Jul 102020

Gerry Cranham Protection for the pretty 1963



Imagine you’re standing across the street from a house that’s on the verge of falling apart, a condemned building, an edifice devoured by rot from bottom to top. Now imagine you see a construction crew arriving to repair it, and they start to fix the roof. You would think that’s not much use if the walls, floor and foundation are just one wolf’s huff and puff away from collapse.

Still, that is what the world’s central banks are doing today: they “fix” the top by bailing out banks and allege that somehow that will fix the rest of the edifice too. In that same analogy, while central banks prop up banks, governments try to support the walls, by bailing out businesses. Again, while the floors and foundations keep on rotting away. And when the floors cave in, so of course will the walls, just like the roof.

There may appear to be some logic to all this, but it’s only the “inner logic” of an economic and political ideology that deals exclusively with how things should be, not how they are. Of course it’s nice to have a shiny new roof, and strong walls. But neither have any value if there are no more floors to support them.

This is what is happening today to our economies and societies. The 2008 crisis wasn’t bad enough to expose the failures of the “inner logic” of the system, but the fallout of COVID19 will be. And it’s not the virus that does it all, or the lockdowns, they merely expose a system that’s been rotting for many years without its floors and foundations ever being repaired.

(And yes, you’re right, the central banks are not merely fixing the roof, they’re gold-plating it for good measure).


So you got the Fed team working on the roof and the government team working on the walls, and absolutely nobody working on the floors and foundations. And at some point you’re going to have to ask what these people actually know about building and construction, even about gravity: are they aware that roofs and walls are infinitely more dependent on solid floors than floors are on them?

Actually, I think they are. They just don’t think it’s possible that the floor may fall out from underneath them (i.e. they deny gravity). But that is what is threatening to happen. Not only in the US, but all over the western world. And if there’s one thing you don’t want to happen to your house, or your economy/society, it’s for the bottom to fall out. Because where will you live?

Still, with headlines such as

“More Than Half Of The US Population Is Not Working”,
“50 Million Americans Have Lost Their Job In Past 6 Weeks”,
“42 Million Unemployed, 25.5% Unemployment Rate”,
“52% Of Small Businesses Expect To Be Out Of Business Within Six Months”,
“53% Of Restaurants Closed Amid Coronavirus Have Shuttered Permanently”,
“US Retail Apocalypse: Over 25,000 Stores Could Close By Year End”

and more of the same on the way, we should at least consider the possibility of the bottom falling out, and prepare accordingly.

It’s one thing to want to save the businesses, but if you have huge amounts of people who can’t afford to buy anything from them, businesses will inevitably fail in huge numbers. If the bottom threatens to fall out, you need to focus on saving the floor and foundations, the people, not the businesses. Nothing to do with socialism or anything like that, but with preserving your society as a going concern.


The first thing I didn’t quite get, but then again did, was that all the PPP’s and their equivalents, the various global payment protection programs, were aimed at protecting businesses by guaranteeing wages and salaries of their employees. What an odd idea, I thought. After all, if you want to protect wages, there is no reason to do that through a business, you might as well pay the employee directly.

If you pay the business which must then pay the employee, how would that help or protect that business? By giving off the false impression it can still pay the wages? Of course, if you do pay it through businesses, at least no-one can bring up a theme such as Universal Basic Income, anymore than they can MMT. While you in effect practice both, you can also deny practicing either. Pretty smart, right? Neat!

But turn this around for a moment. Say the governments pay the wages and salaries. These are the biggest cost for many if not most businesses, certainly the small ones, which are, obviously, the most vulnerable to sudden events like a pandemic and lockdown. So as a government, you take that liability, and that risk, away.

It would appear that then you can assess much better how viable such a business really is. Because a business that doesn’t have to pay its biggest cost should be able to survive for a few months, even if there’s no revenue coming in, unless it has deeper problems, like -too much- debt. The advantages for everyone are clear: less paperwork for government and business owner, guaranteed wages for employees, and a better view of a business’s financial situation for everyone.


Not that you should pay employees 100% of their wages, as many countries have. You would only do that if you think the problems will be over soon, but in reality you have no idea if they will be. You need to support the lowest-paid people -because they are the bottom that’s about to fall out- but as you work your way up to higher wages, you start taking off a percentage, rinse and repeat, and end up paying maybe $50,000 to people who made $100,000 (and yes, that goes for government employees too).

Why would you hand someone, anyone over $100,000 for not working? Of course there are people with mortgages and car loans that are so elevated that they need more than $100,000 to keep their families alive, but that is a different story. That does not deal with the bottom falling out. For those cases, you need a separate program. Just like you do for businesses that still can’t survive once all their wages have been taken care of by the government.

Obviously, as Midwest small businessman Bruce Wilds said recently in his guest post here, Small Business Firings to Start, for some businesses showrooms, or inventory, taxes, utilities, can be major liabilities. Again, separate program. Support the bottom, the people, first. Because it’s urgent. Because you risk too many people having too little to survive on. In fact, so many that your businesses come under threat from having no customers left.


As one of its first measures, Greece, when it went into lockdown, lowered rents for businesses by 40%, without as much as a plan for how to compensate landlords. That’s the spirit. But it’s a spirit few will understand, let alone politicians. In the end, the reality is that most landlords and mortgage lenders will get less money. For a long time. You can try to help everyone out with cheap loans to individuals and businesses to pay off their mortgages, but that’s a just another short term plan, and has nothing to do with long time views.

And cheap loans won’t save the bottom from falling out. If you put it like that, people will actually understand: you don’t save a failing economy by pouring in cheap money. Any more than a lick of paint will save a condemned building.

But at the same time, that’s all our political systems manage to come up with. While fervently hoping for, counting on, a miraculous recovery, and planning to make the poor pay by raising taxes when we’re “back to normal”. It’s just that there comes a time when the poor have nothing left to pay with, not even for their food. That’s when the bottom falls out.

To be continued. I have much more to say on this. Like: what to do now?

Look, it’s quite simple really: if you ask yourself, or your friends, or someone on the street, if they think the economy will recover within a “reasonable” timeframe, most will say yes. Conditioned by politicians, by the media, and by their own fear of what will be their fate if it doesn’t. But that is a giant blind spot. If half of businesses and half or restaurants are shut for good where ever it is you live, where would that recovery have to come from? Do ask yourself that question, and try not to be afraid of the answer for a moment.





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Apr 222020

Saul Leiter Man in straw hat 1955




The following was written by Bruce Wilds, who runs the Advancing Time blog. Bruce is a small business owner in the Midwest.

I get lots of articles sent to me, but hardly ever publish any (sorry I can’t send everyone a reply) because they’re not what I think this site should be. But with this article it’s different. I think what Bruce describes is interesting, important even. The US has been losing small businesses for a long time, and the virus response is set to greatly accelerate the process. The huge stimulus plans will bypass most small businesses, because they are too small for governments to know what to do with.

The article was written before the latest round of handouts, but there’s very little reason to believe it will change much of anything. It’s not so much a grand plan or conspiracy, it just that the system has come to recognize only that bigger is better. America doesn’t like small. This is as true for banks as it is for various levels of government. But small businnesses have not only built the country, and are crucial for the faces of Main Streets and small towns, they also employ enormous amounts of Americans.



Bruce Wilds: The Paycheck Protection Program or PPP was funded with $350 billion in the last stimulus bill, this money is now gone. Of the thirty million small businesses in America, only 1.7 million received money from the 2.3 trillion dollar aid package passed to help sustain America during this difficult time. If the government blew through this money and was only was able to help only around 5% of small businesses. it is difficult to think another 250 billion dollars will set things straight. Clearly, because when the government made promises it delayed the wave of firing while companies waited for help.

The government has failed to keep its promise so now we should expect unemployment to soar as reality sets in. One of the largest problems facing small companies is they are often underfunded and have difficulty getting financing at reasonable rates. Banks find larger companies much more profitable. The sector of the economy most damaged by the covid-19 shutdown is small business. When this is over America will find many small businesses have been decimated and are not able to reopen. Others will never recover and be forced to close within months. Since small businesses employ over 54 million people in America and their importance in the economy should not be underestimated.

• Small businesses contribute 44 percent of all sales in the country.
• Small businesses employ 54.4 million people, about 57.3 percent of the private workforce.

Rest assured government employees and bureaucrats will still continue to get paid but small business, the most productive part of the economy has a knife to its throat. As a landlord and small business owner, I can tell you the program was structured in a way that will be of little help to most small businesses. The government slammed expensive legislation through with no idea of the damage they were doing and how it will cause hundreds of thousands of businesses to close their doors forever. Washington has become so attuned to dealing with lobbyists from mega-companies it has lost sight of the fact small is small, and when this comes to business, this means usually under twenty employees, not hundreds.



The government’s answer to keeping people employed was to promise small businesses an easy to get, rapid maximum loan amount of two and a half times a company’s average monthly payroll expense over the past 12 months. This loan would turn into a grant and be forgiven if a company did not fire its employees. Sadly, legislators failed to take into consideration that not all small businesses are labor or payroll intense. Some businesses with large or expensive showrooms are getting hammered by rent, others by inventory, or things like taxes, utilities, or even by having to toss products due to spoilage.

The PPP also failed to address the issue of what these employees are going to do while the company has no customers and business barely trickling. In the past, these employees were expected to pursue activities that earned revenue and garnered profits for the business but with no costumers, this is difficult to do. The PPP also ignored the fact that by keeping these employees on the payroll a generous employer is left open to the harsh mandates laid out in the government’s previous bill. The hastily drawn up 110-page federal covid-19 economic rescue package, which Trump fully supported dealt a hard blow to small business. For a small business this is a disaster, the bill requires;

• Employers with fewer than 500 employees and government employers offer two weeks of paid sick leave through 2020.
• Those same employers must now provide up to 3 months of paid family and medical leave for people forced to quarantine due to the virus or care for family because of the outbreak

As expected, this measure, named “Families First Coronavirus Response Act.” resulted in millions of workers suddenly losing their jobs. Ironically, it was held before the voters as proof lawmakers could work together during a crisis. By framing the poorly crafted pork-packed bill this way promoters positioned themselves to demonize those unwilling to support it. Remember, this bill is was in addition to the $8.3 billion emergency spending bill first approved to curb the spread of covid-19.



As government has grown larger it seems to have become totally oblivious to the fragility of many small businesses and how much it can cost a community when they close. By framing these pork-packed bills as bipartisan their promoters imply they are fair and balanced. This is not true, small business is the big loser and hundreds of thousands will soon have to close. With so many tenants looking at foregoing rent small landlords that don’t have deep pockets also face huge problems. We have our heads in the sand if we think companies that exist on events where people gather will overnight regain their luster. It is not like someone can simply flick a switch and things will return to normal.

Reality undercuts the idea of the “V-shaped recovery” theory and the idea after the economy has come to a dead stop it can quickly reboot and be back at full speed in a few months. The government has presented us with an extension of crony capitalism structured to throw just enough to the masses to silence their outrage but in the coming weeks, we will see it failed. Large businesses with access to cheap capital are the winners and the big losers are the middle-class, small businesses, and social mobility. All those people that want a higher minimum wage can forget that ever happening if we don’t have jobs.

As for just how much small business owners make, according to figures from 2015 from the Small Business Administration the median income for self-employed individuals at an incorporated business was $49,804 and $22,424 for unincorporated firms. According to PayScale’s 2017 data, the average small business owner’s income is $73,000 per year. But, total earnings can range from $30,000 – $182,000 per year. This means it varies greatly depending on where and just how big the business is. However, it is important to remember these people have “skin in the game” and most risk losing everything if their business fails.


It is important to recognize that starting your own business has always been about the opportunity to design and build your own future. It is a symbol of freedom not a guarantee of wealth. Many people choose this path proudly, not to make more money but as a way to express their individuality. For these competent and talented people, a job in government or at a large company often offers more security and benefits but far less freedom. Do not underestimate the value of small business and what it contributes to our society. Companies such as Amazon are the anti-thesis of small business making their workers a cog in a machine and stealing their soul.

Based on the government’s promise to small businesses a great many held off on letting employees go but with each passing day in order to survive they are now in the process of letting hundreds of thousands of employees go. This is a ticking time-bomb. By telling these businesses to close and then through its failure to carry out its promise of helping them the government has created a situation with massive negative economic ramifications. To make matters worse, people going on unemployment look to get almost as much as those that do work. Why will anyone want to work, especially government workers when they can get paid to stay home? This is not about wanting more money for small business, it is about the reality that the firings are just beginning.



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Dec 012019

Arthur Rothstein Family leaving South Dakota drought for Oregon Jul 1936


Fastest-Growing Debt Category In US Not Student Loans Or Credit Cards (CNBC)
Automakers Offer Record Incentives As Trillion Dollar Auto Bubble Bursts (ZH)
The Fed’s Answer to the Ghastly Monster of its Creation (EP)
Germany Closes All Nuclear Plants, Must Bury Waste For 1 Million Years (CNN)
Spanish Judge To Question Assange Over Ecuador Embassy Spying Claims (El Pais)
‘We’re Working For The Dark Side’: Firm Accused Of Spying On Assange (RT)
Tulsi Gabbard: Wake Up And Smell Our $6.4 Trillion Wars (AC)
OPCW Manipulation Of Douma Report Requires Fresh Look At Skripal Case (MoA)
Prince Andrew Meeting With US Authorities Would Be A ‘Catch-22’ (G.)
Will The Epstein Story Ever be Fully Told? (Rice)
Scott Adams Has Some Ideas for a Calmer Internet (Wired)



Here, have some money.

Fastest-Growing Debt Category In US Not Student Loans Or Credit Cards (CNBC)

It’s the fastest-growing debt category in the country, but if you are thinking student loans or credit cards, you’re wrong. Personal loan balances now exceed $300 billion, as of the second quarter of this year, according to Experian, a whopping 11% yearly increase. For good reason, too, as personal loans can help to consolidate credit card debt, or make funds available for major projects, such as a home remodeling effort. For many of us, the allure is hard to ignore, but personal loans do differ in some key ways from other types of credit you might use, such as credit cards. It’s important to understand the key differences before signing on the dotted line.

As compared to credit cards, personal loan interest rates can vary much more dramatically, according to research by ValuePenguin. In fact, some borrowers with excellent credit may qualify for loans with interest rates as low as 5% or 6% with some lenders. On the other hand, borrowers with poor credit may encounter rates higher than the average credit card, sometimes exceeding 30%. This wide range of interest rates make personal loans more affordable for those with better credit, and may make the most sense for borrowers with excellent credit who can pay off the loan in a timely manner. On the other hand, borrowers with poor or fair credit may face interest rates higher than what they’d otherwise qualify for with a credit card.

Read more …

Can we recognize an industry that is dying? Or do we simply refuse?

Automakers Offer Record Incentives As Trillion Dollar Auto Bubble Bursts (ZH)

Early last month, we outlined how automobile sales deteriorated in late summer and prophesized how “this would set the stage for increased incentive spending by carmakers, who will be desperate to clear inventory heading into the end of the year.” It seems that we were right. Automakers are now offering the most discounts on record to entice deadbeat consumers in November, according to a new report from JD Power. The average incentive spending per vehicle is $4,538, an increase of 12% YoY. The previous high for the industry was $4,378 in 4Q17. Inventories for older model-year vehicles have soared in 2H19, forcing automakers to boost incentive spending to clear excess inventory. With the average APR to finance a vehicle around 5.3% for the month, the average transaction price remained above $34,000, down from $179 from last month but up $622 over the year.

As a result of low rates and record-high incentives, consumers spent $40.3 billion on new vehicles in November. This figure is up $2.7 billion from 2018. Thomas King, Senior Vice President of the Data and Analytics Division at JD Power, said, manufacturers will offer even greater incentives through December, and the trend could continue into early 2020. “Incentive spending typically rises by 3-4% in December, which would continue to drive overall spending to unprecedented territory,” King said. King warned: “This [incentive trend] is concerning for the health of the industry when combined with rising sub-prime sales, which are growing at the highest rate since August 2018.”

Read more …

“..the bull market in stocks is not a function of a booming economy. Rather, it’s a function of Fed madness. And its existence becomes ever more perilous with each passing day.”

The Fed’s Answer to the Ghastly Monster of its Creation (EP)

The launch angle of the U.S. stock market over the past decade has been steep and relentless. The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent. New highs continue to be reached practically every day. Over this stretch, many investors have been conditioned to believe the stock market only goes up. That blindly pumping money into an S&P 500 ETF is the key to investment riches. In good time, this conditioning will be recalibrated with a rude awakening. You can count on it. In the interim, the bull market may continue a bit longer…or it may not. But, to be clear, after a 370 percent run-up, buying the S&P 500 represents a speculation on price. A gamble that the launch angle furthers its steep trajectory. Here’s why…

Over the past decade, the U.S. economy, as measured by nominal GDP, has increased about 50%. This plots a GDP launch angle that is underwhelming when compared to the S&P 500. Corporate earnings have fallen far short of share prices. Hence, the bull market in stocks is not a function of a booming economy. Rather, it’s a function of Fed madness. And its existence becomes ever more perilous with each passing day. Central planners at the Fed – like other major central banks – have taken monetary policy to a state of madness. Zero interest rate policy, negative interest rate policy, quantitative easing, operation twist, quantitative tightening, reserve management, repo market intervention, not-QE, mass-asset purchases, and more.

These schemes have fostered massive growth in public and private debt with nothing but lackluster economic growth to show. What’s more, these schemes have produced massive asset bubbles that have skyrocketed wealth inequality and inflamed countless variants of new populism. Yet the clever fellows at the Fed are blind to the fact that they’re most responsible for fabricating this monster. And now they want to rectify the ghastly deformities of their creation… Earlier this week, for example, Minneapolis Fed President Neel Kashkari remarked that: “Monetary policy can play the kind of redistributing role once thought to be the preserve of elected officials.”

How exactly Mickey Mousing with credit markets could attain this objective is unclear. But, like yield curve control (YCC), Kashkari wants to give it a go. These sorts of amorphous meddling operations is how he answers his higher calling. You see, Kashkari’s a man with crazy eyes. But he’s also a man with even crazier ideas. He’s an extreme economic interventionist – and a crackpot. Though he wears his burdens on his sleeve. If you recall, as federal bailout chief, Kashkari functioned as the highly visible hand of the market. When the sky was falling in early-2009, he awoke each morning, put on his pants one leg at a time, drank his coffee, and rapidly funneled Treasury Secretary Hank Paulson’s $700 billion of TARP funds to the government’s preferred financial institutions.

Read more …

No human being can guarantee anything for a million years. It’s a mad mad claim.

Germany Closes All Nuclear Plants, Must Bury Waste For 1 Million Years (CNN)

When it comes to the big questions plaguing the world’s scientists, they don’t get much larger than this. Where do you safely bury more than 28,000 cubic meters – roughly six Big Ben clock towers – of deadly radioactive waste for the next million years? This is the “wicked problem” facing Germany as it closes all of its nuclear power plants in the coming years, according to Professor Miranda Schreurs, part of the team searching for a storage site. Experts are now hunting for somewhere to bury almost 2,000 containers of high-level radioactive waste. The site must be beyond rock-solid, with no groundwater or earthquakes that could cause a leakage. The technological challenges – of transporting the lethal waste, finding a material to encase it, and even communicating its existence to future humans – are huge.

Germany decided to phase out all its nuclear power plants in the wake of the Fukushima disaster in 2011, amid increasing safety concerns. The seven power stations still in operation today are due to close by 2022. With their closure comes a new challenge — finding a permanent nuclear graveyard by the government’s 2031 deadline. Germany’s Ministry for Economic Affairs and Energy says it aims to find a final repository for highly radioactive waste “which offers the best possible safety and security for a period of a million years.” The country was a “blank map” of potential sites, it added.

Read more …

Took 3 months. Normally, a matter of days.

Spanish Judge To Question Assange Over Ecuador Embassy Spying Claims (El Pais)

The British justice system has finally agreed to let a Spanish judge question WikiLeaks founder Julian Assange as a witness in a case involving allegations that a Spanish security firm spied on him while he was living in the Ecuadorian embassy in London. Judge José de la Mata of Spain’s High Court, the Audiencia Nacional, will interview the cyber-activist via video link on December 20, said judicial sources. Assange will be transferred from Belmarsh prison in southeast London to Westminster Magistrates Court to answer questions from De la Mata, who is investigating alleged violations of client-attorney privilege between the cyber-activist and his lawyers, and allegations that these conversations were passed on to the CIA.

British civil servants visited Assange in prison last week, asked him whether he agreed to be questioned by De la Mata, and delivered a document listing the events under investigation by the judge, who had issued a European Investigation Order (EIO) in September requesting assistance from British authorities. It has not been easy to secure the UK’s permission to question the Australian cyber-activist. The Spanish judge sent London the EIO on September 25, requesting authorization to interview Assange as part of an investigation into Morales and his company for breach of privacy, violation of client-attorney privilege and illegal arms possession.

Read more …

Has the guy been arrested yet?

‘We’re Working For The Dark Side’: Firm Accused Of Spying On Assange (RT)

A private security firm that allegedly spied on Julian Assange in the Ecuadorian Embassy in London bragged about its nefarious activities and ties to US intelligence, according to German public broadcaster NDR. The troubling revelations are part of a criminal complaint filed by NDR against Undercover Global, a Spanish security company contracted by the Ecuadorian government to film and review guests at their embassy in London. The firm is accused of using the commission to carry out a vast spying operation targeting the WikiLeaks co-founder, who sought political asylum in the embassy for seven years before his hosts handed him over to British authorities. The German broadcaster claims to have a huge cache of documents detailing the illegal surveillance operation – which also targeted NDR journalists who visited Assange.

Former employees of Undercover Global said that the company’s CEO, David Morales, didn’t try to hide his ties to the US government. Upon returning from a trip to the United States, Morales allegedly told one of his employees: “From now on, we play in the first league… We are now working for the dark side.” He is said to have traveled up to twice a month to the States to deliver materials taken from the Ecuadorian Embassy. When asked by colleagues who his “American friends” were, Morales reportedly replied: “the US Secret Service.” Incredibly, a lawyer from Undercover Global acknowledged to NDR that the company works with US intelligence agencies – but denied any wrongdoing at the Ecuadorian Embassy.

Read more …

“..our wars have killed 801,000 directly and resulted in a multiple of that number dead indirectly..”

Tulsi Gabbard: Wake Up And Smell Our $6.4 Trillion Wars (AC)

The Democratic establishment is increasingly irritated. Representative Tulsi Gabbard, long-shot candidate for president, is attacking her own party for promoting the “deeply destructive” policy of “regime change wars.” Gabbard has even called Hillary Clinton “the queen of warmongers, embodiment of corruption, and personification of the rot that has sickened the Democratic Party.” [..] Gabbard recognizes that George W. Bush is not the only simpleton warmonger who’s plunged the nation into conflict, causing enormous harm. In the last Democratic presidential debate, she explained that the issue was “personal to me” since she’d “served in a medical unit where every single day, I saw the terribly high, human costs of war.”

Compare her perspective to that of the ivory tower warriors of Right and Left, ever ready to send others off to fight not so grand crusades. The best estimate of the costs of the post-9/11 wars comes from the Watson Institute for International and Public Affairs at Brown University. The Institute says that $6.4 trillion will be spent through 2020. They estimate that our wars have killed 801,000 directly and resulted in a multiple of that number dead indirectly. More than 335,000 civilians have died—and that’s an extremely conservative guess. Some 21 million people have been forced from their homes. Yet the terrorism risk has only grown, with the U.S. military involved in counter-terrorism in 80 nations. Obviously, without American involvement there would still be conflicts.

Some counter-terrorism activities would be necessary even if the U.S. was not constantly swatting geopolitical wasps’ nests. Nevertheless, it was Washington that started or joined these unnecessary wars (e.g., Iraq, Libya, Syria, and Yemen) and expanded necessary wars well beyond their legitimate purposes (Afghanistan). As a result, American policymakers bear responsibility for much of the carnage. The Department of Defense is responsible for close to half of the estimated expenditures. About $1.4 trillion goes to care for veterans. Homeland security and interest on security expenditures take roughly $1 trillion each. And $131 million goes to the State Department and the U.S. Agency for International Development, which have overspent on projects that have delivered little.

More than 7,000 American military personnel and nearly 8,000 American contractors have died. About 1,500 Western allied troops and 11,000 Syrians fighting ISIS have been killed. The Watson Institute figures that as many as 336,000 civilians have died, but that uses the very conservative numbers provided by the Iraq Body Count. The IBC counts 207,000 documented civilian deaths but admits that doubling the estimate would probably yield a more accurate figure. Two other respected surveys put the number of deaths in Iraq alone at nearly 700,000 and more than a million, though those figures have been contested. More than a thousand aid workers and journalists have died, as well as up to 260,000 opposition fighters. Iraq is the costliest conflict overall, with as many as 308,000 dead (or 515,000 from doubling the IBC count). Syria cost 180,000 lives, Afghanistan 157,000, Yemen 90,000, and Pakistan 66,000.

Read more …

“..a psycho agent 25 times stronger than LSD..”

OPCW Manipulation Of Douma Report Requires Fresh Look At Skripal Case (MoA)

The OPCW had send blood samples from the Skripals to the Spiez laboratory in Switzerland which found BZ, a psycho agent 25 times stronger than LSD. The OPCW hid this fact in its reports. An attack with BZ on the Skripals would be consistent with the observed symptoms that bystanders had described. The Skripals were indeed hallucinating and behaved very strangly with Sergei Skipal lifting his arms up to the sky while sitting on a bench. Exposure to BZ would also explain the Skripals’ survival. The OPCW explained the BZ find by claiming that it had mixed BZ into the probe to test the laboratory. Something which it said it regularly does. At that time I still believed in the OPCW and found that explanation reasonable:

“The OPCW responded to Russian question about the BZ and high rate of A-234 in the Spiez Laboratory probe and report. OPCW said today that it was a control probe to test the laboratory. Such probes are regularly slipped under the real probes to make sure that the laboratories the OPCW uses are able to do their job and do not manipulate their results. That explanation is reasonable. I guess we can close the BZ theories and go back to food poisoning as the most likely cause of the Skripals’ illness.” In light of the OPCW management manipulation or suppression of the reports of its own specialists for the purpose of attributing the Douma incident to the Syrian government I have to change my opinion. I hereby retract my earlier acceptance of the OPCW’s explanation in the Skripal case.

As we now know that the OPCW management manipulates reports at will we can no longer accept the ‘control probe’ excuse without further explanations or evidence. Here is what seems to have happened. The OPCW did not send a control sample to Spiez to test the laboratory. It sent the original samples from the Skripals. Spiez found BZ and reported that back to the OPCW. The OPCW suppressed the Spiez results in its own reports. Somehow Russia got wind of the Spiez results and exposed the manipulation. Acceptance that the Skripals had been ‘buzzed’, not ‘novi-shocked’ is central to the Skripal case. It makes the whole Skripal case as a British operation to prevent the repatriation of Sergei Skripal to Russia much more plausible.

Read more …

They can’t even serve him with a subpoena because his staff would shield him. Time for the Queen to do the right thing. Or abdicate.

Prince Andrew Meeting With US Authorities Would Be A ‘Catch-22’ (G.)

Prince Andrew is not charged with wrongdoing but with the BBC airing an interview with Giuffre on 2 December the controversy is only likely to ramp up. [..] If Prince Andrew were lawfully served with a subpoena – be it for a grand jury, or a trial or deposition – generally speaking, he will need to comply. However, it is far more difficult to serve him outside the US. “Due to the heightened measures of security that surround the royal family, it certainly is far more difficult to walk up to a member of the royal family and serve them a subpoena as you would a private citizen,” Weinstein said. While there are rules about how to serve subpoenas on a foreign national on US soil, such as surprising them at points of entry, diplomatic immunity and his being a high-profile royal could further complicate the issue.

Rebecca Roiphe, a New York Law School professor and former assistant district attorney in Manhattan, said there could be legal risks in Prince Andrew cooperating depending on his potential involvement with Epstein’s activities. “If he was peripherally involved in that, if he has information about others, I would say absolutely any attorney would take him in to cooperate,” Roiphe said. “The problem is, if he faces serious exposure and he’s a target of that information, most attorneys would not have him explain everything he knows – it really depends.” Mary Ellen O’Toole, who was formerly an FBI profiler deeply involved in finding the Unabomber killer, said that if Prince Andrew could provide information that would further the investigation and clear him at the same time, it “probably would be very helpful to him” to come forward.

O’Toole said the utility in cooperating with authorities largely depends on how he would handle the situation and that the pitfalls of such an interview were real as being untruthful with authorities can flout laws against making false statements, leading to further legal problems stemming from the interviews themselves. “I think it would be considered an adversarial situation – I don’t know how prepared he would be,” said O’Toole, who now directs the forensic science department at George Mason University in Virginia. “Sometimes people come in and say things that get them jammed up. “It is a catch-22 situation for him,” O’Toole said.

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Hell no.

Will The Epstein Story Ever be Fully Told? (Rice)

Every person named in court documents or press reports as allegedly or possibly having sex with an underaged girl or young woman at Epstein’s bequest has denied the allegations. Which begs the question: Who’s telling the truth and who’s lying? To form an opinion on this central question, authorities would presumably need to interview anyone with possible knowledge of alleged sexual or criminal acts. Investigators could then seek information that either corroborates or impeaches each person’s account. However, evidence is growing that the protocol in a typical “he-said, she-said” investigation is not being followed in the Epstein case. Instead, authorities may have simply accepted as truth the statements of denial issued by powerful public figures.

True or not, many Americans believe the Department of “Justice” will not prosecute (perhaps even question) scores of individuals who may have broken U.S. laws and who may have been victims of a disturbing blackmail operation. Perhaps authorities have concluded it’s better to not know. Perhaps they realize if they interview one suspected “John,” they’ll have to interview every potential “John.” if this number ends up being massive, and includes a Who’s Who of our society, important illusions about society’s leaders and our system of justice could be shattered. At its core, the Epstein case will reveal whether government prosecutors and investigators possess the courage and integrity to expose sordid truths about some of the wealthiest, most-connected, powerful people in the world, and perhaps reveal embarrassing truths about our government.

Americans might soon learn what objective is more important to Justice Department officials: Protecting the rich and powerful from the consequences of their behavior, or confirming that a system of justice grounded in trust can still be trusted. Sadly, many Americans are convinced authorities will not do the right thing. However, in proving skeptics wrong, authorities would accomplish at least four objectives, all noble. They would punish the guilty. They would provide justice to victims too long ignored. They would deter future Epsteins and future “Johns,” especially those unaccustomed to being held accountable for their actions. And, perhaps most importantly, they would allow a ray of sunshine to pierce the shadow of cynicism that’s spread across our country.

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“..the “48-hour rule,” states that everyone should be given a grace period of a couple of days to retract any controversial statement they’ve made..”

“..the “20-year rule,” which states that everyone should be automatically forgiven for any mistakes they made more than two decades ago—with the exception of certain serious crimes..”

Scott Adams Has Some Ideas for a Calmer Internet (Wired)

After expressing support for Donald Trump in 2016, Dilbert creator Scott Adams estimates that he lost about 30 percent of his income and 75 percent of his friends. He says that that level of political polarization has created a climate of genuine fear. “People will come up, and they’ll usually whisper—or they’ll lower their voice, because they don’t want to be heard—and they’ll say, ‘I really like what you’re doing on your Periscope, and the stuff you’re saying about Trump,’” Adams says in Episode 389 of the Geek’s Guide to the Galaxy podcast. “They’re actually afraid to say it out loud. They literally whisper it to me in public places.” Adams blames the current climate on social media and a clickbait business model that rewards sensationalism over fact-based reporting.

Since the technology is here to stay, he says we’re going to need new societal norms to help foster a calmer, more constructive political discourse. “When society changes, every now and then you need a new rule of manners,” he says. “So for example, when cell phones were invented, you needed a new set of rules about where can you use them and can you do it in a restaurant, etc. And social media has gotten so hot, I thought maybe we need a few new rules.” He lays out two such rules in his new book, Loserthink. His first proposal, which he calls the “48-hour rule,” states that everyone should be given a grace period of a couple of days to retract any controversial statement they’ve made, no questions asked. “We live in a better world if we accept people’s clarifications and we accept their apologies, no matter whether we think—internally—it’s insincere,” he says.

His other idea is the “20-year rule,” which states that everyone should be automatically forgiven for any mistakes they made more than two decades ago—with the exception of certain serious crimes. It used to be the case that people’s thoughtless remarks and embarrassing gaffes would naturally fade into obscurity, but social media has created a situation where it’s easy to endlessly dredge up a person’s worst moments. “We’re not the same people that we were 20 years ago,” Adams says. “We’ve learned a bunch, our context has changed. If you’re doing all the right stuff, you’re getting smarter and kinder and wiser as you’re getting older. So being blamed for something you did 20 years ago is effectively being blamed for something a stranger did, because you’re just not that person anymore.”

Read more …




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Apr 092018

Keith Haring Retrospect 1989


Longtime and dear friend of the Automatic Earth, professor Steve Keen, wrote an article recently that everyone should read (that goes for everything Steve writes). It’s hard to select highlights, but I’ll give it a try. Steve explains where our housing markets went off the rails, what (short-sighted) interests politicians have in subverting them, and, something rarely addressed, why housing markets are unlike any other markets (the turnover of existing properties is financed with newly created money)

He then suggests some measures that might counter this subversion, with a twang of It’s a Wonderful Life nostalgia thrown in. That nostalgia, which will be seen by many as outdated and a grave mistake in these ‘modern times’, instead makes a lot of sense. We might even say it’s the only way to get back on our feet. It resides in the idea that money-circulating building societies, rather than money-creating banks should be in charge of the housing market.

Because it’s not supply and demand that rule the market today, it’s available debt (credit). And banks can, and will, always create more debt at the stroke of a keyboard. That is, until they can’t, and then house prices must and will of necessity fall off a cliff. In Steve’s words: “..mortgage credit causes house prices to rise, leading to yet more credit being taken on until, as in 2008, the process breaks down. And it has to break down, because the only way to sustain it is for debt to continue rising faster than income.

Still, it left me with a big question. But I’ll ask that at the end; here’s Steve first.


The Housing Crisis – There’s Nothing We Can Do… Or Is There?

[..] the UK data is remarkable, even in the context of a worldwide trend to higher levels of leverage. Between 1880 and 1980, private debt in the UK fluctuated as a percentage of GDP, but it never once reached 75% of GDP. But in 1982, both household and corporate debt took off. In 1982, total private debt was equivalent to 61% of GDP, split equally between households and corporations. 25 years later, as the global financial crisis unfolded, private debt was three times larger at 197% of GDP, again split 50:50 between households and corporations.

The key changes to legislation that occurred in 1982 is the UK let banks muscle into the mortgage market that was previously dominated by building societies. This was sold in terms of improving competition in the mortgage market, to the benefit of house buyers: allegedly, mortgage costs would fall. But its most profound impact was something much more insidious: it enabled the creation of credit money to fuel rising house prices, setting off a feedback loop that only ended in 2008.

Building societies don’t create money when they lend, because they lend from a bank account that stores the accumulated savings of their members. There’s no change in bank deposits, which are by far the largest component of the money supply.

However, banks do create money when they lend, because a bank records a loan as their asset when they make an identical entry in the borrower’s account, which enables the property to be bought. This dramatically inflates the price of housing, since, as the politicians themselves acknowledge – housing supply is inflexible, so prices increase far more than supply.

The supply side of the housing market has two main factors: the turnover of the existing stock of housing, and the net change in the number of houses (thanks to demolition of old properties and construction of new ones). The turnover of existing properties is far larger than the construction rate of new ones, and this alone makes housing different to your ordinary market. The demand side of the housing market has one main factor: new mortgages created by the banks.

Monetary demand for housing is therefore predominantly mortgage credit: the annual increase in mortgage debt. This also makes housing very different to ordinary markets, where most demand comes from the turnover of existing money, rather than from newly created money.

We can convert the credit-financed monetary demand for housing into a physical demand for new houses per year by dividing by the price level. This gives us a relationship between the level of mortgage credit and the level of house prices. There is therefore a relationship between the change in mortgage credit and the change in house prices. This relationship is ignored in mainstream politics and mainstream economics. But it is the major determinant of house prices: house prices rise when mortgage credit rises, and they fall when mortgage credit falls. This relationship is obvious even for the UK, where mortgage debt data isn’t systematically collected, and I am therefore forced to use data on total household debt (including credit cards, car loans etc.).

Even then, the correlation is obvious (for the technically minded, the correlation coefficient is 0.6). The US does publish data on mortgage debt, and there the correlation is an even stronger 0.78—and standard econometric tests establish that the causal process runs from mortgage debt to house prices, and not vice versa (the downturn in house prices began earlier in the USA, and was an obvious pre-cursor to the crisis there).

None of this would have happened – at least not in the UK – had mortgage lending remained the province of money-circulating building societies, rather than letting money-creating banks into the market. It’s too late to unscramble that omelette, but there are still things that politicians could do make it less toxic for the public.

The toxicity arises from the fact that the mortgage credit causes house prices to rise, leading to yet more credit being taken on until, as in 2008, the process breaks down.

And it has to break down, because the only way to sustain it is for debt to continue rising faster than income. Once that stops happening, demand evaporates, house prices collapse, and they take the economy down with them. That is no way to run an economy.

Yet far from learning this lesson, politicians continue to allow lending practices that facilitate this toxic feedback between leverage and house prices. A decade after the UK (and the USA, and Spain, and Ireland) suffered property crashes – and economic crises because of them – it takes just a millisecond of Internet searching to find lenders who will provide 100% mortgage finance based on the price of the property.

This should not be allowed. Instead, the maximum that lenders can provide should be limited to some multiple of a property’s actual or imputed rental income, so that the income-earning potential of a property is the basis of the lending allowed against it.


Two smaller points first: Steve doesn’t mention the role of ultra-low rates. Which is a huge factor leading the process. Second, he says his proposals will “..transition us from a world in which we treat housing as a speculative asset rather than what it really is, a long-lived consumption good”. I wonder if perhaps we should take this a step further.

We don’t see land as a consumption good either, or water sources. They are assets that belong to a given community. Or should. So shouldn’t buildings be too? A building society (or some local equivalent, It’s a Wonderful Life style) in a community can’t, won’t lend out money to build homes that serve the interests of the owner, but hamper those of the community. But now I sound even more commie than Steve for many, I know.


On to my main point: if you return mortgage lending to money-circulating building societies, rather than money-creating banks, who’s going to create the money? Don’t let’s forget that a huge part of our present money supply comes from those banks, and much of that from the mortgage loans they issue. Steve may well have thought about this (was he afraid to ask?), and I’d be curious to see his views.

Inflation/deflation is a function of money supply x money velocity (MxV). There are multiple ways to define this, and discuss it, but in the end this remains valid.

This is what the US money supply (stock) has done over the past 30-odd years



And here is the Case/Shiller home price index for the US over roughly that period. The correlation is painfully clear. Except maybe for that drop in 2008, but the Fed caught that one. Can’t let the money supply fall off a cliff.



And why can’t we afford to let the money supply fall off a cliff? Because money velocity already has:



How dramatic that fall has been is perhaps even clearer on a shorter time-frame.



We can say that MV = GDP, or we can make it a bit more complex with MV=PT, where P is prices and T is transactions (or national output), and people can say that this is just one of many ways to define inflation, but when you have a drop in velocity as steep as that one, and you combine it with the rise in money supply we saw, the danger should be obvious.

We have made our economies fully dependent on banks creating loans out of thin air. Which is a ridiculous model, and as Steve says: “That is no way to run an economy”, but we still have. And if and when home prices start to fall, and fewer people buy homes, the money supply will first stop rising, and then start falling, and we will have the mother of all deflations.

If you take the MV = GDP formulation, GDP will go down right with the money supply, unless velocity (V) soars. Which it can’t, because people are maxed out on those mortgages. They can’t spend. If you go with MV=PT, then if money supply falls, so will prices. Unless transactions (output) is demolished, but that will just kill off velocity even more. Why many people see inflation in our future is hard to gauge.


We could, presumably, get our central banks to pump ginormous amounts of money into our societies, but where are they going to put it? Not into our banks(!), which wouldn’t create all those loans anymore, as It’s a Wonderful Life takes over that role, taking the banks and their present role down with it.

Because it’s starting to get obvious that the present ‘system’ is set to go down big time, since as Steve put it:the only way to sustain it is for debt to continue rising faster than income, and we all know where that goes, we can advocate a version of controlled demolition, but who would lead that?

The banks are the most powerful party at the table right now, and controlled demolition of what we have today, as sensible as it may be for society at large, is not for them. Which makes this not only a financial problem, but a political one too: where does power reside. Down the line, it doesn’t even seem to matter much who gives out the loans, there will be very few takers.

Let’s just say we’re open to suggestions. But they better be good.



Nov 222015
 November 22, 2015  Posted by at 10:38 am Finance Tagged with: , , , , , , , ,  2 Responses »

Marjory Collins “Italian girls watching US Army parade on Mott Street, New York” 1942

Will $4.6 Trillion Leveraged Loan Market Cause Next Financial Crisis? (Cohan)
Asia-Europe Container Freight Rates Drop 70% in 3 Weeks (Reuters)
Nightmare of Mario Draghi’s Crowded Trade (FT)
The Long, Cold Winter Ahead (Tenebrarum)
Oil Companies Brace For Big Wave Of Debt Defaults (CNBC)
Eurozone Agrees Greece Can Get Next Loan Tranche, Cash For Bank Recap (Reuters)
Half Of UK Care Homes To Close If £2.9 Billion Gap Is Not Plugged (Guardian)
Report Urges UK Government To Act Now To Avoid Energy Crisis (EAEM)
How Did a UK Power Plant Get 25 Times the Market Price? (Bloomberg)
State Of Emergency In Crimea After Electricity Pylons ‘Blown Up’ (Reuters)
Brazil Dam Toxic Mud Reaches Atlantic Ocean (BBC)
Deforestation Threatens Majority of Amazon Tree Species (PSMag)
Saudi Arabia, an ISIS That Has Made It (NY Times)
The Saudi Connection to Terror (Daniel Lazare)
Terrorism Links Trigger Greater Scrutiny For Greece (Kath.)
Chaos In Greek Islands Over Three-Tier Refugee Registration System (Guardian)

One of many factors that could be the trigger.

Will $4.6 Trillion Leveraged Loan Market Cause Next Financial Crisis? (Cohan)

Financial crises take about a decade to be born. Having lived through four of them, I see the raw materials for a fifth one — flowing from the collapse of so-called leveraged loans — debt piled on top of companies with weak credit ratings. Before examining the latest news on leveraged loans, let’s take a quick tour down the memory lane of financial crises I’ve lived through. My first one was in 1982 — that’s when banks lent too much money to oil and gas developers in Oklahoma and Texas as well as local real estate developers. At the suggestion of McKinsey, money-center banks like Chemical Bank thought it would be a great idea to buy a piece of those loans. It’s all described nicely in a wonderful book — Belly Up. Too bad the price of oil and gas tumbled, leaving lenders in the lurch and causing a spike in bank failures that gave me the chance to spend a balmy summer in Washington helping the FDIC develop a system to manage the liquidation of those failed banks.

By 1989, it was time for another banking crisis — this one was pinned to too much lending to commercial real estate developers in New England and junk-bond-backed loans for what used to be known as leveraged buyouts. The government shut down Bank of New England and was threatening my employer, Bank of Boston, with the same. I worked on a government-mandated strategic plan intended to save the bank from a similar fate. Next up — the dot-com bust — which introduced me to the idea that not all bubbles are bad if you can get in when they’re forming and exit before they burst. I invested in six dot-coms and had a mixed record — the three winners offset the three wipe outs.

Finally, there is the latest and greatest — the so-called Great Recession of 2008. I am now getting to the end of Ben Bernanke’s The Courage To Act. It brings back all the memories — from my first story on subprime mortgages back in December 2006 in which I recommended selling short shares of subprime lender, NovaStar Financial when they traded at $106 apiece. (NovaStar changed its name to Novation in 2012 and you can pick up a share for 17 cents.) The key causes of the crisis that Bernanke describes as the worst in history were weak subprime regulation, liar loans, global securitization, too little capital, limited transparency, skewed banker and ratings agency incentives, and lame risk management. What does this little financial crisis tour have to do with leveraged loans? I have often cited the Mark Twain’s expression that history does not repeat itself, but sometimes it rhymes.

I think leveraged loans rhyme with junk bonds and subprime mortgages. Banks make leveraged loans “to companies that have junk credit ratings in the hope of quickly selling the debt to investors, including mutual funds, hedge funds and entities called collateralized loan obligations,” according to the New York Times. Why the rhyme? As in the late 1980s, leveraged loans are made to companies with bad credit ratings; like subprime mortgages they are being packaged into securities that supposedly give investors a diversified portfolio; and like the early 1980s crisis, there is excess debt on the books of energy and mining companies.

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World trade comes to a crawl.

Asia-Europe Container Freight Rates Drop 70% in 3 Weeks (Reuters)

Shipping freight rates for transporting containers from ports in Asia to Northern Europe plunged by 27.9% to $295 per 20-foot container (TEU) in the week ending on Friday, one source with access to data from the Shanghai Containerized Freight Index told Reuters. The drop came after spot freight rates on the world’s busiest route dropped 39.3% last week, and the current rates are widely seen as loss-making levels for container shipping companies. The spot freight rates for transporting containers, carrying anything from flat-screen TVs to sportswear from Asia to Northern Europe, has fallen 70% in three weeks.

In the week to Friday, container freight rates fell 22.5% from Asia to ports in the Mediterranean, dropped 8.6% to ports on the U.S. West Coast and were down 8.0% to ports on the U.S. East Coast. Maersk Line, the global market leader with more than 600 container vessels and part of Danish oil and shipping group A.P. Moller-Maersk, earlier in November reported a 61% drop in net profit in the third quarter. The Danish shipping company controls around one fifth of all transported containers from Asia to Europe.

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He leaves nothing for others to buy.

Nightmare of Mario Draghi’s Crowded Trade (FT)

Investors are putting too much faith in Mario Draghi. The ECB president is largely responsible for one of the most overcrowded trades in markets — and there is a risk it could all go horribly wrong. In the past month, every investor I have spoken to has told me they are overweight European equities, citing the quantitative easing policy of Mr Draghi and the ECB as one of the main reasons. But is Mr Draghi creating a potential nightmare scenario for investors? The European equity trade makes sense for a variety of reasons. The eurozone economy is recovering, albeit sluggishly, earnings are growing, valuations are relatively attractive and, most important of all, the ECB is buying billions of euros of bonds to underpin the market.

Indeed, European equities have rallied sharply since the start of September when Mr Draghi first hinted he was prepared to launch a second round of QE, expected in December. Investors reason that it is unwise to fight a central bank. It makes sense to be fully invested in risk assets such as equities when a central bank is actively easing, as looser monetary policy encourages corporations to borrow at cheap rates. This is certainly true. Euro-denominated investment grade corporate debt issuance has surged to a record high so far this year. This corporate borrowing often translates into higher profits as the money is invested for growth, which in turn boosts the share price. With the US Federal Reserve expected to diverge from the ECB and tighten policy next month, it makes European stocks even more appealing, particularly given that US valuations are stretched.

With the ECB easing and the Fed tightening, the euro is likely to remain weak. A cheaper euro should lift demand for exports. This is helpful to Germany, the region’s biggest economy, which relies on exports for growth. However, when a trade becomes this crowded, there are risks. Upside is limited because the good news is largely priced in. More significantly, if the market reverses, it can be difficult to exit as everyone wants to sell at the same time. Investors only have to look back to the summer for a reminder of the dangers. Worries about the Chinese economy wiped out all the equity gains from Mr Draghi’s first round of QE, which was launched in March, in a matter of days. European equities plunged about 10% in August.

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“..somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy’s narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation.”

The Long, Cold Winter Ahead (Tenebrarum)

Cold winds of deflation gust across the autumn economic landscape. Global trade languishes and commodities rust away like abandoned scrap metal with a visible dusting of frost. The economic optimism that embellished markets heading into 2015 have cooled as the year moves through its final stretch. If you recall, the popular storyline since late last year has been that the U.S. economy is moderately improving while the world’s other major economies – Japan, China, and Europe – are rolling over. The U.S. economy would power through. Moreover, stock prices had achieved a permanently high plateau. But somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy’s narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation.

Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with. Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits. Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it. The U.S. economy is not immune to the global disorder after all. More evidence is revealed each week that the unexpected is happening. Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, let’s turn to Dr. Copper…

Dr. Copper – the metal with a PhD in economics – is always the first to know which way the economy will go. Copper’s broad use in industry and many different sectors of the economy, ranging from infrastructure to housing and consumer electronics, makes it a good early indicator of economic activity. When copper prices rise, economic activity soon increases. When copper prices fall the economy often then stagnates. Thus, here’s the latest from Dr. Copper and his industrial metals cohorts… As Bloomberg reported earlier this week: “Copper plunged to the lowest intraday price since May 2009 on concern Chinese demand is slowing and as the dollar traded near its strongest level in more than a decade. Lead touched the lowest since 2010, while all industrial metals retreated.”

No doubt, marking price levels last seen during the depths of the Great Recession would not be happening if the economy was strengthening. If demand was robust industrial metals prices would be going up. Instead, they continue their slide into the void of worldwide non-activity. Stocks may soon follow…The last time copper prices were this low, in May 2009, stocks were also much lower. Yet, today, they’re at extremely lofty prices. The Dow Jones Industrial Average is currently over 17,500. Back then, the Dow was less than half that…it ranged in the low 8,000s. In other words, stocks are still up while the economy is slowing down. Perhaps the economy is taking a brief pause before roaring back to life. Most likely it’s hunkering down for the long, cold winter ahead.

Financialization, namely massive amounts of leverage, has made the disconnect between the stock market and the economy extend wider and longer than ever before. Maybe another speculative melt up is ahead. Who knows? Maybe DOW 20,000 or 30,000 is in the cards. With enough monetary deception anything’s possible. But, nonetheless, gravity still exists. Stocks cannot go up for ever. After a six year bull market, accompanied by a lackluster recovery, stocks could return to prior levels that were in line with present commodity prices. Remember, just a few years ago, Dow 8,000 matched up with current copper prices. Soon it likely will again.

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Remember how lower oil prices would be a boon for the economy?

Oil Companies Brace For Big Wave Of Debt Defaults (CNBC)

Low oil prices are leaving many oil and gas companies with difficult debt loads, causing them to default at an extraordinary rate. On top of that, rating firm Moody’s forecasts the default rate will increase. “The energy sector remains the most troubled, accounting for almost a quarter of the 79 defaults so far this year,” said Sharon Ou, Moody’s Credit Policy Research senior credit officer. The strain on the oil patch comes after years of borrowing heavily at the start of the domestic energy renaissance. At the time, oil was hovering around $100 a barrel. But now, with West Texas Intermediate crude oil slightly above $40 a barrel, these companies are seeing their revenue dry up — and remain saddled with debt.

Marc Lasry, the chief executive of distressed investing specialist Avenue Capital Group, said these energy companies boosted their borrowings to between $250 billion and $300 billion, compared with the $100 billion at the start of this year. The energy boom of the past decade was fueled by a wave of credit from U.S. banks that now say they expect more delinquencies and charge-offs from energy companies this year. Federal Reserve officials earlier in November noted an increase in weakness among credits related to oil and gas exploration, production, and energy services following the decline in energy prices since mid-2014. Among the major banks raising red flags about the health of the loans are Wells Fargo, Bank of America and JPMorgan Chase.

Some banks are renegotiating their credit lines to gas and oil companies, while others are cutting credit lines to oil and gas firms and are requiring more collateral to protect against the surge of defaults. Of the 31 companies that have disclosed information on loan resets so far, banks have cut credit lines of 10 firms by just over $1.1 billion, Reuters reported. Some energy companies are aggressively looking to take matters into their own hands to alleviate the debt pressure. Some are selling assets, others are cutting spending, some are issuing new shares, and others are hedging their oil production at a certain price. Some, however, can’t escape the grip of debt, falling victim to low oil prices and filing for bankruptcy.

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There is a government in Greece only to lend legitimacy to Brussels.

Eurozone Agrees Greece Can Get Next Loan Tranche, Cash For Bank Recap (Reuters)

Greece has done all the reforms in the a first package of measures agreed with euro zone creditors, which paves the way for Athens to get the next tranche of loans, the head of euro zone finance ministers Jeroen Dijsselbloem said on Saturday. Greece is getting very cheap loans form the euro zone bailout fund ESM under its third bailout agreement in exchange for putting its public finances in order and reforming the economy to make it more efficient and competitive. Euro zone deputy finance ministers (EWG) reviewed on Saturday the progress made by Athens in the reforms.

“On the basis of a final compliance notice… the EWG agreed that the Greek authorities have now completed the first set of milestones and the financial sector measures that are essential for a successful recapitalization process,” Dijsselbloem said. “The agreement paves the way for the formal approval by the ESM Board of Directors on Monday 23 November of disbursing the €2 billion sub-tranche linked to the first set of milestones,” he said. He said that it will also allow the ESM to make case by case decisions to transfer money to Greece for the recapitalization of the Greek banking sector. The ESM already has €10 billion earmarked for this purpose and the capital needs of Greek banks from the euro zone are estimated at between six and nine billion, one euro zone official said on Friday.

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This is happening all across the western world. We better make up our minds, fast, about what kind of society we want.

Half Of UK Care Homes To Close If £2.9 Billion Gap Is Not Plugged (Guardian)

Up to half of Britain’s care homes will close and the NHS will be overwhelmed by frail, elderly people unless the chancellor, George Osborne, acts to prevent the “devastating financial collapse” facing social care, an alliance of charities, local councils and carers has warned. In a joint letter, 15 social care and older people’s groups urge Osborne to use his spending review on Wednesday to plug a funding gap that they say will hit £2.9bn by 2020. They warn that social care in England, already suffering from cuts imposed under the coalition, will be close to collapse unless money is found to rebuild support for the 883,000 older and disabled people who depend on personal care services in their homes.

Osborne has already decided to use his overview of public finances to give town halls the power to raise council tax by up to 2% to fund social care, in a move that could raise up to £2bn for the hard-pressed sector. However, the signatories of the letter, such as Age UK and the Alzheimer’s Society, want him to commit more central government funding to social care. The looming £2.9bn gap “can no longer be ignored”, the letter says. “Up to 50% of the care home market will become financially unviable and care homes will start to close their doors,” it adds. “74% of domiciliary home-care providers who work with local councils have said that they will have to reduce the amount of publicly funded care they provide. If no action is taken, it is estimated that this would affect half of all of the people and their families who rely on these vital services.”

Osborne’s endorsement of a hypothecated local tax to boost social care comes after intense lobbying behind the scenes and public warnings from bodies such as the King’s Fund health thinktank. “Social care in England has been in retreat for a long time. But the fact that the industry is now losing its appeal, both as a business and as a form of employment, marks a new and dangerous phase in its decline,” said Caroline Abrahams, Age UK’s charity director. She urged Osborne to use the spending review “to bring stability to a worryingly fragile situation”. Jeremy Hughes, chief executive of the Alzheimer’s Society, another signatory, said: “Since 2010, £4.6bn of cuts have already resulted in an estimated 500,000 older and disabled people being denied access to care. If the government blazes ahead with 25%-40% cuts to local authority budgets, more people with dementia will be severely affected.”

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I count on them to fail spectacularly.

Report Urges UK Government To Act Now To Avoid Energy Crisis (EAEM)

Britain is on the verge of an energy crisis, with demand set to outstrip supply for the first time in early 2016, according to a new report by a leading energy analyst. In the report The Great Green Hangover, published by the Centre for Policy Studies, author Tony Lodge says that electricity demand is set to outstrip dispatchable supply for the first time from early 2016. Due to widespread plant closures, on-tap energy capacity has been in decline – and now for the first time will be lower than the forecasted demand. Lodge argues that decades of energy policy mismanagement have overseen the shutdown of energy plants vital to Britain’s long-term energy security.

The average dispatchable capacity remaining by the end of March 2016 is calculated to be 52,360MW, whereas National Grid’s 2015/2016 Winter Outlook demand forecast is 54,200MW. The report also raises concerns over the continued affordability of energy costs. Over the last ten years electricity bills have risen by 131% in real terms, easily outstripping any other household essential. High energy prices also burden British industry, jeopardising manufacturing in particular as businesses consider closure or overseas relocation due to unaffordable production costs. Though operating efficiently, they nevertheless consume large quantities of energy, which can account for between 20 and 70% of their production costs.

Author Tony Lodge comments: “Britain has lost over 15,400MW (20%) of its dispatchable electricity generating capacity in the last five years as baseload power plants have closed with no equivalent replacement. This month National Grid used emergency measures for the first time to call on industry to reduce its power usage in order to avoid shortages. “High UK Carbon Price Support should be abandoned before it forces the premature closure of more baseload power plants and thus threatens energy security and affordability,” he added. Lodge says the Government should prioritise energy security alongside its environmental commitments and legislate to deliver targets to maintain security of energy supply, diversity and affordability.

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I can see Britain’s future from here.

How Did a UK Power Plant Get 25 Times the Market Price? (Bloomberg)

On the afternoon of Nov. 4, a U.K. power station began to shut down one of its gas-fired units and the network manager was told it wouldn’t be available. Within an hour, the operator ramped it up again after the grid called for increased reserves and the power station got paid a handsome premium for doing so. The facility at the Severn power plant in Wales, operated by Macquarie Group Ltd., was running near full throttle at 396 megawatts. It didn’t report any operational problems, a requirement of European regulations, that would have prevented it supplying the market. Nonetheless, it began to decrease output from 3 p.m. When the network manager requested additional generation capacity for two hours from 4:30 p.m., Severn responded.

The reward for providing extra power was a payout 25 times the market price for that time in the day, according to calculations by Bloomberg based on exchange and grid data. The episode raises questions about how U.K. power plants operate as National Grid Plc, the company responsible for ensuring supply meets demand, grapples with a thinner buffer of surplus generating capacity. That margin will be about 5% this winter, down from as much as 16% four years ago, according to data from the London-based company. “This is a market, and it might be argued that price spikes are a necessary condition for its long-term viability, and therefore that it’s not unreasonable for individual generators to exploit scarcities,” said John Rhys, a senior research fellow at the Oxford Energy Institute. “If we really are in a period of very tight capacity, then I’m afraid that’s what having a market means and it’s going to happen.”

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Curious that this didn’t happen earlier.

State Of Emergency In Crimea After Electricity Pylons ‘Blown Up’ (Reuters)

A state of emergency has been declared in Crimea after pylons carrying electricity from Ukraine were blown up cutting off power to almost two million people, media and the Russian government said on Sunday. The Russian Energy Ministry didn’t say what had caused the outages, but Russian media reported that two pylons in the Kherson region of Ukraine north of Crimea had been blown up by Ukrainian nationalists. The attack, if by Ukrainian nationalists opposed to Russia’s annexation of Crimea from Ukraine last year, is likely to further increase tensions between Russia and Ukraine. Russia’s Energy Ministry said in a statement that two power lines bringing power from Ukraine to Crimea had been affected, as a result of which 1,896,000 people had been left without power.

The ministry said that a state of emergency had been declared in Crimea. It also said that emergency supplies had been turned on for critical needs and 13 mobile gas turbine generators were being prepared. Ilya Kiva, a senior officer in the Ukrainian police who was at the scene, also said on his Facebook page that the pylons had been blown up, without giving further details. On Saturday, the pylons were the scene of violent clashes between activists from the Right Sector nationalist movement and paramilitary police, Ukrainian media reported. The pylons had already been damaged by the activists on Friday before they were blown up on Saturday night, according to these reports.

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“..compromised for a minimum of a 100 years..”

Brazil Dam Toxic Mud Reaches Atlantic Ocean (BBC)

A wave of toxic mud travelling down the Rio Doce river in Brazil from a collapsed dam has reached the Atlantic Ocean, amid concerns it will cause severe pollution. The waste has travelled more than 500km (310 miles) since the dam at an iron mine collapsed two weeks ago. Samarco, the mine owner, has tried to protect plants and animals by building barriers along the banks of the river. Workers have dredged the river mouth to help the mud flow out to sea fast. The contaminated mud, tested by the water management authorities, was found to contain toxic substances like mercury, arsenic, chromium and manganese at levels exceeding human consumption levels. Samarco has insisted the sludge is harmless.

In an interview with the BBC, Andres Ruchi, director of the Marine Biology school in Santa Cruz in Espirito Santo state, said that mud could have a devastating impact on marine life when it reaches the sea. He said the area of sea near the mouth of the Rio Doce is a feeding ground and a breeding location for many species of marine life including the threatened leatherback turtle, dolphins and whales. “The flow of nutrients in the whole food chain in a third of the south-eastern region of Brazil and half of the Southern Atlantic will be compromised for a minimum of a 100 years,” he said. The magazine Chemistry World quotes Aloysio da Silva Ferrao Filho, a researcher at the respected Oswaldo Cruz Foundation, as saying that the impact has been severe in the river itself. “The biodiversity of the river is completely lost, several species including endemic ones must be extinct.”

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Compromised forever.

Deforestation Threatens Majority of Amazon Tree Species (PSMag)

It’s been estimated that the Amazon rainforest and surrounding areas are—or once were—home to upwards of 11,000 different tree species. It’s also been estimated that those forests have shrunk by about 12%, and that human meddling could double or triple that number by 2050. Now, researchers report, the loss of forest cover could threaten the existence of more than half the tree species in the Amazon. The Amazon basin hosts perhaps the greatest biodiversity on Earth—so much so that researchers know relatively little about many of the region’s native species. “While we know quite a bit about Amazonian deforestation, we know little about the effects on the Amazonian [tree] species,” says lead author Hans ter Steege at Naturalis Biodiversity Center in Leiden, the Netherlands.

“We’ve never had a good idea about how many species are threatened in the Amazon, and now with this study we have an estimate,” adds study co-author Nigel Pitman, a senior conservation ecologist at the Field Museum in Chicago, Illinois. To get a picture of the health of forests in the Amazon basin and the Guiana Shield north of Brazil, a team of 160 botanists, ecologists, and taxonomists from 97 institutions went out into the field and, well, started counting. The team ultimately mapped 4,953 “relatively common” tree species at 1,485 sites throughout the region. Using a standard model of biodiversity, the researchers inferred the existence of another 10,000 species, which they assumed were largely hidden in the densest Amazonian forests, but rare enough that even a careful accounting could have missed them.

Hans ter Steege and his colleagues next compared species maps with maps of deforested and protected areas, then computed how many trees of each species could be lost under two different chain of events: a business-as-usual scenario, in which deforestation continues more or less as it has been for decades, and 40% of the Amazon’s trees would be gone by 2050; and a less severe scenario, in which governments step up protections, and deforestation tops out at 20%. Under the business-as-usual scenario, 51% of the Amazon’s common tree species’ populations and 43% of rare tree species’ populations would decline by 30% or more, qualifying them for inclusion on the International Union for Conservation of Nature’s “Red List” of threatened species.

Even under the less severe scenario in which forest governance improves, 16% of common species and 25% of rare species qualify for the Red List. Those losses would likely affect iconic tree species including Brazil nut, cacao, and açai palm, which play central roles in the regional economy. What’s more, Amazonian forests help trap a vast amount of carbon, which, if unleashed through deforestation, could exacerbate an already warming climate. “We want to make sure the Amazon keeps the carbon sink,” ter Steege says. “This is important.”

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Russia has far fewer qualms about confronting The House of Saud.

Saudi Arabia, an ISIS That Has Made It (NY Times)

Black Daesh, white Daesh. The former slits throats, kills, stones, cuts off hands, destroys humanity’s common heritage and despises archaeology, women and non-Muslims. The latter is better dressed and neater but does the same things. The Islamic State; Saudi Arabia. In its struggle against terrorism, the West wages war on one, but shakes hands with the other. This is a mechanism of denial, and denial has a price: preserving the famous strategic alliance with Saudi Arabia at the risk of forgetting that the kingdom also relies on an alliance with a religious clergy that produces, legitimizes, spreads, preaches and defends Wahhabism, the ultra-puritanical form of Islam that Daesh feeds on. Wahhabism, a messianic radicalism that arose in the 18th century, hopes to restore a fantasized caliphate centered on a desert, a sacred book, and two holy sites, Mecca and Medina.

Born in massacre and blood, it manifests itself in a surreal relationship with women, a prohibition against non-Muslims treading on sacred territory, and ferocious religious laws. That translates into an obsessive hatred of imagery and representation and therefore art, but also of the body, nakedness and freedom. Saudi Arabia is a Daesh that has made it. The West’s denial regarding Saudi Arabia is striking: It salutes the theocracy as its ally but pretends not to notice that it is the world’s chief ideological sponsor of Islamist culture. The younger generations of radicals in the so-called Arab world were not born jihadists. They were suckled in the bosom of Fatwa Valley, a kind of Islamist Vatican with a vast industry that produces theologians, religious laws, books, and aggressive editorial policies and media campaigns.

One might counter: Isn’t Saudi Arabia itself a possible target of Daesh? Yes, but to focus on that would be to overlook the strength of the ties between the reigning family and the clergy that accounts for its stability — and also, increasingly, for its precariousness. The Saudi royals are caught in a perfect trap: Weakened by succession laws that encourage turnover, they cling to ancestral ties between king and preacher. The Saudi clergy produces Islamism, which both threatens the country and gives legitimacy to the regime. One has to live in the Muslim world to understand the immense transformative influence of religious television channels on society by accessing its weak links: households, women, rural areas. Islamist culture is widespread in many countries — Algeria, Morocco, Tunisia, Libya, Egypt, Mali, Mauritania.

There are thousands of Islamist newspapers and clergies that impose a unitary vision of the world, tradition and clothing on the public space, on the wording of the government’s laws and on the rituals of a society they deem to be contaminated. It is worth reading certain Islamist newspapers to see their reactions to the attacks in Paris. The West is cast as a land of “infidels.” The attacks were the result of the onslaught against Islam. Muslims and Arabs have become the enemies of the secular and the Jews. The Palestinian question is invoked along with the rape of Iraq and the memory of colonial trauma, and packaged into a messianic discourse meant to seduce the masses. Such talk spreads in the social spaces below, while up above, political leaders send their condolences to France and denounce a crime against humanity. This totally schizophrenic situation parallels the West’s denial regarding Saudi Arabia.

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“The more one side gains political control in the name of Islam, the more vulnerable it becomes to accusations from the other side that its claim to power is less than legitimate.”

The Saudi Connection to Terror (Daniel Lazare)

[..] the proceeds from a hundred-odd oil trucks doesn’t explain how ISIS pays its bills. Nor does the speculation about ISIS’s antiquity sales. So if Islamic State does not get the bulk of its funds from such sources, where does the money come from? The politically inconvenient answer is from the outside, i.e., from other parts of the Middle East where the oil fields are not marginal as they are in northern Syria and Iraq, but, rather, rich and productive; where refineries are state of the art, and where oil travels via pipeline instead of in trucks. It is also a market in which corruption is massive, financial controls are lax, and ideological sympathies for both ISIS and Al Qaeda run strong. This means the Arab Gulf states of Kuwait, Qatar, the United Arab Emirates, and Saudi Arabia, countries with massive reserves of wealth despite a 50% plunge in oil prices.

The Gulf states are politically autocratic, militantly Sunni, and, moreover, are caught in a painful ideological bind. Worldwide, Sunnis outnumber Shi‘ites by at least four to one. But among the eight nations ringing the Persian Gulf, the situation is reversed, with Shi‘ites outnumbering Sunnis by nearly two to one. The more theocratic the world grows – and theocracy is a trend not only in the Muslim world, but in India, Israel and even the U.S. if certain Republicans get their way – the more sectarianism intensifies. At its most basic, the Sunni-Shi‘ite conflict is a war of succession among followers of Muhammad, who died in the Seventh Century. The more one side gains political control in the name of Islam, consequently, the more vulnerable it becomes to accusations from the other side that its claim to power is less than legitimate.

The Saudi royal family, which styles itself as the “custodian of the two holy mosques” of Mecca and Medina, is especially sensitive to such accusations, if only because its political position seems to be growing more and more precarious. This is why it has thrown itself into an anti-Shi‘ite crusade from Yemen to Bahrain to Syria. While the U.S., Britain and France condemn Bashar al-Assad as a dictator, that’s not why Sunni rebels are now fighting to overthrow him. They are doing so instead because, as an Alawite, a form of Shi‘ism, he belongs to a branch of Islam that the petro-sheiks in Riyadh regard as a challenge to their very existence. Civil war is rarely a moderating force, and as the struggle against Assad has intensified, power among the rebels has shifted to the most militant Sunni forces, up to and including Al Qaeda and its even more aggressive rival, ISIS.

In other words, the Islamic State is not homegrown and self-reliant, but a product and beneficiary of larger forces, essentially a proxy, paramilitary army of Gulf state sheiks. Evidence of broad regional support is abundant even if news outlets like The New York Times have done their best to ignore it.

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Are they making it up as they go along? Something fishy: “It later emerged that the passport was fake and that four other people, including a dead Syrian soldier, shared the same details.” Look, if there are four people with identical -fake- passports, how do they know the perpetrator was the one who passed through Greece, and not one of the other three?

Terrorism Links Trigger Greater Scrutiny For Greece (Kath.)

Greece is under growing pressure to monitor its borders and properly register the thousands of refugees and migrants who arrive each week after it emerged that at least two of the Paris suicide bombers passed through the country on their way to France. The European Union has already started taking measures in the wake of the deadly terrorist attacks in Paris. EU interior ministers agreed on Friday to tighten checks on points of entry to the 26-country Schengen area, which includes Greece. French Interior Minister Bernard Cazeneuve said the European Commission would present plans to introduce “obligatory checks at all external borders for all travelers,” including EU citizens, by the year’s end. Previously, only non-EU nationals had their details checked against a database for terrorism and crime when they enter the Schengen area.

Earlier, Cazeneuve revealed that a second suicide bomber at the Stade de France in Paris had entered the EU via Greece. A total of three jihadists blew themselves up at the stadium. One had already been identified as having arrived on Leros with a larger group of migrants. He was carrying a Syrian passport in the name of Ahmad Almohammad. It later emerged that the passport was fake and that four other people, including a dead Syrian soldier, shared the same details. It is thought a second bomber arrived with him on Leros, while unconfirmed sources suggest that the third Stade de France bomber also followed the same route. There has been no official reaction from the government to these revelations but Greek authorities have handed all the information from the registered arrivals to Europol.

Athens, however, has not confirmed that the alleged leader of the terrorist cell that carried out the fatal attacks in Paris, Abdelhamid Abaaoud, had been in Greece in January. In fact, the citizens’ protection minister issued a statement on Friday asking Cazeneuve to retract comments in which he suggested the Belgian national, who was killed in a police raid last week, had passed through Athens. Greek authorities mounted a search for Abaaoud in Athens after his mobile phone was allegedly traced to the Greek capital but the device was eventually found in the possession of an Algerian man who was extradited to Belgium due to alleged links with a terrorist cell there.

Nevertheless, this adds to the pressure on Greece to ensure proper checks are being carried out. Authorities made multiple arrests last week in connection to the alleged forging of documents for migrants. Also, the police picked up 50 migrants that were allowed to board ferries in Lesvos and Chios without having registered with authorities there.

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It’s hard not to think now and again that the EU deliberately screws this up. Couldn’t do a better job at it if they tried.

Chaos In Greek Islands Over Three-Tier Refugee Registration System (Guardian)

The EU’s refugee registration system on the Greek islands has created a three-tier system that favours certain nationalities over others, encourages some ethnic groups to lie about their backgrounds to secure preferential treatment, and has led to a situation Human Rights Watch calls absolute chaos. The dynamic will increase fears over the security threat posed by the hundreds of thousands of migrants arriving in Europe amid a backlash against refugees after the Paris attacks. The passport of a Syrian refugee who passed through Greece was found on or near the body of a dead suicide bomber. It will also amplify calls to scale up resettlement schemes from the Middle East, which will help Europe to improve screening of refugees and give them an incentive not to take the boat to Greece.

Syrian families arriving on the island of Lesbos, where nearly 400,000 asylum seekers have landed so far in 2015, are separated from other nationalities and given expedited treatment that allows them to leave the island for mainland Europe within 24 hours. Syrian males, Yemenis and Somalis are registered in a separate and slower camp but still receive preferential treatment and are usually able to continue their journey within a day. But a third category of asylum seekers – including many from war-torn countries such as Iraq and Afghanistan – are being processed in another camp where there are roughly half as many passport-scanners. The result is a chaotic parallel registration process that can last up to a week, and which has left many non-Syrians sleeping outside in the cold of winter for several nights, while they wait to be registered.

The Guardian found families living in dire, unsanitary conditions in an olive grove surrounding the main registration centre. They said they were receiving just one significant meal a day, and had resorted to burning trees to keep warm at night. Even once they are finally processed, Afghans only receive one month’s leave to remain in Greece, while Syrians are given six months. The island’s mayor told the Guardian that the three-track process is to prevent fighting between different ethnic groups and nationalities. But the director of one of the three camps admitted that non-Syrians are given lower priority because officials assume that they do not have as strong a claim for asylum. “In the [lowest-priority] camp, there are the Iraqis, Afghans, Pakistanis who are mostly migrants, economic migrants,” said Spyros Kourtis. By contrast, he said that the better-equipped centre was for “people who come from countries with a refugee profile”.

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May 062015
 May 6, 2015  Posted by at 11:22 am Finance Tagged with: , , , , , ,  5 Responses »

NPC Graf Zeppelin over Capitol 1928

In its German language edition, Der Spiegel ran a piece last night (translation is mine) about a proposal from the German Green Party (Die Grünen) to deal with the Greek debt crisis that is radically different from how its own government has so far approached the situation. The Greens are not in the Berlin government, but they are a force in German politics regardless, if only because the country loves so much to portray itself as green.

The Green Party’s euro working group, made up of foreign policy, finance and economic specialists, first of all says that, realistically speaking, it will take 10-20 years to deal with Greece’s debt issues.

Furthermore, while many of the Greek problems are ‘home-made’, the “one-sided focus”, on the part of its creditors, on a high primary surplus has led to further economic collapse and thus growing debts. “Austerity is broken and has failed.” (‘die Kaputtsparpolitik ist gescheitert’). Moreover, today’s short-term crisis management, which merely moves from one payment to the next, needs to stop.

Future reforms should no longer target ordinary citizens, but above all the wealthy and the profiteers of ‘nepotism’. If Athens is consistent in applying these reforms, it would be rewarded with further reductions in interest rates and repayment terms.

From this vantage point, the Green Party proposes the following scenario:

• Primary surpluses achieved until 2020 should remain in the country for Athens to finance its domestic programs with, and not be used for debt servicing.

• Greek debts to the ECB and IMF should be taken over – and serviced – by the European Stability Mechanism (ESM) as part of a third loan program, in return for an ‘ambitious reform program’. This loan program would need to stay in place until the Greeks can, as a result of the reforms, service their own obligations again. The reform program should serve to achieve an effective and sustainable government reform, to stabilize the economy and to create a stable framework for investment in Greece.

• Athens wouldn’t have to start servicing its European Financial Stability Facility (EFSF) loans until 2022.

• New and additional loans could be awarded for which Greece will only have to pay interest in times of economic growth. This idea, earlier also raised by the Syriza government, is modeled on the 1953 plan according to which Germany was allowed to pay war debts only in times when it had trade surpluses.

We’ll have to wait and see how much weight the German Greens carry in Europe. They have 10% of the seats in the German parliament, and the European Green alliance has just 7% in the European parliament.

It is, however, obvious that alternative views exist to those prevalent among the troika members, whose unity also threatens to be shattered as substantial differences between EU and IMF standpoints have started floating to the surface.

However it may be, it’s not a plan that Merkel and Schäuble can just sweep under the carpet. They will have to come with a well-argumented response.

And Greece will need to be offered a way to make its next set of debt payments, starting with a big one on May 12.

Mar 222015
 March 22, 2015  Posted by at 12:59 am Finance Tagged with: , , , , , , ,  10 Responses »

Harris&Ewing Kron Prinz Wilhelm, German ship, interned in US in tow 1916

German magazine Der Spiegel digs deep(er) into the ‘Greece question’ this weekend, and does so with a few noteworthy reports. First, its German paper issue has Angela Merkel on the cover, inserted on a 1940’s photograph that shows Nazi commanders against the backdrop of the Acropolis in Athens. The headline is ‘The German Supremacy: How Europeans see (the) Germans’. The editorial staff has already come under a lot of fire for the cover, and I’ve seen little that could be labeled a valid defense for further antagonizing both Germans AND Greeks (and other Europeans) this way. Oh, and it’s also complete nonsense, nobody sees modern day Germans this way. It’s just that their government after 70 years is still skirting its obligations towards the victims. That’s what people, the Greeks in particular, don’t like.

Second: Spiegel’s German online edition has a sorry that claims Greek paper To Vima will come with revelations on Sunday accusing Georgios Katrougalos, Syriza’s deputy minister for Policy Reform and Public Service (I’m translating on the fly) of corruption in the case of the reinstallment of public workers that had been fired under the Samaras government under pressure from the Troika.

Allegedly, Katrougalos’ law firm (in which he has had no active role since becoming a member of the European parliament last year) has a contract with these workers that will pay it 12% of whatever they receive in back pay. Predictably, the opposition has called for Katrougalos’ firing, but Tsipras has said he talked to him and is satisfied with the explanation he was given..

It smells a bit like something Bild Zeitung (Germany’s yellow rag) would write, but there you are. Which makes the following perhaps somewhat surprising. Because:

Third: Spiegel English online edition has a long article on a report just out by a special Greek commission, instated by former governments, on the German war reparations that Tsipras has repeatedly talked about, and that German FinMin Schäuble has famously high handedly tried to sweep off the table. That may not be so easy anymore now. There are already increasingly voices in Germany itself that want Berlin to change its approach to the matter, and the report will only make that call louder. Let’s see if I can get this properly summarized:

Nazi Extortion: Study Sheds New Light on Forced Greek Loans

Last week in Greek parliament, Greek Prime Minister Alexis Tsipras demanded German reparations payments, indirectly linking them to the current situation in Greece. “After the reunification of Germany in 1990, the legal and political conditions were created for this issue to be solved,” Tsipras said. “But since then, German governments chose silence, legal tricks and delay. And I wonder, because there is a lot of talk at the European level these days about moral issues: Is this stance moral?”

[..] there are many arguments to support the Greek view. SPIEGEL itself reported in February that former Chancellor Helmut Kohl used tricks in 1990 in order to avoid having to pay reparations.

A study conducted by the Greek Finance Ministry, commissioned way back in 2012 by a previous government, has now been completed and contains new facts. The 194-page document has been obtained by SPIEGEL. The central question in the report is that of forced loans the Nazi occupiers extorted from the Greek central bank beginning in 1941.

Should requests for repayment of those loans be classified as reparation demands – demands that may have been forfeited with the Two-Plus-Four Treaty of 1990? Or is it a genuine loan that must be paid back? The expert commission analyzed contracts and agreements from the time of the occupation as well as receipts, remittance slips and bank statements.

Note: the Two-Plus-Four Treaty of 1990 (aka Treaty on the Final Settlement with Respect to Germany) was the result of negotiations about the reunification of the two Germany’s. It was signed by both, and by France, Britain, Russia and the US, the four nations who held former German territory at the end of WWII.

It’s noteworthy that Der Spiegel says that Greek demands for reparations ‘may have been’ forfeited with the treaty (something Germany claims), while Tsipras insists on the exact opposite: that the treaty created the legal and political conditions for the reparations issue to finally be resolved. As we will see, many experts lean towards Tsipras’ interpretation. Greece never signed, and nobody else had the right to sign in its name, that’s the crux. But there’s more:

They found that the forced loans do not fit into the category of classical war reparations. The commission calculated the outstanding German “debt” to the Greek central bank and came to a total sum of $12.8 billion as of December 2014, which would amount to about €11 billion.

As such, at issue between Germany and Greece is no longer just the question as to whether the 115 million deutsche marks paid to the Greek government from 1961 onwards for its peoples’ suffering during the occupation sufficed as legal compensation for the massacres like those in the villages of Distomo and Kalavrita. Now the key issue is whether the successor to the German Reich, the Federal Republic of Germany, is responsible for paying back loans extorted by the Nazi occupiers. There’s some evidence to indicate that this may be the case.

It’s a tad strange that the magazine apparently jumps from that ‘may have been forfeited’ interpretation of the treaty to what amounts to a fait accompli, by saying the ‘key issue’ now is the forced loans, not the reparations. I would think it’s very much both. But let’s follow their thread:

In terms of the amount of the loan debt, the Greek auditors have come to almost the same findings as those of the Nazis’ bookkeepers shortly before the end of the war. Hitler’s auditors estimated 26 days before the war’s end that the “outstanding debt” the Reich owed to Greece at 476 million Reichsmarks.

First thing that springs to mind is: say what you will about Germans, but they’re fine bookkeepers!

Auditors in Athens calculated an “open credit line” for the same period of time of around $213 million. They assumed a dollar exchange rate to the Reichsmark of 2:1 and applied an interest escalation clause accepted by the German occupiers that would result in a value of more than €11 billion today.

This outstanding debt has to be paid back “with no ifs or buts,” says German historian Hagen Fleischer in Athens, who knows the relevant files better than anyone else. Even before the new report, he located numerous documents that prove without any doubt, he believes, the character of forced loans. Nazi officials noted on March 20, 1944, for example, that the “Reich’s debt” to Athens had totaled 1,068 billion drachmas as of December 31 of the previous year.

“Forced loans as war debt pervade all the German files,” says Fleischer, who is a professor of modern history at the University of Athens. He has lived in Athens since 1977. He says that files from postwar German authorities about questions of war debt “shocked” him far more than the war documents on atrocities and suffering.

In them, he says German diplomats use the vocabulary of the National Socialists to discuss reparations issues, speaking of a “final solution for so-called war crimes problems,” or stating that it was high time for a “liquidation of memory.” He says it was in this spirit that compensation payments were also constantly refused.

Those are pretty damning words. So far just from one man, granted, but again there’s more:

When work on the study first began in early 2012, the cabinet of independent Prime Minister Loukas Papedemos still governed in Athens. A former vice president of the ECB, Papedemos formed a six-month transition government after Georgios Papandreou resigned. In April 2014, the successor government of conservative Prime Minister Antonis Samaras decided to continue work on the study and appointed Panagiotis Karakousis to lead the team of experts. The longtime general director of the Finance Ministry was considered to be politically unobjectionable.

Karakousis spent five months reading 50,000 pages of original documents from the central bank’s archives. It wasn’t easy reading. The study calculates right down to the gram the amount of gold plundered from private households, especially those of Greek Jews: 7,358.0014 kilograms of pure gold with an equivalent value today of around €235 million. It also notes also how German troops, as they pulled out, quickly took along “the entire cash reserves from branch offices and regional branches” of the central bank: Exactly 634,962,691,995,162 drachmas in notes and coins, which would total about €40 million today.

Above all, the study, with some reservations, provides clarity about the forced loans. “No reasonable person can now doubt that these loans existed and that the repayment remains open,” says Karakousis.

This history of the loans began in April 1941, after the German troops rushed to assist their Italian allies and occupied Greece. In order to provide their troops with provisions, the German occupiers demanded reimbursement for their expenses, the so-called occupation costs. It’s a cynical requirement, but one that became standard practice after the 1907 Hague Convention.

Out of the ordinary, though, was the Wehrmacht requirement that the Greeks finance the provision of its troops on other fronts – in the Balkans, in Russia or in North Africa – despite Hague Convention rules forbidding such a practice. Initially, the German occupiers demanded 25 million Reichsmarks per month from the government in Athens, around 1.5 billion drachmas. But the amount they actually took was considerably higher. The expert commission determined that payments made by the Greek central bank between August and December 1941 totaled 12 billion rather than 7 billion drachmas.

As they say: before you know it, we’re talking about real money. And I see no reason to doubt Karakousis’ assertion that ‘repayment remains open’. Not only was German conduct reprehensible during the war, it remained so after. So it shouldn’t really come as surprise that Tsipras has more than once mentioned the 1953 London Agreement on German External Debts, in which Germany was relieved from much of the claims held against it. Tsipras wants Berlin to do the same for Greece now. A potential weakness is that Greece was signatory to that agreement. Still, the loans were certainly not part of it, only ‘war damage’ was included.

With their economy laid to waste, the Greeks soon began pushing for reductions. At a conference in Rome, the Germans and Italians decided on March 14, 1942 to halve their occupation costs to 750 million drachmas each. But the study claims that Hitler’s deputies demanded “unlimited sums in the form of loans.” Whatever the Germans collected over and above the 750 million would be “credited to the Greek government,” a German official noted in 1942. The sums of the forced loans were up to 10 times as high as the occupation costs. During the first half of 1942, they totaled 43.4 billion drachmas, whereas only 4.5 billion for the provision of troops was due.

A number of installment payments, which Athens began pressing for in March 1943, serve to verify the nature of the loans. Historian Fleischer also found records relating to around two dozen payment installments. For example, the payment office of the Special Operations Southeast was instructed on October 6, 1944 to pay, inflation adjusted, an incredible sum of 300 billion drachma to the Greek government and to book it as “repayment.”

In Fleischer’s opinion, the report makes unequivocally clear that the Greek demands do not relate to reparations for wartime injustices that could serve as a precedent for other countries. “One can negotiate reparations politically,” Fleischer says. “Debts have to be paid back – even between friends.”

Postwar Greek governments sought repayment early on. The German ambassador confirmed on October 15, 1966, for example, that the Greeks had already come knocking “over an alleged claim.” On November 10, 1995, then Prime Minister Andreas Papandreou proposed the opening of talks aimed at a settlement of the “German debts to Greece.” He proposed that “every category of these claims would be examined separately.” Papandreous’ effort ultimately didn’t lead anywhere.

Ergo: for a period of thirty years, the Greeks tried, but to no avail. That’s a pretty ugly record. It’s now another 20 years later, and nothing has changed. All in all, the Greeks have been stonewalled for 70 years.

What should become of this new study, the contents of which had remained secret before now? [..] the question also remains whether the surviving relatives of the victims of Distomo will ever be provided with justice – and whether there are similar cases in other countries.

German governments’ rude behavior may well stem, among other things, from that last point: that if any of the Greek claims are recognized, other countries may come knocking too.

German lawyer Joachim Lau, whose law firm is based in Florence, Italy, represents the interests of village residents of Distomo even today. Lau, born in Stuttgart, a white-haired man of almost 70, is fighting for compensation in the name of the Greek and Italian victims of the Nazis. “I am disappointed by the manner in which Germany is dealing with this question,” he says. He says it’s not just an issue of financial compensation. More than anything, it is one of justice.

In February, Lau warned German President Joachim Gauck in an open letter against propagating the “violation of international law” with careless statements about the reparations issue. In his view, the legal situation is clear: Greek and Italian citizens and their relatives affected by “shootings, massacres by the Wehrmacht, by deportations or forced labor illegal under international law” have the right to individual claims.

This perhaps clarifies the definition of ‘war damage’, the term used in the 1954 London agreement. In Lau’s interpretation, it does not include, let’s say, ‘personal suffering’.

For the past decade, Lau has been pursuing the claims of the Distomo victims in Italy. The Court of Cassation in Rome affirmed in 2008 that the claims were legitimate and that he could pursue the case. Earlier, the lawyer had already succeeded in securing Villa Vigoni, a palatial estate on the shore of Lake Como owned by Germany – and used by a private German association focused on promoting German-Italian relations – as collateral for the suit. In 2009, Lau succeeded in having €51 million in claims made by Deutsche Bahn against Italian state railway Trenitalia seized. On Tuesday, the high court in Rome is expected to rule on the lifting of the enforcement order.

Note: there could be a legal precedent here that that can serve as a ‘conduit’ to allow Greece to seize German property in its country.

Following a ruling made by Italy’s Constitutional Court in October 2014, private suits in Italy against Germany have been possible again. One of the justices who issued the ruling is the current president of Italy, Sergio Mattarella. It remains unclear whether this ruling will unleash “a wave of new proceedings” in Italy, says Lau, who currently represents 150 cases, including various class-action lawsuits.

The bones of victims of the Nazi killings in Distomo feature as part of the village’s memorial to the massacre.

Everything connects in the mountain village of Distoma – the present and past, guilt and anger, the Greek demands on Germany today and past calls for reparations. Efrosyni Perganda sits in the well-heated living room of her home. The diminutive woman, 91 years of age, has alert eyes and wears a black dress. She survived the massacre perpetrated by the Germans at Distomo and she’s one of the few witnesses still alive in the village. When the SS company undertook a so-called act of atonement in Distomo following a fight with Greek partisans, the soldiers also captured her husband. Efrosyni Perganda stood by with her baby as they took him. She never saw him again.

As the Germans began to rampage, she hid behind the bathroom door and later behind the living room door of the house in which she still lives today. She held her baby tightly against her chest. “I forgive my husband’s murderers,” she says. Loukas Zisis, the deputy mayor, silently leaves the house as the woman finishes telling her story. He needs a break and heads over to the tavern, where he orders a glass of wine.

“I admire Germany: Marx, Engels, Nietzsche,” he says. “The prosperity. The degree to which society is organized. But here in the village, we aren’t finding peace because the German state isn’t settling its debt.”Zisis admires Germany, but the country remains incomprehensible to him. “We haven’t even heard a single apology so far,” he says once again. “That has to do with Germany’s position in Europe.” This is something that he just doesn’t understand, he says.

German occupation troops in the ransacked Greek village of Distomo on June 10, 1944, shortly after 218 local residents were executed as part of Nazi reprisals.

I hope – and I think – that Germany will pay up. It seems to me to be the only way to save the European Union it has made its economy so dependent on. I don’t see the war reparations go away anymore. So either Berlin pays what legal experts determine should be paid, or it risks becoming a pariah in its own neighborhood.

That the Germans in the 1950s and 1960s, at home and in schools, chose not to tell their children anything about their crimes cannot serve as an excuse to silence the children of their victims. Germany will need to eat a lot of humble pie with its beer.

Dec 122014
 December 12, 2014  Posted by at 5:48 am Finance Tagged with: , , , , , , ,  5 Responses »

Ben Shahn Quick lunch stand in Plain City, Ohio Aug 1938

Oil producer Russia hikes rates to 10.5% as the ruble continues to plunge, while fellow producer Norway does the opposite, and cuts its rates, but also sees its currency plummet. As Greek stocks lose another 7.35% after Tuesday’s 13% loss on rumors about what the left leaning Syriza party will or will not do if it wins upcoming elections, and virtually anonymous Dubai drops 7.42%. We all know the story of the chain and its weakest link, and beware, these really still ARE global markets.

Meanwhile someone somewhere saved WTO oil from falling through the big, BIG, $60 limit for most of the day Thursday, and then it went south anyway. And that brings to mind the warnings about what would, make that will, happen to high yield energy junk bonds. Of which there’s a lot out there, but not much is being added anymore, that market has been largely shut to companies, especially in the shale patch. So how are they going to finance their fracking wagers? Hard to see.

And something tells me this Bloomberg piece is still lowballing the debt issue, though I commend them for making the link between shale and Fed ‘stimulus’ policies, something all too rare in what passes for press in the US these days.

Fed Bubble Bursts in $550 Billion of Energy Debt

The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt. Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights predicts the default rate for energy junk bonds will double to 8% next year. “Anything that becomes a mania – it ends badly,” said Tim Gramatovich, chief investment officer of Peritus Asset Management. “And this is a mania.”

I think it’s obvious that the default rate could be much higher than 8%.

The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis. Borrowing costs for energy companies have skyrocketed in the past six months as West Texas Intermediate crude, the U.S. benchmark, has dropped 44% to $60.46 a barrel since reaching this year’s peak of $107.26 in June.

Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5% this week from 5.7% in June, according to Bank of America Merrill Lynch index data. At least three energy-related borrowers, including C&J Energy Services, postponed financings this month as sentiment soured. “It’s been super cheap” for energy companies to obtain financing over the past five years, said Brian Gibbons, a senior analyst for oil and gas at CreditSights in New York. Now, companies with ratings of B or below are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines, he said.

When you’re as addicted to debt as the shale industry has been – and still would be if they could still get their fix -, then seeing prices for your products drop over 40% and the yields on your bonds just about double (just for starters), then you have not a problem, but a disaster. And one that’s going to reverberate through all asset markets. It’s already by no means just oil that’s plunging, – industrial – commodities (iron ore, nickel, copper etc.) as a whole are way down from just a few months ago. I read a nice expression somewhere: “the economy is topped with a copper roof”, which supposedly means to say that where copper goes, the economy will follow.

But this is by no means all of the news, it’s not even the worst. To get back to oil, there are some very revealing numbers in the following from CNBC, which call out to us that we haven’t seen nothing yet.

Oil Pressure Could Sock It To Stocks

With crude sliding through the key $60 level, oil pressure could stay on stocks Friday. West Texas Intermediate futures for January closed at $59.95 per barrel, the first sub-$60 settle since July 2009. The $60 level, however, opens the door to the much bigger, $50-per-barrel level. Besides oil, traders will be watching the producer price index Friday morning, and it’s expected to be off 0.1% with the fall in energy. Consumer sentiment is also expected at 10 a.m. EST.

Consumers stepped up and spent in November, as evidenced in the 0.7% gain in that month’s retail sales Thursday. That better mood should show up in consumer sentiment. Stocks on Thursday gave up sizeable gains after oil reversed course and fell through $60.

“Oil has pretty much spooked people,” said Daniel Greenhaus, chief global strategist at BTIG. “There just isn’t a bid. With everything in energy and the oil price collapsing as it is, who is going to step in and be a buyer now? The answer is nobody.” Oil continued to slide in after-hours trading. “The selling appears to have accelerated a little bit after the close with really no bullish news in sight,” said Andrew Lipow, president of Lipow Associates. WTI futures temporarily fell below $59 in late trading.

“The big level is going to be $50 now in terms of psychological support. Much as $100 is on the upside,” said John Kilduff of Again Capital. Oil stands a good chance of getting there too. Tom Kloza, founder and analyst at Oil Price Information Service, said the market could bottom for the winter in about 30 days, but then it will be up to whatever OPEC does.

That was just the intro. Now, wait for it, check this out:

“It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza.”The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel.

“Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday.

“In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.

I see very little reason to doubt that what’s happening is that the media are way behind the curve in their reporting of what’s really going on. WTI and Brent are standards, and standards are one thing, but what oil actually sells for is quite another matter. Many companies – and many oil-producing countries too – must sell at whatever price they can get just to survive. And there is no stronger force in the world to drive prices down.

That is today’s reality. And while there are many different estimates around about breakeven prices for US shale plays, if we go with the ones from WoodMacKenzie, we get at least some idea of how bad the industry is hurting with prices below $60 (click to enlarge):

If prices fall any further (and what’s going to stop them?), it would seem that most of the entire shale edifice must of necessity crumble to the ground. And that will cause an absolute earthquake in the financial world, because someone supplied the loans the whole thing leans on. An enormous amount of investors have been chasing high yield, including many institutional investors, and they’re about to get burned something bad.

What it amounts to is that the falling oil price will chase a lot of zombie money out of the markets, the stuff created through a combination of QE-related ultra low interest rates and money printing, plus the demise of accounting standards that allowed companies to abandon mark-to-market practices. This has led to the record stock market valuation that we see today, and that could vanish in the wink of an eye once even just one asset, one commodity, starts being marked to market in defiance of the distortion official policies have imposed upon the global marketplace.

We might well be looking at the development of a story much bigger than just oil. I said earlier this week that it would be hard to find a way to bail out the US oil industry, but that’s merely one aspect here. Because if oil keeps going the way it has lately, the Fed may instead have to think about bailing out the big Wall Street banks once again.