May 192018
 


Vincent van Gogh Landscape with Couple Walking and Crescent Moon 1890

 

Train Crash Preview (Mauldin)
Bear Market Repo’s (Roberts)
Mushrooming Matrix of Scandals (Jim Kunstler)
Italy’s New Parallel Currency Plan (ZH)
Italy’s Populist Coalition Government Poses New Threat To Eurozone (Ind.)
Trump Drives Wedge Between Germany and France (Spiegel)
Putin Seeks Common Cause With Merkel Over Trump (R.)
EU Considers Iran Central Bank Transfers To Beat US Sanctions (R.)
Common Fungal Infections Becoming Incurable (Ind.)

 

 

Mauldin sees a Jubilee in your future.

Train Crash Preview (Mauldin)

Unemployment may approach the high teens by the end of the decade and GDP growth will be minimal at best. What do you call that condition? Certainly not business as usual. Long before that happens, the Federal Reserve will have engaged in massive quantitative easing. There’s a lot of misunderstanding about QE, so let me clarify something important. Quantitative easing is not about “printing money.” It is buying debt with excess bank reserves and keeping that debt on the Fed’s balance sheet as an asset. The Bank of Japan is an example. They did not put currency (yen) into the market. That’s how Japan still flirts with deflation and its currency has gotten stronger. QE is the opposite of printing money, though there is a relationship. That’s one reason central bankers like it.

As this recession unfolds, we will see the Fed and other developed world central banks abandon their plans to reverse QE programs. I think the Federal Reserve’s balance sheet assets could approach $20 trillion later in the next decade. Not a typo—I really mean $20 trillion, roughly quintuple what they did after 2008. They won’t need to worry about the deflation that usually accompanies such deep recessions (dare we say depression?) because the Treasury will be injecting lots of high-powered money into the economy via deficit spending. But since we have never been in this territory before, I must say this is only my guess.

If that’s what they do, will it work? No. The world simply has too much debt, much of it (perhaps most) unpayable. At some point, the major central banks of the world and their governments will do the unthinkable and agree to “reset” the debt. How? It doesn’t matter how, they just will. They’ll make the debt disappear via something like an Old Testament Jubilee. I know that’s stunning, but it’s really the only possible solution to the global debt problem. Pundits and economists will insist “it can’t be done” right up to the moment it happens—probably planned in secret and announced suddenly. Jaws will drop, and net lenders will lose.

Read more …

“A 50% decline wipes out 100% of the previous gain. ”

Bear Market Repo’s (Roberts)

An interesting email hit my desk this morning: “The stock market goes up 80% of the time, so why worry about the declines?” Like a “bull” – rising markets tend to be steady, strong and durable. Conversely, “bear” markets are fast “mauling”events that leave you deeply wounded at best and dead at worst. Yes, the majority of the time the markets are “bullish.” It’s the “math” that ultimately gets you during a “bear” market. The real devastation caused by “bear market” declines are generally misunderstood because they tend to be related in terms of percentages. For example: “Over the last 36-months, the market rose by 100%, but has recently dropped by 50%.”

See, nothing to worry as an investor would still be ahead by 50%, right? Nope. A 50% decline wipes out 100% of the previous gain. This is why looking at things in terms of percentages is so misleading. A better way to examine bull and bear markets is in terms of points gained or lost. Notice that in many cases going back to 1900, a large chunk of the previous gains were wiped out by the subsequent decline. (A function of valuations and mean reversions.) Recently Upfina posted a great chart on “Bear Market Repo’s” which illustrates this point very well. To wit:

“Many confuse bear markets with being black swan events that cannot be predicted, however, this is a faulty approach to investing. The economy, market, and nature itself move in cycles. Neither a bear market nor a bull market last forever and are actually the result of one another. That is to say, a bear market is the author of a bull market and a bull market is an author of a bear market. Low valuations lead to increased demand, and high valuations lead to less demand.”

Read more …

“I won’t be completely satisfied until the editors of The New York Times have to answer to charges of sedition in a court of law.”

Mushrooming Matrix of Scandals (Jim Kunstler)

[..] a great deal is already known about the misdeeds surrounding Hillary and her supporters, including Mr. Obama and his inner circle, and some of those incriminating particulars have been officially certified — for example, the firing of FBI Deputy Director Andrew McCabe on recommendations of the Agency’s own ethics committee, with overtones of criminal culpability. There is also little ambiguity left about the origin of the infamous Steele Dossier. It’s an established fact that it was bought-and-paid-for by the Democratic National Committee, which is to say the Hillary campaign, and that many of the dramatis personae involved lied about it under oath.

Many other suspicious loose ends remain to be tied. Those not driven insane by Trumpophobia are probably unsatisfied with the story of what Attorney General Loretta Lynch was doing, exactly, with former President Bill Clinton during that Phoenix airport tête-à-tête a few days before FBI Director Jim Comey exonerated Mr. Clinton’s wife in the email server “matter.” One can see where this tangled tale is tending: to the sacred chamber known as the grand jury. Probably several grand juries. That will lead to years of entertaining courtroom antics at the same time that the USA’s financial condition fatefully unravels.

That event might finally produce the effect that all the exertions of the so-called Deep State have failed to achieve so far: the discrediting of Donald Trump. Alas, the literal discrediting of the USA and its hallowed institutions — including the US dollar — may be a much more momentous thing than the fall of Trump. Personally, I won’t be completely satisfied until the editors of The New York Times have to answer to charges of sedition in a court of law.

Read more …

The EU will not like this.

Italy’s New Parallel Currency Plan (ZH)

In 2009/10, squeezed by insolvency, a lack of liquidity, and Federal limitations, the California government began to issue a ‘parallel currency’ in IOUs in lieu of payment on everything from supplies to contracted services and health-care costs, so it can actually preserve cash to make payments to its generous debtors. Now, eight years later, despite all the talk of ‘recovery’ and ‘global synchronous growth’ and ‘normalization’, Italy’s newly-formed coalition of The League and Five Star (which some have likened to Trumpian ‘nationalist’ Republicans merging with Bernie leftists) have put forward a plan that, among other things, includes the introduction of a parallel currency for Italy – ‘mini-BOTs’. The chart below, created by analysts at Nomura, shows where both stand on key policy issues, highlighting both their similarities and their differences as they prepare to govern together.

It is the Italian euroskepticism that dominates market concerns. Investors were initially spooked by a section where the nascent coalition floated plans to ask for €250 billion in debt forgiveness for the country. But, as Credit Suisse argued, “A markedly Eurosceptic prime minister… as well as concrete support for the introduction of a parallel currency (so-called Mini-BOTs’), would be major negatives, in our view.” So what are ‘Mini-BOTs’? In order to settle bills with suppliers or creditors the state might consider “instruments such as mini-government notes” which may also be used in turn to repay tax arrears, says the government program agreed by the two parties’ representatives and leaders. Earlier this year, outgoing Economy Minister Pier Carlo Padoan described the proposal as “a plan to circulate a disguised parallel currency”.

It is this section of the Five Star-League Accord that raised eyebrows… “Something must be done to resolve the problem of the public administration debts to taxpayers.” Claudio Borghi, the League’s economic chief who helped write the government plan, told la Verita newspaper that the new securities “could be spent anywhere, to buy anything”. Mike Shedlock previously noted that ‘Mini-Bots’ are a parallel currency based on future tax receipts, similar to the plans proposed by Yanis Varoufakis in Greece. The minibot was in the Lega’s election manifesto. Five Star is far less radical on the eurozone, having dropped the idea of a referendum, but also seeks changes that are incompatible with the the EU fiscal rules. A parallel currency stands a much greater chance of success in Italy, and it would go some way to solving the government’s fiscal dilemmas. The open question is whether it would constitute a slippery slope towards euro exit.

Read more …

Hard to find a headline on this, let alone an article, that does not mention ‘populist’.

Italy’s Populist Coalition Government Poses New Threat To Eurozone (Ind.)

Two Italian, populist, eurosceptic parties have reached an agreement to form a government of the eurozone’s third largest economy, setting up the single currency bloc for a possible new crisis. March’s national elections in Italy delivered a hung parliament, but also left the virulently anti-immigrant Lega Nord and the radical anti-establishment Five Star Movement as the two parties with the most seats. After a week of intense wrangling, the leaders of the two parties – which have sharply divergent outlooks in a host of areas – announced on Friday that they had agreed upon a common programme.

“This government contract binds two political forces that are and remain alternative, to respect and achieve what they promised to citizens,” said the Five Star leader Luigi Di Maio. Both parties ran on electoral platforms that threatened conflict with the eurozone and the EU, in areas ranging from busting national budget deficit rules, to clamping down on immigration to lifting sanctions on Russia. The two parties will stage informal ballots of their supporters on the programme over the next three days, meaning the coalition could take office early next week. Italian 10-year borrowing costs spiked above 7% in 2011 and 2012, threatening a fiscal crisis for Rome, as traders panicked that the the single currency could be on the verge of splitting apart.

They have since come down dramatically as the European Central Bank has been heavily buying up the country’s sovereign bonds as part of its money printing programme, with the country’s borrowing costs hitting a low of 1.051% in 2016. On Friday 10-year bond yields, which move in the opposite direction to prices, on Friday rose to 2.2%, the highest since October 2017, although the markets still seem generally unperturbed by the prospect of a Five Star-Lega Nord coalition. The common programme, published online on Friday, promises a universal basic income of €780 per person per month, which it says should be part funded by the EU. It wants “limited deficit spending” to boost GDP growth and a review of the EU’s fiscal rules. Sanctions on Russia should be lifted immediately, its says.

Read more …

Macron as Napoleon.

Trump Drives Wedge Between Germany and France (Spiegel)

The French president has recognized the opportunity that opposition to the U.S. sanctions presents. It provides him with a perfect chance to prove to the French people why they really need Europe. He believes that only Europe can stand up to the deal-breaking Americans. In Berlin, meanwhile, the focus is on “realpolitik” — the notion that there isn’t much Europe can do to oppose Trump. Officials in the German capital believe that the U.S. president will play hardball when it comes to Iran. What really appears to be the problem, however, is a lack of political will. When push comes to shove, the Iran deal is likely less important to Altmaier than the dispute over the Trump administration’s threat of punitive tariffs on steel and aluminum imports from Europe.

He wants to prevent the dispute from boiling into a full-fledged trade war that would spread to the heart of the German economy — the automobile industry. As a major exporter, America’s punitive tariffs would hit Germany much harder than they would France. “The U.S. can’t be the world’s economic police,” French Economy Minister Bruno Le Maire said earlier this month. Le Maire and French Foreign Minister Jean-Yves Le Drian called a demonstrative joint press conference inside the monumental Finance and Economics Ministry in Paris looking like they were ready go toe-to-toe with Washington. Le Drian spoke of “our determination to fight to ensure that the decisions taken by the United States don’t have any repercussions on French businesses.” Le Maire added: “All of Europe is faced with the challenge of asserting its economic sovereignty.”

Read more …

My guess is the pipeline will be built.

Putin Seeks Common Cause With Merkel Over Trump (R.)

Russian President Vladimir Putin said at a meeting with German Chancellor Angela Merkel on Friday that he would stand up to any attempts by U.S. President Donald Trump to block a Russian-German gas pipeline project. Berlin and Moscow have been at loggerheads since Russia’s annexation of Crimea four years ago, but they share a common interest in the Nordstream 2 pipeline project, which will allow Russia to export more natural gas to northern Europe. A U.S. government official this week said Washington had concerns about the project, and that companies involved in Russian pipeline projects faced a higher risk of being hit with U.S. sanctions.

“Donald is not just the U.S. president, he’s also a good, tough entrepreneur,” Putin said at a news conference, alongside Merkel, after the two leaders had talks in the Russian Black Sea resort of Sochi. “He’s promoting the interests of his business, to ensure the sales of liquefied natural gas on the European market,” Putin said. “I understand the U.S. president. He’s defending the interests of his business, he wants to push his product on the European market. But it depends on us, how we build our relations with our partners, it will depend on our partners in Europe.” “We believe it (the pipeline) is beneficial for us, we will fight for it.”

Read more …

A bridge too far for Juncker?

EU Considers Iran Central Bank Transfers To Beat US Sanctions (R.)

The European Commission is proposing that EU governments make direct money transfers to Iran’s central bank to avoid U.S. penalties, an EU official said, in what would be the most forthright challenge to Washington’s newly reimposed sanctions. The step, which would seek to bypass the U.S. financial system, would allow European companies to repay Iran for oil exports and repatriate Iranian funds in Europe, a senior EU official said, although the details were still to be worked out. The European Union, once Iran’s biggest oil importer, is determined to save the nuclear accord, that U.S. President Donald Trump abandoned on May 8, by keeping money flowing to Tehran as long as the Islamic Republic complies with the 2015 deal to prevent it from developing an atomic weapon.

“Commission President Jean-Claude Juncker has proposed this to member states. We now need to work out how we can facilitate oil payments and repatriate Iranian funds in the European Union to Iran’s central bank,” said the EU official, who is directly involved in the discussions. The U.S. Treasury announced on Tuesday more sanctions on officials of the Iranian central bank, including Governor Valiollah Seif. But the EU official said the bloc believes that does not sanction the central bank itself.

Read more …

We use so many chemicals so much, we’ll end up eradicating ourselves. No caution, no precautionary principle.

Common Fungal Infections Becoming Incurable (Ind.)

Common fungal infections are “becoming incurable” with global mortality exceeding that for malaria or breast cancer because of drug-resistant strains which “terrify” doctors and threaten the food chain, a new report has warned. Writing in a special “resistance” edition of the journal Science, researchers from Imperial College London and Exeter University have shown how crops, animals and people are all threatened by nearly omnipresent fungi. “Fungal infections on human health are currently spiralling, and the global mortality for fungal diseases now exceeds that for malaria or breast cancer,” the report notes.

While the problem of bacteria becoming resistant to commonly used antibiotics has been widely reported on, and likened to the “apocalypse” by medical leaders, the risks of disease-causing fungi have received far less recognition. Fungicides share a problem with antibiotics in that the organisms they aim to kill are becoming resistant to treatments faster than they can be developed, and there are growing numbers of people vulnerable to infection. “We’ve got increasing numbers of immunosuppressed patients, that’s what fungi love to parasitise,” Matthew Fisher, professor of fungal disease epidemiology at Imperial, told The Independent.

“Half a million people a year probably die from fungal meningitis in Africa, which wouldn’t affect them if they didn’t have Aids. “Similarly in the UK we have transplant patients as well, as soon as you whack them on immunosuppressants they start coming down with fungal infections.” “Transplant doctors are absolutely terrified of these fungal infections,” he added, and the same issues arise in cancer patients, or people whose immune systems are destroyed by disease or age – leaving them unable to fight off infection on their own.

Read more …

Dec 172016
 
 December 17, 2016  Posted by at 10:14 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


Dorothea Lange Country filling station, Granville County, NC 1939

Debt Nation: The Problem, the Solutions (Valentin Schmid)
American Credit Card Debt Nears All Time Highs (BI)
It’s Been A Nightmare Year For Australian Retail (News.com.au)
Italy Prepares To Pump €15 Billion Into Ailing Banks (R.)
Euro Parity With Dollar ‘Only A Matter Of Time’ – ING (CNBC)
The Fed Is Pushing China Into A Messy Catch-22 (CNBC)
China Vows To Contain Asset Bubbles, Avert Financial Risk In 2017 (R.)
Cold War Hysteria vs. US National Security (Stephen F. Cohen)
Obama Says Russia Is A Smaller, Weaker Country Than The US (CNBC)
Obama Goes Off the Clinton Script (WSJ)
Schaeuble Could Destroy Eurozone, Not Just Greece (EUO)
Greek PM Tells Merkel ‘Wounds Of Crisis’ Must Be Healed (R.)

 

 

Excellent overview of debt-related issues. Steve’s Debt Jubilee warrants serious discussion at high levels. But it’s not happening.

Debt Nation: The Problem, the Solutions (Valentin Schmid)

There are only two ways to wipe out debt if it cannot be repaid by increases in output. The worst for the economy, even though it may be the fairest, is bankruptcy and debt deflation or destruction. A company or an individual—and sometimes a government—just says it can’t repay its debt. The lender takes control of the assets, if there are any, and tries to recover as much of the loan as possible, making up for the shortfall with its capital provision. This is exactly what happened during the Great Depression, when companies and individuals defaulted in droves, driving thousands of banks into bankruptcy as well. “If you borrowed money to buy a house or a machine, you couldn’t repay the debt, no matter how productive you were. Deflation penalized producers who misjudged the value of their assets at the time,” said Oliver.

Private debt declined 20% from 1930 to 1933 but GDP declined 38%, so the debt-to-GDP ratio actually increased from 175 to 225%, according to data from Debt Economics. “Deflation can increase the level of private debt to GDP, because GDP falls faster than private debt. Paying down the debt, withdrawing money from circulation and reducing its velocity, reduces GDP more than the decline in the debt,” said Keen. So this exercise is best avoided, which is precisely what central banks did during the 2008 crisis with their QE programs and bank bailouts. They managed to avoid a second Great Depression, but they didn’t get rid of the private debt. Despite the evident flaws in a system that has provided incentives for borrowers and lenders to indulge in too much debt for their own good, there are creative ways to reset the system and at least get the economy growing again.

“Every debt collapse in history has had a combination of debt forgiveness and inflation. That is how debt problems are dealt with historically,” said Oliver. Western central banks have tried to create inflation through their QE programs but weren’t successful because of deflationary pressures: overcapacity in China, technological innovation, and the fact that their money printing ended up in the hands of financial actors, who bought a lot of stocks, rather than real people, who would repay debt and buy goods and services. Many economists, including Keen, therefore call for QE for the private sector, rather than the banks, a concept dubbed “helicopter money.” “The creative way to get around it, is use the government’s capacity to create money. You use the same power the central banks did with QE but pay it into private sector accounts rather than commercial bank accounts. Households and companies can use it to pay down debt and those who don’t have debt, can get a cash injection,” he said.

Read more …

“..America’s putative economic strength might be a mirage [..] the economy may in fact be a lot weaker than all the happy indicators are leading people to believe.”

American Credit Card Debt Nears All Time Highs (BI)

By most accounts, the American economy seems to be humming along very nicely. Unemployment just hit a nine-year low, the stock market this month climbed to all-time highs, and consumer confidence is as chipper as its been in two years. But at least one indicator suggests that much of the US is actually struggling financially: Americans are piling on credit card debt at record levels that we haven’t seen since the financial crisis. Households added $21.9 billion in credit card debt in the third quarter — the largest increase for that period since 2007 — bringing the amount of outstanding credit card debt to $927.1 billion, according to the latest study from WalletHub. That matches the mark in 2007 before the recession began, and it’s the highest tally since the end of 2008, when the global economy was experiencing a full-on implosion.

Racking up credit card debt isn’t inherently bad, so long as it’s being paid back. And so far, Americans are defaulting on their credit card debt at near historically low levels. Charge-off rates – the percentage of credit card debt that the companies are unable to collect on — are only at 2.86%, compared with 3.95% in 2007 the quarter before the Great Recession began and in excess of 10% in the years following the crisis, according to WalletHub. But holding a balance is a lousy move from a personal finance perspective — a sign of financial fragility. The fact that the average household with debt now owes $7,941 to credit card companies, according to WalletHub, suggests that America’s putative economic strength might be a mirage – that the economy may in fact be a lot weaker than all the happy indicators are leading people to believe.

Read more …

Something’s off.

It’s Been A Nightmare Year For Australian Retail (News.com.au)

It’s been a nightmare year for Australian retail, with a parade of the nation’s best-known brands decimated one after another. And experts say things will only get worse if business leaders and governments do not pick up their game. First it was Dick Smith Electronics, then the Woolworths-owned Masters home improvement chain that went under. Now, thousands more workers will be jobless at Christmas after a fresh slew of corporate collapses rounded out 2016. Payless Shoes this week announced plans to close its doors by the end of February, hot on the heels of Howards Storage World’s demise, and that of children’s fashion label Pumpkin Patch.

While Treasurer Scott Morrison seized on the latest bad news to bolster the Coalition’s tax reform agenda, market watchers say there is far more that needs to be done. Retail analyst Barry Urquhart of Marketing Focus said neither corporate leaders nor government had acknowledged what he called “an attitudinal recession” that was restraining businesses. While the nation was yet to tip into an official recession – despite having just marked its worst quarterly performance since the global financial crisis – Australians remained apprehensive about their futures, he said. And any business that failed to respond to this by recapturing the public imagination with a compelling, value-driven offering would simply fall by the wayside.

Read more …

JPMorgan’s role is interesting. So is Beppe Grillo’s view of that role: “Italy’s opposition 5-Star Movement has called for JPMorgan’s fees to be voided if taxpayers have to come to the rescue..”

Italy Prepares To Pump €15 Billion Into Ailing Banks (R.)

Italy’s government is ready to pump €15 billion into Monte dei Paschi di Siena and other ailing banks, sources said, as the country’s third-largest lender pushes ahead with a private rescue plan that is widely expected to fail. The world’s oldest bank has until Dec. 31 to raise €5 billion in equity or face being wound down by the European Central Bank, potentially triggering a wider banking and political crisis in Italy. If needed, the government will pump €15 billion into the Siena-based lender and several other smaller banks to prevent that, two sources close to the matter said on Thursday. One source said unlisted regional banks Banca Popolare di Vicenza and Veneto Banca, which were rescued this year by a state-backed fund, would also get support from the state.

The government would make the €15 billion available in a decree on Dec. 22, La Repubblica newspaper said on Thursday, adding that Banca Carige could also benefit. Italy’s banking sector is saddled with €356 billion of bad loans, around a third of the euro zone’s total and a legacy of the 2008-2009 global financial crisis when, unlike Spain or Ireland, Italy did not act to help its banks. Monte dei Paschi di Siena, advised by investment banks JPMorgan and Mediobanca, plans to raise equity to remove €28 billion in bad loans from its books. Italy’s opposition 5-Star Movement has called for JPMorgan’s fees to be voided if taxpayers have to come to the rescue. “We would have never done a deal like that with JPMorgan. In any case we would not pay the commissions (if the bank had to be nationalized,” Alessio Villarosa, a 5-Star lawmaker, said.

Read more …

It’s not going to stop at parity.

Euro Parity With Dollar ‘Only A Matter Of Time’ – ING (CNBC)

Divergence in monetary policy between the United States and Europe will bring parity between the value of the euro and dollar, according to ING. On Thursday the euro hit a low of 1.0364 against the dollar, the lowest level since August 2003 when it traded as low as 1.0357. Dollar strength is the key driver as investors believe the Federal Reserve will adopt a higher rate rise path in 2017 as the U.S. economy gathers momentum. Conversely, the ECB has just announced it will inject a further €540 billion of QE stimulus into the stuttering EU economy.

Analysts at ING wrote Friday that with European inflation struggling to edge higher and yesterday’s dip in to the 1.03 handle, euro/dollar parity is now firmly in view. “With the U.S. economy close to reaching escape velocity (and sustainable 2% inflation), it will only reinforce the downside risks to EUR/USD.” “Expect some consolidation around the 1.0450-1.0500 area, but this week’s fresh EUR/USD low means that the move down to parity is now only a matter of time,” the note reads.

Read more …

“..either hike the interest rate (as) the U.S. does, or they give up the exchange rate..”

The Fed Is Pushing China Into A Messy Catch-22 (CNBC)

An interest rate decision in the United States is causing a dilemma for Beijing. The U.S. dollar index surged to a near 14-year high after the Fed’s rate hike on Wednesday and its surprise forecast for three more increases — instead of the two that were expected previously — to come in 2017. Higher interest rates in the United States make it tempting for China to raise its own rates, because Beijing doesn’t want more money to flee the country into higher-yielding U.S. bonds. That flight also hurts China’s currency, the yuan. But Beijing could get its economy into trouble by hiking rates, since its continued economic growth is very heavily driven by borrowing. “You had this pressure that was already building, and the Fed has basically complicated and added to that with a more hawkish message,” said Logan Wright at Rhodium Group.

China’s yuan subsequently fell to its lowest level since 2008, and the country’s 10-year bond yield jumped to its highest level in more than a year. Declines in five-year and 10-year Chinese bond futures were reportedly so drastic Thursday that trade was halted due to a market trading limit. “The bond market itself, it’s raising a lot of attention, and it’s likely reflecting [that] policymakers in China are facing a difficult choice right now,” said Kai Yan, an economist at the IMF. He noted that “the speculation in the market is high because the central bank wants to stand in front of currency pressure to prevent capital outflow.” Chinese policymakers must “either hike the interest rate (as) the U.S. does, or they give up the exchange rate,” Yan said. “It is likely they will do a combination of the two.”

[..] China’s financial and economic challenges have been on the back burner for U.S. markets for much of the past year. The yuan’s depreciation versus the dollar has been largely ignored by global markets, as economic updates out of China have held up thanks largely to a flood of debt that’s propping up the country’s economy. Earlier this year, the Fed was seen as giving China some breathing room to stabilize its currency and economic growth. The U.S. central bank cited international concerns in avoiding a rate hike in the fall of 2015 and reducing its expectations for 2016 rate increases. Those decisions from the Fed helped keep the dollar steady, allowing China to avoid a significant depreciation of its currency. Now, however, some say the Fed may be less concerned about China since the U.S. economy is on firmer footing and can expect big domestic government spending from President-elect Donald Trump’s proposals.

Read more …

“Houses are for people to live in, not for people to speculate..” Sounds nice, but real estate has been a major contributor to China’s economy and GDP.

China Vows To Contain Asset Bubbles, Avert Financial Risk In 2017 (R.)

China will stem the growth of asset bubbles in 2017 and place greater importance on the prevention of financial risk, while keeping the economy on a path of stable and healthy growth, media said, citing leaders at an economic planning meeting. China has seen growth stabilize this year, but corporate leverage and credit continue to expand, increasing risks to the world’s second-largest economy as it looks to push forward structural reforms. The annual meeting is attended by China’s top leaders and is closely watched by investors for clues on policy priorities and main economic targets for the year ahead. Monetary policy will be kept “prudent and neutral” in 2017, leaders attending the Central Economic Work Conference said in a statement, as reported by the official Xinhua news agency on Friday.

“Monetary policy will be kept prudent and neutral, adapt to new changes in money supply … and strive to smooth monetary policy transmission channels and improve mechanism to help maintain liquidity basically stable,” they said. The People’s Bank of China has maintained a prudent monetary policy since 2011, raising or cutting interest rates in line with shifts in the economy. The pro-active fiscal policy has been in place since the depths of the global crisis. The property market will be a focus of risk control, as authorities will restrain property bubbles and prevent price volatility, they said. The leaders called for a strict limit on credit flowing into speculative buying in the property market and for a boost in the supply of land for cities where housing prices face stiff upward pressure. “Houses are for people to live in, not for people to speculate,” Xinhua said, citing the statement.

Read more …

Cohen of course is America’s no. 1 expert on Russia.

Cold War Hysteria vs. US National Security (Stephen F. Cohen)

Thus far, no actual facts or other evidence have been made publicly to support allegations that the hacking was carried out on the orders of the Russian leadership, that Russian hackers then gave the damaging materials to WikiLeaks, or that the revelations affected the electoral outcome. Nor are Russian President Putin’s alleged motives credible. Why would a leader whose mission has been to rebuild Russia with economic and other partnerships with the West seek to undermine the political systems of those countries, not only in America but also in Europe, as is charged? Judging by the public debate among Russian policy intellectuals close to the Kremlin, nor is it clear that the Kremlin so favored the largely unknown and unpredictable Trump.

But even if Putin was presented with such a possibility, he certainly would have understood that such Russian interference in the US election would become known and thus work in favor of Clinton, not Trump. (Indeed, a major tactic of the Clinton campaign was to allege that Trump was a “Putin puppet,” which seems not to have helped her campaign with voters.) Still worse, since the election these allegations have inspired a growing Cold War hysteria in the American bipartisan political-media establishment, still without any actual evidence to support them. One result is more neo-McCarthyite slurring of people who dissent from this narrative. Thus a New York Times editorial (December 12) alleges that Trump had “surrounded himself with Kremlin lackeys.” And Senator John McCain ominously warned that anyone who disagreed with his political jihadist vendetta against Putin “is lying.”

A kind of witch hunt may be unfolding, not only of the kind The Washington Post tried to instigate with its bogus “report” of scores of American websites said to be “fronts for Russian propaganda,” but at the highest level. Thus, Trump’s nominee for secretary of state is said to be “a friend of Putin” as a result of striking a deal for Exxon-Mobil for Russian oil reserves, something he was obliged to do as the company’s CEO. Several motives seem to be behind this bipartisan American campaign against the President-elect, who is being equated with Russian misdeeds. One is to reverse the Electoral College vote. Another is to exonerate the Clinton campaign from its electoral defeat by blaming that instead on Putin and thereby maintaining the Clinton wing’s grip on the Democratic Party. Yet another is to delegitimate Trump even before he is inaugurated. And certainly no less important, to prevent the détente with Russia that Trump seems to seek.

Read more …

Obama sounds smaller and weaker here.

Obama Says Russia Is A Smaller, Weaker Country Than The US (CNBC)

In his final news conference of the year, President Barack Obama emphasized that Russia cannot change or significantly weaken the U.S., adding that Russia is a smaller and weaker country. He said Russia’s economy “doesn’t produce anything that anybody wants to buy,” except oil, gas and arms. The only way Russia can affect the U.S., he said, is “if we lose track of who we are” and “abandon our values.” “Mr. Putin can weaken us just like he’s trying to weaken Europe if we start buying into notions that it’s OK to intimidate the press, or lock up dissidents or discriminate against people,” he said. When asked if he would specifically name Russian President Vladimir Putin as directly responsible for the election hacking, Obama said he wanted to give the intelligence community a chance to gather the information necessary.

He added, however, that “not much happens in Russia without Vladimir Putin,” reaffirming that the hacking happened at the highest levels of the Russian government. “This is a pretty hierarchical operation,” he said. “Last I checked, there’s not a lot of debate and democratic deliberation, particularly when it comes to policies directed at the United States.” Obama reaffirmed his message of political unity and bipartisanship, urging the country to reunite across party lines to defend itself against Russia and others. “Our vulnerability to Russia or any other foreign power is directly related to how divided, partisan, dysfunctional our political process is,” he said. “That’s the thing that makes us vulnerable.”

Read more …

“His main complaint is that “I don’t think she was treated fairly” by the press corps and the Russian hacks became “an obsession that dominated the news coverage.”

Obama Goes Off the Clinton Script (WSJ)

Hillary Clinton told her donor base at Manhattan’s Plaza Hotel on Thursday that Russian cyber attacks were both “a personal beef against me” and meant to undermine “the integrity of our democracy,” and Democrats fanned out this week to spread this Kremlin-hacked-the-election narrative. President Obama was asked about all this in his year-end Friday press conference, but even he couldn’t square the contradictions. As liberals assailed the legitimacy of Donald Trump’s victory, Mr. Obama defended “the integrity of our election system,” noting that there is no evidence that ballots weren’t counted fairly. So much for those Jill Stein, Clinton-endorsed recounts, or the conspiracies about compromised voting machines. The President also explained that the emails stolen from John Podesta and the Democratic National Committee were “not some elaborate, complicated espionage scheme.”

He said intelligence and law enforcement were “playing this thing straight” and disclosed sufficient information about the hacks for “the American public to make an assessment as to how to weigh that going into the election.” Mr. Obama conceded that some of the leaked content was “embarrassing or uncomfortable” but all in all “pretty routine stuff.” His main complaint is that “I don’t think she was treated fairly” by the press corps and the Russian hacks became “an obsession that dominated the news coverage.” Really? The Podesta and DNC emails mostly revealed that the Clinton apparat don’t much like conservative Catholics or Bernie Sanders. Mr. Trump’s offenses against beauty queen Alicia Machado in the 1990s and his Billy Bush video were far bigger stories. The emails that really harmed Mrs. Clinton were those she stored on a personal server as Secretary of State, because the arrangement was potentially criminal and underscored doubts about her political character and judgment.

Read more …

Not could, will. Curious that Dijsselbloem’s solo act in deciding to halt Greek debt relief doesn’t get more attention.

Schaeuble Could Destroy Eurozone, Not Just Greece (EUO)

The sudden suspension of Greece’s short-term debt relief measures on Wednesday evening (14 December) has sparked fierce criticism by a number of EU officials. EU commissioner Pierre Moscovici, European Parliament president Martin Schultz, French president Hollande and finance minister Michel Sapin, along with many MEPs from the GUE/NGL, S&D and the Greens groups, have echoed support for Greece and prime minister Alexis Tsipras’s decision to give a one-time relief package to low-income pensioners. In essence, there has been no official decision taken by the Eurogroup, the European Stability Mechanism (ESM), or the European Council. Instead, there’s been unilateral action from the head of the Eurogroup without prior coordination with his colleagues.

Creditors should respect their own part of the deal and conclude the second review of the bailout programme, and acknowledge that there are open issues that need be addressed. The Greek government is fully implementing the bailout deal, moving on to needed reforms, providing safety nets for the vulnerable social groups. It’s possible Tsipras’s announcement was brought about by German finance minister Schaeuble and other circles pushing Greece to the limit. But in truth, we need not investigate who has taken the decision but instead focus on substantial issues. These issues include lowering primary surplus targets after 2018 and loosening tax rates so that the economy can become stable and growth can reach sustainable levels.

Even with such strict deadlines, the Greek government has achieved all fiscal targets for 2016, increasing public income and reaching a higher primary surplus than expected. This positive development prompted Tsipras, a few days ago, to announce a one-time relief package for low-income pensioners; a substantive decision after 12 consecutive pension cuts between 2010 and 2014, a loss of more than 30% of national GDP, during the same period, with a considerable part of the population facing poverty and social exclusion. The Greek government’s urgent measures are the least this government can do to temporarily do something for the worse off.

Dimitrios Papadimoulis is vice president of the European Parliament and head of the Syriza party delegation.

Read more …

Merkel sides with Schaeuble.

Greek PM Tells Merkel ‘Wounds Of Crisis’ Must Be Healed (R.)

Greek Prime Minister Alexis Tsipras told German Chancellor Angela Merkel on Friday his country was set for strong economic growth and this would help to “heal the wounds of crisis” after years of austerity imposed under international bailouts. On a visit to Berlin, Tsipras was keen to emphasise Greek progress on reforms demanded by Germany as the EU’s most powerful economy and paymaster – a situation that has made Merkel a hate figure for some Greeks. The trip’s timing was also significant, as Greece wrangles with its creditors over terms for its current bailout, the latest of three. On Thursday it snubbed its lenders by passing legislation to give pensioners a one-off Christmas bonus.

Tsipras told reporters before meeting Merkel that he would inform the chancellor of the positive momentum of the Greek economy and his government’s “spectacular overachievement” of revenue targets. “The projections for the Greek economy are extremely positive for next year,” Tsipras said, adding authorities expected 2.7% growth in 2017 and 3.1% in 2018. But Greece’s economic development should not simply be confined to statistics and numbers, he added. “We want it to heal the wounds of crisis and to alleviate all those who have over these difficult years made huge sacrifices in the name of Europe,” Tsipras said.

Merkel showed little willingness to take a position on the disputed question of whether the pre-Christmas payout to pensioners was compatible with bailout obligations. Standing next to Tsipras, she said decisions lay in the hands of the Troika institutions handling negotiations with Greece but “the Greek prime minister’s assessment of the situation will certainly play a role in our discussions.” A German Finance Ministry spokesman said the institutions involved in Greece’s aid programme were critical of Athens in a preliminary report assessing the unilaterally announced measure. “To make the aid programme a success, it’s essential that measures are not decided unilaterally or are not taken back without advance notice,” said spokesman Dennis Kolberg.

Read more …

Jul 152015
 
 July 15, 2015  Posted by at 11:06 am Finance Tagged with: , , , , , ,  6 Responses »


Russell Lee Street scene. Spencer, Iowa 1936

China’s Official GDP Charade Is In – And, Surprise! It’s 7% (Quartz)
China’s Economic Troubles Start to Spread (Pesek)
IMF Stuns Europe With Call For Massive Greek Debt Relief (AEP)
The IMF Is Telling Europe the Euro Doesn’t Work (NY Times)
Greece Needs Debt Relief Far Beyond EU Plans – Secret IMF Report (Reuters)
IMF: Greece May Need 30 Years To Recover (Reuters)
Grexit or Jubilee? How Greek Debt Can Be Annulled (Ellen Brown)
Decoding the IMF: Grexit is Inevitable (Paul Mason)
What’s Behind The IMF Attack On The Greek Deal? (CNBC)
Professor Blanchard Writes a Greek Tragedy (Ashoka Mody)
Greece Rewrites Economic Textbooks With Austerity on Austerity (Bloomberg)
Bailout Deal: What’s For Sale In Greece (CNN)
IMF Demands Greece Debt Relief as Condition for Bailout (NY Times)
An Open Letter To The People Of Greece: Restore The Drachma (Ann Pettifor, 2011)
Greece and the Union of Bullies (Alex Andreou)
Tsipras Says There Was ‘A Knife on My Neck’ (Bloomberg)
Canada And Ukraine Announce ‘Milestone’ Free Trade Agreement (AFP)

Maybe they could try and make it a little less obvious?

China’s Official GDP Charade Is In—And, Surprise! It’s 7% (Quartz)

Defying all expectations, China’s GDP grew 7% in the second quarter—least according to the official charade. Electricity use and assorted proxies of industry suggest that it very probably didn’t grow that fast. But here’s the chart, including the official growth rate and the annualized measure used by most advanced economies, anyway: It is an official charade because China’s GDP has long been recognized as a distorted measure of the country’s economic growth. The value “created” in the country’s economy is inflated by the fact that a good chunk of the stuff bought and built in China it isn’t worth the official sticker price. This is thanks to the government’s “implicit guarantee” of any investments that are political priorities.

This gives investors, both corporate and individual, the confidence that the government will bail out any inconvenient losses. It encourages banks and individual savers alike to lend to wasteful projects, as long as an official imprimatur is looped in somewhere. It lets lenders accept these unprofitable projects at face value as collateral for more loans. And thus, debt begets more debt—China’s nearly quadrupled from 2007 to mid-2014, to $28 trillion, McKinsey calculates. Outstanding loans using property as collateral now add up to 22 trillion yuan—about 40% of the total—according to Fitch, the ratings agency. That’s about five times what they were in 2008. In a way, China’s quarterly GDP announcement is the meta-example of the implicit guarantee creating a moral hazard.

The Chinese government is the only major economy to set GDP growth targets each year. Throughout the year, government officials and the state press reiterate, or talk down, that GDP growth target depending on the political agenda. In decades past, these signals let local officials know how recklessly they should invest, or how brazenly they should lie about the results. Report dazzling growth, get a promotion. Leave nose-bloodying interest payments for the next guy to worry about. That’s changing now, as the Xi Jinping administration tries to “rebalance” the economy away from the dangerous investment binge its policies have encouraged. Those promotion targets are, as a result, generally getting more sophisticated and holistic, rather than focusing on eye-popping numbers; the Shanghai government has even scrapped the targets as a factor altogether. Yet the government still does the whistlestop target tour—for instance, premier Li Keqiang announced in early July that China will hit its 7% growth target for this year.

Read more …

Singapore GDP fell 4.6% in Q2.

China’s Economic Troubles Start to Spread (Pesek)

Singapore is the closest thing Asia has to an economic barometer. Its highly open, trade-reliant economy usually signals when trouble is approaching the global stage. And at the moment, Singapore is flashing clear warning signs. The city-state’s GDP plunged 4.6% last quarter, a downturn almost certainly triggered by China. Singapore’s plight may mark a dangerous inflection point not just for Asia, but for the entire global economy. After the 2008 global crisis, China’s 9%-plus growth picked up the slack from a West licking its financial wounds. But as Asia’s biggest economy cools, officials from Seoul to Brasilia are finding themselves without a reliable growth engine. Uneven recoveries in the U.S. and Europe have already slowed the exports that power most Asian economies, including Japan. China’s downturn could now throw Asian manufacturing into reverse.

Morgan Stanley’s Ruchir Sharma warns that “the next global recession will be made by China.” The balance of data – including Singapore’s abrupt shift toward recession – suggests China isn’t growing anywhere near this year’s 7% target. Shanghai’s day traders celebrated this week’s news that Chinese exports rose 2.1% in June. The more interesting figure, though, was the 6.7% decline in Chinese imports. That helps explain the stunning 14% drop in Singaporean manufacturing from the previous three months. The same goes for Singapore’s non-oil exports to China, which fell 4.3% in May, 5.1% in April and plunged 22.7% in February. With Singapore’s economy contracting the most since the third quarter of 2012, its government has to act fast.

It may be time for another surprise monetary easing (the central bank last engineered one in January). Fiscal stimulus may also be necessary. “The global outlook remains challenging and far less positive than the picture” four months ago, says economist Hak Bin Chua of Bank of America Merrill Lynch. “China’s slowdown, the Greece crisis and weaker growth in the immediate neighborhood of southeast Asia, including Indonesia, Thailand and Malaysia, will likely dampen growth.” The downturn in China, Asia’s main customer, will loom especially large. For now, many investors in the region are still bullish about Beijing’s efforts to gin up both GDP and stocks. But even the good news on China these days is worrisome. Take its surge in credit growth in June ($300 billion), the most since January. While it’s helping to stabilize the economy in the short run, it’s also inflating China’s debt bubble in sync with its asset bubbles in Shanghai and Shenzhen.

Read more …

“The decision by the ECB to force the closure of the Greek banks [..], appears to have cost European taxpayers very large sums of money.”

IMF Stuns Europe With Call For Massive Greek Debt Relief (AEP)

The IMF has set off a political earthquake in Europe, warning that Greece may need a full moratorium on debt payments for 30 years and perhaps even long-term subsidies to claw its way out of depression. “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,” said the IMF in a confidential report. Greek public debt will spiral to 200pc of GDP over the next two years, compared to 177pc in an earlier report on debt sustainability issued just two weeks ago. The findings are explosive. The document amounts to a warning that the IMF will not take part in any EMU-led rescue package for Greece unless Germany and the EMU creditor powers finally agree to sweeping debt relief.

This vastly complicates the rescue deal agreed by eurozone leaders in marathon talks over the weekend since Germany insists that the bail-out cannot go ahead unless the IMF is involved. The creditors were aware of the IMF’s report as early as Sunday, yet choose to sweep it under rug. Extracts were leaked to Reuters on Tuesday, forcing the matter into the open. The EMU summit statement vaguely mentions “possible longer grace and payment periods”, but only at later date, and only if Greece is deemed to have complied with all the demands. Germany has ruled out a debt “haircut” altogether, claiming that it would violate Article 125 of the Lisbon Treaty. The IMF said there is no conceivable chance that Greece will be able to tap private capital markets in the foreseeable future, leaving the country entirely dependent on rescue funding.

It claimed that capital controls and the shutdown of the Greek banking system had entirely changed the picture for debt dynamics, an implicit criticism of both the Greek government and the eurozone authorities for letting the political dispute get out of hand. The decision by the ECB to force the closure of the Greek banks two weeks ago by freezing emergency liquidity assistance (ELA), appears to have cost European taxpayers very large sums of money.. The IMF said the Europeans will either have to offer a “deep upfront haircut” or slash the debt burden by stretching maturities and presumably by lowering interest costs. “There would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt,” it said. Debt forgiveness alone would not be enough. There would also have to be “new assistance”, and perhaps “explicit annual transfers to the Greek budget”.

This is the worst nightmare of the northern creditor states. The term “Transfer Union” has been dirty in the German political debate ever since the debt crisis erupted in 2010. The underlying message of the report is that Greece is in such deep trouble that it cannot withstand further austerity cuts. This is hard to square with the latest demands by EMU creditors for pension cuts, tax rises, and fiscal tighting equal to 2pc of GDP by next year. Nobel economist Paul Krugman said the cuts are macro-economic “madness” in these circumstances.

Read more …

“Under this plan, Greece would make no more debt payments until Justin Bieber is 59 years old.”

The IMF Is Telling Europe the Euro Doesn’t Work (NY Times)

It reads like a dry, 1,184-word memorandum about fiscal projections. But the IMF’s memo on Greek debt sustainability, explaining why the IMF cannot participate in a new bailout program unless other European countries agree to huge debt relief for Greece, has provided the “Emperor Has No Clothes” moment of the Greek crisis, one that may finally force eurozone members to either move closer to fiscal union or break up. The IMF memo amounts to an admission that the eurozone cannot work in its current form. It lays out three options for achieving Greek debt sustainability, all of which are tantamount to a fiscal union, an arrangement through which wealthier countries would make payments to support the Greek economy. Not coincidentally, this is the solution many economists have been telling European officials is the only way to save the euro — and which northern European countries have been resisting because it is so costly.

The three options laid out by the IMF would have different operations, but they share an important feature: They involve other European countries giving Greece money without expecting to get it back. These transfers would be additional to the approximately €86 billion in new loans contemplated in Monday’s deal. “Wait a minute,” you might say. “The IMF isn’t calling for a fiscal union; it’s calling for debt relief.” But once a debt relief program becomes big enough, this becomes a distinction without a difference; they’re both about other eurozone countries giving Greece money. Indeed, one of the debt relief options proposed by the IMF is “explicit annual transfers to the Greek budget,” that is, direct payments from other governments to Greece, which it could use to make its debt payments. This, obviously, is a fiscal union.

A second option is extending the grace period, during which Greece would be relieved of the obligation to make interest or principal payments on its debt to European countries, through the year 2053. That’s not a typo. Under this plan, Greece would make no more debt payments until Justin Bieber is 59 years old. This is a fiscal union by another name, since those lengthy and favorable credit terms would save the Greeks money at the expense of Greece’s creditors, most of which now are other European governments or the IMF. The third option floated by the I.M.F., a cancellation of a portion of Greece’s debts, has been fiercely resisted by the German government, even though this is the option that least obviously constitutes a continuing fiscal union. Debt cancellation is a one-time fiscal transfer (if I lend you $100 and then forgive the debt, that’s much like me simply giving you $100), but at least in theory it would be done only once, with Greece expected to stand on its own otherwise. The important exception is that Greece would still need to rely on European governments to lend it money at favorable rates, though not quite as favorable as under the Old Bieber scenario.

Read more …

Second time Europe withholds an IMF assessment report from negotiations.

Greece Needs Debt Relief Far Beyond EU Plans – Secret IMF Report (Reuters)

Greece will need far bigger debt relief than euro zone partners have been prepared to envisage so far due to the devastation of its economy and banks in the last two weeks, a confidential study by the IMF seen by Reuters shows. The updated debt sustainability analysis (DSA) was sent to euro zone governments late on Monday, hours after Athens and its 18 partners agreed in principle to open negotiations on a third bailout program of up to 86 billion euros in return for tougher austerity measures and structural reforms. “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM,” the IMF said, referring to the European Stability Mechanism bailout fund.

European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a very dramatic maturity extension, or else make explicit annual fiscal transfers to the Greek budget or accept “deep upfront haircuts” on their loans to Athens, the report said. It was leaked as German Finance Minister Wolfgang Schaeuble disclosed that some members of the Berlin government thought Greece would have been better off taking “time-out” from the euro zone rather than receiving another giant bailout. IMF managing-director Christine Lagarde attended weekend talks among euro zone finance ministers and government leaders that agreed on a roadmap for a new bailout.

An EU source said the new debt sustainability figures were given to euro zone finance ministers on Saturday and were known by the leaders before they concluded Monday’s deal with Athens. The IMF study said the closure of Greek banks and imposition of capital controls on June 29 was “extracting a heavy toll on the banking system and the economy, leading to a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA”. European members of the IMF’s executive board tried in vain to stop the publication of that earlier study on July 2 just three days before a Greek referendum that rejected earlier bailout terms, sources familiar with the discussions told Reuters.

Read more …

It wouldn’t take that long with the drachma.

IMF: Greece May Need 30 Years To Recover (Reuters)

An IMF study published on Tuesday showed that Greece needs far more debt relief than European governments have been willing to contemplate so far, as fractious parties in Athens prepared to vote on a sweeping austerity package demanded by their lenders. The IMF’s stark warning on Greece’s debt came as Prime Minister Alexis Tsipras struggled to persuade deeply unhappy leftist lawmakers to vote for a package of austerity measures and liberal economic reforms to secure a new bailout. In an interview with state television, he said that although he did not believe in the deal, there was no alternative but to accept it to avoid economic chaos. The IMF study, first reported by Reuters, said European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension.

Or else they must make annual transfers to the Greek budget or accept “deep upfront haircuts” on existing loans. The Debt Sustainability Analysis is likely to sharpen fierce debate in Germany about whether to lend Greece more money. The debt analysis also raised questions over future IMF involvement in the bailout and will be seen by many in Greece as a vindication of the government’s plea for sweeping debt relief. A Greek newspaper called the report, which was initially leaked, a slap in the face for Berlin. Late on Tuesday, a senior IMF official, who spoke on condition of anonymity, said, “We have made it clear … we need a concrete and ambitious solution to the debt problem. “I don’t think this is a gimmick or kicking the can down the road … If you were to give them 30 years grace you are allowing them in the meantime to bring down debt by … getting some growth back.”

German Finance Minister Wolfgang Schaeuble said in Brussels on Tuesday that some members of the Berlin government think it would make more sense for Athens to leave the euro zone temporarily rather than take another bailout. The Greek Finance Ministry said it had submitted the legislation required by a deal Tsipras reached with euro zone partners on Monday to parliament for a vote on Wednesday. Assuming Athens fulfils its end of the bargain this week by enacting a swathe of painful measures, the German parliament is due to meet in a special session on Friday to debate whether to authorize the government to open new loan negotiations.

“The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM,” the IMF said, referring to the European Stability Mechanism bailout fund. An EU source said euro zone finance ministers and leaders had been aware of the IMF figures when they agreed on Monday on a roadmap to a third bailout.

In the interview on Greek state television, Tsipras defended the deal he signed up to, saying it was better than the alternative of being forced out of the euro zone. He said banks, closed for the past two weeks to prevent a flood of withdrawals that would collapse the banking system, would reopen once the deal had been fully ratified by parliaments in Greece and other European countries. Tsipras could not conceal the bitterness left by last weekend’s acrimonious euro zone summit. “The hard truth is this one-way street for Greece was imposed on us,” he said.

Read more …

Very good from Ellen. And her conclusion is real positive for Greece.

Grexit or Jubilee? How Greek Debt Can Be Annulled (Ellen Brown)

The creditors may have won this round, but Greece’s financial woes are far from resolved. After the next financial crisis, it could still find itself out of the EU. If the Greek parliament fails to endorse the deal just agreed to by its president, “Grexit” could happen even earlier. And that could be the Black Swan event that ultimately breaks up the EU. It might be in the interests of the creditors to consider a debt jubilee to avoid that result, just as the Allies felt it was in their interests to expunge German debts after World War II. For Greece, leaving the EU may be perilous; but it opens provocative possibilities. The government could nationalize its insolvent banks along with its central bank, and start generating the credit the country desperately needs to get back on its feet.

If it chose, it could do this while still using the euro, just as Ecuador uses the US dollar without being part of the US. (For more on how this could work, see here.) If Greece switches to drachmas, the funding possibilities are even greater. It could generate the money for a national dividend, guaranteed employment for all, expanded social services, and widespread investment in infrastructure, clean energy, and local business. Freed from its Eurocrat oppressors, Greece could model for the world what can be achieved by a sovereign country using publicly-owned banks and publicly-issued currency for the benefit of its own economy and its own people.

Read more …

“..on both sides of the Greek political class there is cognitive dissonance, and it’s being generated by the same thing: a blindness to what the Euro has become.”

Decoding the IMF: Grexit is Inevitable (Paul Mason)

It’s easy to get drawn in to the detail. I spent some of yesterday in the hot corridors of the Greek parliament where the various factions and groupings within Syriza, the radical left party, were working out their postures on today’s vote. No to the rescue deal, says the left. Abstain, say others. Vote yes while declaring it’s been done at gunpoint, says Alexis Tsipras in a live TV interview. But step away from the argument, bitter as the black coffee served in the parliament’s canteen, and the bigger picture is: the deal will pass, Syriza will vote for it. Step back further and take in the implications of the IMF’s secret report, leaked yesterday, into the dynamics of Greece’s debt. The IMF says – after the weeks of dislocation caused by the relentless bank run and the capital controls – that the austerity deal is pointless.

Greece needs a massive debt write-off or large upfront transfers of taxpayers money from the rest of Europe. It needs a 30 year grace period in which it will stop repaying the loans. Yet the entire deal done on Sunday night was premised on not a single cent worth of debt relief. Vague commitments to “reprofile” debt – pushing repayment times backwards and lowering the interest rates – were all Angela Merkel could be persuaded to do. What this means is very simple: the third bailout agreed in principle on Sunday night is doomed to fail. First because the IMF cannot sign up to it without debt relief; second because, without debt relief it will collapse the Greek economy. This is even before you factor in issues like mass resistance to its details, or the total lack of enthusiasm for execution of the deal by the Syriza ministers who will have to do it.

But on both sides of the Greek political class there is cognitive dissonance, and it’s being generated by the same thing: a blindness to what the Euro has become. The Greek centre and centre right will keep Syriza in power today on the grounds of being good Europeans. Syriza will vote for a deal it opposes, and which anybody who’s read even a summary of the IMF report now understands is doomed. Again on the grounds that it is demonstrating commitment to Europe and that, as Alexis Tsipras argues, “rules out Grexit”. The implication of the IMF report is that Grexit is inevitable. Without debt relief the Greek debt to GDP ration will rise to 200%. It will be using 15% of its GDP simply to make interest payments and payments coming due.

Read more …

“..it tells you that the plan that was agreed is unworkable..”

What’s Behind The IMF Attack On The Greek Deal? (CNBC)

As U.S. Treasury Secretary Jack Lew jets into Europe to urge policymakers to keep the Greek rescue on track, there are fears that the IMF has derailed country’s third bailout. Lew is expected to visit Frankfurt, Berlin and Paris over the next two days for talks on Greece with senior financial officials, including the President of the ECBMario Draghi and finance ministers of France and Germany. His trip comes at a crucial moment in the Greek crisis, with the country’s parliament due to vote later Wednesday on wide-reaching reforms and spending cuts. Meanwhile, the IMF stirred already tense relations between Greece and its creditors, which had just agreed to open talks on a 86 billion euros bailout, by saying on Tuesday that Greek debt relief was essential.

The IMF study, first reported by Reuters, showed that Greece needed far more debt relief than European governments were willing to consider. According to the news agency, European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension. Otherwise, Europe had to accept “deep upfront haircuts” on existing loans. It’s not the first time the IMF has called for debt relief over Greece, somewhat ironically, given that Greece missed a 1.6 billion euro loan repayment to the Fund last month and another €456 million due earlier this week. Eyebrows have been raised over the timing of the study’s release, coming a day before the deadline imposed on the Greek parliament to pass legislation on reforms.

Analysts said the IMF’s advocacy of debt relief could now be a deal-breaker. Moreover, the IMF has already reportedly signaled it could walk away from putting 16.4 billion euros of its own funds into a third bailout without some kind of debt relief, according to an IMF memo sent to European leaders last weekend and reported by the Financial Times on Wednesday. “It’s very interesting that the IMF has weighed in ahead of this vote,” Adam Myers, European Head of FX Research, told CNBC Wednesday. “When one of the creditors that is on the hook for 25% of the total bailout, says there needs to be an extension (of maturities) of that magnitude, it tells you that the plan that was agreed is unworkable.

Read more …

The IMF also messed up hugely.

Professor Blanchard Writes a Greek Tragedy (Ashoka Mody)

Olivier Blanchard has, with his customary clarity and candor, addressed criticisms of the IMF’s role in Greece’s financial rescue. His is a personal statement. But in writing it, he also presents the IMF’s operating philosophy and mandate. Blanchard’s statement will, therefore, not only shape our thinking on the evolution of the Greek crisis but it could define how we view the proper role of the IMF. His blog post deserves careful reading and consideration. The critics, he says, complain that “The [official] financing given to Greece was used to repay foreign banks.” But that, Blanchard insists, is not the right way to think of it. Memories of the post-Lehman meltdown were still fresh. The risks of contagion were real, or were perceived to be real, and there were no firewalls to contain those risks. That is certainly the official view. But is it right?

While a moment of great uncertainty, it was also a time for new ideas and initiatives. Barely 10 days after the Lehman fiasco, Washington Mutual Bank became the largest ever bank to fail in the United States and the U.S. authorities forced the creditors and equity holders to bear all the losses. The IMF, in contrast, went in the opposite direction, overriding its well-founded principle that the distressed country’s debt must be reduced to a “sustainable” level. In the Greek case, debt reduction required imposing losses on creditors. To the fear of contagion, a simpler solution—with much lower costs to all—would have been for the French and German authorities to stuff their banks with cash so that they were protected from the losses on their Greek debt holdings.

If even with these efforts, the risk of a wild-fire contagion could not be eliminated, then the question should have been who should bear the burden of preventing the contagion. An IMF paper that bears Blanchard’s name lays out the principle by which Greece should have been compensated—with a financial grant (not a loan)—for agreeing to hold on to its unsustainable debt burden in the interest of limiting losses on others. The IMF paper says:

“[…] there may be circumstances where any form of debt restructuring … would be considered problematic from a contagion perspective. […] in these cases, sustainability concerns could be addressed not through a debt restructuring but through concessional assistance [the official euphemism for financial grants] provided by other official creditors.

The argument is that contagion is a global problem and the global community should share the cost of preventing contagion. Absent such burden-sharing, it is an arithmetical matter that the austerity required on Greece was much greater than it would otherwise have been. And before the terms of the official loans were finally eased, the wind was knocked out of the Greek economy. The critics, Blanchard says, are not right to complain that “The 2010 program only served to raise debt and demanded excessive fiscal adjustment.” Fiscal austerity, he insists, was not a choice, it was a necessity. He makes a strange claim:

“Had Greece been left on its own, it would have been simply unable to borrow. … Even if it had fully defaulted on its debt, given a primary deficit of over 10% of GDP, it would have had to cut its budget deficit by 10% of GDP from one day to the next.”

Surely, that is a non-sequitur. No one has proposed that the alternative would have been to leave Greece “on its own.” That is not what the IMF does. The process requires the creditors to bear losses and the IMF simultaneously provides temporary financing. Both help to ease the pace of fiscal austerity.

Read more …

An experiment.

Greece Rewrites Economic Textbooks With Austerity on Austerity (Bloomberg)

It could be a chapter in an economics textbook: What happens when severe austerity is imposed on an economy that’s already lost a quarter of its output? Greece will find out how bad it could be. The package of measures that Tsipras was strong-armed into agreeing to early Monday after an all-night summit with euro leaders requires pension curbs and tax increases, with no promise of debt relief. To prove his commitment to reforms, Prime Minister Alexis Tsipras must pass those measures through parliament as early as Wednesday. The country’s economic slump has already saddled it with a 26% unemployment rate as previous governments implemented budget cuts at the behest of creditors, and output may fall by 10% this year.

The IMF admitted in a report two years ago that it underestimated the recessionary impact of the original 2010 bailout plan. “If there’s a permanently horrible business environment it just prolongs the agony,” said Gabriel Sterne at Oxford Economics in London. “It already is one of the worst post-crisis output performances ever apart from uber-commodity slumps and wars.” Greece could also see a rerun of the kind of civil strife seen in central Athens up to 2012 during parliamentary votes on budget bills. While protests in recent weeks, both for and against a deal with creditors, have been peaceful, minor scuffles have broken out with riot police at rallies organized by anarchist groups. Public sector workers are set to strike on Wednesday, indicating the first general strike since November might follow.

The prime minister has one hope, says Constantine Michalos, president of the Athens Chamber of Commerce and Industry: Succeed where previous governments failed and fully implement the market-opening reforms that were also part of the package Tsipras agreed to keep his country in the euro. The seven-page statement issued at the end of the summit, which lists measures Greece must take before funds can be released for its cash-starved economy, begins with the need for “ownership” of the program by Greek authorities.

Read more …

They won’t get anywhere near €50 billion. But Greece would still lose the assets. They should never ever say yes to that.

Bailout Deal: What’s For Sale In Greece (CNN)

The Acropolis is not for sale, but other valuable Greek assets might be. The Greek government agreed to transfer up to €50 billion worth of assets to an independent fund as part of the $96 billion bailout deal with Europe. The trust’s goal will be to generate cash by either selling these assets or by turning them around into money-making enterprises. The program must be approved by the Greek parliament by Wednesday if Greece wants to receive any additional bailout money. Greek banks, electrical and utility companies, airports and ports are likely to be included on the list of assets, as are some tourist resorts and land developments currently owned by the government.

The partly state-owned telecommunications company OTE, Greece’s Public Power Corporation, and the Independent Power Transmission Operator (ADMIE) are among the enterprises the government might put up for privatization. Previous governments were also looking at selling its 35.5% stake in the Hellenic Petroleum, which operates three refineries in Greece, and its 90% stake in the Hellenic Post. The idea to sell Greek assets to raise funds is not new. A series of privatizations was among the conditions of Greece’s previous bailout agreements. But the process did not run smoothly and raised far less than the government had hoped for. “The privatization program has been a huge disappointment of the previous bailouts,” said Raoul Ruparel, the co-director of Open Europe think tank.

Analysts are warning about the ambitiousness of the program. Many Greek assets have lost value in the last five years as the crisis wiped off 25% of Greece’s GDP. The original target for all privatizations was to raise 50 billion euros by 2019. It was later revised to €22 billion by 2020. But the agency leading the first wave of privatizations, the Hellenic Public Asset Development Fund, has so far only raised €3.5 billion. One of the few successfully completed privatizations was the 2013 sale of OPAP, the Greek betting agency, to a group of investors from the Czech Republic, Greece, and Russia.

Read more …

Need a whole lot of US pressure for that.

IMF Demands Greece Debt Relief as Condition for Bailout (NY Times)

The IMF threatened to withdraw support for Greece’s bailout on Tuesday unless European leaders agree to substantial debt relief, an immediate challenge to the region’s plan to rescue the country. The aggressive stance sets up a standoff with Germany and other eurozone creditors, which have been reluctant to provide additional debt relief. The I.M.F role is considered crucial for any bailout, not only to provide funding but also to supervise Greece’s compliance with the terms. A new rescue program for Greece “would have to meet our criteria,” a senior IMF official told reporters on Tuesday, speaking on the condition of anonymity. “One of those criteria is debt sustainability.” Debt relief has been a contentious issue in the negotiations over the Greek bailout.

Athens has pushed aggressively for creditors to write down the country’s debt, which now exceeds €300 billion. Without it, Prime Minister Alexis Tsipras has argued the debt will remain a heavy weight on Greece’s troubled economy. But Germany and other countries, including the Netherlands and Finland, are loath to grant Greece easier terms, which are a tough sell to their own voters. German Chancellor Angela Merkel has ruled out a “classic haircut” on Greece’s debt. The IMF is now firmly siding with Greece on the issue. In a report released publicly on Tuesday, the fund proposed that creditors let Athens write off part of its huge eurozone debt or at least make no payments for 30 years. The report was initially submitted to eurozone officials before a weekend meeting to consider the new bailout deal for Greece.

The eurozone officials did not adopt the IMF’s debt relief proposals in the tentative agreement they reached with Greece on Monday. In going public, the IMF is making a tactical move, adding pressure to the negotiations over the bailout deal. But its aggressive position also complicates efforts to complete a deal, with Greece’s Parliament scheduled to vote on Wednesday whether to accept the creditors’ conditions. As the uncertainty over the deal mounts, Greece’s rapidly growing financial needs only create additional strains on the eurozone, while its unity is already shaken. With Greek banks closed and foreign investment at a standstill, the economy is sinking fast, undercutting tax revenue and making it even harder for the government to pay its debts.

Read more …

Wise words, 4 years old.

An Open Letter To The People Of Greece: Restore The Drachma (Ann Pettifor, 2011)

June 21, 2011- We write to encourage you – to urge you on in your resistance. In your defiance, you understand Greece is slave to the interests of private wealth. You must understand too that it is private wealth that needs Greece. Greece does not need private wealth. As is obvious to you – if not to EU finance ministers – Greek and other EU taxpayers are asked to shore up the immense wealth and reckless lending of private French, German, British and American banks. Without your taxes, your sacrifices, the privatisation of your government’s assets, these bankers once again face Armageddon – as they did in autumn of 2008.= Just as then, so now they have rushed behind the ‘skirts’ of their defenders at the IMF and the EU.

On their behalf, these unelected officials and some elected politicians demand that Greek and EU taxpayers shield private sector risk-takers from the consequences of their risks. The very antithesis of market principles. In the process, the EU is torn apart. Politicians, backed by officials, now defy the founding goals of the Community and, in the interests of private wealth, set the peoples of Europe against each other. On 20 June, 2011 the acting Head of the IMF called for “immediate and far-reaching structural reforms, privatization, and the opening of markets to foreign ownership and competition.” Which proves our point: private wealth needs Greece. Greece does not need private wealth.

Greece’s elected politicians have plunged the country into a spiral of decline, as austerity leads to greater economic crisis, more severe failure of public finances and social and economic hardship on a scale unknown since the inter-war years. Is there anybody on earth who seriously believes that austerity will restore the prosperity of Greece? The idea is ludicrous. But equally ludicrous is the idea that there is no alternative. There is an alternative. In reality, austerity marks the final failure of the existing arrangement between public interests and the interests of private wealth. Financial liberalisation has failed. The only way forward is a new arrangement, based on ones that have better served societies since the dawn of civilisation: since Aristotle identified the evils of usury and the barrenness of prosperity based on speculation.

The first step must be the abandoning of the Euro. The Euro must be understood not as a currency of the peoples, but as an ideal of private wealth. The Euro is a perversion of the greatest monies in history. These arose as a relation between people and the state. Through the institutional development of central banks, domestic banks, state borrowing, paper currency and double-entry book keeping, national monies have underpinned all of the greatest societies of the world. Money has been aimed at the interests of society, of productive labour, and vibrant state and private activity alike. But the Euro is a money aimed only at the interests of private wealth. It is divorced from individual nation states. Its statutes explicitly prohibit the support of state activity through money creation, while its foundation in monetarist doctrine inhibits private activity and has led to a world devoid of markets, at the mercy of large financial monopolies.

Read more …

A proper assessment of Tsipras’ position.

Greece and the Union of Bullies (Alex Andreou)

Tsipras should now try to create the time and breathing space to lead Greece out of the EU. The FT reports how, having reached an impasse in their negotiation, around 6 a.m., Merkel and Tsipras went to leave the room and President of the European Council Donald Tusk physically prevented them, saying “there is no way you are leaving this room”. Alone, sleepless, with other leaders reportedly taking turns on him in a process which one EU official described as “extensive mental waterboarding”, looking like “a beaten dog”, Tsipras finally succumbed. In any ordinary circumstances, in most legal jurisdictions, such an agreement would be considered void; obtained by coercion and under duress. In Euroland, it seems, such considerations do not apply.

Within the hard black and white reality of fat-lettered newspaper headlines, of adoration and condemnation, of twitter’s one-hundred-and-forty characters, everything is binary. Alexis Tsipras must be either praised as hero or condemned as villain; idolized as the Messiah or reviled as Judas. As I have written previously he is neither. He is just a man under an enormous amount of pressure, trying to reconcile a Greek mandate – to do away with austerity, but remain within the eurozone – which turned out to be irreconcilable. Much more cogent is the charge that Syriza should have known that such a promise was undeliverable when they made it. I do not subscribe to the view that this was done deliberately. That they inflated the hopes of a people, already betrayed so many times, intending to betray them again.

Nothing in their behavior these last six months evidences that. On the contrary, time after time, I saw a government totally shocked by the behaviour of people who were meant to be our family, our friends and allies. I saw in their eyes the look of someone stunned by an abusive partner. The very commentators claiming that this behavior was completely predictable also claim they have never seen anything like it and that Europe has changed fundamentally. Nevertheless, this cruelty is now a matter of record. We had all hoped for a Greek Spring. Instead, we got a German Winter. Yet, everyone has turned on the victim of this violent assault for not locking their door, for wearing too short a skirt, for not fighting back harder, while the criticism of the perpetrator seems to have dissipated.

The idea of Tsipras as a “traitor” relies heavily on a cynical misinterpretation of the referendum last week. “OXI”, the critics would have you believe, was “no” to any sort of deal; an authorization to disorderly Grexit. It was nothing of the sort. In speech after speech Tsipras said again and again that he needed a strong “OXI” to use as a negotiating weapon in order to achieve a better deal. Now, you may think he didn’t achieve a better deal – that may be a fair criticism – but to suggest the referendum authorized Grexit is deeply disingenuous. And what about the 38% that voted “NAI”? Was Tsipras not there representing those people, too?

Read more …

Going through the motions.

Tsipras Says There Was ‘A Knife on My Neck’ (Bloomberg)

Greek Prime Minister Alexis Tsipras started his pitch for a bailout that’s sparked a revolt in his own party and is struggling to get off the ground as international officials ask new questions about the country’s finances. As Tsipras went on national television on Tuesday night to argue for a deal that he only agreed to with “a knife at my neck,” European officials were at a loss over how to put together a bridging loan that will keep Greece from defaulting on the ECB and its own citizens next week. One person familiar with the matter said that Greece’s finances seem to get worse with every meeting and governments are now reluctant to help out with even short-term funds. “The Greek government has not received a bridge-financing program yet because some try to block this,” Tsipras said in an interview with ERT-TV before a parliamentary vote on the deal on Wednesday.

“My priority is to make sure that the choice I made the other day, with a knife at my neck, is finalized.” European officials are at a loss on how to put together a bridging loan that will keep Greece from defaulting Parliament will vote Wednesday night on the measures Greece’s creditors demanded as a condition for aid as capital controls ravage an economy that has already shrunk by a quarter since 2009. Those measures have exacted a “heavy toll” and have led to a dramatic deterioration in Greece’s ability to repay its debt over the past two weeks, a new analysis by the IMF showed on Tuesday. Tsipras portrayed the package of austerity as unavoidable because the alternative was leaving the euro. In return, all Greece’s mid-term financing needs will be covered and talks over debt restructuring could even start in the fall, he said.

Read more …

Good grief. Harper’s the worst disaster on a planet full of them..

Canada And Ukraine Announce ‘Milestone’ Free Trade Agreement (AFP)

Canada formally announced a “milestone” free trade agreement with Ukraine after the two countries’ prime ministers met in Ottawa on Tuesday. The agreement, which has to be ratified by both nations’ parliaments, will be implemented as soon as possible, Stephen Harper said after meeting Arseniy Yatsenyuk. With more than a million people claiming roots in Ukraine, Canada has supported Kiev many times since the 2014 revolution and Russia’s annexation of the Crimean peninsula. Also, Canada was the first western country to recognise Ukraine’s independence, in December 1991. The trade deal is expected to lift the Canadian GDP by C$29.2m (US$22.9m) and Ukraine’s by C$18.6m, Canadian government evaluations show.

“Today’s conclusion of the Canada-Ukraine free trade agreement is another milestone in the important relationship between our two countries,” Harper said. Canada will eliminate tariffs on 99% of imports from Ukraine and increase exports to Ukraine by C$41.2m. Meanwhile, financially troubled Ukraine will reduce tariffs on 86% of Canadian imports and increase exports to Canada by C$23.7m, mainly in the textile and metalworking industries. The Ukrainian economy has taken a nosedive after three years of recession and more than a year of war. Its national debt is expected to reach nearly 94% of GDP in 2015, the IMF says.

Read more …