Apr 242018
 
 April 24, 2018  Posted by at 9:17 am Finance Tagged with: , , , , , , , , , , ,  


John French Sloan A Woman’s Work 1912

 

Japan Can Begin Reducing Stimulus In Five Years – Kuroda (CNBC)
ECB Mulls Shelving Rules Tackling Euro Zone’s Bad Loans Pile (R.)
The Return Of Honest Bond Yields (Stockman)
Stop and Assess (Jim Kunstler)
The Chinese Car Invasion Is Coming (BBG)
Greek Primary Surplus Comes At The Expense Of Growth (K.)
Tensions Grow On Greek Islands (K.)
The UK Has Turned The Right To Education Into A Charitable Cause (G.)
UK Food Bank Use Reaches Highest Rate On Record (Ind.)
Finland To End Basic Income Trial After Two Years (G.)

 

 

Abenomics is a miserable failure. Which is why Abe’s popularity is scraping the gutter. But we keep on pretending. Five years? Why not make it ten, or fifty? Kuroda is stuck….

Japan Can Begin Reducing Stimulus In Five Years – Kuroda (CNBC)

The Bank of Japan will be able to begin winding down its extraordinary monetary stimulus within the next five years, the head of the central bank said. “Sometime within the next five years, we will reach [our] 2% inflation target,” Governor Haruhiko Kuroda told CNBC’s Sara Eisen over the weekend. Once that level is reached, we will start “discussing how to gradually normalize the monetary condition.” Kuroda began his second five-year term this year. He has implemented a massive stimulus policy by cutting the central bank’s benchmark interest rate to negative, keeping the 10-year Japanese government bond yield near 0% in an effort to control the yield curve and stepping up the Bank of Japan’s asset purchases.

However, inflation remains low. Japan reported its consumer price index, excluding fresh food and energy, rose 0.5% in the 12 months through March. “In order to reach [our] 2% inflation target, I think the Bank of Japan must continue very strong accommodative monetary policy for some time,” Kuroda added in his interview with CNBC. Japan’s efforts to boost the sluggish national economy come amid steady growth around the world. The IMF predicts the global economy will increase 3.9% this year and next. Kuroda agreed with the positive outlook. “The world economy will continue to grow at a relatively high pace,” he said. For this year and next, “we don’t see any sign of a turning point.” But protectionism, unexpected rapid tightening of monetary policy in some countries, and geopolitical tensions in North Korea and the Middle East pose potential risks, Kuroda said.

Read more …

… and Draghi is stuck too. My article yesterday was timely. The outgoing Bundesbank director in charge of banking supervision says the ECB’s credibility is at stake. A dangerous thing to say.

ECB Mulls Shelving Rules Tackling Euro Zone’s Bad Loans Pile (R.)

The European Central Bank, after suffering a political backlash, is considering shelving planned rules that would have forced banks to set aside more money against their stock of unpaid loans. The guidelines, which were expected by March, had been presented as a main plank of the ECB’s plan to bring down a 759 billion euro ($930 billion) pile of soured credit weighing on euro zone banks, particularly in Greece, Portugal and Italy. The ECB was now considering whether further policies on legacy non-performing loans (NPLs) were necessary “depending on the progress made by individual banks”, an ECB spokeswoman said.

No decision had been made yet and the next steps were still being evaluated, she said. Central Bank sources told Reuters that if the rules were scrapped, supervisors would look to continue putting pressure on problem banks using existing powers. An alternative would be to hold off until the results of pan-European stress tests are published in November but this would be close to the end of Daniele Nouy’s mandate as the head of the ECB’s Single Supervisory Mechanism at the end of the year. A clean-up of banks’ balance sheets from toxic assets inherited from the financial crisis is a precondition for getting countries like Germany to agree on a common euro zone insurance on bank deposits.

And Andreas Dombret, the outgoing Bundesbank director in charge of banking supervision, said in an interview published on Monday that the ECB’s credibility was at stake. “One cannot say that NPLs are one of the biggest risk for the European banking sector and a top priority and then fail to act,” he told Boersen-Zeitung. “It’s about the credibility of the SSM,” he said, calling for a “timely proposal”.

Read more …

And as the central bankers find themselves trapped, the bond vigilantes roam free.

The Return Of Honest Bond Yields (Stockman)

In the wee hours this AM, the yield on the 10-year treasury note hit 2.993%. That’s close enough for gubermint work to say that the big 3.00% inflection point has now been tripped. And it means, in turn, that the end days of the Bubble Finance era have well and truly commenced. In a word, honest bond yields will knock the stuffings out of the mainstream fairy tale that passes for economic and financial reality. And in a 2-3% inflation world, by honest bond yields we mean 3% + on the front-end and 4-5% on the back-end of the yield curve. Needless to say, that means big trouble for the myth of MAGA. As we demonstrated in part 2, since the Donald’s inauguration there has been no acceleration in the main street economy—just the rigor mortis spasms of a stock market that has been endlessly juiced with cheap debt.

But the Trump boomlet in the stock averages has now hit its sell-by date. That’s because today’s egregiously inflated equity prices are in large part a product of debt-fueled corporate financial engineering—stock buybacks, unearned dividends and massive M&A dealing. Thus, since the pre-crisis peak in Q3 2007 nonfinancial corporate sector value added is up by 34%, but corporate debt securities outstanding have risen by 85%; and the overwhelming share of that massive debt increase was used to fund financial engineering, not productive assets and future earnings growth. In a world of honest interest rates, of course, this explosion of non-productive debt would have chewed into earnings good and hard because the borrowed cash went to Wall Street, not into the wherewithal of earnings growth.

In fact, during the past 10 years, net value added generated by US nonfinancial corporations rose by just $2 trillion (from $6.1 trillion to $8.1 trillion per annum), whereas corporate debt rose by nearly $3 trillion (from $3.3 trillion to $6.1 trillion). So it should have been a losing battle—with interest expense rising far faster than operating profits. But owing to the Fed’s misguided theory that it can make the main street economy bigger and stronger by falsifying interest rates and other financial asset prices, the C-suite financial engineers got a free hall pass. That is, they pleasured Wall Street by pumping massive amounts of borrowed cash back into the casino, but got no black mark on their P&Ls.

Read more …

“That’s what happens when money is just a representation of debt that can’t be paid back.”

Stop and Assess (Jim Kunstler)

Let’s pause today and make an assessment of where things stand in this country as Winter finally coils into Spring. As you might expect, a nation overrun with lawyers has litigated itself into a cul-de-sac of charges, arrests, suits, countersuits, and allegations that will rack up billable hours until the Rockies tumble. The best outcome may be that half the lawyers in this land will put the other half in jail, and then, finally, there will be space for the rest of us to re-connect with reality.

What does that reality consist of? Troublingly, an economy that can’t go on as we would like it to: a machine that spews out ever more stuff for ever more people. We really have reached limits for an industrial economy based on cheap, potent energy supplies. The energy, oil especially, isn’t cheap anymore. The fantasy that we can easily replace it with wind turbines, solar panels, and as-yet-unseen science projects is going to leave a lot of people not just disappointed but bereft, floundering, and probably dead, unless we make some pretty severe readjustments in daily life.

We’ve been papering this problem over by borrowing so much money from the future to cover costs today that eventually it will lose its meaning as money — that is, faith that it is worth anything. That’s what happens when money is just a representation of debt that can’t be paid back. This habit of heedless borrowing has enabled the country to pretend that it is functioning effectively. Lately, this game of pretend has sent the financial corps into a rapture of jubilation. The market speed bumps of February are behind us and the road ahead looks like the highway to Vegas at dawn on a summer’s day.

Tesla is the perfect metaphor for where the US economy is at: a company stuffed with debt plus government subsidies, unable to deliver the wished-for miracle product — affordable electric cars — whirling around the drain into bankruptcy. Tesla has been feeding one of the chief fantasies of the day: that we can banish climate problems caused by excessive CO2, while giving a new lease on life to the (actually) futureless suburban living arrangement that we foolishly invested so much of our earlier capital building. In other words, pounding sand down a rat hole.

Read more …

Yeah, we need more cars…

The Chinese Car Invasion Is Coming (BBG)

On a bright spring day in Amsterdam, car buffs stepped inside a blacked-out warehouse to nibble on lamb skewers and sip rhubarb cocktails courtesy of Lynk & Co., which was showing off its new hybrid SUV. What seemed like just another launch of a new vehicle was actually something more: the coming-out party for China’s globally ambitious auto industry. For the first time, a Chinese-branded car will be made in Western Europe for sale there, with the ultimate goal of landing in U.S. showrooms.

That’s the master plan of billionaire Li Shufu, who has catapulted from founding Geely Group as a refrigerator maker in the 1980s to owning Volvo Cars, British sports carmaker Lotus, London Black Cabs and the largest stake in Daimler —the inventor of the automobile. Li is spearheading China’s aspirations to wedge itself among the big three of the global car industry—the U.S., Germany and Japan—so they become the Big Four. “I want the whole world to hear the cacophony generated by Geely and other made-in-China cars,” Li told Bloomberg News. “Geely’s dream is to become a globalized company. To do that, we must get out of the country.”

[..] Chinese companies have announced at least $31 billion in overseas deals during the past five years, buying stakes in carmakers and parts producers, according to data compiled by Bloomberg. The most prolific buyer is Li, who spent almost $13 billion on stakes in Daimler and truckmaker Volvo. Tencent Holdings Ltd., Asia’s biggest internet company, paid about $1.8 billion for 5% of Tesla. As software and electronics become just as critical to a car as the engine, China is ensuring it doesn’t lag behind in that market, either. Baidu, owner of the nation’s biggest search engine, announced a $1.5 billion Apollo Fund to invest in 100 autonomous-driving projects during the next three years.

“We have secured a chance to compete in the U.S. market of self-driving cars through those partnerships,” Li Zhengyu, a vice president overseeing Baidu’s intelligent-driving unit, told Bloomberg News. “Everyone has a good chance to win if it has good development plans.”

Read more …

The Troika demands that Greece kills its society even more. 4.2% of GDP disappears from the economy. Where it’s so badly needed.

Greek Primary Surplus Comes At The Expense Of Growth (K.)

The 2017 budget has officially registered a record primary surplus of 4.2% of GDP, against a target for 1.75%, but this came at a particularly heavy price for the economy, which grew just 1.4% against a budget target for 2.7%. It is obvious that securing primary surpluses of more than twice the target, depriving the economy of precious resources, is directly associated with the stagnation of growth compared to original projections. It is no coincidence that consumption edged up just 0.1% last year, which analysts have attributed to taxpayers’ exhaustion due to overtaxation. The surplus was mainly a result of drastic cuts to the Public Investments Program (by about 800 million euros) and social benefits, due to the delay in the application of the Social Solidarity Income.

The government was quick to express its satisfaction upon the release of the fiscal results by the Hellenic Statistical Authority on Monday, although it was just two years ago that Prime Minister Alexis Tsipras accused the previous administration of setting excessive targets for the primary surpluses of 2016, 2017 and 2018 at 4.5% of GDP. Eventually he reached that target with his own government, although the creditors had lowered the bar, to 1.75% for 2017 and 3.5% this year. The Finance Ministry spoke yesterday of proof of “the credibility of the fiscal management,” adding that “those data show that not only is the target of 3.5% feasible for this and the coming years, but there will also be some fiscal space for targeted tax easing and social expenditure in the post-program period.”

That reference concerns the so-called “countermeasures” the government has planned in case it exceeds the 3.5% target in the 2019 and 2020 primary surpluses, but for now they are at the discretion of the IMF, which will decide next month whether they can be introduced. Obviously Athens hopes the 2017 figures will positively affect the Fund’s view. There was also a positive response from Brussels on Monday, with European Commissioner for Economic Affairs Pierre Moscovici and Commission spokesman Margaritis Schinas stating that the efforts and sacrifices of the Greek people are now paying dividend.

Read more …

The new head of the Greek Asylum Service flatly ignores the Council of State. Greek justice system overpowered by Brussels and Berlin.

Tensions Grow On Greek Islands (K.)

Concerns have peaked over tensions on the Aegean islands following clashes between residents of Lesvos and migrants in Mytilene port which led to several injuries. Riot police were forced to intervene early Monday morning after dozens of local residents started protesting the presence of migrants in the main square of Mytilene. The migrants, who had been camping in the square since last Tuesday demanding to be allowed to leave the island, were put onto buses and taken back to overcrowded state facilities. According to local reports, the protesters threw flares, firecrackers and stones at the migrants, who formed a circle around women and children to protect them.

Some protesters chanted “Burn them alive,” according to reports which suggested that members of far-right groups were involved. Police detained 122 people – all but two of whom were Afghan migrants – while 28 people were transferred to the hospital for first-aid treatment, 22 of whom were migrants. Political parties issued statements blaming the attack on far-right groups. The mayor of Lesvos, Spyros Galinos, did not rule out the presence of extremists on the island but pointed to broader frustration among locals. “Society is reacting as a whole,” said Galinos, who had appealed to the government last week to reduce overcrowding on the islands.

[..] meanwhile, the new head of the Greek Asylum Service, Markos Karavias, signed an agreement effectively restricting migrants arriving on the Aegean islands from traveling on to the mainland. A Council of State ruling last week overturned previous asylum service restrictions on migrants leaving the islands. The government’s proposed changes to asylum laws – aimed at speeding up the slow pace at which applications are processed – are to be discussed in Parliament on Tuesday.

Read more …

How poor Britain is becoming.

The UK Has Turned The Right To Education Into A Charitable Cause (G.)

My nine-year-old son looks at me anxiously. “Mum, you definitely, definitely have my sponsor money plus an extra pound, which I need for the fundraising games. We have to bring it in today.” I search through my wallet for a quid each for him and his brother. I’ve got no cash on me. “We have to,” he repeats, his voice going wobbly. I stick an IOU in his piggy bank and the day is saved. Yet again. And yet again I feel infuriated and indignant at being put in this position. Then I feel even more cross that I now feel mean. Cake sale, plant sale, ticket for a pamper evening, music quiz, another cake sale, school disco (with associated plastic tat and penny sweets on sale), pay to see Santa, raffle for the chocolate hamper (that you’ve already sent in the goddamn chocolate for), dress up for World Book Day (that’s a quid), go pink for breast cancer research (that’s two quid) and why not run a sponsored mile for Sport Relief while you’re at it.

Then … ping! Oh joy, a text from school – another (another?!) cake sale. How much sugar is going down in that playground? The texts keep flooding in. Ransack your wardrobe for Bag 2 School; send in dosh so your child can buy you a Mother’s Day present; scrabble through your (now denuded) wardrobe for next week’s clothes swap and pretty please, the PTA would appreciate donations of booze for this year’s summer fete. If enough of you don’t stump up by Friday, you’ll be harangued daily until you do. Welcome to summer term, peak time for school fundraising – and what feels like a constant assault. Let’s put aside my irritation at being “chugged” via leaflets in book-bags and my mobile phone, in principle it’s a good thing for kids to think about the needs of people other than themselves, so I’ll swallow official charity fundraisers on that basis, even if those charities might not be my personal choice.

What is outrageous, though, is the assumption in some schools that parents can easily afford to donate on a virtually weekly basis, and the idea that we should expect to be paying on top of our taxes for our children’s state education. Schools, suffering the terrible results of the government’s austerity policies, have cut to the chase and are now pumping parents for regular direct debits to cover essentials. But is asking parents to pay doing pupils’ education any good?

Read more …

No surprise.

UK Food Bank Use Reaches Highest Rate On Record (Ind.)

Food bank use has soared at a higher rate than ever in the past year as welfare benefits fail to cover basic living costs, the UK’s national food bank provider has warned. Figures from the Trussel Trust show that in the year to March 2018, 1,332,952 three-day emergency food supplies were delivered to people in crisis across the UK – a 13% increase on last year. This marks a considerably higher increase than the previous financial year, when it rose by 6%. Low income is the biggest single – and fastest growing – reason for referral to food banks, accounting for 28% of referrals compared to 26% in the previous year. Analysis of trends over time demonstrates it has significantly increased since April 2016.

Being in debt also accounted for an increasing percentage of referrals – at 9% of referrals up from 8% in the past year. The cost of housing and utility bills are increasingly driving food bank referrals for this reason, with the proportion of referrals due to housing debt and utility bill debt increasing significantly since April 2016. The other main primary referral reasons in the past year were benefit delays (24%) and benefit changes (18%). “Reduction in benefit value” have the fastest growth rate of all referrals made due to a benefit change, while those due to “moving to a different benefit” have also grown significantly.

Read more …

It’s dangerous when people trial basic income schemes who don’t understand them. Others will say: it failed in Finland! No it didn’t. It has to be universal, and this is not.

Finland To End Basic Income Trial After Two Years (G.)

Europe’s first national government-backed experiment in giving citizens free cash will end next year after Finland decided not to extend its widely publicised basic income trial and to explore alternative welfare schemes instead. Since January 2017, a random sample of 2,000 unemployed people aged 25 to 58 have been paid a monthly €560 (£475) , with no requirement to seek or accept employment. Any recipients who took a job continued to receive the same amount. The government has turned down a request for extra funding from Kela, the Finnish social security agency, to expand the two-year pilot to a group of employees this year, and said payments to current participants will end next January.

It has also introduced legislation making some benefits for unemployed people contingent on taking training or working at least 18 hours in three months. “The government is making changes taking the system away from basic income,” Kela’s Miska Simanainen told the Swedish newspaper Svenska Dagbladet. The scheme – aimed primarily at seeing whether a guaranteed income might incentivise people to take up paid work by smoothing out gaps in the welfare system – is strictly speaking not a universal basic income (UBI) trial, because the payments are made to a restricted group and are not enough to live on.

But it was hoped it would shed light on policy issues such as whether an unconditional payment might reduce anxiety among recipients and allow the government to simplify a complex social security system that is struggling to cope with a fast-moving and insecure labour market. Olli Kangas, an expert involved in the trial, told the Finnish public broadcaster YLE: “Two years is too short a period to be able to draw extensive conclusions from such a big experiment. We should have had extra time and more money to achieve reliable results.”

Read more …

Apr 232018
 
 April 23, 2018  Posted by at 12:46 pm Finance Tagged with: , , , , , , , , ,  


René Magritte La trahison des images 1929

 

“[Price discovery] is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers”, says Wikipedia. Perhaps not a perfect definition, but it’ll do. They add: “The futures and options market serve all important functions of price discovery.”

What follows from this is that markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is.

Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all. Also, if you don’t have functioning markets, you have no investors. Who’s going to spend money purchasing things they can’t determine the value of? (I know: oh, wait..)

 

Ergo: we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

Or is it because they once started out as ‘investors’ or finance journalists, bankers or politicians, and wouldn’t know what to call themselves now, or simply can’t be bothered to think about such trivial matters?

Doesn’t a little warning voice pop up, somewhere in the back of their minds, in the middle of a sweaty sleepless night, that says perhaps they shouldn’t get this one wrong? Because if you think about, and treat, a ‘thing’, as something that it’s not at all, don’t you run the risk of getting it awfully wrong?

A cow is not a dinner table; but both have four legs. And “Art is Art, isn’t it? Still, on the other hand, water is water. And east is east and west is west and if you take cranberries and stew them like applesauce they taste much more like prunes than rhubarb does. Now you tell me what you know”. And when you base million, billion, trillion dollar decisions, often involving other people’s money, on such misconceptions, don’t you play with fire -or worse?

 

This may seem like pure semantics without much practical value, but I don’t think it is. I think it’s essential. What comes to mind is René Magritte’s painting “La Trahison des Images”, better known as “Ceci n’est pas une pipe”, (The Treachery of Images – this is not a pipe). People now understand -better- what he meant, but they were plenty confused in the late 1920s when he painted it.

An image of a pipe is not a pipe. In Magritte’s words: “The famous pipe! How people reproached me for it! And yet, could you stuff my pipe? No, it’s just a representation, is it not? So if I had written on my picture ‘This is a pipe’, I’d have been lying!”.

But isn’t that what the entire financial community is doing today? Sure, they’re making money right now, but that doesn’t mean there are actual markets. They don’t have to go through “the process of determining the price of an asset in the marketplace..” I.e. they don’t have to check if the pipe is a real pipe, or just a picture of one.

 

 

What killed price discovery, and thereby markets? Central banks did. What they did post-2008 is two-fold: they bought many, many trillions in ‘assets’, mortgage-backed securities, sovereign bonds, corporate bonds, etc., often at elevated prices. It’s hard to gauge how much exactly, but it’s in the $20+ trillion range. Just so all these things wouldn’t be sold at prices markets might value them at after going through that terrible process of ‘price discovery’.

Secondly, of course, central banks yanked down interest rates. Until they arrived at ultra low interest rates (even negative ones), which have led to ultra low yields and the perception of ultra low volatility, ultra low risk, ultra low fear, which in turn contributed to ultra low savings (in which increasing household debt also plays a major role). As a consequence of which we have ultra high prices for stocks, housing, crypto(?), and I’m sure I still forget a number of causes and effects.

People wanting to buy a home are under the impression they can get “more home for their buck” because rates are so low, which in turn drives up home prices, which means the next buyers pay a lot more than they would have otherwise, and get “less home for their buck”. In the same vein, ultra-low rates allow for companies to borrow on the cheap to buy back their own stock, which leads to surging stock prices, which means ‘investors’ pay more per share.

 

Numbers of the S&P 500 and its peers across the world are still being reported, but what do they really represent? Other than what central banks and financial institutions have bought and sold? There’s no way of knowing. If you buy a stock, or a bond, or a home, you no longer have a means of finding out what they are truly worth.

Their value is determined by central banks printing debt out of thin air, not by what it has cost to build a home, or by what a company has added to its value through hard work or investment in labor, knowledge or infrastructure. These things have been rendered meaningless.

Central banks determine what anything is worth. The problem is, that is a trap. And your money risks being stuck in that trap. Because you’re not getting any return on your savings, you want to ‘invest’ in something, anything, that will get you that return. And the only guidance you have left is what central banks purchase. That is a much poorer guidance than an actual market place. The one thing you can be sure of is that you’re paying more for ‘assets’ -probably much more- than you would have had central banks remained on the sidelines.

The Fed may (officially?) have quit purchasing ‘assets’, but the Bank of Japan and ECB took over with a vengeance (oh, to be a fly on the wall at the BIS); in Q1 2017 the latter two bought over $1 trillion in paper. The Bank of Japan has effectively become its nation’s bondmarket. The European Central Bank is not far behind that role in Europe.

And the ‘market’, or rather the 2-dimensional picture of a market, depends only on what they do. The one remaining question then is when will this end? Some say it can go on forever, or, you know, till these policies have restored growth and confidence. But can, will, anyone have confidence in a market that doesn’t function? Martin Armstrong recently addressed the issue:

 

The Central Bank Crisis on the Immediate Horizon

While the majority keep bashing the Federal Reserve, other central banks seem to escape any criticism. The European Central Bank under Mario Draghi has engaged in what history will call the Great Monetary Experiment of the 21st Century – the daring experiment of negative interest rates. A look behind the scenes reveals that this experiment has been not just a failure, it has undermined the entire global economic structure.

We are looking at pension funds being driven into insolvency as the traditional asset allocation model of 60% equity 40% bonds has failed to secure the future with negative interest rates. Then, the ECB has exceeded 40% ownership of Eurozone government debt. The ECB realizes it can not only sell any of its holdings ever again, it cannot even refuse to reinvest what it has already bought when those bonds expire. The Fed has announced it will not reinvest anything.

Draghi is trapped. He cannot stop buying government debt for if he does, interest rates will soar. He cannot escape this crisis and it is not going to end nicely. When this policy collapses, forced by the free markets (no bid), CONFIDENCE will collapse rapidly. Once people no longer believe the central banks can control anything, the end has arrived. We will be looking at the time at the WEC. We will be answering the question – Can a central bank actually fail?

 

So where do you go from here? Everything you -think you- know about markets is potentially useless and doesn’t apply to what you see before you today. There are many voices who talk about similarities and comparisons with what happened to markets for instance in 1987, but what’s the value of that?

Back then, to all intents, constructions, and purposes, markets were functioning. There was price discovery. There were some ‘novel’ instruments, such as portfolio insurance, that you could argue influenced markets, but nothing on the scale or depth of what we see today with high-frequency trading, robots, Kurodas and Draghis.

The temptation is obvious, and large, to compare today’s financial world with that of any point in the past that seems to fit, even if not perfectly. But the lack of price discovery means any such comparisons must of necessity be way off the mark; you cannot stuff that 2-D pipe.

The BIS-designed unity in central bank policies is under threat, as Armstrong indicates. The Fed has moved towards quantitative tightening, not investing or even re-investing, and raising rates, but it doesn’t look like the ECB will be able to follow that change of direction. It can’t stop ‘investing’ because it has become too big a player. The Bank of Japan appears to be in that same bind.

Central bankers jumped into the markets to save them (or so goes the narrative), but they will instead end up killing them. In fact, they killed them the minute they entered the fray. Markets can’t survive without price discovery, and vice versa. The moment it becomes clear that Draghi MUST keep buying sovereign debt from countries with failing economies, the game is up.

 

All those trillions created by central banks, and the even much bigger amounts conjured up by the creation of loans by commercial banks, will have to be eradicated from the system before markets and price discovery can return. And return they will. There are lots of things wrong with our economic and financial machinery, but functioning markets are not wrong.

Things run off the rails when governments and central banks start interfering, not when markets are allowed to function. But it’s long turned into a giant game of whack-a-mole, in which economists and other know-it-betters are forced to plug one hole by digging another, and so forth.

The best we can hope for is some sort of controlled demolition, but the knowledge and intelligence required to make that happen don’t appear to be available. The political climate certainly isn’t either. A politician who campaigns on “let’s take this sucker down slowly” will always lose out to one who claims to know not only how to save it, but to let it bloat even more.

The Draghis of the world will continue to believe they are in control until they are not. At first, some people will start taking out their money while it’s still there, and then after that the rest will trample over each other in a bloody stampede on the way to the exits trying to save what’s left. After the first $100 trillion is gone, we’ll be able to survey the terrain, but by then we won’t, because we’ll be too busy trying to save ourselves.

And I know you’ve heard this before, and I know central banks bought us 10 years of respite. But it was all fake, it was all just a picture of a pipe. They had to pile on insane amounts of debt on your heads, kill off your pension systems and make markets a meaningless term, to achieve that respite.

They had to kill the markets to create the illusion that there still were markets. With the implied promise that they would be able to get out when they had ‘restored growth’.

But you can’t buy growth. And yet that is the only trick they have up their sleeves, and the only thing the emperor is wearing. Next up: a rabbit and a hat. And a pipe. And then the lights go out and someone shouts “FIRE!”.

 

 

 

 

Mar 052018
 
 March 5, 2018  Posted by at 11:04 am Finance Tagged with: , , , , , , , , , , , ,  


Astor Theater, Times Square NYC 1945

 

Monetary Policy In The Grip Of A Pincer Movement (BIS)
The Arithmetic of Risk (John Hussman)
BOJ’s Kuroda Joins Queue of Central Banks Looking Toward Exit (BBG)
Trump’s Trade War Is For The Forgotten People (Eric Peters)
Italy Faces Political Gridlock After 5-Star Surges (R.)
China Sets 2018 GDP Target at About 6.5%, Turns Fiscal Screws (BBG)
Tax the Wealth of Older Britons to Help the Young, Report Argues (BBG)
Eliminate The Deficit? Eliminate Economic Hope, More Like (McDuff)
15,000 New Manchester Homes And Not A Single One ‘Affordable’ (G.)
The Tyranny of Algorithms (G.)
US Embassy In Turkey Closed Due To Security Threat (R.)
Erdogan Advisor Says Ankara Ready To ‘Strike’ In Eastern Med (K.)
Australia: Global Deforestation Hotspot (G.)
Europe Tree Loss Pushes Beetles To The Brink (BBC)

 

 

Financial cycles appear to have grown in amplitude and length. Next move could be really wild.

Monetary Policy In The Grip Of A Pincer Movement (BIS)

The emergence of disruptive financial cycles and the limited sensitivity of inflation to domestic slack may at first sight seem to be unrelated. In fact, there may be a common thread: the behaviour of monetary policy. Consider each in turn. The first major development is that, since around the early 1980s, financial cycles appear to have grown in amplitude and length. There is no unique definition of the financial cycle. A useful one refers to the self-reinforcing processes between funding conditions, asset prices and risk-taking that generate expansions followed by contractions. These processes operate at different frequencies. But if one is especially interested in those that cause major macroeconomic costs and banking crises, probably the most parsimonious description is in terms of credit and property prices.

Graph 1 illustrates the phenomenon for the United States using some simple statistical filters, although the picture would not be that different for many other countries or using other techniques (eg peak-trough analysis). The graph shows that the amplitude and length of the fluctuations has been increasing, that the length of the financial cycle is considerably longer than that of the traditional business cycle (blue versus red line) and that banking crises, or serious banking strains, tend to occur close to the peak of financial cycle. Another key feature of financial cycles is that the bust phase tends to generate deeper recessions. Indeed, if the bust coincides with a banking crisis, it causes very long-lasting damage to the economy.

There is evidence of permanent output losses, so that output may regain its pre-crisis long-term growth trend while evolving along a lower path. There is also evidence that recoveries are slower and more protracted. And in some cases, growth itself may also be seriously damaged for a long time. Some recent work with colleagues sheds further light on some of the possible mechanisms at work. Drawing on a sample of over 40 countries spanning over 40 years, we find that credit booms misallocate resources towards lower-productivity growth sectors, notably construction, and that the impact of the misallocations that occur during the boom is twice as large in the wake of a subsequent banking crisis.

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“.. I continue to expect the S&P 500 to lose about two-thirds of its value over the completion of the current market cycle…”

The Arithmetic of Risk (John Hussman)

At present, I view the market as a “broken parabola” – much the same as we observed for the Nikkei in 1990, the Nasdaq in 2000, or for those wishing a more recent example, Bitcoin since January. Two features of the initial break from speculative bubbles are worth noting. First, the collapse of major bubbles is often preceded by the collapse of smaller bubbles representing “fringe” speculations. Those early wipeouts are canaries in the coalmine. In July 2007, two Bear Stearns hedge funds heavily invested in sub-prime loans suddenly became nearly worthless. Yet that was nearly three months before the S&P 500 peaked in October, followed by a collapse that would take it down by more than 55%.

Observing the sudden collapses of fringe bubbles today, including inverse volatility funds and Bitcoin, my impression is that we’re actually seeing the early signs of risk-aversion and selectivity among investors. The speculation in Bitcoin, despite issues of scalability and breathtaking inefficiency, was striking enough. But the willingness of investors to short market volatility even at 9% was mathematically disturbing. See, volatility is measured by the “standard deviation” of returns, which describes the spread of a bell curve, and can never become negative. Moreover, standard deviation is annualized by multiplying by the square root of time. An annual volatility of 9% implies a daily volatilty of about 0.6%, which is like saying that a 2% market decline should occur in fewer than 1 in 2000 trading sessions, when in fact they’ve historically occurred about 1 in 50.

The spectacle of investors eagerly shorting a volatility index (VIX) of 9, in expectation that it would go lower, wasn’t just a sideshow in some esoteric security. It was the sign of a market that had come to believe that stock prices could do nothing but advance, and could be expected to do so in an uncorrected diagonal line. I continue to expect the S&P 500 to lose about two-thirds of its value over the completion of the current market cycle. With market internals now unfavorable, following the most offensive “overvalued, overbought, overbullish” combination of market conditions on record, our market outlook has shifted to hard-negative. Rather than forecasting how long present conditions may persist, I believe it’s enough to align ourselves with prevailing market conditions, and shift our outlook as those conditions shift.


Annotation in blue by Mish

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Perhaps this is truly a coordinated effort. The BIS could be doing the coordination.

BOJ’s Kuroda Joins Queue of Central Banks Looking Toward Exit (BBG)

The end of the easy money era which spanned the global economy for the last decade came into even sharper focus as the Bank of Japan gave fresh insight into when it might slow its stimulus program. Governor Haruhiko Kuroda’s remarks on Friday that the central bank will start thinking about how to complete its unprecedented easing around the fiscal year starting April 2019 was the clearest signal yet that a conclusion might be in sight to emergency support for the Japanese economy. While Kuroda’s statement in response to questions from lawmakers was in some ways stating the obvious – the BOJ forecasts inflation to reach its 2% target in fiscal 2019 – the significance is that he’s put down a marker in public that he can be held to.

“It’s notable how over the past few weeks Kuroda has been forced into talking more specifically about the exit,” said Izumi Devalier, head of Japan economics at BofAML. “A year and a half ago he would have shut down the discussion altogether with the blanket ‘it’s too early to talk about it’ statement.” That means the last of the big central banks is finally thinking out loud about policy normalization or how to begin the process of unwinding years of asset purchases and ultra-low interest rates that were used to stoke growth after the 2008 financial crisis sparked the worst global recession in decades. The Fed, Bank of Canada and Bank of England have already raised interest rates and may do so again soon, while the ECB is debating how soon to end its own bond-buying. China’s central bank is sticking to what it describes as neutral policy settings and is ratcheting up money market rates to cool the pace of borrowing.

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Peters is never boring.

Trump’s Trade War Is For The Forgotten People (Eric Peters)

“The import restrictions announced by the US President are likely to cause damage not only outside the US, but also to the US economy itself, including to its manufacturing and construction sectors, which are major users of aluminum and steel,” warned the IMF, their army of nerds in full sweat. Panic. Just 200k Americans work in steel, aluminum and iron. 5.5mm of our 154mm workers are employed by businesses that use steel. “How could the Americans make such an idiotic mistake?” howled the nerds. But of course, they entirely miss the point. “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US. They make it impossible for our cars (and more) to sell there. Big trade imbalance!” tweeted Trump.

The US currently imposes a 2.5% tariff on EU auto imports. The EU imposes a 10% tariff on US auto imports. Germany exports $25bln of autos to America annually. “US auto prices will rise,” warned the Washington Post. But of course, they entirely miss the point. “Trade wars are good, easy to win,” tweeted Trump, knowing the statement would trigger every nerd with a college degree. Some worried about their jobs. But not terribly. Because their unemployment rate is just 2%, their labor force participation is 74%. They’re as well off as they’ve ever been. Particularly when set against those who never went to college, 5% of whom are unemployed, and 50% don’t even participate in the labor force. They’ve given up. These trade policies are for these forgotten people. To hell with the consequences. That’s the point.

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More for forgotten people. Beppe got them where he wanted; largest party by a huge margin. Merkel and Macron’s “More Europe” plans can be shelved. But first, expect more tricks to keep the old guard in power.

Italy Faces Political Gridlock After 5-Star Surges (R.)

Italy faces a prolonged period of political instability after voters delivered a hung parliament on Sunday, spurning traditional parties and flocking to anti-establishment and far-right groups in record numbers. With votes counted from more than 75% of polling stations, it looked almost certain that none of the three main factions would be able to govern alone and there was little prospect of a return to mainstream government, creating a dilemma for the EU. A rightist alliance including former prime minister Silvio Berlusconi’s Forza Italia (Go Italy!) held the biggest bloc of votes. In a bitter personal defeat that appeared unlikely last week, the billionaire media magnate’s party looked almost certain to be overtaken by its ally, the far-right League, which campaigned on a fiercely anti-migrant ticket.

But the anti-establishment 5-Star Movement saw its support soar to become Italy’s largest single party by far, and one of its senior officials said on Monday that forming a coalition without it would be impossible. The League’s economics chief on Monday raised the possibility of an alliance with 5-Star. Any government based on that combination would be euro-skeptic, likely to challenge EU budget restrictions and be little interested in further European integration. The full result is not due until later on Monday and, with the centre-right coalition on course for 37% of the vote and 5-Star for 31%, swift new elections to try to break the deadlock are another plausible scenario.

Despite overseeing a modest economic recovery, the ruling centre-left coalition trailed a distant third on 22%, hit by widespread anger over persistent poverty, high unemployment and an influx of more than 600,000 migrants over the past four years.

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Plus huge cuts to steel production. China is hurting.

China Sets 2018 GDP Target at About 6.5%, Turns Fiscal Screws (BBG)

China stepped up its push to curb financial risk, cutting its budget deficit target for the first time since 2012 and setting a growth goal of around 6.5% that omitted last year’s aim for a faster pace if possible. The deficit target – released Monday as Premier Li Keqiang delivered his annual report to the National People’s Congress in Beijing – was lowered to 2.6% of GDP from 3% in the past two years. The 6.5% goal is consistent with President Xi Jinping’s promise to deliver a “moderately prosperous” society by 2020. Policy makers dropped a target for M2 money supply growth, saying it’s expected to expand at similar pace to last year. Authorities reiterated prior language saying prudent monetary policy will remain neutral this year and that they’ll ensure liquidity at a reasonable and stable level.

Xi has ratcheted up his drive to curb debt risk, pollution and poverty at a time when the world’s second-largest economy is on a long-term growth slowdown. His efforts to rein in spending contrast with an historic expansion of U.S. borrowing under Donald Trump during a period of economic expansion. The 2018 targets “suggest slower growth and a fiscal drag,” said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore. “This makes sense for China in the context of the new focus on financial de-risking, poverty alleviation and environmental clean-up, but is less good news at the margin for those economies that have high export exposure to China.”

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Is it too late to close the gap in a peaceful manner?

Tax the Wealth of Older Britons to Help the Young, Report Argues (BBG)

Britain should impose higher wealth taxes on the older generation to ease the growing burden on young people, according to the Resolution Foundation. In a speech Monday, Executive Chair David Willetts will warn that welfare spending is set to rise by the equivalent today of 60 billion pounds ($83 billion) by 2040 as aging “baby boomers” drive up the cost of health care. “The time has come when we Boomers are going to have reach into our own pockets,” he will say. “The alternative could be an extra 15 pence on the basic rate of tax, paid largely by our kids. Is that kind of tax really the legacy we – a generation who own half the nation’s wealth – want to bequeath our children and grandchildren?”

Willetts, a former minister in the ruling Conservative Party, will make the case for reform of council tax – a property-based levy that helps fund local services – and of inheritance tax. Failure to act could fuel a sense of grievance among young people who are already struggling to match to the living standards enjoyed by older generations, he will say.

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“..deficits aren’t only not bad, they’re necessary…”

Eliminate The Deficit? Eliminate Economic Hope, More Like (McDuff)

Congratulations, everyone! We did it! The deficit has been eliminated! George Osborne, the architect of austerity, emerged from one of his non-jobs as the editor of the London Evening Standard to tell us all it was a “remarkable national effort” on Twitter, as if he’d ever broken a sweat over it. David Cameron, who will go down as arguably the worst prime minister in history thanks to the gigantic power move of doing a Brexit and running away, simply added: “It was the right thing to do” – safe in the knowledge that he was now out of the line of fire from tough questions.

That will all be cold comfort to the thousands of homeless people struggling to cope with sub-zero temperatures, or those having to choose between keeping the heating on, or risk going into rent arrears and losing their home entirely; to public sector workers in the NHS or local government, trying to keep the wheels from falling off as they deliver vital services in the face of budget cuts; and to disabled and unemployed people, bearing the brunt of the government’s spending cuts and facing harassment from the authorities. Forget all that. We’ve eliminated the deficit, and all we had to do was attack the poor and vulnerable with a relentless fury, create a new generation of young people for whom the concept of pensions or even steady wages is a fantasy, and undermine public services to such a grotesque extent that it will take years to rebuild what we’ve lost. Hooray!

[..] As Richard Murphy of Tax Research UK points out: “A growing economy requires general price increases, or inflation. Except under unusual circumstances, a general increase in prices requires an increasing money supply. A fiscal deficit is the only way in which money can be injected into an economy continuously. It follows that governments must run a near perpetual deficit or face the risk of creating a liquidity crisis due to a shortage in the money supply, which would then create a risk of deflation.” In other words, deficits aren’t only not bad, they’re necessary. Without them we get deflation, an over-indebted household sector, and an explosion in inequality.

The government is not like your household. It does not “run out of money,” because its job is to match the quantity of money to the desired economic activity. Its “debts” are not like your debts – they’re your savings and your pension funds. Osborne’s “remarkable national effort” was always and only to ensure that the government sector took more money out of the economy than it put into it. His great legacy is that we’re now at the stage where for every pound the government spends in day-to-day services, it taxes, and therefore destroys, more than a pound somewhere else. And we put people on the streets to freeze to achieve it. Go us.

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Thatcher-inflicted pain continues.

15,000 New Manchester Homes And Not A Single One ‘Affordable’ (G.)

Some of the UK’s biggest cities are allowing developers to plan huge new residential developments containing little or no affordable housing. In Manchester, none of the 14,667 homes in big developments granted planning permission in the last two years are set to be “affordable”, planning documents show – in direct contravention of its own rules, and leading to worries that London’s affordable housing crisis is spreading. In Sheffield – where house prices grew faster last year than in any other UK city, according to property portal Zoopla – just 97 homes out of 6,943 (1.4%) approved by planners in 2016 and 2017 met the government’s affordable definition. That says homes must either be offered for social rent (often known as council housing), or rented at no more than 80% of the local market rate.

In Nottingham, where the council aims for 20% of new housing to be affordable, just 3.8% of units given the green light by council planners meet the definition, Guardian research found. In Manchester, named by Deloitte earlier this month as one of Europe’s fastest growing cities and where property now sells three times as quickly as in London, planners have routinely waved through huge new developments – some containing swimming pools, tennis courts and more than 1,000 flats. Not one of the swanky apartments meets the national definition of “affordable” – leading critics to accuse the council of social cleansing. Others worry the city could become like London, where people on average salaries can no longer afford to live anywhere central.

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Aka the terror of social media.

The Tyranny of Algorithms (G.)

For the past couple of years a big story about the future of China has been the focus of both fascination and horror. It is all about what the authorities in Beijing call “social credit”, and the kind of surveillance that is now within governments’ grasp. The official rhetoric is poetic. According to the documents, what is being developed will “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step”. As China moves into the newly solidified President Xi Jinping era, the basic plan is intended to be in place by 2020. Some of it will apply to businesses and officials, so as to address corruption and tackle such high-profile issues as poor food hygiene.

But other elements will be focused on ordinary individuals, so that transgressions such as dodging transport fares and not caring sufficiently for your parents will mean penalties, while living the life of a good citizen will bring benefits and opportunities. Online behaviour will inevitably be a big part of what is monitored, and algorithms will be key to everything, though there remain doubts about whether something so ambitious will ever come to full fruition. One of the scheme’s basic aims is to use a vast amount of data to create individual ratings, which will decide people’s access – or lack of it – to everything from travel to jobs. The Chinese notion of credit – or xinyong – has a cultural meaning that relates to moral ideas of honesty and trust.

There are up to 30 local social credit pilots run by local authorities, in huge cities such as Shanghai and Hangzhou and much smaller towns. Meanwhile, eight ostensibly private companies have been trialling a different set of rating systems, which seem to chime with the government’s controlling objectives. The most high-profile system is Sesame Credit – created by Ant Financial, an offshoot of the Chinese online retail giant Alibaba. Superficially, it reflects the western definition of credit, and looks like a version of the credit scores used all over the world, invented to belatedly allow Chinese consumers the pleasures of buying things on tick, and manage the transition to an economy in which huge numbers of people pay via smartphones. But its reach runs wider.

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What does Washington have to say?

US Embassy In Turkey Closed Due To Security Threat (R.)

The U.S. embassy in Turkey’s capital Ankara will be closed to the public on Monday due to a security threat and only emergency services will be provided, it said in a statement on Sunday. The embassy advised U.S. citizens in Turkey to avoid large crowds and the embassy building and to be aware of their own security when visiting popular tourist sites and crowded places. It did not specify what the security threat was that prompted the closure. Additional security measures were taken after intelligence from U.S. sources suggested there might be an attack targeting the U.S. embassy or places U.S. citizens were staying, the Ankara governor’s office said in a statement. Visa interviews and other routine services would be canceled on Monday, the embassy said, adding that it would make an announcement when it was ready to reopen.

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Same guy said if Greeks set foot on -their own- Imia islets, it will basically mean war.

Erdogan Advisor Says Ankara Ready To ‘Strike’ In Eastern Med (K.)

A close advisor of Turkish President Recep Tayyip Erdogan has warned of a “strike” in the eastern Mediterranean if any attempt to explore or drill for hydrocarbons goes ahead without Ankara’s approval. Yigit Bulut, who is known for his incendiary remarks, was quoted by the Cyprus News Agency as telling Turkish state broadcaster TRT that Erdogan is prepared to call a “strike” at any “attempt at provocation.” “Have no doubt about it,” he said. Ankara has vowed to prevent any exploration for oil or gas around Cyprus and last month was accused to threatening to use force against a drillship chartered by Italy’s Eni to explore Block 3 of Cyprus’s exclusive economic zone.

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3 million hectares to be lost over 15 years.

Australia: Global Deforestation Hotspot (G.)

Australia is in the midst of a full-blown land-clearing crisis. Projections suggest that in the two decades to 2030, 3m hectares of untouched forest will have been bulldozed in eastern Australia. The crisis is driven primarily by a booming livestock industry but is ushered in by governments that fail to introduce restrictions and refuse to apply existing restrictions. And more than just trees are at stake. Australia has a rich biodiversity, with nearly 8% of all Earth’s plant and animal species finding a home on the continent. About 85% of the country’s plants, 84% of its mammals and 45% of its birds are found nowhere else. But land clearing is putting that at risk. About three-quarters of Australia’s 1,640 plants and animals listed by the government as threatened have habitat loss listed as one of their main threats.

Much of the land clearing in Queensland – which accounts for the majority in Australia – drives pollution into rivers that drain on to the Great Barrier Reef, adding to the pressures on it. And of course land clearing is exacerbating climate change. In 1990, before short-lived land-clearing controls came into place, a quarter of Australia’s total greenhouse gas emissions were caused by deforestation. Emissions from land clearing dropped after 2010 but are rising sharply again. “It has gotten so bad that WWF International put it on the list of global deforestation fronts, the only one in the developed world on that list,” says Martin Taylor, the protected areas and conservation science manager at WWF Australia. In Queensland, where there is both the most clearing and the best data on clearing, trees are being bulldozed at a phenomenal rate.

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And more deforestation. Sometimes you wonder what will be left of Europe in 100 years. Or 50.

Europe Tree Loss Pushes Beetles To The Brink (BBC)

The loss of trees across Europe is pushing beetles to the brink of extinction, according to a new report. The International Union for the Conservation of Nature assessed the status of 700 European beetles that live in old and hollowed wood. Almost a fifth (18%) are at risk of extinction due to the decline of ancient trees, the European Red List of Saproxylic Beetles report found. This puts them among the most threatened insect groups in Europe. Saproxylic beetles play a role in natural processes, such as decomposition and the recycling of nutrients. They also provide an important food source for birds and mammals and some are involved in pollination.

“Some beetle species require old trees that need hundreds of years to grow, so conservation efforts need to focus on long-term strategies to protect old trees across different landscapes in Europe, to ensure that the vital ecosystem services provided by these beetles continue,” said Jane Smart, director of the IUCN Global Species Programme. Logging, tree loss and wood harvesting all contribute to the loss of habitat for the beetles, said the IUCN. Other major threats include urbanisation and tourism development, and an increase in wildfires in the Mediterranean region. Conservation efforts need to focus on long-term strategies to protect old trees and deadwood across forests, pastureland, orchards and urban areas, the report recommended.

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Nov 112017
 
 November 11, 2017  Posted by at 9:26 am Finance Tagged with: , , , , , , , , , , ,  


Henri Cartier Bresson Greenfield, Indiana 1960

 

How Economics Failed the Economy (Haque)
How Did The News Go ‘Fake’? When The Media Went Social (G.)
Global Economy: Communication Breakdown? (R.)
Financial Markets Are Still Blowing Off the Fed (WS)
Is There Any Way Out Of The ECB’s Trap? (Lacalle)
How to Break Out of Our Long National Tax Nightmare (BW)
Tesla’s Junk Bonds Trading Under Water, Could Spell Trouble For Elon Musk (MW)
China Faces Historic Corruption Battle, New Graft Buster Says (R.)
Putin, Trump Agree To Fighting ISIS In Syria, Kremlin Says (R.)
Uber Loses Appeal In UK Employment Rights Case (G.)
Greece Prepares Online Platform for ‘Airbnb Tax’ (GR)
Dijsselbloem: We Saved the Greek Banks but Overlooked Taxpayers (GR)
FOIA Litigation Is Shedding Light On The Case Of Julian Assange (Maurizi)

 

 

Absolute must read.

“Economics failed the economy by telling us that everything that could be traded should be traded, since trade is always beneficial to humankind.”

“..the economic growth that the US has chased so desperately, so furiously, never actually existed at all.”

How Economics Failed the Economy (Haque)

When, in the 1930s, the great economist Simon Kuznets created GDP, he deliberately left two industries out of this then novel, revolutionary idea of a national income : finance and advertising. Don’t worry, this essay isn t going to be a jeremiad against them, that would be too easy, and too shallow, but that is where the story of how modern economics failed the economy and how to understand how to undo it should begin. Kuznets logic was simple, and it was not mere opinion, but analytical fact: finance and advertising don t create new value, they only allocate, or distribute existing value in the same way that a loan to buy a television isn’t the television, or an ad for healthcare isn’t healthcare. They are only means to goods, not goods themselves. Now we come to two tragedies of history.

What happened next is that Congress laughed, as Congresses do, ignored Kuznets, and included advertising and finance anyways for political reasons -after all, bigger, to the politicians mind, has always been better, and therefore, a bigger national income must have been better. Right? Let’s think about it. Today, something very curious has taken place. If we do what Kuznets originally suggested, and subtract finance and advertising from GDP, what does that picture -a picture of the economy as it actually is reveal? Well, since the lion’s share of growth, more than 50% every year, comes from finance and advertising -whether via Facebook or Google or Wall St and hedge funds and so on- we would immediately see that the economic growth that the US has chased so desperately, so furiously, never actually existed at all.

Growth itself has only been an illusion, a trick of numbers, generated by including what should have been left out in the first place. If we subtracted allocative industries from GDP, we’d see that economic growth is in fact below population growth, and has been for a very long time now, probably since the 1980s and in that way, the US economy has been stagnant, which is (surprise) what everyday life feels like. Feels like. Economic indicators do not anymore tell us a realistic, worthwhile, and accurate story about the truth of the economy, and they never did -only, for a while, the trick convinced us that reality wasn’t. Today, that trick is over, and economies grow , but people’s lives, their well-being, incomes, and wealth, do not, and that, of course, is why extremism is sweeping the globe. Perhaps now you begin to see why the two have grown divorced from one another: economics failed the economy.

Now let us go one step, then two steps, further. Finance and advertising are no longer merely allocative industries today. They are now extractive industries. That is, they internalize value from society, and shift costs onto society, all the while, creating no value themselves. The story is easiest to understand via Facebook’s example: it makes its users sadder, lonelier, and unhappier, and also corrodes democracy in spectacular and catastrophic ways. There is not a single upside of any kind that is discernible -and yet, all the above is counted as a benefit, not a cost, in national income, so the economy can thus grow, even while a society of miserable people are being manipulated by foreign actors into destroying their own democracy. Pretty neat, huh?

It was *because* finance and advertising were counted as creative, productive, when they were only allocative, distributive that they soon became extractive. After all, if we had said from the beginning that these industries do not count, perhaps they would not have needed to maximize profits (or for VCs to pour money into them, and so on) endlessly to count more. But we didn’t. And so soon, they had no choice but to become extractive: chasing more and more profits, to juice up the illusion of growth, and soon enough, these industries began to eat the economy whole, because of course, as Kuznets observed, they allocate everything else in the economy, and therefore, they control it.

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Discuss. Do social media make you depressed?

How Did The News Go ‘Fake’? When The Media Went Social (G.)

The Collins Dictionary word of the year for 2017 is, disappointingly, “fake news”. We say disappointingly, because the ubiquity of that phrase among journalists, academics and policymakers is partly why the debate around this issue is so simplistic. The phrase is grossly inadequate to explain the nature and scale of the problem. (Were those Russian ads displayed at the congressional hearings last week news, for example?) But what’s more troubling, and the reason that we simply cannot use the phrase any more, is that it is being used by politicians around the world as a weapon against the fourth estate and an excuse to censor free speech. Definitions matter. Take, for example, the question of why this type of content is created in the first place.

There are four distinct motivations for why people do this: political, financial, psychological (for personal satisfaction) and social (to reinforce our belonging to communities or “tribes”). If we’re serious about tackling mis- and disinformation, we need to address these motivations separately. And we think it’s time to give much more serious consideration to the social element. Social media force us to live our lives in public, positioned centre-stage in our very own daily performances. Erving Goffman, the American sociologist, articulated the idea of “life as theatre” in his 1956 book The Presentation of Self in Everyday Life, and while the book was published more than half a century ago, the concept is even more relevant today. It is increasingly difficult to live a private life, in terms not just of keeping our personal data away from governments or corporations, but also of keeping our movements, interests and, most worryingly, information consumption habits from the wider world.

The social networks are engineered so that we are constantly assessing others – and being assessed ourselves. In fact our “selves” are scattered across different platforms, and our decisions, which are public or semi-public performances, are driven by our desire to make a good impression on our audiences, imagined and actual. We grudgingly accept these public performances when it comes to our travels, shopping, dating, and dining. We know the deal. The online tools that we use are free in return for us giving up our data, and we understand that they need us to publicly share our lifestyle decisions to encourage people in our network to join, connect and purchase.

But, critically, the same forces have impacted the way we consume news and information. Before our media became “social”, only our closest family or friends knew what we read or watched, and if we wanted to keep our guilty pleasures secret, we could. Now, for those of us who consume news via the social networks, what we “like” and what we follow is visible to many – or, in Twitter’s case, to all, unless we are in that small minority of users who protect their tweets. Consumption of the news has become a performance that can’t be solely about seeking information or even entertainment. What we choose to “like” or follow is part of our identity, an indication of our social class and status, and most frequently our political persuasion.

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The Fed is not the biggest player anymore.

Global Economy: Communication Breakdown? (R.)

A flattening of government bond yield curves that may presage an economic downturn could prompt verbal interventions in the coming week by central bankers still struggling to hit this cycle’s inflation targets. ECB chief Mario Draghi, U.S. Fed Chair Janet Yellen, BOJ Governor Haruhiko Kuroda and BOE head Mark Carney will form an all-star panel on Tuesday at an ECB-hosted conference in Frankfurt. The subject? “Challenges and opportunities of central bank communication.” Curve-flattening on both sides of the Atlantic, but more markedly in the United States, suggests investors have doubts over the future path of inflation and may be starting to price in a downturn just as the global economy picks up speed.

Since the Fed began raising rates in 2015, the difference between long- and short-term U.S. yields has shrunk to levels not seen since before the 2008 financial crisis, reaching 67 basis points – its flattest in a decade – in the past week. That partly reflects uncertainty about the passage of a Republican-sponsored bill to cut U.S. taxes, which has hauled down longer-term projections of inflation while expectations for upcoming rate increases push short-term yields higher. With curve-flattening typically signaling a muted outlook for both growth and inflation, the trend suggests investors see a risk that the Fed’s current monetary tightening cycle will start to slow the world’s biggest economy. A flatter curve, which makes lending less profitable, also poses a risk to the banking sector, nursed back to fragile health by central banks after it nearly collapsed a decade ago. But with crisis-era policies still largely in place, how would central banks cushion the impact of a downturn?

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Because of Draghi and Kuroda.

Financial Markets Are Still Blowing Off the Fed (WS)

There has been a lot of hand-wringing about junk bonds this week, that they have gotten clobbered, that losses have been taken, that this is a predictor of where stocks are headed, etc., etc., because after a steamy rally in junk-bond prices from the February 2016 low, there has now been a sell-off. When bond prices fall, bond yields rise by definition. And the average yield of BB-rated junk bonds – the upper end of the junk-bond spectrum – did this:

No one likes to lose money, and junk bonds did lose money this week, an astounding event, after all the easy money that had been made since early February 2016. But how far have yields really spiked? The chart below shows the same BofA Merrill Lynch US High Yield BB Effective Yield index, but it puts that “spike” into a three-year context:

For further context, the BB yield spiked – a true spike – to over 16% during the Financial Crisis, as bond prices crashed and as credit froze up. Currently, at 4.36%, the average BB yield is off record lows, but it’s still low, and junk bond prices are still enormously inflated, given the inherent credit risks, and have a lot further to fall before any hand-wringing is appropriate. The low BB yield means that risky companies with a junk credit rating can still borrow money at near record low costs in a world awash in global liquidity that is trying to find a place to go. This shows that “financial conditions” are very easy. The market has now four Fed rate hikes under its belt and the QE unwind has commenced. Another rake hike is likely in December. Tightening is under way. By “tightening” its monetary policy, the Fed attempts to tighten financial conditions in the markets. That’s its goal.

But that hasn’t happened yet. While short-term yields have responded to the rate hikes, longer-term yields are now lower than they’d been at the time of the rate hike in December 2016. Stocks have rocketed higher. Volatility indices are near record lows. And various yield spreads have narrowed sharply – for example, the difference between the 10-year Treasury yield and the 2-year Treasury yield is currently just 0.73 percentage points. In other words, raising money is easy and cheap. And “financial stress” in the markets, as measured by the St. Louis Fed’s Financial Stress Index, has just hit a record low. In the chart below, the red line (= zero) represents “normal financial market conditions.” Values below the red line indicate below-average financial market stress. Values above the red line indicate higher than average financial stress. The latest reading of the index dropped to -1.60, by a hair below the prior record low in 2014:

In other words, financial conditions have never been easier despite the current series of rate hikes, the Fed’s “balance-sheet normalization, and the hand-wringing about junk bonds this week. The chart below shows the Financial Stress Index going back to 2014. In that time frame, all values are below zero. Financial stress in the markets was heading back to normal in late 2015 and early 2016, as a small sector of the total markets – energy junk-bonds – were getting crushed and as the S&P 500 index experienced a downdraft. But in early February 2016, everything turned around:

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Europe’s problem is huge: “..the ECB repurchase program exceeds net sovereign bond issuances in the eurozone by more than seven times. Throughout the US QE (quantitative expansion) of the Federal Reserve, it never reached 100% of net issuances.” Thing is, it’s Draghi who keeps the global economy going.

Is There Any Way Out Of The ECB’s Trap? (Lacalle)

The ECB faces the Devil’s Alternative that Frederick Forsyth mentioned in one of his books. All options are potentially risky. Mario Draghi knows that maintaining the so-called stimuli involves more risks than benefits, but also knows that eliminating them could make the eurozone deck of cards collapse. Despite the massive injection of liquidity, he knows that he can not disguise political risks such as the secessionist coup in Catalonia. The Ibex reflects this, making it clear that the European Central Bank does not print prosperity, it only puts a floor to valuations. The ECB wants a weak euro. But it is a game of juggling to pretend a weak euro and at the same time a strong economy. The EU countries export mostly to themselves. Member countries sell more than two-thirds of their goods and services to other countries in the eurozone.

Therefore, the more they export and their economies recover, the stronger the euro, and with it, the risk of losing competitiveness. The ECB has tried to break the euro strength with dovish messages, but it has not worked until political risk reappeared. With the German elections and the prospect of a weak coalition, the results of the Austrian elections and the situation in Spain, market operators have realized – at last – that the mirage of “this time is different “in the European Union was simply that, a mirage. A weak euro has not helped the EU to export more abroad. Non-EU exports from the member countries have been stagnant since the monetary stimulus program was launched, even though the euro is much weaker than its basket of currencies compared to when the stimulus program began. The Central Bank Trap. This shows that export growth is not achieved by artificial subsidies such as a devaluation, but from added value, something that the EU has stopped looking for.

Escape From The Central Bank Trap explains that the ECB has got itself in a problem that is not easy to solve. The first evidence is that it should have finished its stimuli months ago according to its own plan, but is unable to do it. The second is that, with more than a trillion euros of excessive liquidity, the ECB keeps a figure of repurchases that were clearly unnecessary and that have resulted in the figure of excess liquidity being multiplied by more than ten. The third is that perverse incentives have taken over the European economic policy. Risks are relevant. This week I had the opportunity to speak at the Federal Reserve Bank of Houston and I explained that the ECB repurchase program exceeds net sovereign bond issuances in the eurozone by more than seven times. Throughout the US QE (quantitative expansion) of the Federal Reserve, it never reached 100% of net issuances.

Now that the ECB “reduces” these repurchases to 30 billion euros per month, it will continue to be more than 100% of net issuances. What does that mean? That the US always maintained a healthy secondary market alive, which guaranteed that there would not be huge risks of collapse when tapering started, because the Federal Reserve bought less than what was issued, paying attention to the market accepting the valuations of bonds and financial assets. By extending the repurchase program, the ECB admits that it does not know if there is a secondary market that would buy European government bonds at current yields. Ask yourself a question. Would you buy bonds from a heavily indebted state that has stopped its reform impulse with a 10-year yield of less than 2%, if the ECB did not buy them back? Exactly. No.

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What’s needed is a whole overthrow of taxation as we know it. The Paradise Papers point to where the changes should be.

How to Break Out of Our Long National Tax Nightmare (BW)

President Donald Trump wanted to call it the Cut Cut Cut Act. Congressional Republicans settled on the less catchy and no more descriptive Tax Cuts and Jobs Act. What the legislation that began making its way through the U.S. House of Representatives in early November actually would do is sharply reduce taxes for business while rearranging the personal income tax with a mix of cuts and increases. House Speaker Paul Ryan called the bill “a game changer for our country.” The president said it was “the rocket fuel our economy needs to soar higher than ever before.” That’s a lot to expect from some changes in the tax code. But then, here in the U.S. we’ve come to expect big things of our income taxes. On the right, cutting them has been portrayed for decades as a near-magical growth elixir. On the left, raising or rearranging them is seen as essential to making society fairer.

And across the political spectrum, economic and social policies have come to rely on carving credits, deductions, and other exceptions out of the tax code to favor this or that behavior. It can sometimes feel, in fact, as if “we have lost sight of the fact that the fundamental purpose of our tax system is to raise revenues to fund government.” That was the lament of President George W. Bush’s Advisory Panel on Federal Tax Reform in November 2005. But this bipartisan group of worthies couldn’t agree on how to raise those revenues either, instead offering two plans with differing priorities. Both were mostly ignored by Congress at the time, though some of the recommendations—such as shrinking the tax deductions for mortgage interest and state and local taxes—have found their way into this year’s bill. Overall, though, it appears that the legislation will only make it harder to raise revenue to fund government.

The House and Senate have passed budget resolutions clearing the way for $1.5 trillion in revenue losses over the next decade from the tax changes. That’s $150 billion a year to add to a federal deficit that totaled a sinister-sounding $666 billion, 3.5% of GDP, in the just-ended fiscal year. All of which is a longer way of saying that we’ll almost certainly be back at this once again in the all-too-foreseeable future, trying to figure out a better way to fund the government. Since 1981, the year of President Ronald Reagan’s big tax cut, Congress has passed and presidents have signed 55 bills that the Urban-Brookings Tax Policy Center counts as “major” tax legislation. During the prior 36 years there had been just 18. [..] Ominously, most previous U.S. tax eras ended with major wars that required big increases in government revenue. Let’s hope it doesn’t take that to break us out of the cut-reform-increase-repeat loop we’re currently trapped in.

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This will make the next debt round a lot harder, and more expensive.

Tesla’s Junk Bonds Trading Under Water, Could Spell Trouble For Elon Musk (MW)

Tesla’s first-ever pure corporate bonds are trading under water, boding ill for the Silicon Valley car maker’s next attempt to tap capital markets. Tesla sold $1.8 billion in the senior notes in August at a yield of 5.300%, at the height of excitement about the Model 3 and expectations the sedan’s production ramp would run as smoothly as Chief Executive Elon Musk had predicted. That same month, Tesla shares rose 10% to mark their last monthly gain this year so far. The stock lost 4.2% in September and 2.8% in October. The stock is down 9% so far in November, on the heels of a quarterly miss earlier in the month and news that the company has further pushed out its Model 3 production targets. “Third-quarter results put some pressure on the cash flow needs,” said Efraim Levy, an analyst with CFRA Research.

The wider-than-expected quarterly loss and production delays “makes it harder for them to get a sweeter deal than they had in the past,” on capital raising, be it when selling bonds or equity, he said. The 5.300% notes, which mature in 2025, were trading at 94 cents on the dollar on Friday to yield 6.287%, according to trading platform MarketAxess. On a spread basis, they were trading at 393 basis points above comparable Treasurys. The bonds fell under par within a week of issuance, but were holding above 97 cents for much of October. Wall Street has long seemed to accept that Tesla’s high capital expenses and negative free cash flow will be the reality for the company at least in the short term.

But the weak performance of the bonds may be a sign that bond investors, at least, are starting to disbelieve Tesla’s growth story and will be looking for higher premiums to take on higher risk, said Trip Miller, a managing partner at hedge fund, Gullane Capital LLC. That higher cost of borrowing will have its own negative implications, he said. “Maybe the dam is starting to break for Tesla,” Miller said. Gullane does not have a position in Tesla because “their balance sheet is very, very troublesome for us,” he said.

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Everyone’s fighting corruption these days. Time for us to start doing the same?

China Faces Historic Corruption Battle, New Graft Buster Says (R.)

China must win its battle against corruption or face being erased by history, its new top graft buster said in an editorial on Saturday, underscoring the ruling Communist party’s focus on eliminating corrupt behaviour. Zhao Leji, appointed to the new seven-member politburo standing committee last month and tasked to lead president Xi Jinping’s signature war on corruption, wrote in the state-run People’s Daily that failure would lead to the party’s downfall. “If our control of the party is not strong and party governance is not strict, then the party won’t be able to avoid being erased by history and the historic task the party carries will not be able to be fulfilled,” Zhao wrote. Xi, like others before him, has warned corruption is so serious it could lead to the end of the party’s grip on power.

The president’s corruption fight has ensnared more than 1.3 million officials. At last month’s five-yearly party congress he said it would continue to target both “tigers” and “flies“, a reference to elite officials and ordinary bureaucrats. Zhao, formerly a low-profile official, replaced Wang Qishan, whose sweeping anti-graft campaign had made him China’s second most-powerful politician. “The facts tell us and warn us that the party’s position as the top political leader and power is the foundation of our political stability, economic development, national unity and social stability,” Zhao wrote. Zhao leads the central commission for discipline inspection, having previously been in charge of the party’s powerful organisation department, which is in charge of personnel decisions. He added that there would be no tolerance of people who “just do what they want to do” and ignore orders or carry on with banned behaviours such as trying to get around policy decisions.

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It’s crazy these people are kept from talking.

Putin, Trump Agree To Fighting ISIS In Syria, Kremlin Says (R.)

Russian President Vladimir Putin and U.S. President Donald Trump agreed a joint statement on Syria on Saturday that said they would continue joint efforts in fighting Islamic State until it is defeated, the Kremlin said. The White House did not immediately respond to questions about the Kremlin announcement or the conversation the Kremlin said took place on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in the Vietnamese resort of Danang. The Kremlin said the statement on Syria was coordinated by Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Rex Tillerson especially for the meeting in Danang. Putin and Trump confirmed their commitment to Syria’s sovereignty, independence and territorial integrity and called on all parties to the Syrian conflict to take an active part in the Geneva political process, it said.

Moscow and Washington agree there is no military solution to the Syrian conflict, according to the text of the joint statement published on the Kremlin’s website. Television pictures from Danang showed Putin and Trump chatting – apparently amicably – as they walked to the position where the traditional APEC summit photo was being taken at a viewpoint looking over the South China Sea. Earlier pictures from the meeting show Trump walking up to Putin as he sits at the summit table and patting him on the back. The two lean in to speak to each other and clasp each other briefly as they exchange a few words. Although the White House had said no official meeting was planned, the two also shook hands at a dinner on Friday evening. Trump has shown little appetite for holding talks with Putin unless there is some sense that progress could be made on festering issues such as Syria, Ukraine and North Korea.

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“Companies are hiding behind technology, bogusly classifying people as self-employed so they can get away from paying minimum wage.”

Uber Loses Appeal In UK Employment Rights Case (G.)

The ride-hailing firm Uber has lost its appeal against a ruling that its drivers should be classed as workers with minimum-wage rights, in a case that could have major ramifications for labour rights in the growing gig economy. The US company, which claims that drivers are self-employed, said it would launch a further appeal against the Employment Appeal Tribunal decision, meaning the case could end up in thesupreme court next year. Drivers James Farrar and Yaseen Aslam won an employment tribunal case last year after arguing they should be classified as workers, citing Uber’s control over their working conditions. Uber challenged the ruling at the tribunal in central London, warning that it could deprive riders of the “personal flexibility they value”. It claims that the majority of its drivers prefer their existing employment status.

The Independent Workers’ Union of Great Britain (IWGB), which backed the appeal, said drivers will still be able to enjoy the freedoms of self-employment – such as flexibility in choosing shifts – even if they have worker status. The union said the decision showed companies in the gig economy – which involves people on flexible working patterns with irregular shifts and minimal employment rights – have been choosing to “deprive workers of their rights”. Farrar said: “It is time for the mayor of London, Transport for London and the transport secretary to step up and use their leverage to defend worker rights rather than turn a blind eye to sweatshop conditions.” “If Uber are successful in having this business model, obliterating industrial relations as we know them in the UK, then I can guarantee you on every high street, in retail, fast food, any industry you like, the same thing will go on.”

Farrar said he was willing to fight the case all the way to the supreme court if necessary but called on Uber’s new chief executive, Dara Khosrowshahi, to intervene instead. “We’ve asked to meet him when he came to London and Uber declined to do that, which tells you everything.” Aslam said: “Today is a good day for workers, we made history. The judge confirmed that Uber is unlawfully denying our rights.” “It’s about making sure workers across the UK are protected. Companies are hiding behind technology, bogusly classifying people as self-employed so they can get away from paying minimum wage. That can’t be allowed to happen.”

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Good.

Greece Prepares Online Platform for ‘Airbnb Tax’ (GR)

Greece is cracking down on undeclared income of owners leasing residential lodgings on a short-term basis. Tax authorities are creating an online platform where Airbnb lodged properties should be declared, or face a hefty fine. According to a report in Naftemporiki, registration will be mandatory and it will provide property owners with a certification number, which should be declared on any digital platform, website and social media where it is advertised – including the Airbnb website. The platform will demand the declaration of the property, the names of the renters and the duration of the lease, or otherwise face a fine of up to €5,000. Naftemporiki says that income from short-term residential leasing will be taxed based on income.

Specifically, for a taxpayer with a yearly income of up to 12,000 euros, the tax rate for income derived from short-term residential leasing will reach 15%; 35% for a taxpayer with between 12,000 to 35,000 euros in annual income. Above an annual income of 45,000 euros, a taxpayer’s income from short-term residential leasing will reach the astronomical rate of 45%, i.e. nearly one in two euros goes to the state. Tax authorities aim to collect revenue from people who put their property for lease on Airbnb, as many crisis-hit Greeks try to make ends meet by renting their homes to foreign visitors. It is estimated that three million tourists will be hosted in Greek homes in 2017.

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He’s lying. They didn’t act to save the Greek banks, but the German and French ones. And he knows it.

Dijsselbloem: We Saved the Greek Banks but Overlooked Taxpayers (GR)

Outgoing Eurogroup chief Jeroen Dijsselbloem acknowledged on Thursday that Greece’s creditors put too much emphasis on saving the banks at the expense of ordinary taxpayers. In an exchange of views on Greece in the European Parliament’s Employment and Social Affairs Committee, Dijsselbloem was asked if he agrees with the view that Greece’s first bailout programme was designed to support the banks. Dijsselbloem noted that “banks were the biggest problem in all countries,” at the start of the crisis. “We had a banking crisis, a fiscal crisis and we spent a lot of the tax-payers’ money – in the wrong way, in my opinion – to save the banks so that the people criticizing us and saying that everything was being done for the benefit of the banks were to some extent right,” he said.

“This was the reason why we introduced the banking union and the introduction of higher standards, better supervision and a reform and rescue framework when banks have losses…Precisely so that we don’t find ourselves in that situation again,” Dijsselbloem added. Dijsselbloem also claimed that the labour market reforms adopted by Greece had brought “clear improvements” that were reflected in the latest unemployment figures in the country. Referring to the programme as a whole, the outgoing Eurogroup president said the economic situation in Greece had improved as a result of the reforms and stressed the need to conclude the third review on time.

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This story gets darker fast. The UK deleted a lot of documents relvant to the Assange accusations AND told the Swedes not to talk to him in London.

FOIA Litigation Is Shedding Light On The Case Of Julian Assange (Maurizi)

The siege by Scotland Yard agents around the red brick building in Knightsbridge has been gone for two years now. And with Sweden dropping the rape investigation last May, even the European arrest warrant hanging over Julian Assange’s head like the sword of Damocles has gone. Many expected the founder of WikiLeaks to leave the Ecuadorian Embassy in London, where he has been confined for over five years, after spending one and a half years under house arrest. But Assange hasn’t dared leave the Embassy due to concern he would be arrested, extradited to the US and charged for publishing WikiLeaks’ secret documents.

Julian Assange’s situation is unique. Like him and his work or not, he is the only western publisher confined to a tiny embassy, without access to even the one hour a day outdoors maximum security prisoners usually receive. He is being arbitrarily detained, according to a decision by the UN Working Group on Arbitrary Detentions in February 2016, a decision which has completely faded into oblivion. December 7th will mark seven years since he lost his freedom, yet as far as we know, in the course of these last 7 years no media has tried to access the full file on Julian Assange.

That is why next Monday, La Repubblica will appear before a London Tribunal to defend the press’ right to access the documents regarding his case, after spending the last two years attempting Freedom of Information requests (FOI) without success. It is entirely possible, however, that we will never be able to access many of these documents, as last week London authorities informed us that “all the data associated with Paul Close’s account was deleted when he retired and cannot be recovered”. A questionable choice indeed: Close is the lawyer who supported the Swedish prosecutors in the Swedish investigation on Julian Assange from the beginning. What was the rationale for deleting historical records pertaining to a controversial and still ongoing case?

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Oct 142017
 
 October 14, 2017  Posted by at 9:12 am Finance Tagged with: , , , , , , , , ,  


Georgia O’Keeffe Manhattan 1932

 

Central Bankers Use Moment of Calm to Debate How to Fight the Next Crisis (DJ)
BOJ’s Kuroda Says No Signs Of Excesses Building In Markets (R.)
What Keeps Poor Americans From Moving (Atlantic)
Prepare for a Chinese Maxi-Devaluation (Rickards)
The Cost of Missing the Market Boom Is Skyrocketing (BBG)
Are You Better Off Than You Were 17 Years Ago? (CH Smith)
As Crisis At Kobe Steel Deepens, CEO Says Cheating Engulfs 500 Firms (R.)
Worse Than Big Tobacco: How Big Pharma Fuels the Opioid Epidemic (Parramore)
Tesla Fired Hundreds Of Employees In Past Week (R.)
No-Deal Brexit: It’s Already Too Late (FCFT)
‘They Have To Pay’, EU’s Juncker Says Of Britain (R.)
EU Intervention In Catalonia Would Cause Chaos – Juncker (G.)
Blade Runner 2049: Not The Future (Kunstler)

 

 

This really is the firefighter setting his own house on fire so he can play the hero. There’s often talk of central bankers taking away the punch bowl, but we need to take away the punch bowl from them. Urgently.

Central Bankers Use Moment of Calm to Debate How to Fight the Next Crisis (DJ)

Central bankers, basking in a moment of synchronized growth and a global economy less dependent on easy-money policies, are thinking about what they will do when the next economic meltdown happens. ECB President Mario Draghi said Thursday that central banks might need to reuse some of the weapons employed to fight the last war, most notably negative interest rates. Federal Reserve and ECB officials, who are gathered in Washington for the fall meetings of the IMF and World Bank, are using a tranquil period to debate the type of monetary policies central banks might pursue. The world’s two most influential central banks signaled no shifts in strategy – in the Fed’s case, to raise rates gradually and shrink its bond portfolio, and in the ECB’s, to announce a slowdown of its bond-purchase program as soon as its next policy meeting on Oct. 26.

But while current policies are stepping away from the bond-purchase programs known as quantitative easing, central bankers are opening the door for a future that could include more negative interest rates and periods of higher inflation following recession. The discussions are still largely hypothetical. Ever since the global financial crisis of 2007-09, central bankers have wished for more moments when they could gather in calm and openly spitball monetary policy ideas without the risk of derailing recovery. That moment has finally arrived. Mr. Draghi said that negative interest rates, an untested policy for the ECB until 2014, had been a success, and that the decision to push the ECB’s target rate into negative territory hadn’t hurt bank profitability as critics suggested it would.

“We haven’t seen the distortions that people were foreseeing,” Mr. Draghi said at the Peterson Institute for International Economics in Washington. “We haven’t seen bank profitability going down; in fact, it is going up.” Mr. Draghi reiterated that the ECB would maintain its negative target rate “well past” the time it steps back from its bond-purchase program, underscoring growing comfort in the negative-rate strategy. And while Mr. Draghi endorsed negative rates, current and former Fed officials engaged in an unusually open discussion about changing the target for 2% inflation. That discussion was kicked off by former Federal Reserve Chairman Ben Bernanke, who presented a paper Thursday morning at the Peterson Institute arguing the Fed could overshoot its target for 2% inflation to make up for periods of recession in which inflation ran too low.

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And this is just pure insanity.

BOJ’s Kuroda Says No Signs Of Excesses Building In Markets (R.)

Bank of Japan Governor Haruhiko Kuroda said on Friday he did not see any signs of bubbles or excesses building up in U.S., European and Japanese markets as a result of heavy money printing by their central banks. Kuroda also dismissed some analysts’ criticism that the BOJ’s purchases of exchange-traded funds (ETF) were distorting financial markets or dominating Japan’s stock market. “I don’t think we have a very big share” of Japan’s total stock market capitalisation, he told reporters after attending the Group of 20 finance leaders’ gathering. The IMF painted a rosy picture of the global economy in its World Economic Outlook earlier this week, but warned that prolonged easy monetary policy could be sowing the seeds of excessive risk-taking.

Kuroda said that while policymakers should not be complacent about their economies, he did not see huge risks materializing as a result of their policies. Although major central banks deployed massive stimulus programmes to battle the global financial crisis, they have always scrutinized whether their policies were causing excessive risk-taking, he said. “I don’t think we’re seeing excesses building up and emerging as a big risk,” Kuroda said, adding that recent rises in global stock prices reflected strong corporate profits in Japan, the United States and Europe. He added that Japan’s economy was on track for a steady recovery that will likely gradually push up inflation and wages. “I don’t see any big risk for Japan’s economy. But there could be external risks, such as geopolitical ones, so we’re watching developments carefully,” he said.

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Bubbles shape (distort) the space around them. It’s like a miniature version of Einstein’s gravitational waves.

What Keeps Poor Americans From Moving (Atlantic)

Seccora Jaimes knows that she is not living in the land of opportunity. Her hometown has one of the highest unemployment rates in the nation, at 9.1%. Jaimes, 34, recently got laid off from the beauty school where she taught cosmetology, and hasn’t yet found another job. Her daughter, 17, wants the family to move to Los Angeles, so that she can attend one of the nation’s top police academies. Jaimes’s husband, who works in warehousing, would make much more money in Los Angeles, she told me. But one thing is stopping them: The cost of housing. “I don’t know if we could find a place out there that’s reasonable for us, that we could start any job and be okay,” she told me. Indeed, the average rent for a two-bedroom apartment in Merced, in California’s Central Valley, is $750. In Los Angeles, it’s $2,710.

America used to be a place where moving one’s family and one’s life in search of greater opportunities was common. During the Gold Rush, the Depression, and the postwar expansion West millions of Americans left their hometowns for places where they could earn more and provide a better life for their children. But mobility has fallen in recent years. While 3.6% of the population moved to a different state between 1952 and 1953, that number had fallen to 2.7% between 1992 and 1993, and to 1.5% between 2015 and 2016. (The share of people who move at all, even within the same county, has fallen too, from 20% in 1947 to 11.2% today.) Of course, it wasn’t simply “moving” that mattered—it was that they moved to specific areas that were growing.

When farming jobs were plentiful in the Midwest, for example, people moved there—in 1900, states including Iowa and Missouri were more populous than California. Black men who moved from to the North from the South earned at least 100% more than those who stayed, according to work by Leah Platt Boustan, an economist at Princeton. Additionally, for most of the 20th century, both janitors and lawyers could earn a lot more living in the tri-state area of New York, New Jersey, and Connecticut than they could living in the Deep South, so many people moved, according to Peter Ganong, an economist at the University of Chicago. With less labor supply in the regions that they left, wages would then increase there, and fall in the regions they were moving to, as the supply of workers increased.

As a result, for more than 100 years, the average incomes of different regions were getting closer and closer together, something economists call regional income convergence. Wages in poorer cities were growing 1.4% faster than wages in richer cities for much of the 20th century, according to Elisa Giannnone, a post-doctoral fellow at Princeton. But over the past 30 years, that regional income convergence has slowed. Economists say that is happening because net migration—the tendency of large numbers of people to move to a specific place—is waning, meaning that the supply of workers isn’t increasing fast enough in the rich areas to bring wages down, and isn’t falling fast enough in the poor areas to bring wages up.

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Well argued.

Prepare for a Chinese Maxi-Devaluation (Rickards)

In August 2015, China engineered a sudden shock devaluation of the yuan. The dollar gained 3% against the yuan in two days as China devalued. The results were disastrous. U.S. stocks fell 11% in a few weeks. There was a real threat of global financial contagion and a full-blown liquidity crisis. A crisis was averted by Fed jawboning, and a decision to put off the “liftoff” in U.S. interest rates from September 2015 to the following December. China conducted another devaluation from November to December 2015. This time China did not execute a sneak attack, but did the devaluation in baby steps. This was stealth devaluation. The results were just as disastrous as the prior August. U.S. stocks fell 11% from January 1, 2016 to February 10. 2016. Again, a greater crisis was averted only by a Fed decision to delay planned U.S. interest rate hikes in March and June 2016. The impact these two prior devaluations had on the exchange rate is shown in the chart below.


Major moves in the dollar/yuan cross exchange rate (USD/CNY) have had powerful impacts on global markets. The August 2015 surprise yuan devaluation sent U.S. stocks reeling. Another slower devaluation did the same in early 2016. A stronger yuan in 2017 coincided with the Trump stock rally. A new devaluation is now underway and U.S. stocks may suffer again.

[..] China escaped the impossible trinity in 2015 by devaluing their currency. China escaped the impossible trinity again in 2017 using a hat trick of partially closing the capital account, raising interest rates, and allowing the yuan to appreciate against the dollar thereby breaking the exchange rate peg. The problem for China is that these solutions are all non-sustainable. China cannot keep the capital account closed without damaging badly needed capital inflows. Who will invest in China if you can’t get your money out? China also cannot maintain high interest rates because the interest costs will bankrupt insolvent state owned enterprises and lead to an increase in unemployment, which is socially destabilizing. China cannot maintain a strong yuan because that damages exports, hurts export-related jobs, and causes deflation to be imported through lower import prices. An artificially inflated currency also drains the foreign exchange reserves needed to maintain the peg.

[..] Both Trump and Xi are readying a “gloves off” approach to a trade war and renewed currency war. A maxi-devaluation of the yuan is Xi’s most potent weapon. Finally, China’s internal contradictions are catching up with it. China has to confront an insolvent banking system, a real estate bubble, and a $1 trillion wealth management product Ponzi scheme that is starting to fall apart. A much weaker yuan would give China some policy space in terms of using its reserves to paper over some of these problems. Less dramatic devaluations of the yuan led to U.S. stock market crashes. What does a new maxi-devaluation portend for U.S. stocks?

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See my article yesterday: The Curious Case of Missing the Market Boom .

The Cost of Missing the Market Boom Is Skyrocketing (BBG)

Skepticism in global equity markets is getting expensive. From Japan to Brazil and the U.S. as well as places like Greece and Ukraine, an epic year in equities is defying naysayers and rewarding anyone who staked a claim on corporate ownership. Records are falling, with about a quarter of national equity benchmarks at or within 2% of an all-time high. “You’ve heard people being bearish for eight years. They were wrong,” said Jeffrey Saut, chief investment strategist at St. Petersburg, Florida-based Raymond James Financial Inc., which oversees $500 billion. “The proof is in the returns.” To put this year’s gains in perspective, the value of global equities is now 3 1/2 times that at the financial crisis bottom in March 2009.

Aided by an 8% drop in the U.S. currency, the dollar-denominated capitalization of worldwide shares appreciated in 2017 by an amount – $20 trillion – that is comparable to the total value of all equities nine years ago. And yet skeptics still abound, pointing to stretched valuations or policy uncertainty from Washington to Brussels. Those concerns are nothing new, but heeding to them is proving an especially costly mistake. Clinging to such concerns means discounting a harmonized recovery in the global economy that’s virtually without precedent — and set to pick up steam, according to the IMF. At the same time, inflation remains tepid, enabling major central banks to maintain accommodative stances. “When policy is easy and growth is strong, this is an environment more conducive for people paying up for valuations,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley.

“The markets are up in line with what the earnings have done, and stronger earnings helped drive a higher level of enthusiasm and a higher level of risk taking.” The numbers are impressive: more than 85% of the 95 benchmark indexes tracked by Bloomberg worldwide are up this year, on course for the broadest gain since the bull market started. Emerging markets have surged 31%, developed nations are up 16%. Big companies are becoming huge, from Apple to Alibaba. Technology megacaps occupy all top six spots in the ranks of the world’s largest companies by market capitalization for the first time ever. Up 39% this year, the $1 trillion those firms added in value equals the combined worth of the world’s six-biggest companies at the bear market bottom in 2009. Apple, priced at $810 billion, is good for the total value of the 400 smallest companies in the S&P 500.

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“If we define “winning the war” by counting dead bodies, then the dead bodies pile up like cordwood.”

Are You Better Off Than You Were 17 Years Ago? (CH Smith)

If we use GDP as a broad measure of prosperity, we are 160% better off than we were in 1980 and 35% better off than we were in 2000. Other common metrics such as per capita (per person) income and total household wealth reflect similarly hefty gains. But are we really 35% better off than we were 17 years ago, or 160% better off than we were 37 years ago? Or do these statistics mask a pervasive erosion in our well-being? As I explained in my book Why Our Status Quo Failed and Is Beyond Reform, we optimize what we measure, meaning that once a metric and benchmark have been selected as meaningful, we strive to manage that metric to get the desired result. Optimizing what we measure has all sorts of perverse consequences. If we define “winning the war” by counting dead bodies, then the dead bodies pile up like cordwood.

If we define “health” as low cholesterol levels, then we pass statins out like candy. If test scores define “a good education,” then we teach to the tests. We tend to measure what’s easily measured (and supports the status quo) and ignore what isn’t easily measured (and calls the status quo into question). So we measure GDP, household wealth, median incomes, longevity, the number of students graduating with college diplomas, and so on, because all of these metrics are straightforward. We don’t measure well-being, our sense of security, our faith in a better future (i.e. hope), experiential knowledge that’s relevant to adapting to fast-changing circumstances, the social cohesion of our communities and similar difficult-to-quantify relationships. Relationships, well-being and internal states of awareness are not units of measurement.

While GDP has soared since 1980, many people feel that life has become much worse, not much better: many people feel less financially secure, more pressured at work, more stressed by not-enough-time-in-the-day, less healthy and less wealthy, regardless of their dollar-denominated “wealth.” Many people recall that a single paycheck could support an entire household in 1980, something that is no longer true for all but the most highly paid workers who also live in locales with a modest cost of living.

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How on earth is it possible these people still have jobs?

As Crisis At Kobe Steel Deepens, CEO Says Cheating Engulfs 500 Firms (R.)

The cheating crisis engulfing Kobe Steel just got bigger. Chief Executive Hiroya Kawasaki on Friday revealed that about 500 companies had received its falsely certified products, more than double its earlier count, confirming widespread wrongdoing at the steelmaker that has sent a chill along global supply chains. The scale of the misconduct at Japan’s third-largest steelmaker pummeled its shares as investors, worried about the financial impact and legal fallout, wiped about $1.8 billion off its market value this week. As the company revealed tampering of more products, the crisis has rippled through supply chains across the world in a body blow to Japan’s reputation as a high-quality manufacturing destination. A contrite Kawasaki told a briefing the firm plans to pay customers’ costs for any affected products.

“There has been no specific requests, but we are prepared to shoulder such costs after consultations,” he said, adding the products with tampered documentation account for about 4% of the sales in the affected businesses. Yoshihiko Katsukawa, a managing executive officer, told reporters that 500 companies were now known to be affected by the tampering. Kobe Steel initially said 200 firms were affected when it admitted at the weekend it had falsified data about the quality of aluminum and copper products used in cars, aircraft, space rockets and defense equipment. Asked if he plans to step down, Kawasaki said: “My biggest task right now is to help our customers make safety checks and to craft prevention measures.”

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“The manufacturers can now exploit their monopoly positions, created by the patents, by marketing their drugs for conditions for which they never got regulatory approval.”

Worse Than Big Tobacco: How Big Pharma Fuels the Opioid Epidemic (Parramore)

Once again, an out-of-control industry is threatening public health on a mammoth scale Over a 40-year career, Philadelphia attorney Daniel Berger has obtained millions in settlements for investors and consumers hurt by a rogues’ gallery of corporate wrongdoers, from Exxon to R.J. Reynolds Tobacco. But when it comes to what America’s prescription drug makers have done to drive one of the ghastliest addiction crises in the country’s history, he confesses amazement. “I used to think that there was nothing more reprehensible than what the tobacco industry did in suppressing what it knew about the adverse effects of an addictive and dangerous product,” says Berger. “But I was wrong. The drug makers are worse than Big Tobacco.”

The U.S. prescription drug industry has opened a new frontier in public havoc, manipulating markets and deceptively marketing opioid drugs that are known to addict and even kill. It’s a national emergency that claims 90 lives per day. Berger lays much of the blame at the feet of companies that have played every dirty trick imaginable to convince doctors to overprescribe medication that can transform fresh-faced teens and mild-mannered adults into zombified junkies. So how have they gotten away with it? The prescription drug industry is a strange beast, born of perverse thinking about markets and economics, explains Berger. In a normal market, you shop around to find the best price and quality on something you want or need—a toaster, a new car. Businesses then compete to supply what you’re looking for.

You’ve got choices: If the price is too high, you refuse to buy, or you wait until the market offers something better. It’s the supposed beauty of supply and demand. But the prescription drug “market” operates nothing like that. Drug makers game the patent and regulatory systems to create monopolies over every single one of their products. Berger explains that when drug makers get patent approval for brand-name pharmaceuticals, the patents create market exclusivity for those products—protecting them from competition from both generics and brand-name drugs that treat the same condition. The manufacturers can now exploit their monopoly positions, created by the patents, by marketing their drugs for conditions for which they never got regulatory approval. This dramatically increases sales. They can also charge very high prices because if you’re in pain or dying, you’ll pay virtually anything.

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How much longer?

Tesla Fired Hundreds Of Employees In Past Week (R.)

Luxury electric vehicle maker Tesla fired about 400 employees this week, including associates, team leaders and supervisors, a former employee told Reuters on Friday. The dismissals were a result of a company-wide annual review, Tesla said in an emailed statement, without confirming the number of employees leaving the company. “It’s about 400 people ranging from associates to team leaders to supervisors. We don’t know how high up it went,” said the former employee, who worked on the assembly line and did not want to be identified.

Though Tesla cited performance as the reason for the firings, the source told Reuters he was fired in spite of never having been given a bad review. The Palo Alto, California-based company said earlier in the month that “production bottlenecks” had left Tesla behind its planned ramp-up for the new Model 3 mass-market sedan. The company delivered 220 Model 3 sedans and produced 260 during the third quarter. In July, it began production of the Model 3, which starts at $35,000 – half the starting price of the Model S. Mercury News had earlier reported about the firing of hundreds of employees by Tesla in the past week.

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Behind closed doors, the EU is already talking to Jeremy Corbyn. But that’s too late too.

No-Deal Brexit: It’s Already Too Late (FCFT)

As things stand at the moment, eighteen months from now the UK will leave the EU without any agreement on trade regulation or tariffs, either with the EU or any of the other countries with which it currently has trade agreements. The arrangements which assure the smooth running of 60 percent of our goods trade will disappear. Once we are outside the regulatory framework, many products, particularly in highly regulated areas like agriculture and pharmaceuticals, will no longer be accredited for sale in Europe. Aeroplanes will be unable to fly to and from the EU to the UK. Those goods which can still legally be traded with the EU will face lengthy customs checks. Integrated supply chains and just-in-time manufacturing processes will be severely disrupted and, in some cases, damaged beyond repair. Unless politicians do something, that’s where we are heading.

International trade and commerce doesn’t just happen. It is facilitated by a framework of agreements on tariffs, quotas and regulations. Without these, trade is either very expensive or, in some cases, simply illegal. Therefore, if the UK were to leave the EU without concluding a trade deal, things wouldn’t simply stay the same. They would be very different and very damaging. Of course, it would be disruptive for the rest of the EU too, although it is much easier to find new suppliers and customers in a bloc of 27 countries than it is in a stand alone country with no trade deals. Even so, most of us have assumed that common sense will prevail at some point. No-one in their right mind would let such a thing happen so surely both sides will do what is necessary to between now and March 2019 to avoid it.

Incredibly, though, our government, egged on by ideologues on its own back benches, has been talking up the prospect of a no-deal Brexit, apparently as a negotiating ploy to make the EU realise that we are serious about walking away. Almost as soon as the no-deal idea was suggested, Phillip Hammond said that he was not willing to set aside any money to fund it. In any organisation, that’s a sure-fire sign of a project that’s going nowhere. If the finance director won’t even stump up the cash for the planning phase, you might as well forget the whole thing. Mr Hammond said that he would wait until “the very last moment” before committing any money to prepare for a no-deal scenario. Which means it’s not going to happen because the very last moment passed some time ago, most probably before we even had the referendum.

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“They have to pay, they have to pay, not in an impossible way.”

‘They Have To Pay’, EU’s Juncker Says Of Britain (R.)

Britain must commit to paying what it owes to the European Union before talks can begin about a future relationship with the bloc after Brexit, European Commission President Jean-Claude Juncker said on Friday. “The British are discovering, as we are, day after day new problems. That’s the reason why this process will take longer than initially thought,” Juncker said in a speech to students in his native Luxembourg. “We cannot find for the time being a real compromise as far as the remaining financial commitments of the UK are concerned. As we are not able to do this we will not be able to say in the European Council in October that now we can move to the second phase of negotiations,” Juncker said. “They have to pay, they have to pay, not in an impossible way. I‘m not in a revenge mood. I‘m not hating the British.” The EU has told Britain that a summit next week will conclude that insufficient progress has been made in talks for Brussels to open negotiations on a future trade deal.

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Summary: EU countries can use whatever force they want against their European citizens. Because anything else would threaten Brussels.

EU Intervention In Catalonia Would Cause Chaos – Juncker (G.)

The president of the European commission has spoken of his regret at Spain’s failure to follow his advice and do more to head off the crisis in Catalonia, but claimed that any EU intervention on the issue now would only cause “a lot more chaos”. Speaking to students in Luxembourg on Friday, Jean-Claude Juncker said he had told the Spanish prime minister, Mariano Rajoy, that his government needed to act to stop the Catalan situation spinning out of control, but that the advice had gone unheeded. “For some time now I asked the Spanish prime minister to take initiatives so that Catalonia wouldn’t run amok,” he said. “A lot of things were not done.” Juncker said that while he wished to see Europe remain united, his hands were tied when it came to Catalan independence.

“People have to undertake their responsibility,” he said. “I would like to explain why the commission doesn’t get involved in that. A lot of people say: ‘Juncker should get involved in that.’ “We do not do it because if we do … it will create a lot more chaos in the EU. We cannot do anything. We cannot get involved in that.” Juncker said that while he often acted as a negotiator and facilitator between member states, the commission could not mediate if calls to do so came only from one side – in this case, the Catalan government. Rajoy has rejected calls for mediation, pointing out that the recent Catalan independence referendum was held in defiance of the Spanish constitution and the country’s constitutional court. “There is no possible mediation between democratic law and disobedience or illegality,” he said on Wednesday.

Despite his refusal to intervene, however, Juncker warned the international community that the political crisis in Spain could not be ignored. “OK, nobody is shooting anyone in Catalonia – not yet at least. But we shouldn’t understate that matter, though,” he added. he commission president also spoke more generally about the fragmentation of national identities within Europe, saying he feared that if Catalonia became independent, other regions would follow. “I am very concerned because the life in communities seems to be so difficult,” he said. “Everybody tries to find their own in their own way and they think that their identity cannot live in parallel to other people’s identity. “But if you allow – and it is not up to us of course – but if Catalonia is to become independent, other people will do the same. I don’t like that. I don’t like to have a euro in 15 years that will be 100 different states. It is difficult enough with 17 states. With many more states it will be impossible.”

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“The people who deliver that way of life, and profit from it, are every bit as sincerely wishful about it as the underpaid and overfed schnooks moiling in the discount aisles. ”

Blade Runner 2049: Not The Future (Kunstler)

The original Mad Max was little more than an extended car chase — though apparently all that people remember about it is the desolate desert landscape and Mel Gibson’s leather jumpsuit. As the series wore on, both the vehicles and the staged chases became more spectacularly grandiose, until, in the latest edition, the movie was solely about Charlize Theron driving a truck. I always wondered where Mel got new air filters and radiator hoses, not to mention where he gassed up. In a world that broken, of course, there would be no supply and manufacturing chains. So, of course, Blade Runner 2049 opens with a shot of the detective played by Ryan Gosling in his flying car, zooming over a landscape that looks more like a computer motherboard than actual earthly terrain.

As the movie goes on, he gets in and out of his flying car more often than a San Fernando soccer mom on her daily rounds. That actually tells us something more significant than all the grim monotone trappings of the production design, namely, that we can’t imagine any kind of future — or any human society for that matter — that is not centered on cars. But isn’t that exactly why we’ve invested so much hope and expectation (and public subsidies) in the activities of Elon Musk? After all, the Master Wish in this culture of wishful thinking is the wish to be able to keep driving to Wal Mart forever. It’s the ultimate fantasy of a shallow “consumer” society. The people who deliver that way of life, and profit from it, are every bit as sincerely wishful about it as the underpaid and overfed schnooks moiling in the discount aisles.

In the dark corners of so-called postmodern mythology, there really is no human life, or human future, without cars. This points to the central fallacy of this Sci-fi genre: that technology can defeat nature and still exist. This is where our techno-narcissism comes in fast and furious. The Blade Runner movies take place in and around a Los Angeles filled with mega-structures pulsating with holographic advertisements. Where does the energy come from to construct all this stuff? Supposedly from something Mr. Musk dreams up that we haven’t heard about yet. Frankly, I don’t believe that such a miracle is in the offing.

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Jul 032017
 
 July 3, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , ,  


Paul Klee Girl in Mourning 1939

 

Merkel Promises Full Employment In Party Platform (R.)
Theresa May Steps Back From Public Sector Pay Cap Amid Austerity Backlash (Ind.)
Donald Trump May Make ‘Sneak’ Visit To UK Within Fortnight (G.)
Maine, New Jersey Lawmakers Scramble To End Partial Government Shutdowns (R.)
Illinois House Approves Major Income Tax Hike (CTrib)
China Inc’s $7.8 Billion of Dividend Payments Will Stress the Yuan (BBG)
Japan PM Abe’s Party Suffers Historic Defeat In Tokyo Election (R.)
Abe’s Mentor Says BOJ Needs Fresh Face as Kuroda Is Out of Ideas (BBG)
Saudi Arabia, Allies Give Qatar Two More Days To Accept Demands (R.)
The Crash of 1929 (Jesse’s Café/PBS)
Italy Urges EU Ports To Take Migrants As Pressure Builds (AFP)
‘Our Future Is Slavery, The West Gets Everything’ – Congo (RT)

 

 

Note: tomorrow’s a travel day for me. Not sure about a Debt Rattle.

 

 

Plus tax relief. Plus support for young families to build new housing. Now compare that to Greece, where over half of young people are unemployed, and where taxes are being raised all the time and pensions cut. That, too, is a German decision. But Greeks don’t get to vote for or against Merkel.

Merkel Promises Full Employment In Party Platform (R.)

Chancellor Angela Merkel’s conservatives will promise to all but eliminate unemployment in Germany by the year 2025 when they announce their 2017 election campaign platform on Monday. Merkel’s Christian Democrats (CDU) and their Bavarian sister party, the Christian Social Union (CSU), will present their platform for the Sept. 24 election on Monday with other already known policies such as income tax cuts worth 15 billion euros per year and promises to build flats. “A major point is that we’d like to achieve full employment,” Horst Seehofer, CSU chairman and state premier in Bavaria, said on Sunday on his way into a meeting of the conservative leadership. The CDU/CSU consider full employment to be a jobless rate of less than 3% – compared to 5.5% now.

Those “Economic Miracle” levels of unemployment have not been seen in the country since the mid-1970s. The two parties also want to add 15,000 police officers in the 16 federal states. The sister parties, however, will not agree on a joint position on refugees. The CSU wants an upper limit of 200,000 per year, which Merkel and the CDU rejects. “We agree to disagree on that,” Interior Minister Thomas de Maiziere (CDU) said in a Bild am Sonntag newspaper interview, referring to the issue that split the two parties badly since some 1 million refugees arrived in late 2015. The CDU/CSU hold a 16%age point lead over the center-left Social Democrats in opinion polls with a 40-24 lead, but would still need a coalition partner. They rule with the SPD and in the past they have ruled with the Free Democrats (FDP).

[..] Earlier on Sunday, CDU Finance Minister Wolfgang Schaeuble said in a radio interview there could be room to cut taxes by more than the €15 billion already announced. Germany has had balanced budgets since 2014 and the government plans to have no new borrowing in its planning through 2021. Schaeuble told Deutschlandfunk radio he hoped there could be tax relief beyond that already promised €15 billion income tax cut. “We’re planning, all in all, to do more than just correcting the income taxes by €15 billion,” he said, referring to plans to reduce the country’s “cold progression” tax increases – or clandestine tax increases. [..] Schaeuble said aside from fighting “cold progression”, the Christian Democrats want to support young families to build new housing while also supporting research and development for small- to medium-sized companies.

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Messing it up as they go along.

Theresa May Steps Back From Public Sector Pay Cap Amid Austerity Backlash (Ind.)

Tory austerity appeared to be crumbling at the edges today, as Theresa May further distanced herself from a hated public sector pay freeze. Downing Street said the Government would consider potential wage increases for nurses, police officers and firefighters on a “case by case” basis after a string of top cabinet ministers signalled backing for an end to the blanket 1 per cent cap on all public servants. Environment Secretary Michael Gove said the Government should now listen to the recommendations of salary review bodies ignored by ministers for almost ten years. Education Secretary Justine Greening and Health Secretary Jeremy Hunt are also both reported to be pushing for new deals for teachers and nurses. The Independent reported last week how the Government faced a first ever strike from the Royal College of Nursing over a crisis in the profession.

There has also been mounting pressure from Jeremy Corbyn’s Labour – whose party fought a successful election campaign on an anti-austerity message. A Downing Street spokesman defended the Government’s record, but pointed to potential changes ahead. He said: “Dealing with the economic mess we inherited from Labour has meant hard work and sacrifice, including for public sector workers. That hard work and those tough decisions have helped get our deficit down by three quarters, and public sector pay restraint has helped us protect jobs. “Independent public sector pay review bodies are currently reporting to Government and we are responding to them on a case-by-case basis. While we understand the sacrifice that has been made, we must also ensure we continue to protect jobs and deal with our debts.”

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What is the Queen would be received like this?:

“MPs and trade unions vowed to hold the largest demonstrations in UK history if Donald Trump made a state visit to the UK..”

Donald Trump May Make ‘Sneak’ Visit To UK Within Fortnight (G.)

Anti-Donald Trump protesters are preparing to spring into action at short notice, after it emerged that Downing Street is braced for a snap visit from the US president in the next two weeks. A formal state visit, which was expected to take place over the summer, was postponed last month, amid fears that it could be disrupted by mass protests, despite Theresa May extending the invitation personally when she visited the White House late last year. But Whitehall sources confirmed the government has now been warned that the president could visit Turnberry, his golf resort in Scotland, during his trip to Europe, between attending the G20 summit in Hamburg next weekend and joining celebrations for Bastille Day in France on 14 July.

Trump would be expected to come to Downing Street to meet the prime minister for informal talks as part of any such visit – though final confirmation would be likely to be given with just 24 hours’ notice, to minimise the risk of disruption. May invited Trump to Britain seven days after his inauguration when she became the first foreign leader to visit him in the White House. In February activists, MPs and trade unions vowed to hold the largest demonstrations in UK history if Donald Trump made a state visit to the UK, forming The Stop Trump coalition, even hiring a permanent staff member. In early June, just after the UK general election, it emerged that the US president had told May that he did not want to go ahead with the state visit to Britain until the British public supports his coming, fearing large-scale demonstrations.

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How about you borrow some more, guys? Or, you know, come clean and tell people their pensions are shot.

Maine, New Jersey Lawmakers Scramble To End Partial Government Shutdowns (R.)

Partial government shutdowns in Maine and New Jersey entered a second day on Sunday as lawmakers returned to their respective state capitals in a bid to break budget impasses that have led to the suspension of many nonessential services. In Maine, a bipartisan legislative committee met in Augusta in hopes of breaking a stalemate between Republican Governor Paul LePage and Democratic lawmakers. The shutdown came after LePage threatened to veto a compromise reached by lawmakers in the state’s $7.055 billion, two-year budget. In New Jersey, the legislature was due to reconvene to resolve a political fight over a controversial bill that Governor Chris Christie said must be passed alongside the state’s budget.

After House Republicans in Maine voted to reject a compromise deal on Saturday, the Bangor Daily News reported that Republican Minority Leader Ken Fredette presented a $7.1 billion plan he said could get the governor’s approval, but some Democrats noted that was costlier than the rejected compromise. “The Speaker thinks it is unconscionable that Maine doesn’t have a budget, especially leading into the holiday weekend,” Mary-Erin Casale, a spokeswoman for Democratic House Speaker Sara Gideon, said Sunday morning. If the budget committee meeting on Sunday in Augusta agrees on a deal, the measure would go to the full legislature. LePage has insisted on a budget with deeper spending cuts than those contemplated by lawmakers and has promised to veto any spending plan that raises taxes.

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Sign of things to come.

Illinois House Approves Major Income Tax Hike (CTrib)

The Illinois House on Sunday approved a major income tax increase as more than a dozen Republicans broke ranks with Gov. Bruce Rauner amid the intense pressure of a budget impasse that’s entered its third year. The Republican governor immediately vowed to veto the measure, saying Democratic House Speaker Michael Madigan was “protecting the special interests and refusing to reform the status quo.” The measure, which needed 71 votes to pass and got 72, is designed to start digging the state out of a morass left by the lengthy stalemate. Madigan, in a statement, praised the action as “a crucial step toward reaching a compromise that ends the budget crisis by passing a fully funded state budget in a bipartisan way.”

The tax hike now heads to the Senate, but whether there will be enough votes to send it to Rauner’s desk is in question. When the Senate approved its own tax hike in late May, no Republicans voted for it and several Democrats voted against it. Senators return to the Capitol on Monday. The crucial vote in the House was the big story Sunday, though. Ultimately, pressure that had built up in districts across the state moved enough Republicans to defy the governor. With state government operating without a budget for two full years, public universities risk losing their accreditation, social service providers are closing their doors and layoffs of road construction workers are imminent.

Adding to lawmakers’ anxiety was a promised downgrade of the state’s credit rating to junk status, which could spike the cost of borrowing at a time when the state has $15 billion in unpaid bills. Left out of the House budget package was a plan for dealing with the unpaid bills, though both sides generally agree that some amount of borrowing will be needed. Rauner, a former private equity specialist from Winnetka, had spent tens of millions of dollars on legislative campaigns and TV ads to prop up the Illinois Republican Party as a counterweight to Madigan and his labor union allies. And Republican lawmakers largely had stuck by their governor — until Sunday. [..] The proposal mirrors a plan the Senate passed earlier this year and calls for raising the personal income tax rate from the current 3.75% to 4.95%, which would generate roughly $4.3 billion. An increase in the corporate income tax rate from 5.25% to 7% would bring in another $460 million.

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Bearish on the dollar? You sure?

China Inc’s $7.8 Billion of Dividend Payments Will Stress the Yuan (BBG)

The yuan’s rebound may be undermined by a seasonal hunt for dollars as Chinese companies prepare to pay dividends to shareholders overseas. Demand for the greenback and other currencies will peak at $7.8 billion in July, a substantial sum considering that local lenders settled an average of $11.8 billion in foreign-exchange for clients in the first five months of 2017. China’s currency reserves have shrunk every July in the last three years, with former regulator Guan Tao saying last week that demand for foreign-exchange surges in this period. China’s exchange rate has turned more volatile in the past two months, climbing the most in more than a year in May and then declining in June before suspected central bank intervention spurred a rally.

Goldman Sachs warned capital outflows have picked up, while recent data suggest the economy is showing signs of slowing as an official deleveraging drive crimps spending. “The need for dividend payouts will pressure the yuan and may pressure a recent increase in China’s foreign reserves,” said Xia Le at BBVA. “The yuan’s advance in the past few days is not sustainable – short-term factors such as dividend payments and long-term ones like capital outflows will work together to push the currency weaker in the coming months.” Offshore-listed Chinese firms need to pay a combined $16 billion of dividends in foreign exchange in the three months through August. That includes $2.4 billion in June and $5.9 billion for August.

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Abe will shuffle his cabinet to deflect attention from himself. But he’s in trouble.

Japan PM Abe’s Party Suffers Historic Defeat In Tokyo Election (R.)

Prime Minister Shinzo Abe’s Liberal Democratic Party suffered an historic defeat in an election in the Japanese capital on Sunday, signaling trouble ahead for the premier, who has suffered from slumping support because of a favoritism scandal. On the surface, the Tokyo Metropolitan assembly election was a referendum on Governor Yuriko Koike’s year in office, but the dismal showing for Abe’s party is also a stinging rebuke of his 4-1/2-year-old administration. Koike’s Tokyo Citizens First party and its allies took 79 seats in the 127-seat assembly. The LDP won a mere 23, its worst-ever results, compared with 57 before the election. “We must recognize this as an historic defeat,” former defense minister Shigeru Ishiba was quoted as saying by NHK.

“Rather than a victory for Tokyo Citizens First, this is a defeat for the LDP,” said Ishiba, who is widely seen as an Abe rival within the ruling party. Past Tokyo elections have been bellwethers for national trends. A 2009 Tokyo poll in which the LDP won just 38 seats was followed by its defeat in a general election that year, although this time no lower house poll need be held until late 2018. [..] “We must accept the results humbly,” said Hakubun Shimomura, a close Abe ally and head of the LDP’s Tokyo chapter. “The voters have handed down an extremely severe verdict.” Abe is expected to reshuffle his cabinet in coming months in an effort to repair his damaged ratings, a step often taken by beleaguered leaders but one that can backfire if novice ministers become embroiled in scandals or commit gaffes.

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If Kuroda’s out of ideas, that means Abenomics has failed. And that in turn means Abe should go too.

Abe’s Mentor Says BOJ Needs Fresh Face as Kuroda Is Out of Ideas (BBG)

Haruhiko Kuroda shouldn’t serve another term as governor of the Bank of Japan because the central bank will need fresh ideas as it moves toward exiting years of unprecedented monetary easing, according to an adviser to the prime minister. “An exit will surely come up within the next five years and we need someone who can prepare for it,” said Nobuyuki Nakahara, a former BOJ board member. “He will fall into inertia and struggle to come up with bold new ideas. It’s the same in the private sector when a corporate president stays too long,” he said. Nakahara’s comments come amid growing speculation among private economists that Prime Minister Shinzo Abe will reappoint Kuroda, 72, after his five-year term ends in April.

Nakahara, who was close to Abe’s father, Shintaro, has known the prime minister since he was young and has advised him for years. In an interview on June 29, Nakahara, one of the architects of Abenomics, said he didn’t have any replacements for Kuroda in mind. But he said change at the top of the BOJ would be good because the government and central bank should strike a new accord and form a new strategy for the next five years. The current accord, issued in January 2013, says the central bank should aim for price stability at an annual inflation rate of 2%, while the government is responsible for strengthening competitiveness and the nation’s growth potential. More than four years later, the inflation target remains far off.

[..] Kuroda’s propensity to surprise markets with innovative ideas has been waning, according to Nakahara. And the strains of his record easing are particularly evident in the bank’s purchases of exchange-traded funds, which are distorting the market, he said. “They can’t keep holding ETFs forever,” he said. Nakahara offered a possible solution. How about getting companies to buy back their own shares from the BOJ? Or the BOJ could tell companies it plans to sell the shares on the market. If the companies need funding for share buybacks, the central bank could help with a loan-support program. “That’s my secret strategy,” he said.

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Really, close Al Jazeera? What an awful signal that would be. Why not close CNN then?!

Saudi Arabia, Allies Give Qatar Two More Days To Accept Demands (R.)

Four Arab states that accuse Qatar of supporting terrorism agreed to extend until Tuesday a deadline for Doha to comply with a list of demands, as U.S. President Donald Trump voiced concerns about the dispute to both sides. Qatar has called the charges baseless and says the stiff demands – including closing Qatar-based al Jazeera TV and ejecting Turkish troops based there – are so draconian that they appear designed to be rejected. Saudi Arabia, Bahrain, Egypt and the United Arab Emirates (UAE) have raised the possibility of further sanctions against Qatar if it does not comply with the 13 demands presented to Doha through mediator Kuwait. They have not specified what further sanctions they could impose on Doha, but commercial bankers in the region believe that Saudi, Emirati and Bahraini banks might receive official guidance to pull deposits and interbank loans from Qatar.

According to a joint statement on Saudi state news agency SPA, the four countries agreed to a request by Kuwait to extend by 48 hours Sunday’s deadline for compliance. Foreign ministers from the four countries will meet in Cairo on Wednesday to discuss Qatar, Egypt said on Sunday. Kuwait state media said its Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah had received a response by Qatar to the demands. It did not elaborate. The four states cut diplomatic and commercial ties with Qatar on June 5, accusing it of supporting terrorism, meddling in their internal affairs and cosying up to regional adversary Iran, all of which Qatar denies. Mediation efforts, including by the United States, have been fruitless. Trump spoke separately to the leaders of Saudi Arabia, Qatar and the Crown Prince of Abu Dhabi in the UAE to discuss his “concerns about the ongoing dispute”, the White House said.

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For history buffs.

The Crash of 1929 (Jesse’s Café/PBS)

“…people believed that everything was going to be great always, always. There was a feeling of optimism in the air that you cannot even describe today.” “There was great hope. America came out of World War I with the economy intact. We were the only strong country in the world. The dollar was king. We had a very popular president in the middle of the decade, Calvin Coolidge, and an even more popular one elected in 1928, Herbert Hoover. So things looked pretty good.” “The economy was changing in this new America. It was the dawn of the consumer revolution. New inventions, mass marketing, factories turning out amazing products like radios, rayon, air conditioners, underarm deodorant…One of the most wondrous inventions of the age was consumer credit. Before 1920, the average worker couldn’t borrow money. By 1929, “buy now, pay later” had become a way of life.”

“Wall Street got the credit for this prosperity and Wall Street was dominated by just a small group of wealthy men. Rarely in the history of this nation had so much raw power been concentrated in the hands of a few businessmen…” “One of the most common tactics was to manipulate the price of a particular stock, a stock like Radio Corporation of America…Wealthy investors would pool their money in a secret agreement to buy a stock, inflate its price and then sell it to an unsuspecting public. Most stocks in the 1920s were regularly manipulated by insiders ” “I would say that practically all the financial journals were on the take. This includes reporters for The Wall Street Journal, The New York Times, The Herald-Tribune, you name it. So if you were a pool operator, you’d call your friend at The Times and say, “Look, Charlie, there’s an envelope waiting for you here and we think that perhaps you should write something nice about RCA.”

And Charlie would write something nice about RCA. A publicity man called A. Newton Plummer had canceled checks from practically every major journalist in New York City… Then, they would begin to — what was called “painting the tape” and they would make the stock look exciting. They would trade among themselves and you’d see these big prints on RCA and people will say, “Oh, it looks as though that stock is being accumulated. Now, if they are behind it, you want to join them, so you go out and you buy stock also. Now, what’s happening is the stock goes from 10 to 15 to 20 and now, it’s at 20 and you start buying, other people start buying at 30, 40. The original group, the pool, they’ve stopped buying. They’re selling you the stock. It’s now 50 and they’re out of it. And what happens, of course, is the stock collapses.”

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Prediction: the EU will offer more money. They simply don’t understand that some things are not about money.

Italy Urges EU Ports To Take Migrants As Pressure Builds (AFP)

The French and German interior ministers met with their Italian counterpart Marco Minniti in Paris on Sunday to discuss a “coordinated response” to Italy’s migrant crisis, hours after Minniti had called on other European countries to open their ports to rescue ships. The working dinner at the French interior ministry – also attended by EU Commissioner for Refugees Dimitris Avramopoulos – was aimed at finding “a coordinated and concerted response to the migrant flux in the central Mediterranean (route) and see how to better help the Italians,” a source close the talks said. The four-way talks between Minniti, Thomas de Maiziere of Germany, Gerard Collomb of France and Avramopoulos will also prepare them for EU talks in Tallinn this week. “The talks went off very well,” a member of the Italian delegation told AFP after the Paris meeting, with the “Italian proposals being discussed”.

“We are under enormous pressure,” Minniti had said earlier Sunday in an interview with Il Messaggero. With arrivals in Italy up nearly 19% over the same period last year, Rome has threatened to close its ports to privately-funded aid boats or insist that funding be cut to EU countries which fail to help. “There are NGO ships, Sophia and Frontex boats, Italian coast guard vessels” saving migrants i the Mediterranean, Minniti said, referring to the aid boats as well as vessels deployed under EU border security missions. “They are sailing under the flags of various European countries. If the only ports where refugees are taken to are Italian, something is not working. This is the heart of the question,” he said. “I am a europhile and I would be proud if even one vessel, instead of arriving in Italy, went to another European port. It would not resolve Italy’s problem, but it would be an extraordinary signal” of support, he said.

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I’ve often said that the Congo is perhaps richer in resources than any other country. It should be prosperous, but instead it ranks 227th out of 230 countries for GDP per capita. That’s our doing.

From July 5, see documentary at https://rtd.rt.com/films/congo-my-precious/

‘Our Future Is Slavery, The West Gets Everything’ – Congo (RT)

RT Documentary travels to the vast, landlocked Democratic Republic of Congo, prized for its mineral resources, but plagued by centuries of colonial rule, dictatorship, civil wars and lawlessness, and meets people trying to make a living in one of the most desperate places on Earth. The documentary crew’s key to understanding the country, seven times the size of Germany, was Bernard Kalume Buleri, born in 1960, the same year DRC was granted its independence from Belgium. Buleri served as an interpreter, guide, and finally the hero and symbol of the country, having been a direct participant in some of its bloodiest chapters. “I can’t say that the Congolese, we are in control of our destiny. No, because the ones who benefit from our minerals are not the local population, but Western countries are the ones who are taking everything.

They make themselves rich, while we are getting poorer and poorer,” says Buleri. The country of almost 80 million is one of the world’s largest exporters of diamonds, coltan – essential for electronics – and has massive deposits of copper, tin and cobalt. “I’m afraid even for my children. Because they will continue in this system to be slaves forever. We’ll never be powerful enough to challenge the Western countries. So, the future will be the future of slaves,” Buleri continues. There is plenty of blame to go around for the predicament of what is also a fertile and scenic land. With almost no educated elite, DRC was poorly-prepared for its separation from Belgian rule, now best remembered for the atrocity-filled reign of King Leopold II, which may have killed as many as half of the country’s population.

The vacuum was filled by the archetype-setting African kleptocrat Mobutu Sese Seko, who ruled the country for more than three decades, until he was deposed in 1997, plunging Africa into a series of continent-wide conflicts that may have resulted in as many as 5 million deaths through violence, starvation and disease. The country’s below-ground wealth means that it was never left alone for long enough to reform and wean itself off its reliance on metals and gems – the widely-mentioned “mineral curse.” The mines the RT crew passes are now owned by local warlords, chiefs and officials, with exports mostly going to China. [..] Millions of locals – perhaps as many as one-fifth of the adult population – are employed in what is known as artisanal mining, inefficient small-scale prospecting with simple handheld tools, with no safety measures or guaranteed wages. But for a country that ranks 227th out of 230 for GDP per capita, according to World Bank data, any job at all is a matter of survival.

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Nov 192016
 
 November 19, 2016  Posted by at 9:49 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle November 19 2016


Unknown Dutch Gap, Virginia. Picket station of Colored troops 1864

Financial Conditions Are Rigged Against Donald Trump (BBG)
Big Short’s Steve Eisman: ‘Europe is Screwed’ (G)
Emerging Markets Borrowers Owe $3.2 Trillion In -Rising- Dollar Debt (BBG)
Dollar’s Rapid Gain Triggers Angst in Emerging Markets (WSJ)
Global Bonds Post Biggest Two-Week Loss in 26 Years (BBG)
Bond Carnage hits Mortgage Rates. But This Time, it’s Real (WS)
US Dollar Sees Steepest 2-Week Gain Against Yen Since January 1988 (R.)
Bank of Japan Surprises With Plan to Buy Unlimited JGBs at Fixed Rates (WSJ)
US Banks Close Rupee Exchanges After Large Bills Ruled Illegal (BBG)
Lobbyists Leave Trump Transition Team After New Ethics Rule (Pol.)
The Rise Of The ‘Un-Lobbyist’ (Mother Jones)
UK Approves ‘Most Extreme Surveillance In History Of Western Democracy’ (AFP)
Far-Right Group Attacks Refugee Camp On Greek Island Of Chios (G.)

 

 

Just as I wrote on election day in America is The Poisoned Chalice.

Financial Conditions Are Rigged Against Donald Trump (BBG)

The reaction in financial markets to Trump’s election victory – much like the win itself – has defied conventional wisdom, with U.S. equities surging following a sharp drop as the results came in. But if you’re an occasional real estate developer — a self-professed “low interest rate guy” who wants to fix America’s trade deficit while bringing factories back from overseas – it might seem as though markets have been rigged against you. The U.S. dollar spot index (DXY) touched levels not seen since the Clinton administration on Friday morning, and the yield on the 10-year U.S. Treasury has increased by more than 50 basis points since Nov. 9.

This rise in the greenback and borrowing costs for the U.S. constitutes a tightening of financial conditions — a potential obstacle to U.S. growth, as servicing new debt has become more expensive and goods produced domestically are now less attractive to foreigners. Earlier this week, the Goldman Sachs Financial Conditions Index rose above 100 to hit levels not seen since March, when the financial backdrop was trending in a more accommodative direction following the market turmoil that started 2016. The index tracks changes in interest rates, credit spreads, equity prices, and the value of the U.S. dollar: a rise indicates that financial conditions have tightened. “A stronger USD implies lower domestic inflation and higher real rates, a headwind to U.S. growth,” writes Neil Dutta at Renaissance Macro Research.

In her testimony before Congress on Thursday, Federal Reserve Chair Janet Yellen highlighted this rise in the U.S. dollar as well as interest rates since the election — but not the gains in the stock market. This may serve as an implicit nod at what’s reflected in many financial conditions indexes: There’s a certain degree of asymmetry at play, with the rise in the greenback and U.S. Treasury yields far outweighing the tightening of credit spreads and rise in stock values. That asymmetry perhaps speaks to an unintentional and counterintuitive overlap between how the president-elect and the Federal Reserve interpret how changes in financial conditions affect real economic activity.

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“What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks..”

Big Short’s Steve Eisman: ‘Europe is Screwed’ (G)

In the Oscar-winning The Big Short, Steve Carell plays the angry Wall Street outsider who predicts (and hugely profits from) the great financial crash of 2007-08. [..] In real life he is Steve Eisman, he is still on Wall Street, and he is still shorting stocks he thinks are going to plummet. And while he’s tight-lipped about which ones (unless you have $1m to spare for him to manage) it is evident he has one major target in mind: continental Europe’s banks – and Italy’s are probably the worst. Why Italy? Because, he says, the banks there are stuffed with “non-performing loans” (NPLs). That’s jargon for loans handed out to companies and households where the borrower has fallen behind with repayments, or is barely paying at all. But the Italian banks have not written off these loans as duds, he says.

Instead, billions upon billions are still on the books, written down as worth about 45% to 50% of their original value. The big problem, says Eisman, is that they are not worth anywhere near that much. In The Big Short, Eisman’s staff head to Florida to speak to the owners of newly built homes bundled up in “mortgage-backed securities” rated as AAA by the investment banks. What they find are strippers with loans against multiple homes but almost no income, the mortgages arranged by sharp-suited brokers who know they won’t be repaid, and don’t care. Visiting the housing estates that these triple-A mortgages are secured against, they find foreclosures and dereliction. In a mix of moral outrage at the banks – and investing acumen – Eisman and his colleagues bought as many “swaps” as possible to profit from the inevitable collapse of the mortgage-backed securities, making a $1bn profit along the way.

This time around, Eisman is not padding around the plains of Lombardy because he says the evidence is in plain sight. When financiers look to buy the NPLs off the Italian banks, they value the loans at what they are really worth – in other words, how many of the holders are really able to repay, and how much money will be recovered. What they find is that the NPLs should be valued at just 20% of their original price. Trouble is, if the Italian banks recognise their loans at their true value, it wipes out their capital, and they go bust overnight. “Europe is screwed. You guys are still screwed,” says Eisman. “In the Italian system, the banks say they are worth 45-50 cents in the dollar. But the bid price is 20 cents. If they were to mark them down, they would be insolvent.”

[..] Trump’s victory has sent the bond markets into disarray, with the yield on government bonds rising steeply. While this sounds good for savers – interest rates could rise – it is bad news for the holders of government bonds, which fall in value when the yield rises. Eisman sees that as another woe for Europe’s banks, who hold vast amounts of “sovereign bonds”. “What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks,” he says. As the bonds decline in value, then the capital base of the banks deteriorates.

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The usual victims.

Emerging Markets Borrowers Owe $3.2 Trillion In -Rising- Dollar Debt (BBG)

[..] Companies in these more-vulnerable economies have $340 billion of debt coming due through 2018, and they are going to have a hard time paying all that back if investors keep withdrawing their cash. [..] After the election of Donald Trump as the next U.S. president, many expect his infrastructure spending programs and trade policies to lead to higher consumer prices in the world’s biggest economy. Bonds tend to do poorly when inflation accelerates, especially because such an environment would prompt the Fed to raise benchmark interest rates faster than many expect. That would bad for all types of debt but particularly for notes in emerging markets. That’s because investors will migrate back to higher-rated bonds in developed economies instead of those in less-proven nations.

Also, more U.S. growth typically means a stronger dollar, which is a significant problem for emerging-market nonbank borrowers, which have accumulated more than $3 trillion in dollar-denominated debt, according to BIS data. The higher the dollar rises, the more expensive it becomes to pay back the debt. And already this week, the currency has surged because of the sudden prospect of tighter Fed policies and faster U.S. growth. The sheer scale of leverage in the economy, including “the large increase of emerging-market debt, much of it denominated in dollars,” is one of the biggest risks in the financial system right now, Adair Turner, former U.K. Financial Services Authority chairman, said in a Bloomberg Television interview Friday. All that money is owed to somebody, and a failure to pay it back will cause big ripple effects.

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if the US doesn’t manipulate its currency lower soon, it’s going to lose export markets.

Dollar’s Rapid Gain Triggers Angst in Emerging Markets (WSJ)

The dollar extended its powerful rally, spurring central banks in developing countries to take steps to stabilize their own currencies and threatening to create headwinds for the long-running U.S. expansion. The US currency moved closer to parity with the euro after rising for the 10th straight day, the dollar’s longest winning streak against the euro since the European currency’s inception in 1999. The dollar also moved higher against the yen, which fell to its weakest levels against the U.S. currency since May 30. The gains are even greater against many emerging-market currencies, prompting central banks in a number of countries to intervene to slow the slide. The Mexican peso has fallen 11% against the dollar to record lows since the election, while the Brazilian real has tumbled 6.3%.

The currency’s gains make foreign goods and travel cheaper for U.S. consumers and could give a boost to exports from Japan and Europe. But they also are reigniting fears that the dollar’s strength could slow U.S. corporate profit growth and intensify capital flight from the developing world, which would complicate the prospects for economic growth. “The strong dollar is destabilizing for markets, for foreign assets, for emerging-market nations that pay back their debt in dollars,” said Jonathan Lewis, chief investment officer Fiera Capital. “That’s pretty significant.” The dollar’s gains have been driven by bets that fiscal spending and tax cuts proposed by President-elect Donald Trump will spur U.S. economic growth, as well as by the rising probability that the Federal Reserve will raise interest rates next month.

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Too much is moving in the same direction. Sheep don’t make for healthy markets.

Global Bonds Post Biggest Two-Week Loss in 26 Years (BBG)

Bonds around the world had their steepest two-week loss in at least 26 years as President-elect Donald Trump sends inflation expectations surging. The Bloomberg Barclays Global Aggregate Index has fallen 4% since Nov. 4. It’s the biggest two-week rout in data going back to 1990. Federal Reserve Chair Janet Yellen contributed to the decline by saying Thursday an interest-rate hike could come “relatively soon.” “We’ve seen a sharp and swift move since the election, which is pricing in the potential future policies of Trump,” said Sean Simko at SEI Investments in Oaks, Pennsylvania. “The big question is to what extent these policies are going to be implemented, and how quickly are they going to be implemented.”

Treasury 10-year note yields climbed five basis points, or 0.05 percentage point, to 2.35% as of 5 p.m. in New York, reaching the highest since November 2015, according to Bloomberg Bond Trader data. The 2% security due in November 2026 closed at 96 27/32. “Trump is a game changer,” Park Sung-jin at Mirae Asset Securities. “I was bearish, but the current level is more than I expected.” The selloff has gone fast enough that it’ll probably pause before yields press higher in 2017, Park said. Yellen, addressing U.S. lawmakers Thursday, signaled the U.S. central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher.

The president-elect’s pledges include tax cuts and spending $500 billion or more over a decade on infrastructure, a combination that’s seen as spurring quicker growth and price gains in the world’s biggest economy. Trump has also blamed China and Mexico for American job losses and threatened punitive tariffs on imports, a move that may spur inflation. The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97 percentage points this week, the highest since April 2015.

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It’s not just global markets being hit, the US ‘homeowner’ will also pay the price.

Bond Carnage hits Mortgage Rates. But This Time, it’s Real (WS)

The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.” One of the other three months on that short list occurred at the end of 2010 and two “back to back amid the 2013 Taper Tantrum,” when the Fed let it slip that it might taper QE Infinity out of existence. Investors were not amused. From the day after the election through November 16, they yanked $8.2 billion out of bond funds, the largest weekly outflow since Taper-Tantrum June.

The 10-year Treasury yield today jumped to 2.36% in late trading the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July! The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%. [..] I still think that pullback in yields is going to happen any day now. As I said, nothing goes to heck in a straight line. In terms of dollars and cents, this move has wiped out a lot of wealth. Bond prices fall when yields rise. This chart shows the CBOT Price Index for the 10-year note. It’s down 5.6% since July:

The 30-year Treasury bond went through a similar drubbing. The yield spiked to 3.01%. The mid-week pullback was a little more pronounced. Since the election, the yield has spiked by 44 basis points and since early July by 91 basis points (via StockCharts.com). Folks who have this “risk free” bond in their portfolios: note that in terms of dollars and cents, the CBOT Price Index for the 30-year bond has plunged 13.8% since early July!

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This will now be scaring Abe and Kuroda.

US Dollar Sees Steepest 2-Week Gain Against Yen Since January 1988 (R.)

The dollar rose to its highest level since April 2003 against a basket of currencies on Friday, marking its biggest two-week increase since March 2015 as traders piled bets on a massive dose of fiscal stimulus under a Trump U.S. presidency. Also stoking the dollar rally were growing expectations the Fed would raise interest rates next month on signs of rising inflation and improved economic growth. The greenback has climbed 7.3% against the yen in two weeks, its steepest such gain since January 1988 and its second-strongest performance in the era of floating exchange rates. The dollar has been on a tear following Donald Trump’s Nov. 8 victory over Hillary Clinton, tracking surging U.S. Treasury yields amid concerns government borrowing to fund possible stimulus programs could stoke inflation.

Traders have seized on the tax cuts, deregulation and infrastructure spending that Trump campaigned on as negatives for bonds and positives for the dollar. “It has caused a wave of dollar buying across the board,” said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago. To be sure, it remained unclear how many, if any, of the policy proposals would materialize. Trump’s stance on immigration and trade, if they become law, could hurt the dollar, analysts said. “The dollar is the wild card,” said Richard Bernstein, CEO of Richard Bernstein Advisors. The dollar index, hit 101.48, its highest since early April 2003 before paring gains to 101.25, up 0.4% on the day.

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Yeah, like that’s in your power… “’Interest rates may have risen in the U.S., but that doesn’t mean that we have to automatically allow Japanese interest rates to increase in tandem’, Mr. Kuroda said.”

Bank of Japan Surprises With Plan to Buy Unlimited JGBs at Fixed Rates (WSJ)

The Bank of Japan on Thursday offered to buy an unlimited amount of Japanese government bonds at fixed rates for the first time since the introduction of a new policy framework—a sign of its concerns over recent rises in yields. The move is the first clear sign from the central bank that it intends to take action to keep a lid on rising yields, and took market participants by surprise. “I thought there was still a lot more room left” before the BOJ took action, said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. The BOJ’s move followed a sharp rise in government bond yields globally, sparked by expectations that the presidency of Donald Trump would lift inflation and growth.

Japanese government bond yields have risen as well, but not as sharply. The 10-year yield rose to its highest level since March on Wednesday. Yields on two-year and five-year Japanese government bonds fell Thursday after the BOJ’s announcement. The 10-year yield also briefly fell to 0.010% after hitting as high as 0.025% earlier in the morning. Speaking in parliament, Bank of Japan Gov. Haruhiko Kuroda said he wouldn’t allow market pressure from abroad to dictate the course of Japanese government bond yields, highlighting his resolve to hold interest rates down. “Interest rates may have risen in the U.S., but that doesn’t mean that we have to automatically allow Japanese interest rates to increase in tandem,” Mr. Kuroda said.

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And the winner is … plastic.

US Banks Close Rupee Exchanges After Large Bills Ruled Illegal (BBG)

Aruna Desai has a problem with the thousands of Indian rupees she has with her in the U.S. – she can’t find a bank to exchange her funds and couldn’t give the money away if she tried. Since Indian PM Narendra Modi removed 500- and 1,000-rupee notes from circulation, currency exchange providers in the U.S. have been unable to take the outlawed bills. Some of the country’s biggest banks, including JPMorgan and Citigroup work with vendors to provide rupees to clients and those vendors have made the bills unavailable, spokesmen for the banks said. Wells Fargo also said it can’t supply rupees at this time, while Bank of America said it has never accepted the currency for exchange. “If you have a euro, you can go to a bank and exchange it,” Desai, 76, of Cliffside Park, New Jersey, said. “For an Indian rupee, I don’t think there’s any bank that does that here.”

Five-hundred rupee ($7.34) and 1,000-rupee notes ceased to be legal tender Nov. 9, Modi said last week in a surprise announcement, sweeping away 86% of the total currency in circulation. The move has been seen as an attempt to fulfill his election promise of curbing tax evasion and recovering illegal income, locally known as black money, stashed overseas. The notes will have to be deposited in banks by the end of December, Modi said. “For our clients, it’s very hard,” Nandita Chandra, head of Great Indian Travel’s New York office, said in a telephone interview while visiting New Delhi. “A lot of people are affected and we don’t have a culture that is credit-card friendly, it’s a cash-based economy.”

Mastercard, the second-largest payment network, heralded the move as one that will reduce crime and drive growth in the Indian economy. Modi’s “bold action and leadership is a critical step in positioning India to be a leader in the global cashless and digital economy movement,” Porush Singh, the firm’s president for South Asia, said in a statement. “Mastercard is committed to working with the government to provide the cashless solutions that combat corruption and create growth, and inclusion for all members of society.”

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Will Washington fall apart without the lobbyists who keep it standing up?

Lobbyists Leave Trump Transition Team After New Ethics Rule (Pol.)

At least three lobbyists have left President-elect Donald Trump’s presidential transition operation after the team imposed a new ethics policy that would have required them to drop all their clients. CGCN’s Michael Catanzaro, who was responsible for energy independence; Michael Torrey, who was running the handoff at the Department of Agriculture; and Michael McKenna of MWR Strategies, who was focused on the Energy Department, are no longer part of the transition, POLITICO has learned. Lobbyists who piled into the transition when it was being run by New Jersey Gov. Chris Christie were caught off-guard Wednesday by a new ethics policy requiring them to terminate their clients.

“Throughout my time assisting the transition effort, I have adhered closely to the code of ethical conduct and confidentiality agreement that was provided to me,” Torrey said in a statement. “When asked recently to terminate lobbying registration for clients whom I serve in order to continue my role with the transition, I respectfully resigned from my role.” Torrey represents the American Beverage Association, Dean Foods and pizza franchise Little Caesars. Before founding Michael Torrey & Associates in 2005, he was Agriculture Secretary Ann Veneman’s deputy chief of staff, advised Kansas Sen. Bob Dole and worked at the Commodity Futures Trading Commission. Catanzaro lobbies for the American Fuel and Petrochemical Manufacturers, a refining group, as well as Hess, Encana, Noble Energy and Devon Energy.

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Let’s see how many will be left come January 20.

The Rise Of The ‘Un-Lobbyist’ (Mother Jones)

On Wednesday, Donald Trump’s transition team announced one phase of the president-elect’s plan to “drain the swamp” of corruption—a prohibition on registered lobbyists serving in his administration and a five-year lobbying ban for Trump officials who return to the private sector. Trump’s plan effectively doubles down on a policy that the Obama administration already has in place—one that many good government groups and lobbyists alike believe may have created a new problem: un-lobbyists—that is, influence-peddlers who avoid registering as lobbyists to skirt the administration’s rules.

Obama, like Trump, campaigned on a platform of aggressively rooting out the influence of lobbyists. After taking office, he put in place several major good-government initiatives, including a ban on lobbyists serving in his administration and a two-year cooling-off period before ex-administration officials could register to lobby. Once Obama’s lobbying rules took effect, there was a sharp decline in the number of registered lobbyists. Industry insiders and watchdog groups that track the influence game noted that the decrease was not due to lobbyists hanging up their spurs as hired guns for corporations and special interests. Rather it appeared that lobbyists were finding creative ways to avoid officially registering as such. There was no less influence-peddling going on, but now there was less disclosure of the lobbying that was taking place.

The problem lies with the definition of who is a lobbyist. The federal government requires anyone who spends more than 20% of their time on behalf of a client while making “lobbying contacts”—an elaborate and specifically defined type of contact with certain types of federal officials—to register as a lobbyist and file quarterly paperwork disclosing their clients and the bills or agencies he or she sought to sway. But by avoiding too many official “lobbying contacts” and limiting how much income that kind of work accounts for, lobbyists can shed the scarlet L, describing themselves as government affairs consultants or experts in advocacy and public policy.

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All governments will use all new technology to encroach ever more on all people’s lives.

UK Approves ‘Most Extreme Surveillance In History Of Western Democracy’ (AFP)

The British parliament this week gave the green light to new bulk surveillance powers for police and intelligence services that critics have denounced as the most far-reaching of any western democracy. The Investigatory Powers Bill would, among other measures, require websites to keep customers’ browsing history for up to a year and allow law enforcement agencies to access them to help with investigations. Edward Snowden, the former US National Security Agency contractor turned whistleblower, said the powers “went further than many autocracies”. “The UK has just legalised the most extreme surveillance in the history of western democracy,” he tweeted.

The bill, the first major update of British surveillance laws for 15 years, was passed by the House of Lords and now only needs rubber-stamping by Queen Elizabeth II. Prime Minister Theresa May introduced the bill in March when she was still interior minister, describing it as “world-leading” legislation intended to reflect the change in online communications. It gives legal footing to existing but murky powers such as the hacking of computers and mobile phones, while introducing new safeguards such as the need for a judge to authorise interception warrants. But critics have dubbed it the “snooper’s charter” and say that, in authorising the blanket retention and access by authorities of records of emails, calls, texts and web activity, it breaches fundamental rights of privacy.

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The EU needs to act to stop this. But instead it still hardly resettles refugees at all, and won’t even allow for the refugees to be hosted in mainland Greece. Ugliness guaranteed. Couldn’t have been more effective if they planned it.

Far-Right Group Attacks Refugee Camp On Greek Island Of Chios (G.)

Dozens of people have been driven out of a refugee camp on the Greek island of Chios after two successive nights of attacks by a far-right group. At least two people were wounded after attackers threw Molotov cocktails and rocks as big as boulders from elevated areas surrounding the Souda camp, activists said. Three tents were burned down and three others were hit by rocks. A 42-year-old Syrian man was assaulted, while a Nigerian boy was hit by a rock. Fearing a third attack on Friday night, about 100 former occupants refused to re-enter the camp, instead taking shelter in a nearby car park. “We do not have any kind of protection,” Mostafa al-Khatib, a Syrian refugee, told the Guardian. “No one cares about us.” Gabrielle Tan, an aid worker with Action From Switzerland, a grassroots organisation working on Chios, said those sheltering in the car park included families with babies and toddlers.

“They’d rather sleep outside in the cold than go back inside,” said Tan. The mayor of Chios said the attackers were thought to be affiliated with Greece’s main far-right party, Golden Dawn. “Of course Golden Dawn supporters are suspected to have participated,” Manolis Vournous told the Guardian. Activists and camp occupants said the rocks appeared to have been thrown with the intention of killing people. Tan said: “These rocks were probably the size of a shoebox, weighing approximately 15kg. Some of them I can’t even lift.” There were conflicting reports about who started the clashes on Wednesday. According to Vournous, the unrest began after Algerians and Moroccans stole alcohol and fireworks from a shop, frightening local residents. But some activists claimed the events escalated after a planned assault by Golden Dawn.

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Oct 032016
 
 October 3, 2016  Posted by at 9:37 am Finance Tagged with: , , , , , , , ,  


NPC Congressman John C. Schafer of Wisconsin 1924

Is the U.S. Dollar Set to Soar? (CH Smith)
Pound Nears Three-Decade Low as May Sets Date for Brexit Trigger (BBG)
China Seeking To Succeed Where Japan Failed In Reserve Currency Push (BBG)
Deutsche Bank Races Against Time To Reach US Settlement (R.)
German Economy Minister Accuses Deutsche Bank Of Hypocrisy (Pol.)
It’s Not Just Deutsche. European Banking is Utterly Broken (Tel.)
Kuroda Blamed For Abenomics Failure, Ruins Chance Of Second Term (BBG)
BOJ Deploys US World War II Tactics That Failed to Spur Prices (BBG)
Canada’s Big Bet on Stimulus Draws Global Attention (WSJ)
Jail Wells Fargo CEO and Chairman John Stumpf! (Nomi Prins)
The Government Is Turning the Entire United States into a Debtors Prison (TAM)
Fukushima Has Contaminated The Entire Pacific Ocean, Going To Get Worse (TA)
Hungary’s Refugee Referendum Not Valid After Voters Stay Away (G.)
Vulnerable Refugees To Be Moved From ‘Squalid’ Camps On Greek Islands (G.)
Germany Wants Migrants Sent Back To Greece, Turkey (AFP)

 

 

As the Automatic Earth has said for many years, he USD won’t be the first to go. It’s about dollar-denominated debt.

Is the U.S. Dollar Set to Soar? (CH Smith)

Which blocs/nations are most likely to face banking/liquidity crises in the next year? Hating the U.S. dollar offers the same rewards as hating a dominant sports team: it feels righteous to root for the underdogs, but it’s generally unwise to let that enthusiasm become the basis of one’s bets. Personally, I favor the emergence of non-state reserve currencies, for example, blockchain crypto-currencies or precious-metal-backed private currencies – currencies which can’t be devalued by self-serving central banks or the private elites that control them. But if we set aside our personal preferences and look at fundamentals and charts, odds seem to favor the U.S. dollar making a major move higher in the next few months. Let’s start with a national index of finance-power which combines GDP, military spending, banking, foreign direct investment (FDI) and foreign exchange:

The key take-away is the preponderance of the U.S. and the Anglo-American alliance, a.k.a. the special relationship of Great Britain and the U.S. The U.S. exceeds Germany, China, Japan and France combined, and the U.S.-Great Britain alliance is roughly equal to the next 10 nations: the four listed above plus The Netherlands, Switzerland, Italy, Spain, Canada and the Russian Federation. We don’t have to like it, but as investors it’s highly risky to act like it isn’t reality.

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If the whining about Beautiful Brexit would finally stop in the UK, maybe they could do something constructive.

Pound Nears Three-Decade Low as May Sets Date for Brexit Trigger (BBG)

The pound approached the three-decade low set in the days following the Brexit referendum after U.K. Prime Minister Theresa May said she’ll begin the process of withdrawal from the European Union in the first quarter of 2017. Sterling dropped to the weakest level since July 6, the day it reached its 31-year low of $1.2798, and slipped against all of its 31 major peers. Hedge-fund data showed speculators raised bets that the currency would fall. May told delegates at her Conservative Party’s annual conference that she’ll curb immigration, stoking speculation the nation is headed toward a so-called hard Brexit. Stocks of U.K. exporters rose, boosted by the weaker currency. “We’re back to the Brexit risks,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “Sterling has taken a bit of a knock.”

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Let’s see large-scale global issuance of debt in yuan. Then we talk.

China Seeking To Succeed Where Japan Failed In Reserve Currency Push (BBG)

Like the yuan, the yen’s march toward liberalization was gradual and marked with ambivalence. Under the Bretton Woods system after World War II, the Japanese currency was fixed at 360 a dollar, before a trading band was introduced in 1959 to make it slightly more flexible. For three decades, all capital flows except those explicitly permitted were banned, making it easier for the government to achieve policy goals. It wasn’t until 1998 that approval or notification requirements for financial transactions and outward direct investments were abolished. The push to internationalize the yen initially came from the U.S., which wanted greater global use to fuel appreciation and reduce Japan’s trade surplus with America. China’s situation now isn’t dissimilar.

Having thrived on an economic model of closed borders and accumulation of reserves for decades, its capital account is still closed, individuals’ foreign-exchange conversions are capped and inter-country money flows occur mainly through specific programs. Policy makers have tightened controls on outflows in the past year after the yuan’s August 2015 devaluation exacerbated depreciation pressures. The currency was little changed Friday at 6.68 per dollar. Lowering the hurdles to create a true freely traded currency might risk a flight of capital during times of weakness, a concept China doesn’t always seem comfortable with. “Everyone wants this thing called ‘exorbitant privilege,’ but if you try to give it to them, they get furious and they tell you to stop,” said Michael Pettis, a finance professor at Peking University.

“Countries like China that are running huge surpluses because of insufficient domestic demand – basically they are creating the role of the dollar as the dominant reserve currency.” The term “exorbitant privilege,” coined by former French finance minister Valery Giscard D’Estaing in 1965, referred to the benefits the U.S. received for the dollar’s status. Daniel McDowell, a Syracuse University political science assistant professor who studies international finance, made the point that the appeal of a nation’s sovereign debt market plays a key role in a currency’s internationalization. The yen never became a major reserve currency because its government bonds weren’t as attractive or as plentiful as the U.S., he said.

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Everyone’s just trying to save face by now. Merkel, Obama, DOJ.

Deutsche Bank Races Against Time To Reach US Settlement (R.)

Deutsche Bank is throwing its energies into reaching a settlement before next month’s presidential election with U.S. authorities demanding a fine of up to $14 billion for mis-selling mortgage-backed securities. The threat of such a large fine has pushed Deutsche shares to record lows, and a cut-price settlement is urgently needed to reverse the trend and help to restore confidence in Germany’s largest lender. Its shares won’t trade in Germany on Monday because of a public holiday, but they will resume trading on the U.S. market later on Monday. A media report late on Friday that Deutsche and the U.S. Department of Justice were close to agreeing on a settlement of $5.4 billion lifted the stock 6% higher, but that report has not been confirmed.

The Wall Street Journal reported on Sunday that the bank’s talks with the DOJ were continuing. Details are in flux, with no deal yet presented to senior decision makers for approval on either side, the paper said, citing people familiar with the matter. “Clearly, so long as a fine of this order of magnitude ($14 billion) is an even remote possibility, markets worry,” UniCredit Chief Economist Erik F. Nielsen wrote in a note on Sunday. Ratings agency Moody’s said it would be positive for bondholders if the lender could settle for around $3.1 billion, while a fine as high as $5.7 billion would dent 2016 profitability but not significantly impair the bank’s capital position.

[..] The Bild am Sonntag newspaper wrote on Sunday that Deutsche’s chairman had informed Berlin just before it disclosed the potential $14 billion fine but had not asked for help. The same newspaper quoted the president of the Bavarian Finance Centre, Wolfgang Gerke, as saying that the German government should step in and buy a 20% stake in the bank before its value fell any further. The group represents financial services companies in the southern German state. “Fundamentally, I’m against state interventions,” he told the newspaper, but added that in this case a government stake would be “a signal that could turn the whole market”.

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Making Merkel’s day, no doubt. It wasn’t nearly hard enough for her yet.

German Economy Minister Accuses Deutsche Bank Of Hypocrisy (Pol.)

Germany’s economy minister has highlighted the irony of Deutsche Bank blaming speculators for its falling share price when the bank itself has built its business on speculation. “I did not know if I should laugh or get angry that the bank that made speculation a business model is now saying it is a victim of speculators,” Sigmar Gabriel told journalists on a plane to Tehran on Sunday, Der Spiegel reported. The threat of a $14 billion fine by U.S. authorities over the sales of mortgage-backed securities before the financial crisis sent Deutsche Bank’s shares to new lows this month. Gabriel was responding to a letter sent by Deutsche Bank CEO John Cryan to staff Friday blaming “new rumors” for causing the plunge in share prices and saying “forces” wanted to weaken trust in Germany’s largest bank.

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“US banks won’t be nearly as badly hit by the measure as their European counterparts, which is no doubt why their regulators are gunning so hard for it.”

It’s Not Just Deutsche. European Banking is Utterly Broken (Tel.)

[..] as is evident from the events of the last week, the banking crisis itself is far from over. Nine years after the initial eruption, it still rumbles on, with the epicentre now moved from the US to Europe. Only it’s not the same crisis; in large measure, it is completely different. Today’s mayhem is not so much the result of reckless bankers and asleep at the wheel regulators, but rather of the public policy response to the last crisis itself – that is to say, regulatory over-reach and central bank money printing. All eyes are naturally focused on the specific problems of Deutsche Bank, but Deutsche is in truth no more than the canary in the coal mine. As Tidjane Thiam, chief executive of Credit Suisse, observed last week, as an entire sector, European banks are still “not really investable”.

Much the same disease as afflicts Continental banks also applies to British counterparts, including RBS, Barclays and even Lloyds. All are fast being enveloped by a perfect storm of negatives, and this time around, it is substantially the policymakers and law enforcers who are to blame. There are essentially four factors at work here. First, it’s virtually impossible to make money out of banking in a zero interest rate environment, frustrating attempts to rebuild capital buffers after the bad debt write-downs of recent years. In circumstances where central banks have bought right along the yield curve, flattening it down to virtually nothing, the margin from maturity transformation all but disappears. Much the same thing has happened to the once lucrative returns of investment banking.

Even Goldman Sachs has been forced to admit that it is struggling to cover its cost of capital. Second is ever tougher international capital requirements, the latest instalment of which is dubbed Basel IV. The renewed crackdown is understandable, given what occurred nine years ago, but also ill-conceived and discriminatory, unfairly penalising European banks against their American counterparts. The technical details need not concern us too much here, suffice it to say that in order to stop banks gaming the system, regulators are attempting to impose a so-called “output floor”, tightly limiting the scope for easier capital requirements on risk weighted assets. US banks won’t be nearly as badly hit by the measure as their European counterparts, which is no doubt why their regulators are gunning so hard for it.

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That is so convenient for Abe…

Kuroda Blamed For Abenomics Failure, Ruins Chance Of Second Term (BBG)

Governor Haruhiko Kuroda has ruined his chances of getting a second full term, according to Nobuyuki Nakahara, who has advised the prime minister on the economy and was an intellectual father of the Bank of Japan’s first run at quantitative easing in 2001. The central bank’s switch to yield-curve targeting compounds its earlier error of adopting negative interest rates and is a disappointing move away from monetary-base expansion, Nakahara, 81, said in an interview on Sept. 30. In a stinging attack on the BOJ’s recent actions, he said the decision to conduct a comprehensive review of monetary policy had invited defeat on reflationist efforts and would raise questions about Abenomics as a whole.

Prime Minister Shinzo Abe’s economic program consists of three so-called arrows: the first being aggressive monetary policy, the second fiscal spending and the third structural reform. The central bank’s program, which began when Abe tapped Kuroda for the BOJ role in early 2013, has been the most prominent and highly debated aspect of Abenomics. “They are trying to clean up the mess of negative rates. It’s impossible to do a stupid thing like keeping the yield curve under government control,” said Nakahara. “They changed the regime to rates from quantity, meaning those who support quantitative easing were defeated. Reflationists on the BOJ policy board lost. An exit from deflation is going to be far away.”

After being greeted with fanfare when he took the helm, Kuroda, 71, now faces a reversal of fortunes on multiple fronts. Markets have moved against him and critics are growing more vocal. The extended honeymoon he enjoyed with a rising stock market and falling yen are long gone and his 2% inflation goal is nowhere in sight. Kuroda has less than 19 months to go in his term. While no BOJ governor has been tapped for a second five-year term since the 1960s, Kuroda’s central role in Abenomics has led to speculation that he may be different.

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If you don’t know what deflation is, you can’t fight it.

BOJ Deploys US World War II Tactics That Failed to Spur Prices (BBG)

In deciding to target bond yields, Japan is deploying a monetary strategy to combat deflation used by its former enemy in World War II. The trouble is that America’s experience back then suggests that the tactics probably won’t work on their own. Economists who have studied that period say that it was increased government spending, along with heightened inflation expectations, that eventually led to a stepped-up pace of U.S. price increases more than a half century ago. Once inflation was humming along, the Federal Reserve’s strategy of pegging long-term interest rates did nothing to put a lid on it, which is why the central bank pushed for a 1951 agreement with the Treasury to abandon the long-term yield fix.

If inflation expectations are contained, simply targeting yields won’t necessarily spur price pressures, according to Barry Eichengreen, a professor at the University of California at Berkeley who co-wrote a paper on U.S. monetary and financial policy from 1945 to 1951. But if people already expect faster inflation, then the tool can help promote it. That’s not a helpful conclusion for Bank of Japan Governor Haruhiko Kuroda and his colleagues, who last month switched the focus of their monetary stimulus to controlling yields across a range of maturities, after simply expanding the monetary base through debt purchases. It set the target for the yield on the 10-year Japanese government bond at around 0%.

Another piece of their new framework: trying to shock inflation expectations higher by pledging to keep stimulus in place until prices are rising even faster than their 2% target. Their struggle is to overturn subdued household and corporate expectations that have been set hard by decades of deflation. For the Fed in World War II and its aftermath, capping long-term yields at 2.5% had nothing to do with inflation per se. Its goal was to limit the government’s borrowing costs and so support the war effort. Inflation was held down by price controls during the war, then spiked higher after hostilities ended, hitting a high of 19.7% in 1947. The surge proved short-lived, as an economic recession that began late the following year produced a return of the deflation that had plagued the country during the Great Depression.

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And if successful, they’re all going to do it? Oops, too late.

Canada’s Big Bet on Stimulus Draws Global Attention (WSJ)

In the global struggle to boost growth, a Canadian experiment in fiscal spending is providing a test case for some of the world’s biggest economies. PM Justin Trudeau’s Liberal government unveiled a plan last spring to spend heavily on tax benefits and infrastructure, with $120 billion CAD (US$91.39 billion) going into infrastructure over the next decade, including about one-tenth of that on short-term projects. It’s a bold bet to inject life into an economy struggling with a rout in commodity prices, especially crude oil, which was once Canada’s top export. It also highlights the limits of monetary stimulus, since the country’s central bank cut rates twice in 2015, to 0.5%, and has acknowledged—as its counterparts around the world have—that monetary policy becomes a less powerful tool when interest rates are already low.

Mr. Trudeau’s big infrastructure spend will be largely financed by a bigger deficit, which is projected to reach C$29.4 billion this fiscal year, or about 1.5% of GDP. That’s a sharp turn from the balanced-budget promise of his Conservative predecessor, who hewed the austerity path Mr. Trudeau is now shunning. Canada’s efforts stand in contrast to many of the world’s economies, whose finance ministers and central bankers meet this week in Washington for semiannual meetings of the International Monetary Fund and World Bank. Some—like Australia, also hit by the commodity rout—are trying to use coordinated fiscal and monetary policy. But larger advanced economies are holding firm to tight budgets, making Canada’s embrace of debt-fueled stimulus unusual.

“The eyes of the world—the economists—will be watching to see how Canada performs,” said Martin Eichenbaum, a Northwestern University economist who is also an international fellow at the C.D. Howe Institute, a Canadian think tank. “We’re all watching to see: Will they get it right?”

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Yeah. Not going to happen….

Jail Wells Fargo CEO and Chairman John Stumpf! (Nomi Prins)

Consider this. You’re a mob boss. You run a $1.8 trillion network of businesses across state lines and continents. Many of these are legit, but a select subset of them – not so much. Every so often the illegal components flare up; some Washington commission launches an investigation, someone blows a whistle, people lose their homes, a pack of investors sheds a ton of money and lawsuits fly. You get reprimanded and have to pay lawyers and accountants overtime to deal with the paperwork. You settle on fines with the government — $10 billion worth. Then you keep going with no one the wiser, no wings clipped, no hard time. After all of that — you say you’re sorry, forfeit some money you didn’t even make yet, and (maybe) resign with boatloads more of it.

This is what we’re dealing with regarding Wells Fargo CEO and Chairman John Stumpf. He could be a really nice guy and wears some lovely tailored attire. (Hell, even Al Capone cared about proper milk expiration date labels.) But he’s also a crook, plain and simple. He’s cheated shareholders and taxpayers and customers, and used a stockpile of FDIC-backed deposits as fodder for illicit activities that have been repeatedly investigated and fined. And he made hundreds of millions of dollars doing it. This is not conjecture, nor sour grapes from the nonmillionaire swath of the population. It’s based on documented facts. But by no means is Wells the only guilty bank on the street, or Stumpf the only “apologetic” CEO. Apologies are cheap, and so is money when it’s a small piece of a much larger pie.

Somewhere, Jamie Dimon and Lloyd Blankfein are sighing in relief that this time it was Stumpf and not one of them, the other two of the three (of the Big Six bank) CEOs left standing since the crisis. These are just some highlights of those nearly $10 billion in total fines Wells agreed to, rather than take matters to court, since 2009. The sheer sum of those fines reveal a recidivist attitude toward ethics, regulations and the law. The associated transgressions were all committed under Stumpf’s leadership. There’s no way a regular citizen committing a fraction of a fraction of anything like these wouldn’t be in jail. Complexity is no excuse for criminal behavior. Nor is calling these practices “abuses” rather than felony fraud for misleading, at the very least, investors and shareholders in a publicly traded mega-company that violates securities laws.

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… but if not the Wells Fargo CEO, at least some people will go to jail…

The Government Is Turning the Entire United States into a Debtors Prison (TAM)

Since the United States was founded, citizenship has represented a safe haven from oppressive regimes around the world. By preserving the principles of small government and free markets, those who were willing to work hard found success, and America became a magnet for innovation. But as the U.S. continues to erode personal and economic freedom, more people than ever before are handing over their U.S. passports to seek better opportunities abroad. The staggering amount of debt held by the American empire ensures the public will be working it off for generations to come. The government has already begun its campaign to make it more difficult to leave the country, and it has also begun to crack down on the finances of the eight million Americans living abroad.

Regardless of whether you’re a millionaire with multiple foreign bank accounts or a recent college graduate with a boatload of debt, the status of being a United States citizen brings with it a burden that will only grow heavier over time. Since 2008, the number of individuals giving up their citizenship has increased by almost 560%, setting new records each of the past three years. Some of these expats are motivated by the extra tax load paid when working abroad, while others are trying to avoid student loan debt. Others have just had enough of the encroaching police state. Every taxpayer left in the country now owes more than $149,000 of the national debt, so it’s no surprise the tide is beginning to turn. By hook or by crook, in the coming years, citizens will be fleeced of that money through higher taxes, savings that are inflated away, and an overall drop in their standard of living.

Many can see the writing on the wall and have become determined to protect themselves from the years of economic repression coming down the pipe. Draconian steps have already been taken to slow the rate of expatriation. For one, the IRS has broadened its reach into foreign bank accounts through the Foreign Account Tax Compliance Act. Through agreements with over 100 nations, the law is able to require all financial institutions abroad to report the account details of any American customers they have. With access to this new information, the IRS can revoke the passports of potential tax evaders and hinder their ability to travel using yet another additional power the agency was granted last year.

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The gift that keeps on contaminating.

Fukushima Has Contaminated The Entire Pacific Ocean, Going To Get Worse (TA)

What was the most dangerous nuclear disaster in world history? Most people would say the Chernobyl nuclear disaster in Ukraine, but they’d be wrong. In 2011, an earthquake, believed to be an aftershock of the 2010 earthquake in Chile, created a tsunami that caused a meltdown at the TEPCO nuclear power plant in Fukushima, Japan. Three nuclear reactors melted down and what happened next was the largest release of radiation into the water in the history of the world. Over the next three months, radioactive chemicals, some in even greater quantities than Chernobyl, leaked into the Pacific Ocean. However, the numbers may actually be much higher as Japanese official estimates have been proven by several scientists to be flawed in recent years.

If that weren’t bad enough, Fukushima continues to leak an astounding 300 tons of radioactive waste into the Pacific Ocean every day. It will continue do so indefinitely as the source of the leak cannot be sealed as it is inaccessible to both humans and robots due to extremely high temperatures. It should come as no surprise, then, that Fukushima has contaminated the entire Pacific Ocean in just five years. This could easily be the worst environmental disaster in human history and it is almost never talked about by politicians, establishment scientists, or the news. It is interesting to note that TEPCO is a subsidiary partner with General Electric (also known as GE), one of the largest companies in the world, which has considerable control over numerous news corporations and politicians alike.

Could this possibly explain the lack of news coverage Fukushima has received in the last five years? There is also evidence that GE knew about the poor condition of the Fukushima reactors for decades and did nothing. This led 1,400 Japanese citizens to sue GE for their role in the Fukushima nuclear disaster. Even if we can’t see the radiation itself, some parts of North America’s western coast have been feeling the effects for years. Not long after Fukushima, fish in Canada began bleeding from their gills, mouths, and eyeballs. This “disease” has been ignored by the government and has decimated native fish populations, including the North Pacific herring. Elsewhere in Western Canada, independent scientists have measured a 300% increase in the level of radiation.

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It won’t stop Orban.

Hungary’s Refugee Referendum Not Valid After Voters Stay Away (G.)

The Hungarian prime minister, Viktor Orbán, has failed to convince a majority of his population to vote in a referendum on closing the door to refugees, rendering the result invalid and undermining his campaign for a cultural counter-revolution within the European Union. More than 98% of participants in Sunday’s referendum sided with Orbán by voting against the admission of refugees to Hungary, allowing him to claim an “outstanding” victory. But more than half of the electorate stayed at home, rendering the process constitutionally null and void.

Orbán himself put a positive spin on the low turnout. He argued that while “a valid [referendum] is always better than an invalid [referendum]” the extremely high proportion of no-voters still gave him a mandate to go to Brussels next week “to ensure that we should not be forced to accept in Hungary people we don’t want to live with”. He argued that the poll would encourage a wave of similar votes across the EU. “We are proud that we are the first,” he said.

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NOTE: Less than 2 weeks ago, the EU refused Greece permission to move the refugees to the mainland, because they might try to travel north.

“Athens will be overwhelmed, [as will] the mainland, people will be forced to live in fields, there will be scenes we’ll never have imagined.”

Vulnerable Refugees To Be Moved From ‘Squalid’ Camps On Greek Islands (G.)

Greece is poised to transfer thousands of refugees from overcrowded camps on its Aegean islands to the mainland amid escalating tensions in the facilities and protests from irate locals. The government said unaccompanied minors, the elderly and infirm would be among the first to be moved as concerns mounted over the future of a landmark EU-Turkey deal to stem migrant flows. “The situation on the islands is difficult and needs to be relieved,” said deputy minister for European affairs Nikos Xydakis. “Accommodation on the mainland will be more suitable. We will start with transfers of those who are most vulnerable, always in the sphere of implementing and protecting the EU-Turkey agreement.”

The operation, expected to be put into motion this week, came as Ankara warned the pact would not hold if Brussels failed to honour its pledge to allow Turks visa-free travel to the bloc. In a fiery speech before the newly reconvened parliament at the weekend, Turkish president Erdogan gave his clearest signal yet that the six-month-old agreement was in danger of collapse because of slow progress over visa liberalisation. [..] Refugee flows, although rising again, have dropped by 90% since the deal was signed. [..] Western diplomats in the Greek capital raised the spectre of chaos if the agreement collapsed. “If it does, there will be an influx of a million or more and this country is totally unprepared,” one European ambassador confided. “Athens will be overwhelmed, [as will] the mainland, people will be forced to live in fields, there will be scenes we’ll never have imagined.”

[..] Acknowledging that camp conditions were far from ideal, Xydakis blamed the backlog in asylum applications on the EU’s failure to dispatch promised staff and push ahead with an agreed relocation scheme to other parts of the continent. “We were promised 400 experts in asylum procedures but so far only have around 29 on the islands. We are continuing to recruit and look for more staff but it is not easy,” he said. “The deal is not only in the hands of Turkey but Europe … some EU states are not respecting but neglecting their responsibilities.”

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To reiterate what I said yesterday on this topic:

“It was Germany that last year declared Dublin null and void. They will say that was only temporaray, but regulations like this are not light switches that selected parties can flick on and off when it suits them.

What happens now is quite simply that both the refugees and Greece are the victims of Angela Merkel’s falling poll numbers. And that is insane. It’s cattle trade. Athens should take Berlin to court over this.

Greece is already little more than a greatly impoverished holding pen for the unwanted, and it threatens to fall much deeper into the trap. That’s why the Automatic Earth effort to support the poorest people is not just still needed, but more now than ever. We will soon start a new campaign to that end. In the meantime, please do continue to donate through our Paypal widget in amounts ending in $.99 or $.37.”

Germany Wants Migrants Sent Back To Greece, Turkey (AFP)

Germany called Sunday for asylum seekers who entered the European Union via Greece to be forced to return there, while also urging Athens to send more migrants back to Turkey. In an interview with a Greek daily, German interior minister Thomas de Maiziere said he wants to reinstate EU rules which oblige asylum seekers to be sent back to Greece as the first EU country they reached. “I would like the Dublin convention to be applied again… we will take up discussions on this in a meeting with (EU) interior ministers” later in October, he told the Greek daily Kathimerini. The Dublin accord gives responsibility for asylum seekers’ application to the first country they reach – which put Greece on the frontline of more than a million migrants who arrived in the EU last year.

The accord also says asylum seekers should be sent back to the first country they arrived in if they subsequently reach another EU state before their case is examined. A huge proportion of the migrants ended up in Germany. But this clause was suspended for Greece in 2011 after the country lost an EU legal complaint which condemned the mistreatment of migrants seeking international protection. “Since then, the EU has provided substantial support, not only financially,” to Greece to improve its asylum seeker procedures, the German minister said. In an interview on German television Sunday evening, De Maiziere also criticised Athens for failing to fully implement an EU agreement with Turkey to return migrants there.

The EU reached a deal with Turkey in March to stop the influx to the Greek islands in return for financial aid and eased visa conditions for its citizens. But the deal has looked shaky in the wake of a coup attempt in Turkey in July. “Greece must carry out more expulsions,” he told the ARD television station.

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Jul 292016
 
 July 29, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , , ,  


Dorothea Lange Crossroads grocery store and filling station, Yakima, Washington, Sumac Park 1939

IMF: Disastrous Love Affair With Euro, Apologies For Immolation Of Greece (AEP)
Global Trade Is Not Growing Slower – It’s Not Growing At All (WEF)
Not Even Fiscal Stimulus Will Save Global Growth – Deutsche Bank (BBG)
Kuroda’s $26 Billion Gift to Stock Market Underwhelms Investors (BBG)
Bank of Japan Blames Brexit As It Unleashes More Monetary Stimulus (G.)
Japan Sees Weaker Consumer Spending, Manufacturing In June (AP)
Japan Should Stop Chasing A Weaker Yen – Steen Jakobsen (CNBC)
US Homeownership Rate Falls to Five-Decade Low (WSJ)
Wholesale California Gasoline Prices Plunge, Consumers Still Pay Up (R.)
Oil Glut Proves Harder To Kill Than Saudis To Goldman Predicted (BBG)
In Past 50 Years Earnings Recession This Big Always Triggered Bear Market (F.)
Barcelona Unveils ‘Shame Counter’ That Tracks Refugee Deaths (AFP)

 

 

” They had no fall-back plans on how to tackle a systemic crisis in the eurozone [..] because they had ruled out any possibility that it could happen.”

“Some staff members warned that the design of the euro was fundamentally flawed but they were overruled..”

Ambrose on Twitter: ”IMF seems to have slipped leash of political control. Even its own watchdog in dark on EMU crisis. Astonishing saga..”

IMF: Disastrous Love Affair With Euro, Apologies For Immolation Of Greece (AEP)

The IMF’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. This is the lacerating verdict of the IMF’s top watchdog on the Fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions. It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking break-down in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation. The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde.

It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way EU insiders used the Fund to rescue their own rich currency union and banking system. The three main bail-outs for Greece, Portugal, and Ireland were unprecedented in scale and character. The trio were each allowed to borrow over 2,000% of their allocated quota – more than three times the normal limit – and accounted for 80pc of all lending by the Fund between 2011 and 2014. In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive “ad-hoc task forces”. Mrs Lagarde herself is not accused of obstruction.

“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff,” it said. The report said the whole approach to the eurozone was characterised by “groupthink” and intellectual capture. They had no fall-back plans on how to tackle a systemic crisis in the eurozone – or how to deal with the politics of a multinational currency union – because they had ruled out any possibility that it could happen. “Before the launch of the euro, the IMF’s public statements tended to emphasize the advantages of the common currency, “ it said. Some staff members warned that the design of the euro was fundamentally flawed but they were overruled.


The forecasts for Greek growth compared to what actually happened Credit: IMF

[..] While the Fund’s actions were understandable in the white heat of the crisis, the harsh truth is that the bail-out sacrificed Greece in a “holding action” to save the euro and north European banks. Greece endured the traditional IMF shock of austerity, without the offsetting IMF cure of debt relief and devaluation to restore viability. A sub-report on the Greek saga said the country was forced to go through a staggering squeeze, equal to 11pc of GDP over the first three years. This set off a self-feeding downward spiral. The worse it became, the more Greece was forced cut – what ex-finance minister Yanis Varoufakis called “fiscal water-boarding”. “The automatic stabilizers were not allowed to operate, thus aggravating the pro-cyclicality of the fiscal policy, which exacerbated the contraction,” said the report.

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Who says we need global growth?

Global Trade Is Not Growing Slower – It’s Not Growing At All (WEF)

Falling rates of global trade growth have attracted much comment by analysts and officials, giving rise to a literature on the ‘global trade slowdown’ (Hoekman 2015, Constantinescu et al. 2016). The term ‘slowdown’ gives the impression of world trade losing momentum, but growing nonetheless. The sense of the global pie getting larger has the soothing implication that one nation’s export gains don’t come at the expense of another’s. But are we right to be so sanguine? Using what is widely regarded as the best available data on global trade dynamics, namely, theWorld Trade Monitor prepared by the Netherlands Bureau of Economic Policy Analysis, the 19th Report of the Global Trade Alert, published today, evaluates global trade dynamics (Evenett and Fritz 2016).


Figure 1 World trade plateaued around the start of 2015

Our first finding that the rosy impression painted by some should be set aside. We demonstrate that: •World export volumes reached a plateau at the start of January 2015. The same finding holds if import volume or total volume data are used instead. •Both industrialised countries’ and emerging markets’ trade volumes have plateaued (Figure 1). •Except during global recessions, a plateau lasting 15 months is practically unheard of since the Berlin Wall fell. •In 2015 the best available data on world export volumes diverges markedly from that reported by the WTO, IMF, and World Bank, and probably explains why analysts at these organisations have missed this profound change in global trade dynamics (Table 1).


Table 1 Marked differences in reported global trade volume growth in 2015

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“The fight against sluggish growth rates..” Maybe we should stop that fight?

Not Even Fiscal Stimulus Will Save Global Growth – Deutsche Bank (BBG)

While monetary policy may be at — or beyond — the limits of its usefulness in stoking global growth, economists at Deutsche Bank say fiscal stimulus is unlikely to be much more effective. At least, not the kind that is politically possible. The fight against sluggish growth rates and low inflation has seen central banks from Europe to Japan buy up swaths of the bond market, and experiment with negative interest rates. Yet with growth still stubbornly slow, these efforts are seen either as ineffective or counterproductive, spurring calls for more active fiscal policy, whether it take the form of tax cuts or ‘helicopter money’ transfers to the private sector. Just this past weekend, finance ministers from the Group of Twenty meeting in China gave strong backing to this view.

“Monetary policy alone cannot lead to balanced growth,” they said. “Fiscal strategies are equally important to support our common growth objectives.” Those comments could signal a “new direction for fiscal policy,” according to Deutsche Bank economists led by Peter Hooper. Yet while they welcomed the potential dethroning of monetary policy as “the principal lever of support,” the economists expect that the boost to global growth from the most probable fiscal packages “is likely to be modest.” Europe is in greatest need of fiscal stimulus — even though the ECB has been gobbling up bonds since 2014, and has cut its deposit rate to minus 0.4% — and it’s also where fiscal stimulus would be most effective, according to the Deutsche Bank economists.

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Are Kuroda and Abe drifting apart?

Kuroda’s $26 Billion Gift to Stock Market Underwhelms Investors (BBG)

Welcome to Japan, where a central bank plan to pump $26 billion a year more into stocks and continue buying 30 times that in debt sees equities struggle to advance and bonds plunge. The Topix index slid as much as 1.4% in Tokyo after the Bank of Japan boosted its annual exchange-traded fund budget to 6 trillion yen ($58 billion), from 3.3 trillion yen. Japanese government bonds headed for their steepest slump since 2008, as policy makers retained a plan to expand the monetary base by an annual 80 trillion yen. Speculation among investors and analysts that Friday’s policy announcement might even see the adoption of so-called helicopter money, as well as a cut to the negative deposit rate, resulted in a lukewarm reception for the expanded stimulus program.

The yen surged as much as 2.4%, the most since the U.K. decision to leave the European Union, even as BOJ Governor Haruhiko Kuroda hinted more easing might still be in the pipeline. “The BOJ had a choice of about five boxes to tick today, but only chose one,” said Sean Callow, a senior FX strategist at Westpac Banking in Sydney. “Buying more ETFs was as widely expected as balloons dropping on Hillary.” [..] In an unexpected development, Kuroda has ordered an assessment of the effectiveness of BOJ policy, to be undertaken at the next meeting, which is scheduled for Sept. 20-21.

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“The BOJ won’t admit it, but it has reached the limits of quantitative easing and negative rates.”

Bank of Japan Blames Brexit As It Unleashes More Monetary Stimulus (G.)

The Bank of Japan has announced a modest expansion of its monetary easing programme, blaming Britain’s decision to leave the European Union as the biggest uncertainty facing world markets. The central bank acknowledged government pressure for more action to drive the yen lower and help Japan’s legion of exporters, but stopped short of upping its bond purchases or cutting interest rates. Instead the bank sanctioned an increase in purchases of exchange-traded funds as it attempted to accelerate inflation towards its 2% target. The moves disappointed the markets, which had expected another big influx of liquidity. The Nikkei stock average yo-yoed wildly in the aftermath of the move before falling nearly 2% in late afternoon trade.

Other stock markets in the region were also down while futures trading indicated the FTSE100 and Dow Jones would open slightly down on Friday morning. The yen rose 2% against the US dollar, which will frustrate government attempts to devalue the stubbornly high currency. [..] Some market experts said the lack of bold action suggested the bank had decided that the effectiveness of its huge monetary easing programme had reached its limits. “The BOJ did not live up to expectations … increasing ETF purchases makes no contribution to achieving 2% inflation,” said Norio Miyagawa, senior economist at Mizuho Securities. “The BOJ won’t admit it, but it has reached the limits of quantitative easing and negative rates.”

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After Abenomics has been running for 3 years, deflation continues unabated.

Japan Sees Weaker Consumer Spending, Manufacturing In June (AP)

Japan reported further signs of weakness in its economy in June, with industrial output and consumer spending falling from the year before. The data released Friday were in line with expectations the central bank may follow the government’s lead in opting for more stimulus at a policy meeting that ends Friday. Core inflation excluding volatile food prices dropped 0.5% from 0.4% in May. The Bank of Japan and government have made scant progress toward a 2% inflation goal set more than three year ago, partly due to the prolonged slump in crude oil prices.

Household spending fell 2.2% from a year earlier, while industrial output slipped 1.9% on an annual basis. Earlier this week Prime Minister Shinzo Abe announced plans to propose 28 trillion yen ($267 billion) in spending initiatives to help support the sagging economic recovery. Household incomes rose 0.3% in June, weak for a month when workers commonly receive bonuses.

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Let’s not pretend there is a way out for Japan.

Japan Should Stop Chasing A Weaker Yen – Steen Jakobsen (CNBC)

Japan has aimed a lot of firepower at keeping its currency weak, but a stronger yen might be just what the long moribund economy really needs, said Saxo Bank’s Chief Investment Officer Steen Jakobsen. “The government of Japan sort of quasi-promises to maintain a weak yen in order to support and buy time for the export companies,” Jakobsen said. “Having a focus only on the export sector takes away from [what] the focus should be: To reform the domestic economy.” Jakobsen’s comments came just as Japan appears set to level a double bazooka of easing at its sluggish economy, firepower that appears aimed, at least in part, at wiping out the recent gains in the newly resurgent yen.

The Bank of Japan was widely expected to announce another monetary easing bomb at the close of its two-day meeting on Friday, with analysts anticipating that the central bank would either cut interest rates deeper into negative territory or expand its asset purchase program or both. At the same time, fresh fiscal stimulus was expected to offer additional cross fire. News agency Jiji reported that Prime Minister Shinzo Abe had revealed a 28 trillion yen ($265 billion) injection, which Reuters estimated at 6% of Japan’s economy.

The double-barreled approach was in line with Abe’s plan to break Japan’s economy out of a decades-long deflationary spiral. That effort, dubbed Abenomics, was introduced in 2013 with a plan for three “arrows:” A first arrow of massive quantitative easing from the BOJ, followed by a second arrow of increased government spending and a third arrow of structural reforms, including immigration and labor changes. But Jakobsen noted that the latest plan for combined BOJ and fiscal easing just replayed the same strategy. “The present situation we’re talking about is just re-launching arrow one and two,” he said. “We’re still missing arrow number three, which is the reform side.”

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It didn’t take long to kill the dream.

US Homeownership Rate Falls to Five-Decade Low (WSJ)

The U.S. homeownership rate fell to the lowest level in more than 50 years in the second quarter of 2016, a reflection of the lingering effects of the housing bust, financial hurdles to buying and shifting demographics across the country. But the bigger picture also suggests more Americans are gaining the confidence to strike out on their own, albeit as renters rather than buyers. The homeownership rate, the proportion of households that are owner-occupied, fell to 62.9%, half a percentage point lower than the second quarter of 2015 and 0.6%age point lower than the first quarter 2016, the Census Bureau said on Thursday. That was the lowest figure since 1965.

There are many ways to interpret the numbers. Part of the story is the catastrophic housing market collapse, which was especially severe for Generation X—those born from 1965 to 1984. Younger households may struggle to save amid student debt, growing rents, rising home prices and limited inventories of starter homes. Indeed, the homeownership rate for 18- to 35-year-olds slipped to 34.1%, the lowest level in records dating to 1994. At 77.9%, the homeownership rate was highest for those 65 years and over.

But the broader picture suggests a degree of economic strength: Renters are spurring a steady increase in overall household formation. Renter-occupied housing units jumped by 967,000 from the same period a year earlier. Overall, household formation has been fairly steady since the early days of the expansion. A rising number of households suggests more people are optimistic enough to strike out on their own and helps further spur growth as they buy furniture, start families and move up the economic ladder. Indeed, moving into a rental unit has been entirely responsible for rising household formation since the recession began.

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“It’s probably going to take a little longer than they expected.” “Demand growth has faltered a bit.”

Oil Glut Proves Harder To Kill Than Saudis To Goldman Predicted (BBG)

The bullish spirit that gripped oil traders as industry giants from Saudi Arabia to Goldman Sachs declared the supply glut over is rapidly ebbing away. Oil is poised for a drop of 20% since early June, meeting the definition of a bear market. While excess crude production is abating, inventories around the world are brimming, especially for gasoline, and a revival in U.S. drilling threatens to swell supplies further. As the output disruptions that cleared some of the surplus earlier this year begin to be resolved, crude could again slump toward $30 a barrel, Morgan Stanley predicts. “The tables are turning on the bulls, who were prematurely constructive on oil prices on the basis the re-balancing of the oil market was a done deal,” said Harry Tchilinguirian at BNP Paribas in London.

“It’s probably going to take a little longer than they expected.” Oil almost doubled in New York between February and June as big names from Goldman and the International Energy Agency to new Saudi Energy Minister Khalid Al-Falih said declining U.S. oil production and disruptions from Nigeria to Canada were finally ending years of oversupply. Prices retreated to a three-month low near $41 a barrel this week amid a growing recognition the surplus will take time to clear. “There’s lots of crude and refined products around,” said David Fransen, Geneva-based head of Vitol SA, the biggest independent oil trader. “Demand growth has faltered a bit.”

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Don’t worry, prices will come down.

Wholesale California Gasoline Prices Plunge, Consumers Still Pay Up (R.)

Wholesale gasoline in California became the cheapest in the country this week, but that change has largely gone unseen at the pump, where consumers are still paying the highest prices in the continental United States to fill up their cars. Ample inventories along with relatively stable refinery operations and imports has driven down the spot value of gasoline in Los Angeles at the wholesale level by more than 60 cents since mid-June. However, that has not translated to similarly lower retail fuel prices for consumers because of peculiarities in California’s market. The declines in the state’s retail gasoline market over that period of time have averaged less than 14 cents, according to data from the U.S. Energy Information Administration.

On Thursday, wholesale California gasoline was trading below $1.20 a gallon. The spread between California’s wholesale and retail gasoline markets was about $1.50 a gallon the week to July 25, about 40 cents wider than a similar spread in the New York market. California is one of the most expensive places in the United States to produce gasoline because of the state’s unique blending requirements and its relative isolation from the rest of the country, which makes securing crude oil to refine pricier. Gasoline prices across the country have plunged as crude has also slumped in the past two years, pressured by a global supply glut. On the West Coast, gasoline stocks are at a five-year seasonal high of 29.6 million barrels, according to the EIA.

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Lots of reports due later today.

In Past 50 Years Earnings Recession This Big Always Triggered Bear Market (F.)

It’s earnings season once again and it looks as if, as a group, corporate America still can’t find the end of its earnings decline since profits peaked over a year ago. What’s more analysts, renowned for their Pollyannish expectations, can’t seem to find it, either. So I thought it might be interesting to look at what the stock market has done in the past during earnings recessions comparable to the current one. And it’s pretty eye-opening. Over the past half-century, we have never seen a decline in earnings of this magnitude without at least a 20% fall in stock prices, a hurdle many use to define a bear market. In other words, buying the new highs in the S&P 500 today means you believe “this time is different.” It could turn out that way but history shows that sort of thinking to be very dangerous to your financial wellbeing.

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Great idea. There should be one in Athens too.

Barcelona Unveils ‘Shame Counter’ That Tracks Refugee Deaths (AFP)

Spain’s seaside city of Barcelona on Thursday unveiled a large digital counter that will track the number of refugees who die in the Mediterranean, next to one of its popular beaches. “We are inaugurating this shame counter which will update all known victims who drowned in the Mediterranean in real time,” said Mayor Ada Colau. The monument consists of a large metal rectangular pillar that comes decked out with a digital counter above the inscription “This isn’t just a number, these are people.”

The counter kicked off with 3,034 — the number of migrants and refugees who have died trying to cross the Mediterranean to Europe in 2016, according to the International Organization for Migration (IOM). “We’re here to look the Mediterranean in the face and look at this number — 3,034 people who drowned because they were not offered a safe passage,” said Colau, as swimmers took advantage of the last rays of sunshine nearby.


Barcelona’s mayor Ada Colau poses in front a digital billboard that shows the number of refugees who died in the Mediterranean sea, named “the shame counter” (AFP Photo/Josep Lago)

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Jun 162016
 
 June 16, 2016  Posted by at 8:10 am Finance Tagged with: , , , , , , ,  


Arthur Rothstein Bank that failed. Kansas 1936

Brexit Is The Only Way The Working Class Can Change Anything (G.)
It’s Time To Call Time On The EU Experiment (Steve Keen)
Osborne’s ‘Punishment Budget’ Is Economic Vandalism (AEP)
JPMorgan CIO: Brexit “Hardly The Stuff Of Economic Calamity” (ZH)
Brexit: Which Banks Will Be Hit Hardest (WSJ)
Yellen Says Forces Holding Down Rates May Be Long Lasting, New Normal (BBG)
Yellen Says Brexit Vote Influenced Fed (BBG)
Bank of Japan Stands Pat Ahead of Brexit Vote (WSJ)
Is The World Turning Its Back On Free Trade? (BBC)
Switzerland Withdraws Longstanding Application To Join EU (RT)
Highrise Harry Whispers The Terrible Truth (MB)
EU Pushes Greece To Set Up New Asylum Committees (EUO)
Could We Set Aside Half The Earth For Nature? (G.)

The essence behind the Leave surge. People dislike Cameron so much they’ll vote for anything he doesn’t want.

Brexit Is The Only Way The Working Class Can Change Anything (G.)

In working-class communities, the EU referendum has become a referendum on almost everything. In the cafes, pubs, and nail bars in east London where I live and where I have been researching London working-class life for three years the talk is seldom about anything else (although football has made a recent appearance). In east London it is about housing, schools and low wages. The women worry for their children and their elderly parents – what happens to them if the rent goes up again? The lack of affordable housing is terrifying. In the mining towns of Nottinghamshire where I am from, the debate again is about Brexit, and even former striking miners are voting leave.

The mining communities are also worried about the lack of secure and paid employment, the loss of the pubs and the grinding poverty that has returned to the north. The talk about immigration is not as prevalent or as high on the list of fears as sections of the media would have us believe. The issues around immigration are always part of the debate, but rarely exclusively. From my research I would argue that the referendum debate within working-class communities is not about immigration, despite the rhetoric. It is about precarity and fear. As a group of east London women told me: “I’m sick of being called a racist because I worry about my own mum and my own child,” and “I don’t begrudge anyone a roof who needs it but we can’t manage either.”

Over the past 30 years there has been a sustained attack on working-class people, their identities, their work and their culture by Westminster politics and the media bubble around it. Consequently they have stopped listening to politicians and to Westminster and they are doing what every politician fears: they are using their own experiences in judging what is working for and against them.

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Think I made it very and abundantly clear in the past that I fully agree with this. Tad surpised to see it come from Steve, given his link to Varoufakis.

It’s Time To Call Time On The EU Experiment (Steve Keen)

The arguments for and against Brexit have focused on the economic costs and benefits for the UK in leaving or remaining within the EU. Though I am an economist, I am taking a more political perspective to this vote by focusing on the utterly undemocratic nature of the key institutions of the EU. The European Parliament is a weak, diversionary figurehead, while the real power resides within the unelected bureaucracy of the EU and the key political appointees of the Europe’s governments—and particularly its Finance Ministers. These effective cabals run roughshod over political democracies when they elect leaders that oppose core EU economic policies, while at the same time these policies are leading to the ruin of southern Europe, and the stagnation of France and Italy.

The EU has been a failed enterprise ever since 1992, when the Maastricht Treaty was approved. As the prescient non-mainstream English economist Wynne Godley realised at the time, the fetish in this Treaty for government surpluses would lead to the collapse of Europe. Godley wrote that “If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation” (Godley, Maastricht and all that, London Review of Books, 1992). Godley’s words, which surely seemed rash and insanely pessimistic at the time, have proven true with time. I therefore think that it’s time to call time on the EU experiment. I’ll be voting for Brexit for this reason.

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A bit surprisingly, Ambrose has turned hard against Brussels and Remain.

Osborne’s ‘Punishment Budget’ Is Economic Vandalism (AEP)

George Osborne is disqualified from serving as Chancellor of the Exchequer for a single week longer. Whatever his past contributions, his threat to push through draconian fiscal tightening in an emergency Brexit budget is economic madness, if not criminal incompetence. Such action would leverage and compound the financial shock of Brexit, and would risk pushing the country into a depression. It violates the known tenets of macro-economics, whether you are Keynesian or not. Alistair Darling, the former Labour Chancellor, has connived in this Gothic drama. He professes to be “much more worried now” than he was even during the white heat of the Lehman crisis and the collapse of the Western banking system in 2008. So he should be. The emergency Budget that he endorses might well bring about disaster.

The policy response is the mirror image of what he himself did – wisely – during his own brief tenure through the Great Recession. We all understand why George Osborne is toying with such pro-cyclical vandalism – or pretending to – for he is acting purely as as partisan for the Remain campaign. He has fatally mixed his roles. No head of the Treasury can behave in this fashion. The emergency Budget would aim to cover a £30bn ‘black hole’ with a mix of tax rises and spending cuts. These “illustration” measures include 2p on income tax and a 5 percentage point rise on inheritance tax, and petrol and alcohol duties. Transport, the police, and local government would be axed by 5pc. There would be cuts in pensions and defence. Spending on the NHS would be “slashed’.

This is a fiscal contraction of 1.7pc of GDP. It would hammer the economy just as it was reeling from the immediate trauma of a Brexit vote and the probable contagion effects across eurozone periphery, already visible in widening bond spreads. It would come amid political chaos, before it was clear what the UK negotiating strategy is, or what the EU might do. It would be the worst possible moment to tighten. The Treasury has already warned that the short-term shock of Brexit would slash output by 3.6pc, or 6pc with 820,000 job losses in its ‘severe’ scenario. The Chancellor now states he will reinforce this with austerity a l’outrance. It is a formula for a self-feeding downward spiral, all too like the scorched-earth policies imposed on southern Europe during the debt crisis.

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“.. the history of the last two centuries can be summed up in two words: democracy matters.”

JPMorgan CIO: Brexit “Hardly The Stuff Of Economic Calamity” (ZH)

First The Telegraph, then The Sun, and today The Spectator all came out on the “Leave” side of the Brexit debate. However, perhaps even more shocking to the establishment is the CIO of a major bank’s asset management arm dismissing the apparent carnage that Cameron, Obama, and Osborne have declared imminent, warning that, “many articles on the Brexit vote overstate its risks and consequences.” As JPM’s Michael Cembalest adds, the reality is “hardly the stuff that economic calamity is made of.” As The Spectator concludes, “the history of the last two centuries can be summed up in two words: democracy matters.” As JPMorgan Asset Management CIO Michael Cembalest explains…

“My sense is that many articles on the Brexit vote overstate its risks and consequences for the UK, and/or overstate the vote’s impact on political movements and economic malaise in the Eurozone that predate it by months and years. Here are some thoughts on issues I have seen raised over the last few weeks. “UK growth will suffer a huge hit”. Of all the analyses I’ve read about a possible Brexit scenario, I found Open Europe’s report to be the most clear-headed and balanced. Their realistic case estimates the cumulative impact of Brexit on UK GDP at just -0.8% to 0.6% by the year 2030; hardly the stuff that economic calamity is made of.

“UK-EU trade will collapse”. Not necessarily. Norway, Iceland and Switzerland have entered into agreements with the EU on trade and labor mobility (European Economic Area, European Free Trade Area). As shown below, these three non-EU countries export as much to the EU as its members do. Such agreements could serve as a template for post-Brexit trade between Britain and the EU, if both sides see it in their mutual self-interest.”

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The City could take a big hit.

Brexit: Which Banks Will Be Hit Hardest (WSJ)

Barclays and HSBC are the banks with the most business in Europe. Barclays got just under 9% of its profits from continental European businesses in 2015. At HSBC, roughly 5.5% of last year’s profits came from continental Europe, where it has a large French retail business. Local businesses could become much more difficult to run from the U.K. if a Brexit vote provokes a big change in the trade arrangements with the rest of Europe. Meanwhile, their large London-based investment banks—and those of other European and U.S. groups—would also face losing direct access to Europe without a new trade deal that preserved Britain’s “passport” for services. In this case, Deutsche Bank, BNP Paribas and Société Générale, for example, would suffer some of the same disruption and relocation costs as Barclays or HSBC.

The other vulnerable group would be U.K. mortgage lenders, such as Lloyds Banking Group, Virgin Money and OneSavings. If international investors react badly to Brexit, pulling capital out of the country, the pound will fall further and the Bank of England may feel compelled to lift interest rates to attract investors back into U.K. government bonds. Some believe benchmark interest rates might only have to go to, say, 2%, to make U.K. assets attractive, but that could upend the housing market, where prices have risen dramatically in the past couple of years, helped by substantial lending to small-time landlords. Ultra-low interest rates have kept debt-service costs minuscule, a situation that could be upended quickly.

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Sounds like she’s giving up.

Yellen Says Forces Holding Down Rates May Be Long Lasting, New Normal (BBG)

Federal Reserve Chair Janet Yellen seems to be coming around to what her one-time rival, Lawrence Summers, has been arguing for a while: Some of the forces holding down interest rates may be long-lasting and secular. That’s reflected in a marked downgrade in rate projections released by policy makers after their meeting on Wednesday. Six of 17 now only see one rise this year, after the central bank lifted rates effectively from zero in December. Officials also slowed the pace of expected moves in both 2017 and 2018: They now only foresee three increases in each of those years, down from the four they expected in March, according to their latest median forecast.

Yellen in the past has ascribed the low level of rates mainly to lingering headwinds from the financial crisis – tight mortgage credit, for instance – and suggested that they would dissipate over time. On Wednesday, though, she also pointed to more permanent forces that could depress rates for longer, namely, slow productivity growth and aging societies, in the U.S. and throughout much of the world. In a press conference after the Fed held policy steady, Yellen spoke of a sense that rates may be depressed by ”factors that are not going to be rapidly disappearing, but will be part of the new normal.”

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She means the Leave vote did. When it looked like Remain would win easily, things were different.

Yellen Says Brexit Vote Influenced Fed (BBG)

Federal Reserve chair Janet Yellen said next week’s referendum in the UK on whether to remain in the EU was a factor in the US central bank’s decision to hold interest rates steady at its meeting Wednesday in Washington. “It is a decision that could have consequences for economic and financial conditions in global financial markets,” Yellen said during a press conference following the meeting. A vote on June 23 by Britons to leave the EU “could have consequences in turn for the US economic outlook,” she said. Fewer Federal Reserve officials now expect the central bank to raise interest rates more than once this year, as policy makers gave a mixed picture of a US economy where growth is picking up and job gains are slowing.

While the median forecast of 17 policy makers remained at two quarter-point hikes this year, the number of officials who see just one move rose to six from one in the previous forecasting round in March, according to projections released by the Federal Open Market Committee on Wednesday following a two-day meeting in Washington. “The central bank reiterated that interest rates are likely to rise at a “gradual” pace, without referring in the statement to the next meeting in July or any other specific timing for another increase.

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“The BOJ might also have found itself short of ammunition to respond to that turbulence.”

Bank of Japan Stands Pat Ahead of Brexit Vote (WSJ)

The Bank of Japan stood pat Thursday despite a surging yen and faltering inflation, opting to wait until after the results of a British referendum next week that could roil global markets. The central bank’s decision comes amid growing skepticism about the effectiveness of Prime Minister Shinzo Abe’s economic program in ending Japan’s long cycle of lackluster growth and sporadic deflation. Abenomics, which has leaned most heavily on the central bank, hasn’t produced sustained, robust growth since it was launched more than three years ago. Japan’s economy has swung between modest expansions and contractions in recent quarters, while the BOJ’s hard-won gains in the battle against falling prices are starting to slip away.

Economists have expected the BOJ to take additional action in recent months, particularly given that BOJ Gov. Haruhiko Kuroda has repeatedly vowed to take action “without hesitation” if the central bank’s 2% inflation target is in danger. The central bank also stood pat in April, when expectations for action were high. Some BOJ policy board members, though, signaled ahead of this week’s meeting that they preferred to wait until after the U.K. votes next week on whether to leave the European Union, according to people familiar with the central bank’s thinking. They were concerned that even if the BOJ acted this week, the market impact of its move would fade if a “Brexit” vote rocked global financial markets, according to people close to the bank. The BOJ might also have found itself short of ammunition to respond to that turbulence.

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Free trade, like all forms of centralization, depends on a growing economy. There is no such thing anymore.

Is The World Turning Its Back On Free Trade? (BBC)

Which politician has captured the curve, summed up a growing mood, in a ferocious speech? “Your iron industry is dead, dead as mutton. Your coal industries, which depend greatly on the iron industries, are languishing. Your silk industry is dead, assassinated by the foreigner. Your woollen industry is in articulo mortis, gasping, struggling. Your cotton industry is seriously sick. Your shipbuilding industry, which held out longest, is come to a standstill.” The Latin, the silk and the mutton are a dead giveaway. Not Trump, but Lord Randolph Churchill in 1884 denouncing Free Trade. The system he preferred – “Fair Trade” – is coming back into fashion.

We have heard a lot about the revolt against the political elites, the backlash by those “left behind” by globalization; a lot about the movements and political personalities this has brought to the fore; a lot about the implications for immigration. But not so much about the economics of it all. It many signal a new rejection of one of the global elite’s most cherished policies – free trade. This is the notion that the fewer economic barriers around the world, and the less countries protect their own goods and trade with special policies, the richer we all end up. The opposite is protectionism – making foreign goods more expensive by putting taxes on their import , tariffs, in order to make home-grown products cheaper by comparison. While few embrace the word protectionism, growing numbers of politicians are openly embracing the principle behind it.

Donald Trump has said he would put a swingeing 45% tax on goods from China and 35% on many from Mexico. Many economists mock this as crazy stuff, but it is a sentiment that goes down well with many Americans. [..] Bernie Sanders has made it very clear he is opposed to NAFTA, the free trade bloc with Mexico and Canada, and the planned Asia Pacific agreement. He has been saying it for a while. This is him in 2011: “Let’s be clear: one of the major reasons that the middle class in America is disappearing, poverty is increasing and the gap between the rich and everyone else is growing wider and wider, is due to our disastrous unfettered free trade policy.”

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“..only “a few lunatics” may want to join the EU now..”

Switzerland Withdraws Longstanding Application To Join EU (RT)

The upper house of the Swiss parliament on Wednesday voted to invalidate its 1992 application to join the European Union, backing an earlier decision by the lower house. The vote comes just a week before Britain decides whether to leave the EU in a referendum Twenty-seven members of the upper house, the Council of States, voted to cancel Switzerland’s longstanding EU application, versus just 13 senators against. Two abstained. In the aftermath of the vote, Switzerland will give formal notice to the EU to consider its application withdrawn, the country’s foreign minister, Didier Burkhalter, was quoted as saying by Neue Zürcher Zeitung. The original motion was introduced by the conservative Swiss People’s Party MP, Lukas Reimann.

It had already received overwhelming support from legislators in the lower house of parliament in March, with 126 National Council deputies voting in favor, and 46 against. Thomas Minder, counsellor for the state of Schaffhausen and an active promoter of the concept of “Swissness,” said he was eager to “close the topic fast and painlessly” as only “a few lunatics” may want to join the EU now, he told the newspaper. Hannes Germann, also representing Schaffhausen, highlighted the symbolic importance of the vote, comparing it to Iceland’s decision to drop its membership bid in 2015. “Iceland had the courage and withdrew the application for membership, so no volcano erupted,” he said, jokingly.

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Australia: “We have nothing else except real estate…”

Highrise Harry Whispers The Terrible Truth (MB)

Highrise Harry’s media foghorns continue his campaign to abolish foreign buyer stamp duties today at the AFR: “Alluding to remarks by Meriton boss Harry Triguboff that he might have to reduce his apartment prices in the wake of the surcharges, Ms Berejiklian said that, given so many people were worried about housing affordability, the NSW government would be “happy to wear that consequence”. Mr Triguboff labelled the new taxes “very dangerous”, coming as they did on top of moves by the banks to tighten up lending to foreign buyers. He also urged caution in light of the decline of the mining sector. “We have nothing else except real estate. We have to be very careful,” Mr Triguboff told the AFR.” True indeed, Highrise. But that’s why policy must shift away from property and towards the repair of everything else.

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Brussels trying to bend Greek sovereign law and legal system.

EU Pushes Greece To Set Up New Asylum Committees (EUO)

The EU wants Greece to quickly set up new appeals committees to better cope with the large number of asylum requests. “New appeals committees under the new law will be set up in the next 10 days, I am confident that procedures will be accelerated soon,” EU migration commissioner Dimitris Avramopoulos [said]. The Greek commissioner said the government in Athens decided on Tuesday to “upgrade and enhance” the appeals committees. “We salute that the Greek government took that initiative,” he said. The aim was “to speed up judicial procedures to assess all the requests and give prompt answers”. The committees are an essential part of an agreement reached in March between Turkey and the EU for sending back migrants.

So far, dealing with appeals regarding asylum requests has been the job of the so-called backlog committees, created in 2010 to deal with the large number of pending asylum cases in Greece. But these committees were not designed to deal with massive influx, as more than 8,000 migrants are still stranded on the Greek islands. EU officials claim it was always the goal of Brussels and Athens to create new committees to take this burden off the backlog committees. A Greek source told EUobserver however that an amendment to the existing law on appeals committees is still being debated in the Greek parliament, and there is no guarantee that the new committees will be set up the next 10 days.

But the issue has become especially important for EU member states after it emerged that the committees had ruled in 55 cases involving Syrians that the claimant could not be returned back to Turkey. In effect ruling that Turkey is not a safe country. Only in two cases did they agree to send those Syrians back to Turkey. According to an EU source, the first decision by the backlog committees that said Turkey is not a safe country created a major upset in Brussels and in other EU capitals, prompting fears that the EU-Turkey deal could unravel. “They are seen as the enemy of the deal,” the source added.

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E.O. Wilson makes a last desperate call.

Could We Set Aside Half The Earth For Nature? (G.)

As of today, the only place in the universe where we are certain life exists is on our little home, the third planet from the sun. But also as of today, species on Earth are winking out at rates likely not seen since the demise of the dinosaurs. If we don’t change our ways, we will witness a mass extinction event that will not only leave our world a far more boring and lonely place, but will undercut the very survival of our species. So, what do we do? E.O. Wilson, one of the world’s most respected biologists, has proposed a radical, wild and challenging idea to our species: set aside half of the planet as nature preserves. “Even in the best scenarios of conventional conservation practice the losses [of biodiversity] should be considered unacceptable by civilised peoples,” Wilson writes in his new book, Half-Earth: Our Planet’s Fight for Life.

One of the world’s most respected biologists, Wilson is known as the father of sociobiology, a specialist in island biogeography, an expert on ant societies and a passionate conservationist. In the book, Wilson argues eloquently for setting aside half of the planet for nature, including both terrestrial and marine ecosystems. He writes that it’s time for the conservation community to set a big goal, instead of aiming for incremental progress. “People understand and prefer goals,” he writes. “They need a victory, not just news that progress is being made. It is human nature to yearn for finality, something achieved by which their anxieties and fears are put to rest…It is further our nature to choose large goals that while difficult are potentially game-changing and universal in benefit. To strive against odds on behalf of all life would be humanity at its most noble.”

The reason why half is the answer, according to Wilson, is located deep in the science of ecology. “The principal cause of extinction is habitat loss. With a decrease of habitat, the sustainable number of species in it drops by (roughly) the fourth root of the habitable area,” Wilson wrote via email, referencing the species-area curve equation that describes how many species are capable of surviving long-term in a particular area. By preserving half of the planet, we would theoretically protect 80% of the world’s species from extinction, according to the species-area curve. If protection efforts, however, focus on the most biodiverse areas (think tropical forests and coral reefs), we could potentially protect more than 80% of species without going beyond the half-Earth goal. In contrast, if we only protect 10% of the Earth, we are set to lose around half of the planet’s species over time. This is the track we are currently on.

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