopher Michael Sandel, author of the new best seller, “What Money Can’t Buy: The Moral Limits of Markets,” and his earlier classic, “Justice: What’s the Right Thing to Do?” For more than three decades Sandel’s been teaching us why capitalism is undermining human morality … and why we keep denying this insanity. Why do we bargain away our moral soul? His classes number over a thousand. You can even take his course online free. He even summarized capitalism’s takeover of America’s conscience in “What Isn’t for Sale?” in the Atlantic. Listen:
“Without being fully aware of the shift, Americans have drifted from having a market economy to becoming a market society … where almost everything is up for sale … a way of life where market values seep into almost every sphere of life and sometimes crowd out or corrode important values, nonmarket values.” His course should be required for Wall Street insiders, corporate CEOs and all 95 million Main Street investors. Here’s a short synopsis:
“The years leading up to the financial crisis of 2008 were a heady time of market faith and deregulation — an era of market triumphalism,” says Sandel. “The era began in the early 1980s, when Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom.” And in the 1990s with the “market-friendly liberalism of Bill Clinton and Tony Blair, who moderated but consolidated the faith that markets are the primary means for achieving the public good.”
So today, “almost everything can be bought and sold.” Today “markets, and market values, have come to govern our lives as never before. We did not arrive at this condition through any deliberate choice. It is almost as if it came upon us,” says Sandel. Over the years, “market values were coming to play a greater and greater role in social life. Economics was becoming an imperial domain. Today, the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life.”
Wall Street criminals just won’t stop misbehaving. The latest crime was exposed Wednesday. Five of the biggest names in global finance agreed to pay billions to settle lawsuits alleging they illegally gamed the $5 trillion-a-day foreign exchange market. JPMorgan Chase, Citigroup, Barclays, UBS, and RBSpleaded guilty and settled for fines totaling roughly $5.7 billion. A sixth bank, Bank of America, will pay $210 million after being fined by the Fed. With this week’s settlements, big banks have now paid more than $60 billion in fines over the past two years.
“America has become a banana republic run by Wall Street criminals,” Money Morning Capital Wave Strategist Shah Gilani said on Wednesday. Of course, history dictates the fines will have no actual effect on business practices. “We all know the big banks are above the law,” Gilani said. “They are convicted, they admit their guilt (sometimes), and no one goes to jail – they just pay more fines.” Not including this week’s, just look at a few of the settlements too-big-to-fail banks have shelled out in the last five years alone:
In 2015, Deutsche Bank paid a $2.5 billion fine for manipulating benchmark interest rates.
In 2014, Credit Suisse paid $2.6 billion to the U.S. Justice Department for conspiring to aid tax evasion. It was the first financial institution in more than a decade to plead guilty to a crime.
In 2013, Bank of America, JPMorgan, Wells Fargo, and ten other banks paid $9.3 billion to the Office of the Comptroller of the Currency and the Federal Reserve for foreclosure abuses.
In 2013, JPMorgan paid $13 billion to the U.S. Justice Department for mortgage security fraud.
In 2012, JPMorgan, Wells Fargo & Co., Bank of America, Citigroup, and Ally Financial paid $25 billion in penalties for foreclosure abuses.
In 2012, HSBC paid $1.9 billion to U.S. authorities for shoddy money laundering regulations. It was the third time since 2003 HSBC assured the government it would correct its policies.
In 2012, UBS paid $1.5 billion and admitted it manipulated interbank lending rates.
In 2011, Bank of America paid $8.5 billion to mortgage bond holders related to Countrywide.
After a busy week of talks with European leaders aimed at securing support for a deal for Greece, Prime Minister Alexis Tsipras faces challenges on the home front amid tensions with SYRIZA over the terms such an agreement would entail. In a speech to his party’s central committee on Saturday, Tsipras said Greece is “in the final stretch of negotiations” and is ready to accept a “viable agreement” with its creditors but not on “humiliating terms.” He ruled out submitting to irrational demands on value-added tax rates and further labor reform, and called on lenders to make “necessary concessions.” “We have made concessions but we also have red lines,” he said, claiming that some foreign officials were counting on the talks failing.
Although Tsipras reiterated his commitment to the party’s so-called red lines in negotiations, pressure from within SYRIZA not to capitulate to creditors has grown amid rumors that a deal is in the works. In particular, members of the radical Left Platform led by Energy Minister Panayiotis Lafazanis have refused to approve any deal that departs from the party’s pre-election promises. The faction has been working on a counter-proposal for alternative sources of funding. Tsipras and other front-line cabinet members, meanwhile, remain focused on a deal by early June when the country’s next debt repayment to its creditors is due.
But as negotiations continue to drag, sources suggest that the likeliest scenario is a two-stage deal despite Tsipras’s recent insistence on the need for a “comprehensive agreement.” The two-stage deal would comprise an initial agreement that would unlock a portion of rescue loans in exchange for some reforms, most likely tax increases, to keep the country solvent; the second part of the deal would tackle the thorny issues of pension and labor sector reform.
German Finance Minister Wolfgang Schaeuble raised the possibility that Greece may need a parallel currency and European officials are making contingency plans for the Greek banking system as talks on unlocking aid remain stuck. Schaeuble mentioned the idea of parallel currencies at a recent meeting without endorsing it, according to two people who attended. The European Commission is looking at how to manage the possible failure of Greek financial firms and other events that may cause investor losses, two other people said. With Greece’s final €7.2 billion bailout installment on hold, Prime Minister Alexis Tsipras’s latest attempt to bypass finance ministers and secure a political deal failed on Friday.
As Greece faces payment deadlines in the next two weeks, some European policy makers are preparing for the worst while upholding the goal of keeping Greece in the euro. “We need to have the strongest and most complete agreement possible now to secure and facilitate talks for the next deadlines,” French President Francois Hollande said Friday in Riga, Latvia, after he and German Chancellor Angela Merkel met Tsipras. Merkel said there’s “a whole lot to do.” Merkel and Hollande this week gave Tsipras until the end of May to reach a deal to free up aid in return for policy changes demanded by Greece’s creditor. As time runs short, his government has to pay monthly salaries and pensions by next Friday and repay about €300 million to the IMF a week later.
Negotiators from Greece and its creditors are continuing technical talks in the so-called Brussels Group “over the coming days in order to accelerate progress,” European Commission spokeswoman Mina Andreeva said in Brussels on Friday. While Merkel and Schaeuble say they want to keep Greece in the 19-nation currency union, the finance minister has also said he wouldn’t rule out a Greek exit. Germany is “ready to take this brinkmanship very far,” with Schaeuble in the role of “attack dog,” Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington, said by phone. “We’re in this game of chicken. The problem is that Alexis Tsipras is riding a scooter and Wolfgang Schaeuble is driving an armored BMW.”
A Grexit or the introduction of a dual currency is not a solution to Greece’s problems. On the contrary, it would be a worst-case scenario for Greece in the short term. Only in the medium to longer term, the resulting devaluation and improvement of price competitiveness would help businesses active in the export and import substitution sectors. For the euro area, a Grexit or dual currency would be a signal that the currency union is not made forever, even if the situation is much different from 2010-2012 as contagion effects to other euro periphery countries hardly exist today. The negative short-term impact from a Grexit or from a dual currency would push the Greek economy into a very deep crisis and lead to further impoverishment.
The Greek financial sector, which is already rather weak, would be severely affected, particularly by further withdrawals of euros from bank accounts in the course of bank runs (among other aspects). Capital controls can only partly stop this from happening. The problems of the financial sector would lead to a further drying up of credit supply and the danger of bank insolvencies. The risk of insolvency would go much beyond the banking sector and also include businesses and particularly the state. All private and public economic actors with sizeable debts in euros and under foreign law (debt which could not be converted to the new or dual currency) would suffer from higher debt counted in the dual or new currency. This is so because the dual or new currency would devaluate to a large degree versus the euro.
Imagine the balance sheet of a bank or of a company with significant euro debts under foreign law: These liabilities would remain in euro but significant parts of the assets would be converted to the dual or new currency, which then devaluates. This would cut a deep hole in the balance sheet and could well lead to insolvency. A government default is most likely, because foreign debts would remain to a large extent in euros but tax revenues would increasingly come from the new or dual currency. Insolvencies and the drying up of credit supply would lead to a significant rise in unemployment, costing even more people their job. A government default could mean that public wages and pensions cannot be paid for a certain period of time or only in the new weak currency. Moreover, the fiscal problems would further aggravate the state of the economy and of banks that hold government bonds.
After the drachma clauses seen in tourism contracts, foreign tour operators are now forcing hoteliers in Greece to sign contracts with a Greek default clause. Foreign organizers of international conferences have been introducing default clauses to contracts forcing the non-payment of compensation in case the country defaults and they decide to cancel their events. That clause is reminiscent of insurance contracts which stop short of providing for compensation in case of natural disasters, acts of terrorism etc. Kathimerini understands that already one conference organizer, who is to hold an event in this country with the participation of foreign delegates next month, has imposed a “default clause” on the hotel enterprise in order to sign a contract, sparing him from having to pay compensation for canceling the event if Greece defaults.
In the next couple of months hoteliers will, as usual, also have to sign the bulk of their 2016 contracts with representatives of foreign tour operators. Some operators have already told Greek hoteliers that they require extra safety clauses in case the country drops out of the eurozone. Furthermore, the financial terms of contracts will depend on the planned value-added tax hikes on tourism. Hoteliers wonder on what terms they will be asked to sign the contracts, to what extent they can impose price hikes on tour operators and how they will retain their rates competitive in comparison with the hotel rates of other countries such as Turkey, Spain etc.
Representatives of tourism associations estimate that in the event more taxes are introduced, small and medium-sized hotel enterprises – which account for the majority of the country’s accommodation capacity – will see their negotiating position weakened against their foreign clients. The possibility of a VAT hike in Greece has also generated interest in the country’s rivals. A Lesvos hotelier reported that Turkish peers keep asking about any news on a VAT increase on Greek tourism for 2016, saying that a significant price increase on the Greek tourism package would signify a direct advantage for the neighboring country’s tourism market.
Greece, like Italy and Malta, has long been an entry point into the European Union for refugees and economic migrants making the journey by sea. This year, the Greek government expects a massive wave of migrants on the Aegean islands and Crete, fuelled by the protracted war in Syria. The Eastern Mediterranean route is not as deadly for migrants: thirty-one people are known to have drowned in the Aegean Sea this year, compared with an estimated eighteen hundred in the Central Mediterranean, according to figures from the International Organization for Migration. But the number of people arriving in Greece this year rivals the number of those coming to Italy: The I.O.M. says that at least 30,400 migrants have arrived in Greece as of May 12th, compared with thirty-four hundred in all of 2014.
At least 35,100 have arrived this year in Italy. Southern European countries have often felt poorly served by the Dublin Regulation, which dictates that the E.U. nations where migrants first arrive are ultimately responsible for them. Camino Mortera-Martinez and Rem Korteweg of the Centre for European Reform say that a deep divide between Northern and Southern E.U. states has resulted. “Northern member states want an asylum policy that keeps migrants in the South but treats them humanely,” they wrote recently, “while Southern member-states want the North to share the burden by accepting more migrants. The Mediterranean refugee crisis shows that this system is unsustainable.”
What’s also unsustainable, according to Eugenio Ambrosi, who directs the I.O.M.’s regional office for the European Union, Norway, and Switzerland, is the fact that migration has become an electoral issue “easily manipulated by populists who know that fear wins votes.” E.U. politicians have dithered on drafting a common migration and asylum policy because they’re worried about how voters will react. “There’s this attitude of: if your neighbor’s house is on fire, you watch and hope somebody else takes care of them so you don’t have to feed them and give them a blanket,” he said.
Outside a municipal sports building in Alcala de Henares, a small city east of Madrid, crowds are gathering and clusters of balloons are bobbing in the breeze. Just ahead of local elections across Spain, supporters of the new party, Ciudadanos, or “Citizens,” are in high spirits, believing that its phenomenal rise in recent months will soon make it one of the country’s most prominent political forces. Inside, a few minutes later, the party’s 35-year-old leader, Albert Rivera, bounds onto the stage to deliver a powerful message to his electoral rivals. “Some don’t understand what is happening in Spain – we’re not just facing an election day, we’re facing a new era,” he says.
“Whoever can’t understand that isn’t capable of leading the change. Spain is not doing well, it’s only doing well for a few.” This promise by a generation of young Spanish politicians to deliver a “new era” has already altered the country’s political landscape. But on Sunday, when elections are held for control of town and city halls across Spain and for 13 of its 17 regional parliaments, the political map is expected to be drastically redrawn. For the last three-and-a-half decades, the conservative Popular Party (PP) and the Socialists have dominated Spanish politics in a rigid two-party system. But the recent economic crisis and a torrent of corruption scandals have threatened to break that duopoly for the first time in Spain’s democratic period.
Ciudadanos and another new party with a young leadership, Podemos, or “We Can” in Spanish, are the beneficiaries of Spaniards’ disenchantment with the status quo and national polls show them in a four-way virtual tie with the PP and the Socialists. “This election represents a revolution because we’re going to go from having just two parties which are capable of governing, to having a political map on which there are four parties, all of which are capable of governing,” says Jose Ignacio Torreblanca, a political scientist who recently published a book about Podemos.
Pablo Iglesias, leader of the new left-wing party Podemos, says his movement has already “contributed to changing the Spanish political map. We can say that we have made irreversible changes. Nothing will ever be the same again.” Iglesias describes Podemos as a response to a “regime crisis,” in Spain in the aftermath of the global economic crisis and deep austerity politics and that Podemos was born out of “enormous frustration with the economic and political elites, He explained that the rise of Latin American left governments over the past decade represented a “fundamental reference” to the party, but one that cannot be easily reproduced.
While in the beginning, Podemos leaders believed that “a ‘Latin-Americanization’ of Southern Europe” was occurring, reality soon showed that European states were “very strong” meaning “the possibility of transformation |was| very limited.” In Iglesias’ opinion, this difficulty in creating such change explains why the party’s number two, Juan Carlos Monedero, recently resigned from the leadership. But he stressed the important role that social movement have in creating change, explaining that “these social movements allow |the party leaders| to go further, politically, in |their| demands,” referring to the movements against evictions in Spain, for example, or the movements defending education and public health. He added that criticism was a positive pattern inside the party, yet stressing that his leadership was backed by a great consensus.
Regarding differences with the situation in Greece, where the leftist Syriza now forms the government, Iglesias highlighted that because the economic crisis hit Greece much harder than in Spain, “the weakness of the state and the forces in power in Greece were greater,” making it easier for Syriza to make gains. He believes that the political and media establishment feared even more the rise of Podemos than Syriza because of Spain’s greater economic weight.
ECB President Mario Draghi has urged euro zone countries to unite in the task of reforming the bloc’s economies, saying sharing sovereignty was an opportunity and not a threat. Draghi is pushing governments not to waste the time ECB money printing has bought them. Saturday’s appeal to indebted countries to clean up their finances came the day after he warned growth would remain low in the face of unemployment and low investment. In a message read to attendees at a conference in Rome, he said countries should act quickly on recommendations the central bank has made to complete economic and monetary union, many of which have not been carried out.
“The current situation in the euro area demonstrates that this delay could be dangerous,” Draghi said, according to a text of the address released by the ECB, while acknowledging progress had been made, for example with banking union. But private risks need to be shared within the euro zone, with financial integration improving access to credit for companies and leading to a complete capital markets union, Draghi said. Draghi called for stricter and more transparent adherence to existing budgetary rules to help close the gaps among member states in employment, growth and productivity, but said this alone would not be enough.
Countries should observe common standards when implementing structural reforms but also take a country-specific approach, as part of a process of “convergence in the capacity of our economies to resist shocks and grow together”. Thirdly, Draghi said the euro zone should ask whether it had done enough to safeguard the possibility of using budgetary policy to counter the economic cycle, concluding: “I think not.” Many European countries realised only after the debt crisis exploded that their sovereign right to choose their own economic policy would be limited in the monetary union, Draghi said. But working to ensure long-term stability meant sharing control, Draghi said. “What can appear to be a threat is actually an opportunity,” he said.
Structural and cyclical policies – including monetary policy – are heavily interdependent. Structural reforms increase both potential output and the resilience of the economy to shocks. This makes structural reforms relevant for any central bank, but especially in a monetary union. For members of monetary union resilience is crucial to avoid that shocks lead to consistently higher unemployment, and over time, permanent economic divergence. It therefore has direct implications for price stability, and is no less relevant for the integrity of the euro area. This is why the ECB has frequently called for stronger common governance of structural reforms that would make resilience part of our common DNA.
Structural reforms are equally important for their effect on growth. Potential growth is today estimated to be below 1% in the euro area and is projected to remain well below pre-crisis growth rates. This would mean that a significant share of the economic losses in the crisis would become permanent, with structural unemployment staying above 10% and youth unemployment elevated. It would also make it harder to work through the debt overhang still present in some countries. Finally, low potential growth can have a direct impact on the tools available to monetary policy, as it increases the likelihood that the central bank runs into the lower bound and has to resort recurrently to unconventional policies to meet its mandate.
But the euro area’s weak long-term performance also provides an opportunity. Since many economies are distant from the frontier of best practice, the gains from structural reforms are easier to achieve and the potential magnitude of those gains is greater. There is a large untapped potential in the euro area for substantially higher output, employment and welfare. And the fact that monetary policy is today at the lower bound, and the recovery still fragile, is not, as some argue, a reason for reforms to be delayed.
This is because the short-term costs and benefits of reforms depend critically on how they are implemented. If structural reforms are credible, their positive effects can be felt quickly even in a weak demand environment. The same is true if the type of reforms is carefully chosen. And our accommodative monetary policy means that the benefits of reforms will materialise faster, creating the ideal conditions for them to succeed. It is the combination of these demand and supply policies that will deliver lasting stability and prosperity.
Two of the world’s most senior central bankers have hit back at charges that they have become too politicised, saying their calls for governments to take more aggressive steps to steer their economies towards a full recovery were necessary. Mario Draghi, the president of the ECB, and Stanley Fischer, the US Federal Reserve’s vice-chair, also disputed the idea that unelected technocrats should refrain from commenting on governments’ economic policies. The remarks, at the ECB’s annual conference in Sintra, came after Mr Draghi on Thursday called on lawmakers in the eurozone to implement politically unpopular structural reforms, or face years of weak economic growth. The ECB president on Saturday said his calls were appropriate in a monetary union where growth prospects had been badly damaged by governments’ resistance to economic reforms.
Mr Draghi said it was the central bank’s responsibility to comment if governments’ inaction on structural reforms was creating divergence in growth and unemployment within the eurozone, which undermined the existence of the currency area. “In a monetary union you can’t afford to have large and increasing structural divergences,” the ECB president said. “They tend to become explosive.” Mr Draghi’s defence of the central bank came after Paul De Grauwe, an academic at the London School of Economics, challenged his calls for structural reforms earlier in the week. Mr De Grauwe said central banks’ push for governments to take steps that removed people’s job protection would expose monetary policy makers to criticism over their independence to set interest rates.
The ECB president said central banks had a long tradition of commenting on governments’ economic policies, and that they had been right to speak out against wage indexation in the 1970s and fiscal excesses in earlier decades. He said central banks had been wrong to keep quiet on the deregulation of the financial sector. “We all wish central bankers had spoken out more when regulation was dismantled before the crisis,” Mr Draghi said. A lack of structural reform was having much more of an impact on poor European growth than in the US, he added. Mr Fischer said central bankers should think about structural reforms “in the context of what’s the expected growth rate in the economy”. The Fed vice-chair said it was appropriate for monetary policy makers to comment on spending in infrastructure and education because of the impact it had on US growth.
“There is general agreement that US infrastructure could do with a lot of investment. You just have to go on trains in the US or Europe to figure that out,” Mr Fischer told the audience of top academics and policy makers in Sintra on Saturday. He acknowledged there were limits on what was appropriate, saying he would “never talk about whether the defence budget was appropriate”. The passing of the Dodd-Frank Act was a “very massive change in the structure of the financial sector” and was “very important for financial stability going ahead”. Haruhiko Kuroda, the governor of the Bank of Japan who joined Mr Draghi and Mr Fischer on the panel, said he expected inflation to reach 2% around the first half of the 2016 fiscal year.
Part of the secret of China’s success in the past four decades or so has been the clever use of its diaspora. Chinese manufacturers in Hong Kong who had long supplied American partners moved to the mainland and set up factories. Chinese nationals who succeeded abroad brought home trusted contacts, networks, experience, standards, technology and capital. India could do with more of that. Over 27m people of Indian origin, including some temporary migrants, live overseas, many of them in the Gulf. They remit $70 billion a year to their home country, more than any other group of expats. That adds up to 3.5% of India’s GDP, outstripping foreign direct investment. The biggest potential lies with the diaspora in the West. Mr Modi seems to be aware of that.
He has been courting it on visits to America, Australia, Germany and Canada, holding big rallies. Indians abroad heavily backed him in last year’s election, sending millions of dollars as well as people to help. Even in remote corners of Uttar Pradesh, your correspondent bumped into jovial volunteers with American accents. Indians in America are the most promising. They are increasingly prominent in tech companies, on Wall Street and in government, especially in the state department. Around 1% of America’s population, over 3.3m people, are “Asian Indians”. Perhaps 150,000 more arrive each year, and 90% of them stay permanently. Devesh Kapur, who has studied them, talks of a “flood”. He says over half of all Indian-born people in America arrived there after 2000. On the usual measures of success they outstrip all other minorities, including Jewish-Americans.
They are educated and rich. In 2012 some 42% held first or higher degrees; average family income was over $100,000, roughly double that of white Americans (see chart). Over two-thirds of them hold high-status jobs. They have done so well that many migrants from Pakistan or Bangladesh like to call themselves Indian, hoping that some of the stardust will rub off on them. The stereotype of Indians as keeping shops or running motels in their adopted country is thus outdated. An IT professional from Andhra Pradesh would be far more typical. Since the turn of the century America has slurped in highly skilled graduates as fast as India can produce them. America’s H-1B employment visa for skilled professionals tells the story. In a book under review by a publisher, provisionally entitled “The Other One Per Cent”, Mr Kapur and his co-authors note that between 1997 and 2013 half of those visas went to Indians. Since 2009 the share has been more than two-thirds.
A declassified secret US government document obtained by the conservative public interest law firm, Judicial Watch, shows that Western governments deliberately allied with al-Qaeda and other Islamist extremist groups to topple Syrian dictator Bashir al-Assad. The document reveals that in coordination with the Gulf states and Turkey, the West intentionally sponsored violent Islamist groups to destabilize Assad, despite anticipating that doing so could lead to the emergence of an ‘Islamic State’ in Iraq and Syria (ISIS). According to the newly declassified US document, the Pentagon foresaw the likely rise of the ‘Islamic State’ as a direct consequence of the strategy, but described this outcome as a strategic opportunity to “isolate the Syrian regime.”
The revelations contradict the official line of Western government on their policies in Syria, and raise disturbing questions about secret Western support for violent extremists abroad, while using the burgeoning threat of terror to justify excessive mass surveillance and crackdowns on civil liberties at home. Among the batch of documents obtained by Judicial Watch through a federal lawsuit, released earlier this week, is a US Defense Intelligence Agency (DIA) document then classified as “secret,” dated 12th August 2012. The DIA provides military intelligence in support of planners, policymakers and operations for the US Department of Defense and intelligence community. So far, media reporting has focused on the evidence that the Obama administration knew of arms supplies from a Libyan terrorist stronghold to rebels in Syria.
Some outlets have reported the US intelligence community’s internal prediction of the rise of ISIS. Yet none have accurately acknowledged the disturbing details exposing how the West knowingly fostered a sectarian, al-Qaeda-driven rebellion in Syria. Charles Shoebridge, a former British Army and Metropolitan Police counter-terrorism intelligence officer, said: “Given the political leanings of the organisation that obtained these documents, it’s unsurprising that the main emphasis given to them thus far has been an attempt to embarrass Hilary Clinton regarding what was known about the attack on the US consulate in Benghazi in 2012. However, the documents also contain far less publicized revelations that raise vitally important questions of the West’s governments and media in their support of Syria’s rebellion.”
The newly declassified DIA document from 2012 confirms that the main component of the anti-Assad rebel forces by this time comprised Islamist insurgents affiliated to groups that would lead to the emergence of ISIS. Despite this, these groups were to continue receiving support from Western militaries and their regional allies. Noting that “the Salafist [sic], the Muslim Brotherhood, and AQI [al-Qaeda in Iraq] are the major forces driving the insurgency in Syria,” the document states that “the West, Gulf countries, and Turkey support the opposition,” while Russia, China and Iran “support the [Assad] regime.” The 7-page DIA document states that al-Qaeda in Iraq (AQI), the precursor to the ‘Islamic State in Iraq,’ (ISI) which became the ‘Islamic State in Iraq and Syria,’ “supported the Syrian opposition from the beginning, both ideologically and through the media.”
The German government declined to comment on a report that U.S. intelligence agencies were reviewing their cooperation with German counterparts and had dropped joint projects due to concerns secret information was being leaked by lawmakers. Bild newspaper reported on Saturday that U.S. spy chief James Clapper had ordered the review because secret documents related to the BND’s cooperation with the United States were being leaked to media from a German parliamentary committee. A spokesman for the U.S. embassy in Berlin said it does not comment on intelligence matters.
Allegations the BND intelligence agency helped the National Security Agency (NSA) spy on European companies and officials has been major news in Germany for weeks. It has strained Chancellor Angela Merkel’s coalition and damaged her popularity. “The German government puts great faith in the intelligence cooperation with the United States to protect our citizens,” a government spokesman said when asked about the Bild report. “The government doesn’t comment on the details of that cooperation in public but rather in parliament committees.” The newspaper said it had seen documents in which Clapper, director of national intelligence, expressed concern that information on the cooperation from Merkel’s chancellery to the parliamentary committee was leaked and harmed U.S. interests.
Clapper said Germany could no longer be trusted with secret documents, according to Bild, and as long as that is the case U.S. intelligence agencies should examine where to limit or cancel cooperation with Germany. Bild quoted a U.S. official saying the leaks were worse than those attributed to former NSA contractor Edward Snowden. “What the German government is now doing is more dangerous than what Snowden did,” the U.S. official was quoted saying.
Nuclear power plant technicians, senior military officers, FBI contractors and an employee of “a highly-secretive Department of Defense agency” with a Top Secret clearance. Those are just a few of the more than 100 people with sensitive military and government connections that law enforcement is tracking because they are linked to “outlaw motorcycle gangs.” A year before the deadly Texas shootout that killed nine people on May 17, a lengthy report by the Bureau of Alcohol, Tobacco, Firearms and Explosives detailed the involvement of U.S. military personnel and government employees in outlaw motorcycle gangs, or OMGs.
The report lays out, in almost obsessive detail, the extent to which OMG members are represented in nearly every part of the military, and in federal and local government, from police and fire departments to state utility agencies. Specific examples from the report include dozens of Defense Department contractors with Secret or Top Secret clearances; multiple FBI contractors; radiological technicians with security clearances; U.S. Department of Homeland Security employees; Army, Navy and Air Force active-duty personnel, including from the special operations force community; and police officers. “The OMG community continues to spread its tentacles throughout all facets of government,” the report says.
The relationship between OMGs and law enforcement has come under scrutiny after it became known that law enforcement were on site in Waco bracing for conflict. The 40-page report, “OMGs and the Military 2014,” issued by ATF’s Office of Strategic Intelligence and Information in July of last year, warned of the escalating violence of these gangs. “Their insatiable appetite for dominance has led to shootings, assaults and malicious attacks across the globe. OMGs continue to maim and murder over territory,” the report said. “As tensions escalate, brazen shootings are occurring in broad daylight.”
The ATF report is based on intelligence gathered by dozens of law enforcement and military intelligence agencies, and identifies about 100 alleged associates of the country’s most violent outlaw motorcycle gangs and support clubs who have worked in sensitive government or military positions. Those gangs “continue to court active-duty military personnel and government workers, both civilians and contractors, for their knowledge, reliable income, tactical skills and dedication to a cause,” according to the report. “Through our extensive analysis, it has been revealed that a large number of support clubs are utilizing active-duty military personnel and U.S. Department of Defense (DOD) contractors and employees to spread their tentacles across the United States.”
The world-beating surge in Chinese technology stocks is making the heady days of the dot-com bubble look almost tame by comparison. The industry is leading gains in China’s $6.9 trillion stock market, sending valuations to an average 220 times reported profits, the most expensive level among global peers. When the Nasdaq Composite Index peaked in March 2000, technology companies in the U.S. had a mean price-to-earnings ratio of 156. Like the rise of the Internet two decades ago, China’s technology shares are being fueled by a compelling story: the ruling Communist Party is promoting the industry to wean Asia’s biggest economy from its reliance on heavy manufacturing and property development. In an echo of the late 1990s, Chinese stocks are also gaining support from lower interest rates, a boom in initial public offerings and an influx of money from novice investors.
The good news is the technology sector makes up a smaller portion of China’s equity market than it did in the U.S. 15 years ago, limiting the potential fallout from a selloff. The bad news is that any reversal in the industry will saddle individual investors with losses and risk putting an end to the Shanghai Composite Index’s rally to a seven-year high. “Chinese technology stocks do resemble the dot-com bubble,” Vincent Chan, the Hong Kong-based head of China research at Credit Suisse Group AG, Switzerland’s second-biggest bank, said in an interview on April 2. “Given stocks fell 50 to 70% when that bubble burst in 2000, these small-cap Chinese shares may face big corrections when this one deflates.”
China’s government is boosting spending on science and technology as a faltering industrial sector drags down economic growth to the weakest pace in 25 years. In March, Premier Li Keqiang outlined an “Internet Plus” plan to link web companies with manufacturers. Authorities also plan to give foreign investors access to Shenzhen’s stock market, the hub for technology firms, through an exchange link with Hong Kong. Among global technology companies with a market value of at least $1 billion, all 50 of the top performers this year are from China. The sector has the highest valuations among 10 industry groups on mainland exchanges after the CSI 300 Technology Index climbed 69% in 2015, more than three times faster than the broader measure.
Financial assets now represent over 82% of the net worth of both households and U.S. non-financial corporations (Data: Federal Reserve Z.1 Flow of Funds). Except for periods where total net worth had itself retreated (for example, 2008-2010), the concentration of private net worth on financial assets, rather than real assets or productive capital, has reached the highest extreme in history in recent years. In our view, this is just temporarily overvalued paper masquerading as something durable. The previous extreme – again, outside of periods where net worth itself had retreated – was not surprisingly in Q1 of 2000. We are rather helpless observers to this, as we were prior to the last financial crisis, and as we were prior to the technology collapse – despite the same conviction each time that the imbalances and elevated valuations would end badly.
There a strong correlation between private net worth and U.S. market capitalization. Examining the data, we find that the change in private net worth per dollar of change in U.S. market cap is actually about 1.5. That means that stocks have not only a direct impact on total private net worth, but an indirect effect, as many privately held assets such as corporate debt and junk bonds are also correlated with stock price fluctuations. At about $23 trillion in U.S. non-financial equity market capitalization, and over $100 trillion in total U.S. private net worth, a standard, run-of-the mill bear market decline in stocks on the order of 30% would likely be associated with total paper losses in the private sector on the order of $10 trillion.
Meanwhile, much has been made about “cash on the sidelines” held by corporations, where the sum of currency, bank deposits and foreign deposits of U.S. nonfinancial corporations has surged by $700 billion since 2008. What’s typically left out of this observation is that the debt of those same corporations has surged by $1.5 trillion over the same period. As my friend Albert Edwards and his colleagues have demonstrated, much of this debt issuance has been used to finance stock repurchases instead of expanding investments in productive capital. While this process may feel right in an environment of low interest rates and a belief in permanently rising stock prices, it has made corporate balance sheets much more vulnerable to debt refinancing risk down the road, particularly if earnings fall short or credit spreads rise as they have in prior cycles.
Just when debt-addicted American companies were starting to worry that Federal Reserve Chair Janet Yellen was going to take their proverbial punch bowl away, along came Mario Draghi. The ECB president has made borrowing so cheap in the region that foreign corporations are selling record amounts of debt. Forget the deeper, bigger U.S. corporate-bond market. Borrowing in euros is all the rage these days because it’s about 2 percentage points less expensive to do so. About 65% of the record €60 billion of investment-grade bonds sold in March came from overseas companies, according to a March 27 Bank of America report. And a lot of those sellers are based in the U.S.
“The appeal of Europe is likely to continue throughout 2015,” Fitch Ratings analysts Michael Larsson and Monica Insoll wrote in an April 1 report. They predict non-European issuers will sell twice as much euro-denominated debt this year than they did in 2014. The trend comes down to basic math. Yields on investment-grade bonds in Europe have fallen to 0.99%, compared with 2.9% on those in the U.S., according to Bank of America Merrill Lynch index data. Debt is so cheap in Europe that U.S. companies are saving money even if they buy currency hedges that have gotten expensive as the dollar’s soared versus the euro, according to Fitch.
And it’s not just top-rated companies. Speculative-grade borrowers including Huntsman and IMS Health have also headed to Europe to raise cash, according to Fitch. “Riskier credits also achieve a larger discount than stronger names, and this is likely to boost the U.S. high-yield footprint in Europe,” the Fitch analysts wrote. Stimulus-driven “search for yield is pushing European investors into embracing a wider range of credits.” Yields of 4.3% on euro-denominated high-yield bonds are about 2.2 percentage points lower than those on dollar-denominated notes, Bank of America Merrill Lynch data show. So even if the Fed does hike interest rates this year, it may not matter too much to U.S. corporate borrowers. They’ve found, courtesy of Draghi, a new source of financing that is plenty cheap.
The market is sending signals that the Federal Reserve may not make much headway raising interest rates during the next two years—even if central bankers are intent on doing so, Jonathan Golub, chief U.S. market strategist at RBC, said on Tuesday. The Fed will not be able to raise its federal funds rate above 1.5% by the end of 2017, Golub said. If it tries to do so, the dollar will start to rise, putting pressure on the economy and causing the central bank to retreat. “I would love to see the Fed be able to move toward 2%, but with free money in Europe, it’s very hard for them to get tighter,” he told CNBC’s “Squawk Box.” “Are we asking the permission of the Europeans for our central bank policies? I’m not sure, but the market’s saying [we are].”
The Fed faces the challenge of raising rates at a time when European central bankers are suppressing rates by purchasing large amounts of bonds. That monetary policy disparity is expected to send investors flocking to U.S. bonds for higher yields, which would drive up the value of the dollar. The greenback has already run up too far, too fast, Golub said, and while he believes the United States remains strong compared with other economies, no country can weather a 20% move in its currency in eight months without experiencing disruptions. That said, Golub views the lower-for-longer rate policy as bullish for stocks. With investors looking for returns outside the bond market, he sees U.S. equities, excluding the energy sector, returning 12 to 14% in 2015.
“If you look at the average year that you don’t have a recession, the market’s up 18%,” he said. “As long as recessionary risk is away, there’s no reason you won’t get double-digit price returns on the market. People are way too bearish.” Mark Grant, managing director at Southwest Securities, said it would be a “huge mistake” for the Fed to raise interest rates, noting that $5 trillion of bonds around the world have negative interest rates and more than 20 central banks have lowered rates in the last six months. The dollar has been “ravaged” by the European Central Bank’s stimulus program, he added. “For us to raise interest rates in this kind of environment would just be really the wrong, wrong thing,” he said. While the U.S. unemployment rate stands at 5.5% and companies are beginning to raise wages, Europe is essentially exporting deflation, Grant said. Lower oil prices are adding to the deflationary pressures, he said.
The Obama administration’s vain attempt to prevent allies from joining China’s Asian Infrastructure Investment Bank is feeding a growing perception that U.S. influence in Asia is declining and America is losing its 70-year grip on global economic institutions. “This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system,” former Treasury Secretary Larry Summers wrote in an April 5 column in which he also blamed Congress for domestic politicking that has rendered the U.S. “increasingly dysfunctional.” The administration’s campaign against China’s new investment bank stands in contrast to its push for greater regional leadership to battle Islamic extremists, remedy climate change and address other global issues.
And while administration officials argue that domestic economic realities limit America’s ability to police the world, they’re trying to resist the reality of China’s growing economic clout, said a U.S. official who requested anonymity to speak frankly. The U.S. “knows only too well that China is rising and that it wants to reshape the global order, and it is trying to prevent this from happening.” said Tom Miller at Gavekal Dragonomics. That’s leaving the U.S. increasingly isolated. Although the administration has refused to join the $100 billion AIIB and urged others to follow suit, allies such as Australia, the U.K., South Korea, Germany and France are among the more than 40 countries that have joined the new bank, which will fund infrastructure in Asia and be fully established by year’s end.
The U.K. decided that “seeking to ensure that governance is robust from the inside is the best way forward” with the AIIB, British Foreign Secretary Philip Hammond told reporters in Washington March 27. The U.S. has argued that the new bank would lack the lending standards of the World Bank. Despite its chilly relations with China, Japan hasn’t ruled out joining, and Japanese Finance Minister Taro Aso said on Tuesday in Tokyo that he’ll meet his Chinese counterpart, Lou Jiwei, in Beijing in June. “The most damaging part of this at the moment is the reaction of the allies; it’s a real snubbing,” said Mathew Burrows, a former U.S. intelligence analyst who’s now director of the Strategic Foresight Initiative at the Atlantic Council. “I think we fumbled badly, but I’m not convinced that there was any way to get the Chinese to back down on this institution.”
At some point 15 years ought to count for something. After all, it does amount to one-seventh of a century. And during that span we have encompassed several business cycles, two financial crises/meltdowns and nearly a non-stop blitz of “extraordinary” policy interventions. To wit, a $700 billion TARP, an $800 billion fiscal stimulus, upwards of $4.0 trillion of money printing and 165 months out of 180 months in which interests rates were being cut or held at rock bottom levels.
You’d think with all that help from Washington that American capitalism would be booming with prosperity. No it’s not. On the measures which count when it comes to sustainable growth and real wealth creation, the trends are slipping backwards—– not leaping higher.
So here’s the tally after another “Jobs Friday”. The number of breadwinner jobs in the US economy is still 2 million below where it was when Bill Clinton still had his hands on matters in the Oval Office.Since then we have had two Presidents boasting about how many millions of jobs the have created and three Fed chairman taking bows for deftly guiding the US economy toward the nirvana of “full employment”.
When you look under the hood its actually worse. These “breadwinner jobs” are important because its the only sector of the payroll employment report where jobs generate enough annual wage income—about $50k—- to actually support a family without public assistance.
Moreover, within the 70 million breadwinner jobs category, the highest paying jobs which add the most to national productivity and growth——goods production—-have slipped backwards even more dramatically. As shown below, there were actually 21% fewer jobs in manufacturing, construction and mining/energy production reported last Friday than existed in early 2000.
The world’s growth potential took a big hit after the 2007-2009 financial crisis and is likely to lag for years, implying that interest rates should likely stay low for quite a while, the International Monetary Fund said in a study on Tuesday. Potential growth, which gauges how fast economies can grow over time without hitting inflationary speed bumps, already was slowing in richer economies before the financial crisis due to aging populations and a drop in technological innovation. But declines in private investment and employment growth cut annual potential growth in these countries to 1.3% between 2008 and 2014, half a percentage point lower than before the crisis, according to the IMF study.
The study, part of the Fund’s twice-yearly World Economic Outlook, could frame the discussions over how to boost growth when the world’s economic policymakers gather in Washington next week for the IMF and World Bank’s spring meetings. Over the next five years, advanced economies’ annual growth potential should increase to 1.6%, still below pre-crisis growth rates, making it more difficult to cut high public and private debt, the IMF said. With interest rates low, “monetary policy in advanced economies may again be confronted with the problem of the zero lower bound if adverse growth shocks materialize,” the IMF said.
It also said weak demand in the euro zone and Japan could prompt even lower potential growth than forecast. The study comes ahead of the Fund’s global economic forecasts next week. In emerging markets, potential annual growth fell to 6.5% from 2008 to 2014, about 2 percentage points lower than before the crisis, and is expected to fall further to 5.2% over the next five years as populations age, structural constraints curb capital growth, and productivity slows. A projected drop in growth potential for China, the world’s second largest economy, could be even deeper as it transitions away from an investment-led economy to a consumption-based one, the IMF said.
Consumer borrowing in the U.S. increased in February as the value of non-revolving debt climbed by the most since July 2011. The $15.5 billion advance in household credit followed a $10.8 billion gain in January that was smaller than initially reported, Federal Reserve figures showed Tuesday in Washington. A surge in non-revolving loans such as those for automobile purchases and education more than offset the biggest drop in revolving credit since November 2010. Consumers burned by mounting debt during the recession will need to see economic improvement in the way of wage gains and job growth to feel more comfortable boosting their borrowing. While households have been willing to take out loans for education and vehicles, they’ve remained reluctant to break out the plastic for other spending.
The median forecast in a Bloomberg survey of economists called for a $12.5 billion February gain. Estimates of the 31 economists ranged from increases of $5.5 billion to $16 billion. The report doesn’t track debt secured by real estate, such as mortgages and home equity lines of credit. Revolving debt, which includes credit-card spending, decreased by $3.7 billion in February after a $1 billion decline the month before, the figures showed. Non-revolving credit, such as that for college tuition and the purchase of vehicles and mobile homes, increased by $19.2 billion after January’s $11.8 billion gain. Lending to consumers by the federal government, mainly for student loans, rose by $6.4 billion before adjusting for seasonal variations after surging $27.9 billion in January.
Despite being an otherwise staid, traditional news service, the professional banking division of the Financial Times recently released an utterly scathing assessment of the British economy. It was entitled, “The UK economy is a ticking time bomb,” and the editor didn’t pull any punches in completely shattering the conventional fantasy that ‘all is well’, and that advanced economies can simply print and indebt their way to prosperity.
“What is the problem? Quite simply, the key numbers are terrible. According to the OECD, after five years of ‘austerity’ the UK’s budget deficit is 5.3%, down from 11.2% in 2009. “In other words, it has gone from being close to meltdown to a situation that is merely dreadful. “Since the government is spending more than it earns, it is hardly surprising that it is borrowing more, and that the debt-to-GDP has risen from 68.95% in 2009 to 93.30% in 2013, again according to OECD figures.
“As the UK is currently growing it should really be running a budget surplus, providing it with the means to run deficit financing during the next downturn. “This is one of the tenets of the Keynesian philosophy that underpins a lot of left-of-centre economic thinking. “Unfortunately Europe’s political parties of all persuasions have bastardised Keynes’ ideas – running deficits in both good and bad times – so as to render them almost meaningless.
“To make matters worse the UK, again similar to most advanced economies, is an ageing society with pension, welfare and healthcare systems that are wrongly structured and financially unsustainable.” “We can blame the politicians for failing to be honest with the electorate about the challenges ahead. “Or we could blame the voters who punish at the ballot box any party that tells them anything other than good news and wants to hear that taxes can be cut, spending raised and the budget balanced all at the same time.”
The Russian central bank has ruled out joining its global counterparts with a massive bond-buying despite the country sliding into a recession this year. Speaking at a banking conference in Moscow, Russian Central Bank Chair Elvira Nabiullina said that a QE package wouldn’t be applicable for the country and would increase inflation and heighten capital outflows, according to the Dow Jones news agency. The country is due to post negative GDP growth of around 4% in the coming year. Russia has been hit hard by the dramatic fall in oil prices and international economic sanctions following its intervention last year in Ukraine. The Russian ruble has experienced a major selloff due to the economic concerns and was one of the worst-performing currencies of 2014 despite emergency measures by the country’s central bank.
The bank has produced several rate cuts this year and has also performed market interventions by selling its U.S. dollar reserves in the hope of boosting the price of the ruble against the greenback. Nabiullina said Tuesday that she expected a rapid decline in inflation for Russia, if there are no unforeseen shocks, after a weak ruble caused consumer price growth to soar to around 16% in recent months. She also said that the banking sector was strong enough to weather financial difficulties, according to Reuters, and said the bank was ready to continue cutting interest rates as inflation rates fell. “On the whole, we judge the situation in the banking sector as stable,” she said, according to the news agency. “The banking sector maintains a substantial capital buffer and the banking sector is able to counter serious shocks even if crisis phenomena deepen.”
The ruble has actually appreciated this year against the greenback and was higher for the session after Nabiullina’s remarks, close to a 2105 high. Higher oil prices have been seen as the main driver for Russian assets, which have staged a small rebound in recent weeks. Russia’s five-year credit default swaps – the price it costs to insure its debt over a 5-year period – have fallen to multi-month lows in recent sessions and Sberbank – one of its biggest lenders – has recently posted better-than-expected results.
A strange thing is happening as Greece struggles to avert bankruptcy: Its troubled banks are loading up on more debt. These short-term bonds, which have been issued by the country’s largest banks and carry the guarantee of the Greek government, are not being sold to foreign investors. They are being issued to the only entity that would dare buy them: themselves. In the last four months, some of Greece’s largest banks, including Piraeus, Alpha and Eurobank — have self-issued more than €13 billion euros’ worth of these government-guaranteed bonds. Wounded by vanishing deposits and bad loans, Greek bank bonds are about as toxic an investment as can be found. The banks are on life support via an emergency lending program overseen by the ECB, via which they have access to short-term loans from their own central bank.
But to secure this credit line, about €71 billion (more than half the deposits outstanding in Greece), these banks need to provide collateral to the Greek central bank. As was the case in Cyprus during its banking crisis, when a financial system implodes, finding acceptable collateral to swap for desperately needed loans can be difficult. The solution has been for the banks to manufacture and issue billions of euros of short-term bonds, which — because they carry the guarantee of the Greek government — can be used as collateral to secure much-needed cash from the ECB. As long as the bank’s problem is access to short-term funds and not solvency, such machinations can work. In the last year or so, Greek banks have issued more than €50 billion worth of these securities at artificially high interest rates (the higher the rate, the more valuable the collateral becomes in securing loans).
But the strategy has been controversial, and it was criticized by none other than Yanis Varoufakis, the Greek finance minister, who a year ago described the practice as a “hidden bailout from European taxpayers.” Mr. Varoufakis, then a relatively unknown economist, argued that the loans were a potent risk for Greece, which would have to assume responsibility for them if the banks failed. The practice has also been flagged by two German economists as a questionable way for troubled eurozone economies to extract funding from the central bank. Uncomfortable with the amounts of bonds being issued, the ECB said that, as of March, it would no longer accept such paper. But there appears to be no restriction on the banks using these bonds to tap credit from their own central banks, and they have done so. The most recent case occurred Tuesday, when Piraeus, Greece’s largest bank, issued a €4.5 billion note at 6%, which matures in July.
Germany’s economy minister has branded Greece’s demand for €278.7bn in WWII reparations as “stupid”, but the German opposition said Berlin should repay a forced loan dating from the Nazi occupation. The Greek deputy finance minister, Dimitris Mardas, made the demand on Monday, seizing on an emotional issue in a country where many blame Germany, their biggest creditor, for the tough austerity measures and record high unemployment that accompanied two international bailouts totalling €240bn. Sigmar Gabriel, Germany’s minister for economic affairs and vice chancellor, said Greece ultimately had an interest in squeezing a bit of leeway out of its eurozone partners to help Athens overcome its debt crisis.
“And this leeway has absolutely nothing to do with world war two or reparation payments,” said Gabriel, who leads the Social Democrats (SPD), the junior partner in the ruling coalition with chancellor Angela Merkel’s conservatives. Berlin is keen to draw a line under the reparations issue and officials have previously argued Germany has honoured its obligations, including a 115-million deutschmark payment made to Greece in 1960. A spokeswoman for the finance ministry said on Tuesday that the government’s position was unchanged. Eckhardt Rehberg, a budget expert for the conservatives, accused Athens of deliberately mixing the debt crisis and reform requirements imposed by Greece’s international creditors with the issue of reparations and compensation.
“For me the figure of €278.7bn of supposed war debts is neither comprehensible nor sound,” he told Reuters. “The issue of reparations has, for us, been dealt with both from a political and a legal perspective.” But Greece’s demand for Germany to repay a forced wartime loan amounting to €10.3bn found support from the German opposition, with members of the Greens and the far-left Linke party saying Berlin should pay. Manuel Sarrazin, a European policy expert for the Greens, and Annette Groth, a member of the leftist Linke party and chairman of a German-Greek parliamentary group, told Reuters that Berlin should repay a so-called occupation loan that Nazi Germany forced the Bank of Greece to make in 1942.
Berlin and Athens should “jointly and amicably” take any other claims to the International Court of Justice, Sarrazin said. Groth went further, saying: “If you look at Greece’s debt and the ECB’s bond purchases every month, it puts the figure of €278.7bn into perspective.” She said the German government should, at the very least, talk to Athens about how it came up with that figure. “The German government’s categorical Nein certainly cannot be allowed to stand. That’s disgraceful, 70 years after the end of the war,” Groth said.
For a second time within a couple of weeks, Greek Defense Minister and leader of coalition government junior partner Independent Greeks, Panos Kammenos, warned that if the European Union keeps undermining the coalition government and the country exits or is forced to exit the Euro, “waves of migrants: will stream from Turkey to Europe and among them there would be ISIS “radicals.” Speaking to THE TIMES, Kammenos said:
“The gross meddling into [Greek] domestic affairs isn’t just unheard for European standards, it’s unethical and it’s dangerous. If Greece goes, then a lot more than financial stability and the euro is at stake.” “If Greece is expelled or forced out of the eurozone, waves of immigrants without papers, including radical elements, will stream from Turkey and head towards the heart of the West,” Kammenos told The Times.
German government coalition partners, European Parliament President Martin Schulz and “European anonymous sources” have repeatedly and even blatantly expressed the wish that Prime Minister Alexis Tsipras gets rid of nationalist Kammenos and make a coalition with austerity-friendly To Potami and/or even PASOK. Panos Kammenos described these statements and efforts as “bullying” committed by Brussels and Berlin in order to force Greece into “a full and complete economic surrender.” “Europe must realize that maintaining Greece stable, the West front against the Islamic State (ISIS) is safe. But if expelled or forced out of the eurozone, waves of immigrants without papers, including radical elements will stream from Turkey, heading towards the heart of the West. If these waves of immigrants increase, then the threat of incoming extremist elements will grow not for Greece but for the whole of the West.“
Greek Prime Minister Alexis Tsipras will meet Russian President Vladimir Putin on Wednesday. Greece could ask Moscow to bankroll a bailout, Gazprom could agree to a gas discount, or the two sides could talk about how to sidestep EU sanctions. The new 40-year-old leader of one of the world’s most indebted countries with meet with Putin on Wednesday, just one day before the country is due to repay €463.1 million to the IMF. The Greek Prime Minister arrives in Moscow on Tuesday. Is Russia going to bail out Greece? Rumors have been abuzz that Athens and Moscow are plotting a secret bailout ever since the idea was first floated by Russian Finance Minister Anton Siluanov days after the Syriza party won the elections in January. Russian daily Kommersant reported that Moscow is ready to offer indirect financial help, citing an unnamed government source.
“We are ready to consider the issue of allowing Greece a gas discount: under the contract, the gas price is linked to the oil price that has gone significantly lower in recent months,” as Kommersant cites a Russian government source. “We are also ready to discuss the possibility of allowing Greece new loans. But in turn we are interested here in reciprocal moves, in particular in terms of Russia getting certain assets from Greece,” the source added, without specifying the sort of assets he was talking about. Greek Finance Minister Yanis Varoufakis has said that his country “will never ask for financial assistance from Moscow,” in an interview with Zeit online in early February. Wait, does Russia have the money for this? Yes and No.
Government officials have hinted that Russia’s help, if provided, would be indirect. Most economists around the world are more positive about the Russian economy, but everybody agrees it will contract this year between 4 and 3%. Most recently S&P improved its economic outlook for Russia, saying it’ll return to growth in 2016 and add 1.9%. In the first quarter of 2015, the economy expanded 0.4%, and the Russian ruble, which lost nearly 50% in 2014, is now the best performing currency of the year. Though Russia ‘s economy isn’t as strong as it was two years ago, and growth is near zero, it still has a lot saved up for a rainy day – $356 billion in currency reserves as of April and over $150 billion split between the country’s oil reserve funds, the National Reserve Fund and National Welfare Fund. If the Russian economy goes nose first into a recession, these funds are expected to keep the financial situation stable for 2-3 years.
Imports posted a decline for a second consecutive month in February, sliding 14.6% compared to the same month in 2014. When fuel products are excluded, the yearly decline amounts to 6.7%, according to data released on Tuesday by the Hellenic Statistical Authority (ELSTAT). The reason for the drop does not point to any increase in the economy’s self-sufficiency. Rather, as exporters announced on Tuesday, it is mainly due to the lack of liquidity available to Greek enterprises and the pressure on them from foreign suppliers. A key component in this drop is the remarkable decrease in fuel product imports, which is connected to the decline in production activity and the return to economic contraction after a year of relative growth in 2014. There was also a fall in ship imports.
ELSTAT announced that the total value of imports in February amounted to €3.44 billion, against €4.04 billion in February 2014. Imports had contracted by 16% year-on-year in January, reaching €2.14 billion against €3.74 billion a year earlier. Therefore, in the first couple of months of the year there was a total contraction of 15.3% in revenues, or 11% excluding fuel products. Notably, the biggest drop concerned imports from third countries and not from the European Union. Third-country imports declined 31.2%, while imports from within the EU fell by just 6.7%. This suggests that EU imports could constitute a safety cushion for Greece.
The recently adopted QE approach by the ECB, in concert with the negative deposit policy rate (NDPR) introduced last summer, has set off a number of nested disequilibrium dynamics that may unwittingly introduce a material increase in systemic risk for the eurozone, and perhaps beyond. Lord Keynes anticipated what he termed ”euthanasia of the rentiers”, as he expected active monetary policy would be successful in reducing long-term interest rates, and the share of the population living off of bond coupons would eventually just wither away. By way of contrast, if the following assessment is correct, Draghi may have signed a mutually assisted suicide pact with finanzkapital in the eurozone.
The logistics of implementing QE (including questions about adequate bond supply for the ECB to purchase, as well as the related market “liquidity” concerns), or whether or not QE represents what Lord Turner refers to as “open monetary financing”, are not the real problem, or at least not the most compelling ones. Rather, the implementation of QE with a large and increasing share of the bond market displaying negative yields to maturity (NYTM) presents a number of serious challenges to financial stability in the eurozone. To cut to the chase, the ECB’s QE and NDRP measures may be setting investors up for a discontinuous price event, much like what was experienced in the equity market meltdown back in October 1987.
Even if a disruptive yield spike is avoided, or even contained and reversed by ECB heroics, pursuing QE under NYTM market conditions may lead to a significant dampening down of bank and insurance company profitability. In the extreme, the solvency of key eurozone financial institutions could once again come under question. This could further complicate the ECB’s chances of achieving their 2% inflation goal, as it may dampen the bank lending channel as a key transmission mechanism for unconventional monetary policy. The entire set up, in other words, begins to take on many of the characteristics of Andrew Haldane’s Doom Loops. In this case, however, the ECB may unintentionally be setting off nested Doom Loops that will feed on each other, and thereby magnify systemic risks quicker than investors and policy makers might otherwise imagine possible.
One in four houses sold by Auckland’s biggest real estate agency last month fetched more than $1 million. According to Barfoot & Thompson, which released the record-breaking sales figures yesterday, 420 of the 1597 houses sold cost buyers seven figures. At the same time, sales prices increased almost 4% since February, taking the average price of a residence in Auckland to an all-time high of $776,729. The cost is 9% higher than the median for March last year and $17,000 higher than the previous record average price set in December. It indicates the city’s housing market is showing no signs of letting up, as first-home buyers scramble to get on the property ladder.
Barfoot & Thompson managing director Peter Thompson said March was always the most active month for property sales, but last month set a string of new highs. In one fortnight alone, the company sold more than 400 properties each week, the highest two weeks’ trading in its 92-year history. Only March 2003 had bigger sales, when 476 residences sold in seven days. Last week, agents sold a two-bedroom house in Sussex St in Grey Lynn for $1.5 million – 39% above its council valuation. “Buyers remain convinced that with a stable economy, low interest rates and restricted housing availability, buying at current prices is manageable,” said Mr Thompson.
From where I’m standing, the city-sized Baogang Steel and Rare Earth complex dominates the horizon, its endless cooling towers and chimneys reaching up into grey, washed-out sky. Between it and me, stretching into the distance, lies an artificial lake filled with a black, barely-liquid, toxic sludge. Dozens of pipes line the shore, churning out a torrent of thick, black, chemical waste from the refineries that surround the lake. The smell of sulphur and the roar of the pipes invades my senses. It feels like hell on Earth. Welcome to Baotou, the largest industrial city in Inner Mongolia. I’m here with a group of architects and designers called the Unknown Fields Division, and this is the final stop on a three-week-long journey up the global supply chain, tracing back the route consumer goods take from China to our shops and homes, via container ships and factories.
You may not have heard of Baotou, but the mines and factories here help to keep our modern lives ticking. It is one of the world’s biggest suppliers of “rare earth” minerals. These elements can be found in everything from magnets in wind turbines and electric car motors, to the electronic guts of smartphones and flatscreen TVs. In 2009 China produced 95% of the world’s supply of these elements, and it’s estimated that the Bayan Obo mines just north of Baotou contain 70% of the world’s reserves. But, as we would discover, at what cost? Rare earth minerals have played a key role in the transformation and explosive growth of China’s world-beating economy over the last few decades. It’s clear from visiting Baotou that it’s had a huge, transformative impact on the city too. As the centre of this 21st Century gold-rush, Baotou feels very much like a frontier town.
In 1950, before rare earth mining started in earnest, the city had a population of 97,000. Today, the population is more than two-and-a-half million. There is only one reason for this huge influx of people – minerals. As a result Baotou often feels stuck somewhere between a brave new world of opportunity presented by the global capitalism that depends on it, and the fading memories of Communism that still line its Soviet era boulevards. Billboards for expensive American brands stand next to revolution-era propaganda murals, as the disinterested faces of Western supermodels gaze down on statues of Chairman Mao. At night, multicoloured lights, glass-dyed by rare earth elements, line the larger roads, turning the city into a scene from the movie Tron, while the smaller side streets are filled with drunk, vomiting refinery workers that spill from bars and barbecue joints.
Even before getting to the toxic lake, the environmental impact the rare earth industry has had on the city is painfully clear. At times it’s impossible to tell where the vast structure of the Baogang refineries complex ends and the city begins. Massive pipes erupt from the ground and run along roadways and sidewalks, arching into the air to cross roads like bridges. The streets here are wide, built to accommodate the constant stream of huge diesel-belching coal trucks that dwarf all other traffic.
The IMF’s member countries on Saturday said bold action was needed to bolster the global economic recovery, and they urged governments to take care not to squelch growth by tightening budgets too drastically. With Japan’s economy floundering, the euro zone at risk of recession and the U.S. recovery too weak to generate a rise in incomes, the IMF’s steering committee said focusing on growth was the priority. “A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high,” the International Monetary and Financial Committee said on behalf of the Fund’s 188 member countries. The Fund this week cut its 2014 global growth forecast to 3.3% from 3.4%, the third reduction this year as the prospects for a sustainable recovery from the 2007-2009 global financial crisis have ebbed, despite hefty injections of cash by the world’s central banks.
The IMF has flagged Europe’s weakness as the top concern, a sentiment echoed by many policymakers, economists and investors gathered in Washington for the Fund’s fall meetings, which wrap up on Sunday. European officials have sought to dispel the gloom, with European Central Bank President Mario Draghi on Saturday talking about a delay, not an end, to the region’s recovery. But efforts to provide more room for France to meet its European Union deficit target looked set to founder on Germany’s insistence that the agreement on fiscal rectitude was set in stone. The IMF panel urged countries to carry out politically tough reforms to labor markets and social security to free up government money to invest in infrastructure to create jobs and lift growth. It called on central banks to be careful when communicating changes in policy in order to avoid financial market shocks. While not naming any central banks, the warning appeared aimed at the U.S. Federal Reserve, which will end its quantitative easing policy this month and appears poised to begin raising interest rates around the middle of next year.
Six years ago, finance ministers and central bank governors gathered in Washington for the annual meeting of the International Monetary Fund with the global financial system teetering on the brink. It was less than a month since the collapse of the US investment bank Lehman Brothers and in the aftermath no institution, however big and powerful, looked safe. After staring into the abyss, they put together a co-ordinated plan to rescue ailing banks. This was followed by further joint moves when the drying up of credit flows plunged the world economy into recession. A second Great Depression was averted, but only just – and at a price. Last week, the IMF and World Bank celebrated their 70th birthdays, but there was a distinct lack of party atmosphere in Washington. While not as tense as during the dark days of October 2008, the mood was distinctly sombre as the two organisations –created at the 1944 Bretton Woods conference – worked their way through a packed agenda that was dominated by six big themes.
Ever since the global economy bottomed out in the spring of 2009, the hope has been that the world would return to the robust levels of growth seen in the years leading up to the financial crash. Time and again, the optimism has proved misplaced, with the IMF repeatedly revising down its forecasts. This year was no exception. “The recovery continues but it is weak and uneven,” said the IMF’s economic counsellor, Olivier Blanchard, as he announced that at 3.3%, growth rates would be 0.4 points lower than anticipated in the spring. What concerns the IMF is that the slowdown – particularly in the advanced countries of the west – may be permanent. The phrase being bandied around in Washington was “secular stagnation”, the notion that there has been a structural decline in potential growth rates. Blanchard said it was entirely possible that developed countries would never return to their pre-crisis growth levels, and that even achieving the lower rates of expansion now expected would require interest rates to be maintained at historically low levels.
Having failed spectacularly to spot the last financial crisis coming, the IMF is now alert to the possibility that a long period of ultra-low interest rates is storing up problems for the future. José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.” This is not what the central banks intended when they cut the cost of borrowing and cranked up the electronic-money printing presses in the process known as quantitative easing. They expected cheap and plentiful money to rouse the animal spirits of entrepreneurs, encouraging them to invest. Instead, they have provided the casino chips for speculators.
A stronger U.S. dollar is an obstacle to the Federal Reserve’s ability to meet its inflation mandate and will impede growth, Charles Evans, the president of the Chicago Fed, said on Saturday. “It’s a headwind,” Evans told reporters after giving a speech on the sidelines of the International Monetary Fund’s annual meeting. “[A] Higher dollar is going to have an effect on our net exports, it is going to reduce it a bit. And it is also going to lead to lower import prices and likely have an effect that our inflation data will be lower,” Evans said. Earlier, in his speech, Evans said there is “more uncertainty” in the global economic outlook than the Fed had expected. Evans said he was restricting his comments to the effects of the stronger dollar on the U.S. economy and had no comment on U.S. dollar policy. Evans said that he expects the economy to growth at a 3% pace, but because housing isn’t acting as its typical engine of growth, a lot of things have to go right to get that growth rate.
“It is in that context that as I see the global uncertainties at a fairly high level it makes me a little concerned about the forecast,” he said. “It is much too soon to take on any headwinds from around the world,” he added. Experts said the U.S. government would only tolerate a stronger dollar versus the euro as long as European officials follow through with structural reforms. Evans is one of the most dovish of the regional Fed presidents, and said the Fed should wait until early 2016 to raise interest rates. He will be a voting member of the Fed policy committee next year. Evans suggested he would support altering the Fed’s guidance to give some quantitative sense that the central bank would tolerate inflation above 2% for some time, as long as projections did not show prices spiking higher.
Emerging markets face more risks than from the Federal Reserve, John Williams, the president of the San Francisco Fed, said on Saturday. Many experts, including Reserve Bank of India Governor Raghuram Rajan, have urged the Fed to be sensitive to the impact that the timing of its increase in interest rates will have on the developing world. Williams said that market volatility may stem more from the fact that major global central banks are moving in different directions. “Everyone is talking about the Federal Reserve. quite honestly, unconventional policy is going on in Japan and the European Central Bank, so to me it is really the cross currents that really, to my mind, drive the uncertainty and some of that risk out there in global markets.
It is not just what the Fed is doing, it is that fact that different central banks are moving in different directions for appropriate reasons,” Williams said at the Institute of International Finance meeting, taking place on the sideline of the International Monetary Fund’s annual meeting. Higher interest rates are expected to draw back money from riskier markets. Last year, just the suggestion by the Fed that it was thinking about ending its quantitative easing program sparked a selloff in currencies and assets in emerging markets. Andrew Colquhoun, head of Asia Pacific Sovereigns at Fitch Ratings, said recent research by his firm shows that Indonesia, India, Turkey and Brazil might be vulnerable if there were a shock to financial market conditions as a result of the Fed raising rates.
The plethora of banking scandals cannot be written off as just the work of a few bad actors, Federal Reserve Governor Daniel Tarullo said Saturday. In remarks to the Institute of International Finance, Tarullo said that the average U.S. citizen reading the newspaper would be understandably upset after reading stories about bank mortgage fraud, and more recent scandals involving efforts to manipulate the Libor reference rate and allegations of manipulation of foreign exchange rates. “The problem at this juncture is that there are so many problems,” Tarullo said. The institute is meeting on the sidelines of the annual meeting of the International Monetary Fund.
“You can’t just be telling yourself that there are a few apples. There is something about the structure of incentives and expectations within firms that needs to be addressed,” Tarullo said. “ I think a lot of boards, and management, know it needs to be addressed.” Tarullo is the Fed’s point man on bank regulation. In other remarks, Tarullo said it was premature to declare that the problem of too-big-to-fail banks has been solved, noting that cross-border complications remain. As the Fed puts higher liquidity and capital standards on the biggest banks, Tarullo said the central bank will be watching closely to see if any activities move into the shadow banking sector. “That is something we are all going to need to keep a watch on and make sure risk is not building up in other places in the system.”
Heeding global calls for action to shore up Europe’s sagging economy, euro zone’s top finance official proposed a new growth pact on Friday to break a policy logjam and spur reforms by rewarding countries with cheap funds and leeway on budget targets. The International Monetary Fund, which cut its global growth forecasts for the third time this year this week, flagged Europe’s weakness as the top concern, a sentiment echoed by many policymakers, economists and investors. European officials in Washington for the IMF and World Bank annual meetings sought to dispel the gloom, with European Central Bank President Mario Draghi talking about a delay, not an end, to the region’s recovery. Jeroen Dijsselbloem, the chairman of euro zone’s finance ministers, used the forum to propose a new “growth deal” for Europe offering nations embarking on ambitious economic reforms more fiscal wiggle room and low-interest EU funds.
“There is no reason for this gloominess about Europe,” Dijsselbloem told Reuters. “Those countries that have actually implemented the strategy and done the reforms, have returned to growth, in southern Europe, in the Baltics, in Ireland. Which once again proves that reforms do not hurt growth, but help recovery quite quickly.” It would take months of political negotiations for the proposed pact to take shape. In the meantime, a steady stream of poor economic data looks set to keep Europe’s partners on edge. “The biggest risk to the global economy at the moment … is the risk of the euro zone falling back into recession and into crisis,” British finance minister George Osborne told reporters.
The leader of an influential Italian Eurosceptic political party, the Five Star Movement (M5S), says he will collect one million signatures required to petition the Parliament to conduct a referendum on Italy leaving the Eurozone as soon as possible. The Italian government is not effective in restoring jobs and helping people, said Beppe Grillo, the leader of Italy’s anti-establishment M5S, which burst onto the political scene last year winning 25% of the vote in its first parliamentary election in 2013. “Leave the euro and defend the sovereignty of the Italian people from the European Central Bank,” Grillo told his supporters at a M5S event in Rome. “We have to leave the euro as soon as possible,” he said. “We will collect one million signatures in six months and bring them to the Parliament to ask for a referendum to express our opinion.” Grillo hopes his party’s recent success and growing support will allow them to gather enough signatures and push the idea through the Parliament by December 2015.
“This time, we have 150 parliamentarians and senators, and we have time to submit [the signatures] to the Parliament and adopt a law on the referendum,” Grillo said referring to 109 seats out of 630 in the Chamber of Deputies and 54 seats out of 315 in the Senate that his party holds. The constitution of Italy prohibits popular referendums on financial laws and ratifications of international treaties, but in any case the move will send a clear message to the government, Grillo believes. The Five Star Movement was started by Grillo in 2010 and has made a splash at local elections, receiving the third highest number of votes overall and winning the mayoral election for Parma before the success in general election. In the 2014 European election, M5S came in second place nationally, taking 17 of Italy’s seats in the European Parliament.
Beppe Grillo was a popular comedian on Italian television in 80s, but he disappeared from the screen in the 90s, with many suggesting that his harsh satire was too much to handle for Italian politicians. After that he mainly performed in theatres and staged a series of mass rallies, protesting against the criminal activities of the Italian political elite. At a time when unemployment in the Eurozone’s third largest economy is running above 12% and all-time high of 44% for Italians under the age of 25, Grillo’s belief in direct participation through forms of digital democracy might be the only way to get Italian frustration across. Although the IMF predicts Italy’s recession will break in 2015, when the growth is expected to reach 1.1%, the country is struggling to keep its budget deficit below the EU’s cap of 3% of GDP.
THE Sala Verde (green room) in the prime minister’s official residence, Palazzo Chigi, in Rome has in the past been the scene of three-way talks between the government, the unions and employers that lasted for days. It was to this chamber that Matteo Renzi, the present prime minister, invited representatives of both sides on October 7th to discuss a revamped employment bill crucial to his government’s credibility as a liberalising administration. He gave them each 60 minutes, starting at 8am. “Only once before has [such] an absence of social dialogue been seen in Europe,” spluttered Susanna Camusso, leader of the biggest trade union federation. “With Thatcher.” But in Italy, where “face” can be as important as it is in several East Asian countries, appearances are one thing and substance another. The employment bill, which passed its first test in the Senate a day later, is far from Thatcherite. It aims to give most new employees gradually increasing job security, potentially improving the lot of young Italians who now often work only on short-term contracts.
But it leaves to enabling legislation the fate of Article 18, an emblematic provision in Italian labour law that makes it almost impossible for companies with more than 15 staff to dismiss workers on open-ended contracts (even if, in practice, most employees are willing to negotiate a settlement). It is too early to assess the likely impact of the bill. It will be heavily conditioned by further legislation, some of it not due for approval until next year. But it is nevertheless Mr Renzi’s first big structural economic reform, and as such it is a much-needed prize for the euro zone’s austerity hawks. With Italy mired yet again in recession and GDP in real terms below its level in 2000, never mind 2008 (see chart), Mr Renzi is desperate for the hawks to take a more flexible view of his budget deficit so as to sustain demand. “Either we promote growth, or the euro is finished,” he says.
This week the IMF reduced its forecast for Italian GDP growth this year to minus 0.2%, from plus 0.3% previously. Not even Italy’s innately optimistic prime minister expects it to get above 1% in 2015. His country’s public debt, already 135% of GDP, continues to grow despite relatively tight fiscal policy. One reason for the brevity of Mr Renzi’s talks with the unions and employers was that he wanted them out of the way before racing his employment bill into the Senate so as to coincide with a one-day European Union jobs summit that he was hosting in Milan on October 8th (Italy occupies the rotating EU presidency until the end of the year). To get the bill approved in the face of misgivings on the left of his Democratic Party (PD) and in other parties, Mr Renzi staked the fate of his government, turning the vote into one of confidence. The result was a tumultuous session in the upper house. No fewer than 26 PD senators put their names to a document criticising the lack of detail in the bill.
Beppe Grillo’s Five Star Movement (M5S) also objected to the government’s being given such wide powers to frame the enabling legislation. Some M5S senators threw coins at the government benches; their leader was expelled from the chamber. A lengthy break in the proceedings failed to calm the mood. At one point, a book was hurled at the speaker after he refused to postpone the vote. The bill eventually passed with 165 in favour and 111 against. The passage of this and other reforms is vital if Mr Renzi is to convince Germany and other euro-zone austerians to cut him enough budgetary slack in order to boost growth. For the time being, and unlike France’s leaders, he says he is prepared to stick to the euro zone’s deficit ceiling of 3% of GDP: “An absolute must, for reasons of credibility,” he insists. Yet Italy was originally meant to get the deficit this year down to 2.6%. It stands to lose some EU co-financing if its deficit rises above 3%.
Italy’s opposition party, the Five Star Movement has launched a three-day gathering in Rome, attended by thousands of people from across the country. As discontent and disillusion continue to grow in the country, an increasing number of Italians are opting to line up with the Five Star Movement which has taken a hard-line on Italy’s old guard of politicians. Many hold traditional politics responsible for the country’s high level of corruption and skyrocketing unemployment rate. The 5-Star Movement is well known for its anti-establishment agenda. The movement has announced that it would use obstructionism in the parliament against all government measures after an executive’s controversial labor market reform bill recently won a confidence vote in the Senate. During the gathering, the movement leader Beppe Grillo has once again accused Italian media of staging disinformation campaigns against his movement. Also, the 5-Star Movement members of the parliament are currently not attending TV shows as a sign of protest.
Tens of thousands of people rallied against new water bills in Dublin on Saturday in Ireland’s biggest anti-austerity protest for years as a candidate calling for a boycott of the charges was elected to parliament in a by-election. After years of free water services, the centre-right coalition has decided to charge households hundreds of euros from the start of next year, an unpopular move just 18 months before the next election where the government parties hope to be rewarded by voters for an economic upturn. Ireland has seen relatively few protests compared to other bailed-out euro zone members such as Greece and Portugal, but Saturday’s protesters said the water charges were a step too far. “There is absolute fury against what the government has imposed on the people,” said Martin Kelly, 50, a rail worker holding a placard calling for the government to “stop the great water heist.” “They say this is the last bit, but it’s the hardest. People can’t take any more,” he said.
Since completing an international bailout last year, Ireland has been bucking the trend in Europe’s stalled economic recovery, with the government forecasting gross domestic product to grow by 4.7% this year. The improvement has allowed the government to promise its first budget without any new austerity measures in seven years on Tuesday, but opposition groups say working people are not feeling the upturn. More than one in 10 are unemployed and more than 100,000 mortgage holders in arrears in a population of 4.6 million. Paul Murphy from the Anti-Austerity Alliance, whose campaign was dominated by a call to boycott the water charges, won the parliamentary seat in the Dublin South West constituency that was vacated by a member of the governing Fine Gael party who was elected to the European Parliament. Murphy, told supporters: “Recovery is for the rich, it’s for the 1% … it’s not for the working class people.” His supporters chanted: “No way, we won’t pay.”
The U.S. Department of Justice (DOJ) is seeking “total cooperation” from Swiss banks in a draft agreement aimed at allowing the banks to make amends for aiding tax evasion by wealthy Americans, a Swiss newspaper reported on Saturday. About 100 Swiss banks signed up to work with U.S. authorities at the end of last year in a program brokered by the Swiss government. That followed criminal investigations of roughly a dozen Swiss banks in the United States. Under the program so-called category two banks – those that have reason to believe they may have committed tax offenses – will escape prosecution if they detail their wrongdoing with U.S. clients and pay fines.
These banks have now received a draft non-prosecution agreement from the United States, which would require them to report in full to U.S. authorities any information or knowledge of activity relating to U.S. tax, the the Neue Zuercher Zeitung (NZZ) said, citing unnamed banking sources. These requirements would also apply to parent companies, subsidiaries, management, workers and external advisors, the NZZ reported. This total cooperation would, in addition, not only apply with respect to the DOJ and the Internal Revenue Service, but also to anyone, even foreign law enforcement agencies, that the DOJ is supporting in its investigations,” the NZZ reported. It said that no end date for this cooperation was given in the draft.
As ISIS continues to advance on the Syrian town of Kobani and close in on Turkey’s border, experts in Islamic radical movements think the terror group may merge with its al-Qaeda mother organization soon. Together, the group would represent the greatest terror threat to the civilized world. “I think Britain, Germany and France will witness significant attacks in their territories by the Islamic State. Al-Baghdadi [the leader of the Islamic State of Iraq and Syria, otherwise known as ISIS] may reconcile with al-Zawhiri [the leader of the al-Qaeda central organization] to fight the crusader enemy. The attacks by the United States and her allies will unite the two groups,” said Hisham al-Hashimi, an Iraqi researcher who just finished writing a book about ISIS based on his unique access to the organization’s documents and years of research and advising Iraqi security forces.
“I have been monitoring al-Qaeda’s leaders’ rhetoric towards Baghdadi. They are getting softer and softer….The Islamic State, regardless of how big or small it becomes, will come back to its mother: al-Qaeda,” he added. ISIS and al-Qaeda have a long, tangled history with one another. ISIS was the al-Qaeda official branch in Iraq until last February. However, they finally split after disagreements over operations in Syria. The recent US intervention in the region along with the new US-led airstrike campaign against ISIS has actually forced the two groups to renew negotiations. For example, recent reports suggested that ISIS and al-Nusra Front are together planning the war against the US-led alliance. The al-Qaeda affiliated Khorasan group in Syria that was also targeted in the recent air attacks declared a few days ago in an audio message that it had joined ISIS. Add to that the Taliban in Pakistan who are hopping on board the ISIS train and you have a potential jihadi World War III.
The drop in global oil prices should not affect the spending plans of oil-producing countries in the Middle East in the near-term given their large financial reserves, the head of the IMF’s Middle East and Central Asia Department said on Friday. The official, Masood Ahmed, told reporters that every oil producer in the region outside of the Gulf Cooperation Council and Bahrain were running fiscal deficits, and that the drop in prices would push those budget gaps even wider. However, he said their sizable financial reserves would allow those countries to continue with their spending plans in the short-term, although the price drop has raised a longer-term issue.
Criminal gangs are plotting a $1 billion (£618 million) cyber-heist on global financial institutions, Europol has warned, as they ratchet up the pressure on banks reeling from the record-breaking hit on JPMorgan Chase. Secret listening on internet chatrooms by the European police investigative body has discovered planning by sophisticated Russian cyber-criminals aimed at pulling off one massive hit on a bank. “We have intelligence and information about planning in this direction,” Troels Oerting, pictured, head of Europol’s European Cybercrime Centre in The Hague, said. Bank insiders are being groomed, says Europol, to put in place programs that will override monitoring apparatus. These insiders will close down alarm systems designed to alert staff when large amounts are unexpectedly transferred out of a bank. “The criminals don’t want to make thousands of small thefts,” said Oerting. “Instead they want one big one on a financial institution.”
The $700 trillion financial derivatives industry has agreed to a fundamental rule change from January to help regulators to wind down failed banks without destabilizing markets. The International Swaps and Derivatives Association (ISDA) and 18 major banks that dominate the market will now allow financial watchdogs to apply temporary stays to prevent a rush to close derivatives contracts if a bank runs into trouble, the ISDA said on Saturday. A delay would give regulators time to ensure that critical parts of a bank, such as customer accounts, continue smoothly while the rest is wound down or sold off in an orderly way. That would help to avoid the type of market chaos sparked by the collapse of Lehman Brothers in 2008 and also end the problem of banks being considered too big to fail. The Financial Stability Board (FSB), a regulatory task force for the Group of 20 economies (G20), had asked the ISDA to make the changes with the aim of ending the too-big-to-fail scenario in which banks are propped up with taxpayer money to avoid market disruption.
Under the new contract terms, default clauses in derivatives contracts such as interest rate or credit default swaps would be suspended for a maximum of 48 hours. “Ending too-big-to-fail is going to be an evolutionary process, but the agreement of the first wave of banks to sign the protocol is a big step forward,” ISDA Chief Executive Scott O’Malia said. The ISDA template for millions of derivatives trades will now include the possibility of stays on both new and existing contracts, with the 18 leading players—including the likes of Credit Suisse and Goldman Sachs —agreeing to change their contracts from January. Many derivatives are traded among banks. “Well over 90% of the outstanding derivatives notionally held by the G18 banks will be covered with stays, which will give regulators some time to deal with a resolution of a bank in an orderly way,” O’Malia said.
China, the world’s top coal importer, will levy import tariffs on the commodity after nearly a decade, in its latest bid to prop up ailing domestic miners who have been buffeted by rising costs and tumbling prices. The sudden move by China to levy import tariffs of between 3% and 6% from October 15 is set to hit miners in Australia and Russia – among the top coal exporters into the country. Traders said Indonesia, the second-biggest shipper of the fuel to China, will be exempt from the tariffs since a free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) means Beijing has promised the signatory nations zero import tariffs for some resources. A 3% import tariff imposed on lignite last year did not include Indonesia. “China is clearly moving to protect its local miners. Given that the tariff also covers coking coal, Australia, being the top supplier to China, is likely going to be the most affected,” said Serene Lim, an analyst at Standard Chartered.
The Ministry of Finance said in a statement on Thursday that import tariffs for anthracite coal and coking coal will return to 3%, while non-coking coal will have an import tax of 6%. Briquettes, a fuel manufactured from coal, and other coal-based fuels will see their import tariffs return to 5%. Import taxes for all coals, with the exception of coking coal, was at 6% prior to 2005 before they were scrapped in 2007. Coking coal import taxes were set at 3% before being abolished in 2005. News of the tariff lifted China’s thermal coal futures by 1.9% to 529.2 yuan ($86.33) a tonne, while China-listed shares in top miners such as Shenhua Energy and China Coal Energy also rose. Chinese traders were only willing to pay about $65 a tonne for coal with heating value of 5,500 kcal/kg (NAR) on a landed basis before the tariff was announced, against offers of about $66 a tonne by Australians, traders said. “With the latest tax, Chinese can only offer around $62, which means Australian sellers will need to cut prices by about $3.50-$4 a tonne,” said a senior trader at major international trading house. “It is game over for Australian coal.”
Four in 10 Australians who rely on social welfare payments – and nearly half of people on the disability support pension – are living below the poverty line, according to a major new report. The research, published by the Australian Council of Social Services (Acoss), found that more than 2.5 million – or one in seven – Australians were living in poverty in 2012, a slight increase on the same survey two years earlier. Nearly 18% of children live beneath the poverty line, one-third of them in sole-parent families, Acoss found. The governor general, Peter Cosgrove, said the report revealed the problem of poverty in Australia to be “insidious and all-encompassing”. “It deprives [the poor] of their freedom and assaults their dignity. As a nation we can’t allow it to continue,” he told the launch of Anti-Poverty Week in Sydney.
The chief executive of Acoss, Dr Cassandra Goldie, said the findings were “deeply disturbing and highlight the need for a national plan to tackle the scourge of poverty which diminishes us all in one of the wealthiest countries in the world”. Single adults on less than $400 per week, and families with two children on less than $841 each week, were deemed as living below the poverty line. More than half of Australians on the Newstart Allowance, 48% of disability pensioners and 15% of aged pensioners struggle to meet basic living costs, the report says. “This finding brings into focus the sheer inadequacy of these allowance payments which fall well below the poverty line,” Goldie said. The maximum payment for a single person on Newstart is $303 per week, nearly 25% less than what is required to stay out of poverty.
Tumbling oil prices are starting to frighten energy companies around the globe, especially drillers in North America, where crude is expensive to pump. Global oil prices have fallen about 8% in the past four weeks. The European oil benchmark closed Thursday at $90.05 a barrel, its lowest point in 29 months. The price of a barrel in the U.S. closed at $85.77, its lowest since December 2012. Weakening oil prices could put a crimp in the U.S. energy boom. At $90 a barrel and below, many hydraulic-fracturing projects start to become uneconomic, according to a recent report by Goldman Sachs Group Inc. While fracking costs run the gamut, producers often break even around $80 to $85.
Paul Sankey, an energy analyst with Wolfe Research LLC, said the first drillers to react to declining crude prices would be some in the least productive fringes of North Dakota’s Bakken Shale. “We’re not quite there yet,” he said, but a further drop of $4 or $5 a barrel will force companies to begin trimming their capital budgets. Shares of Continental Resources and Whiting Petroleum, which are focused in the Bakken, fell by more than 5% each on Thursday. Shares of major shale-oil and gas developer Chesapeake Energy fell 7%. Jim Noe, executive vice president at Hercules Offshore, a Houston-based drilling-services company with rigs in the Gulf of Mexico, the Mideast, India and West Africa, said companies such as his are monitoring weak oil prices closely. Hercules said its business was affected by a slowdown in drilling activity in the second quarter. Hercules’s stock fell 6.3%.
The fundamental problem is that the world is awash with oil, but demand for energy is growing more slowly amid tepid economic growth around the globe, especially in China. Companies are always reluctant to be the first to cut their energy output, hoping that others flinch first. And hedging can help companies weather temporary drops. The overall U.S. economy, and especially industries such as refining and air travel, would benefit from lower oil prices. Some U.S. oil fields, including the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even at much lower oil prices.
Desperate for a fresh start, unemployed workers from all over the world have converged on North Dakota’s burgeoning oil patch, seeking six-figure salaries and the rewards of living in the fastest-growing economy in the nation. But award-winning documentary “The Overnighters,” opening in New York on Friday before expanding nationally, shows the bleak side of that American Dream and the complex efforts of one man to be a Good Samaritan. “The film does show how much harder it is to survive here than people think,” filmmaker Jesse Moss told Reuters. “The Overnighters” tracks the men, and a handful of women, whose dreams of wealth and redemption from past mistakes collide with unwelcoming residents and limited housing in Williston, the epicenter of the energy boom in North Dakota, where more than 1 million barrels of oil are produced monthly.
Lutheran pastor Jay Reinke offers down-on-their luck emigrants a place to sleep inside his church while they acclimate, labeling the newcomers as “overnighters.” About 1,000 took up his offer over a period of about two years. That decision quickly becomes unpopular with the Williston establishment and nearly tears Reinke’s church and family apart. “The people arriving on our doorsteps are gifts to us,” Reinke says in the film. “Not only are these men my neighbors, the people who don’t want them here are also my neighbors,” adds Reinke, a tall, effusive man who spent 20 years pastoring to the community in obscurity. The film won a special jury prize at the Sundance Film Festival in January and has generated widespread acclaim. Variety magazine compared it to a John Steinbeck tale from the Great Depression of the 1930s, and The Hollywood Reporter called it “a sobering illustration of the tenuousness of stability in 21st-Century America.”
A Texas health care worker who treated US Ebola victim Thomas Duncan before his death has tested positive for the virus, officials say. “We knew a second case could be a reality, and we’ve been preparing for this possibility,” said Dr David Lakey, commissioner of the Texas Department of State Health Services. Mr Duncan, who caught the virus in his native Liberia, died at a Dallas hospital on Wednesday. The health worker has not been named.
Mr Duncan tested positive in Dallas on 30 September, 10 days after arriving on a flight from Monrovia via Brussels. He became ill a few days after arriving in the US, but after going to hospital and telling medical staff he had been in Liberia, he was sent home with antibiotics. He was later put into an isolation unit at Texas Health Presbyterian Hospital in Dallas but died despite being given an experimental drug. It is not clear at which point the health worker, who has tested positive in a preliminary test, came into contact with Mr Duncan.
The investigative journalist Glenn Greenwald has found a second leaker inside the US intelligence agencies, according to a new documentary about Edward Snowden that premiered in New York on Friday night. Towards the end of filmmaker Laura Poitras’s portrait of Snowden – titled Citizenfour, the label he used when he first contacted her – Greenwald is seen telling Snowden about a second source. Snowden, at a meeting with Greenwald in Moscow, expresses surprise at the level of information apparently coming from this new source. Greenwald, fearing he will be overheard, writes the details on scraps of paper.
The specific information relates to the number of the people on the US government’s watchlist of people under surveillance as a potential threat or as a suspect. The figure is an astonishing 1.2 million. The scene comes after speculation in August by government officials, reported by CNN, that there was a second leaker. The assessment was made on the basis that Snowden was not identified as usual as the source and because at least one piece of information only became available after he ceased to be an NSA contractor and went on the run.